<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 1-858-6
-------------
United Water Resources Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2441477
----------------------- --------------------
(State or other Jurisdiction I.R.S. Employer
of Incorporation) (Identification No.)
200 Old Hook Road, Harrington Park, New Jersey 07640
- --------------------------------------------------------------------------------
(Address of principal executive office) (zip code)
201-784-9434
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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
------- -------
Common shares of stock outstanding as of October 31, 1994 30,920,147
-----------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------------------------------
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
UTILITY PLANT, including $16,411 and $ 5,815 under construction $ 1,244,794 $ 605,036
LESS - Accumulated depreciation 232,292 103,557
---------- --------
1,012,502 501,479
---------- --------
UTILITY PLANT ACQUISITION ADJUSTMENT, NET 75,860 632
---------- --------
REAL ESTATE AND OTHER INVESTMENTS, less accumulated
depreciation of $ 12,769 and $ 10,889 107,903 96,312
---------- --------
CURRENT ASSETS:
Cash and temporary cash investments 2,900 8,933
Construction funds 17,756 8,502
Accounts receivable and unbilled revenues, net 67,232 30,544
Materials and supplies 4,649 2,422
Prepayments 11,137 8,213
---------- --------
103,674 58,614
---------- --------
DEFERRED CHARGES AND OTHER ASSETS:
Recoverable income taxes 47,377 26,384
Prepaid and deferred employee benefits 19,840 10,569
Unamortized debt expense 23,387 15,276
Other deferred charges and assets 31,969 31,260
---------- --------
122,573 83,489
---------- --------
$ 1,422,512 $ 740,526
========== ========
CAPITALIZATION AND LIABILITIES
- ------------------------------
CAPITALIZATION:
Common stock and retained earnings $ 348,840 $ 202,110
Preferred stock without mandatory redemption 9,000 9,000
Preferred stock with mandatory redemption 54,706 23,840
Preference stock, convertible, with mandatory redemption 43,424 --
Long-term debt 475,739 276,753
---------- --------
931,709 511,703
---------- --------
CURRENT LIABILITIES:
Notes payable 80,750 15,500
Preferred stock and long-term debt due within one year 9,674 16,843
Accounts payable and other accruals 32,883 12,066
Accrued taxes 25,424 20,454
Accrued interest 9,070 6,590
Accrued customer benefits 4,488 6,771
---------- --------
162,289 78,224
---------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes and investment tax credits 164,619 104,864
Customer advances for construction 31,394 9,319
Contributions in aid of construction 112,431 7,586
Other deferred credits and liabilities 20,070 28,830
---------- --------
328,514 150,599
---------- --------
$ 1,422,512 $ 740,526
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
-------------------- --------------------
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1994 1993 1994 1993
------- ------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES $93,487 $78,225 $214,899 $157,461
------- ------- -------- --------
OPERATING EXPENSES:
Operation and maintenance 40,442 41,222 101,917 79,968
Depreciation and amortization 7,164 3,635 17,520 10,713
General taxes 12,347 8,577 31,194 22,492
------- ------- -------- --------
TOTAL OPERATING EXPENSES 59,953 53,434 150,631 113,173
------- ------- -------- --------
OPERATING INCOME 33,534 24,791 64,268 44,288
------- ------- -------- --------
INTEREST AND OTHER EXPENSES:
Interest expense, net of amount capitalized 10,071 6,002 25,591 16,758
Allowance for funds used during construction (242) (114) (906) (378)
Preferred stock dividends of subsidiaries 578 574 1,740 1,755
Other income (1,660) (237) (5,116) (699)
------- ------- -------- --------
TOTAL INTEREST AND OTHER EXPENSES 8,747 6,225 21,309 17,436
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 24,787 18,566 42,959 26,852
Provision for income taxes 9,497 7,360 16,502 11,016
------- ------- -------- --------
NET INCOME 15,290 11,206 26,457 15,836
Preferred stock dividends 568 -- 1,143 --
Preference stock dividends 628 -- 1,114 --
------- ------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $14,094 $11,206 $ 24,200 $ 15,836
======= ======= ======== ========
AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 30,625 19,566 26,463 19,246
NET INCOME PER COMMON SHARE $0.46 $0.57 $0.91 $0.82
======= ======= ======== ========
DIVIDENDS PER COMMON SHARE $0.23 $0.23 $0.69 $0.69
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 26,457 $ 15,836
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,650 11,780
Deferred income taxes and investment tax credits, net 7,150 33,315
Gain from release of security deposit to United Properties Group (2,811) --
Gain on land transfer -- (10,398)
Valuation reserve -- 4,100
Allowance for funds used during construction (AFUDC) (906) (378)
Changes in assets and liabilities, net of effect of acquisition of GWC:
Accounts receivable and unbilled revenues (17,351) (4,753)
Prepayments 1,946 (837)
Prepaid and deferred employee benefits (2,836) (2,266)
Recoverable income taxes (671) (24,325)
Accounts payable and other accruals 2,203 2,772
Accrued taxes (1,227) (3,524)
Accrued interest (3,540) (1,912)
Accrued customer benefits (2,283) (4,113)
Other, net (6,703) 911
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,078 16,208
-------- --------
INVESTING ACTIVITIES:
Additions to utility plant (excludes AFUDC) (33,236) (12,347)
Additions to real estate and other properties (2,753) (4,022)
Acquisition of GWC, net of cash received (5,059) --
Investment in Hoboken service contract (5,464) --
Draw down of construction funds, net 12,981 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (33,531) (16,369)
-------- --------
FINANCING ACTIVITIES:
Change in notes payable 41,350 4,065
Reduction in preferred stock and long-term debt (31,555) (13,363)
Issuance of common stock 18,064 13,909
Dividends on common stock (18,704) (13,304)
Dividends on preferred and preference stock (2,257) --
Net contributions and advances for construction 2,522 (1,110)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 9,420 (9,803)
-------- --------
Net decrease in cash and temporary cash investments (6,033) (9,964)
Cash and temporary cash investments at beginning of period 8,933 17,994
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 2,900 $ 8,030
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
SUPPLEMENTAL INFORMATION
(THOUSANDS OF DOLLARS)
(UNAUDITED)
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
1994 1993
---- ----
<S> <C> <C>
Interest paid (net of amount capitalized) $20,920 $17,770
Income taxes paid 4,063 941
</TABLE>
Supplemental schedule of noncash investing and financing activities involved
with the acquisition of GWC Corporation:
<TABLE>
<S> <C>
Fair value of assets purchased $648,100
Less:
Liabilities assumed 445,371
Common stock issued 123,170
Fair value of preferred stock assumed 31,178
Fair value of preference stock issued 43,322
--------
Net cash paid for GWC $ 5,059
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 1 - GENERAL
- ----------------
In the opinion of United Water Resources (UWR, or the Company), the
accompanying unaudited consolidated financial statements contain all
adjustments, which consist of normal recurring adjustments, necessary for the
fair presentation of the results for the interim periods. Additional footnote
disclosure concerning accounting policies, commitments and contingencies and
other matters are disclosed in the Company's audited consolidated financial
statements included in its 1993 Annual Report on Form 10-K, which should be read
in conjunction with these financial statements.
Due to the seasonal nature of the Company's operations, financial results
for interim periods are not necessarily indicative of the results for a twelve
month period.
NOTE 2 - SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION
- -----------------------------------------------------
On April 22, 1994, UWR and GWC Corporation (GWC) merged (the Merger), with
UWR as the surviving corporation. The acquisition was accounted for as a
purchase, and the financial results of the former subsidiaries of GWC are
included in the Company's financial results beginning April 1, 1994. The
following unaudited pro forma condensed income statement information for the
nine month periods ended September 30, 1994 and 1993 gives effect to the Merger
as if it had occurred at the beginning of each of these periods. Pro forma
results are not necessarily indicative of what actually would have occurred had
the acquisition been in effect for the periods presented. In addition, the pro
forma results are not intended to be a projection of future results.
INCOME STATEMENT INFORMATION FOR THE NINE MONTHS ENDED:
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30,
1994 1993
---- ----
<S> <C> <C>
Operating revenues $244,095 $252,679
Operating income 70,298 72,973
Net income applicable to common stock 24,159 25,624
Net income per common share $ 0.80 $ 0.90
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
MERGER
- ------
On April 22, 1994, United Water Resources Inc. (UWR) and GWC Corporation
(GWC) merged (the Merger), with UWR as the surviving corporation. GWC's
principal assets included 100% of the stock of General Waterworks Corporation
(General Waterworks), which owns regulated utilities operating in 14 states, and
a 25% indirect investment in JMM Operational Services, Inc. (JMM), a company
that provides operations and management services to government and industry for
water and wastewater treatment facilities. In exchange for the common stock of
GWC that was issued and outstanding immediately preceding the Merger, UWR (i)
issued 9,295,860 shares of UWR Common Stock, (ii) issued 3,341,078 shares of UWR
5% Convertible Preference Stock, which has a liquidation price of $13.794 per
share, and (iii) paid former shareholders of GWC $8,870,397 in cash. In
addition, at the time of the Merger, each issued and outstanding share of GWC
7 5/8% Preferred Stock was converted into one fully paid non-assessable share of
UWR 7 5/8% Preferred Stock with equal stated dividends and substantially similar
rights, privileges, qualifications and restrictions.
Prior to the Merger, Lyonnaise American Holding, Inc. ("LAH"), a Delaware
corporation and a wholly-owned subsidiary of Lyonnaise Des Eaux, a French
societe anonyme, owned approximately 81.9% of GWC's Common Stock, and the
remaining 18.1% of the GWC Common Stock was publicly traded. On the date of the
Merger, LAH converted 70% of its shares of GWC Common Stock into UWR Common
Stock and the remainder of its shares of GWC Common Stock into UWR 5%
Convertible Preference Stock. Immediately after the Merger, LAH owned
approximately 25.4% of the issued and outstanding UWR Common Stock and
approximately 97.7% of the issued and outstanding UWR 5% Preference Stock.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Capital expenditures by UWR's utility subsidiaries, including the utility
subsidiaries of General Waterworks acquired in the merger with GWC, are
generally incurred in connection with the normal upgrading and expansion of
existing water and wastewater facilities and to comply with existing
environmental regulations. UWR considers its utility plants to be adequate and
in good condition but is projecting significantly higher levels of capital
expenditures during the next five years due to the addition of new, or expansion
of existing, water treatment and source of supply facilities by the utility
subsidiaries of General Waterworks to meet growth requirements or to comply with
environmental laws. The net capital expenditures of UWR's utility subsidiaries
are projected at $48.4 million in 1994 (excluding the net capital expenditures
of General Waterworks prior to the date of the merger) and $59.8 million in
1995. For the five year period from 1994 to 1998, the net capital expenditures
of UWR's utility subsidiaries are estimated to aggregate $285 million. This
total includes $205 million of net capital expenditures estimated to be spent by
regulated utility operations of General Waterworks and $80 million of net
capital expenditures by Hackensack Water Company (Hackensack) and Spring Valley
Water Company (Spring Valley). Net capital expenditures represent gross capital
expenditures for construction programs, less advances and contributions in aid
of construction received from customers, primarily real estate developers, to
fund capital expenditures to serve new customers.
UWR anticipates that this construction program will be funded by internally
generated funds from operations and proceeds from external financings. In
addition, General Waterworks and Spring Valley are parties to a number of tax-
exempt financings for the purpose of funding capital expenditures. Funds are
drawn down on these financings as qualified capital expenditures are made. As of
September 30, 1994, $17.7 million of proceeds from these financings have not yet
been disbursed to the Company.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
In January 1994, Hackensack redeemed $10 million of First Mortgage Bonds,
9-3/4% Series, due 2006, and in April 1994 refinanced $40 million of tax-exempt
bonds, using the proceeds from the issuance of $20 million of 5.80% bonds and
$20 million of 5.9% bonds, both due in 2024. In June 1994, Spring Valley
refinanced $27 million of 1988 EFC 7.7% - 8% notes, due 2018, by issuing $12
million of 6.15% notes and $15 million of 6.3% notes, due 2024. In August 1994,
Spring Valley filed a petition with the PSC seeking the Commission's approval to
issue $12 million of long-term debt so as to reduce its short-term borrowings.
This short-term debt was incurred in part when Spring Valley redeemed $5 million
of Series E, 4.7% First Mortgage Bonds at maturity on August 1, 1994. The
Company expects approval by December 31, 1994. In October 1994, General
Waterworks issued $20 million of 6.40% tax-exempt bonds, due 2024, to finance
certain capital expenditures of Boise Water Corporation, a wholly-owned
subsidiary of General Waterworks.
United Properties Group (United Properties), formerly Rivervale Realty
Company, currently expects to spend $28 million over the next five years for
capital expenditures on its existing real estate portfolio. Expenditures in 1995
and 1996 are projected to be $2.5 million and $6.5 million, respectively.
Funding for these expenditures is expected to be provided by internally
generated cash.
At September 30, 1994, UWR had cash and temporary cash investments of $2.9
million and unused short-term bank lines of credit of $108.5 million. Management
expects that unused credit lines currently available and cash flows from
operations will be sufficient to meet the Company's anticipated future
operational and capital needs.
GENERAL
- -------
Hackensack and Spring Valley, (a subsidiary of Hackensack) provide public
water supply service to more than one million people in northern New Jersey and
southern New York. General Waterworks provides public water supply services to
approximately one million people in 14 states. Its major utility operations are
located in Arkansas, Delaware, Florida, Idaho, New Jersey, New Mexico, New York
and Pennsylvania. In addition, two of its utilities, in Florida and New Mexico,
also provide wastewater collection and treatment services, generally to their
water customers. The water utility business is cyclical in nature, as both
revenues and earnings are higher in the summer months when customer consumption
is higher than in the cooler months.
United Properties, UWR's real estate subsidiary, is a non-regulated
business engaged in real estate acquisitions and development, leasing and sales,
golf course operations and consulting activities. It owns properties in Bergen
and Essex Counties, New Jersey; and Orange, Westchester and Rockland Counties,
New York.
<PAGE>
RATE MATTERS
- ------------
HACKENSACK WATER COMPANY
On October 12, 1993, a rate increase of approximately 3.1%, or $3.5
million, became effective. This increase, which resulted from the settlement of
a dispute involving a transfer of land from Hackensack to Rivervale, will not
have a cash flow effect on UWR for approximately two years, because offsetting
credits related to the settlement will be applied to customer bills during that
period.
SPRING VALLEY WATER COMPANY
In July 1992, Spring Valley applied to the Public Service Commission (PSC)
of the State of New York for permission to increase its annual revenues by $5
million, or 14.4%, to offset the effects of continued investment in plant
facilities and increases in operating expenses. On May 12, 1993, the PSC
rendered its decision, allowing Spring Valley an overall rate of return of 8.75%
and a return on equity of 10.5%. The decision, which provided for an increase in
annual revenues of approximately $1.9 million, or 5.7%, became effective on May
30, 1993. The PSC also allowed Spring Valley to recover approximately $850,000
of previously deferred expenses and required it to refund certain revenue
credits of approximately $1 million immediately. This action, which resulted in
a one-time increase in revenues and various expenses in the second quarter of
1993, did not have a material effect on net income. The PSC's decision also
permitted Spring Valley to submit a second stage filing after February 1, 1994
to recover increases in property taxes, salaries and wages, and medical benefits
that were not provided for in their previous determination. In February 1994,
Spring Valley made its second-stage filing, and on July 12, 1994 the PSC issued
an Order granting Spring Valley a $1.4 million increase in revenues, or 3.8%,
effective July 14, 1994.
On June 22, 1994, Spring Valley applied to the PSC for permission to
increase its annual revenues by $2.5 million, or 6.1%, to offset the effects of
continued investment in plant facilities and increases in operating expenses and
general taxes that have occurred since the last general rate case. Spring Valley
expects a Commission decision on its request in the Spring of 1995.
The PSC's May 1993 decision also directed Spring Valley to institute a
Revenue Reconciliation Clause (RRC), which requires Spring Valley to reconcile
billed revenues with the pro forma revenues that were used to set rates. Any
variances outside a 1% range are accrued or deferred for subsequent recovery
from or refund to customers. As a result of the hot weather experienced during
the summer of 1993, the RRC resulted in the deferral of $1.4 million of revenue,
which was used in part to recover certain deferred costs. The remaining balance,
along with previous RRC credit balances, is being refunded to Spring Valley's
customers over a three-year period, beginning in July 1994.
In 1985, the New York PSC authorized the sale and transfer of 23 acres of
land from Spring Valley to Rivervale. Subsequently, the PSC initiated an
administrative proceeding arising from an Order inquiring into the price for the
transfer of the land, and in September 1990 ordered Spring Valley to record a
deferred credit that reduced rate base by $1.9 million to reflect the
appreciated value of the property as of the date of sale of the land. In January
1991 Spring Valley filed an appeal with the New York State Supreme Court
Appellate Division regarding the PSC decision, and in February 1992 the
Appellate Division affirmed the action of the PSC. The effect of that decision
on UWR was recognized by an after-tax charge against income of $809,000 in 1991.
Spring Valley filed with the New York Court of Appeals a Motion for Leave to
Appeal, which was denied on September 17, 1992. Spring Valley submitted a
proposal to the PSC to make a one-time customer refund through billing credits
of a portion of the deferred credit, and this was approved by the Commission on
April 6, 1994. The net effect of this decision on UWR was to recognize a one-
time refund to Spring Valley customers of $281,000 in April 1994.
<PAGE>
RATE MATTERS (CONTINUED)
- ------------
GENERAL WATERWORKS
During the period from April 1, 1994 through September 30, 1994, the
utility subsidiaries of General Waterworks received eight rate awards,
representing an aggregate annual revenue increase of $5.5 million. An estimated
$2.5 million of this amount will be reflected in revenues in the current year.
At September 30, 1994, the utility subsidiaries of General Waterworks had
five rate cases pending. In these five cases, General Waterworks has requested
an aggregate annual revenue increase of approximately $5.4 million, none of
which is expected to affect 1994. The Company expects the utility subsidiaries
of General Waterworks to file additional rate cases in 1994, but does not
anticipate that these rate cases will have any impact on the Company's 1994
results.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1994
- -------------------------------------------------------------
OVERVIEW
UWR's net income applicable to common stock for the third quarter of 1994
was $14.1 million, an increase of 25.8% from $11.2 million in the comparable
period in 1993. Net income per common share for the third quarter of 1994 was 46
cents as compared to 57 cents for the same period last year. The increase in net
income as compared to the third quarter of 1993 represents the net favorable
effect of two offsetting events. Net income increased as a result of the
operations acquired in the merger with GWC in April 1994, which was partially
offset by a one-time gain on an intercompany real estate transaction in 1993.
Earnings per share for the third quarter decreased as compared to 1993; while
the results of General Waterworks produced an increase in earnings per share,
that increase was offset by the effect of the absence in 1994 of a comparable
real estate transaction.
REVENUES
The $15.3 million, or 19.5%, increase in revenues from the same period in
1993 was attributable to the following factors:
<TABLE>
<CAPTION>
OPERATING REVENUES
(thousands of dollars) Increase (Decrease)
-------------------------------------------------------
<S> <C> <C>
Utilities:
Merger with GWC $ 39,393 50.3%
Rate awards 1,462 1.9%
Consumption (2,595) (3.3%)
Other 815 1.0%
Real estate (25,680) (32.8%)
Other operations 1,867 2.4%
-------- ------
$ 15,262 19.5%
</TABLE>
The merger with GWC increased revenues by $39.4 million, or 50.3%, from the
same period in 1993. The increase in revenues from rate awards of 1.9% in 1994
resulted from a 3.1% Hackensack rate increase in October 1993 and a 3.8% Spring
Valley increase in July 1994. The decrease in revenue due to consumption of $2.6
million, or 3.3%, was due to a return to more normal weather conditions in 1994
in Hackensack and Spring Valley. Real estate revenues decreased from the
comparable quarter due to the aforementioned 1993 intercompany real estate
transaction. Meter installation contracts for the City of New York and a service
contract with the City of Hoboken contributed to the increase in operating
revenues from other operations.
COSTS AND EXPENSES
The increase (decrease) in operating expenses from the same period in
1993 is due to the following:
<TABLE>
<CAPTION>
OPERATING EXPENSES
(thousands of dollars) Total Effect of Net of Merger
Increase (Decrease) Merger Increase (Decrease)
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operation and maintenance ($780) (1.9%) $17,204 ($17,984) (43.6%)
Depreciation and amortization 3,529 97.0% 3,505 24 0.7%
General taxes 3,770 44.0% 3,593 177 2.1%
</TABLE>
The decrease in operation and maintenance expense, excluding the effect of
the merger with GWC, represents the net effect of the decrease in costs related
to the intercompany real estate transaction in 1993, offset by higher costs in
1994 related to meter installations under contracts with the City of New York,
the costs of property sales and the service contract with the City of Hoboken.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1994 (CONTINUED)
- -------------------------------------------------------------
INTEREST AND OTHER
Interest expense increased $4.1 million, or 67.8%, representing the net
effect of a $4.5 million increase as a result of the merger, offset, in part, by
lower interest expense due to a reduction in long term debt and lower interest
rates.
Other income increased in the third quarter of 1994 by $1.4 million,
primarily due to the gain on the sale of a wastewater transmission facility in
Pine Bluff, Arkansas.
INCOME TAXES
Federal income tax expense increased by $2.1 million, or 29%, largely due
to the increase in income before income taxes. The effective tax rate in the
third quarter of 1994 was 37.4%, down from 38.5% in the third quarter of 1993,
due to lower taxes on real estate transactions.
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1994
- ------------------------------------------------------------
OVERVIEW
UWR's net income applicable to common stock for the nine months ended
September 30, 1994 increased $8.4 million, or 52.8%, as compared to the
comparable period in 1993, while earnings per share of common stock increased 9
cents per share. The increase in net income was primarily the result of the
operations acquired in the merger with GWC. Net income from utitily operations
was lower in 1994, primarily because dry weather in 1993 caused revenues, and
net income, to be higher than normal. Net income from real estate was lower in
1994 due to a one-time gain on an intercompany real estate transaction
recognized in 1993.
REVENUES
The $57.4 million, or 36.4%, increase in revenues from the same period in
1993 was attributable to the following factors:
<TABLE>
<CAPTION>
OPERATING REVENUES
(thousands of dollars) Increase (Decrease)
-----------------------------------------------------------------
<S> <C> <C>
Utilities:
Merger with GWC $74,078 47.1%
Rate awards 4,132 2.6%
Consumption (2,130) (1.4%)
Other 49 0.0%
Real Estate (23,419) (14.9%)
Other operations 4,728 3.0%
-------- ------
$57,438 36.4%
</TABLE>
The merger with GWC increased revenues $74.1 million, or 47.1%, in 1994.
The increase in revenues from rate awards of 2.6% resulted from rate increases
of 5.7% and 3.8% in May 1993 and July 1994, respectively, for Spring Valley and
a 3.1% rate increase in October 1993 for Hackensack. Lower consumption due to a
return to more normal weather conditions in 1994 resulted in a $2.1 million
decrease in operating revenues from the prior year. Real estate revenues
decreased, primarily due to the aforementioned 1993 intercompany land
transaction. Meter installation contracts for the City of New York and a service
contract with the City of Hoboken contributed to the increase in operating
revenues from other operations over the same period in 1993.
COSTS AND EXPENSES
The increase (decrease) in operating expenses from the first nine months
in 1993 was due to the following:
<TABLE>
<CAPTION>
OPERATING EXPENSES
(thousands of dollars) Total Effect of Net of Merger
Increase (Decrease) Merger Increase (Decrease)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operation and maintenance $21,949 27.4% $33,490 ($11,541) (14.4%)
Depreciation and amortization 6,807 63.5% 7,025 (218) (2.0%)
General Taxes 8,702 38.7% 7,283 1,419 6.3%
</TABLE>
The decrease in operation and maintenance expense, excluding the effect of
the merger with GWC, represents the net effect of the decrease in costs related
to the intercompany real estate transaction in 1993, offset by higher costs in
1994 related to meter installations under contracts with the City of New York,
the cost of property sales and the service contract with the City of Hoboken.
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1994 (CONTINUED)
- ------------------------------------------------------------
INTEREST AND OTHER
Interest expense increased $8.8 million, or 52.7%, primarily as a result
of the merger.
Other income increased $4.4 million in the first nine months of 1994
primarily due to the favorable settlement of a foreclosure action filed by
United Properties related to a golf course property and the gain from the sale
of a wastewater transmission facility in Pine Bluff, Arkansas.
INCOME TAXES
Income tax expense increased $5.5 million, or 49.8%, primarily due to the
merger with GWC. The effective income tax rate decreased to 36.9%, from 38.5% in
1993, largely due to a rate decision in Spring Valley which resulted in the
recognition in 1993 of deferred IRS audit adjustments relating to the previously
settled 1981 through 1988 IRS audit.
EFFECTS OF INFLATION
Operating income from utility operations is normally not materially
affected by inflation because cost increases generally lead to proportionate
increases in revenues allowed through the regulatory process. However, there is
a lag in the recovery of higher expenses through the regulatory process;
therefore, high inflation could have a detrimental effect on the company until
sufficient rate increases are received. Conversely, lower inflation and lower
interest rates tend to result in reductions in the rates of return allowed by
the utility commissions, as has happened over the last several years.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------------------------------
The Paterson Municipal Utilities Authority (PMUA) filed suit against
Hackensack and the North Jersey District Water Supply Commission in 1990. The
suit was based on PMUA's alleged ownership of various water rights in the
Passaic River, which rights the PMUA claimed were, or may have been, affected by
diversions from the Wanaque South Project, in which Hackensack is an equal
partner with the North Jersey District Water Supply Commission. Hackensack's
Motion for Summary Judgement, dismissing the Complaint, was granted by the trial
court on July 23, 1992. On October 5, 1992, the PMUA filed a Notice of Appeal;
the matter was argued before the Appellate Division in April 1994, and the
Appellate Division in May 1994 affirmed the dismissal. The PMUA appealed to the
New Jersey Supreme Court, which denied certification of this appeal on September
13, 1994.
A suit was filed against UWR, Dundee Water, Power & Land Co. (Dundee) and
Hackensack in September 1994. The suit alleges that the plaintiff suffered
property damages as a result of an alleged breach in a berm surrounding the
Dundee Canal, allowing water to escape. The Dundee Canal is the property of
Dundee, a corporation of which UWR owns 50% of the outstanding common stock.
While an assessment of the property damages being alleged has not yet been
completed, it is believed that such claims will be in excess of $500,000. An
answer to the Complaint will be filed on behalf of UWR, Hackensack and Dundee.
All three companies have adequate insurance to cover claims of this nature. UWR
is undertaking a continuing investigation of the claims in conjunction with the
North Jersey District Water Supply Commission, the other 50% co-owner of Dundee.
Management believes UWR, Hackensack and Dundee have meritorious defenses to the
aforementioned claims and intends to contest them vigorously.
General Waterworks owns a utility subsidiary which provides water and
wastewater services to customers in Rio Rancho, New Mexico ("Rio Rancho"). The
City of Rio Rancho notified General Waterworks that it intends to acquire the
utility operations, and on October 28, 1994 commenced condemnation proceedings.
New Mexico's condemnation laws require that the city pay the Company fair market
value for any assets that are taken by the city in a condemnation proceeding.
Consequently, the Company expects that any condemnation, or sale in lieu of
condemnation, should result in the Company at least recovering its investment in
its Rio Rancho operations. In 1993, Rio Rancho had revenues of $10,280,000 and
at December 31, 1993 had a net investment in utility plant of $43,904,000.
Wilmington Suburban Water Corporation ("Wilmington Suburban"), a
subsidiary of General Waterworks, is the subject of a Criminal Violation Notice
issued by the New Castle County, Delaware Department of Public Works (the
"Notice"). The Notice, dated April 15, 1992, describes the violation as being an
illegal placement of fill in a floodplain in contravention of the New Castle
County Zoning and Drainage Codes. Wilmington Suburban alleges that the illegal
fill was placed on land it owns by one or more third parties without the
knowledge or approval of Wilmington Suburban. The management of Wilmington
Suburban has responded to the Notice by engaging hydrogeological engineers to
investigate the feasibility of a mitigation and remediation plan which would be
consistent with the appropriate County Ordinances. Violation notice forms also
were issued to other similarly situated property owners, and Wilmington Suburban
has taken part in many discussions concerning the level of participation by all
such parties in a remediation. Wilmington Suburban has met with the New Castle
County authorities and presented a plan to partially remediate the fill. It is
expected that the County will accept this proposal.
<PAGE>
LEGAL PROCEEDINGS (CONTINUED)
- -----------------
On October 28, 1994, IU International Corporation ("IU") filed suit
against General Waterworks alleging breach of contract and seeking reimbursement
of more than $3 million of income tax payments by IU, as well as interest on
such amounts. In 1982, LAH purchased 50% of the outstanding common stock of GWC
from IU, and in 1985 purchased the remaining 50%. IU's claim is based on certain
tax indemnifications that were part of a stock purchase agreement entered into
by IU, LAH, General Waterworks and GWC in connection with the 1992 purchase. The
management of General Waterworks believes it has meritorious defenses to the
aforementioned claims and that its resolution will not have a material adverse
effect upon the financial position or results of operations of the Company.
In addition to the matters mentioned herein, UWR is involved in litigation
dealing with numerous aspects of its business operations. Based upon advice from
counsel, management believes UWR and its affiliates, including Hackensack,
Spring Valley, General Waterworks and its subsidiaries and United Properties
have meritorious defenses in all of the claims which remain pending and intends
to contest them vigorously. The likelihood that the ultimate resolution of legal
proceedings would have a material effect upon the financial position or results
of operations of UWR or its subsidiaries is considered to be remote.
<PAGE>
S I G N A T U R E
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.
UNITED WATER RESOURCES INC.
---------------------------
(Registrant)
Date: November 14, 1994 By___________________________________
----------------- (Signature)
John J. Turner
Treasurer
DULY AUTHORIZED AND CHIEF
ACCOUNTING OFFICER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet Statement of Consolidated Income and Statement of
Consolidated Cash Flows and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,088,362
<OTHER-PROPERTY-AND-INVEST> 107,903
<TOTAL-CURRENT-ASSETS> 103,674
<TOTAL-DEFERRED-CHARGES> 122,573
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,422,512
<COMMON> 279,691
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 69,149
<TOTAL-COMMON-STOCKHOLDERS-EQ> 348,840
98,130
9,000
<LONG-TERM-DEBT-NET> 475,739
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 80,750
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 9,414
260
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 400,379
<TOT-CAPITALIZATION-AND-LIAB> 1,422,512
<GROSS-OPERATING-REVENUE> 214,899
<INCOME-TAX-EXPENSE> 16,502
<OTHER-OPERATING-EXPENSES> 150,631
<TOTAL-OPERATING-EXPENSES> 167,133
<OPERATING-INCOME-LOSS> 47,766
<OTHER-INCOME-NET> 4,282
<INCOME-BEFORE-INTEREST-EXPEN> 52,048
<TOTAL-INTEREST-EXPENSE> 25,591
<NET-INCOME> 26,457
2,257
<EARNINGS-AVAILABLE-FOR-COMM> 24,200
<COMMON-STOCK-DIVIDENDS> 18,704
<TOTAL-INTEREST-ON-BONDS> 10,347
<CASH-FLOW-OPERATIONS> 18,078
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
</TABLE>
