<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, 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 July 31, 1995 32,113,430
----------
<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,
1995 1994
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
- ------
UTILITY PLANT, including $19,495 and $24,505 under construction $1,300,139 $1,272,446
LESS accumulated depreciation 246,093 235,962
---------- ----------
1,054,046 1,036,484
---------- ----------
UTILITY PLANT ACQUISITION ADJUSTMENTS, NET 72,987 73,444
---------- ----------
REAL ESTATE AND OTHER INVESTMENTS, less accumulated
depreciation of $14,406 and $12,430 111,142 107,315
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 6,111 9,840
Restricted cash 42,403 30,227
Accounts receivable and unbilled revenues, net 63,561 59,292
Prepaid and other current assets 12,605 13,425
---------- ----------
124,680 112,784
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Recoverable income taxes 46,078 48,295
Prepaid and deferred employee benefits 26,355 24,290
Unamortized debt expense 25,960 25,253
Other deferred charges and assets 32,192 29,562
---------- ----------
130,585 127,400
---------- ----------
$1,493,440 $1,457,427
========== ==========
CAPITALIZATION AND LIABILITIES
- ------------------------------
CAPITALIZATION:
Common stock and retained earnings $ 354,266 $ 350,495
Preferred stock without mandatory redemption 9,000 9,000
Preferred stock with mandatory redemption 54,419 54,696
Preference stock, convertible, with mandatory redemption 43,584 43,477
Long-term debt 552,107 505,204
---------- ----------
1,013,376 962,872
---------- ----------
CURRENT LIABILITIES:
Notes payable 66,750 76,450
Preferred stock and long-term debt due within one year 6,629 10,246
Accounts payable and other accruals 30,071 36,541
Accrued taxes 30,398 28,744
Accrued customer benefits 2,181 3,707
Accrued interest and other current liabilities 7,449 9,876
---------- ----------
143,478 165,564
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes and investment tax credits 162,116 163,020
Customer advances for construction 29,916 30,459
Contributions in aid of construction 122,906 115,642
Other deferred credits and liabilities 21,648 19,870
---------- ----------
336,586 328,991
---------- ----------
$1,493,440 $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 SIX MONTHS
---------------------- ----------------------
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES $83,570 $82,397 $154,975 $121,412
------- ------- -------- --------
OPERATING EXPENSES:
Operation and maintenance 39,260 40,457 76,903 61,419
Depreciation and amortization 7,734 6,800 15,357 10,412
General taxes 12,323 11,475 24,316 18,847
------- ------- -------- --------
TOTAL OPERATING EXPENSES 59,317 58,732 116,576 90,678
------- ------- -------- --------
OPERATING INCOME 24,253 23,665 38,399 30,734
------- ------- -------- --------
INTEREST AND OTHER EXPENSES:
Interest expense, net of amount capitalized 10,884 9,848 21,464 15,520
Allowance for funds used during construction (547) (537) (1,010) (664)
Preferred stock dividends of subsidiaries 574 579 1,152 1,162
Other income, net (226) (402) (414) (3,456)
------- ------- -------- --------
TOTAL INTEREST AND OTHER EXPENSES 10,685 9,488 21,192 12,562
------- ------- -------- --------
INCOME BEFORE INCOME TAXES 13,568 14,177 17,207 18,172
PROVISION FOR INCOME TAXES 4,799 5,377 6,409 7,005
------- ------- -------- --------
NET INCOME 8,769 8,800 10,798 11,167
Preferred and preference stock dividends 1,198 1,061 2,396 1,061
------- ------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 7,571 $ 7,739 $ 8,402 $ 10,106
======= ======= ======== ========
AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 31,807 27,880 31,604 24,660
NET INCOME PER COMMON SHARE $0.24 $0.28 $0.27 $0.41
===== ===== ===== =====
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,
-----------------------------------
1995 1994
----------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 10,798 $ 11,167
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 15,739 11,316
Deferred income taxes and investment tax credits, net (904) 6,304
Gain from release of security deposit on real estate settlement -- (2,811)
Allowance for funds used during construction (AFUDC) (1,010) (664)
Changes in assets and liabilities, net of effect of Merger:
Accounts receivable and unbilled revenues (4,269) (13,245)
Prepaid and other current assets 820 2,872
Prepaid and deferred employee benefits (2,065) (2,054)
Recoverable income taxes 2,217 144
Accounts payable and other accruals (7,226) 9,190
Accrued taxes 1,946 (4,540)
Accrued interest and other current liabilities (2,427) (3,676)
Accrued customer benefits (1,526) (1,366)
Other, net (2,344) (7,018)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,749 5,619
-------- --------
INVESTING ACTIVITIES:
Additions to utility plant (excludes AFUDC) (30,627) (15,017)
Additions to real estate and other properties (3,787) (6,583)
Acquisition of GWC, net of cash received -- (5,059)
Change in restricted cash (12,176) 6,426
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (46,590) (20,233)
-------- --------
FINANCING ACTIVITIES:
Change in notes payable (9,700) 37,000
Additional long-term debt 47,179 67,000
Reduction in preferred stock and long-term debt (4,061) (87,514)
Issuance of common stock 9,896 12,716
Dividends on common stock (14,527) (11,667)
Dividends on preferred and preference stock (2,396) (1,061)
Net contributions and advances for construction 6,721 1,137
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,112 17,611
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,729) 2,997
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,840 8,933
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,111 $ 11,930
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 23,508 $ 10,686
Income taxes 1,535 1,560
</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, 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 June 30, 1995 and the pro forma income statement for the period
ended June 30, 1994 are presented for comparative purposes. The unaudited pro
forma June 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 SIX MONTHS ENDED:
<TABLE>
<CAPTION>
(unaudited)
JUNE 30,
----------------------
1995 1994
--------- -----------
(actual) (pro forma)
<S> <C> <C>
Operating revenues $154,975 $150,608
Operating income 38,399 36,738
Net income applicable to common stock 8,402 9,940
Net income per common share $ 0.27 $ 0.33
</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 and Pennsylvania. 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 $270 million
over the next five years, including $50.3 million and $60.7 million,
respectively, in 1995 and 1996. This total consists of $195 million for United
Waterworks and $75 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 June 30, 1995,
$42.4 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 whereby the City will 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.
In July 1995, in accordance with the agreement, the Company has withdrawn
approximately $35 million of the $69 million. For financial reporting purposes,
this sale has not been recognized as of June 30, 1995 since additional approvals
are required before the transaction is completed. The Company expects the
transfer to be completed in the third quarter of 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 $43.4 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 $17.4
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 June 30, 1995, United Water had cash and cash equivalents of $6.1
million and unused short-term bank lines of credit of $138.7 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 rate 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. Seven rate settlements were awarded
to the Company's regulated utilities during 1995 with an aggregate annual rate
revenue increase of $3.6 million. An estimated $2.8 million of this amount will
be reflected in 1995's revenues.
At the end of June 30, 1995, there were two rate cases pending in
which the Company has requested an aggregate annual rate increase of $4.6
million. Only a portion of the rate increase, if received in 1995, will affect
revenues in 1995. Generally, the rate awards the Company's operating utilities
actually receive are less than the amounts requested. The Company expects to
file additional rate cases in 1995, but does not expect that those rate awards,
if received in 1995, will have a significant impact on revenues in 1995.
In October 1993, a rate increase of approximately 3.1%, or $3.5
million, became effective for United Water New Jersey, the Company's largest
utility subsidiary. This increase resulted from the settlement of a dispute
involving a transfer of land from United Water New Jersey to United Properties.
The increase has had no effect on United Water's cash flows because offsetting
credits related to the settlement and included in accrued customer benefits are
being applied to customer bills until late 1995.
In July 1995, United Water New Jersey applied to the New Jersey Board
of Public Utilities for an 8.8% increase in their water rates. The increase
would generate $10.4 million of annual revenues necessary to meet higher
operations and maintenance costs.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995
- --------------------------------------------------------
OVERVIEW
United Water's net income applicable to common stock for the second
quarter of 1995 was $7.6 million, a decrease of 2.2% from $7.7 million in the
comparable period in 1994. Net income per common share for the second quarter
of 1995 was 24 cents as compared to 28 cents for the same period last year. The
decline in net income per share is mainly due to a 14% increase in the average
number of common shares outstanding for the period.
REVENUES
The $1.2 million, or 1.4%, 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:
Rate awards $ 2,747 3.3%
Consumption (1,164) (1.4%)
Growth 558 .7%
Real estate (1,724) (2.1%)
Other operations 756 .9%
-----------------------------------------------------------
$ 1,173 1.4%
-----------------------------------------------------------
</TABLE>
Revenue increases following rate case settlements in several United
Waterworks companies were partially offset by lower water consumption due to
unfavorable weather conditions in several service areas. Due to the absence of
property sales in 1995, real estate revenues decreased as compared to the same
period in 1994. The increase in operating revenues from other operations was
attributable to a service contract with the city of Hoboken, which commenced in
July 1994. Under this contract, the Company operates and manages the city's
water distribution system.
COSTS AND EXPENSES
The increase in operating expenses from the same period in 1994 is due
to the following:
<TABLE>
(thousands of dollars) Increase (Decrease)
-----------------------------------------------------------
<S> <C> <C>
Operation and maintenance ($1,197) (3.0%)
Depreciation and amortization 934 13.7%
General taxes 848 7.4%
</TABLE>
The decrease in operation and maintenance expenses was due to a $2.1
million decrease in the cost of property sold relating to a land sale in 1994.
This was partially offset by approximately $600,000 of costs related to the
service contract with the city of Hoboken.
The increase in depreciation and amortization 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 due to higher real estate and franchise taxes.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995 (CONTINUED)
- --------------------------------------------------------
INTEREST AND OTHER
The increase in interest expense of $1.0 million, or 10.5%, was
primarily due to additional long term debt and an increase in short term
borrowings in 1995 as compared to 1994.
INCOME TAXES
The effective income tax rates on income before preferred and
preference stock dividends were 33.9% and 36.4% in the second quarter of 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.
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995
- ------------------------------------------------------
OVERVIEW
United Water's net income applicable to common stock for the six
months ended June 30, 1995 was $8.4 million, a decrease of 16.9% from $10.1
million in the comparable period in 1994. Net income per common share was 27
cents as compared to 41 cents for the same period last year. Earnings for the
six months ended June 30, 1995 fully reflect the April 1994 Merger with GWC
Corporation compared to 1994 which included only three months of combined
operations. Earnings in 1994 reflected the first quarter 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 six months
ended June 30, 1995 decreased as compared to 1994 due to the absence of a
comparable real estate transaction as well as an increase in the average number
of shares outstanding due to the Merger.
REVENUES
The $33.6 million, or 27.6%, 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 25.0%
Rate awards 3,237 2.6%
Consumption (1,028) (0.8%)
Growth 573 0.5%
Other (245) (0.2%)
Real estate (1,972) (1.6%)
Other operations 2,641 2.1%
-----------------------------------------------------------
$33,563 27.6%
-----------------------------------------------------------
</TABLE>
The increased revenues for the six months ended June 30, 1995 fully
reflects the Merger with GWC as compared to only three months of combined
operations in 1994. Rate case settlements for several United Waterworks
companies provided additional revenues offset in part by lower consumption due
to unfavorable weather conditions in several service areas. Due to the absence
of real estate sales in 1995, real estate revenues decreased as compared to the
same period in 1994. 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 and meter
installation contracts. Under the service contract, the Company operates and
manages the city's water distribution system.
COSTS AND 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 $15,484 25.2% $16,162 ($678) (1.1%)
Depreciation and amortization 4,945 47.5% 3,704 1,241 11.9%
General taxes 5,469 29.0% 3,753 1,716 9.1%
-------------------------------------------------------------------------------------
</TABLE>
The decrease in operation and maintenance expenses, excluding the
impact of the Merger with GWC, was due to a $2.4 million decrease in the cost of
properties sold relating to land sales in 1994 partially offset by $1.2
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995 (CONTINUED)
- ------------------------------------------------------
million of costs related to the service contract with the city of Hoboken and
costs pertaining to the additional environmental testing and meter installation
contracts.
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 due to higher real estate and franchise taxes.
INTEREST AND OTHER
The increase in interest expense of $5.9 million, or 38.3%, was
predominantly due to the Merger, additional long term debt and an increase in
short term borrowings in 1995 as compared to 1994. Other income decreased $3.0
million, or 88.0%, primarily due to the award of $2.8 million in escrow monies
to United Properties following a foreclosure settlement in 1994.
INCOME TAXES
The effective income tax rates on income before preferred and
preference stock dividends were 34.9% and 36.2% in the six 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. 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. The plaintiffs in the Safas and New Regime suits have
voluntarily dismissed United Water and United Water New Jersey from its action,
having been provided satisfactory evidence by the Company regarding its status
as a shareholder in Dundee. The Company intends to pursue a similar dismissal
with counsel for Aircraft Engineering Products. 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, the other 50% co-owner of Dundee.
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. Under the Stipulation, the City will 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. In July 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 approval by the New Mexico Public Utilities Commission is required for the
Company to relinquish service, and a hearing for that purpose is likely to be
held in August 1995. The Company expects the transfer to be completed in the
third quarter of 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.
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 plan to partially
remediate the fill. An application for approval of this plan was
<PAGE>
LEGAL PROCEEDINGS (CONTINUED)
- -----------------
submitted to the New Castle County Department of Planning on May 26, 1995. It
is expected that the County will accept this proposal. 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: August 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 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,054,046
<OTHER-PROPERTY-AND-INVEST> 111,142
<TOTAL-CURRENT-ASSETS> 124,680
<TOTAL-DEFERRED-CHARGES> 130,585
<OTHER-ASSETS> 72,987
<TOTAL-ASSETS> 1,493,440
<COMMON> 294,680
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 59,586
<TOTAL-COMMON-STOCKHOLDERS-EQ> 354,266
98,003
9,000
<LONG-TERM-DEBT-NET> 552,107
<SHORT-TERM-NOTES> 66,750
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 6,369
260
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 406,685
<TOT-CAPITALIZATION-AND-LIAB> 1,493,440
<GROSS-OPERATING-REVENUE> 154,975
<INCOME-TAX-EXPENSE> 6,409
<OTHER-OPERATING-EXPENSES> 116,576
<TOTAL-OPERATING-EXPENSES> 122,985
<OPERATING-INCOME-LOSS> 31,990
<OTHER-INCOME-NET> 272
<INCOME-BEFORE-INTEREST-EXPEN> 32,262
<TOTAL-INTEREST-EXPENSE> 21,464
<NET-INCOME> 10,798
2,396
<EARNINGS-AVAILABLE-FOR-COMM> 8,402
<COMMON-STOCK-DIVIDENDS> 14,527
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 9,749
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
