Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(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 1-8060
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AQUARION COMPANY
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0852232
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
835 Main Street, Bridgeport, Connecticut 06601
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 335-2333
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(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of April 29, 1994:
Common Stock
No Par Value (Stated Value: $1) 6,513,005
------------------------------- ------------------------
Class Number of Shares
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
---------------------------------
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1994 1993
---- ----
(In thousands, except
share data)
<S> <C> <C>
Operating revenues $25,850 $24,687
------ ------
Costs and expenses:
Operating 9,397 9,379
General and administrative 4,100 4,206
Depreciation 2,982 2,497
Interest expense 2,144 2,350
Taxes other than income 3,140 2,965
taxes ------ ------
Total costs and expenses 21,763 21,397
------ ------
4,087 3,290
Allowance for funds used during
construction 86 184
------ ------
Income before income taxes 4,173 3,474
Income taxes 1,599 1,312
------ ------
Net income $ 2,574 $ 2,162
====== ======
Per share $ 0.40 $ 0.36
===== =====
Weighted average common shares
outstanding 6,485,996 5,963,076
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
RETAINED EARNINGS 1994 1993
---- ----
(In thousands, except
share data)
<S> <C> <C>
Beginning of period $15,015 $14,327
Net income 2,574 2,162
------ ------
17,589 16,489
Deduct: Cash dividends declared
on common stock, $405 per
share per quarter in 1994
and 1993 2,666 2,428
------ ------
End of period $14,923 $14,061
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
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<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1994 1993
-------- -----
(In thousands)
<S> <C> <C>
Property, plant and equipment $369,964 $367,564
Less: accumulated depreciation 120,154 117,191
-------- --------
Net property, plant and
equipment 249,810 250,373
-------- --------
Current assets:
Cash and cash equivalents 586 90
-------- --------
Accounts receivable:
Customers 14,584 14,422
Miscellaneous 1,977 2,439
-------- --------
16,561 16,861
Less: allowance for doubtful
accounts 3,149 2,935
-------- --------
13,412 13,926
Accrued revenues 9,084 8,995
Inventories 2,914 2,885
Prepaid expenses 8,055 6,698
-------- --------
Total current assets 34,051 32,594
-------- --------
Goodwill 10,592 10,709
Recoverable income taxes 46,377 46,377
Other assets 23,533 22,819
-------- --------
$364,363 $362,872
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
LIABILITIES AND March 31, December 31,
SHAREHOLDERS' EQUITY 1994 1993
-------- ------------
(In thousands, except share data)
<S> <C> <C>
Shareholders' equity:
Preferred stock, no par value,
authorized 2,500,000 shares
not to exceed aggregate
value of $25,000,000,
issuable in series-none
issued $ - $ -
Common stock, stated value: $1
Authorized-16,000,000 shares
Issued-6,582,425 shares in
1994 and 6,564,533 shares in
1993 6,582 6,565
Capital in excess of stated value 91,831 91,441
Retained Earnings 14,923 15,015
-------- --------
113,336 113,021
Less: cost of treasury stock,
86,311 shares in 1994 and
92,291 shares in 1993 2,368 2,540
-------- --------
Total shareholders' equity 110,968 110,481
-------- --------
Redeemable preferred stock of
subsidiaries 375 375
Long-term debt and other
obligations 115,490 115,591
-------- --------
Current liabilities:
Short-term borrowings, unsecured 7,300 5,500
Current maturities of long-term
debt 56 62
Accounts payable and accrued
liabilities 9,076 10,790
Dividends payable 2,666 2,621
Accrued interest 2,182 2,240
Taxes other than income taxes 1,356 1,354
Income taxes 1,409 976
-------- --------
24,045 23,543
Total current liabilities
Advances for construction 22,456 22,593
Contributions in aid of
construction 21,088 20,883
Recoverable income taxes 6,123 6,123
Deferred taxes 63,818 63,283
-------- --------
$364,363 $362,872
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $2,574 $2,162
Adjustments reconciling net income to net cash
provided by operating activities:
Depreciation and amortization 3,217 2,756
Allowance for funds used during construction (86) (184)
Provision for losses on accounts receivable 299 285
Deferred and prepaid income taxes net 289 275
Proceeds from sale of surplus land,
net of gains 215 219
Change in assets and liabilities (NOTE 3) (3,038) (2,664)
------ ------
Net cash provided by operating activities 3,470 2,849
------ ------
Cash flows from investing activities:
Capital additions, excluding an allowance
for funds used during construction (2,339) (4,461)
Advances and contributions in aid of
construction, net of refunds 68 68
Other investing activities (270) 9
------ ------
Net cash used in investing activities (2,541) (4,384)
------ ------
Cash flows from financing activities:
Net proceeds from short-term borrowings 1,800 4,700
Proceeds from the issuance of common stock, net 407 300
Principal payments on long-term debt (19) (1,125)
Common dividends paid (2,621) (2,410)
------ ------
Net cash (used in) provided by
financing activities (433) 1,465
------ ------
Net increase (decrease) in cash and cash equivalents 496 (70)
Cash and cash equivalents, beginning of 90 319
period ------ ------
$586 $249
Cash and cash equivalents, end of period ====== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
<PAGE>
AQUARION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Aquarion Company (Aquarion) is a holding company whose subsidiaries are
engaged both in the regulated utility business of public water supply and
in various nonutility businesses. Aquarion's utility subsidiary,
Bridgeport Hydraulic Company (BHC) and BHC's subsidiary, Stamford Water
Company (SWC), (collectively, the Utilities) collect, treat and distribute
water for residential, commercial and industrial customers, to other
utilities for resale and for private and municipal fire protection. The
Utilities provide water to customers in 22 communities with a population of
approximately 492,000 people in Fairfield, New Haven, and Litchfield
Counties in Connecticut, including communities served by other utilities to
which BHC makes water available on a wholesale basis for back-up supply or
peak demand purposes through BHC's Southwest Regional Pipeline. BHC is the
largest investor-owned water company in Connecticut and, with its SWC
subsidiary, is among the ten largest investor-owned water companies in the
nation. The Utilities are regulated by several Connecticut agencies,
including the Connecticut Department of Public Utility Control (DPUC).
Aquarion and its subsidiaries (collectively, the Company) are also engaged
in various nonutility activities. The Company conducts an environmental
testing laboratory business through its Industrial and Environmental
Analysts, Inc. group of laboratories which analyze contaminants in
hazardous waste, soil and water (IEA). Additionally, the Company is
engaged in various utility management service businesses through Hydrocorp,
Inc. (Hydrocorp) and Aquarion Management Services, Inc. (AMS), owns a
forest products and electricity cogeneration business through Timco, Inc.
(Timco) and owns a real estate subsidiary, Main Street South Corporation
(MSSC).
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles,
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and as
applied in the case of rate-regulated public utilities, comply with the
Uniform System of Accounts and rate making practices prescribed by the
DPUC. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations are not
necessarily indicative of the results of operations for the calendar year.
Water consumption is less in the first quarter of the year than during the
warmer months. The laboratory testing business is seasonal as well with
traditionally lower first quarter revenues. Other factors affecting the
comparability of various accounting periods include the timing of rate
increases granted the Utilities and the timing and magnitude of property
sales. For further information, refer to the consolidated financial
statements and accompanying footnotes included in the Company's annual
report on Form 10-K for the year ended December 31, 1993.
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NOTE 2 - INVENTORIES
- --------------------
Inventories were comprised of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- -------------
(Unaudited)
<S> <C> <C>
Lumber and logs $1,617 $1,314
Materials and supplies 1,297 1,571
------
------
$2,914 $2,885
====== ======
</TABLE>
NOTE 3 - SUPPLEMENTAL DISCLOSURE FOR CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------
Changes in assets and liabilities for the three month period ended
March 31, are set forth below (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
(Unaudited)
<S> <C> <C>
Decrease in accounts receivable $ 176 $ 904
Increase in inventory (29) (73)
Increase in prepayments (1,357) (434)
Decrease in accounts payable and (1,713) (2,551)
accrued liabilities
Increase (decrease) in interest and 378 (1,098)
taxes payable
Net changes in other noncurrent (493) 588
balance sheet items ------ ------
$(3,038) $(2,664)
====== ======
Supplemental cash flow information:
Cash paid for:
Interest $2,339 $2,680
Income taxes $ 685 $ 380
</TABLE>
NOTE 4 - SALE OF SURPLUS LAND
- -----------------------------
For the first three months of 1994, the Company sold approximately four
and one-half acres of surplus land in three separate transactions for a total
of $325,000. Total gains approximated $110,000, or $.02 per share.
NOTE 5 - EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS
- ----------------------------------------------------------
On January 1, 1994, the Company was required to adopt Financial
Accounting Standards Board (FASB) Statement No. 112, "Employers' Accounting
for Postemployment Benefits" (SFAS 112). This statement requires that
employers accrue the cost of providing future benefits to former or
inactive employees after employment but before retirement. Such benefits
are to be recognized over the employees' years of service or at the date
giving rise to such benefits. Adoption of SFAS 112 has no impact on the
financial position or results of operations of the Company.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
- -----------------------------------
Management's Discussion and Analysis of the Results of Operations and
Financial Condition contained in Aquarion's Annual Report on Form 10-K for
the year ended December 31, 1993 (1993 Form 10-K) should be read in
conjunction with the comments below.
Capital Resources and Liquidity
- -------------------------------
Capital Expenditures
--------------------
The Company invested $2,339,000 in property, plant and equipment in the
first three months of 1994, compared with $4,461,000 for the same 1993
period. The Utilities accounted for approximately $1,915,000 of plant
additions during the current three month period, including $364,000
expended on SDWA mandated filtration facilities, with the balance being
invested primarily in the Company's environmental testing laboratories and
forest products and electricity cogeneration operations. Management
estimates that capital expenditures will total $36,500,000 in 1994, of
which approximately $34,200,000 will be for water utility construction
programs. Nonutility capital expenditures will approximate $2,300,000 in
1994, primarily for laboratory equipment at IEA.
Financing Activities
--------------------
Due to the magnitude of the Company's construction programs and the
capital-intensive nature of the public water supply business, financing has
been provided from both internal and external sources.
Historically, the Company's ability to finance its capital expenditures has
depended substantially on rate relief. Effective August 1, 1993, the DPUC
awarded BHC a 21 percent water service rate increase designed to provide a
$10,400,000 annual increase in revenues and an 11.6 percent return on
common equity. There is no certainty that the rate increase will produce
the intended level of revenues or the allowed return on equity.
The percentage of capital expenditures financed by net cash from
operating activities was 100 percent and 64 percent for the three months
ended March 31, 1994 and 1993, respectively. (See "Consolidated
Financial Statements of Cash Flows.") The remainder has been provided from
external financing sources.
Funds from external sources historically have been borrowed on a
short-term basis and periodically refinanced through long-term debt or
equity issues. In May 1993, the Company entered into unsecured revolving
credit agreements with five banks to provide $50,000,000 ($10,000,000 with
each bank) of short-term credit availability on a committed basis. At
March 31, 1994, $7,300,000 of short-term borrowings under the agreements was
outstanding.
On June 29, 1993, the Company completed a common stock offering of
460,000 shares at $25.875 per share. The proceeds of the issue, after all
expenses, amounted to $11,200,500. In addition, BHC issued a 5.6 percent,
$10,000,000 unsecured note under a tax-exempt financing with the
Connecticut Development Authority. Proceeds from both transactions were
used to reduce short-term borrowings which had been incurred in connection
with the construction of BHC's Easton Lake Reservoir Water Treatment Plant.
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<PAGE>
The Company obtained additional funds of $407,000 through its Dividend
Reinvestment and Common Stock Purchase Plan (the Plan) and $68,000 from
advances and contributions in aid of construction from developers and
customers in the first three months of 1994. During April, 1994, the
Company filed a Form S-3 registration statement with the Securities and
Exchange Commission to enhance the plan and include an additional 750,000
shares.
Future Financing Requirements
-----------------------------
The Company's ability to finance future utility construction programs
depends substantially on rate relief. Rate relief has an impact on cash
flow from operating activities and consequently affects the Company's
ability to obtain external financing, since sufficient operating cash flows
are necessary to maintain certain debt coverage ratios to allow for the
issuance of additional debt securities. Additionally, rate relief will
have an impact on the Company's ability to generate sufficient cash flows
to provide a reasonable return in the form of dividends to Aquarion's
stockholders. In light of the Company's substantial need for additional
funds, the Company will need additional debt and equity capital to finance
future utility construction. The type, amount and timing of new financings
will be based on the Company's general financial policies regarding
capitalization, as well as on market conditions and other economic factors.
Results of Operations for the three months
- ------------------------------------------
ended March 31, 1994 and 1993
- -----------------------------
Net income for the three months ended March 31, 1994 was $2,574,000
compared with $2,162,000 for the same 1993 period.
Operating results during the first three months of 1994 reflect the
impact of continued effective cost control, combined with higher water
rates for BHC due to a 21 percent rate increase, effective August 1, 1993.
Reflecting a common stock offering of 460,000 shares in June 1993, per
share amounts were based on weighted average shares outstanding of
6,485,996 in the 1994 first quarter versus 5,963,076 for the same 1993
period.
Operating revenues for the first three months of 1994 increased
$1,163,000 from the comparable 1993 period. Revenues from the Utilities
increased $1,929,000. The increase was principally due to a 21 percent water
service rate increase which became effective August 1, 1993. Revenues
from the Laboratories decreased $578,000, reflecting the impact of the sale
of the Air Services Division in the fourth quarter of 1993 as part of a
previously announced restructuring plan. The harsh winter weather in the
East, which hampered sampling efforts during 1994 and continued competitive
pricing also contributed to the decline in revenues for the Laboratories.
Forest Products experienced a decrease in revenues of $97,000, also due
to the harsh winter weather. Revenues from property sales and utility
management services businesses account for the remainder of the variance.
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<PAGE>
Operating expenses for the first three-months of 1994 increased $18,000
from the comparable 1993 period. Operating expenses at the Utilities
increased approximately $523,000. The increase was principally due to
higher costs associated with the operation of BHC's Easton Lake Reservoir
Water Treatment Plant, which was placed in service in June 1993. In
addition, higher costs were incurred due to the harsh weather in 1994 for
main repairs, service line repairs and snow removal. The Laboratories
experienced a decrease in operating expenses of $524,000 primarily due to
costs associated with the Air Services Division, which was sold in the
fourth quarter of 1993. Operating expenses from property sales, Forest
Products, and utility management service businesses account for the
remainder of the variance.
General and administrative expenses for the first three months of 1994
decreased $106,000 from the comparable 1993 period. Expenses from the
Utilities decreased $169,000 primarily due to lower costs associated with
workers compensation insurance, outside services and miscellaneous expenses
partially offset by higher costs associated with BHC's adoption of FASB
Statement No. 106, "Employers' Accounting for Post-Retirement Benefits
Other Than Pensions". Minor increases in expenses at the Laboratories and
Corporate partially offset by minor decreases in expenses at the Forest
Products and Real Estate subsidiaries account for the remainder of the
variance.
Depreciation expense for the first three months of 1994 was $485,000
higher than the 1993 comparable period. This increase is primarily
attributable to the addition of BHC's Easton Lake Reservoir Water Treatment
Plant, which was placed in service in June 1993, a higher composite annual
depreciation rate for BHC effective August 1, 1993 and routine plant
additions by both the Utilities and the Laboratories.
Interest expense for the first three months of 1994 was $206,000 lower
than the 1993 comparable period. Lower outstanding average total debt
coupled with lower long-term borrowing rates due to the debt refinancing in
1993 principally account for this variance.
Taxes other than income taxes for the first three months of 1994
increased $175,000 over the comparable 1993 period. Increased payroll and
gross earnings taxes of $133,000, as well as higher property taxes of
$42,000 attributable to a higher property base in 1994, account for the
variance.
Income taxes for the three months of 1994 were $287,000 higher than the
comparable 1993 period primarily due to higher taxable income in 1994.
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PART II. OTHER INFORMATION
--------------------------
ITEM 1. - LEGAL PROCEEDINGS
- ---------------------------
All legal proceedings have previously been reported on the Annual Report
on Form 10-K in Part I, Item 3 for the year ended December 31, 1993.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Annual Meeting of shareholders of the Company held on April 26,
1994, four directors were elected to a three-year term. The shareholders
elected George W. Edwards, Jr. with 5,385,079 affirmative votes cast and
74,189 withheld, Eugene D. Jones with 5,380,723 affirmative votes cast and
78,545 withheld, G. Jackson Ratcliffe with 5,402,961 affirmative votes cast
and 56,307 withheld and William S. Warner with 5,398,512 affirmative votes
cast and 60,756 withheld.
Shareholders also approved a stock incentive plan for officers and key
employees with 3,224,384 affirmative votes cast, 826,219 negative votes,
182,008 abstentions and 1,226,657 broker nonvotes. A directors' deferred
compensation plan was also approved by shareholders with 4,766,843
affirmative votes cast, 522,970 negative votes, 167,281 abstentions and
2,174 broker nonvotes.
In addition, the shareholders ratified the selection of Price Waterhouse
as independent accountants for 1994 with 5,387,213 affirmative votes cast,
28,180 negative votes and 43,875 abstentions.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The Company has nothing to report for this item.
(b) The Company did not file a report on Form 8-K for the three
months ended March 31, 1994.
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SIGNATURE
---------
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.
AQUARION COMPANY
Date: May 10, 1994 By /s/JANET M. HANSEN
------------ ----------------------------
Janet M. Hansen
Senior Vice President,
Chief Financial Officer and
Treasurer
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