<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 MARCH 31, 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 April 30, 1996 33,538,155
----------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -------------------------------
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
- ------
UTILITY PLANT, including $22,959 and $19,899
under construction $1,265,067 $1,334,807
LESS accumulated depreciation 248,276 253,529
---------- ----------
1,016,791 1,081,278
---------- ----------
UTILITY PLANT ACQUISITION ADJUSTMENTS, NET 63,290 71,898
---------- ----------
REAL ESTATE AND OTHER INVESTMENTS,
less accumulated depreciation of $15,197
and $14,626 98,464 98,082
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 4,655 4,529
Restricted cash 45,078 52,677
Customers' accounts receivable and
unbilled revenues, net 53,394 55,325
Other accounts receivable 38,478 7,302
Prepaid and other current assets 15,859 15,103
---------- ----------
157,464 134,936
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Regulatory assets 73,986 70,154
Prepaid employee benefits 12,497 12,319
Unamortized debt expense 25,972 26,242
Other deferred charges and assets 25,715 21,799
---------- ----------
138,170 130,514
---------- ----------
$1,474,179 $1,516,708
========== ==========
CAPITALIZATION AND LIABILITIES
- ------------------------------
CAPITALIZATION:
Common stock and retained earnings $ 352,024 $ 358,302
Preferred stock without mandatory
redemption 9,000 9,000
Preferred stock with mandatory
redemption 54,391 54,397
Preference stock, convertible, with
mandatory redemption 43,750 43,694
Long-term debt 558,243 558,658
---------- ----------
1,017,408 1,024,051
---------- ----------
CURRENT LIABILITIES:
Notes payable 42,500 43,500
Preferred stock and long-term debt due
within one year 13,619 13,575
Accounts payable and other accruals 26,727 32,650
Accrued taxes 27,971 25,678
Dividends payable 8,320 198
Accrued interest and other current
liabilities 10,812 8,048
---------- ----------
129,949 123,649
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes and investment
tax credits 166,362 155,258
Customer advances for construction 25,416 27,804
Contributions in aid of construction 115,548 132,836
Other deferred credits and liabilities 19,496 53,110
---------- ----------
326,822 369,008
---------- ----------
$1,474,179 $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 ENDED MARCH 31,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING REVENUES $71,293 $71,405
------- -------
OPERATING EXPENSES:
Operation and maintenance 37,581 37,643
Depreciation and amortization 7,755 7,623
General taxes 12,323 11,993
------- -------
TOTAL OPERATING EXPENSES 57,659 57,259
------- -------
OPERATING INCOME 13,634 14,146
------- -------
INTEREST AND OTHER EXPENSES:
Interest expense, net of
amount capitalized 10,966 10,580
Allowance for funds used
during construction (405) (463)
Preferred stock dividends
of subsidiaries 573 578
Gain on settlement of Rio
Rancho condemnation proceedings (10,372) --
Other income, net (661) (188)
------- -------
TOTAL INTEREST AND OTHER
EXPENSES 101 10,507
------- -------
INCOME BEFORE INCOME TAXES 13,533 3,639
PROVISION FOR INCOME TAXES 7,452 1,610
------- -------
NET INCOME 6,081 2,029
Preferred and preference
stock dividends 1,200 1,198
------- -------
NET INCOME APPLICABLE TO
COMMON STOCK $ 4,881 $ 831
======= =======
AVERAGE COMMON SHARES
OUTSTANDING (THOUSANDS) 33,000 31,418
NET INCOME PER COMMON SHARE $0.15 $0.03
======= =======
DIVIDENDS PER COMMON SHARE $0.23 $0.23
======= =======
</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 THREE
MONTHS ENDED MARCH 31,
----------------------
1996 1995
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME $ 6,081 $ 2,029
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 7,960 7,814
Gain on settlement of Rio Rancho
condemnation proceedings (10,372) --
Deferred income taxes and investment
tax credits, net 11,890 1,811
Allowance for funds used during construction (AFUDC) (405) (463)
Changes in assets and liabilities,
net of effect of settlement of
Rio Rancho condemnation proceedings:
Accounts receivable and unbilled revenues 2,421 2,463
Prepaid and other current assets (1,051) (1,062)
Prepaid employee benefits (115) (319)
Regulatory assets (5,388) (438)
Accounts payable and other accruals (5,923) (8,766)
Accrued taxes 2,293 2,640
Accrued interest and other current liabilities 3,324 (16)
Other, net (985) (2,501)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,730 3,192
-------- --------
INVESTING ACTIVITIES:
Additions to utility plant (excludes
AFUDC) (7,713) (11,515)
Additions to real estate and other
properties (952) (2,407)
Jersey City concession fee (2,500) --
Change in restricted cash 7,599 6,816
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,566) (7,106)
-------- --------
FINANCING ACTIVITIES:
Change in notes payable (1,000) (17,700)
Additional long-term debt -- 22,000
Reduction in preferred stock and
long-term debt (321) (858)
Issuance of common stock 4,543 4,976
Dividends on common stock (7,580) (7,220)
Dividends on preferred and preference
stock (1,200) (1,198)
Net contributions and advances for
construction (480) 2,191
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (6,038) 2,191
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 126 (1,723)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,529 9,840
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,655 $ 8,117
======== ========
</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 THREE MONTHS ENDED MARCH 31,
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest (net of amount capitalized) $7,437 $10,594
Income taxes 808 495
</TABLE>
The following is a supplemental schedule of non-cash transactions related to the
settlement of the Rio Rancho condemnation proceedings:
<TABLE>
<S> <C>
Assets $ 76,872
Liabilities (20,244)
----------
Net book value of assets sold $ 56,628
==========
Fair value of assets sold $ 67,000
Cash received in July 1995 (35,330)
----------
Other accounts receivable at March 31, 1996 $ 31,670
==========
</TABLE>
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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.
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>
SETTLEMENT OF RIO RANCHO CONDEMNATION PROCEEDINGS
- -------------------------------------------------
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 earnings. Because the City took possession of the
utility's operations on June 30, 1995, the Company has lost revenues for the
last nine months.
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 March 31, 1996, $45.1 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 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).
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 of new financings.
At March 31, 1996, United Water had cash and cash equivalents of $4.7
million (excluding restricted cash) and unused short-term bank lines of credit
of $161.4 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.
On May 8, 1996 United Water announced that it reached an agreement in
principle with Lyonnaise Europe plc, an affiliate of Lyonnaise des Eaux, to
enter into a partnership to acquire 20% of the shares of Northumbrian Water
Group Plc, the fifth largest investor-owned water company (by population served)
in the United Kingdom. United Water's investment in the partnership will be
made through a wholly-owned United Kingdom subsidiary.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
It is anticipated that United Water and Lyonnaise Europe plc each will
invest approximately $65 million as equity contributions to the partnership. The
partnership expects to borrow approximately $135 million to fund the balance of
the purchase price of the Northumbrian Water shares through a 15-year loan which
is non-recourse to the partners. United Water intends to partially finance its
equity contribution to the partnership with the proceeds of a 10-year loan from
an institutional lender. United Water and Lyonnaise Europe plc are in the
process of negotiating the financing arrangements.
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.
At the end of March 1996, there were five rate cases pending in which
the Company has requested an aggregate annual rate increase of $14.2 million.
The most significant rate cases pending were filed by United Water New Jersey
and United Water New Rochelle. United Water New Jersey applied to the New
Jersey Board of Public Utilities in July 1995 for an 8.8%, or $10.4 million,
increase in annual revenues to meet higher operation and maintenance costs,
including postretirement benefits, as well as a proposed change in depreciation
rates. A decision on this application is expected in the second quarter of
1996. In December 1995, United Water New Rochelle filed with the New York
Public Service Commission for a $2.5 million, or 15.2%, increase in annual
revenues to meet higher operation and maintenance costs. A decision on this
application is not expected until the fourth quarter of 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. The Company expects to file additional rate cases in
1996 but does not expect that those rate awards, if received in 1996, will have
a significant impact on revenues in 1996.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996
- ---------------------------------------------------------
OVERVIEW
United Water's net income applicable to common stock for the first
quarter of 1996 increased to $4.9 million from $831,000 in the comparable period
in 1995. Net income per common share for the first quarter of 1996 was 15 cents
as compared to 3 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 our
utility operations in Rio Rancho, New Mexico.
OPERATING REVENUES
The $112,000 decrease in revenues from the same period in 1995 was
attributable to the following factors:
<TABLE>
<CAPTION>
(thousands of dollars) Increase (Decrease)
- ------------------------------------------------------------
Utilities:
<S> <C> <C>
New Mexico operations ($2,562) (3.6%)
Rate awards 1,324 1.9%
Consumption 471 0.6%
Growth 473 0.6%
Real estate 256 0.4%
Other operations (74) (0.1%)
- ------------------------------------------------------------
($ 112) (0.2%)
- ------------------------------------------------------------
</TABLE>
Utility revenues were lower in the first quarter of 1996 primarily due
to the absence of revenues from the utility operations in Rio Rancho. The 1.9%
increase in revenues from rate awards includes the impact of 1995 increases for
eleven of the Company's operating utilities. The increase in real estate
revenues was due to higher rental income and a property sale in 1996.
OPERATING EXPENSES
The increase in operating expenses from the same period in 1995 is due
to the following:
<TABLE>
<CAPTION>
Net Impact
Excluding
(thousands of dollars) Increase (Decrease) Rio Rancho Rio Rancho
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operation and maintenance ($ 62) (0.2%) ($1,118) $1,056 2.8%
Depreciation and amortization 132 1.7% ( 384) 516 6.8%
General taxes 330 2.8% ( 95) 425 3.5%
- -----------------------------------------------------------------------------
</TABLE>
The increase in operation and maintenance expenses, excluding the
impact of the absence of Rio Rancho operations in 1996, was due primarily to
operating expenses incurred as a result of the higher level of consumption as
well as the costs associated with a major main break at United Water New Jersey.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 (CONTINUED)
- ---------------------------------------------------------
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 $386,000, or 3.6%, was mainly due
to additional long term debt in 1996 as compared to 1995.
INCOME TAXES
The effective income tax rates on income before preferred and
preference stock dividends were 52.8% and 38.2% in the first quarter 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 Rio Rancho.
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 owned 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 systems 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 would 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 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 withdrew approximately $35 million of the $69 million deposited by the
City. The balance was to 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) ruled that its approval must be obtained before the Company could
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.
<PAGE>
LEGAL PROCEEDINGS (CONTINUED)
- -----------------
The Stipulation between the Company and the City provided that in the
event the transaction had not been completed by October 30, 1995, the
Stipulation would 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 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, 1995, the
Supreme 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.
On November 20, 1995, in addition to filing its brief seeking a
reversal of the PUC's decision refusing to grant permission to the Company to
abandon its systems to the City, the Company filed a writ with the Supreme Court
of New Mexico again requesting that a stay of the termination of the Stipulation
be imposed. On December 13, 1995, the Supreme Court held oral argument on the
appeal from the PUC's decision, and on January 17, 1996, in a written opinion,
reversed the decision of the PUC and held that the PUC had no jurisdiction over
the condemnation of the systems and had wrongfully refused to permit the Company
to abandon the systems to the City. The Supreme Court did not rule on the
Company's request to stay the termination of the Stipulation at that time, but,
on March 21, 1996, in response to a motion by the City to dismiss the Company's
writ application, the Supreme Court issued an order denying the Company's
request and dismissing the case before it.
On March 29, 1996, the Company and the City entered into an Amended
Stipulation in settlement of the condemnation action (Amended Stipulation).
Under the Amended Stipulation, the City agreed to pay the Company a total of $67
million for the water and wastewater systems (Condemnation Proceeds). A
judgement approving the Amended Stipulation was entered in the Thirteenth
Judicial District Court, Sandoval County, on March 29, 1996. The judgement
authorized the transfer of the water and wastewater systems to the City and
directed the payment of the balance of the Condemnation Proceeds, including
interest, to the Company. As of April 1996, the Company has received the entire
amount of the Condemnation Proceeds.
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.
<PAGE>
LEGAL PROCEEDINGS (CONTINUED)
- -----------------
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: May 13, 1996 By JOHN J. TURNER
------------ ------------------------------------
(Signature)
John J. Turner
Treasurer
DULY AUTHORIZED AND CHIEF
ACCOUNTING OFFICER
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, STATEMENT OF CONSOLIDATED INCOME AND STATEMENT OF
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,016,791
<OTHER-PROPERTY-AND-INVEST> 98,464
<TOTAL-CURRENT-ASSETS> 157,464
<TOTAL-DEFERRED-CHARGES> 138,170
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<LONG-TERM-DEBT-NET> 558,243
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<CAPITAL-LEASE-OBLIGATIONS> 0
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<TOT-CAPITALIZATION-AND-LIAB> 1,474,179
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<OTHER-INCOME-NET> 10,865
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1,200
<EARNINGS-AVAILABLE-FOR-COMM> 4,881
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