<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, 1995
-------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 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, 1995 32,515,422
-----------
<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,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
UTILITY PLANT, including $15,136 and $24,505 under construction $1,316,397 $1,272,446
LESS accumulated depreciation 251,308 235,962
---------- ----------
1,065,089 1,036,484
---------- ----------
UTILITY PLANT ACQUISITION ADJUSTMENTS, NET 72,597 73,444
---------- ----------
REAL ESTATE AND OTHER INVESTMENTS, less accumulated
depreciation of $14,979 and $12,430 110,152 107,315
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 7,298 9,840
Restricted cash 56,839 30,227
Accounts receivable and unbilled revenues, net 70,140 59,292
Prepaid and other current assets 15,944 13,425
---------- ----------
150,221 112,784
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Recoverable income taxes 44,627 48,295
Prepaid and deferred employee benefits 27,816 24,290
Unamortized debt expense 26,367 25,253
Other deferred charges and assets 34,034 29,562
---------- ----------
132,844 127,400
---------- ----------
$1,530,903 $1,457,427
========== ==========
CAPITALIZATION AND LIABILITIES
- ------------------------------
CAPITALIZATION:
Common stock and retained earnings $ 358,489 $ 350,495
Preferred stock without mandatory redemption 9,000 9,000
Preferred stock with mandatory redemption 54,416 54,696
Preference stock, convertible, with mandatory redemption 43,638 43,477
Long-term debt 559,419 505,204
---------- ----------
1,024,962 962,872
---------- ----------
CURRENT LIABILITIES:
Notes payable 38,500 76,450
Preferred stock and long-term debt due within one year 13,162 10,246
Accounts payable and other accruals 31,913 36,541
Accrued taxes 31,359 28,744
Accrued customer benefits 1,167 3,707
Accrued interest and other current liabilities 18,833 9,876
---------- ----------
134,934 165,564
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes and investment tax credits 159,411 163,020
Customer advances for construction 29,564 30,459
Contributions in aid of construction 125,144 115,642
Other deferred credits and liabilities 56,888 19,870
---------- ----------
371,007 328,991
---------- ----------
$1,530,903 $1,457,427
========== ==========
</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,
------------------- -------------------
1995 1994* 1995 1994*
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 96,384 $ 93,487 $ 251,359 $ 214,899
-------- -------- --------- ---------
OPERATING EXPENSES:
Operation and maintenance 40,840 40,223 117,743 101,642
Depreciation and amortization 7,347 7,383 22,704 17,795
General taxes 13,086 12,347 37,402 31,194
-------- -------- --------- ---------
TOTAL OPERATING EXPENSES 61,273 59,953 177,849 150,631
-------- -------- --------- ---------
OPERATING INCOME 35,111 33,534 73,510 64,268
-------- -------- --------- ---------
INTEREST AND OTHER EXPENSES:
Interest expense, net of amount capitalized 10,542 10,071 32,006 25,591
Allowance for funds used during construction (490) (242) (1,500) (906)
Preferred stock dividends of subsidiaries 573 578 1,725 1,740
Other income, net (454) (1,660) (868) (5,116)
-------- -------- --------- ---------
TOTAL INTEREST AND OTHER EXPENSES 10,171 8,747 31,363 21,309
-------- -------- --------- ---------
INCOME BEFORE INCOME TAXES 24,940 24,787 42,147 42,959
PROVISION FOR INCOME TAXES 9,348 9,497 15,757 16,502
-------- -------- --------- ---------
NET INCOME 15,592 15,290 26,390 26,457
Preferred and preference stock dividends 1,198 1,196 3,594 2,257
-------- -------- --------- ---------
NET INCOME APPLICABLE TO COMMON STOCK $ 14,394 $ 14,094 $ 22,796 $ 24,200
======== ======== ========= =========
AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 32,202 30,625 31,798 26,463
NET INCOME PER COMMON SHARE $0.45 $0.46 $0.72 $0.91
===== ===== ===== =====
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.
*Certain items have been reclassified to conform with current year
classifications.
<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,
---------------------------------------
1995 1994*
------ -------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 26,390 $ 26,457
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 23,278 18,753
Deferred income taxes and investment tax credits, net (3,609) 7,150
Gain from release of security deposit on real estate settlement -- (2,811)
Allowance for funds used during construction (AFUDC) (1,500) (906)
Changes in assets and liabilities, net of effect of Merger:
Accounts receivable and unbilled revenues (10,848) (17,351)
Prepaid and other current assets (2,519) 1,570
Prepaid and deferred employee benefits (3,526) (2,836)
Recoverable income taxes 3,668 (671)
Accounts payable and other accruals (5,384) (2,797)
Accrued taxes 2,907 (1,227)
Accrued interest and other current liabilities 1,082 (3,540)
Accrued customer benefits (2,540) (2,283)
Other, net (5,103) (6,428)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,296 13,080
-------- --------
INVESTING ACTIVITIES:
Additions to utility plant (excludes AFUDC) (47,306) (31,435)
Additions to real estate and other properties (3,397) (4,520)
Acquisition of GWC, net of cash received -- (5,059)
Investment in Hoboken service contract -- (5,500)
Change in restricted cash (26,612) 12,981
Proceeds from Rio Rancho transfer 35,330 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (41,985) (33,533)
-------- --------
FINANCING ACTIVITIES:
Change in notes payable (37,950) 41,350
Additional long-term debt 67,000 69,006
Reduction in preferred stock and long-term debt (9,990) (95,561)
Issuance of common stock 14,999 18,064
Dividends on common stock (21,925) (18,704)
Dividends on preferred and preference stock (3,594) (2,257)
Net contributions and advances for construction 8,607 2,522
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,147 14,420
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,542) (6,033)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,840 8,933
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,298 $ 2,900
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 30,350 $ 20,920
Income taxes 8,312 4,063
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
*Certain items have been reclassified to conform with current year
classifications.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 - GENERAL
- ----------------
In the opinion of United Water Resources (United Water, 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 and other matters are
disclosed in the Company's audited consolidated financial statements included in
its 1994 Annual Report on Form 10-K, which should be read in conjunction with
these financial statements.
In March 1995, the Company changed the names of many of its operating
subsidiaries. By adopting "United Water" in the names of its utility
subsidiaries, the Company will achieve a unified corporate identity and greater
national recognition. The new names of some of the larger operating subsidiaries
are United Water New Jersey (formerly Hackensack Water Company), United
Waterworks (formerly General Waterworks Corporation) and United Water New York
(formerly Spring Valley Water Company). The new names are used hereafter.
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, United Water and GWC Corporation (GWC) merged (the
Merger), with United Water 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 condensed income statement information for the
period ended September 30, 1995 and the pro forma income statement for the
period ended September 30, 1994 are presented for comparative purposes. The
unaudited pro forma September 30, 1994 income statement gives effect to the
Merger as if it had occurred at the beginning of that period. 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,
-------------
1995 1994
-------- --------
(actual) (pro forma)
<S> <C> <C>
Operating revenues $251,359 $244,095
Operating income 73,510 70,272
Net income applicable to common stock 22,796 24,034
Net income per common share $0.72 $0.80
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
MERGER
- ------
On April 22, 1994, United Water completed the Merger with GWC, in
which United Water was the surviving corporation. GWC's principal assets
included 100% of the stock of General Waterworks Corporation (now known as
United Waterworks), which owns regulated water and wastewater utilities
operating in 13 states, and a 25% indirect investment in JMM Operational
Services, Inc. (JMM). JMM provides operations and management services to
government and industry for water and wastewater treatment facilities. The
Merger was accounted for under the purchase method and resulted in the recording
of a utility plant acquisition adjustment of $67 million. The financial results
of the former subsidiaries of GWC are included in the Company's financial
results beginning April 1, 1994.
GENERAL
- -------
United Water New Jersey and United Water New York (a subsidiary of
United Water New Jersey) provide public water supply services to more than one
million people in northern New Jersey and southern New York. United Waterworks
provides public water supply services to approximately one million people in 13
states. Its major utility operations are located in Arkansas, Delaware, Florida,
Idaho, New Jersey, New York and Pennsylvania. In addition, its utility in
Florida also provides wastewater collection and treatment services, generally to
its 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 Group (United Properties), United Water's real
estate subsidiary, is a non-regulated business engaged in real estate investment
and development activities, including commercial office and retail properties,
residential and commercial land development, golf course operations and
consulting services. It owns a portfolio of real estate located in New Jersey,
New York, Pennsylvania, Idaho, Delaware and Arkansas. United Properties also
provides consulting and advisory services in support of the real estate assets
of the other United Water companies.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net capital expenditures are generally incurred by United Water's
utility subsidiaries in connection with the normal upgrading and expansion of
existing water and wastewater facilities and to comply with existing
environmental regulations. United Water considers its utility plant to be
adequate and in good condition. However, the Company is projecting 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 United Waterworks' utility subsidiaries. These capital expenditures are
necessary to meet growth requirements and to comply with environmental laws and
regulations. Excluding the effects of inflation, the net capital expenditures
of United Water's utility subsidiaries are projected to aggregate $287 million
over the next five years, including $53.7 million and $56.6 million,
respectively, in 1995 and 1996. This total consists of $207 million for United
Waterworks and $74 million for United Water New Jersey and United Water New
York. The expenditures related to compliance with environmental laws and
regulations are estimated to be approximately 25% of the projected net capital
expenditures over the 1995-1999 period. To the best of management's knowledge,
the Company is in compliance with all major environmental laws and regulations.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
United Water anticipates that its future capital expenditures will be
funded by internally generated funds, external debt financings and the issuance
of additional common and preferred stock, including shares issued to existing
shareholders, bondholders, customers and employees under the Company's dividend
reinvestment and stock purchase plans. In addition, United Waterworks and
United Water New York 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,
1995, $56.8 million of proceeds from these financings have not yet been
disbursed to the Company and are included in the consolidated balance sheet as
restricted cash. The amount and timing of the use of these proceeds and of
future financings will depend on actual capital expenditures, the timeliness and
adequacy of rate relief, the availability and cost of capital, and the ability
to meet interest and fixed charge coverage requirements.
United Waterworks owns a utility subsidiary which provides water and
wastewater services to customers in Rio Rancho, New Mexico. In December 1994,
the city of Rio Rancho (the City) filed an Application for Immediate Possession
of the Company's utility system in Rio Rancho. Hearings were held on the
Application, and on March 30, 1995 the court entered an Order For Immediate
Possession (the Order). The Order allowed the City to take possession on June
30, 1995 upon depositing $53 million with the court. In April 1995, the City
and the Company's utility subsidiary entered into a stipulation in settlement of
the condemnation action (the Stipulation) whereby the City will deposit and pay
the Company $69 million for its utility operations in New Mexico plus the amount
of net capital additions made to the water and wastewater systems by the Company
in 1995. The City made the deposits required pursuant to the Order and
Stipulation, and on June 30, 1995, the City assumed possession of the operations
of the utility subsidiary. As of September 1995, in accordance with the
agreement, the Company has withdrawn approximately $35 million of the $69
million. The Company used the proceeds to repay a portion of its outstanding
notes payable. For financial reporting purposes, this sale has not been
recognized as of September 30, 1995. Accordingly, the remaining proceeds of $34
million in deposit with the Court are not included in the Company's assets at
September 30, 1995. See Part II, Legal Proceedings, for further discussion.
United Water plans to utilize the proceeds to fund future capital expenditures
of its utilities. The absence of the Company's utility operations in Rio Rancho
will not have a material effect upon the consolidated financial position or
results of operations of the Company. In 1994, the Company's Rio Rancho utility
had revenues of $11.6 million.
In January 1995, United Water New York issued $12 million of 8.98%
senior notes, the proceeds of which were used to reduce short-term borrowings.
In December 1994, United Waterworks entered into a medium-term note
program that will enable United Waterworks to issue up to $75 million of debt
with terms ranging from 9 months to 30 years. The interest rates will be set as
notes are issued under the program. In February 1995, United Waterworks issued
the first $10 million of notes under this program, at a rate of 8.84%, with the
full amount maturing in 2025. The proceeds were used to redeem outstanding
notes payable.
In June 1995, United Waterworks issued $25 million of 6.20% tax-exempt
Water Revenue Bonds, due 2025, through the Delaware Economic Development
Authority. The proceeds will be used to fund capital improvements of United
Water Delaware (a subsidiary of United Waterworks) over the next three years.
In August 1995, United Waterworks issued $20 million of 6.35% tax-
exempt Water and Sewer Revenue Bonds, due 2025, through the City of
Jacksonville, Florida. The proceeds will be used to fund capital improvements
of United Water Florida (a subsidiary of United Waterworks).
.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
United Properties currently expects to spend $18.6 million over the
next five years for capital expenditures on its existing real estate portfolio.
Expenditures in 1995 and 1996 are projected to be $3.6 million and $7.0 million,
respectively. Funding for these expenditures is anticipated to come from
operations, including the sales of properties and the operation of existing
commercial properties and golf courses, and from the proceeds of new financings.
At September 30, 1995, United Water had cash and cash equivalents of
$7.3 million and unused short-term bank lines of credit of $166.2 million.
Management expects that unused credit lines currently available, cash flows from
operations and cash generated from the dividend reinvestment and stock purchase
plans will be sufficient to meet anticipated future operational needs.
RATE MATTERS
- ------------
The profitability of United Water's regulated utilities is, to a large
extent, dependent upon adequate and timely rate relief. The Company anticipates
that the regulatory authorities that have jurisdiction over its utility
operations will allow the Company's regulated utilities to earn a reasonable
return on their utility investments.
The Company's regulated utilities received twelve rate awards in 1994,
representing an aggregate annual revenue increase of $8.1 million. An estimated
$3.2 million of this amount was reflected in 1994's revenues while the remaining
$4.9 million of carryover impact of the rate awards received in 1994 is expected
to increase revenues in 1995. Eight rate settlements were awarded to the
Company's regulated utilities during 1995 with an aggregate annual rate revenue
increase of $4.3 million. An estimated $3.1 million of this amount will be
reflected in 1995's revenues.
At September 30, 1995, there were two rate cases pending in which the
Company has requested an aggregate annual rate increase of $12.5 million.
United Water New Jersey applied to the New Jersey Board of Public Utilities
(BPU) for an 8.8%, or $10.4 million, increase in their annual revenues to meet
higher operation and maintenance costs. A decision on this application is not
anticipated until the spring of 1996. In the other pending rate case United
Water Toms River and the BPU have reached a settlement that would provide for an
annual revenue increase of $1.0 million with an opportunity to file for a Phase
II rate increase in 1996. A decision on this case is expected in November but
will have a minimal impact on revenues in 1995.
The Company expects to file additional rate cases in 1995, but does
not expect that they will have any impact on 1995 revenues.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1995
- -------------------------------------------------------------
OVERVIEW
United Water's net income applicable to common stock for the third
quarter of 1995 was $14.4 million, up 2.1% from $14.1 million in the comparable
period in 1994. Net income per common share for the third quarter of 1995 was
45 cents as compared to 46 cents for the same period last year. The decline in
net income per share is mainly due to a 5% increase in the average number of
common shares outstanding for the period.
REVENUES
The $2.9 million, or 3.1%, increase in revenues from the same period
in 1994 was attributable to the following factors:
<TABLE>
<CAPTION>
(thousands of dollars) Increase (Decrease)
--------------------------------------------------------------
<S> <C> <C>
Utilities:
Transfer of New Mexico operations ($3,308) (3.5%)
Consumption 3,123 3.3%
Rate awards 2,160 2.3%
Growth 508 0.5%
Other 121 0.1%
Real estate 523 0.6%
Other operations (230) (0.2%)
--------------------------------------------------------------
$ 2,897 3.1%
--------------------------------------------------------------
</TABLE>
Utility revenues were higher in the third quarter of 1995 due to
higher consumption resulting from favorable weather conditions in several
service areas as well as increases following rate case settlements in several
companies. These increases were partially offset by the discontinuance of
utility operations in Rio Rancho, New Mexico on June 30, 1995. Real estate
revenues increased in 1995 due to the absence of property sales in the same
period in 1994.
OPERATING EXPENSES
The increase in operating expenses from the same period in 1994 is due
to the following:
<TABLE>
<CAPTION>
(thousands of dollars) Increase (Decrease)
--------------------------------------------------------------
<S> <C> <C>
Operation and maintenance $617 1.5%
Depreciation and amortization (36) (0.5%)
General taxes 739 6.0%
--------------------------------------------------------------
</TABLE>
The increase in operation and maintenance expenses in 1995 over 1994
was due primarily to operating expenses incurred as a result of the higher level
of consumption. Cost of property sold relating to land sales increased in 1995
due to the absence of property sales in the same period in 1994.
The decrease in depreciation and amortization was primarily due to the
effect of the discontinuance of utility operations in New Mexico.
General taxes increased primarily due to higher real estate and
franchise taxes in utility operations.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1995 (CONTINUED)
- -------------------------------------------------------------
INTEREST EXPENSE
The increase in interest expense of $471,000, or 4.7%, was primarily
due to additional long term debt in 1995 as compared to 1994.
OTHER INCOME
Other income decreased $1.2 million, or 72.7%, due to the write off of
costs associated with an unconsummated business venture in 1995 in addition to a
non-recurring gain on the sale of a wastewater transmission facility in Pine
Bluff, Arkansas in 1994. These were offset in part by interest income generated
from the Rio Rancho, New Mexico escrow deposit and a favorable settlement of a
legal dispute at United Water Toms River.
INCOME TAXES
The effective income tax rates on income before preferred and
preference stock dividends were 36.6% and 37.4% in the third quarter of 1995 and
1994, respectively.
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995
- ------------------------------------------------------------
OVERVIEW
United Water's net income applicable to common stock for the nine
months ended September 30, 1995 was $22.8 million, a decrease of 5.8% from $24.2
million in the comparable period in 1994. Net income per common share was 72
cents as compared to 91 cents for the same period last year. Earnings for the
nine months ended September 30, 1995 fully reflect the April 1994 Merger with
GWC Corporation compared to 1994 which included only six months of combined
operations. Earnings in 1994 reflected the first quarter pre-tax award of $2.8
million in escrow monies to the Company's real estate subsidiary, United
Properties Group, following a foreclosure settlement. Earnings per share for the
nine months ended September 30, 1995 decreased as compared to 1994 due to the
absence of a comparable real estate transaction as well as a 20% increase in the
average number of shares outstanding due to the Merger and shares issued under
the Company's dividend reinvestment and stock purchase plans.
REVENUES
The $36.5 million, or 17.0%, increase in revenues from the same period
in 1994 was attributable to the following factors:
<TABLE>
<CAPTION>
(thousands of dollars) Increase (Decrease)
--------------------------------------------------------------
<S> <C> <C>
Utilities:
Merger with GWC $30,357 14.1%
Rate awards 5,397 2.5%
Transfer of New Mexico operations (3,308) (1.5%)
Consumption 2,095 1.0%
Growth 1,081 0.5%
Other (124) (0.1%)
Real estate (1,449) (0.6%)
Other operations 2,411 1.1%
--------------------------------------------------------------
$36,460 17.0%
--------------------------------------------------------------
</TABLE>
The increased revenues for the nine months ended September 30, 1995
fully reflects the Merger with GWC as compared to only six months of combined
operations in 1994. Rate case settlements for several companies as well as
higher consumption due to favorable weather conditions in several service areas
provided additional revenues. These increases were partially offset by the
discontinuance of utility operations in Rio Rancho, New Mexico. Real estate
revenues were lower as compared to the same period in 1994 primarily due to a
$2.1 million decrease in property sales partially offset by increases in
revenues from golf course operations and rental properties. The increase in
operating revenues from other operations was attributable to a service contract
with the city of Hoboken, which commenced in July 1994, as well as increases in
environmental testing contracts.
OPERATING EXPENSES
The increase in operating expenses from the same period in 1994 is due
to the following:
<TABLE>
<CAPTION>
Total Effect of Net of Merger
(thousands of dollars) Increase Merger Increase (Decrease)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operation and maintenance $16,101 15.8% $16,162 ($61) (0.1%)
Depreciation and amortization 4,909 27.6% 3,704 1,205 6.8%
General taxes 6,208 19.9% 3,753 2,455 7.9%
-------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995 (CONTINUED)
- ------------------------------------------------------------
The decrease in operation and maintenance expenses, excluding the
impact of the Merger with GWC, was due to a $2.1 million decrease in the cost of
properties sold relating to land sales in 1994 and a $1.2 million decrease due
to the discontinuance of utility operations in New Mexico. These were partially
offset by $1.2 million of costs related to the service contract with the city of
Hoboken, costs pertaining to the additional environmental testing and meter
installation contracts and additional operating expenses due to the higher level
of consumption.
The increase in depreciation and amortization, net of the effect of
the Merger, was primarily due to amortization attributable to the service
contract in Hoboken and a one time depreciation adjustment in 1994 on
contributed plant.
General taxes increased primarily due to higher real estate and
franchise taxes in utility operations.
INTEREST EXPENSE
The increase in interest expense of $6.4 million, or 25.1%, was
predominantly due to the Merger, additional long term debt and an increase in
short term borrowings in the first half of 1995 as compared to 1994.
OTHER INCOME
Other income decreased $4.2 million, or 83.0%, primarily due to the
award of $2.8 million in escrow monies to United Properties following a
foreclosure settlement in 1994, a non-recurring gain from the sale of a
wastewater transmission facility in Pine Bluff, Arkansas in 1994 and the write
off of costs associated with an unconsummated business venture in 1995. These
were offset in part by interest income generated by the $34 million New Mexico
escrow deposit and a favorable settlement of a legal dispute at United Water
Toms River.
INCOME TAXES
The effective income tax rates on income before preferred and
preference stock dividends were 35.9% and 36.9% in the nine months ended 1995
and 1994, respectively. The decrease in the effective tax rate is primarily
attributable to a favorable settlement by the Company's real estate subsidiary
pertaining to a tax matter.
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
- --------------------------------
Three suits were filed by Safas Corporation, New Regime Company and
Aircraft Engineering Products against United Water, Dundee Water Power & Land
Co. (Dundee) and United Water New Jersey in September and November 1994 and May
1995 in the Superior Court of New Jersey - Passaic County. The suits allege
that the plaintiffs 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 United Water owns 50% of
the outstanding common stock. North Jersey District Water Supply Commission, the
other 50% shareholder, has also been named as a defendant. Initially, the
plaintiffs in the Safas and New Regime suits voluntarily dismissed United Water
and United Water New Jersey without prejudice from their actions. In August,
1995 Safas and New Regime reinstituted their suits against United Water and
United Water New Jersey. Plaintiffs, in the aggregate, seek damages of several
million dollars. Both United Water's and the North Jersey District Water Supply
Commission's respective policies of insurance name Dundee as an additional
insured. The Company is of the opinion that it, United Water New Jersey and
Dundee have adequate insurance to cover claims of this nature. United Water is
undertaking a continuing investigation of the claims in conjunction with the
North Jersey District Water Supply Commission.
United Waterworks owns a utility subsidiary which provides water and
wastewater services to customers in Rio Rancho, New Mexico. The City of Rio
Rancho (the City) notified United Waterworks that it intended to acquire the
Company's utility operations in Rio Rancho, and on October 28, 1994 commenced
condemnation proceedings in the Thirteenth Judicial District, Sandoval County.
On December 15, 1994, the City filed an Application for Immediate Possession of
the Company's utility system in Rio Rancho. Hearings were held on the
Application, and on March 30, 1995 the court entered an Order For Immediate
Possession (the Order). The Order allowed the City to take possession on June
30, 1995 upon depositing $53 million with the court. On April 19, 1995, the City
and the Company's utility subsidiary entered into a Stipulation in settlement of
the condemnation action (the Stipulation). Under the Stipulation, the City will
deposit and pay the Company $69 million plus the amount of net capital additions
made to the water and wastewater systems by the Company in 1995. The City has
made the deposits required pursuant to the Stipulation and Order, and on June
30, 1995, the City assumed possession of the operations of the utility
subsidiary. As of September 1995, pursuant to the Stipulation, the Company has
withdrawn approximately $35 million of the $69 million deposited by the City.
The balance will be released to the Company upon the satisfaction of certain
conditions contained in the Stipulation, including a requirement that no legal
proceedings will exist which could interfere with the City's ownership or
operation of the utility systems. The New Mexico Public Utilities Commission
(PUC) has ruled that its approval must be obtained before the Company may
relinquish its systems to the City. A hearing for that purpose was held on
September 28, 1995 and, following a hearing examiner's decision issued on
October 23, 1995 which recommended against allowing the relinquishment of
service by the Company, the Company sought, on October 25, 1995, a writ from the
Supreme Court of New Mexico either compelling the PUC to act by a date certain
or ordering that the PUC's action to review the condemnation transaction was
beyond the scope of the PUC's authority. While the writ application was
pending, the PUC issued a ruling on November 7, 1995, refusing to permit the
Company to relinquish service. On November 8, 1995 the Supreme Court of New
Mexico heard oral argument on the matter and ordered that the Company's
application would be treated as a plenary appeal of the PUC's decision and
further ordered that briefs be filed on the appeal by November 20, 1995. The
Court further committed itself to an expeditious decision on the appeal.
The Stipulation between the Company and the City provides that in the
event the transaction has not been completed by October 30, 1995, the
Stipulation shall terminate. In its writ application filed with the Supreme
Court, the Company requested a stay of the Stipulation's termination pending
resolution of the scope of the
<PAGE>
LEGAL PROCEEDINGS (CONTINUED)
- -----------------
PUC's jurisdiction over the transaction. On October 30, 1995, the Supreme Court
granted the Company's request for a stay, without hearing argument, but
following its decision on November 8, the Court lifted its stay of the
termination of the Stipulation. On November 9, 1995, the City notified the
Company that it considered the Stipulation to be of no effect in light of the
lifting of the stay and the Stipulation's having expired of its own terms.
The Company plans to renew its request for a stay of the termination
of the Stipulation by the Supreme Court and will file a brief arguing that the
PUC's decision refusing to honor the agreement with the City is unlawful.
Pending decision by the Supreme Court and possible other legal proceedings, the
Company cannot predict the outcome of the transaction. Management believes that
the resolution of this matter will not have a material adverse effect upon the
financial position or results of operations of the Company
United Water Delaware (formerly Wilmington Suburban Water
Corporation), a subsidiary of United Waterworks, is the subject of a Criminal
Violation Notice issued by 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. United Water Delaware alleges that the
illegal fill was placed on land it owns by one or more third parties without the
knowledge or approval of United Water Delaware. The management of United Water
Delaware 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 United Water
Delaware has taken part in many discussions concerning the level of
participation by all such parties in a remediation. United Water Delaware has
met with the New Castle County authorities and presented a remediation plan. An
application for approval of this plan was submitted to the New Castle County
Department of Planning on May 26, 1995 and the County accepted this proposal on
September 1, 1995. Management believes that the resolution of this matter will
not have a material adverse effect upon the financial position or results of
operations of the Company.
On October 28, 1994, IU International Corporation (IU) filed suit in
the Superior Court of the State of Delaware against United Waterworks alleging
breach of contract and seeking reimbursement from United Waterworks of more than
$3 million, as well as interest thereon. IU's claim is based on certain tax
indemnifications that were part of a stock purchase agreement entered into by
IU, Lyonnaise American Holding, Inc. (LAH), United Waterworks and GWC in
connection with the 1982 purchase of 50% of the outstanding common stock of
United Waterworks by LAH. On June 16, 1995, United Waterworks, LAH and IU
entered into a settlement agreement pursuant to which United Waterworks agreed
to pay IU $800,000 on the date of execution of such agreement. In addition,
United Waterworks agreed to pay IU an additional amount of up to approximately
$1.15 million plus interest thereon (such interest commencing as of September
15, 1993) at United Waterworks' average short-term borrowing rate. Such
payments become due in the event and at the time that certain tax benefits
previously claimed by United Waterworks with respect to its 1992 tax year are
determined to be allowable by the Internal Revenue Service. On June 16, 1995,
United Waterworks paid $800,000 to IU. Pursuant to the settlement agreement, on
June 30, 1995, the parties filed with the court a stipulation of dismissal
dismissing the lawsuit with prejudice. Management believes that the resolution
of this matter will not have a material adverse effect upon the financial
position or results of operations of the Company.
United Water is not a party to any other litigation other than the
routine litigation incidental to the business of United Water. None of such
litigation, either individually or in the aggregate, is material to the business
of United Water.
<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, 1995 By JOHN J. TURNER
----------------- --------------------------------------
(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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,065,089
<OTHER-PROPERTY-AND-INVEST> 110,152
<TOTAL-CURRENT-ASSETS> 150,221
<TOTAL-DEFERRED-CHARGES> 132,844
<OTHER-ASSETS> 72,597
<TOTAL-ASSETS> 1,530,903
<COMMON> 299,783
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 58,706
<TOTAL-COMMON-STOCKHOLDERS-EQ> 358,489
98,054
9,000
<LONG-TERM-DEBT-NET> 559,419
<SHORT-TERM-NOTES> 38,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 12,902
260
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 454,279
<TOT-CAPITALIZATION-AND-LIAB> 1,530,903
<GROSS-OPERATING-REVENUE> 251,359
<INCOME-TAX-EXPENSE> 15,757
<OTHER-OPERATING-EXPENSES> 177,849
<TOTAL-OPERATING-EXPENSES> 193,606
<OPERATING-INCOME-LOSS> 57,753
<OTHER-INCOME-NET> 643
<INCOME-BEFORE-INTEREST-EXPEN> 58,396
<TOTAL-INTEREST-EXPENSE> 32,006
<NET-INCOME> 26,390
3,594
<EARNINGS-AVAILABLE-FOR-COMM> 22,796
<COMMON-STOCK-DIVIDENDS> 21,925
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 22,296
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
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