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, 1997
------------------
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 06604-4995
------------------------------------------ --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 335-2333
---------------
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changes since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
require 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 share outstanding of each of the issuer's classes of
common stock as of May 5, 1997:
Common Stock
No Par Value (Stated Value: $1) 7,083,598
-------------------------------- ------------------------------
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,
----------------------------
1997 1996
------ ------
<S> <C> <C>
(In thousands, except share data)
Operating revenues $23,389 $20,993
--------- ----------
Costs and expenses:
Operating 6,134 5,101
General and administrative 4,120 4,308
Depreciation 2,979 2,737
Interest Expense 2,876 2,092
Taxes other than income taxes 3,230 3,034
--------- ---------
Total costs and expenses 19,339 17,272
--------- ---------
4,050 3,721
Allowance for funds used during construction 237 277
--------- ---------
Income before income taxes 4,287 3,998
Income taxes 1,899 1,685
--------- ---------
Income before discontinued operations 2,388 2,313
Discontinued operations:
Loss from discontinued operations, less
applicable income tax benefit of $119 in
1996 - (239)
--------- ---------
Net income $2,388 $2,074
========= =========
Earnings (loss) per share:
Continuing operations $0.34 $0.34
Discontinued operations - (0.04)
--------- ---------
Earnings per share $0.34 $0.30
========= =========
Weighted average common shares outstanding 7,036,623 6,872,921
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-2-
<PAGE>
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------ ------
<S> <C> <C>
(In thousands, except share data)
Beginning of period $16,324 $18,583
Net Income 2,388 2,074
------- -------
18,712 20,657
Deduct: Cash dividends declared on
common stock, $.405 per share
per quarter in 1997 and 1996 2,860 2,791
------- -------
End of period $15,852 $17,866
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
(Unaudited)
(In thousands)
Property, plant and equipment $460,961 $454,716
Less: accumulated depreciation 134,408 131,328
-------- --------
Net property, plant and equipment 326,553 323,388
-------- --------
Current assets:
Cash and cash equivalents 3,177 470
------- --------
Accounts receivable from customers 9,998 10,796
Less: allowance for doubtful accounts 1,326 1,253
------- --------
8,672 9,543
Accrued revenues 9,501 9,893
Inventories 3,372 2,883
Prepaid expenses 10,258 8,732
Other current assets 2,748 18,101
------- --------
Total current assets 37,728 49,622
------- --------
Goodwill 967 977
Recoverable income taxes 44,938 44,938
Other assets 35,320 30,167
-------- --------
$445,506 $449,092
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- -----------
(Unaudited)
<S> <C> <C>
(In thousands, except share data)
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-7,115,314 shares in 1997 and
7,080,355 shared in 1996 7,115 7,080
Capital in excess of stated value 102,218 101,360
Retained earnings 15,852 16,324
Less: cost of treasury stock, 53,898 shares
in 1997 and 61,498 shares in 1996 1,499 1,709
Less: minimum pension liability adjustment 104 104
--------- ---------
Total shareholders' equity 123,582 122,951
--------- ---------
Long-term debt and other obligations 153,379 148,487
--------- ---------
Current liabilities
Short-term borrowings, unsecured - 8,300
Current maturities of long-term debt 15,000 15,000
Accounts payable and accrued liabilities 15,074 15,654
Dividends payable 2,859 2,843
Accrued interest 2,258 2,484
Taxes other than income taxes 1,638 1,927
Income taxes 690 1,555
--------- ---------
Total current liabilities 37,519 47,763
--------- ---------
Advances for construction 24,920 28,017
Contributions in aid of construction 27,875 24,354
Deferred land sale gains 446 471
Accrued postretirement benefit cost 4,735 4,125
Recoverable income taxes 6,346 6,346
Deferred taxes 66,704 66,578
-------- --------
$445,506 $449,092
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------ ------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net Income $2,388 $2,074
Adjustments reconciling net income to net cash
provided by operating activities:
Depreciation and amortization 3,241 3,431
Allowance for funds used during construction (237) (277)
Provision for losses on accounts receivable 88 57
Deferred and prepaid income taxes, net (4,686) 252
Proceeds from sale of surplus land, net of
gains (25) 109
Change in assets and liabilities (Note 3) 5,666 (3,898)
------- -------
Net cash provided by operating activities 6,435 1,748
------- -------
Cash flows from investing activities:
Capital additions, excluding an allowance for
funds used during construction (6,010) (7,691)
Advances and contributions in aid of
construction 481 721
Refunds on advances for construction (57) (244)
Proceeds from disposition of subsidiary 7,616 -
Other investing activities (154) (488)
------ ------
Net cash provided by (used in) investing
activities 1,876 (7,702)
Cash flows from financing activities:
Net (repayments) proceeds from short-term
borrowings (8,300) 1,800
Proceeds from the issuance of common stock, net 893 809
Principal payments on long-term debt - (20)
Proceeds from the issuance of long-term debt 4,892 6,045
Common dividends paid (2,843) (2,776)
Bond finance charges (246) -
-------- -------
Net cash (used in) provided by financing
activities (5,604) 5,858
-------- -------
Net increase (decrease) in cash and cash equivalents 2,707 (96)
Cash and cash equivalents, beginning of period 470 635
-------- -------
Cash and cash equivalents, end of period $3,177 $ 539
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<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 subsidiaries, BHC Company
(BHC) which consists of an Eastern division, formerly Bridgeport Hydraulic
Company and a Western division, formerly Stamford Water Company, New Canaan
Water Company and Ridgefield Water Supply Company, and Sea Cliff Water Company
(SCWC) (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 30 communities with a population of approximately
500,000 people in Connecticut and Long Island, New York, 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 SCWC, is among the ten largest investor-owned water
companies in the nation. The Utilities are regulated by several Connecticut
and New York agencies, including the Connecticut Department of Public Utility
Control (DPUC) and the New York Public Service Commission (PSC). Aquarion and
its subsidiaries (collectively, the Company) are also engaged in various
nonutility activities. The Company conducts a timber processing business
through Timco, Inc. (Timco), owns a real estate subsidiary, Main Street South
Corporation (MSSC) and provides utility management services through Hydrocorp,
Inc. (Hydrocorp) and Aquarion Management Services, Inc. (AMS).
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information, 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 ratemaking practices
prescribed by the authorities. 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. 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, 1996.
During the current fiscal year the Company intends to adopt Statement of
Financial Accounting Standards SFAS 128, "Earnings per share" (SFAS 128).
There would not have been any impact on earnings per share, as presented, had
the provisions of SFAS 128 been applied in the current period.
-7-
<PAGE>
<PAGE>
NOTE 2 - INVENTORY
- ------------------
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
(Unaudited)
Lumber and Logs $2,032 $1,565
Materials and supplies 1,340 1,318
------ ------
$3,372 $2,883
------ ------
</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>
1997 1996
------ ------
(Unaudited)
<S> <C> <C>
Decrease (increase) in accounts receivable $ 1,175 $(221)
Increase in inventory (489) (218)
Increase in prepayments (1,526) (1,220)
Decrease (increase) in other current assets 7,737 (41)
Decrease in accounts payable and accrued
liabilities (580) (1,269)
Decrease in interest and taxes payable (1,380) (492)
Net changes in other noncurrent balance sheet
items 729 (437)
------- -------
$ 5,666 $(3,898)
------- -------
Supplemental cash flow information:
Cash paid for:
Interest $ 3,047 $ 2,295
Income taxes $ 700 $ 1,635
</TABLE>
NOTE 4 - SALE AND DISCONTINUED OPERATIONS
- -----------------------------------------
On March 25, 1997, the Company executed the stock purchase agreement,
effective December 31, 1996, completing the stock sale of Industrial and
Environmental Analysts, Inc. (IEA), its environmental testing laboratory
business for approximately $10,000,000, with approximately $7,600,000 paid in
cash at closing and the balance paid with the assignment of IEA accounts
receivable. Accordingly, IEA's results have been recorded as a discontinued
operation for the year ended December 31, 1996. The Company recorded an
after tax loss of $4,255,000, or $0.61 per share, from the sale of the
discontinued operations in the fourth quarter of 1996. The net loss from the
discontinued operations, including the amortization of goodwill, was $239,000
for the first quarter ended March 31, 1996, and is shown separately on the
consolidated statements of income. For the period January 1, 1997 through
March 25, 1997, operating revenues from discontinued operations were
approximately $4,984,000 and the pre-tax operating loss was approximately
$86,000 compared to a pre-tax operating loss of $49,000 for the period ended
March 31, 1996. Losses for the period from January 1, 1997 through March 25,
1997 were fully reimbursed by the purchaser in conjunction with the terms of
the stock purchase agreement.
-8-
<PAGE>
<PAGE>
NOTE 5 - RATE MATTERS
- ---------------------
Rates. On April 18, 1997, BHC's Eastern division filed an application with
- -----
the DPUC for a Construction-Work-In-Progress (CWIP) rate surcharge of 9.49
percent of current revenues to recover 90 percent of the carrying costs,
through March 31, 1997, of capital used in the construction of a filtration
plant at its Hemlocks Reservoir in Fairfield, Connecticut. This plant,
mandated by the Federal Safe Drinking Water Act of 1974 (SDWA), as amended, is
estimated to cost approximately $47,500,000. This application updated the
CWIP rate surcharge of 8.94 percent granted in March of 1997. The 9.49
percent CWIP rate surcharge is expected to go into effect on or about June 10,
1997.
On April 17, 1997, BHC's Eastern division filed an application with the
DPUC for a 13.4 percent water service rate increase designed to provide a
$8,700,000 increase in annual water service revenues. The net effect of this
increase, however, is expected to be approximately $2,500,000 or 3.9 percent
by the time new rates become effective as a result of the phase-in of the CWIP
rate surcharge into permanent rates. That surcharge, which is expected to be
9.49 percent when new rates become effective, is designed to provide
approximately $6,200,000 in annual revenues at that time. The purpose of this
application is to include in the Company's rate base the full cost of the
Hemlocks Filtration Plant, as well as all related operating expenses,
depreciation and associated taxes.
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, 1996 should be read in conjunction with the comments
below.
Capital Resources and Liquidity
- -------------------------------
Capital Expenditures
--------------------
The Company invested $6,010,000 in property, plant and equipment in the
first three months of 1997, compared with $7,691,000 for the same 1996 period.
The Utilities accounted for approximately $5,995,000 of plant additions during
the current three month period, including $2,200,000 expended on SDWA-mandated
filtration facilities. Management estimates that capital expenditures will
total $28,000,000 in 1997, of which approximately $27,000,000 will be for
water utility construction programs.
Financing Activities
--------------------
The Company's capital expenditures have historically been financed from
several sources including internally generated funds, rate relief, proceeds
from debt financings, sale of common stock, and short-term borrowings under
the Company's revolving credit agreements.
-9-
<PAGE>
<PAGE>
Annually, the Company's unsecured revolving credit agreements are
subject to renewal. The agreements provide that the Company may select among
a variety of interest rates, including a negotiated rate. The Company pays a
commitment fee of 0.125 of 1 percent on the average daily unused portion of
the commitment for each day during which any unused portion exists. The lines
of credit provide for automatic renewal on an annual basis, but may be
terminated at the option of the banks or the Company upon 90 days notice by
either party prior to the annual anniversary of the agreements.
The percentage of capital expenditures financed by net cash from
operating activities was 100 percent and 23 percent for the three months ended
March 31, 1997 and 1996, respectively. (See "Consolidated Financial
Statements-Consolidated Statements of Cash Flows.") The remainder was
provided from external financing sources. The Company obtained funds of
$916,000 from issuances of Common Stock under its Dividend Reinvestment and
Common Stock Purchase Plan (the "Plan") for the three months ended March 31,
1997. The Utilities also received $481,000 from advances and contributions in
aid of construction from developers and customers for the three months ended
March 31, 1997.
On February 3, 1997, BHC converted the interest rate on its $30,000,000
unsecured note, issued in 1995 in consideration for a loan of the proceeds
from the issuance by the Connecticut Development Authority of an equal amount
of tax-exempt Water Facilities Revenue Bonds, from a variable rate to a fixed
rate of 6.15 percent, for a term of 38 years.
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. 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 the Company's shareholders. 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, 1997 and 1996
- -----------------------------
Net income for the three months ended March 31, 1997 was $2,388,000
compared with $2,074,000 for the same 1996 period. Operating results during
the first three months of 1997 are higher due to the negative impact on the
prior year quarter results from IEA operations.
Operating revenues for the first three months of 1997 increased
$2,396,000 from the comparable 1996 period. Timber Processing experienced an
increase in revenues of $1,383,000, due to increased sales to a leading
retailer in the home improvement industry. Revenues from the Utilities
increased $1,336,000, due to the acquisition of SCWC and rate relief for BHC,
offset by lower consumption in 1997.
-10-
<PAGE>
<PAGE>
Operating expenses for the first three months of 1997 increased
$1,033,000 from the comparable 1996 period. Timber Processing experienced an
increase in operating expenses of $1,215,000 which was primarily the result of
higher costs associated with the increased sales volume. Operating expenses
at the Utilities decreased by $184,000 which was largely the result of lower
costs associated with transmission and distribution expenses.
General and administrative expenses for the first three months of 1997
decreased $188,000 from the comparable 1996 period. Expenses from the
Utilities decreased $207,000 primarily due to lower health insurance and
benefits expense and improved receivable collections.
Depreciation expense for the first three months of 1997 was $242,000
higher than the 1996 comparable period due to general plant additions at the
Utilities and higher composite annual depreciation rate for BHC's Eastern
division, effective August 1, 1996.
Interest expense for the first three months of 1997 was $784,000 higher
than the 1996 comparable period due to interest expense associated with the
October 1996 debt issuance of $30,000,000 by BHC, as well as the conversion of
the $30,000,000 note of BHC from a variable to fixed rate, partially offset by
lower short-term borrowing rates.
Taxes other than income taxes for the first three months of 1997
increased $196,000 over the comparable 1996 period. Increased property taxes
of $270,000 partially offset by decreased payroll and gross earnings taxes of
$74,000 account for this variance.
Income taxes for the three months of 1997 were $256,000 higher than the
comparable 1996 period due to higher taxable income in 1997.
Significant changes in balance sheet accounts
- ---------------------------------------------
for the three months ended March 31, 1997
- -----------------------------------------
The decrease of $15,353,000 in other current assets is largely the
result of the consummation of the sale of IEA.
The decrease of $8,300,000 in short-term borrowings is principally due
to the repayment of short-term debt with the proceeds from the sale of IEA.
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, 1996.
-11-
<PAGE>
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At the Annual Meeting of Shareholders of the Company held on April 22,
1997, three directors were elected to a three-year term. The shareholders
elected George W. Edwards with 5,432,845 affirmative votes cast and 316,616
withheld, G. Jackson Ratcliffe with 5,434,278 affirmative votes cast and
315,183 withheld and Richard K. Schmidt with 5,433,364 votes cast and 315,097
withheld.
Shareholders ratified the selection of Price Waterhouse LLP as
independent accountants for 1997 with 5,679,846 affirmative votes cast, 28,658
negative votes and 40,957 abstentions.
In addition, the shareholders approved an amendment to the Company's
Stock Incentive Plan with 4,723,292 affirmative votes cast, 852,379 negative
votes, 173,790 abstentions.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
27 Financial Data Schedule (filed herewith)
(b) The Company did not file a report on Form 8-K for the three months
ended March 31, 1997.
-12-
<PAGE>
<PAGE>
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 15, 1997 By /s/JANET M. HANSEN
--------------------------- -----------------------------
Janet M. Hansen
Executive Vice President
Chief Financial Officer and
Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1997 AQUARION COMPANY FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3177
<SECURITIES> 0
<RECEIVABLES> 9998
<ALLOWANCES> 1326
<INVENTORY> 3372
<CURRENT-ASSETS> 37728
<PP&E> 460961
<DEPRECIATION> 134408
<TOTAL-ASSETS> 445506
<CURRENT-LIABILITIES> 37519
<BONDS> 153379
0
0
<COMMON> 7115
<OTHER-SE> 116467
<TOTAL-LIABILITY-AND-EQUITY> 445506
<SALES> 23389
<TOTAL-REVENUES> 23389
<CGS> 0
<TOTAL-COSTS> 16463
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 88
<INTEREST-EXPENSE> 2876
<INCOME-PRETAX> 4287
<INCOME-TAX> 1899
<INCOME-CONTINUING> 2388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2388
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
