<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, 1999
---------------------
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
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(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
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Common shares of stock outstanding as of April 30, 1999 38,508,466
-----------
<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,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
Assets
- ------
Utility plant, including $34,697
and $47,348 under construction $1,560,755 1,540,564
Less accumulated depreciation 338,836 328,224
------------- ------------
1,221,919 1,212,340
------------- ------------
Utility plant acquisition
adjustments, net 61,996 61,320
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Real estate and other
investments, less accumulated
depreciation of $8,478 and $13,628 52,113 81,630
Equity investments 119,020 116,598
------------- ------------
171,133 198,228
Current assets:
Cash and cash equivalents 34,332 8,011
Restricted cash 38,525 48,495
Accounts receivable and
unbilled revenues, net 57,986 59,693
Prepaid and other current assets 15,216 12,235
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146,059 128,434
------------- ------------
Deferred charges and other
assets:
Regulatory assets 73,828 76,548
Prepaid employee benefits 31,623 29,237
Unamortized debt expense 34,746 34,745
Other deferred charges and assets 24,019 28,270
------------- ------------
164,216 168,800
------------- ------------
$1,765,323 $1,769,122
============= ============
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common stock and retained earnings $ 449,439 $ 456,029
Preferred stock without
mandatory redemption 9,000 9,000
Preferred stock with mandatory
redemption 22,519 49,748
Preference stock, convertible,
with mandatory redemption 30,516 30,534
Long-term debt 667,184 652,969
------------- ------------
1,178,658 1,198,280
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Current liabilities:
Notes payable 96,500 93,400
Preferred stock and long-term debt
due within one year 4,275 5,795
Accounts payable and other
current liabilities 30,346 36,525
Accrued taxes 26,020 24,257
Accrued interest and dividends 18,524 8,023
------------- ------------
175,665 168,000
------------- ------------
Deferred credits and other
liabilities:
Deferred income taxes and
investment tax credits 197,179 195,368
Customer advances for
construction 32,878 30,648
Contributions in aid of
construction 145,177 143,327
Other deferred credits and
liabilities 35,766 33,499
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411,000 402,842
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$1,765,323 $1,769,122
============= ============
</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,
--------------------------------------
1999 1998
---- ----
<S> <C> <C>
Operating revenues $79,227 $75,442
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Operating expenses:
Operation and maintenance 42,276 39,301
Depreciation and amortization 11,187 9,368
General taxes 13,367 13,053
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Total operating expenses 66,830 61,722
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Operating income 12,397 13,720
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Interest and other expenses:
Interest expense, net of
amount capitalized 11,863 11,341
Allowance for funds used
during construction (942) (863)
Preferred stock dividends
of subsidiaries 549 562
Gain on sale of Harrison Plaza (5,846) --
Equity earnings of affiliates (2,525) (2,158)
Other income, net (180) (462)
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Total interest and
other expenses 2,919 8,420
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Income before income taxes 9,478 5,300
Provision for income taxes 3,119 1,096
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Net income 6,359 4,204
Preferred and preference
stock dividends 1,562 1,070
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Net income applicable to
common stock $ 4,797 $ 3,134
======= =======
Net income per common share $0.13 $ 0.09
======= =======
Average common shares
outstanding 37,980 36,400
Net income per common
share-assuming dilution $0.13 $ 0.09
======= =======
Average common shares outstanding 40,081 38,767
Dividends per common share $0.24 $ 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,
------------------------------------
1999 1998
----- -----
<S> <C> <C>
Operating activities:
Net income $ 6,359 $ 4,204
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,564 9,702
Equity earnings of affiliates (2,525) (2,158)
Proceeds from sales of properties -- 406
Gain on sale of properties -- (112)
Gain on sale of Harrison Plaza (5,846) --
Improvements to property under
development (870) (269)
Deferred income taxes and investment
tax credits, net 1,811 5,140
Allowance for funds used
during construction (AFUDC) (942) (863)
Changes in assets and liabilities:
Accounts receivable and unbilled
revenues 1,756 3,994
Prepaid and other current assets (2,981) (2,417)
Prepaid employee benefits (2,386) (1,687)
Regulatory assets 2,667 (646)
Accounts payable and other
current liabilities (6,504) (7,191)
Accrued taxes 1,742 3,179
Accrued interest 1,043 (354)
Other, net 3,171 3,083
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Net cash provided by operating
activities 8,059 14,011
------ ------
Investing activities:
Additions to utility plant (excludes
AFUDC) (14,395) (17,744)
Additions to real estate and other
investments (871) (3,013)
Acquisition of South County Water
Company (2,589) --
Proceeds from sale of Harrison Plaza 39,502 --
Change in restricted cash 9,970 4,456
------ ------
Net cash provided by/(used in)
investing activities 31,617 (16,301)
------ ------
Financing activities:
Change in notes payable 3,100 (2,383)
Additional long-term debt 30,000 40,000
Reduction in preferred stock and
long-term debt (44,534) (37,913)
Issuance of common stock 7,320 5,789
Dividends on common stock (9,112) (8,367)
Dividends on preferred and
preference stock (1,562) (1,070)
Net contributions and advances for
construction 1,433 3,267
------ ------
Net cash used in financing activities (13,355) (677)
------ ------
Net increase/(decrease) in cash and
cash equivalents 26,321 (2,967)
Cash and cash equivalents at beginning
of period 8,011 8,546
------ ------
Cash and cash equivalents at end of
period $ 34,332 $ 5,579
====== ======
</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,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest (net of amount capitalized) $10,444 $11,361
Income taxes paid 570 1,040
</TABLE>
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999
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 1998 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 and sales, 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.
Gain on sale of Harrison Plaza
- ------------------------------
In March 1999, United Properties sold two office buildings with a property
basis of $30.7 million, for $42.1 million. This transaction resulted in a pre-
tax gain of $5.8 million and net cash proceeds of $39.5 million. Cash proceeds
of $15.6 million were used to pay off long-term debt related to the office
buildings.
Redemption of Preferred Stock
- -----------------------------
On December 8, 1998, the Company called for redemption of the remaining
285,000 shares of its 7 5/8% Series B cumulative preferred stock. The
redemption, which occurred on January 8, 1999, resulted in the payment of
principal, accrued dividends and premium totaling $30 million, with $1.3 million
relating to the premium paid on the early redemption. The preferred stock was
redeemed with $30 million of 6.07%-7.04% Senior Notes due 2005-2019.
<PAGE>
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 $262 million over the next five years,
including $57 million and $58 million in 1999 and 2000, respectively. This
total includes $165 million for United Waterworks and $92 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 1999-2003
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 Water's regulated
utilities 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, 1999, $38.5 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 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. An additional $15 million of notes were issued in 1997.
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). In November 1998, United Waterworks issued
the final $10 million of notes under this program ($5 million at 6.44% due 2008
and $5 million at 6.97% due 2023). The proceeds were used to redeem outstanding
notes payable.
In December 1998, United Water New Jersey issued $35 million of 5% Water
Facilities Revenue Bonds through the New Jersey Economic Development Authority
due 2028. The proceeds are being used to finance the cost of acquiring,
constructing and reconstructing certain water transmission, transportation,
storage, treatment, and distribution facilities located in Passaic, Bergen,
Sussex, and Hudson counties in New Jersey.
In January 1999, United Water issued $30 million of Senior Notes ($5
million at 6.07% due 2005, $10 million at 6.43% due 2009, $10 million at 6.7%
due 2019, and $5 million at 7.04% due 2019). The proceeds were used to redeem
all remaining shares of 7 5/8% Series B cumulative preferred stock
United Properties currently expects to spend $25.9 million over the next
five years for capital expenditures on its existing real estate portfolio.
Expenditures are projected to be $8.3 million and $6.9 million in 1999 and 2000,
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, 1999, United Water had cash and cash equivalents of $34.3
million (excluding restricted cash) and unused short-term bank lines of credit
of $208.3 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>
Year 2000 Readiness Status
- --------------------------
Overview
- --------
United Water is implementing a Year 2000 (Y2K) program designed to
mitigate, to the fullest extent possible, the impact of the century date change
on the Company's computer systems and automated processes, including those that
affect the delivery of water and wastewater services. The Company initiated
this program in 1994 with the Information Technology Strategic Plan (the ITSP),
which addressed all areas of technology and automation within United Water. A
key component of that plan was the identification of the Y2K problem and the
need to address Y2K issues affecting all aspects of the Company's operations.
With respect to each project or initiative undertaken at United Water since 1994
that has Y2K ramifications, the Company has addressed "Y2K readiness" as a
critical component of that project.
United Water defines Y2K readiness as the ability of the Company to advance
into the next century with minimal effect on the Company's critical computer
systems and automated processes that control the delivery of water and
wastewater services, and affect the Company's operations, liquidity or financial
condition.
The Y2K program addresses internal systems and processes consisting of
application software, hardware, databases, networks, personal computers, data
processing equipment and operating systems (collectively, information technology
or IT systems) and embedded technology or microprocessors in non-computer
equipment (collectively, non-IT systems). The Y2K program also addresses the
assessment and monitoring of the Y2K compliance status of third parties upon
which the Company relies. This program encompasses the following five phases:
1) survey and inventory, 2) assessment of risk, including the identification and
survey of critical vendors and service providers, 3) remediation of non-
compliant systems, including the replacement of aging legacy applications, 4)
testing and validation of the remediation efforts, and 5) contingency planning
and related testing.
In addition, management believes that United Water has complied with the
various Y2K requirements of the regulatory agencies that supervise its
activities. Such compliance includes responding to surveys and questionnaires,
filing status reports, participating in task forces and sub-committees for the
purpose of meeting Y2K readiness targets, and contingency planning efforts.
The Company's State of Readiness
- --------------------------------
Consistent with the five phases of the Y2K program, the primary element in
United Water's Y2K readiness strategy has been to replace aging IT and non-IT
systems, where necessary. This strategy evolved from ITSP which, independent of
the Y2K program, identified the need to replace technical infrastructure,
including IT and non-IT systems, in order to position United Water and its
operating affiliates for a smooth transition into the 21st century. In addition
to replacement activities, the Company has also undertaken remediation efforts
to upgrade, repair and improve existing IT and non-IT systems where appropriate.
These efforts are intended to result in the replacement and upgrading of IT and
non-IT systems critical to the operation of the Company, including the provision
of water and wastewater services, financial applications, customer information
systems and operational systems, such as the Supervisory Control and Data
Acquisition System (SCADA), which monitors and controls industrial processes.
In addition, United Water is currently refining contingency plans and
related tests to further mitigate the risk of service interruptions at each of
its locations. These contingency plans have been developed, and the initial
testing of each plan has been completed. The major focus of the contingency
plans is to address the possibility of automation failure of critical vendors
and service providers so that the Company can sustain its operational systems in
the event of any such failure.
<PAGE>
As of March 31, 1999, the status of the Company's progress toward
completion of the five phases of the Y2K program was as follows: 1) survey and
inventory: IT 100%, non-IT 100%; 2) assessment of risk: IT 100%, non-IT 100%; 3)
remediation: IT 94%, non-IT 93%; 4) testing: IT 65%, non-IT 64%; and 5)
contingency planning: IT 85%, non-IT 84%. All replacements and upgrades are
scheduled to be completed by the end of the second quarter of 1999.
In addition to its own Y2K program, the Company has been involved with Y2K
compliance efforts undertaken by one of its equity investments, United Water
Services (UWS).
UWS, which is engaged in providing contract operations to U.S. cities, is
implementing a Y2K program following the guidelines established by the Company.
This program has been applied to all UWS's project sites and has resulted in the
production of inventories, risk assessments, testing methodologies and
contingency plans for Y2K compliance. All systems are expected to be finalized
and tested by the end of the third quarter of 1999.
Where UWS has assumed responsibility for part or all of the Y2K compliance
efforts of its operating affiliates in the various cities, it is actively
coordinating Y2K corrective measures with the cities and their Y2K consultants
or representatives, where applicable, to mitigate business interruption
exposures associated with the Y2K problem.
United Water is maintaining close contact with UWS and other entities in
which it has equity interests to ascertain that appropriate and prudent action
is being taken in order to achieve Y2K compliance.
Relationships with Third Parties
- --------------------------------
United Water has identified the following third party relationships to be
addressed as part of the Y2K program: regulatory agencies, critical vendors and
service providers.
United Water is in continuous communication with appropriate regulatory
agencies regarding the Y2K issue. All requests for information and status
reports, as well as other specific regulatory requirements are handled on a
priority basis. Management believes that the Company is in compliance with all
regulatory matters relating to Y2K.
The Company has contacted its critical vendors and service providers to
determine the degree of their Y2K readiness. The responses received to date
indicate that those vendors and service providers either are or will be Y2K
compliant. The status of those vendors and service providers who have either
not responded or are not yet compliant is being tracked closely. The electric
power and telecommunications industries have been identified as the most
critical service providers for the water industry. In the localities in which
United Water operates, it is closely monitoring the progress of the local
electric power and telecommunications companies and will continue to scrutinize
the progress of these providers. The Company is actively monitoring the Y2K
compliance status of its critical vendors and service providers and has received
approximately 75% of responses. The Company intends to continue monitoring these
critical vendors and service providers through its transition into the 21st
century.
Costs
- ------
United Water's Y2K readiness evolved from the strategic initiatives of the
ITSP which was budgeted as part of the Company's ongoing capital expenditures
since 1994. As a result, United Water has been able to keep to a minimum
expenses related to Y2K compliance outside of the ITSP budget. The Company's
principal technology costs to date have been associated with the planned
replacement of IT and non-IT systems, which has not been accelerated due to the
Y2K issue.
<PAGE>
United Water estimates its costs to date related to Y2K compliance efforts
that fall outside the ITSP budget are approximately $.2 million. Additional
non-ITSP budgeted costs expected to be incurred over the remainder of the
program are estimated to be $.7 million. These costs include SCADA upgrade as
required, internal employee time, as well as other miscellaneous costs.
Risks
- -----
The most reasonably likely worst case scenarios due to Y2K non-compliance
issues would be fluctuations in water pressure, aesthetic water quality and
other temporary service interruptions. This would be attributable to third party
failures including electric power and telecommunications outages.
In addition, a Y2K failure from any of the Company's large equity
investments including its investment in the Northumbrian Partnership, could have
a detrimental effect on the Company's results of operations.
Contingency Plans
- -----------------
The primary elements of contingency planning include procurement of back-up
energy sources, typically adding portable power generators where appropriate,
deployment of key personnel on critical dates relating to century date change
and providing for the efficient flow of communication both internally and
externally in the event of interruption of service during critical dates
relating to the century date change.
The estimates and conclusions included in this Y2K update are based on
management's best estimates of future events. The risks involved in completing
Y2K compliance include the availability of resources, unanticipated problems
identified in the ongoing compliance review and the ability of outside vendors
and service providers to be Y2K compliant.
<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 1998, the Company's regulated utilities received fourteen rate
settlement awards with an aggregate annual revenue increase of $8.7 million. An
estimated $4.7 million of this amount was reflected in 1998's revenues while the
remaining $4 million of carryover impact of the rate awards received in 1998 is
expected to increase revenues in 1999.
At the end of March 1999, there were six rate cases pending in which the
Company has requested an aggregate annual rate increase of $12 million. The most
significant rate cases pending were filed by United Water Florida and United
Water Delaware. In May 1998, United Water Florida applied to the Florida Public
Service Commission for rate relief in the amount of $2.2 million, or 24.3%, in
water revenues and $3.1 million, or 18.7%, in wastewater revenues. On March 15,
1999, the Commission issued a Proposed Agency Action Order authorizing an
increase of $2.4 million. However, on the last day of the statutory waiting
period prior to the rate effective date, the Office of Public Counsel filed a
motion protesting the increase. The matter will now be decided in a full
proceeding.
On March 11, 1998, United Water Delaware filed a request to increase
revenues by $4.1 million, or 24.8%. On May 11, 1998, interim rates of $2.4
million were placed in effect, subject to refund. A decision on this
application is expected before the end of the second quarter of 1999. The
Company believes the outcome of this application will not have a material effect
on earnings.
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 decided in favor of the Commission. The
Company appealed this decision to the Supreme Court of Delaware and on February
11, 1999, the Supreme Court reversed the Commission's decision which denied the
$.7 million annual revenue increase, subject to refund and remanded the matter
to the Commission. The Company expects that the Commission will enter an Order
on remand which will eliminate the prospect of refunding any part of the $2.3
million.
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 1999 but does
not expect that those rate awards, if received in 1999, will have a significant
impact on revenues in 1999.
<PAGE>
Results of Operations - Three Months Ended March 31, 1999
- ---------------------------------------------------------
Overview
United Water's net income applicable to common stock for the first quarter
of 1999 increased to $4.8 million from $3.1 million in the comparable period in
1998. Net income per common share for the first quarter of 1999 was 13 cents as
compared to nine cents for the same period last year. Results for 1999 included
the Harrison Plaza sale that contributed nine cents per common share. Results
for 1999 and 1998 included seven cents and six cents, respectively for corporate
charges relating to interest and preferred and preference dividends.
Operating Revenues
The $3.8 million increase in revenues from the same period in 1998 was
attributable to the following factors:
(thousands of dollars) Increase (Decrease)
------------------------------------------------------
Utilities:
Rate awards $2,772 3.6%
Consumption 819 1.1%
Growth 1,054 1.4%
Real estate (397) (0.5%)
Other operations (463) (0.6%)
------------------------------------------------------
$3,785 5.0%
------------------------------------------------------
The 3.6% increase in revenues from rate awards in the first quarter of 1999
includes the impact of 1998 rate awards for fourteen of the Company's operating
utilities. Higher consumption due to favorable weather conditions resulted in
an increase in revenues of $.8 million in 1999. The increase in revenues due to
growth is primarily attributable to the acquisition of South County Water
Company in Idaho in the first quarter of 1999, as well as increased customers at
the Florida operating utility. The 0.5% decrease in real estate revenues was
due to no property sales in 1999 compared with six property sales for same
period in 1998. Other operations decreased 0.6% mainly due to the timing of
recording incentive revenues from the public-private partnership with Jersey
City.
Operating Expenses
The increase in operating expenses from the same period in 1998 is due to
the following:
(thousands of dollars) Increase
------------------------------------------------------
Operation and maintenance $2,975 7.6%
Depreciation and amortization 1,819 19.4%
General taxes 314 2.4%
------------------------------------------------------
The $3 million increase in operation and maintenance expenses was due
primarily to higher power and chemcial costs as well as increased maintenance
costs resulting from a greater number of main breaks in the Northeast service
area. These were partially offset by lower employee benefits costs.
<PAGE>
Results of Operations - Three Months Ended March 31, 1999 (continued)
- ---------------------------------------------------------
The $1.8 million increase in depreciation and amortization was primarily
attributable to an increase in depreciation rates as a result of regulatory
changes as well as the placement in service of a new customer information system
at the end of 1998.
General taxes increased $314,000 primarily due to higher gross receipts,
real estate and franchise taxes in utility operations.
Equity Earnings of Affiliates
The $367,000 increase in equity earnings of affiliates is due to $.2
million increases in earnings from both the Northumbrian Partnership and United
Water Services.
Income Taxes
The effective income tax rates on income before preferred and preference
stock dividends were 31.1% and 18.7% in the first quarter of 1999 and 1998,
respectively. The increase in the effective rate is primarily attributable to
the tax treatment of the Harrison Plaza sale partially offset by earnings from
the Northumbrian Partnership. The Company considers the undistributed earnings
from the Northumbrian Partnership to be permanently reinvested and has not
provided deferred taxes on these earnings.
Earnings per Share
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
defines two earnings per share calculations, basic and diluted. The following
table is a reconciliation of the numerator and denominator under each method:
(thousands, except per share data)
For the three months ended March 31, 1999 1998
----------------------------------------------------------------
Basic EPS:
Net income applicable to common stock $ 4,797 $ 3,134
Average common shares outstanding 37,980 36,400
Net income per common share $ .13 $ .09
Assuming dilution:
Net income applicable to common stock $ 4,797 $ 3,134
Convertible preference stock 441 503
------- -------
$ 5,238 $ 3,637
Average common shares outstanding 37,980 36,400
Stock options 190 177
Convertible preference stock 1,911 2,190
------- -------
40,081 38,767
Net income per common share $ .13 $ .09
----------------------------------------------------------------
<PAGE>
Results of Operations - Three Months Ended March 31, 1999 (continued)
- ---------------------------------------------------------
Segment Information
In June 1997, the FASB issued SFAS No. 131, "Disclosure 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. Those segments include utility investments, real estate
and non-regulated business.
United Water's utility investments include its regulated, domestic
subsidiaries, United Water New Jersey, United Water New York, and the utility
subsidiaries of United Waterworks and United Water Mid-Atlantic. These regulated
utilities provide water and wastewater services to the public at large in areas
where they possess franchises or other rights to provide such services. The
utility subsidiaries are subject to rate regulation, generally by the regulatory
authorities in the states in which they operate. In addition, the Company holds
a 50% investment in the Northumbrian Partnership, which acquired a 20% interest
in Northumbrian Water Group, a major investor-owned water and wastewater company
in the United Kingdom.
United Properties Group is a non-regulated business engaged in real estate
investment and development activities, including commercial office and retail
properties, residential and commercial land development and sales, golf course
operations and consulting services. United Properties Group owns a portfolio of
real estate located in New Jersey, New York, Delaware, Idaho and Florida.
The Company's non-regulated sector consists primarily of a 50% investment in
United Water Services, a 50/50 joint venture with Suez Lyonnaise des Eaux, which
provides contract operations and maintenance services for water and wastewater
facilities. In addition, United Water entered into public-private partnerships
with the cities of Jersey City and Hoboken, New Jersey. Under these
arrangements, the municipalities retain ownership of their systems while the
Company operates and maintains them. Parent and elimination companies are also
included in this segment.
<TABLE>
<CAPTION>
Parent, Non-Regulated
Utility Real Water Services and
(In millions) Investments Estate Eliminations Consolidated
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Operating revenues $ 73,971 $ 2,067 $ 3,189 $ 79,227
Net income/(loss) 5,899 2,784 (3,886) 4,797
Identifiable assets 1,630,177 80,556 54,590 1,765,323
- ------------------------------------------------------------------------------
</TABLE>
New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" effective for all fiscal years beginning after June 15,
1999. SFAS No. 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income. Due to
its limited use of derivative instruments, management believes the adoption of
SFAS No. 133 will not have a significant effect on the Company's financial
position or results of operations.
<PAGE>
Results of Operations - Three Months Ended March 31, 1999 (continued)
- ---------------------------------------------------------
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 judgment 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 appealed the
decision to the Appellate Division of the Supreme Court of the State of New
York. Arguments were heard in October 1998 and a settlement was reached in the
amount of $285,000 in December 1998 prior to the issuance of the Appellate
Division's decision. Plaintiffs have withdrawn their appeal.
On July 20, 1994, the Townhouses 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 sought 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 involved
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, and 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 diligently
pursued a motion to vacate the default judgment and subsequent appeals, based on
the principal ground that the default resulted from a failure by its insurance
carrier, claims processing service and a law firm to file a timely answer in the
case. United Water New Rochelle also brought a legal action against such third
parties seeking reimbursement of any ultimate liability in this case. On April
8, 1998, United Water New Rochelle reached a settlement with the Townhouses at
Lake Isle Homeowners Association in the amount of $300,000. An agreement in
principle has been reached with the third parties on the issue of reimbursement
for the settlement amount. 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.
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 and 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 show 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 eighteen months has been signed with the potential
plaintiffs and took effect February 1998. United Water Toms River has also
entered into a joint defense agreement with other potential defendants, Ciba-
Geigy
<PAGE>
Legal Proceedings (continued)
- -----------------
and Union Carbide. This agreement will allow the potential defendants to work
together until all disputes with the potential plaintiffs have been resolved.
During September 1998, David Chardavoyne, a former senior executive of the
Company, brought a lawsuit against the Company in the United States District
Court for the District of Connecticut. In the lawsuit, Chardavoyne claims that
the Company breached and wrongfully terminated his employment agreement. His
complaint seeks over $1 million in damages. Management believes it has
meritorious defenses to this lawsuit. Management further believes the
resolution of this matter will not have a material adverse effect upon the
financial position or results of operations of the Company.
On September 22, 1998, Ramapo Land Co., Inc. commenced a lawsuit against
United Water New York (UWNY), a wholly-owned subsidiary of the Company, in the
Supreme Court of the State of New York, Rockland County, seeking specific
performance of certain provisions of a 1990 Water Release Agreement between UWNY
and Ramapo Land. The Water Release Agreement allows UWNY to release water from
Cranberry and Potake Lakes to augment flows in the Ramapo River. The lawsuit
alleges that UWNY has failed to meet certain maintenance and repair obligations
with respect to Cranberry and Potake dams and that water releases have exceeded
permitted levels. Management is vigorously defending the litigation and is
actively pursuing settlement. If the lawsuit is not resolved successfully,
UWNY's water releases from Cranberry and Potake Lakes could be affected, which
in turn could impact UWNY's operation of the Ramapo Valley Well Field during
periods when the Ramapo River is at low flow. 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 January 22, 1998, the Pierson Lakes Homeowners Association, Inc. and
various individuals (Plaintiffs) commenced a lawsuit against UWNY and Ramapo
Land Co., Inc. in the Supreme Court of the State of New York, Rockland County.
This litigation is related to the above-referenced lawsuit by Ramapo Land Co.,
Inc. against UWNY in connection with maintenance and repair obligations and
water releases from Cranberry and Potake Lakes. The Pierson Lakes lawsuit seeks
declaratory relief, injunctive relief and money damages against UWNY and Ramapo
Land Co. in amounts in excess of $25 million. In addition to claims relating to
alleged failure to maintain the dams and spillways, Plaintiffs claim that the
water releases have damaged the recreational and aesthetic value of the lakes,
as well as their docks, boats and other personal property. Management is
vigorously defending this action and is also pursuing settlement negotiations
with the various parties. 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 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 10, 1999 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,221,919
<OTHER-PROPERTY-AND-INVEST> 171,133
<TOTAL-CURRENT-ASSETS> 146,059
<TOTAL-DEFERRED-CHARGES> 164,216
<OTHER-ASSETS> 61,996
<TOTAL-ASSETS> 1,765,323
<COMMON> 400,541
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 48,898
<TOTAL-COMMON-STOCKHOLDERS-EQ> 449,439
53,035
9,000
<LONG-TERM-DEBT-NET> 667,184
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 96,500
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,702
573
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 485,890
<TOT-CAPITALIZATION-AND-LIAB> 1,765,323
<GROSS-OPERATING-REVENUE> 79,227
<INCOME-TAX-EXPENSE> 3,119
<OTHER-OPERATING-EXPENSES> 66,830
<TOTAL-OPERATING-EXPENSES> 69,949
<OPERATING-INCOME-LOSS> 9,278
<OTHER-INCOME-NET> 8,944
<INCOME-BEFORE-INTEREST-EXPEN> 18,222
<TOTAL-INTEREST-EXPENSE> 11,863
<NET-INCOME> 6,359
1,562
<EARNINGS-AVAILABLE-FOR-COMM> 4,797
<COMMON-STOCK-DIVIDENDS> 9,112
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 8,059
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
