SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-493
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) identification 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 been 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 July
25, 1995, was 8,395,301.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
PART I ITEM I
June 30, December 31,
1995 1994
(Unaudited)
ASSETS
Property, Plant and Equipment, at cost:
Water utility plant, in service $413,785 $395,900
Less: Accumulated depreciation 71,314 69,148
342,471 326,752
Other subsidiaries 2,176 1,947
Less: Accumulated depreciation 1,257 1,119
919 828
Construction work in progress 16,078 21,674
Net property, plant and
equipment 359,468 349,254
Investments, at cost 1,912 1,984
Current Assets:
Cash and cash equivalents 2,302 2,906
Accounts receivable, net of
reserves of $830 in 1995 and
$682 in 1994 12,640 10,465
Unbilled revenue 8,747 8,966
Inventories 2,389 2,258
Prepayments and other 4,277 6,116
Total current assets 30,355 30,711
Other Assets:
Funds restricted for construction
activity 607 2,503
Deferred charges and other assets 16,673 16,928
17,280 19,431
$ 409,015 $ 401,380
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
PART I ITEM I
June 30, December 31,
1995 1994
(Unaudited)
SHAREHOLDERS' INVESTMENT
AND LIABILITIES
Capitalization:
Common Stock, $1 par value
Authorized: 15,000,000 shares
Issued: 8,391,340 shares in 1995 and
8,259,685 in 1994 $ 8,391 $ 8,260
Amounts in excess of par value 70,064 68,084
Reinvested earnings 24,100 24,584
Common shareholders'
investment $102,555 $100,928
Preferred shareholders'
investment 1,069 1,069
Minority interest 2,348 2,218
Long-term debt 138,398 130,038
Total capitalization 244,370 234,253
Contributions in Aid of
Construction 63,361 61,576
Current Liabilities:
Notes payable 26,395 27,306
Sinking fund requirements and
current maturities 885 2,510
Accounts payable 4,663 5,916
Accrued taxes 4,140 6,496
Accrued interest 3,295 3,435
Accrued expenses and other 12,871 12,352
Total current liabilities 52,249 58,015
Commitments and Contingencies
Deferred Credits:
Customers' advances for
construction 22,066 21,917
Deferred income taxes 22,055 20,613
Unamortized investment tax credits 4,914 5,006
$ 49,035 $ 47,536
$409,015 $401,380
Book Value Per Share of Common
Stock $ 12.22 $ 12.22
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
PART I ITEM I
Six Months Ended
June 30, June 30,
1995 1994
Revenue and Sales:
Water utility operations $41,404 $38,516
Other operations 6,644 5,747
Operating revenue 48,048 44,263
Costs and Expenses:
Water utility operations 29,940 28,189
Other operations 7,028 5,614
Operating expenses 36,968 33,803
Operating Income 11,080 10,460
Other Income and (Expense):
Interest expense (6,906) (5,999)
Construction interest capitalized 654 781
Preferred dividends and minority
interest of subsidiaries ( 67) ( 62)
Other net 403 323
(5,916) (4,957)
Earnings before Income Taxes and Gains from
Sales of Properties 5,164 5,503
Income Taxes 1,762 1,812
Earnings:
Before Gains from Sales of
Properties 3,402 3,691
Gains from Sales of Properties,
Net 1,087 -
Net Income $4,489 $3,691
Weighted Average Shares Outstanding 8,328 8,157
Earnings per Common Share:
Before Gains from Sales $0.41 $0.45
Total $0.54 $0.45
Dividends Declared per Common Share: $0.59 $0.58
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
PART I ITEM I
Three Months Ended
June 30, June 30,
1995 1994
Revenue and Sales:
Water utility operations $ 21,739 $ 20,271
Other operations 3,779 3,176
Operating revenue $ 25,518 $ 23,447
Costs and Expenses:
Water utility operations 15,301 14,065
Other operations 3,821 2,911
Operating expenses 19,122 16,976
Operating Income 6,396 6,471
Other Income and (Expense):
Interest expense (3,483) (3,062)
Construction interest capitalized 312 362
Preferred dividends and minority
interest of subsidiaries (34) (37)
Other net 161 179
(3,044) (2,558)
Earnings before Income
Taxes and Gains from Sales of
Properties 3,352 3,913
Income Taxes 1,182 1,353
Earnings
Before Gains from Sales of
Properties 2,170 2,560
Gains from Sales of Properties,
Net 724 -
Net Income $ 2,894 $ 2,560
Weighted Average Shares Outstanding 8,360 8,228
Earnings per Common Share:
Before Gains from Sales $0.26 $0.31
Total $0.35 $0.31
Dividends Declared per Common Share $0.59 $0.29
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
PART I ITEM I
Six Months Ended
June 30, June 30,
1995 1994
Operating Activities:
Net income $ 4,489 $ 3,691
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,290 4,342
Deferred income taxes and investment
tax credits 901 1,212
Gains on sales of properties (1,087) -
Change in assets and liabilities:
Increase in accounts receivable
and unbilled revenue (1,956) (2,432)
Increase in inventories (131) (687)
Decrease in prepaid expenses 1,839 2,582
Decrease in accounts payable and
accrued expenses (1,845) (3,379)
Change in other assets, net of change
in other liabilities (1,573) (1,460)
Change in other assets, net of change
in other liabilities of discontinued
operations - ( 56)
Total adjustments 1,438 122
Net cash provided by operating
activities 5,927 3,813
Investing activities:
Capital expenditures (15,767) (16,971)
Decrease in funds restricted
for construction activity 1,896 3,300
Increase (decrease) in construction
accounts payable (1,419) 205
Net proceeds from sales of properties 3,334 -
Net cash used in investing
activities (11,956) (13,466)
Financing activities:
Net borrowing (repayment) of
short-term debt (911) 9,337
Proceeds from issuance of
long-term debt 9,032 -
Repayments of long-term debt (2,297) (840)
Proceeds from issuance of stock 2,114 2,070
Advances and contributions in aid of
construction, net of repayments 2,210 1,916
Deferred taxes paid by developers on advances
and contributions in aid of
construction 211 (305)
Cash dividends paid (4,934) (4,726)
Net cash provided by financing
activities 5,425 7,452
Net decrease in cash and cash
equivalents (604) (2,201)
Cash and cash equivalents at
beginning of year 2,906 4,993
Cash and cash equivalents at
end of period $ 2,302 $ 2,792
Supplemental disclosures of cash flow
information from continuing operations:
Cash paid during the period for:
Interest (net of amounts
capitalized) $ 6,277 $ 5,158
Income taxes $ 1,421 $ 1,056
Non-cash investing and financing
activities for the year:
Property advanced or
contributed $ 276 $ 466
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1995
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 accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the registrant
believes that the disclosures which are made are adequate to make the
information presented not misleading, particularly 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 for a
fair statement of the results for the periods presented. All adjustments made
were of a normal and recurring nature.
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 32 in
1995 and 1,114 in 1994.
C. DISPOSITIONS
In October, 1994, the Damariscotta Division of Consumers Maine
Water Company was taken by the local communities by eminent domain for
approximately $600,000 or 75% of rate base. Consumers Maine Water challenged
the purchase price and in February, 1995, settled for a price of $1.5 million.
The sale generated a gain of approximately $363,000 net of taxes. The
Damariscotta Division had approximately 600 customers.
On June 5, 1995, the Company's Consumers Ohio Water Company
subsidiary closed on the sale of Girard Lake and Liberty Lake. These two
lakes once supplied raw water to the area's steel industry. The lakes have
not been needed as a source of supply for several years. The lakes were sold
for $2.5 million and generated a gain, net of taxes, of $724,000.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
June 30, 1995
PART I ITEM 1
(continued..)
D. COMMITMENTS AND CONTINGENCIES
In March, 1993, an outside contractor spilled a small amount of
mercury while working at the Company's subsidiary, Consumers Ohio Water's
water treatment plant. Several areas in and around the plant were
contaminated by the spill, although no mercury has contaminated Consumers Ohio
Water's water supply. The cleanup has been completed at a total cost of
approximately $900,000. Consumers Ohio Water has received $100,000 from its
insurer and is currently seeking recovery of all the cleanup costs from the
contractor. While there can be no assurances as to the ultimate outcome of
Consumers Ohio Water's efforts to obtain such recovery, Management believes
that it is probable that Consumers Ohio Water will recover cleanup costs from
the contractor and/or the contractor's insurer and, therefore, has deferred
the costs incurred in connection with the spill.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
June 30, 1995
PART I ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
The following discussion and analysis sets forth certain factors relative to
the Company's financial condition at June 30, 1995 and the results of its
operations for the three months and six months then ended as compared to the
same periods of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
CONSTRUCTION PROGRAM
Capital construction expenditures in the first six months of 1995 totaled
$13.6 million, net of contributions and advances, substantially all of which
relates to the Company's utility subsidiaries. Projects include $2 million
spent on a new water treatment plant in Pennsylvania that cost $16 million and
was completed in the second quarter of 1995 and many smaller projects
throughout the Company.
The Company expects capital expenditures for 1995 through 1997 to be
approximately $103 million, net of contributions and advances. Almost 29% of
these expenditures are required by the Safe Drinking Water Act (SDWA), the
Clean Water Act (CWA) and other regulations. The new $16 million treatment
plant and transmission main in Pennsylvania was required by State regulations
under the SDWA.
The Company's water utility subsidiaries plan to file 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 expenditures over the next three years, some subsidiaries will be
required to file for large percentage rate increases in part due to the
significant capital expenditures resulting from compliance with the SDWA and
the CWA. Given these large rate increases, Management expects the current
increased scrutiny of the rate requests by the local public utility
commissions to continue.
FINANCING AND CAPITALIZATION
The table below shows the cash generated and used by the Company during the
six months of 1995.
Cash was generated from:
Dollars in millions
Operations $ 9.6
Long-term debt issued 9.0
Common stock issued 2.1
Proceeds from sale of properties 3.3
Decrease in funds restricted for
construction 1.9
Total Cash Generated $ 25.9
CONSUMERS WATER COMPANY AND SUBSIDIARIES
June 30, 1995
PART I ITEM 2
(continued..)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
FINANCING AND CAPITALIZATION (continued..)
Cash was used:
Capital expenditures, net of Contributions
and Advances $ (13.6)
Net decrease in short-term debt ( .9)
Repay long-term debt (2.3)
Pay dividends (4.9)
Net change in working capital (2.1)
Other (2.7)
Total Cash Used $ (26.5)
Decrease in Cash $ ( .6)
Water utilities will require higher equity ratios to maintain current debt
ratings due to the recognition by Standard & Poor's rating system of
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 1995 through 1997 capital expenditure program makes it likely that
the Company will return to the equity market again in the next two years. Any
cash flow not provided through a stock issuance will, as usual, be financed
with short-term lines of credit until the subsidiaries' short-term debt level
is high enough to warrant placement of long-term debt, generally, in the $4-$6
million range. As of June 30, 1995, the Company had unused lines of credit
available of over $43.4 million. In addition to the short-term debt, the
Company plans to continue to use tax-exempt, long-term debt financing in
appropriate situations.
ACQUISITIONS AND DISPOSITIONS
Over the past five years, the Company has acquired seven water systems.
Although the Company currently has no material acquisitions pending,
management anticipates continuing the acquisition policy of recent years.
In October, 1994, the Damariscotta Division of Consumers Maine Water Company
was taken by the local communities by eminent domain for approximately
$600,000 or 75% of rate base. Consumers Maine Water challenged the purchase
price and in February, 1995, settled for a price of $1.5 million. The sale
generated a gain of approximately $363,000, net of taxes. The Damariscotta
Division had approximately 600 customers.
On June 5, 1995, the Company's Consumers Ohio Water Company subsidiary closed
on the sale of Girard Lake and Liberty Lake. These two lakes once supplied
raw water to the area's steel industry. The lakes have not been needed as a
source of supply for several years. The lakes were sold for $2.5 million and
generated a gain, net of taxes, of $724,000.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
June 30, 1995
PART I ITEM 2
(continued..)
The Company has sold four divisions with customers totaling approximately
15,000 under threat of eminent domain in the last four years. The gain on
these sales totaled almost $7 million. The Company is working with the local
communities in its service areas in an effort to prevent future eminent domain
proceedings.
OTHER
In March, 1993, an outside contractor spilled a small amount of mercury while
working at the Company's subsidiary, Consumers Ohio Water's water treatment
plant. Several areas in and around the plant were contaminated by the spill,
although no mercury has contaminated Consumers Ohio Water's water supply. The
cleanup has been completed at a total cost of approximately $900,000.
Consumers Ohio Water has received $100,000 from its insurer and is currently
seeking recovery of all the cleanup costs from the contractor. While there
can be no assurances as to the ultimate outcome of Consumers Ohio Water's
efforts to obtain such recovery, Management believes that it is probable that
Consumers Ohio Water will recover cleanup costs from the contractor and/or the
contractor's insurer and, therefore, has deferred the costs incurred in
connection with the spill.
RESULTS OF OPERATIONS
First Half, 1995 versus First Half, 1994
Utilities revenues increased $2,888,000 or 7.5% compared to the first half of
1994 primarily due to $2,777,000 in rate increases. During 1995, the Company
has settled five rate cases allowing for total annual revenues of $6.0
million. Currently, there are four rate cases pending in which $5.1 million
in additional revenue was sought. The Company's water utility subsidiaries
plan to file for two additional cases in 1995 timed to seek recovery of and
return on funds used to finance its large capital expenditure programs.
UTILITY OPERATING EXPENSES
Water utility operating expenses increased approximately $1,751,000, or 6.2%.
Expenses are up due primarily to increased depreciation of $838,000 and
property taxes of $506,000 due to increased property balances and higher
rates.
Other operating revenue increased approximately $897,000, or 15.6% while other
operating expenses are up $1,414,000, or 25.2, compared to the first half of
1994, primarily due to reduced margins in meter installation work as Consumers
Applied Technologies, Inc., complete its meter installation contracts with the
City of New York. Consumers Applied Technologies, Inc., formerly C/P Utility
Services, was unsuccessful in its bid for additional New York City meter
installation projects. Management is shifting Consumers Applied Technologies'
focus to higher margin technical and engineering work to help compensate for
the lost contracts.
OTHER
Interest expense is up $907,000 due to higher debt balances and interest
rates.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
June 30, 1995
PART I ITEM 2
(continued..)
Second Quarter, 1995 versus Second Quarter, 1994
UTILITY REVENUE
Utility revenues increased $1,468,000, or 7.2%, for the three months ended
June 30, 1995, as compared to the same period in 1994, due primarily to
$1,485,000 in rate increases.
UTILITY OPERATING EXPENSES
Water Utility operating expenses have increased approximately $1,236,000 in
the three months ended June 30, 1995, as compared to the same period in 1994.
Expenses are up due primarily to increased depreciation of $432,000 and
property taxes are up $211,000 due to the increased property balances and
higher rates.
OTHER OPERATIONS - REVENUES EXPENSE
Other operating revenue increased by $603,000, or 19.0%, while other operating
expenses are up $910,000, or 31.3%, compared to the second quarter of 1994,
primarily due to reduced margins in meter installation work as Consumers
Applied Technologies, Inc. completes its meter installation contracts with the
City of New York. Consumers Applied Technologies, Inc., formerly C/P Utility
Services, was unsuccessful in its bid for additional New York City meter
installation projects. Management plans to shift Consumers Applied
Technologies' focus to higher margin technical and engineering work to help
compensate for the lost contracts.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
June 30, 1995
PART II
Item 4. Submission of Matters to Vote of Security holders
Election of Directors
At the Annual Meeting of Shareholders held in South Portland, Maine on
May 3, 1995, the shareholders of the Company elected the following directors
until the 1995 Annual Meeting and until their successors are elected and
qualified, each receiving the vote of the holders of the Company's outstanding
common and preferred shares, voting as one class, as follows:
--------SHARES VOTED--------- BROKER
FOR AGAINST WITHHELD NON-VOTES
Claudio Elia 6,774,211 --- 61,138 ---
David R. Hastings II 6,777,867 --- 57,485 ---
Peter L. Haynes 6,784,277 --- 51,075 ---
Jack S. Ketchum 6,782,725 --- 52,627 ---
John E. Menario 6,783,262 --- 52,087 ---
Jane E. Newman 6,780,980 --- 54,372 ---
John E. Palmer, Jr. 6,784,075 --- 51,277 ---
Elaine D. Rosen 6,768,677 --- 66,675 ---
William B. Russell 6,785,937 --- 49,415 ---
John H. Schiavi 6,770,190 --- 65,162 ---
John W. L. White 6,779,448 --- 55,904 ---
No existing director's term of office continued after the meeting.
There was no solicitation in opposition to management's nominees and all
nominees were elected without contest.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule is submitted herewith as
Exhibit 27.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended June 30,
1995.
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)
/s/ Peter L. Haynes
Date Peter L. Haynes
Chief Executive
Officer
/s/ John F. Isacke
Date John F. Isacke
Chief Financial
Officer
CONSUMERS WATER COMPANY AND SUBSIDIARIES
June 30, 1995
PART II
Exhibit Index
27. Financial Data Schedule is submitted herewith as Exhibit 27.
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