<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, 1996
-------------------------
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, 1996 34,281,977
-----------
<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,
1996 1995
------------- ------------
(UNAUDITED)
ASSETS
- -----
<S> <C> <C>
UTILITY PLANT, including $34,750 and $19,899 under construction $1,319,792 $1,334,807
LESS accumulated depreciation 263,512 253,529
------------ -----------
1,056,280 1,081,278
------------ -----------
UTILITY PLANT ACQUISITION ADJUSTMENTS, NET 65,027 71,898
------------ -----------
REAL ESTATE AND OTHER INVESTMENTS, less accumulated
depreciation of $15,992 and $14,626 94,224 98,082
Investment in Northumbrian Partnership 65,862 --
------------ -----------
160,086 98,082
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents 9,181 4,529
Restricted cash 32,840 52,677
Customers' accounts receivable and unbilled revenues, net 69,983 55,325
Other accounts receivable 5,378 7,302
Prepaid and other current assets 15,902 15,103
------------ -----------
133,284 134,936
------------ -----------
DEFERRED CHARGES AND OTHER ASSETS:
Regulatory assets 74,544 70,154
Prepaid employee benefits 14,772 12,319
Unamortized debt expense 26,117 26,242
Other deferred charges and assets 28,271 21,799
------------ -----------
143,704 130,514
------------ -----------
$1,558,381 $1,516,708
============ ===========
CAPITALIZATION AND LIABILITIES
- ------------------------------
CAPITALIZATION:
Common stock and retained earnings $ 373,675 $ 358,302
Preferred stock without mandatory redemption 9,000 9,000
Preferred stock with mandatory redemption 53,994 54,397
Preference stock, convertible, with mandatory redemption 39,254 43,694
Long-term debt 573,065 558,658
------------ -----------
1,048,988 1,024,051
------------ -----------
CURRENT LIABILITIES:
Notes payable 77,725 43,500
Preferred stock and long-term debt due within one year 16,614 13,575
Accounts payable and other accruals 33,549 32,650
Accrued taxes 25,643 25,678
Accrued interest and other current liabilities 19,243 8,246
------------ -----------
172,774 123,649
------------ -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes and investment tax credits 170,740 155,258
Customer advances for construction 25,644 27,804
Contributions in aid of construction 122,437 132,836
Other deferred credits and liabilities 17,798 53,110
------------ -----------
336,619 369,008
------------ -----------
Commitments and contingencies
$1,558,381 $1,516,708
============ ===========
</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,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES $99,478 $96,384 $255,118 $251,359
-------- -------- --------- ---------
OPERATING EXPENSES:
Operation and maintenance 44,369 40,840 121,832 117,743
Depreciation and amortization 8,196 7,347 23,973 22,704
General taxes 13,406 13,086 38,253 37,402
-------- -------- --------- ---------
TOTAL OPERATING EXPENSES 65,971 61,273 184,058 177,849
-------- -------- --------- ---------
OPERATING INCOME 33,507 35,111 71,060 73,510
-------- -------- --------- ---------
INTEREST AND OTHER EXPENSES:
Interest expense, net of amount
capitalized 11,816 10,542 33,612 32,006
Allowance for funds used during
construction (1,048) (490) (2,237) (1,500)
Preferred stock dividends of
subsidiaries 568 573 1,710 1,725
Gain on New Mexico settlement -- -- (10,372) --
Other income, net (3,656) (454) (4,848) (868)
-------- -------- --------- ---------
TOTAL INTEREST AND OTHER
EXPENSES 7,680 10,171 17,865 31,363
-------- -------- --------- ---------
INCOME BEFORE INCOME TAXES 25,827 24,940 53,195 42,147
PROVISION FOR INCOME TAXES 9,169 9,348 21,953 15,757
-------- -------- --------- ---------
NET INCOME 16,658 15,592 31,242 26,390
Preferred and preference stock
dividends 1,137 1,198 3,477 3,594
-------- -------- --------- ---------
NET INCOME APPLICABLE TO COMMON
STOCK $15,521 $14,394 $ 27,765 $ 22,796
======== ======== ========= =========
AVERAGE COMMON SHARES OUTSTANDING
(THOUSANDS) 33,986 32,202 33,505 31,798
NET INCOME PER COMMON SHARE $0.46 $0.45 $0.83 $0.72
======= ======= ======== ========
DIVIDENDS PER COMMON SHARE $0.23 $0.23 $0.69 $0.69
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME $ 31,242 $ 26,390
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 24,612 23,278
Gain on New Mexico settlement (10,372) --
Equity in earnings of affiliates (2,959) --
Deferred income taxes and investment tax credits, net 14,609 (3,609)
Allowance for funds used during construction (AFUDC) (2,237) (1,500)
Changes in assets and liabilities, net of effect of
New Mexico settlement and acquisitions:
Accounts receivable and unbilled revenues (12,301) (10,848)
Prepaid and other current assets (712) (2,519)
Prepaid employee benefits (2,390) (441)
Regulatory assets (5,946) 1,315
Accounts payable and other accruals 549 (5,384)
Accrued taxes (315) 2,907
Accrued interest and other current liabilities 2,989 1,082
Other, net (5,314) (8,960)
------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,455 21,711
------- --------
INVESTING ACTIVITIES:
Additions to utility plant (excludes AFUDC) (43,245) (47,306)
Additions to real estate and other properties (4,242) (3,397)
Investment in Northumbrian Partnership (61,792) --
Proceeds from New Mexico settlement 31,670 35,330
Acquisitions of Matchaponix and Princeton Meadows,
net of cash acquired (6,794) --
Jersey City concession fee (2,500) --
Hoboken concession fee (3,000) --
Change in restricted cash 19,837 (26,612)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (70,066) (41,985)
------- --------
FINANCING ACTIVITIES:
Change in notes payable 34,225 (37,950)
Additional long-term debt 30,538 67,000
Reduction in preferred stock and long-term debt (13,495) (9,990)
Issuance of common stock 14,147 14,999
Dividends on common stock (22,716) (21,925)
Dividends on preferred and preference stock (3,477) (3,594)
Net contributions and advances for construction 4,041 9,192
------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 43,263 17,732
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,652 (2,542)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,529 9,840
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,181 $ 7,298
======= ========
</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)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1996 1995
---- ----
Supplemental disclosures of cash
flow information:
Interest (net of amount capitalized) $29,984 $30,350
Income taxes 5,232 8,312
Supplemental disclosures of non-cash transactions:
In connection with the New Mexico settlement, liabilities of $20.2 million were
transferred to the city of Rio Rancho.
The Company issued additional common stock upon the conversion of 351,158 shares
of preference stock valued at $4.8 million.
In connection with the acquisitions of Matchaponix and Princeton Meadows, the
Company forgave a $5 million note receivable and assumed liabilities of $5.2
million.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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 1995 Annual Report on Form 10-K, which should be read in conjunction with
these financial statements. Certain prior year amounts have been reclassified to
conform with current year presentation.
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 - INVESTMENT IN NORTHUMBRIAN PARTNERSHIP
- -----------------------------------------------
On June 28, 1996, United Water and Lyonnaise Europe plc formed the
Northumbrian Partnership (the Partnership), an equal partnership which has
acquired a 20% interest in Northumbrian Water Group Plc, the fifth largest
investor-owned water company (by population served) in the United Kingdom.
United Water's share of the Partnership's earnings is included in Other Income
in the Statement of Consolidated Income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- --------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
GENERAL
- -------
United Water's principal utility subsidiaries include United Water New
Jersey, United Water New York and United Waterworks. 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.
<PAGE>
NEW MEXICO SETTLEMENT
- ---------------------
United Waterworks owned a utility subsidiary which provides water and
wastewater services to customers in Rio Rancho, New Mexico. In April 1995, the
city of Rio Rancho (the City) and the Company's utility subsidiary entered into
a stipulation in settlement of a condemnation action (the Stipulation) whereby
the City would deposit and eventually 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 Stipulation
required, among other things, that the transaction be completed by October 30,
1995. The City deposited $69 million with the court pursuant to the court order
and Stipulation, and on June 30, 1995, the City assumed possession of the
operations of the utility subsidiary. In July 1995, the Company withdrew $35
million of the amount on deposit with the court.
In the fourth quarter of 1995, the New Mexico Public Utility
Commission (PUC) issued a ruling refusing to permit the Company to relinquish
its systems to the City. The Company and the City appealed the PUC ruling to
the Supreme Court of New Mexico. In January 1996, the Supreme Court of New
Mexico ruled that the PUC has no jurisdiction over the right of a municipality
to condemn its regulated water and sewer utilities nor the right to require a
privately owned utility to seek PUC approval for the forced transfer of its
facilities. Although the Stipulation expired by its own terms on October 30,
1995, the Company asked the Supreme Court of New Mexico to bind the City to the
Stipulation and complete the transaction at the agreed price and terms. In
March 1996, the Supreme Court issued an order denying the Company's request and
dismissing the case before it.
On March 29, 1996, the Company settled the condemnation proceeding
with the city of Rio Rancho, New Mexico. The agreement was approved on the same
day by the Thirteenth Judicial District Court in New Mexico. Under the terms of
the agreement, the Company agreed to accept $67 million for the water and
wastewater systems of its United Water New Mexico operations (including capital
expenditures incurred in 1995). Results of this transaction are included in the
Company's first quarter 1996 earnings. The Company has lost revenues since June
30, 1995 when the City took possession of the utility's operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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 capital expenditures of United Water's
utility subsidiaries are projected to aggregate $290 million over the next five
years, including $57 million and $63 million in 1996 and 1997, respectively.
This total includes $219 million for United Waterworks and $68 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 capital expenditures over the 1996-2000
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, proceeds from the sale of its New Mexico
operations, 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, 1996, $32.8 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.
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 are being used to fund capital improvements of United
Water Delaware (a subsidiary of United Waterworks).
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).
United Properties currently expects to spend $18.6 million over the
next five years for capital expenditures on its existing real estate portfolio.
Expenditures are projected to be $7 million and $420,000 in 1996 and 1997,
respectively. Funding for these expenditures is anticipated to come from sales
of properties, operations of existing commercial properties and golf courses,
and proceeds from new financings.
On June 28, 1996, United Water and Lyonnaise Europe plc formed the
Northumbrian Partnership, an equal partnership which has acquired a 20% interest
in Northumbrian Water Group Plc. United Water's initial $62.2 million
investment in the Partnership was made through its wholly-owned United Kingdom
subsidiary, United Water UK Limited. In June 1996, United Water entered into a
$30 million long-term note agreement with Credit Lyonnais to partially fund
this investment. The loan bears interest at a LIBOR-based floating rate and is
repayable in annual installments through June 2006. The Company purchased an
offsetting interest rate cap to limit its exposure under this financing to a
maximum interest rate of 8.6%. The remainder of the investment was funded
through borrowings on United Water's various short-term bank lines of credit.
At September 30, 1996, United Water had cash and cash equivalents of
$9.2 million (excluding restricted cash) and unused short-term bank lines of
credit of $157.3 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.
<PAGE>
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 continues to follow SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," for its regulated utilities. SFAS No.
71 provides for the recognition of regulatory assets and liabilities as allowed
by state regulators that are considered probable of recovery.
During 1995, the Company's regulated utilities received twelve rate
settlement awards with an aggregate annual rate revenue increase of $5.9
million. An estimated $3.5 million of this amount was reflected in 1995's
revenues while the remaining $2.4 million of carryover impact of the rate awards
received in 1995 is expected to increase revenues in 1996. Five rate
settlements were awarded to the Company's regulated utilities during 1996 with
an aggregate annual rate revenue increase of $7.0 million. An estimated $3.7
million of this amount will be reflected in 1996's revenues.
At the end of September 1996, there were seven rate cases pending in
which the Company has requested an aggregate annual rate increase of $16
million. The most significant rate cases pending were filed by United Water New
Rochelle, United Water Idaho, United Water Florida and United Water Delaware. In
December 1995, United Water New Rochelle filed with the New York Public Service
Commission (NYPSC) for a $2.5 million, or 15.2%, increase in annual revenues to
meet higher operation and maintenance costs and increased investment in plant.
On October 2, 1996, the NYPSC adopted a settlement agreement that was entered
into by the parties which provides for a rate increase of $661,000, or 3.95%,
with additional increases of 2.9% in each of the next two years. In addition,
the Company is allowed to recognize as revenues $125,000 of deferred credits in
the first year.
In June 1996, United Water Idaho submitted a filing to increase annual
operating revenues by approximately $1.1 million, or 5.3%, to cover additional
rate base investments and certain changes in operating expenses. On November 4,
1996, the Idaho Public Utilities Commission issued an order granting United
Water Idaho an increase of $764,000, or 3.6%.
In July 1996, United Water Florida filed for rate relief in the amount
of $3.3 million, or 45.9%, in water revenues and $5.1 million, or 32.6%, in
wastewater revenues. As part of the proposal, the Company requested that it be
permitted to place into effect on an interim basis $1.1 million, or 16.8%, of
the proposed water increase and $1.1 million, or 7.9%, of the proposed
wastewater increase. The increases were requested primarily to fund capital
investments. On October 29, 1996 the Florida Public Service Commission granted
United Water Florida an interim rate increase under bond of $725,000, or 10.5%,
for water and $238,000, or 1.7%, for wastewater. A final decision on the
Company's rate request is not anticipated until the second quarter of 1997.
In August 1996, United Water Delaware filed for rate relief in the
amount of $3.7 million, or a 24.6% increase in revenues. A petition to place
$2.2 million, or 15%, in effect under bond was filed in September 1996 and was
approved by the Delaware Public Service Commission on October 15, 1996 for rates
to become effective on October 26, 1996.
Generally, the rate awards the Company's operating utilities actually
receive are less than the amounts requested, primarily due to circumstances that
change while the rate case is being processed.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------
OVERVIEW
United Water's net income applicable to common stock for the third
quarter of 1996 increased to $15.5 million from $14.4 million in the comparable
period in 1995. Net income per common share for the third quarter of 1996 was
46 cents as compared to 45 cents for the same period last year. The increase in
net income per share is attributable to United Water's interest in the earnings
of the Partnership in the United Kingdom, which was formed in June 1996,
partially offset by lower utility operating income and the effect of a 6%
increase in the average number of common shares outstanding for the period.
OPERATING REVENUES
The $3.1 million increase in revenues from the same period in 1995 was
attributable to the following factors:
(thousands of dollars) Increase (Decrease)
----------------------------------------------------------
Utilities:
Rate awards $ 2,172 2.3%
Consumption (4,781) (5.0%)
Growth 1,529 1.6%
Other 655 0.7%
Real estate 1,749 1.8%
Other operations 1,770 1.8%
----------------------------------------------------------
$ 3,094 3.2%
----------------------------------------------------------
Utility revenues were lower in the third quarter of 1996 primarily due
to lower consumption as a result of unfavorable weather in several service
areas. The 2.3% increase in revenues from rate awards includes the impact of
1995 and current year increases for several of the Company's operating
utilities. The increase in revenues due to growth is primarily attributable to
the acquisitions of Matchaponix Water Supply Company and Princeton Meadows
Utility Company in New Jersey in May 1996. The increase in real estate revenues
was due to ten property sales in 1996 as compared to only two property sales for
the same period in 1995. The 1.8% increase in other operations is primarily due
to the commencement of the public-private partnership with Jersey City, NJ in
May 1996 partially offset by lower revenues from the Company's environmental
testing operations.
OPERATING EXPENSES
The increase in operating expenses from the same period in 1995 is due
to the following:
Net Impact
Excluding
(thousands of dollars) Increase New Mexico New Mexico
----------------------------------------------------------------------------
Operation and maintenance $3,529 8.6% ($278) $3,807 9.3%
Depreciation and amortization 849 11.6% - 849 11.6%
General taxes 320 2.4% (11) 331 2.5%
----------------------------------------------------------------------------
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 (CONTINUED)
- -------------------------------------------------------------
The increase in operation and maintenance expenses, excluding the
impact of the absence of New Mexico operations in 1996, was due primarily to
operating expenses incurred as a result of the commencement of the public-
private partnership with Jersey City, an increase in cost of property sold
relating to land sales in 1996, as well as additional operating expenses
incurred following the acquisitions of Matchaponix Water Supply Company and
Princeton Meadows Utility Company in May 1996.
The increase in depreciation and amortization was primarily
attributable to utility plant additions at the United Waterworks' utility
subsidiaries.
General taxes increased primarily due to higher real estate and
franchise taxes in utility operations.
INTEREST EXPENSE
The increase in interest expense of $1.3 million or 12.1% was mainly
due to additional long-term debt in 1996 as compared to 1995.
OTHER INCOME
Other income increased $3.2 million primarily due to earnings of the
Partnership in the United Kingdom and the absence of the write-off of costs
associated with an unconsummated business venture in 1995. These were partially
offset by interest income generated by the New Mexico escrow deposit and a
favorable settlement of a legal dispute at United Water Toms River in 1995.
INCOME TAXES
The effective income tax rates on income before preferred and
preference stock dividends were 34.7% and 36.6% in the third quarter of 1996 and
1995, respectively. The decrease in the effective rate is primarily
attributable to the favorable settlement of a tax matter by United Waterworks.
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996
- ------------------------------------------------------------
OVERVIEW
United Water's net income applicable to common stock for the nine
months ended September 30, 1996 increased to $27.8 million from $22.8 million in
the comparable period in 1995. Net income per common share was 83 cents as
compared to 72 cents for the same period last year. The increase in net income
per share is attributable to a one-time, after-tax gain of $4.3 million
resulting from the settlement of condemnation proceedings associated with the
Company's utility operations in Rio Rancho, New Mexico, United Water's interest
in the earnings of the Partnership in the United Kingdom, which was formed in
June 1996, and increased land sales at United Properties Group partially offset
by lower utility operating income and the effect of a 5% increase in the average
number of shares outstanding for the period.
OPERATING REVENUES
The $3.8 million increase in revenues from the same period in 1995
was attributable to the following factors:
(thousands of dollars) Increase (Decrease)
------------------------------------------------------------
Utilities:
New Mexico operations $(5,990) (2.4%)
Rate awards 4,326 1.7%
Consumption (3,814) (1.5%)
Growth 2,967 1.2%
Other 793 0.3%
Real estate 2,531 1.0%
Other operations 2,946 1.2%
------------------------------------------------------------
$ 3,759 1.5%
------------------------------------------------------------
Utility revenues were lower in the first nine months of 1996 primarily
due to the absence of revenues from the utility operations in New Mexico as well
as the 1.5% decrease in consumption which was attributable to unfavorable
weather conditions in several service areas. The 1.7% increase in revenues from
rate awards includes the impact of 1995 and current year increases for the
Company's operating utilities. The increase in revenues due to growth is
partially attributable to the acquisitions of Matchaponix Water Supply Company
and Princeton Meadows Utility Company in New Jersey in May 1996. The increase in
real estate revenues was primarily due to increased property sales in 1996
(thirteen sales in 1996 compared with two property sales in the same period in
1995) in addition to higher golf club revenues and rental income. The 1.2%
increase in other operations is primarily due to the commencement of the public-
private partnership with Jersey City, NJ in May 1996.
OPERATING EXPENSES
The increase in operating expenses from the same period in 1995 is due
to the following:
Net Impact
Excluding
(thousands of dollars) Increase New Mexico New Mexico
- -----------------------------------------------------------------------------
Operation and maintenance $4,089 3.5% ($2,652) $6,741 5.7%
Depreciation and amortization 1,269 5.6% (774) 2,043 9.0%
General taxes 851 2.3% (236) 1,087 2.9%
- -----------------------------------------------------------------------------
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 (CONTINUED)
- ------------------------------------------------------------
The increase in operation and maintenance expenses, excluding the
impact of the absence of New Mexico operations in 1996, was due primarily to
additional operating expenses incurred as a result of the commencement of the
public-private partnership with Jersey City and the acquisitions of Matchaponix
Water Supply Company and Princeton Meadows Utility Company in May 1996. Higher
costs of meter installations and property sales also contributed to this
increase.
The increase in depreciation and amortization was primarily
attributable to utility plant additions by United Waterworks' utility
subsidiaries.
General taxes increased primarily due to higher real estate and
franchise taxes in utility operations.
INTEREST EXPENSE
The increase in interest expense of $1.6 million, or 5.0%, was mainly
due to additional long-term debt in 1996 as compared to 1995. The additional
debt was incurred to finance the Partnership in the United Kingdom as well as to
fund capital expenditures at the utility operations.
OTHER INCOME
Other income increased $4.0 million primarily due to earnings of the
Partnership in the United Kingdom and the absence of costs associated with an
unconsummated business venture in 1995. These were partially offset by interest
income generated by the New Mexico escrow deposit and a favorable settlement of
a legal dispute at United Water Toms River in 1995.
INCOME TAXES
The effective income tax rates on income before preferred and
preference stock dividends were 40.0% and 35.9% in the first nine months of 1996
and 1995, respectively. The increase in the effective rate is primarily
attributable to the impact of the settlement of the condemnation proceedings at
New Mexico.
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. Pursuant to a Case Management Order issued July, 1996 the
parties have been directed to complete discovery by December 1996. 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 Delaware (formerly Wilmington Suburban Water
Corporation), a subsidiary of United Waterworks, was 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 alleged 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. 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. An application for approval of a remediation 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. United Water
Delaware and New Castle County entered into a Release and Settlement Agreement
(the Agreement) dated April 9, 1996. Pursuant to the Agreement, New Castle
County has withdrawn the Criminal Violation Notice against United Water
Delaware. The withdrawal of the Criminal Violation Notice is conditioned on
United Water Delaware undertaking in good faith to implement the remediation
plan. 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
Corporation (former parent of United Waterworks) 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.
<PAGE>
LEGAL PROCEEDINGS (CONTINUED)
- -----------------
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.
A class action lawsuit was filed in the Supreme Court of the State of
New York, New York County, on May 28, 1996 by Steven Tagliaferri and John
Ambroselli, individually and on behalf of a class of employees (Plaintiffs)
against United Metering Inc., a subsidiary of United Water, for breach of
contract. Plaintiffs claim that United Metering failed to comply with
prevailing wage rate regulations in connection with work performed pursuant to
certain public works contracts awarded by the New York City Department of
Environment Protection. The damages sought are in excess of $600,000. United
Metering has filed a response denying Plaintiff's claims. 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, 1996 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,056,280
<OTHER-PROPERTY-AND-INVEST> 160,086
<TOTAL-CURRENT-ASSETS> 133,284
<TOTAL-DEFERRED-CHARGES> 143,704
<OTHER-ASSETS> 65,027
<TOTAL-ASSETS> 1,558,381
<COMMON> 323,655
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 50,020
<TOTAL-COMMON-STOCKHOLDERS-EQ> 373,675
93,248
9,000
<LONG-TERM-DEBT-NET> 573,065
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 77,725
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 16,354
260
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 415,054
<TOT-CAPITALIZATION-AND-LIAB> 1,558,381
<GROSS-OPERATING-REVENUE> 255,118
<INCOME-TAX-EXPENSE> 21,953
<OTHER-OPERATING-EXPENSES> 184,058
<TOTAL-OPERATING-EXPENSES> 206,011
<OPERATING-INCOME-LOSS> 49,107
<OTHER-INCOME-NET> 15,747
<INCOME-BEFORE-INTEREST-EXPEN> 64,854
<TOTAL-INTEREST-EXPENSE> 33,612
<NET-INCOME> 31,242
3,477
<EARNINGS-AVAILABLE-FOR-COMM> 27,765
<COMMON-STOCK-DIVIDENDS> 22,716
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 31,455
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
