<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, 1998
---------------------
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
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(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, 1998 36,892,226
-----------
<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,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- - ------
UTILITY PLANT, including $48,936 and $49,301 under construction $1,458,311 $1,439,854
LESS accumulated depreciation 305,145 296,820
---------- ----------
1,153,166 1,143,034
---------- ----------
UTILITY PLANT ACQUISITION ADJUSTMENTS, NET 62,585 63,026
---------- ----------
REAL ESTATE AND OTHER INVESTMENTS, less accumulated
depreciation of $11,945 and $11,497 82,051 79,487
EQUITY INVESTMENTS 101,365 99,197
---------- ----------
183,416 178,684
CURRENT ASSETS:
Cash and cash equivalents 5,579 8,546
Restricted cash 30,125 34,581
Accounts receivable and unbilled revenues, net 53,729 57,723
Prepaid and other current assets 13,594 11,705
---------- ----------
103,027 112,555
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS:
Regulatory assets 80,394 79,748
Prepaid employee benefits 23,641 21,426
Unamortized debt expense 32,648 31,019
Other deferred charges and assets 26,907 28,850
---------- ----------
163,590 161,043
---------- ----------
$1,665,784 $1,658,342
========== ==========
CAPITALIZATION AND LIABILITIES
- - ------------------------------
CAPITALIZATION:
Common stock and retained earnings $ 410,222 $ 418,601
Preferred stock without mandatory redemption 9,000 9,000
Preferred stock with mandatory redemption 51,833 51,838
Preference stock, convertible, with mandatory redemption 34,785 34,741
Long-term debt 624,813 622,737
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1,130,653 1,136,917
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CURRENT LIABILITIES:
Notes payable 72,542 74,925
Preferred stock and long-term debt due within one year 8,038 8,022
Accounts payable and other current liabilities 34,384 40,156
Accrued taxes 30,057 26,878
Accrued interest and dividends 16,714 8,117
---------- ----------
161,735 158,098
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes and investment tax credits 188,630 183,490
Customer advances for construction 28,630 27,356
Contributions in aid of construction 135,677 133,684
Other deferred credits and liabilities 20,459 18,797
---------- ----------
373,396 363,327
---------- ----------
$1,665,784 $1,658,342
========== ==========
</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, EXCEPT PER SHARE DATA )
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING REVENUES $75,442 $80,006
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OPERATING EXPENSES:
Operation and maintenance 39,301 44,062
Depreciation amortization 9,368 8,628
General taxes 13,053 12,672
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TOTAL OPERATING EXPENSES 61,722 65,362
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OPERATING INCOME 13,720 14,644
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INTEREST AND OTHER EXPENSES:
Interest expense, net of amount capitalized 11,341 11,029
Allowance for funds used during construction (863) (697)
Preferred stock dividends of subsidiaries 562 567
Equity earnings of affiliates (2,158) (2,681)
Other income, net (462) (696)
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TOTAL INTEREST AND OTHER EXPENSES 8,420 7,522
------- -------
INCOME BEFORE INCOME TAXES 5,300 7,122
PROVISION FOR INCOME TAXES 1,096 1,885
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NET INCOME 4,204 5,237
Preferred and preference stock dividends 1,070 1,135
------- -------
NET INCOME APPLICABLE TO COMMON STOCK $ 3,134 $ 4,102
======= =======
NET INCOME PER COMMON SHARE $ 0.09 $ 0.12
======= =======
Average common shares outstanding 36,400 34,741
NET INCOME PER COMMON SHARE-ASSUMING DILUTION $ 0.09 $ 0.12
======= =======
Average common shares outstanding 38,767 34,741
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,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 4,204 $ 5,237
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 9,702 8,931
Equity earnings of affiliates (2,158) (2,681)
Proceeds from sales of properties 406 6,864
Gain on sale of properties (112) (3,215)
Improvements to property under development (269) (324)
Deferred income taxes and investment tax credits, net 5,140 1,523
Allowance for funds used during construction (AFUDC) (863) (697)
Changes in assets and liabilities:
Accounts receivable and unbilled revenues 3,994 5,888
Prepaid and other current assets (1,889) (2,902)
Prepaid employee benefits (2,215) (223)
Regulatory assets (646) (1,315)
Accounts payable and other current liabilities (5,772) (720)
Accrued taxes 3,179 7,727
Accrued interest (354) 437
Other, net 1,664 2,081
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,011 26,611
-------- --------
INVESTING ACTIVITIES:
Additions to utility plant (excludes AFUDC) (17,744) (10,922)
Additions to real estate and other investments (3,013) (919)
Change in restricted cash 4,456 1,505
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (16,301) (10,336)
-------- --------
FINANCING ACTIVITIES:
Change in notes payable (2,383) (22,300)
Additional long-term debt 40,000 368
Reduction in preferred stock and long-term debt (37,913) (360)
Issuance of common stock 5,789 7,845
Dividends on common stock (8,367) (7,967)
Dividends on preferred and preference stock (1,070) (1,135)
Net contributions and advances for construction 3,267 1,006
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (677) (22,543)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,967) (6,268)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,546 8,961
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,579 $ 2,693
======== ========
</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,
------------------------------------
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest (net of amount capitalized) $11,361 $10,289
Income taxes paid/(refunded) 1,040 (827)
</TABLE>
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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 1997 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.
NOTE 3 - INVESTMENT IN UNITED WATER SERVICES
- - ---------------------------------------------
On July 28, 1997, United Water Services LLC (formerly the United Water
Resources-Lyonnaise des Eaux Partnership), a joint venture between United Water
and Suez Lyonnaise des Eaux, acquired Montgomery Watson's 50% stake in JMM
Operational Services (JMM-OSI). As a result, United Water Services Inc.
(formerly JMM-OSI) became a wholly owned subsidiary of United Water Services
LLC. Prior to the restructuring, United Water Services LLC owned a 50% interest
in JMM-OSI and Montgomery Watson owned the remaining 50% interest.
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.
<PAGE>
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, Idaho, Delaware and Florida. 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
- - -------------------------------
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. 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 $277 million over the next five years,
including $62 million and $61 million in 1998 and 1999, respectively. This
total includes $178 million for United Waterworks and $95 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 1998-2002
period. To the best of management's knowledge, the Company is in compliance
with all major environmental laws and regulations.
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 participate in 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, 1998,
$30.1 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 June 1997, United Water issued $40 million of 7.45%-7.9% Senior Notes
($15 million due 2007 and $25 million due 2022). Proceeds from the notes were
used to refinance existing short-term debt of the Company.
In August 1997, United Waterworks issued $20 million of 5.3% tax-exempt
Water Resource Development Revenue Bonds, due 2027, through the Idaho Water
Resource Board. The proceeds will be used to finance a portion of the costs of
certain facilities to be owned by United Water Idaho (a subsidiary of United
Waterworks).
In December 1994, United Waterworks entered into a medium-term note program
that enabled United Waterworks to issue up to $75 million of debt with terms
ranging from 9 months to 30 years. The interest rates are set as notes are
issued under the program. The first $10 million of notes under this program
were issued in 1995. In October 1997, United Waterworks issued $15 million of
notes under this program, at a rate of 6.8%, with the full amount maturing in
2007. In February 1998, United Waterworks issued an additional $40 million of
notes under this program ($20 million at 6.97% due 2023, $15 million at 7.1% due
2028 and $5 million at 6.9% due 2017). The proceeds were used to redeem
outstanding notes payable.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- - -------------------------------
United Properties currently expects to spend $29.4 million over the next
five years for capital expenditures on its existing real estate portfolio.
Expenditures are projected to be $10.6 million and $5.3 million in 1998 and
1999, 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, 1998, United Water had cash and cash equivalents of $5.6
million (excluding restricted cash) and unused short-term bank lines of credit
of $184.9 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.
YEAR 2000 COMPLIANCE
- - --------------------
United Water has assembled a task force to ensure all computer systems and
applications are prepared for the year 2000. Since 1994, the Company has been
in the process of replacing the core business and operating systems with newer
technology. As a result, all systems are scheduled to be year 2000 compliant by
the end of 1998. All work done in relation to addressing year 2000 compliance
has been performed as a by-product of another project. To date, there have been
no significant costs associated solely with year 2000 compliance issues. The
Company is currently seeking compliance certification from external interface
vendors and service providers. An action plan has been developed that will
identify any additional costs and resource commitments required. The Company
does not believe there will be material future costs associated with year 2000
requirements.
<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 Statement of Financial Accounting Standards
(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 1997, the Company's regulated utilities received fifteen rate
settlement awards with an aggregate annual revenue increase of $10.7 million. An
estimated $5.6 million of this amount was reflected in 1997's revenues while the
remaining $5.1 million of carryover impact of the rate awards received in 1997
is expected to increase revenues in 1998.
At the end of March 1998, there were six rate cases pending in which the
Company has requested an aggregate annual rate increase of $9.3 million. The
most significant rate cases pending were filed by United Water Delaware and
United Water Idaho. On March 11, 1998, United Water Delaware filed a request to
increase revenues by $4.1 million, or 24.8%. The Company is expecting
permission to place into effect on an interim basis $2.4 million on May 11,
1998.
In November 1997, United Water Idaho applied to the Idaho Public Utilities
Commission for rate relief in the amount of $3.4 million, or 15.5%, in water
revenues to meet increased investment in utility plant and higher operation and
maintenance costs. A decision is expected by the end of the second quarter of
1998.
On October 26, 1996, United Water Delaware placed $2.3 million in increased
revenues in effect, subject to refund. On July 15, 1997, the Delaware Public
Utility Commission granted the Company a permanent rate increase of $1.6
million. On July 16, 1997, the Company filed an appeal and application for a
stay of the Commission's Order. On July 29, 1997, the Delaware Superior Court
granted a stay of the Commission decision pending the appeal. On March 31,
1998, the Delaware Superior Court handed down a decision finding for the
Commission on all issues. The Company has filed a Notice of Appeal with the
Supreme Court of Delaware. The Company is fully reserved for all amounts
subject to refund and therefore, the final outcome will not have a material
effect on earnings.
Generally, the rate awards the Company's operating utilities actually
receive are less than the amounts requested, primarily due to differing
positions of the parties involved and/or updated information provided during the
proceedings. The Company expects to file additional rate cases in 1998 but does
not expect that those rate awards, if received in 1998, will have a significant
impact on revenues in 1998.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998
- - ---------------------------------------------------------
OVERVIEW
United Water's net income applicable to common stock for the first quarter
of 1998 decreased to $3.1 million from $4.1 million in the comparable period in
1997. Net income per common share for the first quarter of 1998 was nine cents
as compared to 12 cents for the same period last year. Utility investments,
which include the Northumbrian Partnership, contributed 17 cents per share in
1998 compared with 14 cents per share for the first quarter of 1997. Results
for 1997 included a significant land sale that contributed five cents per share.
Results for 1998 and 1997 included six cents for corporate charges relating to
interest and preferred and preference dividends.
OPERATING REVENUES
The $4.6 million increase in revenues from the same period in 1997 was
attributable to the following factors:
(thousands of dollars) Increase (Decrease)
-----------------------------------------------------
Utilities:
Rate awards $ 1,411 1.8%
Consumption 95 0.1%
Growth 660 0.8%
Real estate (6,260) (7.8%)
Other operations (470) (0.6%)
-----------------------------------------------------
$ (4,564) (5.7%)
-----------------------------------------------------
The 1.8% increase in revenues from rate awards in the first quarter of 1998
includes the impact of 1997 rate awards for fifteen of the Company's operating
utilities. The increase in revenues due to growth is primarily attributable to
the acquisition of a utility in Florida in the fourth quarter of 1997, as well
as increased customers at several operating utilities. The 7.8% decrease in
real estate revenues was due to a significant land sale in the first quarter of
1997. Other operations decreased slightly mainly due to the absence of revenues
from the Company's meter installation subsidiary, which was sold in the fourth
quarter of 1997, partially offset by higher revenues from the public-private
partnership with Jersey City.
OPERATING EXPENSES
The increase in operating expenses from the same period in 1997 is due to
the following:
(thousands of dollars) (Decrease) Increase
-----------------------------------------------------------
Operation and maintenance $(4,761) (10.8%)
Depreciation and amortization 740 8.6%
General taxes 381 3.0%
-----------------------------------------------------------
The $4.8 million decrease in operation and maintenance expenses was due
primarily to the absences of costs associated with a significant land sale in
1997, as well as operating expenses incurred by the Company's meter installation
subsidiary, which was sold in December 1997. In addition, the Company's utility
subsidiaries experienced lower employee benefits costs. These were partially
offset by higher operating expenses resulting from the public-private
partnership with Jersey City.
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED)
- - ---------------------------------------------------------
The $740,000 increase in depreciation and amortization was primarily
attributable to utility plant additions by the Company's utility subsidiaries.
General taxes increased $381,000 primarily due to higher gross receipts and
franchise taxes in utility operations.
EQUITY EARNINGS OF AFFILIATES
The $523,000 decrease in equity earnings of affiliates is due to a $.7
million decrease in earnings from United Water Services. This decrease was
attributable to additional ownership interest in United Water Services (see Note
3) as well as business development costs associated with ongoing efforts to
expand contract operations. This was partially offset by a $.2 million increase
in earnings from the Northumbrian Partnership.
INCOME TAXES
The effective income tax rates on income before preferred and preference
stock dividends were 18.7% and 24.5% in the first quarter of 1998 and 1997,
respectively. The decrease in the effective rate is primarily attributable to
the tax treatment of the earnings from the Northumbrian Partnership. The
Company considers the undistributed earnings to be permanently reinvested and
has not provided deferred taxes on these earnings.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings per Share"(EPS), which specifies the computation,
presentation and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock. This statement
supersedes Accounting Principles Board Opinion No. 15, "Earnings per Share".
This statement defines two earnings per share calculations, basic and diluted.
The objective of basic EPS is to measure the performance of an entity over the
reporting period by dividing income available to common stock by the weighted
average shares outstanding. The objective of diluted EPS is consistent with that
of basic EPS, that is to measure the performance of an entity over the reporting
period, while giving effect to all dilutive potential common shares that were
outstanding during the period. The calculation of diluted EPS is similar to
basic EPS except both the numerator and denominator are increased for the
conversion of potential common shares. The following table is a reconciliation
of the numerator and denominator under each method:
<PAGE>
RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED)
- - --------------------------------------------------------------------
(thousands, except per share data)
For the three months ended March 31, 1998 1997
- - -----------------------------------------------------------------------------
BASIC EPS:
Net income applicable to common stock $ 3,134 $ 4,102
Average common shares outstanding 36,400 34,741
Net income per common share $ 0.09 $ 0.12
ASSUMING DILUTION:
Net income applicable to common stock $ 3,134 $ 4,102
Convertible preference stock 503 568
------- -------
$ 3,637 $ 4,670
Average common shares outstanding 36,400 34,741
Stock options 177 99
Convertible preference stock 2,190 2,488
------- -------
38,767 37,328
Net income per common share $ 0.09 $ 0.13 *
* According to SFAS No. 128, diluted EPS shall not have an antidilutive effect
on earnings. Therefore, basic EPS figures are presented on the face of the
statement of consolidated income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which requires that business segment
financial information be reported in the financial statements utilizing the
management approach. The Company believes it is in compliance with this
statement.
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.
PROSPECTIVE INFORMATION
In addition to the historical information contained herein, this
report contains a number of "forward-looking statements," within the meaning of
the Securities Exchange Act of 1934. Such statements address future events and
conditions concerning the adequacy of water supply and utility plant, capital
expenditures, earnings on assets, resolution and impact of litigation, liquidity
and capital resources and accounting matters. Actual results in each case could
differ materially from those projected in such statements, by reason of factors
including, without limitation, general economic conditions, competition, actions
by regulators and other governmental authorities, and technological developments
affecting the Company's operations, markets, services and prices, and other
factors discussed in the Company's filings with the Securities and Exchange
Commission, including this report.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- - ------- -----------------
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., an affiliate of United Water Services, 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
Environmental Protection. The damages sought are in excess of $600,000. United
Metering filed a response denying Plaintiffs' claims and made a motion for
summary judgement seeking dismissal of the lawsuit. Oral argument on such
motion was held on March 14, 1997 and on April 1, 1997, a decision was issued
granting United Metering's motion to dismiss the lawsuit. Plaintiffs have
appealed the decision to the Appellate Division of the Supreme Court of the
State of New York. The case is scheduled for the September 1998 Term of the
Court. 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 July 20, 1994, the Townhouse at Lake Isle Home Owners Association, Inc.
filed suit against United Water New Rochelle (formerly New Rochelle Water
Company), a subsidiary of United Waterworks, in the Supreme Court of the State
of New York, Westchester County (the Westchester Court). The suit seeks to
recover for alleged property damage arising out of repeated leaks in service
lines installed in or about 1982 by the developer of a townhouse complex in
Eastchester, New York. The bulk of the relief sought by the plaintiff involves
monetary damages for the cost of replacing the service lines, which belong to
United Water New Rochelle. The plaintiff did not seek injunctive relief. A
default judgment on the issue of liability was entered against United Water New
Rochelle on December 2, 1994. United Water New Rochelle has diligently
prosecuted motions to reopen and appeal from the default judgment, on the
principal ground that the default resulted from a failure by United Water New
Rochelle's insurance carrier and claims processing service provider to timely
file an answer to the plaintiff's complaint. To date, motions to vacate the
default judgment have not been successful. Following an inquest on the issue of
damages, the Westchester Court issued a decision, dated December 20, 1996,
awarding the plaintiff $1,330,000. The Westchester Court subsequently partially
vacated its December 20, 1996 decision on the ground that the relief granted
exceeded the plaintiff's original demand and reduced the award to $805,000. On
October 7, 1997, the Westchester Court entered a judgment in favor of the
plaintiff in the amount of $862,758, which included interest from December 20,
1996. United Water New Rochelle has filed a Notice of Appeal from the judgment,
and is also appealing prior decisions on its motions to vacate the default
judgment. United Water New Rochelle believes that it has meritorious arguments
on appeal and on the original matter, should it be reopened. Further, United
Water New Rochelle is seeking reimbursement from third parties of any ultimate
liability resulting in this matter. Management believes 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)
- - -----------------
United Water Toms River, a wholly-owned subsidiary of United Waterworks,
has been approached by counsel for several families in its franchise area to
notify them that counsel is considering filing a class action lawsuit naming
United Water Toms River as one of at least three defendants alleging personal
injuries sustained as a result of contaminated water being delivered to the
potential plaintiffs. Counsel has reviewed testing data accumulated by the New
Jersey Department of Environmental Protection and United Water Toms River which
shows that United Water Toms River has delivered water to its customers in
complete conformance with all applicable federal and state water quality
standards. Suit has not been filed. An agreement tolling the statute of
limitations for at least one year has been signed with the potential plaintiffs.
Company counsel and officials continue in a dialogue with counsel for the
potential plaintiffs and other potential defendants.
United Water is not a party to any other litigation other than 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 11, 1998 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>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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<OTHER-ASSETS> 62,585
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86,618
9,000
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<TOTAL-OPERATING-EXPENSES> 62,818
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1,070
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