-----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, Mr4SLQbkleUQeuoTmD4B4x+folGWjtjis7SAbEFJewzNXbGN9BubaOCW81UffNwG Uwdx5+Am0MG33qBKBj7D1w== 0000950130-97-003591.txt : 19970813 0000950130-97-003591.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950130-97-003591 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 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: 97657096 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, 1997 -------------------- 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, 1997 35,753,192 ----------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------------------------------- UNITED WATER RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (THOUSANDS OF DOLLARS)
JUNE 30, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) ASSETS - ------ UTILITY PLANT, including $50,092 and $27,947 under construction $1,388,352 $1,349,194 LESS accumulated depreciation 283,097 267,639 ----------- ----------- 1,105,255 1,081,555 ----------- ----------- UTILITY PLANT ACQUISITION ADJUSTMENTS, NET 63,917 64,710 ----------- ----------- REAL ESTATE AND OTHER INVESTMENTS, less accumulated depreciation of $10,791 and $9,909 80,074 83,340 EQUITY INVESTMENTS 89,103 82,433 ----------- ----------- 169,177 165,773 CURRENT ASSETS: Cash and cash equivalents 2,698 8,961 Restricted cash 23,455 27,203 Accounts receivable and unbilled revenues, net 67,897 65,911 Prepaid and other current assets 14,733 11,681 ----------- ----------- 108,783 113,756 ----------- ----------- DEFERRED CHARGES AND OTHER ASSETS: Regulatory assets 75,652 74,062 Prepaid employee benefits 17,401 16,139 Unamortized debt expense 30,336 30,720 Other deferred charges and assets 29,517 34,265 ----------- ----------- 152,906 155,186 ----------- ----------- $ 1,600,038 $ 1,580,980 =========== =========== CAPITALIZATION AND LIABILITIES - ------------------------------ CAPITALIZATION: Common stock and retained earnings $ 400,169 $ 391,490 Preferred stock without mandatory redemption 9,000 9,000 Preferred stock with mandatory redemption 53,661 53,978 Preference stock, convertible, with mandatory redemption 34,654 39,283 Long-term debt 590,137 558,093 ----------- ----------- 1,087,621 1,051,844 ----------- ----------- CURRENT LIABILITIES: Notes payable 65,725 93,225 Preferred stock and long-term debt due within one year 20,496 29,546 Accounts payable and other current liabilities 38,822 37,594 Accrued taxes 22,455 17,690 Dividends payable 8,804 198 Accrued interest 7,372 8,213 ----------- ----------- 163,674 186,466 ----------- ----------- DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes and investment tax credits 177,642 174,530 Customer advances for construction 26,462 25,259 Contributions in aid of construction 128,618 126,395 Other deferred credits and liabilities 16,021 16,486 ----------- ----------- 348,743 342,670 ----------- ----------- $ 1,600,038 $ 1,580,980 =========== ===========
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, -------------- -------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- OPERATING REVENUES $ 87,761 $ 82,581 $ 167,767 $ 152,340 -------- -------- -------- -------- OPERATING EXPENSES: Operation and maintenance 41,278 37,959 85,340 73,916 Depreciation and amortization 8,740 7,810 17,368 15,352 General taxes 12,752 12,397 25,424 24,565 -------- -------- -------- -------- TOTAL OPERATING EXPENSES 62,770 58,166 128,132 113,833 -------- -------- -------- -------- OPERATING INCOME 24,991 24,415 39,635 38,507 -------- -------- -------- -------- INTEREST AND OTHER EXPENSES: Interest expense, net of amount capitalized 11,001 10,828 22,030 21,794 Allowance for funds used during construction (1,135) (784) (1,832) (1,189) Preferred stock dividends of subsidiaries 564 569 1,131 1,142 Gain on New Mexico settlement -- -- -- (10,372) Other income, net (3,555) (531) (6,932) (1,192) -------- -------- -------- -------- TOTAL INTEREST AND OTHER EXPENSES 6,875 10,082 14,397 10,183 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 18,116 14,333 25,238 28,324 PROVISION FOR INCOME TAXES 5,801 5,506 7,686 13,118 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS 12,315 8,827 17,552 15,206 Preferred and preference stock dividends 1,071 1,140 2,206 2,340 -------- -------- -------- -------- NET INCOME APPLICABLE TO COMMON STOCK FROM CONTINUING OPERATIONS 11,244 7,687 15,346 12,866 Loss from discontinued operations -- (324) -- (622) -------- -------- -------- -------- NET INCOME APPLICABLE TO COMMON STOCK $11,244 $ 7,363 $ 15,346 $ 12,244 ======== ======== ======== ======== Average common shares outstanding (thousands) 35,562 33,550 35,203 33,281 NET INCOME PER COMMON SHARE Continuing operations $0.32 $ 0.23 $0.44 $ 0.39 Discontinued operations -- (.01) -- (.02) -------- -------- -------- -------- Total $0.32 $ 0.22 $0.44 $ 0.37 ======= ======= ======== ======== 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, --------------------------------- 1997 1996 ------ ------ OPERATING ACTIVITIES: NET INCOME $ 17,552 $ 14,584 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 17,993 16,188 Gain on New Mexico settlement -- (10,372) Equity (earnings) loss of affiliates (5,608) 462 Proceeds from sales of properties 7,863 291 Gain on sale of properties (3,379) (229) Improvements to property under development (667) (426) Deferred income taxes and investment tax credits, net 3,112 11,803 Allowance for funds used during construction (AFUDC) (1,832) (1,189) Changes in assets and liabilities, net of effect of New Mexico settlement and acquisitions: Accounts receivable and unbilled revenues (1,986) (6,982) Prepaid and other current assets (3,052) 860 Prepaid employee benefits (1,262) (1,073) Regulatory assets (1,590) (5,214) Accounts payable and other current liabilities 1,228 (3,817) Accrued taxes 4,765 766 Accrued interest (841) 3,358 Other, net (2,109) 519 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 30,187 19,529 ------- ------- INVESTING ACTIVITIES: Additions to utility plant (excludes AFUDC) (31,553) (25,298) Additions to real estate and other investments (2,188) (2,988) Investment in Northumbrian Partnership -- (61,792) Proceeds from New Mexico settlement -- 31,670 Acquisitions, net of cash received -- (6,794) Investments in service contracts -- (2,500) Change in restricted cash 3,748 12,681 ------- ------- NET CASH USED IN INVESTING ACTIVITIES (29,993) (55,021) ------- ------- FINANCING ACTIVITIES: Change in notes payable (27,500) 14,225 Additional long-term debt 40,368 30,538 Reduction in preferred stock and long-term debt (17,691) (2,270) Issuance of common stock 13,258 8,556 Dividends on common stock (16,112) (15,301) Dividends on preferred and preference stock (2,206) (2,340) Net contributions and advances for construction 3,426 3,239 ------- ------- NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (6,457) 36,647 ------- ------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,263) 1,155 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,961 4,529 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,698 $ 5,684 ======= =======
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, --------------------------------- 1997 1996 --------- -------- Supplemental disclosures of cash flow information: Interest (net of amount capitalized) $22,246 $17,831 Income taxes (refunded)/paid (987) 808
Supplemental disclosures of non-cash transactions: Additional common stock was issued upon the conversion of 359,294 and 337,994 shares of preference stock valued at $5 million and $4.7 million during 1997 and 1996, respectively. In connection with the New Mexico settlement in the first quarter of 1996, liabilities of $20.2 million were transferred to the city of Rio Rancho. In connection with the acquisitions of Matchaponix and Princeton Meadows in the second quarter of 1996, 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, 1997 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 1996 Annual Report on Form 10-K, which should be read in conjunction with these financial statements. Certain prior year amounts have been reclassified to conform with current year presentation. Due to the seasonal nature of the Company's operations, financial results for interim periods are not necessarily indicative of the results for a twelve month period. NOTE 2 - INVESTMENT IN NORTHUMBRIAN PARTNERSHIP - ----------------------------------------------- On June 28, 1996, United Water and Lyonnaise Europe plc formed the Northumbrian Partnership (the Partnership), an equal partnership which has acquired a 20% interest in Northumbrian Water Group Plc, the fifth largest investor-owned water company (by population served) in the United Kingdom. United Water's share of the Partnership's earnings is included in Other Income in the Statement of Consolidated Income. NOTE 3 - ACQUISITION OF JMM OPERATIONAL SERVICES - ------------------------------------------------ On July 28, 1997, United Water Services LLC, a joint venture between United Water and Suez Lyonnaise des Eaux, acquired Montgomery Watson's 50% stake in JMM Operational Services (JMM-OSI). As a result, JMM-OSI became a wholly owned subsidiary of United Water Services LLC. Prior to the restructuring, United Water Services LLC (formerly the United Water Resources-Lyonnaise des Eaux Partnership) owned a 50% interest in JMM-OSI and Montgomery Watson owned the remaining 50% interest. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- GENERAL - ------- United Water's principal utility subsidiaries include United Water New Jersey, United Water New York and United Waterworks. United Water New Jersey and United Water New York (a subsidiary of United Water New Jersey) provide public water supply services to more than one million people in northern New Jersey and southern New York. United Waterworks provides public water supply services to approximately one million people in 13 states. Its major utility operations are located in Arkansas, Delaware, Florida, Idaho, New Jersey, New York and Pennsylvania. In addition, its utility in Florida also provides wastewater collection and treatment services, generally to its water customers. The water utility business is cyclical in nature, as both revenues and earnings are higher in the summer months when customer consumption is higher than in the cooler months. 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 Florida. United Properties also provides consulting and advisory services in support of the real estate assets of the other United Water companies. NEW MEXICO SETTLEMENT - --------------------- 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. WINDFALL PROFITS TAX - -------------------- United Water has a 10% ownership interest in Northumbrian Water Group (Northumbrian), a major investor-owned water services company in the United Kingdom. The United Kingdom's new Labor Government has announced that it will impose a one-time "windfall profits" tax on privatized utilities in the third quarter of 1997. The levying of this one-time tax will negatively impact the Company's third quarter earnings from its investment in Northubrian by approximately 35 cents per share. The imposition of this tax had been factored into the Company's financial analysis at the time of its investment in Northumbrian and was considered in determining the purchase price. The tax will not have an effect on United Water's cash flow or its ability to pay dividends nor will it affect the long-term benefit the Company derives from its investment in Northumbrian. 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 $297 million over the next five years, including $63 million and $61 million in 1997 and 1998, respectively. This total includes $204 million for United Waterworks and $88 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 1997-2001 period. To the best of management's knowledge, the Company is in compliance with all major environmental laws and regulations. United Water anticipates that its future capital expenditures will be funded by internally generated funds, external debt financings and the issuance of additional common and preferred stock, including shares issued to existing shareholders, bondholders, customers and employees under the Company's dividend reinvestment and stock purchase plans. In addition, United Waterworks and United Water New York participate in a number of tax-exempt financings for the purpose of funding capital expenditures. Funds are drawn down on these financings as qualified capital expenditures are made. As of June 30, 1997, $23.5 million of proceeds from these financings have not yet been disbursed to the Company and are included in the Consolidated Balance Sheet as Restricted Cash. The amount and timing of the use of these proceeds and of future financings will depend on actual capital expenditures, the timeliness and adequacy of rate relief, the availability and cost of capital, and the ability to meet interest and fixed charge coverage requirements. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) - ------------------------------- In June 1996, United Water entered into a $30 million long-term note agreement with Credit Lyonnais to partially fund its investment in the Northumbrian Partnership. The loan bears interest at a LIBOR-based floating rate and is payable 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. In November 1996, United Water New Jersey issued three series of Variable Rate Demand Water Facilities Revenue Refunding Bonds (the Bonds) aggregating $130 million ($50 million due 2025 and $80 million due 2026), through the New Jersey Economic Development Authority (the EDA). Proceeds from the Bonds were used to refund an equal aggregate principal amount of 6%-7% bonds issued by the EDA in 1987 to finance or refinance a portion of the costs of acquiring and constructing certain water transmission, transportation, storage and distribution facilities located in Bergen, Passaic and Hudson counties in New Jersey. In December 1996, the Company purchased a five-year interest rate cap to limit its exposure under this financing to a maximum interest rate of 7%. In June 1997, United Water issued $40 million of 7.45% - 7.9% Senior Notes ($15 million due 2007 and $25 million due 2022). Proceeds from the notes were used to refinance existing short-term debt of the Company. In August 1997, United Waterworks issued $20 million of 5.3% tax-exempt Water Resource Development Revenue Bonds, due 2027, through the Idaho Water Resource Board. The proceeds will be used to finance a portion of the costs of certain facilities to be owned by United Water Idaho (a subsidiary of United Waterworks) and used for the public distribution of water. United Properties currently expects to spend $24.9 million over the next five years for capital expenditures on its existing real estate portfolio. Expenditures are projected to be $11.8 million and $2.4 million in 1997 and 1998, 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 June 30, 1997, United Water had cash and cash equivalents of $2.7 million (excluding restricted cash) and unused short-term bank lines of credit of $165.7 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 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 1996, the Company's regulated utilities received ten rate settlement awards with an aggregate annual rate revenue increase of $11.1 million. An estimated $4.2 million of this amount was reflected in 1996's revenues while the remaining $6.9 million of carryover impact of the rate awards received in 1996 is expected to increase revenues in 1997. Six rate settlements were awarded to the Company's regulated utilities during 1997 with an aggregate annual rate revenue increase of $5.5 million. An estimated $3.5 million of this amount will be reflected in 1997's revenues. At the end of June 1997, there were six rate cases pending in which the Company has requested an aggregate annual rate increase of $10.9 million. The most significant rate cases pending were filed by United Water Delaware and United Water Pennsylvania. In August 1996, United Water Delaware filed for rate relief in the amount of $3.7 million, or a 24.6% increase in revenues. A petition to place $2.2 million, or 15%, in effect subject to refund was filed in September 1996 and was approved by the Delaware Public Service Commission on October 15, 1996 for rates to become effective on October 26, 1996. In January 1997, the Company petitioned the Commission to increase its request by $.6 million for a total request of $4.3 million. On July 15, 1997, the Commission issued an order granting a $1.5 million, or 10.7%, increase and ordered the refund of monies collected under the bonded rates in excess of the final rates. On July 16, 1997, the Company filed a motion with the Superior Court of the State of Delaware for stay and appeal of the Commission's order. In May 1997, United Water Pennsylvania filed for rate relief in the amount of $3 million, or a 15.4% increase in revenues. The rate filing includes postretirement benefit costs and a proposed change to monthly billing of all customers. Hearings are expected to take place during the fourth quarter. 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 1997 but does not expect that those rate awards, if received in 1997, will have a significant impact on revenues in 1997. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 - -------------------------------------------------------- OVERVIEW United Water's net income applicable to common stock for the second quarter of 1997 increased to $11.2 million from $7.4 million in the comparable period in 1996. Net income per common share for the second quarter of 1997 was 32 cents as compared to 22 cents for the same period last year. Utility investments, which include the Northumbrian Partnership, contributed 40 cents per share in 1997 compared with 28 cents per share in 1996. Results for 1997 and 1996 included eight cents and six cents, respectively, for corporate charges primarily for interest and preferred and preference dividends. OPERATING REVENUES The $5.2 million increase in revenues from the same period in 1996 was attributable to the following factors:
(thousands of dollars) Increase (Decrease) -------------------------------------------------- Utilities: Rate awards $ 3,561 4.3% Consumption (841) (1.0%) Growth 1,458 1.8% Real estate 731 0.9% Other operations 271 0.3% -------------------------------------------------- $ 5,180 6.3% --------------------------------------------------
The 4.3% increase in revenues from rate awards in the second quarter of 1997 includes the impact of 1996 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 two utilities in New Jersey at the end of the second quarter of 1996. A decrease in consumption due to unfavorable weather conditions in several service areas partially offset these revenue increases. The increase in real estate revenues was mainly due to four property sales in 1997 compared with two property sales for the same period in 1996. The slight increase in other operations is primarily due to incentive revenues from public-private partnerships, partially offset by a lower number of meter installations. OPERATING EXPENSES The increase in operating expenses from the same period in 1996 is due to the following:
(thousands of dollars) Increase ----------------------------------------------- Operation and maintenance $ 3,319 8.7% Depreciation and amortization 930 11.9% General taxes 355 2.9% -----------------------------------------------
The $3.3 million increase in operation and maintenance expenses was due primarily to operating expenses incurred as a result of the commencement of the public-private partnership with Jersey City in the second quarter of 1996, an increase in the costs associated with land sales in 1997, higher outside services at several of the Company's subsidiaries and additional operating expenses incurred relating to the acquisitions of two utilities in New Jersey in May 1996. These were partially offset by lower meter installation costs. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 (CONTINUED) - -------------------------------------------------------- The $930,000 increase in depreciation and amortization was primarily attributable to utility plant additions by United Waterworks' utility subsidiaries, as well as amortization attributable to the service contract in Jersey City. General taxes increased $355,000 primarily due to higher real estate, franchise and gross receipts taxes in utility operations. OTHER INCOME The increase in other income of $3 million was mainly due to $3.4 million of earnings from the Northumbrian Partnership. INCOME TAXES The effective income tax rates on income before preferred and preference stock dividends were 31.1% and 37.0% in the second quarter of 1997 and 1996, respectively. The decrease in the effective rate is primarily attributable to the tax treatment of the earnings from the Northumbrian Partnership. The Company considers the undistributed earnings to be permanently reinvested and has not provided deferred taxes on these earnings. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 - ------------------------------------------------------ OVERVIEW United Water's net income applicable to common stock for the six months ended June 30, 1997 increased to $15.3 million from $12.2 million in the comparable period in 1996. Net income per common share was 44 cents as compared to 37 cents for the same period last year. Results for 1997 included 15 cents per share from the Northumbrian Partnership as well as a significant land sale that contributed five cents per share. In 1996, the Company recorded a one-time contribution of 13 cents per share resulting from a condemnation settlement in New Mexico. OPERATING REVENUES The $15.4 million increase in revenues from the same period in 1996 was attributable to the following factors:
(thousands of dollars) Increase (Decrease) -------------------------------------------------- Utilities: Rate awards $ 5,980 3.9% Consumption (2,437) (1.6%) Growth 3,151 2.1% Real estate 7,654 5.0% Other operations 1,079 0.7% -------------------------------------------------- $15,427 10.1% --------------------------------------------------
The 3.9% increase in revenues from rate awards includes the impact of 1996 and current year increases for several of the Company's operating utilities. The increase in revenues due to growth is partially attributable to the acquisitions of two utilities in New Jersey in the second quarter of 1996. A decrease in consumption due to unfavorable weather conditions in several service areas partially offset these revenue increases. The 5.0% increase in real estate revenues was due to the sale of eight parcels of land in 1997 compared to only three property sales in the same period in 1996. Other operations increased .7% mainly due to revenues from the public-private partnership with Jersey City which commenced in May 1996, partially offset by a lower number of meter installations. OPERATING EXPENSES The increase in operating expenses from the same period in 1996 is due to the following:
(thousands of dollars) Increase ----------------------------------------------------- Operation and maintenance $11,424 15.5% Depreciation and amortization 2,016 13.1% General taxes 859 3.5% -----------------------------------------------------
The $11.4 million increase in operation and maintenance expenses was due primarily to an increase in the costs associated with land sales in 1997, expenses incurred as a result of the commencement of the public-private partnership with Jersey City in the second quarter of 1996, higher outside services and employee benefits costs at several of the Company's subsidiaries and additional operating expenses incurred relating to the acquisitions of two utilities in New Jersey in May 1996. These were partially offset by lower meter installation costs. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 (CONTINUED) - ------------------------------------------------------ The $2 million increase in depreciation and amortization was primarily attributable to utility plant additions by United Waterworks' utility subsidiaries, as well as amortization attributable to the service contract in Jersey City. General taxes increased $859,000 primarily due to higher real estate, franchise and gross receipts taxes in utility operations. OTHER INCOME The increase in other income of $5.7 million was mainly due to $6.6 million of earnings from the Northumbrian Partnership, partially offset by lower earnings from other equity investments. INCOME TAXES The effective income tax rates on income before preferred and preference stock dividends were 29.1% and 44.8% in the first half of 1997 and 1996, respectively. The decrease in the effective rate is primarily attributable to the impact of the New Mexico settlement in the first quarter of 1996 and the tax treatment of the earnings from the Northumbrian Partnership. The Company considers the undistributed earnings to be permanently reinvested and has not provided deferred taxes on these earnings. NEW ACCOUNTING STANDARD In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share". This statement, which is effective for financial statements issued for periods ending after December 15, 1997, including interim periods, establishes simplified standards for computing and presenting earnings per share (EPS). It requires dual presentation of basic and diluted EPS on the face of the income statement for entities with complex capital structures and disclosure of the calculation of each EPS amount. The Company does not anticipate that adoption of this standard will have a significant impact on reported EPS. 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. 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 damage 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 in April 1997, the parties have been directed to complete discovery by August 1997. The trial is scheduled to commence in September 1997. 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 (the County), Delaware Department of Public Works (the Notice). The Notice, dated April 15, 1992, describes the violation as being an illegal placement of fill in a floodplain in contravention of the New Castle County Zoning and Drainage Codes. United Water Delaware alleges that the illegal fill was placed on land it owns by one or more third parties without knowledge or approval of United Water Delaware. Violation notice forms were also 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 had withdrawn the Notice against United Water Delaware. The withdrawal of the Notice was conditioned on United Water Delaware undertaking in good faith to implement the remediation plan. As of April 15, 1997, certain conditions precedent to the Company's obligation to complete the remediation work had not been fulfilled by the County. 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 Corporation (former parent of United Waterworks) 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 reach "finality" LEGAL PROCEEDINGS (CONTINUED) - ----------------- through the running of the statute of limitations on the 1992 tax year or when it is determined that such tax benefits are allowable by the Internal Revenue Service. On June 16, 1995, United Waterworks paid $800,000 to IU. Pursuant to the settlement agreement, on June 30, 1995, the parties filed with the court a stipulation of dismissal of the lawsuit with prejudice. On September 15, 1996, the statute of limitations expired on the 1992 tax year. As a result, on November 19, 1996, United Waterworks paid IU $977,000 of the $1.15 million. The remaining balance was paid on April 16, 1997. 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 failed to comply with prevailing wage rate regulations in connection with work performed pursuant to certain public works contracts awarded by the New York City Department of Environmental Protection. The damages sought are in excess of $600,000. United Metering filed a response denying Plaintiffs' claims and made a motion for summary judgement seeking dismissal of the lawsuit. Oral argument on such motion was held on March 14, 1997 and on April 1, 1997, a decision was issued granting United Metering's motion to dismiss the lawsuit. Plaintiffs have appealed the decision to the Appellate Division of the Supreme Court of the State of New York. No date has been set by the Court to hear appellate arguments. Management believes that the resolution of this matter will not have a material adverse effect upon the financial position or results of operations of the Company. On July 20, 1994, the Townhouse at Lake Isle Home Owners Association, Inc. filed suit against United Water New Rochelle (formerly New Rochelle Water Company), a subsidiary of the Company, in the Supreme Court of the State of New York, Westchester County. The suit seeks to recover for alleged property damage arising out of the repeated leaks in service lines installed in or about 1982 by the developer of a townhouse complex in Eastchester, New York. The bulk of the relief sought by plaintiff involves monetary damages for the cost of replacing the service lines, which belong to the Company. The plaintiff did not seek injunctive relief. A default judgement on the issue of liability was entered against United Water New Rochelle on December 2, 1994. The Company has diligently prosecuted motions to reopen and appeal from the default judgement, on the principal ground that the default resulted from a failure by the Company's insurance carrier and claims processing service provider to timely file an answer to the plaintiff's complaint. To date, motions to vacate the default judgement have not been successful. Following an inquest on the issue of damages, the Court issued a decision, dated December 20, 1996, awarding the plaintiff $1,330,000. The Court subsequently partially vacated its December 20, 1996 decision on the ground that the relief granted exceeded the plaintiff's original demand and reduced the award to $805,000. The parties are disputing whether there should be interest on the amount of the award. A judgement has not yet been entered. The Company plans to appeal the judgement and will consolidate therewith its appeals from prior decisions on its motions to vacate the default judgement. The Company believes that it has meritorious arguments on appeal and on the original matter, should it be reopened. Further, the Company expects to seek reimbursement from third parties of any ultimate liability resulting in this matter. Management believes the resolution of this matter will not have a material adverse effect upon the financial position or results of operations of the Company. 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 12, 1997 By JOHN J. TURNER --------------- ------------------- (Signature) John J. Turner Treasurer DULY AUTHORIZED AND CHIEF ACCOUNTING OFFICER EX-27 2 FINANCIAL DATA SCHEDULE
UT This schedule contains summary information extracted from the consolidated Balance sheet, Statement of Consolidated Income and jStatement of consolidated cash Flows and is qualifed in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 PER-BOOK 1,105,255 169,177 108,783 152,906 63,917 1,600,038 352,886 0 47,283 400,169 88,315 9,000 590,137 0 65,725 0 20,236 260 0 0 426,196 1,600,038 167,767 7,686 128,132 135,818 31,949 7,633 39,582 22,030 17,552 2,206 15,346 16,112 0 30,187 0.44 0.44
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