FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-493
CONSUMERS WATER COMPANY
(Exact name of registrant as specified in its Charter)
Maine 01-0049450
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication number)
Three Canal Plaza, Portland, ME 04101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (207) 773-6438
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has subject to such
filing requirements for the past 90 days. YES X NO
The number of common shares of Consumers Water Company outstanding as of
May 10, 1994 was - 8,121,346.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
PART I ITEM I
March 31, December 31,
1994 1993
---------- ------------
(Unaudited)
ASSETS
Property, Plant and Equipment, at cost:
Water utility plant, in service $364,962 $360,115
Less: Accumulated depreciation 65,144 63,579
-------- --------
299,818 296,536
-------- --------
Other subsidiaries 1,796 1,710
Less: Accumulated depreciation 933 881
-------- --------
863 829
-------- --------
Construction work in progress 20,943 20,180
-------- --------
Net property, plant and equipment 321,624 317,545
-------- --------
Assets of discontinued operations net of liabilities 1,345 1,308
Investments, at cost 2,048 2,044
-------- --------
Current Assets:
Cash and cash equivalents 2,652 4,993
Accounts receivable, net of reserve of $829 in
1994 and $798 in 1993 8,731 10,171
Unbilled revenue 7,889 6,649
Inventories 1,987 1,793
Prepayments and other 4,629 6,524
-------- --------
Total current assets 25,888 30,130
-------- --------
Other Assets:
Funds restricted for construction activity 8,167 9,508
Deferred charges 11,472 11,122
-------- --------
19,639 20,630
-------- --------
370,544 371,657
======== ========
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
PART I ITEM I
March 31, December 31,
1994 1993
--------- -----------
(Unaudited)
SHAREHOLDERS' INVESTMENT
AND LIABILITIES
Capitalization:
Common Stock, $1 par value
Authorized: 15,000,000 shares
Issued: 8,113,961 shares in 1994 and
8,041,369 in 1993 $ 8,114 $ 8,041
Amounts in excess of par value $ 65,830 $ 64,662
Reinvested earnings 22,988 24,235
--------- ---------
Common shareholders' investment 96,932 96,938
--------- ---------
Preferred shareholders' investment 1,069 1,069
Minority interest 2,233 2,240
Long-term debt 123,359 124,050
--------- ---------
Total capitalization 223,593 224,297
--------- ---------
Contributions in Aid of Construction 54,950 54,045
--------- ---------
Current Liabilities:
Notes payable 24,083 19,676
Sinking fund requirements and
current maturities 915 930
Accounts payable 2,152 6,052
Accrued taxes 5,859 6,662
Accrued interest 2,803 3,318
Accrued expenses and other 10,681 11,011
--------- ---------
Total current liabilities 46,493 47,649
--------- ---------
Commitments and Contingencies
Deferred Credits:
Customers' advances for construction 20,687 21,338
Deferred income taxes 19,703 19,183
Unamortized investment tax credits 5,118 5,145
--------- ---------
45,508 45,666
--------- ---------
$370,544 $371,657
========= =========
Book Value Per Share of Common Stock $ 11.95 $ 12.05
========= =========
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
PART I ITEM I
Three Months Ended
March 31,
---------------------------
1994 1993
---------- ---------
Revenue and Sales:
Water utility operations $ 18,245 $ 18,178
Other operations 2,571 2,759
--------- ---------
Operating revenue 20,816 20,937
--------- ---------
Costs and Expenses:
Water utility operations 14,124 13,540
Other operations 2,703 2,735
-------- ---------
Operating expenses 16,827 16,275
-------- ---------
Operating Income 3,989 4,662
-------- ---------
Other Income and (Expense):
Interest expense (2,937) (2,953)
Construction interest capitalized 419 171
Preferred dividends and minority
interest of subsidiaries (25) (32)
Other net 144 122
--------- ---------
(2,399) (2,692)
--------- ---------
Earnings before Income Taxes and Gains
from Sales of Properties 1,590 1,970
Income Taxes 459 726
-------- ---------
Earnings:
Before Gains from Sales of Properties 1,131 1,244
Gains from Sales of Properties, Net - 867
-------- --------
Income from Continuing Operations 1,131 2,111
Loss from Discontinued Operations - (274)
-------- --------
Net Income $ 1,131 $ 1,837
========= =========
Weighted Average Shares Outstanding #8,084 #7,171
Earnings per Common Share:
Continuing Operations:
Before Gains from Sales $ 0.14 $ 0.17
Total $ 0.14 $ 0.29
Discontinued Operations $ - $ (0.04)
--------- --------
Total $ 0.14 $ 0.25
========= ========
Dividends Declared per Common Share $ 0.29 $ 0.285
========= =======
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(In Thousands)
(Unaudited)
PART I ITEM I
Three Months Ended
March 31,
-----------------
1994 1993
------- ------
Operating Activities:
Net income $ 1,131 $ 1,837
-------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,156 2,090
Deferred income taxes and investment
tax credits 508 3,339
Gains on sale of properties - ( 867)
Change in assets and liabilities:
(Increase) decrease in accounts receivable
and unbilled revenue 200 ( 552)
Increase in inventories ( 194) ( 56)
Decrease in prepaid expenses 1,895 776
Decrease in accounts payable and
accrued expenses ( 3,744) ( 864)
Change in other assets, net of change
in other liabilities ( 746) ( 3,673)
Change in assets net of changes in
liabilities of discontinued operations ( 37) ( 215)
--------- -------
Net cash provided by operating activities 1,169 1,815
--------- -------
Investing activities:
Capital expenditures ( 5,850) ( 4,527)
Decrease in funds restricted
for construction activity 1,341 1,567
Decrease in construction accounts
payable ( 1,826) ( 1,023)
Net proceeds from sales of properties - 2,017
--------- --------
Net cash used in investing activities ( 6,335) ( 1,966)
--------- --------
(continued...)
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
(In Thousands)
(Unaudited)
(continued)
PART I ITEM I
Three Months Ended
March 31,
-----------------
1994 1993
------ ------
Financing activities:
Net borrowings of short-term debt 4,407 1,949
Proceeds from issuance of long-term debt - 175
Repayments of long-term debt ( 706) ( 180)
Proceeds from issuance of stock 1,240 1,342
Advances and contributions in aid of
construction, net of repayments 254 444
Taxes paid by developers on advances and
contributions in aid of construction ( 15) ( 10)
Cash dividends paid ( 2,355) ( 2,071)
-------- --------
Net cash provided (used) by financing activities 2,825 1,649
-------- --------
Net increase (decrease) in cash and cash equivalents ( 2,341) 1,498
Cash and cash equivalents at beginning of year 4,993 1,768
-------- --------
Cash and cash equivalents at end of period $ 2,652 $ 3,266
======== ========
Supplemental disclosures of cash flow
information from continuing operations:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 2,968 $ 2,947
Income taxes $ 637 $ 788
Non-cash investing and financing activities
for the year:
Property advanced or contributed - $ 10
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1994
PART I ITEM 1
A. PREPARATION OF FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by
the registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accouting principles have been condensed or omitted
pursuant to such rules and regulations. The registrant believes that the
disclosures which are made are adequate to make the information presented
not misleading, when read in conjunction with the financial statements and
notes thereto included in the registrants' latest annual report on Form 10-K.
In management's opinion, the attached interim financial statements reflect all
adjustments which are necessary to a fair statement of the results for the
periods presented.
B. EARNINGS PER SHARE
Earnings per common share are based on the weighted average number of
shares and common share equivalents actually outstanding during the period.
The effect of employee stock options which are included as common share
equivalents is to increase the number of shares outstanding by 1,665 in 1994
and 926 in 1993.
C. DISPOSITIONS
On January 13, 1993, the Company sold the Bourbonnais wastewater
collection operations of Consumers Illinois Water Company to the Village of
Bourbonnais for a gain net of taxes of approximately $847,000. The operations
generated $1.1 million in revenues and had 5,007 customers in 1992.
D. COMMITMENTS AND CONTINGENCIES
In March, 1993, an outside contractor spilled a small amount of mercury
while working at one of Ohio Water Service's water treatment plants. Several
areas in and around the plant were contaminated by the spill, although no
mercury has contaminated Ohio Water's water supply. The cleanup has been
completed at a total cost of approximately $900,000. Ohio Water is currently
seeking recovery of these costs from the contractor. Management believes
that it is probable that Ohio Water will recover cleanup costs from the
contractor and/or the contractor's insurers and, therefore, has deferred the
costs incurred in connection with the spill.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1994
PART I ITEM 1 (continued..)
E. DISCONTINUED OPERATION
On October 6, 1993, the Company announced its intention to dispose of
its manufactured housing business, Burlington Homes of New England, Inc., and
to concentrate its efforts on its water resource management business. A
reserve of $5.3 million was established in 1993. Burlington was offered for
sale. It has had losses aggregating $1.8 million from December 1989,
through September 30, 1993. On April 19, 1994, the Company reached an
agreement to sell Burlington Homes. The sale is expected to close on or
before June 8, 1994. The reserve taken in 1993 is expected to be adequate
to cover the loss from the sale. The operating results of Burlington, prior
to the date of discontinuance, are shown under discontinued operations in the
Company's consolidated statements of income. All of the financial statements
of prior periods have been restated to reflect the discontinuance of
Burlington's operations.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
March 31, 1994
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis sets forth certain factors relative to
the financial condition of the Company at March 31, 1994, and the results of
its operations for the three months ended March 31, 1994, as compared to the
same period of the prior year.
Liquidity and Capital Resources
Construction Program
Capital construction expenditures in the first quarter of 1994 totaled $5.6
million, net of contributions and advances, the majority of which relates to
the Company's utility subsidiaries. Projects include $1.3 million spent on
a new water treatment plant in Pennsylvania estimated to cost $16 million when
completed in 1995, $700,000 spent on a disinfection facility in Maine
estimated to cost $3.8 million when completed in the second quarter of 1994,
and other smaller projects throughout the Company.
The Company expects capital expenditures for 1994-1996 to be approximatley
$116 million, net of contributions and advances. Almost 45% of these
expenditures are required by the Safe Drinking Water Act (SDWA), the Clean
Water Act (CWA) and other regulations. The new $16 million water treatment
plant and transmission main, which is under construction, in Pennsylvania
is required by state regulations under the SDWA.
The Company's water utility subsidiaries plan to file rate cases in their
respective jurisdictions for recovery of and return on capital used to fund
their capital expenditure programs. Costs, which have been prudently
incurred in the judgement of the appropriate public utility commission, have
been, and are expected to continue to be, recognized in rate setting. To
support these capital requirements over the next three years, some
subsidiaries will be required to file for large percentage rate increases,
principally due to the significant capital expenditures resulting from
the compliance with the SDWA and the CWA.
Financing and Capitalization
The table below shows the cash generated and used by the Company during the
first quarter of 1994.
Cash was generated from:
Dollars in millions
Operating activities $ 1.2
Net increase in short-term debt 4.4
Common stock issued 1.2
Decrease in funds restricted for construction 1.4
Total cash generated $ 8.2
CONSUMERS WATER COMPANY AND SUBSIDIARIES
March 31, 1994
(continued..)
PART I - ITEM 2
Cash was used:
Repay long-term debt $ (0.7)
Pay dividends (2.4)
Capital expenditures, net of CIAC (5.6)
Other (1.8)
Total cash used $ (10.5)
Cash decreased almost $2.7 million from year end 1993 as the Company used the
proceeds from the sale of Washington Court House in December, 1993, to help
fund first quarter capital expenditures.
Financing and Capitalization
Water utilities will require higher equity ratios to maintain current debt
ratings due to the recognition by the Standard & Poor's rating system of the
additional risk of the SDWA requirements and the uncertainty of future
regulatory treatment of the cost of these requirements. This coupled with
the size of the 1994-1996 capital expenditure program make it likely that the
Company will return to the equity market, again, in the next three years.
Any cash flow not provided through a stock issuance will, as usual, be
financed with short-term lines of credit until a subsidiary's short-term debt
level is high enough to warrant a placement of long-term debt, generally in
the $4-6 million range. As of December 31, 1993, the Company had unused
lines of credit available of over $82 million. In addition, the Company
plans to continue to use tax-exempt long-term debt financing in appropriate
situations. The $16 million project in Pennsylvania mentioned above is being
financed in large part with $14 million of 6.375% tax-exempt bonds issued on
behalf of Roaring Creek Water Company in October of 1993.
Discontinued Operations
On October 6, 1993, the Company announced its intention to dispose of its
manufactured housing business, Burlington Homes of New England, Inc., and to
concentrate its efforts on its water resource management business. A
reserve of $5.3 million was established in 1993. Burlington was offered for
sale. It has had losses aggregating $1.8 million from December 31, 1989,
through September 30, 1993. On April 19, 1994, the Company reached an
agreement to sell Burlington Homes. The sale is expected to close on or
before June 8, 1994. The reserve taken in 1993 is expected to be adequate to
cover the loss from the sale. The operating results of Burlington prior to
the date of discontinuance, are shown under discontinued operations in the
Company's consolidated statements of income. All of the financial statements
of prior periods have been restated to reflect the discontinuance of
Burlington's operations.
Acquisitions and Dispositions
Over the past five years, the Company has acquired eight water systems.
Although the Company currently has no material acquisitions pending,
management anticipates continuing the acquisition policy of recent years.
Other
In March, 1993, an outside contractor spilled a small amount of mercury while
working at one of Ohio Water's water treatment plants. Several areas in and
around the plant were contaminated by the spill, although no mercury has
contaminated Ohio Water's water supply. The cleanup has been completed at a
total cost of approximately $900,000. Ohio Water has received $100,000
from its insurer and is currently seeking recovery of all of the cleanup
costs from the contractor. While there can be no assurance as to the
ultimate outcome of Ohio Water's efforts to obtain such recovery, management
believes that it is probable that Ohio Water will recover cleanup costs from
the contractor and/or the contractor's insurers and, therefore, has deferred
the costs incurred in connection with the spill.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
March 31, 1994
PART I - ITEM 2
Results of Operations
First Quarter, 1994, Compared to First Quarter, 1993
Utility Revenue
Utility revenues increased $67,000 or .4% compared to the first quarter in
1993, primarily due to $482,000 in rate increases and increased consumption,
some of which may have been due to customers running water to prevent freeze
ups during the cold weather. These increases were offset by the loss of
$529,000 in revenue from the Washington Court House Division of Ohio Water
Service Company, which was sold in December, 1993. Currently, there are five
rate cases pending in which nearly $7.3 million in additional revenue is
sought. The Company's water utility subsidiaries plan to file for additional
cases in 1994 in three jurisdictions timed to seek recovery of and return on
funds used to finance its large capital expenditure program.
Utility Operating Expenses
Water utility operating expenses increased approximately $584,000,
or 4.3%. Increased depreciation and property taxes due to increased plant
balances, increased labor expense due in part to the increased overtime
needed to repair main breaks, which were caused by the cold winter weather,
and increased health insurance costs, are being partially offset by the
reduction in expenses of $482,000 due to the sale of Washington Court House.
Other Operations Revenue and Expense
Other operating revenue decreased $188,000, or 6.8%, due primarily to bad
weather, which has delayed several of C/P Utility Services' projects. Other
operating expenses are down $32,000, or 1.2%, compared to the first quarter
of 1993.
Other
Construction interest capitalized is up $248,000 due to the new water
treatment plant being constructed in Pennsylvania and to an adjustment to the
capitalized interest of a major plant expansion in Ohio, which was completed
in 1993.
Income taxes are down $267,000 due to lower pre-tax income in 1994.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
March 31, 1994
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Non-competition and Consulting Agreement between Consumers Water
Company and John H. Schiavi dated March 28, 1983, incorporated by
reference to Exhibit 10.2 to Consumers Water Company's Annual Report
on Form 10-K for the year ended December 31, 1992.
10.2 Consumers Water Company 1988 Incentive Stock Option Plan, incorporated
by reference to Exhibit 10.2 to Consumers Water Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
10.3 Consumers Water Company 1993 Incentive Stock Option Plan, incorporated
by reference to Appendix B to Definitive Proxy Statement dated April
5, 1993.
10.4 Consumers Water Company 1992 Deferred Compensation Plan for Directors,
Plan A, incorporated by reference to Exhibit 10.5.2 to Consumers Water
Company's Annual Report on Form 10-K for the year ended December 31,
1991.
10.5 Consumers Water Company 1992 Deferred Compensation Plan for Directors,
Plan B, incorporated by reference to Exhibit 10.5.3 to Consumers Water
Company's Annual Report on Form 10-K for the year ended December 31,
1991.
10.6 Letter Agreement between Consumers Water Company and Anjou
International Company dated February 9, 1986, incorporated by
reference to Exhibit 10.6 to Consumers Water Company's Registration
Statement on Form S-2 (No. 33-41113), filed with the Securities and
Exchange Commission on June 11, 1991.
10.7 Assignment of Rights under February 7, 1986 Agreement between
Consumers Water Company and Anjou International Company to Compagnie
Generale des Eaux, dated November 12, 1987, incorporated by reference
to Exhibit 10.7 to Consumers Water Company's Annual Report on Form 10-K
for the year ended December 31, 1992.
10.8 Form of Indemnification Agreement entered into between Consumers Water
Company and each of its current directors and executive officers,
incorporated by reference to Exhibit 10.8 to Consumers Water Company's
Quarterly Report on Form 10-K for the quarter ended June 30, 1989.
10.9 Employment Agreement between Peter L. Haynes and Consumers Water
Company dated July 13, 1992, incorporated by reference to Exhibit
10.11 to Consumers Water Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter ended
March 31, 1994.
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.
CONSUMERS WATER COMPANY
(Registrant)
05/12/94 /s/ Peter L. Haynes
- --------------------------- ----------------------
Date Peter L. Haynes
President
05/12/94 /s/ John F. Isacke
- ---------------------------- ---------------------
Date John F. Isacke
Senior Vice President
(Chief Financial Officer)
