<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 JUNE 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 July 31, 1994 30,541,005
-----------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- - -------------------------------
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
---------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- - ------
UTILITY PLANT, including $15,530 and $ 5,815 under construction $1,235,967 $605,668
LESS - Accumulated depreciation 226,241 103,557
---------- --------
1,009,726 502,111
---------- --------
REAL ESTATE AND OTHER INVESTMENTS, less accumulated
depreciation of $ 13,935 and $ 10,889 111,733 96,312
---------- --------
GOODWILL, NET 61,615 --
---------- --------
CURRENT ASSETS:
Cash and temporary cash investments 11,930 8,933
Construction funds 24,311 8,502
Accounts receivable and unbilled revenues, net 63,126 30,544
Materials and supplies 4,568 2,422
Prepayments 9,916 8,213
---------- --------
113,851 58,614
---------- --------
DEFERRED CHARGES AND OTHER ASSETS:
Recoverable income taxes 46,562 26,384
Prepaid and deferred employee benefits 18,860 10,569
Unamortized debt expense 23,782 15,276
Other deferred charges and assets 26,864 31,260
---------- --------
116,068 83,489
---------- --------
$1,412,993 $740,526
========== ========
CAPITALIZATION AND LIABILITIES
- - ------------------------------
CAPITALIZATION:
Common stock and retained earnings $ 336,847 $202,110
Preferred stock without mandatory redemption 9,000 9,000
Preferred stock with mandatory redemption 54,710 23,840
Preference stock, convertible, with mandatory redemption 43,373 --
Long-term debt 480,794 276,753
---------- --------
924,724 511,703
---------- --------
CURRENT LIABILITIES:
Notes payable 79,700 15,500
Preferred stock and long-term debt due within one year 15,493 16,843
Accounts payable and other accruals 30,035 12,066
Accrued taxes 22,111 20,454
Accrued interest 8,736 6,590
Accrued customer benefits 5,405 6,771
---------- --------
161,480 78,224
---------- --------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes and investment tax credits 163,773 104,864
Customer advances for construction 31,023 9,319
Contributions in aid of construction 111,417 7,586
Other deferred credits and liabilities 20,576 28,830
---------- --------
326,789 150,599
---------- --------
$1,412,993 $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 FOR THE SIX
---------------------- ----------------------
MONTHS ENDED JUNE 30, MONTHS ENDED JUNE 30,
---------------------- ----------------------
1994 1993 1994 1993
-------- ------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES $82,397 $43,341 $121,412 $79,236
------- ------- -------- -------
OPERATING EXPENSES:
Operation and maintenance 40,512 20,457 61,475 38,746
Depreciation 6,327 3,562 9,938 7,078
Amortization of goodwill 418 -- 418 --
General taxes 11,475 6,755 18,847 13,915
------- ------- -------- -------
TOTAL OPERATING EXPENSES 58,732 30,774 90,678 59,739
------- ------- -------- -------
OPERATING INCOME 23,665 12,567 30,734 19,497
------- ------- -------- -------
INTEREST AND OTHER EXPENSES:
Interest expense, net of amount capitalized 9,848 5,362 15,520 10,756
Allowance for funds used during construction (537) (130) (664) (264)
Preferred stock dividends of subsidiaries 579 589 1,162 1,181
Other income (402) (259) (3,456) (462)
------- ------- -------- -------
TOTAL INTEREST AND OTHER EXPENSES 9,488 5,562 12,562 11,211
------- ------- -------- -------
INCOME BEFORE INCOME TAXES 14,177 7,005 18,172 8,286
Provision for income taxes 5,377 3,081 7,005 3,656
------- ------- -------- -------
NET INCOME 8,800 3,924 11,167 4,630
Preferred stock dividend 575 -- 575 --
Preference stock dividend 486 -- 486 --
------- ------- -------- -------
NET INCOME APPLICABLE TO COMMON STOCK $ 7,739 $ 3,924 $ 10,106 $ 4,630
======= ======= ======== =======
AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 27,880 19,231 24,660 19,083
NET INCOME PER COMMON SHARE $0.28 $0.20 $0.41 $0.24
======= ======= ======== =======
DIVIDENDS PER COMMON SHARE $0.23 $0.23 $0.46 $0.46
======= ======= ======== =======
</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 SIX MONTHS ENDED JUNE 30,
---------------------------------
1994 1993
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 11,167 $ 4,630
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,316 7,426
Deferred income taxes and investment tax credits, net 6,304 24,081
Gain from release of security deposit to United Properties Group (2,811) --
Allowance for funds used during construction (AFUDC) (664) (264)
Changes in assets and liabilities, net of effect of acquisition of GWC:
Accounts receivable and unbilled revenue (13,245) (1,570)
Prepayments 3,167 1,297
Prepaid and deferred employee benefits (1,856) (1,920)
Recoverable income taxes 144 (20,271)
Accounts payable and other accruals 9,190 1,227
Accrued taxes (4,540) (1,287)
Accrued interest (3,874) (9)
Accrued customer benefits (1,366) 46
Other, net (7,313) (1,885)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,619 11,501
-------- --------
INVESTING ACTIVITIES:
Additions to utility plant (excludes AFUDC) (15,017) (7,225)
Additions to real estate and other properties (6,583) (2,163)
Acquisition of GWC, net of cash received (5,059) --
Draw down of construction funds, net 6,426 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (20,233) (9,388)
-------- --------
FINANCING ACTIVITIES:
Change in notes payable 37,000 (1,480)
Reduction in preferred stock and long-term debt (20,514) (2,378)
Issuance of common stock 12,716 8,654
Dividends on common stock (11,667) (8,794)
Dividends on preferred and preference stock (1,061) --
Net contributions and advances for construction 1,137 (1,043)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 17,611 (5,041)
-------- --------
Net increase (or decrease) in cash and temporary cash investments 2,997 (2,928)
Cash and temporary cash investments at beginning of period 8,933 17,994
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 11,930 $ 15,066
======== ========
</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 SIX MONTHS ENDED JUNE 30,
---------------------------------
1994 1993
------ ------
<S> <C> <C>
Interest paid (net of amount capitalized) $10,686 $10,490
Income taxes paid 1,560 668
</TABLE>
Supplemental schedule of noncash investing and financing activities involved
with the acquisition of GWC Corporation:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets purchased $641,763
Less:
Liabilities assumed 439,082
Common stock issued 123,379
Fair value of preferred stock assumed 30,870
Fair value of preference stock issued 43,373
--------
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
JUNE 30, 1994
NOTE 1 - GENERAL
- - ----------------
In the opinion of United Water Resources (UWR), 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. The Notes to Consolidated Financial Statements
incorporated by reference in UWR's 1993 Annual Report on Form 10-K should be
read with the accompanying financial statements.
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 six month periods ended
June 30, 1994 and 1993 gives effect to the Merger as if it had occurred at the
beginning of those periods. These 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.
<TABLE>
<CAPTION>
INCOME STATEMENT INFORMATION FOR THE SIX MONTHS ENDED: (UNAUDITED)
JUNE 30, JUNE 30,
1994 1993
----------- --------
<S> <C> <C>
Operating revenues $150,608 $138,100
Operating income 36,764 34,607
Net income applicable to common stock 10,065 6,192
Net income per common share $ 0.30 $ 0.22
</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 have 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- - -------------------------------
The primary sources of the funds necessary to pay for this construction
program are expected to be internally generated funds from operations and
proceeds from financings.
In January 1994, Hackensack redeemed $10 million of First Mortgage Bonds, 9-
3/4% Series, due 2006. In April 1994, Hackensack refinanced $40 million of tax-
exempt refunding 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, with $12 million of 6.15% notes and $15 million of 6.3%, due
2024.
General Waterworks is a party to a number of tax-exempt financings for the
purpose of funding expected capital expenditures in several of its larger
utility subsidiaries. The use of these funds and any future financings will
depend upon actual construction expenditures and prevailing market conditions.
United Properties Group (United Properties), formerly Rivervale Realty
Company, currently projects spending $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 projected to be available from internally
generated cash.
At June 30, 1994, UWR had cash and temporary cash investments of $11.9 million
and unused short-term bank lines of credit of $79.7 million, which lines are
generally available to fund UWR's capital needs.
GENERAL
- - -------
Hackensack and Spring Valley, a subsidiary of Hackensack, provide public water
supply service to more than a 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, including primarily 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, with the summer
months accounting for the major portion of the subsidiaries' revenue and
earnings.
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 holds properties in Bergen and
Essex Counties, New Jersey; and Orange, Westchester and Rockland Counties, New
York. Because the timing of property sales, and therefore the earnings, of
UWR's real estate operations tend to be less predictable and regular than those
of the regulated utility operations, the real estate operations generally result
in a greater variability in UWR's earnings pattern.
<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) 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, 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, which will be
used in part to recover certain deferred costs. The remaining balance will be
refunded to Spring Valley customers along with previous RRC credit balances 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 United Water 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 customers of $281,000 in April 1994.
GENERAL WATERWORKS
At June 30, 1994 the utility subsidiaries of General Waterworks had ten rate
cases pending. One of these cases in Boise, Idaho, resulted in a $3.7 million
annual revenue increase in July 1994. In the remaining nine cases, which are
expected to be resolved by early 1995, General Waterworks has requested annual
revenue increases of approximately $5.6 million. Although UWR anticipates that
the utility subsidiaries of General Waterworks will file additional rate cases
in 1994, it does not expect that those rate awards, if received in 1994, will
have a significant impact on revenues in 1994.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994
- - --------------------------------------------------------
OVERVIEW
United Water's consolidated net income applicable to common stock for the
second quarter of 1994 was $7.7 million, an increase of 97.2% from $3.9 million
in the comparable period in 1993. Net income per common share for the second
quarter of 1994 was 28 cents versus 20 cents for the same period last year.
This increase in consolidated net income is primarily attributable to the merger
on April 22, 1994 with GWC Corporation.
REVENUES
The $39.1 million, or 90.1%, increase in revenues from the same period in 1993
is attributable to the following factors:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
OPERATING REVENUES 1994 VS. 1993
(thousands of dollars) ---------------------------
------------------------------------------------------------
<S> <C> <C>
Utilities:
Merger $34,685 80.0%
Rate impact 1,454 3.4%
Consumption 29 0.1%
Other (746) (1.8%)
Real Estate 1,859 4.3%
Other operations 1,775 4.1%
------- -----
$39,056 90.1%
</TABLE>
The merger increased revenues by $34.7 million, or 80.0% from the same period
in 1993. The rate impact of 3.4% in utility revenues in 1994 resulted from a
5.7% Spring Valley rate increase in May 1993, and a 3.1% Hackensack rate
increase in October 1993. The decrease in other utility revenues was a result of
Spring Valley recognizing approximately $1 million in revenue in 1993 relating
to the settlement of the rate case. Real estate revenues increased 4.3% due to a
land sale in the second quarter of 1994. Meter installation contracts for the
City of New York contributed to the 4.1% increase in other operation revenues
over the same quarter in 1993.
COSTS AND EXPENSES
The increase (decrease) in operating expenses from the same period in 1993 is
due to the following:
<TABLE>
<CAPTION>
OPERATING EXPENSES Net of
Consolidated Merger Merger
1994 vs. 1993 Effect 1994 vs. 1993
---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Operation and Maintenance $20,055 98.0% $16,286 $3,769 18.4%
Depreciation 2,765 77.6% 3,102 (337) (9.5%)
Amortization of Goodwill 418 100.0% 418 - -
General Taxes 4,720 69.9% 3,690 1,030 15.2%
</TABLE>
Operation and maintenance increased $20.1 million, or 98.0%, compared to the
same period in 1993, with $16.3 million, or 81.2% of the increase resulting from
the merger. The remaining increase was primarily related to meter installations
for the New York City contract and the cost of property sold.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994 (CONTINUED)
- - --------------------------------------------------------
Depreciation increased by $2.8 million, or 77.6%, over the same period in
1993, including a $3.1 million increase as a result of the merger. The
remaining decrease in depreciation expense was primarily due to a retroactive
adjustment in 1994 related to the depreciation on contributed plant.
General taxes increased by $4.7 million, or 69.9% over 1993; $3.7 million of
the increase was due to the merger. The remainder was due to the recognition by
Spring Valley of $755,000 of reductions in franchise and real estate taxes in
1993.
INTEREST AND OTHER
Consolidated interest expense increased $4.5 million or 83.7% primarily due
to the merger.
Other income increased in the second quarter of 1994 by $143,000, or 55.2%,
largely due to the merger.
INCOME TAXES
Federal income tax expense increased by $2.3 million, or 74.5%, from the same
quarter last year, largely due to the increase in income before income taxes.
The effective income tax rate decreased to 36.4% in 1994 from 40.6% in 1993,
primarily due to the recognition in 1993 of additional income tax expense of
$946,000 relating to a previously settled 1981 through 1988 IRS Audit.
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30. 1994
OVERVIEW
- - --------
United Water's consolidated net income applicable to common stock for the
six months ended June 30, 1994 increased $5.5 million or 118% compared to the
same period in 1993. This increase was primarily the result of the impact of
the Merger on April 22, 1994. Also contributing to this increase was the
recognition of the award of escrow monies to United Properties following a
foreclosure settlement in the first quarter of 1994. The terms of the
settlement required the owner to give up any claims against United Properties
relating to the Emerson golf course, the ownership of which was received in the
settlement by United Properties.
REVENUES
The $42 million, or 53.2%, increase in revenues from the same period in 1993
is attributable to the following factors:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
OPERATING REVENUES 1994 VS. 1993
(thousands of dollars) -------------------------
-------------------------------------------------------------
<S> <C> <C>
Utilities:
Merger $34,685 43.8%
Rate impact 2,670 3.4%
Consumption 465 0.6%
Other (766) (1.1%)
Real Estate 2,261 2.9%
Other operations 2,861 3.6%
------- -----
$42,176 53.2%
</TABLE>
The effect of the merger contributed $34.7 million, or 43.8%, to utility
revenues. The rate impact of 3.4% resulted from a 5.7% Spring Valley rate
increase in May 1993, and a 3.1% Hackensack rate increase in October 1993. The
decrease in other utility revenues was a result of Spring Valley recognizing
approximately $1 million in revenue in 1993 relating to the settlement of the
rate case. Real estate revenues increased 2.9% due to land sales in the first
and second quarters of 1994. Meter installation contracts for the City of New
York contributed to the 3.6% increase in other operation revenues over the same
period in 1993.
COSTS AND EXPENSES
The increase (decrease) in operating expenses from the same period in 1993 is
due to the following:
<TABLE>
<CAPTION>
OPERATING EXPENSES Net of
(thousands of dollars) Consolidated Merger Merger
1994 vs. 1993 Effect 1994 vs. 1993
---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Operation and Maintenance $22,730 58.7 % $16,286 $6,444 16.6%
Depreciation 2,860 40.4 % 3,102 (242) (3.4%)
Amortization of Goodwill 418 100.0 % 418 -- --
General Taxes 4,932 35.4 % 3,690 1,242 (8.9%)
</TABLE>
Operation and maintenance increased $22.7 million, or 58.7%, compared to the
same period in 1993, with $16.3 million, or 71.6%, of the increase resulting
from the merger. The remaining increase was primarily due to expenses related
to meter installation contracts and the cost of properties sold. An increased
number of main breaks caused by severe winter weather and higher chemical costs
for water treatment also contributed to the increase in operation and
maintenance expenses in 1994. In 1993, Spring Valley's expenses were higher due
to the recognition of previously deferred expenses of approximately $850,000.
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1994 (CONTINUED)
- - ------------------------------------------------------
Depreciation increased $2.9 million, or 40.4%, with the merger causing $3.1
million of this increase. A retroactive adjustment in 1994 on contributed plant
offset this increase.
General taxes increased $4.9 million, or 35.4%, $3.7 million of the increase
was due to the merger. The remainder was due in part to the recognition in 1993
of $755,000 of reductions in franchise and real estate taxes.
INTEREST AND OTHER
Consolidated interest expense increased $4.8 million, or 44.3%, primarily as
a result of the merger.
Other income increased in the first half of 1994 by $3 million, or 648.1%,
primarily due to the recognition of the award of escrow monies to United
Properties following a foreclosure settlement.
INCOME TAXES
Income tax expense increased $3.3 million, or 91.6% over the same period
last year primarily due to the increase in income before income taxes. The
effective income tax rate decreased to 36.2% from 38.6% in 1993 largely due to
the recognition in 1993 of additional income tax expense of $946,000 relating to
a 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 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
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The Paterson Municipal Utilities Authority (PMUA) filed suit against
Hackensack and the North Jersey District Water Supply Commission. A Summons and
Complaint were served on August 8, 1990. The suit was based on alleged ownership
of various water rights in the Passaic River owned by the Authority and which
the Authority 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 has appealed to the New Jersey
Supreme Court.
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 United Water 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 customers of $281,000 in April 1994.
General Waterworks owns a utility subsidiary which provides water and
wastewater services to Rio Rancho, New Mexico ("Rio Rancho"). The City of Rio
Rancho has notified General Waterworks that it intends to acquire the utility
operations and has offered to negotiate before commencing condemnation
proceedings, and on March 1, 1994 the citizens of the city approved a
proposition authorizing the city to acquire, by all lawful means, the utility
operations in Rio Rancho. The City has since commenced a due diligence review
of General Waterworks operations in Rio Rancho. 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. 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.
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>
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
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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 Hackensack, Spring Valley, General Waterworks
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 will have a material effect upon the financial position or
results of operations of United Water or its subsidiaries is considered to be
remote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(b) A current report on Form 8-K regarding the merger of GWC
Corporation with and into United Water Resources Inc. was filed by
UWR on May 4, 1994.
<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: August 13, 1994 By /s/ John J. Turner
--------------------------- -----------------------------
(Signature)
John J. Turner
Vice President and
Controller
DULY AUTHORIZED AND CHIEF
ACCOUNTING OFFICER
