<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISION
---------------------------------
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, 2000
---------------------
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
---------- ----------
Common shares of stock outstanding as of April 30, 2000 39,256,322
----------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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UNITED WATER RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
<S> <C> <C>
2000 1999
---------- ----------
(unaudited)
Assets
- ------
Utility plant, including $23,461 and $24,533 under construction $1,597,866 $1,620,716
Less accumulated depreciation 360,549 358,528
---------- ----------
1,237,317 1,262,188
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Utility plant acquisition adjustments, net 55,172 60,714
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Real estate and other investments, less accumulated
depreciation of $10,155 and $9,721 80,838 79,836
Equity investments 137,084 134,755
---------- ----------
217,922 214,591
Current assets:
Cash and cash equivalents 8,179 768
Restricted cash 16,693 24,803
Accounts receivable and unbilled revenues, net 58,183 62,221
Prepaid and other current assets 19,026 16,972
---------- ----------
102,081 104,764
---------- ----------
Deferred charges and other assets:
Regulatory assets 58,507 65,424
Prepaid employee benefits 36,446 33,913
Unamortized debt expense 33,248 33,652
Other deferred charges and assets 28,624 27,819
---------- ----------
156,825 160,808
---------- ----------
$1,769,317 $1,803,065
========== ==========
Capitalization and Liabilities
- ------------------------------
Capitalization:
Common stock and retained earnings $ 456,333 $ 468,790
Preferred stock without mandatory redemption 9,000 9,000
Preferred stock with mandatory redemption 6,934 6,935
Preference stock, convertible, with mandatory redemption 26,210 26,169
Long-term debt 639,993 639,017
---------- ----------
1,138,470 1,149,911
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Current liabilities:
Notes payable 129,157 134,000
Preferred stock and long-term debt due within one year 5,671 21,119
Accounts payable and other current liabilities 30,845 37,259
Accrued taxes 29,956 24,466
Accrued interest and dividends 20,058 9,079
---------- ----------
215,687 225,923
---------- ----------
Deferred credits and other liabilities:
Deferred income taxes and investment tax credits 191,741 197,072
Customer advances for construction 33,194 36,206
Contributions in aid of construction 150,473 154,413
Other deferred credits and liabilities 39,752 39,540
---------- ----------
415,160 427,231
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$1,769,317 $1,803,065
========== ==========
</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)
For the three months ended March 31,
------------------------------------
2000 1999
---- ----
Operating revenues $77,204 $79,227
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Operating expenses:
Operation and maintenance 42,858 42,276
Depreciation and amortization 13,239 11,187
General Taxes 13,130 13,367
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Total operating expenses 69,227 66,830
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Operating income 7,977 12,397
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Interest and other expenses:
Interest expense, net of amount capitalized 11,837 11,863
Allowance for funds used during construction (319) (942)
Preferred stock dividends of subsidiaries 282 549
Gain on sale of Harrison Plaza -- (5,846)
Gain on sale of utilities (8,787) --
Equity earnings of affiliates (2,460) (2,525)
Other income, net (1,054) (180)
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Total interest and other expenses (501) 2,919
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Income before income taxes 8,478 9,478
Provision for income taxes 2,288 3,119
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Net income 6,190 6,359
Preferred and preference stock dividends 379 1,562
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Net income applicable to common stock $ 5,811 $ 4,797
======= =======
Net income per common share $0.15 $0.13
======= =======
Average common shares outstanding 38,995 37,980
Net income per common share-assuming dilution $0.15 $0.13
======= =======
Average common shares outstanding 41,063 40,081
Dividends per common share $0.30 $0.24
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(thousands of dollars)
(unaudited)
For the three months ended March 31,
------------------------------------
2000 1999
---- ----
Operating activities:
Net income $ 6,190 $ 6,359
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,611 11,564
Equity earnings of affiliates (2,460) (2,525)
Gain on sales of operating assets (8,787) (5,846)
Improvements to property under development (766) (870)
Deferred income taxes and investment tax credits, net 2,663 1,811
Allowance for funds used during construction (AFUDC) (319) (942)
Changes in assets and liabilities:
Accounts receivable and unbilled revenues 3,044 1,756
Prepaid and other current assets (2,267) (2,981)
Prepaid employee benefits (2,605) (2,386)
Regulatory assets 183 2,667
Accounts payable and other current liabilities (5,307) (6,504)
Accrued taxes 5,907 1,742
Accrued interest & dividends 113 1,043
Other, net (206) 3,171
-------- --------
Net cash provided by operating activities 8,994 8,059
-------- --------
Investing activities:
Additions to utility plant (excludes AFUDC) (13,696) (14,395)
Additions to real estate and other properties (668) (871)
Acquisition of South County Water Company - (2,589)
Proceeds from sales of operating assets 29,450 39,502
Change in restricted cash 8,110 9,970
-------- --------
Net cash provided by investing activities 23,196 31,617
-------- --------
Financing activities:
Change in notes payable (4,843) 3,100
Additional long-term debt - 30,000
Reduction in preferred stock and long-term debt (15,536) (44,534)
Issuance of common stock 4,335 7,320
Dividends on common stock (10,686) (9,112)
Dividends on preferred and preference stock (379) (1,562)
Net contributions and advances for construction 2,330 1,433
-------- --------
Net cash used in financing activities (24,779) (13,355)
-------- --------
Net increase in cash and cash equivalents 7,411 26,321
Cash and cash equivalents at beginning of period 768 8,011
-------- --------
Cash and cash equivalents at end of period $ 8,179 $ 34,332
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(thousands of dollars)
(unaudited)
For the three months ended March 31,
------------------------------------
2000 1999
---- ----
Supplemental disclosures of cash flow information:
Interest (net of amount capitalized) $11,352 $10,444
Income taxes (refunded)/paid (1,976) 570
<PAGE>
UNITED WATER RESOURCES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000
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. The year-end balance
sheet data was derived from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.
Additional footnote disclosure concerning accounting policies and other matters
are disclosed in the Company's audited consolidated financial statements
included in its 1999 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 10 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, Florida and Maryland. United Properties also
provides consulting and advisory services in support of the real estate assets
of the other United Water companies.
<PAGE>
Strategic Initiatives
- ---------------------
During the third quarter of 1999, United Water announced strategic
initiatives designed to strengthen the long-term performance of the Company.
. In August 1999, the Company announced an agreement for Suez Lyonnaise
des Eaux to acquire the remaining shares of United Water it did not
already own for cash of $35 per share. The acquisition agreement was
approved by United Water's shareholders on January 20, 2000, and
remains subject to regulatory approvals. The Company expects that this
transaction will close during the second quarter of 2000.
. On July 13, 1999, the Company announced that it entered into a
definitive agreement to sell several small utility subsidiaries to
American Water Works Company for approximately $49 million in cash,
which would result in an after- tax gain of approximately $6 million.
These utilities collectively contribute annual revenues of
approximately $13.8 million, provide water service to about 35,000
customers and represent less than 4% of the Company's regulated assets
and under 2% of the population it serves. The decision to sell these
subsidiaries was made in an effort to focus United Water's core
utility business in service areas experiencing significant growth and
development. Completion of the transaction is contingent upon
regulatory approvals. In the first quarter of 2000, the Company
concluded the sales of United Water Indiana and United Water Virginia
for $30.4 million. These transactions resulted in an after-tax gain of
$4.1 million. In April 2000, the Company completed the sale of United
Water Missouri for $9.2 million.
Gain on sale of Harrison Plaza
- ------------------------------
In March 1999, United Properties sold two office buildings (Harrison
Plaza), which contributed annual revenues of approximately $4.6 million, for
$42.1 million. This transaction resulted in an after-tax gain of $3.3 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.
In June 1999, United Properties purchased three office/retail buildings for
$40.6 million. Cash proceeds from the sale of Harrison Plaza of $23.9 million,
as well as $16.8 million of short-term debt was used to finance this purchase.
In December 1999, United Properties contributed these buildings to a partnership
and in return received preferred units in this partnership, as well as the
partnership's assumption of $16.7 million in short-term debt. This investment
will generate dividend income, which is accounted for as other income in the
statement of consolidated income.
Redemption of Preferred Stock
- -----------------------------
On January 7, 2000, the Company called for redemption of all 150,000 shares
of its 7 3/8% preferred stock. The redemption resulted in the payment of
principal, accrued dividends and premium totaling $15.5 million, with $.5
million relating to the premium paid on the early redemption. The preferred
stock was redeemed with short-term financing.
<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 $264 million over the next five years,
including $54 million and $53 million in 2000 and 2001, respectively. This
total includes $153 million for United Waterworks and $106 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 11% of the projected capital expenditures over the 2000-2004
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 and external financings. 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, 2000, $16.7 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 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.
In October 1999, United Water redeemed $25 million of 9.38% Senior Notes
due 2019. This early redemption resulted in an extraordinary after-tax loss of
$1.1 million, representing the premium paid and the write-off of unamortized
debt costs.
United Properties currently expects to spend $27.9 million over the next
five years for capital expenditures on its existing real estate portfolio.
Expenditures are projected to be $12.3 million and $3.4 million in 2000 and
2001, 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, 2000, United Water had cash and cash equivalents of $8.2
million (excluding restricted cash) and unused short-term bank lines of credit
of $190.9 million. Management expects that unused credit lines currently
available and cash flows from operations will be sufficient to meet anticipated
future operational needs.
<PAGE>
Year 2000 Compliance
- --------------------
Overview
- --------
United Water successfully implemented 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 issue and the need
to address the effect of the Y2K issue on all aspects of the Company's
operations. The Company addressed "Y2K readiness" as a critical component of
each project or initiative undertaken at United Water since 1994 that had Y2K
ramifications.
United Water defined Y2K readiness as the ability of the Company to advance
into 2000 with minimal effect on the Company's critical computer systems and
automated processes that control the delivery of water and wastewater services,
and the Company's operations, liquidity or financial condition. As a result of
these readiness activities, United Water encountered no significant problems
with the transition to the year 2000.
The Y2K program addressed 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 addressed the
assessment and monitoring of the Y2K compliance status of third parties upon
which the Company relies.
In addition, management believes that United Water complied with the
various Y2K requirements of the regulatory agencies that closely supervise its
activities. Such compliance included 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
- --------------------------------
United Water successfully transitioned through the first quarter of year
2000 with no problems encountered by the Company's critical computer systems and
automated processes. This was a direct result of the attention and effort
devoted to readiness activities since 1994. United Water's strategy to replace
the aging technical infrastructure, including IT and non-IT systems, enabled
United Water and its operating affiliates to make a smooth transition into the
21st century.
In addition to its own Y2K program, the Company was 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,
successfully implemented a Y2K program utilizing the guidelines established by
the Company. This program was applied to all UWS's project sites and resulted in
the production of inventories, risk assessments, testing methodologies and
contingency plans for Y2K compliance.
Where UWS assumed responsibility for part or all of the Y2K compliance
efforts of its operating affiliates in the various cities, it coordinated Y2K
corrective measures with the cities and
<PAGE>
Year 2000 Compliance (continued)
- --------------------
their Y2K consultants or representatives, where applicable, to mitigate business
interruption exposures associated with the Y2K problem.
United Water maintained close contact with UWS and other entities in which
it has equity interests to ascertain that appropriate and prudent action was
taken in order to achieve Y2K compliance.
Relationships with Third Parties
- ---------------------------------
United Water maintained close third party relationships during this effort
with regulatory agencies, critical vendors and service providers. This included
continuous communications with the appropriate regulatory agencies.
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 minimize Y2K-related
compliance expenses 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.
United Water costs related to Y2K compliance efforts that fell outside the
ITSP budget were approximately $1 million. These costs included SCADA upgrade
as required internal employee time, as well as other miscellaneous costs.
Contingency Plans
- -----------------
In preparation for the Year 2000 and as a prudent measure of contingency
planning, United Water reviewed and refined all emergency operating plans for
each operating location. In addition, each location developed a full emergency
notification plan in the event of an emergency. The Company also developed a
full "business continuity management plan and procedures" designed to coordinate
disaster and emergency management throughout the corporation. These plans were
tested on December 31, 1999. The focus of the contingency plans was to address
the possibility of automation failure so that the Company can sustain its
operational systems in the event of any such failure.
Risks
- -----
United Water continues to progress through the year 2000 with minimal date
related issues. In addition, United Water has the added benefit of well tested
contingency management plans, which can be executed as needed.
<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 1999, the Company's regulated utilities received fourteen rate
decisions with an aggregate annual revenue increase of $4.4 million. An
estimated $2.6 million of this amount was reflected in 1999's revenues while the
remaining $1.8 million of carryover impact of the rate awards received in 1999
is expected to increase revenues in 2000.
At the end of March 2000, there were three rate cases pending in which the
Company has requested an aggregate annual rate increase of $6.8 million. The
most significant rate cases pending were filed by United Water New Rochelle and
United Water Idaho. In July 1999, United Water New Rochelle applied for a
multi-year rate increase. The filing requested an increase in revenues of $3.3
million, or 17.2% for the 12 months ending May 31, 2001, an additional increase
of $3.7 million, or 16.4% for the 12 months ending May 31, 2002 and a final
increase of $4.1 million, or 15.6% for the 12 months ending May 31, 2003. These
increases were requested primarily to fund capital investments.
On February 2, 2000 United Water Idaho filed an application with the Idaho
Public Utilities Commission requesting an increase in its rates and charges in
the amount of $3.1 million, or 11.6%. The Company is seeking to recover
increased costs associated with plant additions and various operating expenses.
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 2000 but does
not expect that those rate awards, if received in 2000, will have a significant
impact on revenues in 2000.
<PAGE>
Results of Operations - Three Months Ended March 31, 2000
- ---------------------------------------------------------
Overview
United Water's net income applicable to common stock for the first quarter
of 2000 increased to $5.8 million from $4.8 million in the comparable period in
1999. Net income per common share for the first quarter of 2000 and 1999 was 15
cents and 13 cents, respectively. Results for 2000 included the sale of two
utilities, which resulted in an after-tax gain of $4.1 million. Earnings for
1999 included an after-tax contribution of $3.3 million resulting from the sale
of the Harrison Plaza building.
Operating Revenues
The $2 million decrease in revenues from the same period in 1999 was
attributable to the following factors:
(thousands of dollars) (Decrease) Increase
------------------------------------------------------
Utilities:
Divested operations ($ 1,207) (1.5%)
Rate awards (1,161) (1.5%)
Consumption (537) (0.7%)
Growth 867 1.1%
Real estate (1,097) (1.4%)
Other operations 1,112 1.4%
------------------------------------------------------
($ 2,023) (2.6%)
------------------------------------------------------
The $1.2 million decrease in revenues from divested operations represents
the difference between a partial quarter of operations from the utilities which
were sold in the first quarter of 2000 compared with a full 3 months of
operations in 1999. The 1.5% decrease in revenues from rate awards in the first
quarter of 2000 includes the impact of a $1.7 million reversal of a reserve for
revenues in effect, subject to refund, for which a positive resolution was
reached in the first quarter of 1999. This was partially offset by 1999 rate
awards for several of the Company's operating utilities. Lower consumption due
to unfavorable weather conditions resulted in a decrease in revenues of $.5
million in 2000. The increase in revenues due to growth is primarily
attributable increased customers at the Florida operating utility. The 1.4%
decrease in real estate revenues was due to the absence of revenues from the
Harrison Plaza building which was sold in March 1999. Other operations
increased $1.1 million mainly due to revenues from a new public-private
partnership in Rahway, New Jersey, which commenced in November 1999, as well as
higher revenues from the public-private partnership with Jersey City.
Operating Expenses
The increase in operating expenses from the same period in 1999 is due to
the following:
<TABLE>
<CAPTION>
Net Impact
Excluding
Divested Divested
(thousands of dollars) Increase (Decrease) Operations Operations
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operation and maintenance $ 582 1.4% (514) $1,096 2.6%
Depreciation and amortization 2,052 18.3% (152) 2,204 20.1%
General taxes (237) (1.8%) (79) (158) (1.2%)
-----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Results of Operations - Three Months Ended March 31, 2000 (continued)
- -----------------------------------------------------------------------
The $1.1 million increase in operation and maintenance expenses, excluding
the impact of the divested operations, was due primarily to expenses associated
with the new public-private partnership in Rahway, New Jersey, as well as higher
employee benefit costs.
The $2.2 million increase in depreciation and amortization, excluding the
impact of the divested operations, was attributable to the $2.1 million write
off of goodwill associated with sale of the utilities in Indiana and Virginia.
Equity Earnings of Affiliates
The slight decrease in equity earnings of affiliates is due to a $.3 million
decrease in earnings from United Water Services, partially offset by a $.2
million increase in earnings from the Northumbrian Partnership.
Other Income
The $.9 million increase in other income is mainly due to dividend income
generated by United Properties' investment in a partnership in which it
contributed a building in December 1999.
Income Taxes
The effective income tax rates on income before preferred and preference
stock dividends were 26.1% and 31.1% in the first quarter of 2000 and 1999,
respectively. The decrease in the effective rate is primarily attributable to
the tax treatment of the sales of United Water Indiana and United Water
Virginia, as well as 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:
<PAGE>
Results of Operations - Three Months Ended March 31, 2000 (continued)
- ---------------------------------------------------------
(thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended March 31, 2000 1999
----------------------------------------------------------
Basic EPS:
<S> <C> <C>
Net income applicable to common stock $ 5,811 $ 4,797
Average common shares outstanding 38,995 37,980
Net income per common share $ .15 $ .13
Assuming dilution:
Net income applicable to common stock $ 5,811 $ 4,797
Convertible preference stock 379 441
------- -------
$ 6,190 $ 5,238
Average common shares outstanding 38,995 37,980
Stock options 438 190
Convertible preference stock 1,630 1,911
------- -------
41,063 40,081
Net income per common share $ .15 $ .13
----------------------------------------------------------
</TABLE>
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. In
addition, United Properties contributed buildings to a partnership and in return
received preferred units of this partnership.
<PAGE>
Results of Operations - Three Months Ended March 31, 2000 (continued)
- ---------------------------------------------------------
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, as well as construction management, meter installation and training
and advisory services. In addition, United Water entered into public-private
partnerships with the cities of Jersey City, Hoboken and Rahway, 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.
Parent, Non-Regulated
Utility Real Water Services and
(In millions) Investments Estate Eliminations Consolidated
- --------------------------------------------------------------------------------
Operating revenues $ 71,932 $ 970 $ 4,302 $ 77,204
Net income/(loss) 8,597 282 (3,068) 5,811
Identifiable assets 1,655,852 81,331 32,134 1,769,317
- --------------------------------------------------------------------------------
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,
2000. 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.
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
- ---------------------------
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 initial agreement tolling the statute
of limitations for at least eighteen months was signed with the potential
plaintiffs and took effect February 1998. A second agreement, extending the
tolling period for an additional eighteen months, was executed in July 1999.
United Water Toms River has also entered into a joint defense agreement with
other potential defendants, Ciba-Geigy and Union Carbide. This agreement will
allow the potential defendants to work together until all disputes with the
potential plaintiffs have been resolved.
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.
<PAGE>
Legal Proceedings (continued)
- -----------------
Two lawsuits were recently filed contesting the pending merger by and among
Lyonnaise American Holding, Inc. ("LAH"), Suez Lyonnaise des Eaux ("SLDE") and
United Water. These suits are (1) Herbert Behrens vs. Donald L. Correll et al.,
filed on August 25, 1999 in the Superior Court of New Jersey Chancery Division,
Bergen County and (2) Lawrence Steinberg vs. United Water et al., filed on
August 24, 1999 in the Superior Court of New Jersey Chancery Division, Bergen
County.
These suits allege, among other things, breach of fiduciary duty by United
Water and its directors because the merger was purportedly agreed to without an
appropriate evaluation of UWR's worth to an acquisition candidate. Both suits
seek, in addition to other relief, an injunction preventing SLDE and LAH from
acquiring UWR for the consideration stated in the merger agreement.
UWR believes that these suits are entirely without merit and intends to
vigorously defend against them.
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.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
A Special Meeting of Stockholders was held on January 20, 2000. The
purpose of the meeting was to adopt and approve an Agreement and Plan of Merger,
dated as of August 20, 1999 by and among United Water Resources Inc., Lyonnaise
American Holding, Inc., LAH Acquisition Co. and Suez Lyonnaise des Eaux.
Number of votes cast:
For Against Abstain
---------- ----------- ---------
31,475,924 998,245 189,615
Item 6. Exhibits and Reports on 8-K
- -------------------------------------
Exhibits
10 Amendment No. 1 to Executive Employment Agreement between and among
United Water Resources Inc. and Donald L. Correll, dated March 24,
2000.
<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, 2000 By JOHN J. TURNER
------------ ------------------------------
(Signature)
John J. Turner
Treasurer
DULY AUTHORIZED AND CHIEF
ACCOUNTING OFFICER
<PAGE>
Exhibit 10
AMENDEMENT NO. I
TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1, dated as of March 24, 2000, to the employment agreement
effective as of January 1, 1999 by and between United Water Resources Inc., a
New Jersey corporation, and its subsidiaries (collectively the "Company") and
Donald L. Correll (the "Executive") (the "Agreement"). Capitalized terms used
but not otherwise defined herein shall have the meanings set forth in the
Agreement.
Recitals
A. The Company has entered into an agreement and plan of merger, dated as
of August 20, 1999 by and among the Company, Lyonnaise American Holding, Inc., a
Delaware corporation ("LAH"), LAH Acquisition Co., a New Jersey corporation and
a wholly owned subsidiary of LAH, and Suez Lyonnaise des Eaux, a French societe
anonyme, (the "Merger Agreement") pursuant to which the company will become a
wholly-owned subsidiary of LAH.
B. LAH, the Company and the Executive desire to provide for continuity in
the Company's management after the consummation of the transactions contemplated
by the Merger Agreement through the Executive's continued employment as the
Company's Chairman and Chief Executive Officer pursuant to the Agreement, as
amended by this Amendment No. 1 to the Agreement.
C. In order to provide such continuity, the Executive and the Company
desire to amend the Agreement as set forth herein.
Amendment
Accordingly, the Executive and the Company hereby mutually agree to amend
the Agreement as follows:
1. Unnumbered Paragraph 1 - The Commencement Date is hereby amended to
----------------------
delete "January 1, 1999" and replace it with the phrase "the Effective Time of
the merger, as Effective Time is defined in Section 1.2 of the Merger
Agreement."
2. Term. Section 2 of the Agreement is hereby deleted in its entirety and
----
replaced with the following:
The Executive's employment hereunder shall commence on the
Commencement Date and shall end at the close of business on the date
that is one year from the Commencement Date.
3. Title. Section 3 of the Agreement is hereby amended to delete the
-----
phrase "Chief Executive Officer, President and Chairman of the Board" and
replace it with the phrase "Chief Executive Officer and Chairman of the Board"
each time such phrase appears.
1
<PAGE>
4. Compensation and Benefits. Section 4(c) of the Agreement is hereby
-------------------------
amended to delete the phrase "In addition, during the Term, the Executive shall
accrue benefits under the United Water Resources Inc. Supplement Retirement Plan
for Key Executives (the "SERP")" and replace it with the phrase "The Executive
shall not accrue any additional benefits under the SERP after the Effective Time
of the Merger."
5. Supplemental Incentive and Stay Bonus Following the Merger. Section 4
----------------------------------------------------------
of the Agreement is hereby amended by the addition of new subsections (g) and
(h) to read in their entirety as follows:
(g) The Executive and the Company acknowledge and agree that the
merger contemplated by the Merger Agreement (the "Merger") will
constitute a "Change of Control". The Executive shall be
entitled to receive (in addition to all other compensation to
which he may be entitled under the Agreement) a supplemental
incentive and stay bonus calculated and payable as set forth on
Schedule A to this Amendment provided that (i) the Executive is
employed by the Company on the first anniversary of the
Commencement Date; and (ii) the Executive executes and does not
revoke a release agreement prepared by the Company at that time.
(h) Because of the Change of Control resulting from the Merger,
upon Executive's termination of employment with the Company for
any reason, Executive shall receive the following: (i) an amount
equal to 300% of his Base Salary in effect as of his Date of
Termination plus 300% of the greater of (x) his "Cash Target
Amount" under the MIP as of the Effective Time of the Merger, or
(y) his most recently paid or declared cash award under the MIP;
provided, however, that notwithstanding anything to the contrary
above, $1,200,000 of the payment to be made to Executive pursuant
to subsection (i) of this Section (h) shall be paid to Executive
at the Effective Time of the Merger and the remainder will be
paid to the Executive upon termination of the Executive's
employment under the Agreement, the latter amount to be no less
than $408,000; (ii) the Executive hereby agrees that he is
waiving any payments otherwise due him under The United Water
Resources Inc. Supplemental Retirement Income Plan for Key
Executives (the "SERP"); including, but not limited to, any
further accruals under the SERP on or after the Effective Time of
the Merger, and in consideration for such waiver, the Company
shall pay the Executive the sum of $2,990,304 plus or minus up to
a 5% adjustment to be made at the final calculation of the SERP
at the Effective Time of the Merger (the "Adjusted SERP Payout"),
such Adjusted SERP Payout to be secured by an irrevocable letter
of
2
<PAGE>
credit; such letter of credit which shall be unconditional,
guaranteed, and exercisable at the termination of Executive's
employment under the Agreement; such letter of credit which shall
provide for interest accrual on the Adjusted SERP Payout at prime
rate from the Effective Time of the Merger until exercise of the
letter of credit; and such letter of credit which the parties
agree shall be issued by a major American commercial bank, such
as Chase, Citibank, etc.; provided, further, however, that the
parties agree in good faith that within 45 days from the
execution of this Amendment (the "45 Day Period") the Executive
will investigate and present to the Company possible alternative
mechanisms for the payout of the SERP, if any, in addition to or
in place of the letter of credit described above, that may
provide for more favorable tax treatment of said payout, and that
approval of a final payout mechanism shall reside in the Company,
such approval not to be withheld provided that (x) any such
alternative mechanism is presented to the Company within the 45
Day Period; (y) whatever alternative mechanism is proposed does
not entail costs to the Company above those associated with the
letter of credit; and (z) that in no event will the Company be
required to make any cash outlay prior to the date that such an
outlay would be required under the letter of credit; (iii)
retiree medical coverage under the United Water Resources Inc.
Corporate Medical Benefits Program as of Executive's Date of
Termination; (iv) the payment(s) pursuant to Section 7(d)(i) of
the Agreement; and (v) the benefits pursuant to Section 7(d)(iv)
of the Agreement, such Section which is hereby amended to Section
7(d)(ii).
6. Good Reason. Section 5(d)(ii) of the Agreement is hereby amended to
-----------
add at the end of Section 5(d)(ii) the phrase "as amended by and after the date
of Amendment No. 1 to the Agreement".
7. Compensation Upon Termination. Sections 7(a), (b) and (c) of the
-----------------------------
Agreement are hereby deleted in their entirety; the language in Section 7(d) of
the Agreement beginning with "Termination By the Company" and ending with "the
Company shall:" is hereby deleted in its entirety and replaced with the phrase
"The Company shall:"; Sections 7(d)(ii), 7(d)(iii), 7(d)(v), and 7(d)(vi) of the
Agreement are hereby deleted in their entirety; Section 7(d)(iv) of the
Agreement is hereby changed to Section 7(d)(ii); the paragraph immediately
following the now Section 7(d)(ii) of the Agreement is hereby amended to add the
phrase "except as otherwise specifically provided for herein."; and the Change
of Control definition (including subsections (i), (ii) and (iii) thereof) is
hereby deleted in its entirety.
8. Continuation. Except as expressly amended hereby, the Agreement shall
------------
continue in full force and effect in accordance with its terms. All references
in the Agreement to the Agreement or any provision thereof shall be deemed to
refer to the Agreement and the provisions thereof as amended by this Amendment.
3
<PAGE>
9. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of New Jersey applicable to contracts made
and to be wholly performed within such State, without regard to conflicts of law
principles.
10. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one or the same agreement. This Amendment shall be
effective when each of the parties shall have executed at least one counterpart,
although not all of the parties may have executed the same counterpart.
4
<PAGE>
Execution
IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 as
of the day and year first above written.
/s/
--------------------------------
Donald L. Correll
UNITED WATER RESOURCES INC.
By: /s/
----------------------------
Name: Marcia L. Worthing
Title: Chair, Compensation Committee
Consent
- -------
By its signature below, LAH hereby consents to the Company's execution, delivery
and performance of the foregoing Amendment.
LYONNAISE AMERICAN HOLDING, INC.
By: /s/
------------------------------
Name: Gerard Payen
Title: Authorized Signatory
5
<PAGE>
SCHEDULE A
TO
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
Calculation and Payment of Supplemental Incentive and Stay Bonus
Subject to the Executive's achievement of objectives to be set by the Board of
Directors of United Water Resources Inc. (the "Board") in its sole discretion,
and subject to the conditions specified in Section 4(g) of this Amendment No. 1,
the Executive shall receive a supplemental incentive and stay bonus to be
calculated as follows:
Percent of objectives achieved by Executive as Payment in United States Dollars
- ---------------------------------------------- --------------------------------
determined in the sole discretion of the Board
- ----------------------------------------------
If less than 90% $ 0
If greater than or equal to 90%, but less than 100% $250,000
If greater than or equal to 100% $300,000
6
<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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,237,317
<OTHER-PROPERTY-AND-INVEST> 217,922
<TOTAL-CURRENT-ASSETS> 102,081
<TOTAL-DEFERRED-CHARGES> 156,825
<OTHER-ASSETS> 55,172
<TOTAL-ASSETS> 1,769,317
<COMMON> 418,450
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 37,883
<TOTAL-COMMON-STOCKHOLDERS-EQ> 456,333
33,144
9,000
<LONG-TERM-DEBT-NET> 639,993
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 129,157
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 5,098
573
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 496,019
<TOT-CAPITALIZATION-AND-LIAB> 1,769,317
<GROSS-OPERATING-REVENUE> 77,204
<INCOME-TAX-EXPENSE> 2,288
<OTHER-OPERATING-EXPENSES> 69,227
<TOTAL-OPERATING-EXPENSES> 71,515
<OPERATING-INCOME-LOSS> 5,689
<OTHER-INCOME-NET> 12,338
<INCOME-BEFORE-INTEREST-EXPEN> 18,027
<TOTAL-INTEREST-EXPENSE> 11,837
<NET-INCOME> 6,190
379
<EARNINGS-AVAILABLE-FOR-COMM> 5,811
<COMMON-STOCK-DIVIDENDS> 10,686
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 8,994
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
</TABLE>
