-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TfXrz1QqqaqzJTiDuWY0veooSTsF7mO/5MwGjwumgfXUgGNpDyBEDZDpAjVfO5Hd LKXjlgTZRqYSSkHz/sjLpg== 0000950130-96-003223.txt : 19960816 0000950130-96-003223.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950130-96-003223 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED WATER RESOURCES INC CENTRAL INDEX KEY: 0000715969 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 222441477 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08586 FILM NUMBER: 96614860 BUSINESS ADDRESS: STREET 1: 200 OLD HOOK RD CITY: HARRINGTON PARK STATE: NJ ZIP: 07640 BUSINESS PHONE: 2017849434 MAIL ADDRESS: STREET 1: 200 OLD HOOK ROAD CITY: HARRINGTON PARK STATE: NJ ZIP: 07640 10-Q 1 FORM 10-Q 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 JUNE 30, 1996 -------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission file number 1-858-6 ------------- United Water Resources Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-2441477 - -------------------------------- ------------------------------ (State or other Jurisdiction (I.R.S. Employer of Incorporation) Identification No.) 200 Old Hook Road, Harrington Park, New Jersey 07640 - -------------------------------------------------------------------------------- (Address of principal executive office) (zip code) 201-784-9434 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- ---------- Common shares of stock outstanding as of July 31, 1996 33,888,572 ----------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------------------------------- UNITED WATER RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (THOUSANDS OF DOLLARS)
JUNE 30, DECEMBER 31, 1996 1995 ----------- ------------ (UNAUDITED) ASSETS - ------ UTILITY PLANT, including $29,677 and $19,899 under construction $1,301,402 $1,334,807 LESS accumulated depreciation 257,551 253,529 ----------- ------------ 1,043,851 1,081,278 ----------- ------------ UTILITY PLANT ACQUISITION ADJUSTMENTS, NET 65,441 71,898 ----------- ------------ REAL ESTATE AND OTHER INVESTMENTS, less accumulated depreciation of $15,384 and $14,626 94,548 98,082 Investment in Northumbrian Partnership 62,160 -- ----------- ------------ 156,708 98,082 ----------- ------------ CURRENT ASSETS: Cash and cash equivalents 5,684 4,529 Restricted cash 39,996 52,677 Customers' accounts receivable and unbilled revenues, net 64,221 55,325 Other accounts receivable 5,820 7,302 Prepaid and other current assets 14,201 15,103 ----------- ------------ 129,922 134,936 ----------- ------------ DEFERRED CHARGES AND OTHER ASSETS: Regulatory assets 73,846 70,154 Prepaid employee benefits 13,048 12,319 Unamortized debt expense 25,776 26,242 Other deferred charges and assets 21,923 21,799 ----------- ------------ 134,593 130,514 ----------- ------------ $1,530,515 $1,516,708 =========== ============ CAPITALIZATION AND LIABILITIES - ------------------------------ CAPITALIZATION: Common stock and retained earnings $ 368,465 $ 358,302 Preferred stock without mandatory redemption 9,000 9,000 Preferred stock with mandatory redemption 54,065 54,397 Preference stock, convertible, with mandatory redemption 39,374 43,694 Long-term debt 574,226 558,658 ----------- ------------ 1,045,130 1,024,051 ----------- ------------ CURRENT LIABILITIES: Notes payable 57,725 43,500 Preferred stock and long-term debt due within one year 26,607 13,575 Accounts payable and other accruals 29,305 32,650 Accrued taxes 26,683 25,678 Accrued interest and other current liabilities 11,407 8,246 ----------- ------------ 151,727 123,649 ----------- ------------ DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes and investment tax credits 167,934 155,258 Customer advances for construction 25,930 27,804 Contributions in aid of construction 121,349 132,836 Other deferred credits and liabilities 18,445 53,110 ----------- ------------ 333,658 369,008 ----------- ------------ Commitments and contingencies $1,530,515 $1,516,708 =========== ============
The accompanying notes are an integral part of these consolidated financial statements. UNITED WATER RESOURCES INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (THOUSANDS OF DOLLARS) (UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS -------------------- ------------------ ENDED JUNE 30, ENDED JUNE 30, -------------- -------------- 1996 1995 1996 1995 ---- ---- ---- ---- OPERATING REVENUES $ 84,347 $ 83,570 $ 155,640 $ 154,975 -------- -------- --------- --------- OPERATING EXPENSES: Operation and maintenance 39,882 39,260 77,463 76,903 Depreciation and amortization 8,022 7,734 15,777 15,357 General taxes 12,524 12,323 24,847 24,316 -------- -------- --------- --------- TOTAL OPERATING EXPENSES 60,428 59,317 118,087 116,576 -------- -------- --------- --------- OPERATING INCOME 23,919 24,253 37,553 38,399 -------- -------- --------- --------- INTEREST AND OTHER EXPENSES: Interest expense, net of amount capitalized 10,830 10,884 21,796 21,464 Allowance for funds used during construction (784) (547) (1,189) (1,010) Preferred stock dividends of subsidiaries 569 574 1,142 1,152 Gain on New Mexico settlement -- -- (10,372) -- Other income, net (531) (226) (1,192) (414) -------- -------- --------- --------- TOTAL INTEREST AND OTHER EXPENSES 10,084 10,685 10,185 21,192 -------- -------- --------- --------- INCOME BEFORE INCOME TAXES 13,835 13,568 27,368 17,207 PROVISION FOR INCOME TAXES 5,332 4,799 12,784 6,409 -------- -------- --------- --------- NET INCOME 8,503 8,769 14,584 10,798 Preferred and preference stock dividends 1,140 1,198 2,340 2,396 -------- -------- --------- --------- NET INCOME APPLICABLE TO COMMON STOCK $ 7,363 $ 7,571 $ 12,244 $ 8,402 ======== ======== ========= ========= AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 33,550 31,807 33,281 31,604 NET INCOME PER COMMON SHARE $0.22 $0.24 $0.37 $0.27 ======= ======= ======== ======== DIVIDENDS PER COMMON SHARE $0.23 $0.23 $0.46 $0.46 ======= ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. UNITED WATER RESOURCES INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 1996 1995 ---- ---- OPERATING ACTIVITIES: NET INCOME $ 14,584 $ 10,798 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 16,188 15,739 Gain on New Mexico settlement (10,372) -- Deferred income taxes and investment tax credits, net 11,803 (904) Allowance for funds used during construction (AFUDC) (1,189) (1,010) Changes in assets and liabilities, net of effect of New Mexico settlement and acquisitions: Accounts receivable and unbilled revenues (6,981) (4,269) Prepaid and other current assets 850 820 Prepaid employee benefits (666) (93) Regulatory assets (5,248) 258 Accounts payable and other accruals (3,695) (7,226) Accrued taxes 725 1,946 Accrued interest and other current liabilities 3,434 (2,427) Other, net 467 (4,705) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 19,900 8,927 -------- -------- INVESTING ACTIVITIES: Additions to utility plant (excludes AFUDC) (25,298) (30,627) Additions to real estate and other properties (3,359) (3,787) Investment in Northumbrian Partnership (61,792) -- Proceeds from New Mexico settlement 31,670 -- Acquisitions of Matchaponix and Princeton Meadows, net of cash acquired (6,794) -- Jersey City concession fee (2,500) -- Change in restricted cash 12,681 (12,176) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (55,392) (46,590) -------- -------- FINANCING ACTIVITIES: Change in notes payable 14,225 (9,700) Additional long-term debt 30,538 47,179 Reduction in preferred stock and long-term debt (2,270) (4,061) Issuance of common stock 8,556 9,896 Dividends on common stock (15,301) (14,527) Dividends on preferred and preference stock (2,340) (2,396) Net contributions and advances for construction 3,239 7,543 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 36,647 33,934 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,155 (3,729) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,529 9,840 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,684 $ 6,111 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. UNITED WATER RESOURCES INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 1996 1995 ---- ---- Supplemental disclosures of cash flow information: Interest (net of amount capitalized) $17,951 $23,508 Income taxes 808 1,535
Supplemental disclosure of non-cash transactions: In connection with the New Mexico settlement, liabilities of $20.2 million were transferred to the city of Rio Rancho. Additional common stock was issued upon the conversion of 337,994 shares of preference stock valued at $4.7 million. In connection with the acquisitions of Matchaponix and Princeton Meadows, the Company forgave a $5 million note receivable and assumed liabilities of $5.2 million. UNITED WATER RESOURCES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 NOTE 1 - GENERAL - ---------------- In the opinion of United Water Resources (United Water, or the Company), the accompanying unaudited consolidated financial statements contain all adjustments, which consist of normal recurring adjustments, necessary for the fair presentation of the results for the interim periods. Additional footnote disclosure concerning accounting policies and other matters are disclosed in the Company's audited consolidated financial statements included in its 1995 Annual Report on Form 10-K, which should be read in conjunction with these financial statements. Certain prior year amounts have been reclassified to conform with current year presentation. Due to the seasonal nature of the Company's operations, financial results for interim periods are not necessarily indicative of the results for a twelve month period. NOTE 2 - INVESTMENT IN NORTHUMBRIAN PARTNERSHIP - ----------------------------------------------- On June 28, 1996, United Water and Lyonnaise Europe plc formed the Northumbrian Partnership (the Partnership), which has acquired a 20% interest in Northumbrian Water Group Plc, the fifth largest investor-owned water company (by population served) in the United Kingdom. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- GENERAL - ------- United Water's principal utility subsidiaries include United Water New Jersey, United Water New York and United Waterworks. United Water New Jersey and United Water New York (a subsidiary of United Water New Jersey) provide public water supply services to more than one million people in northern New Jersey and southern New York. United Waterworks provides public water supply services to approximately one million people in 13 states. Its major utility operations are located in Arkansas, Delaware, Florida, Idaho, New Jersey, New York and Pennsylvania. In addition, its utility in Florida also provides wastewater collection and treatment services, generally to its water customers. The water utility business is cyclical in nature, as both revenues and earnings are higher in the summer months when customer consumption is higher than in the cooler months. United Properties Group (United Properties), United Water's real estate subsidiary, is a non-regulated business engaged in real estate investment and development activities, including commercial office and retail properties, residential and commercial land development, golf course operations and consulting services. It owns a portfolio of real estate located in New Jersey, New York, Pennsylvania, Idaho, Delaware and Arkansas. United Properties also provides consulting and advisory services in support of the real estate assets of the other United Water companies. NEW MEXICO SETTLEMENT - --------------------- United Waterworks owned a utility subsidiary which provides water and wastewater services to customers in Rio Rancho, New Mexico. In April 1995, the city of Rio Rancho (the City) and the Company's utility subsidiary entered into a stipulation in settlement of a condemnation action (the Stipulation) whereby the City would deposit and eventually pay the Company $69 million for its utility operations in New Mexico plus the amount of net capital additions made to the water and wastewater systems by the Company in 1995. The Stipulation required, among other things, that the transaction be completed by October 30, 1995. The City deposited $69 million with the court pursuant to the court order and Stipulation, and on June 30, 1995, the City assumed possession of the operations of the utility subsidiary. In July 1995, the Company withdrew $35 million of the amount on deposit with the court. In the fourth quarter of 1995, the New Mexico Public Utility Commission (PUC) issued a ruling refusing to permit the Company to relinquish its systems to the City. The Company and the City appealed the PUC ruling to the Supreme Court of New Mexico. In January 1996, the Supreme Court of New Mexico ruled that the PUC has no jurisdiction over the right of a municipality to condemn its regulated water and sewer utilities nor the right to require a privately owned utility to seek PUC approval for the forced transfer of its facilities. Although the Stipulation expired by its own terms on October 30, 1995, the Company asked the Supreme Court of New Mexico to bind the City to the Stipulation and complete the transaction at the agreed price and terms. In March 1996, the Supreme Court issued an order denying the Company's request and dismissing the case before it. On March 29, 1996, the Company settled the condemnation proceeding with the city of Rio Rancho, New Mexico. The agreement was approved on the same day by the Thirteenth Judicial District Court in New Mexico. Under the terms of the agreement, the Company agreed to accept $67 million for the water and wastewater systems of its United Water New Mexico operations (including capital expenditures incurred in 1995). Results of this transaction are included in the Company's first quarter 1996 earnings. Because the City took possession of the utility's operations on June 30, 1995, the Company has lost revenues for the last twelve months. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Capital expenditures are generally incurred by United Water's utility subsidiaries in connection with the normal upgrading and expansion of existing water and wastewater facilities and to comply with existing environmental regulations. United Water considers its utility plant to be adequate and in good condition. However, the Company is projecting higher levels of capital expenditures during the next five years due to the addition of new, or expansion of existing, water treatment and source of supply facilities by United Waterworks' utility subsidiaries. These capital expenditures are necessary to meet growth requirements and to comply with environmental laws and regulations. Excluding the effects of inflation, the capital expenditures of United Water's utility subsidiaries are projected to aggregate $290 million over the next five years, including $57 million and $63 million in 1996 and 1997, respectively. This total includes $219 million for United Waterworks and $68 million for United Water New Jersey and United Water New York. The expenditures related to compliance with environmental laws and regulations are estimated to be approximately 25% of the projected capital expenditures over the 1996-2000 period. To the best of management's knowledge, the Company is in compliance with all major environmental laws and regulations. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) - ------------------------------- United Water anticipates that its future capital expenditures will be funded by internally generated funds, proceeds from the sale of its New Mexico operations, external debt financings and the issuance of additional common and preferred stock, including shares issued to existing shareholders, bondholders, customers and employees under the Company's dividend reinvestment and stock purchase plans. In addition, United Waterworks and United Water New York are parties to a number of tax-exempt financings for the purpose of funding capital expenditures. Funds are drawn down on these financings as qualified capital expenditures are made. As of June 30, 1996, $40 million of proceeds from these financings have not yet been disbursed to the Company and are included in the consolidated balance sheet as restricted cash. The amount and timing of the use of these proceeds and of future financings will depend on actual capital expenditures, the timeliness and adequacy of rate relief, the availability and cost of capital, and the ability to meet interest and fixed charge coverage requirements. In January 1995, United Water New York issued $12 million of 8.98% senior notes, the proceeds of which were used to reduce short-term borrowings. In December 1994, United Waterworks entered into a medium-term note program that will enable United Waterworks to issue up to $75 million of debt with terms ranging from 9 months to 30 years. The interest rates will be set as notes are issued under the program. In February 1995, United Waterworks issued the first $10 million of notes under this program, at a rate of 8.84%, with the full amount maturing in 2025. The proceeds were used to redeem outstanding notes payable. In June 1995, United Waterworks issued $25 million of 6.20% tax-exempt Water Revenue Bonds, due 2025, through the Delaware Economic Development Authority. The proceeds are being used to fund capital improvements of United Water Delaware (a subsidiary of United Waterworks). In August 1995, United Waterworks issued $20 million of 6.35% tax- exempt Water and Sewer Revenue Bonds, due 2025, through the city of Jacksonville, Florida. The proceeds will be used to fund capital improvements of United Water Florida (a subsidiary of United Waterworks). United Properties currently expects to spend $18.6 million over the next five years for capital expenditures on its existing real estate portfolio. Expenditures are projected to be $7 million and $420,000 in 1996 and 1997, respectively. Funding for these expenditures is anticipated to come from sales of properties, operations of existing commercial properties and golf courses, and proceeds from new financings. On June 28, 1996, United Water and Lyonnaise Europe plc formed the Northumbrian Partnership, which has acquired a 20% interest in Northumbrian Water Group Plc. United Water's $62.2 million investment in the Partnership was made through its wholly-owned United Kingdom subsidiary, United Water UK Limited. In June 1996, United Water entered into a $30 million long-term note agreement with Credit Lyonnais to partially fund this investment. The loan bears interest at a LIBOR-based floating rate and is repayable in annual installments through June 2006. The Company purchased an offsetting interest rate cap to limit its exposure under this financing to a maximum interest rate of 8.6%. The remainder of the investment was funded through borrowings on United Water's various short-term bank lines of credit. At June 30, 1996, United Water had cash and cash equivalents of $5.7 million (excluding restricted cash) and unused short-term bank lines of credit of $152.3 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. RATE MATTERS - ------------ The profitability of United Water's regulated utilities is, to a large extent, dependent upon adequate and timely rate relief. The Company anticipates that the regulatory authorities that have jurisdiction over its utility operations will allow the Company's regulated utilities to earn a reasonable return on their utility investments. The Company continues to follow SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation," for its regulated utilities. SFAS No. 71 provides for the recognition of regulatory assets and liabilities as allowed by state regulators that are considered probable of recovery. During 1995, the Company's regulated utilities received twelve rate settlement awards with an aggregate annual rate revenue increase of $5.9 million. An estimated $3.5 million of this amount was reflected in 1995's revenues while the remaining $2.4 million of carryover impact of the rate awards received in 1995 is expected to increase revenues in 1996. Four rate settlements were awarded to the Company's regulated utilities during 1996 with an aggregate annual rate revenue increase of $6.3 million. An estimated $3.6 million of this amount will be reflected in 1996's revenues. At the end of June 1996, there were four rate cases pending in which the Company has requested an aggregate annual rate increase of $3.9 million. The most significant rate cases pending were filed by United Water New Rochelle and United Water Idaho. In December 1995, United Water New Rochelle filed with the New York Public Service Commission for a $2.5 million, or 15.2%, increase in annual revenues to meet higher operation and maintenance costs. A decision on this application is not expected until the fourth quarter of 1996. In June 1996, United Water Idaho submitted a filing to increase annual operating revenues by approximately $1.1 million, or 5.3%, to cover additional rate base investments and operating expenses. A decision on this application is not expected until the fourth quarter of 1996. Generally, the rate awards the Company's operating utilities actually receive are less than the amounts requested, primarily due to circumstances that change while the rate case is being processed. The Company expects to file additional rate cases in 1996 but does not expect that those rate awards, if received in 1996, will have a significant impact on revenues in 1996. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 - -------------------------------------------------------- OVERVIEW United Water's net income applicable to common stock for the second quarter of 1996 decreased slightly to $7.4 million from $7.6 million in the comparable period in 1995. Net income per common share for the second quarter of 1996 was 22 cents as compared to 24 cents for the same period last year. The slight drop in net income per share resulted from the absence of the utility operations in Rio Rancho, New Mexico coupled with a 5 percent increase in the average number of common shares outstanding for the period. OPERATING REVENUES The $777,000 increase in revenues from the same period in 1995 was attributable to the following factors:
(thousands of dollars) Increase(Decrease) -------------------------------------------------------- Utilities: New Mexico operations ($3,399) (4.0%) Rate awards 688 0.8% Consumption 85 0.1% Growth 1,018 1.2% Other 609 0.7% Real estate 526 0.6% Other operations 1,250 1.5% -------------------------------------------------------- $ 777 0.9% --------------------------------------------------------
Utility revenues were lower in the second quarter of 1996 primarily due to the absence of revenues from the utility operations in New Mexico. The .8% increase in revenues from rate awards includes the impact of 1995 and current year increases for several of the Company's operating utilities. The increase in revenues due to growth is primarily attributable to the acquisitions of Matchaponix Water Supply Company and Princeton Meadows Utility Company in New Jersey in May 1996. The increase in real estate revenues was due to higher golf club revenues and rental income coupled with two property sales in 1996 (no property sales for the same period in 1995). The 1.5% increase in other operations is primarily due to the commencement of the public-private partnership with Jersey City, NJ in May 1996 partially offset by lower revenues from our environmental testing operations. OPERATING EXPENSES The increase in operating expenses from the same period in 1995 is due to the following:
Net Impact Excluding (thousands of dollars) Increase New Mexico New Mexico ------------------------------------------------------------------------------------------ Operation and maintenance $622 1.6% ($1,256) $1,878 4.8% Depreciation and amortization 288 3.7% ( 390) 678 8.8% General taxes 201 1.6% ( 130) 331 2.7% ------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 (CONTINUED) - -------------------------------------------------------- The increase in operation and maintenance expenses, excluding the impact of the absence of New Mexico operations in 1996, was due primarily to operating expenses incurred as a result of the commencement of the public- private partnership with Jersey City as well as the acquisitions of Matchaponix Water Supply Company and Princeton Meadows Utility Company in May 1996. The increase in depreciation and amortization was primarily attributable to utility plant additions by United Waterworks' utility subsidiaries. General taxes increased primarily due to higher real estate and franchise taxes in utility operations. INCOME TAXES The effective income tax rates on income before preferred and preference stock dividends were 37.0% and 33.9% in the second quarter of 1996 and 1995, respectively. The increase in the effective rate is primarily attributable to a favorable settlement by the Company's real estate subsidiary pertaining to a tax matter in the second quarter of 1995. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 - ------------------------------------------------------ OVERVIEW United Water's net income applicable to common stock for the six months ended June 30, 1996 increased to $12.2 million from $8.4 million in the comparable period in 1995. Net income per common share was 37 cents as compared to 27 cents for the same period last year. The increase in net income per share is attributable to a one-time, after-tax gain of $4.3 million resulting from the settlement of condemnation proceedings associated with our utility operations in Rio Rancho, New Mexico partially offset by a 5% increase in the average number of shares outstanding for the period. OPERATING REVENUES The $665,000 increase in revenues from the same period in 1995 was attributable to the following factors:
(thousands of dollars) Increase(Decrease) -------------------------------------------------------- Utilities: New Mexico operations ($5,961) (3.8%) Rate awards 2,012 1.3% Consumption 556 0.4% Growth 1,433 0.9% Other 667 0.4% Real estate 782 0.5% Other operations 1,176 0.7% -------------------------------------------------------- $ 665 0.4% --------------------------------------------------------
Utility revenues were lower in the first half of 1996 primarily due to the absence of revenues from the utility operations in New Mexico. The 1.3% increase in revenues from rate awards includes the impact of 1995 and current year increases for the Company's operating utilities. The increase in revenues due to growth is partially attributable to the acquisitions of Matchaponix Water Supply Company and Princeton Meadows Utility Company in New Jersey in May 1996. The increase in real estate revenues was due to higher golf club revenues and rental income coupled with three property sales in 1996 (no property sales in the same period in 1995). The .7% increase in other operations is primarily due to the commencement of the public-private partnership with Jersey City, NJ in May 1996 . OPERATING EXPENSES The increase in operating expenses from the same period in 1995 is due to the following:
Net Impact Excluding (thousands of dollars) Increase New Mexico New Mexico ------------------------------------------------------------------------------------------ Operation and maintenance $560 0.7% ($2,374) $2,934 3.8% Depreciation and amortization 420 2.7% ( 774) 1,194 7.8% General taxes 531 2.2% ( 225) 756 3.1% ------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 (CONTINUED) - ------------------------------------------------------ The increase in operation and maintenance expenses, excluding the impact of the absence of New Mexico operations in 1996, was due primarily to operating expenses incurred as a result of the commencement of the public- private partnership with Jersey City as well as the acquisitions of Matchaponix Water Supply Company and Princeton Meadows Utility Company. The increase in depreciation and amortization was primarily attributable to utility plant additions by United Waterworks' utility subsidiaries. General taxes increased primarily due to higher real estate and franchise taxes in utility operations. INTEREST EXPENSE The increase in interest expense of $332,000, or 1.5%, was mainly due to additional long-term debt in 1996 as compared to 1995. INCOME TAXES The effective income tax rates on income before preferred and preference stock dividends were 44.8% and 34.9% in the first half of 1996 and 1995, respectively. The increase in the effective rate is primarily attributable to the impact of the settlement of the condemnation proceedings at New Mexico. EFFECTS OF INFLATION Operating income from utility operations is normally not materially affected by inflation because cost increases generally lead to proportionate increases in revenues allowed through the regulatory process. However, there is a lag in the recovery of higher expenses through the regulatory process; therefore, high inflation could have a detrimental effect on the Company until sufficient rate increases are received. Conversely, lower inflation and lower interest rates tend to result in reductions in the rates of return allowed by the utility commissions, as has happened over the last several years. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------- ----------------- Three suits were filed by Safas Corporation, New Regime Company and Aircraft Engineering Products against United Water, Dundee Water Power & Land Co. (Dundee) and United Water New Jersey in September and November 1994 and May 1995 in the Superior Court of New Jersey - Passaic County. The suits allege that the plaintiffs suffered property damages as a result of an alleged breach in a berm surrounding the Dundee Canal, allowing water to escape. The Dundee Canal is the property of Dundee, a corporation of which United Water owns 50% of the outstanding common stock. North Jersey District Water Supply Commission, the other 50% shareholder, has also been named as a defendant. Initially, the plaintiffs in the Safas and New Regime suits voluntarily dismissed United Water and United Water New Jersey without prejudice from their actions. In August 1995, Safas and New Regime reinstituted their suits against United Water and United Water New Jersey. Plaintiffs, in the aggregate, seek damages of several million dollars. Pursuant to a Case Management Order issued July, 1996 the parties have been directed to complete discovery by December 1996. Both United Water's and the North Jersey District Water Supply Commission's respective policies of insurance name Dundee as an additional insured. The Company is of the opinion that it, United Water New Jersey and Dundee have adequate insurance to cover claims of this nature. United Water Delaware (formerly Wilmington Suburban Water Corporation), a subsidiary of United Waterworks, was the subject of a Criminal Violation Notice issued by New Castle County, Delaware Department of Public Works (the Notice). The Notice, dated April 15, 1992, describes the violation as being an illegal placement of fill in a floodplain in contravention of the New Castle County Zoning and Drainage Codes. United Water Delaware alleged that the illegal fill was placed on land it owns by one or more third parties without the knowledge or approval of United Water Delaware. Violation notice forms also were issued to other similarly situated property owners, and United Water Delaware has taken part in many discussions concerning the level of participation by all such parties in a remediation. An application for approval of a remediation plan was submitted to the New Castle County Department of Planning on May 26, 1995 and the County accepted this proposal on September 1, 1995. United Water Delaware and New Castle County entered into a Release and Settlement Agreement (the Agreement) dated April 9, 1996. Pursuant to the Agreement, New Castle County has withdrawn the Criminal Violation Notice against United Water Delaware. The withdrawal of the Criminal Violation Notice is conditioned on United Water Delaware undertaking in good faith to implement the remediation plan. Management believes that the resolution of this matter will not have a material adverse effect upon the financial position or results of operations of the Company. On October 28, 1994, IU International Corporation (IU) filed suit in the Superior Court of the State of Delaware against United Waterworks alleging breach of contract and seeking reimbursement from United Waterworks of more than $3 million, as well as interest thereon. IU's claim is based on certain tax indemnifications that were part of a stock purchase agreement entered into by IU, Lyonnaise American Holding, Inc. (LAH), United Waterworks and GWC in connection with the 1982 purchase of 50% of the outstanding common stock of United Waterworks by LAH. On June 16, 1995, United Waterworks, LAH and IU entered into a settlement agreement pursuant to which United Waterworks agreed to pay IU $800,000 on the date of execution of such agreement. In addition, United Waterworks agreed to pay IU an additional amount of up to approximately $1.15 million plus interest thereon (such interest commencing as of September 15, 1993) at United Waterworks' average short-term borrowing rate. Such payments become due in the event and at the time that certain tax benefits previously claimed by United Waterworks with respect to its 1992 tax year are determined to be allowable by the Internal Revenue Service. LEGAL PROCEEDINGS (CONTINUED) - ----------------- On June 16, 1995, United Waterworks paid $800,000 to IU. Pursuant to the settlement agreement, on June 30, 1995, the parties filed with the court a stipulation of dismissal dismissing the lawsuit with prejudice. Management believes that the resolution of this matter will not have a material adverse effect upon the financial position or results of operations of the Company. A class action lawsuit was filed in the Supreme Court of the State of New York, New York County, on May 28, 1996 by Steven Tagliaferri and John Ambroselli, individually and on behalf of a class of employees (Plaintiffs) against United Metering Inc., a subsidiary of United Water, for breach of contract. Plaintiffs claim that United Metering Inc. failed to comply with prevailing wage rate regulations in connection with work performed pursuant to certain public works contracts awarded by the New York City Department of Environment Protection. The damages sought are in excess of $600,000. United Metering has filed a response denying Plaintiff's claims. Management believes that the resolution of this matter will not have a material adverse effect upon the financial position or results of operations of the Company. United Water is not a party to any other litigation other than the routine litigation incidental to the business of United Water. None of such litigation, either individually or in the aggregate, is material to the business of United Water. 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: August 14, 1996 By JOHN J. TURNER --------------- ----------------------------- (Signature) John J. Turner Treasurer DULY AUTHORIZED AND CHIEF ACCOUNTING OFFICER EX-27 2 SCHEDULE UT FINANCIAL DATA SCHEDULE
UT 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. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 PER-BOOK 1,043,851 156,708 129,922 134,593 65,441 1,530,515 317,883 0 50,582 368,465 93,439 9,000 574,226 0 57,725 0 26,347 260 0 0 401,053 1,530,515 155,640 12,784 118,087 130,871 24,769 11,611 36,380 21,796 14,584 2,340 12,244 15,301 0 19,900 .37 .37
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