-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, AJntB5V5PjxxitAJ/Sbx7YIEXku8yV0W1ONYLayujseOLS81jv+euOg/JvH0m1fL gQuGMaK8z6GRXHFaFf2EWQ== 0000950130-94-001192.txt : 19940817 0000950130-94-001192.hdr.sgml : 19940817 ACCESSION NUMBER: 0000950130-94-001192 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED WATER RESOURCES INC CENTRAL INDEX KEY: 0000715969 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94543132 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, 1994 --------------------- 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, 1994 30,541,005 ----------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - - ------------------------------- UNITED WATER RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (THOUSANDS OF DOLLARS)
JUNE 30, DECEMBER 31, 1994 1993 ---------- ------------- (UNAUDITED) ASSETS - - ------ UTILITY PLANT, including $15,530 and $ 5,815 under construction $1,235,967 $605,668 LESS - Accumulated depreciation 226,241 103,557 ---------- -------- 1,009,726 502,111 ---------- -------- REAL ESTATE AND OTHER INVESTMENTS, less accumulated depreciation of $ 13,935 and $ 10,889 111,733 96,312 ---------- -------- GOODWILL, NET 61,615 -- ---------- -------- CURRENT ASSETS: Cash and temporary cash investments 11,930 8,933 Construction funds 24,311 8,502 Accounts receivable and unbilled revenues, net 63,126 30,544 Materials and supplies 4,568 2,422 Prepayments 9,916 8,213 ---------- -------- 113,851 58,614 ---------- -------- DEFERRED CHARGES AND OTHER ASSETS: Recoverable income taxes 46,562 26,384 Prepaid and deferred employee benefits 18,860 10,569 Unamortized debt expense 23,782 15,276 Other deferred charges and assets 26,864 31,260 ---------- -------- 116,068 83,489 ---------- -------- $1,412,993 $740,526 ========== ======== CAPITALIZATION AND LIABILITIES - - ------------------------------ CAPITALIZATION: Common stock and retained earnings $ 336,847 $202,110 Preferred stock without mandatory redemption 9,000 9,000 Preferred stock with mandatory redemption 54,710 23,840 Preference stock, convertible, with mandatory redemption 43,373 -- Long-term debt 480,794 276,753 ---------- -------- 924,724 511,703 ---------- -------- CURRENT LIABILITIES: Notes payable 79,700 15,500 Preferred stock and long-term debt due within one year 15,493 16,843 Accounts payable and other accruals 30,035 12,066 Accrued taxes 22,111 20,454 Accrued interest 8,736 6,590 Accrued customer benefits 5,405 6,771 ---------- -------- 161,480 78,224 ---------- -------- DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes and investment tax credits 163,773 104,864 Customer advances for construction 31,023 9,319 Contributions in aid of construction 111,417 7,586 Other deferred credits and liabilities 20,576 28,830 ---------- -------- 326,789 150,599 ---------- -------- $1,412,993 $740,526 ========== =========
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 FOR THE SIX ---------------------- ---------------------- MONTHS ENDED JUNE 30, MONTHS ENDED JUNE 30, ---------------------- ---------------------- 1994 1993 1994 1993 -------- ------- -------- -------- OPERATING REVENUES $82,397 $43,341 $121,412 $79,236 ------- ------- -------- ------- OPERATING EXPENSES: Operation and maintenance 40,512 20,457 61,475 38,746 Depreciation 6,327 3,562 9,938 7,078 Amortization of goodwill 418 -- 418 -- General taxes 11,475 6,755 18,847 13,915 ------- ------- -------- ------- TOTAL OPERATING EXPENSES 58,732 30,774 90,678 59,739 ------- ------- -------- ------- OPERATING INCOME 23,665 12,567 30,734 19,497 ------- ------- -------- ------- INTEREST AND OTHER EXPENSES: Interest expense, net of amount capitalized 9,848 5,362 15,520 10,756 Allowance for funds used during construction (537) (130) (664) (264) Preferred stock dividends of subsidiaries 579 589 1,162 1,181 Other income (402) (259) (3,456) (462) ------- ------- -------- ------- TOTAL INTEREST AND OTHER EXPENSES 9,488 5,562 12,562 11,211 ------- ------- -------- ------- INCOME BEFORE INCOME TAXES 14,177 7,005 18,172 8,286 Provision for income taxes 5,377 3,081 7,005 3,656 ------- ------- -------- ------- NET INCOME 8,800 3,924 11,167 4,630 Preferred stock dividend 575 -- 575 -- Preference stock dividend 486 -- 486 -- ------- ------- -------- ------- NET INCOME APPLICABLE TO COMMON STOCK $ 7,739 $ 3,924 $ 10,106 $ 4,630 ======= ======= ======== ======= AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 27,880 19,231 24,660 19,083 NET INCOME PER COMMON SHARE $0.28 $0.20 $0.41 $0.24 ======= ======= ======== ======= 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, --------------------------------- 1994 1993 -------- -------- OPERATING ACTIVITIES: NET INCOME $ 11,167 $ 4,630 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,316 7,426 Deferred income taxes and investment tax credits, net 6,304 24,081 Gain from release of security deposit to United Properties Group (2,811) -- Allowance for funds used during construction (AFUDC) (664) (264) Changes in assets and liabilities, net of effect of acquisition of GWC: Accounts receivable and unbilled revenue (13,245) (1,570) Prepayments 3,167 1,297 Prepaid and deferred employee benefits (1,856) (1,920) Recoverable income taxes 144 (20,271) Accounts payable and other accruals 9,190 1,227 Accrued taxes (4,540) (1,287) Accrued interest (3,874) (9) Accrued customer benefits (1,366) 46 Other, net (7,313) (1,885) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,619 11,501 -------- -------- INVESTING ACTIVITIES: Additions to utility plant (excludes AFUDC) (15,017) (7,225) Additions to real estate and other properties (6,583) (2,163) Acquisition of GWC, net of cash received (5,059) -- Draw down of construction funds, net 6,426 -- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (20,233) (9,388) -------- -------- FINANCING ACTIVITIES: Change in notes payable 37,000 (1,480) Reduction in preferred stock and long-term debt (20,514) (2,378) Issuance of common stock 12,716 8,654 Dividends on common stock (11,667) (8,794) Dividends on preferred and preference stock (1,061) -- Net contributions and advances for construction 1,137 (1,043) -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 17,611 (5,041) -------- -------- Net increase (or decrease) in cash and temporary cash investments 2,997 (2,928) Cash and temporary cash investments at beginning of period 8,933 17,994 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 11,930 $ 15,066 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. UNITED WATER RESOURCES INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS SUPPLEMENTAL INFORMATION (THOUSANDS OF DOLLARS) (UNAUDITED) Supplemental disclosures of cash flow information:
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 1994 1993 ------ ------ Interest paid (net of amount capitalized) $10,686 $10,490 Income taxes paid 1,560 668
Supplemental schedule of noncash investing and financing activities involved with the acquisition of GWC Corporation:
Fair value of assets purchased $641,763 Less: Liabilities assumed 439,082 Common stock issued 123,379 Fair value of preferred stock assumed 30,870 Fair value of preference stock issued 43,373 -------- Net cash paid for GWC $ 5,059 ========
The accompanying notes are an integral part of these consolidated financial statements. UNITED WATER RESOURCES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1994 NOTE 1 - GENERAL - - ---------------- In the opinion of United Water Resources (UWR), 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 Notes to Consolidated Financial Statements incorporated by reference in UWR's 1993 Annual Report on Form 10-K should be read with the accompanying financial statements. NOTE 2 - SUPPLEMENTAL PRO FORMA FINANCIAL INFORMATION - - ----------------------------------------------------- On April 22, 1994, UWR and GWC Corporation (GWC) merged (the Merger), with UWR as the surviving corporation. The acquisition was accounted for as a purchase, and the financial results of the former subsidiaries of GWC are included in the Company's financial results beginning April 1, 1994. The following unaudited pro forma condensed income statement information for the six month periods ended June 30, 1994 and 1993 gives effect to the Merger as if it had occurred at the beginning of those periods. These pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented. In addition, the pro forma results are not intended to be a projection of future results.
INCOME STATEMENT INFORMATION FOR THE SIX MONTHS ENDED: (UNAUDITED) JUNE 30, JUNE 30, 1994 1993 ----------- -------- Operating revenues $150,608 $138,100 Operating income 36,764 34,607 Net income applicable to common stock 10,065 6,192 Net income per common share $ 0.30 $ 0.22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - - --------------------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- MERGER - - ------ On April 22, 1994, United Water Resources, Inc. (UWR) and GWC Corporation (GWC) merged (the Merger), with UWR as the surviving corporation. GWC's principal assets included 100% of the stock of General Waterworks Corporation (General Waterworks), which owns regulated utilities operating in 14 states, and a 25% indirect investment in JMM Operational Services, Inc. (JMM), a company that provides operations and management services to government and industry for water and wastewater treatment facilities. In exchange for the common stock of GWC that was issued and outstanding immediately preceding the Merger, UWR (i) issued 9,295,860 shares of UWR Common Stock, (ii) issued 3,341,078 shares of UWR 5% Convertible Preference Stock, which have a liquidation price of $13.794 per share, and (iii) paid former shareholders of GWC $8,870,397 in cash. In addition, at the time of the Merger, each issued and outstanding share of GWC 7 5/8% Preferred Stock was converted into one fully paid non-assessable share of UWR 7 5/8% Preferred Stock with equal stated dividends and substantially similar rights, privileges, qualifications and restrictions. Prior to the Merger, Lyonnaise American Holding, Inc. ("LAH"), a Delaware corporation and a wholly-owned subsidiary of Lyonnaise Des Eaux, a French societe anonyme, owned approximately 81.9% of GWC's Common Stock, and the remaining 18.1% of the GWC Common Stock was publicly traded. On the date of the Merger, LAH converted 70% of its shares of GWC Common Stock into UWR Common Stock and the remainder of its shares of GWC Common Stock into UWR 5% Convertible Preference Stock. Immediately after the Merger, LAH owned approximately 25.4% of the issued and outstanding UWR Common Stock and approximately 97.7% of the issued and outstanding UWR 5% Preference Stock. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- Capital expenditures by UWR's utility subsidiaries, including the utility subsidiaries of General Waterworks acquired in the merger with GWC, are generally incurred in connection with the normal upgrading and expansion of existing water and wastewater facilities and to comply with existing environmental regulations. UWR considers its utility plants to be adequate and in good condition but is projecting significantly 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 the utility subsidiaries of General Waterworks to meet growth requirements or to comply with environmental laws. The net capital expenditures of UWR's utility subsidiaries are projected at $48.4 million in 1994 (excluding the net capital expenditures of General Waterworks prior to the date of the merger) and $59.8 million in 1995. For the five year period from 1994 to 1998, the net capital expenditures of UWR's utility subsidiaries are estimated to aggregate $285 million. This total includes $205 million of net capital expenditures estimated to be spent by regulated utility operations of General Waterworks and $80 million of net capital expenditures by Hackensack Water Company (Hackensack) and Spring Valley Water Company (Spring Valley). Net capital expenditures represent gross capital expenditures for construction programs, less advances and contributions in aid of construction received from customers, primarily real estate developers, to fund capital expenditures to serve new customers. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) - - ------------------------------- The primary sources of the funds necessary to pay for this construction program are expected to be internally generated funds from operations and proceeds from financings. In January 1994, Hackensack redeemed $10 million of First Mortgage Bonds, 9- 3/4% Series, due 2006. In April 1994, Hackensack refinanced $40 million of tax- exempt refunding bonds, using the proceeds from the issuance of $20 million of 5.80% bonds and $20 million of 5.9% bonds, both due in 2024. In June 1994, Spring Valley refinanced $27 million of 1988 EFC 7.7% - 8% notes, due 2018, with $12 million of 6.15% notes and $15 million of 6.3%, due 2024. General Waterworks is a party to a number of tax-exempt financings for the purpose of funding expected capital expenditures in several of its larger utility subsidiaries. The use of these funds and any future financings will depend upon actual construction expenditures and prevailing market conditions. United Properties Group (United Properties), formerly Rivervale Realty Company, currently projects spending $28 million over the next five years for capital expenditures on its existing real estate portfolio. Expenditures in 1995 and 1996 are projected to be $2.5 million and $6.5 million, respectively. Funding for these expenditures is projected to be available from internally generated cash. At June 30, 1994, UWR had cash and temporary cash investments of $11.9 million and unused short-term bank lines of credit of $79.7 million, which lines are generally available to fund UWR's capital needs. GENERAL - - ------- Hackensack and Spring Valley, a subsidiary of Hackensack, provide public water supply service to more than a million people in northern New Jersey and southern New York. General Waterworks provides public water supply services to approximately one million people in 14 states, including primarily Arkansas, Delaware, Florida, Idaho, New Jersey, New Mexico, New York and Pennsylvania. In addition, two of its utilities, in Florida and New Mexico, also provide wastewater collection and treatment services, generally to their water customers. The water utility business is cyclical in nature, with the summer months accounting for the major portion of the subsidiaries' revenue and earnings. United Properties, UWR's real estate subsidiary, is a non-regulated business engaged in real estate acquisitions and development, leasing and sales, golf course operations and consulting activities. It holds properties in Bergen and Essex Counties, New Jersey; and Orange, Westchester and Rockland Counties, New York. Because the timing of property sales, and therefore the earnings, of UWR's real estate operations tend to be less predictable and regular than those of the regulated utility operations, the real estate operations generally result in a greater variability in UWR's earnings pattern. RATE MATTERS - - ------------ HACKENSACK WATER COMPANY On October 12, 1993, a rate increase of approximately 3.1%, or $3.5 million, became effective. This increase, which resulted from the settlement of a dispute involving a transfer of land from Hackensack to Rivervale, will not have a cash flow effect on UWR for approximately two years, because offsetting credits related to the settlement will be applied to customer bills during that period. SPRING VALLEY WATER COMPANY In July 1992, Spring Valley applied to the Public Service Commission (PSC) for permission to increase its annual revenues by $5 million, or 14.4%, to offset the effects of continued investment in plant facilities and increases in operating expenses. On May 12, 1993, the PSC rendered its decision, allowing Spring Valley an overall rate of return of 8.75% and a return on equity of 10.5%. The decision, which provided for an increase in annual revenues of approximately $1.9 million, or 5.7%, became effective on May 30, 1993. The PSC also allowed Spring Valley to recover approximately $850,000 of previously deferred expenses and required it to refund certain revenue credits of approximately $1 million immediately. This action, which resulted in a one-time increase in revenues and various expenses in the second quarter of 1993, did not have a material effect on net income. The PSC's decision also permitted Spring Valley to submit a second stage filing after February 1, 1994 to recover increases in property taxes, salaries and wages, and medical benefits that were not provided for in their previous determination. In February 1994, Spring Valley made its second-stage filing, and on July 12, 1994 the PSC issued an Order granting Spring Valley a $1.4 million increase in revenues, or 3.8% effective July 14, 1994. On June 22, 1994, Spring Valley applied to the PSC for permission to increase its annual revenues by $2.5 million, or 6.1% to offset the effects of continued investment in plant facilities, increases in operating expenses and general taxes that have occurred since the last general rate case. Spring Valley expects a Commission decision on its request in the Spring of 1995. The PSC's May 1993 decision also directed Spring Valley to institute a Revenue Reconciliation Clause (RRC), which requires Spring Valley to reconcile billed revenues with the pro forma revenues that were used to set rates. Any variances outside a 1% range are accrued or deferred for subsequent recovery from or refund to customers. As a result of the hot weather experienced during the summer of 1993, the RRC resulted in the deferral of $1.4 million, which will be used in part to recover certain deferred costs. The remaining balance will be refunded to Spring Valley customers along with previous RRC credit balances over a three-year period beginning in July 1994. In 1985, the New York PSC authorized the sale and transfer of 23 acres of land from Spring Valley to Rivervale. Subsequently, the PSC initiated an administrative proceeding arising from an Order inquiring into the price for the transfer of the land, and in September 1990 ordered Spring Valley to record a deferred credit that reduced rate base by $1.9 million to reflect the appreciated value of the property as of the date of sale of the land. In January 1991 Spring Valley filed an appeal with the New York State Supreme Court Appellate Division regarding the PSC decision, and in February 1992 the Appellate Division affirmed the action of the PSC. The effect of that decision on United Water was recognized by an after-tax charge against income of $809,000 in 1991. Spring Valley filed with the New York Court of Appeals a Motion for Leave to Appeal, which was denied on September 17, 1992. Spring Valley submitted a proposal to the PSC to make a one-time customer refund through billing credits of a portion of the deferred credit, and this was approved by the Commission on April 6, 1994. The net effect of this decision on UWR was to recognize a one-time refund to customers of $281,000 in April 1994. GENERAL WATERWORKS At June 30, 1994 the utility subsidiaries of General Waterworks had ten rate cases pending. One of these cases in Boise, Idaho, resulted in a $3.7 million annual revenue increase in July 1994. In the remaining nine cases, which are expected to be resolved by early 1995, General Waterworks has requested annual revenue increases of approximately $5.6 million. Although UWR anticipates that the utility subsidiaries of General Waterworks will file additional rate cases in 1994, it does not expect that those rate awards, if received in 1994, will have a significant impact on revenues in 1994. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994 - - -------------------------------------------------------- OVERVIEW United Water's consolidated net income applicable to common stock for the second quarter of 1994 was $7.7 million, an increase of 97.2% from $3.9 million in the comparable period in 1993. Net income per common share for the second quarter of 1994 was 28 cents versus 20 cents for the same period last year. This increase in consolidated net income is primarily attributable to the merger on April 22, 1994 with GWC Corporation. REVENUES The $39.1 million, or 90.1%, increase in revenues from the same period in 1993 is attributable to the following factors:
THREE MONTHS ENDED JUNE 30, OPERATING REVENUES 1994 VS. 1993 (thousands of dollars) --------------------------- ------------------------------------------------------------ Utilities: Merger $34,685 80.0% Rate impact 1,454 3.4% Consumption 29 0.1% Other (746) (1.8%) Real Estate 1,859 4.3% Other operations 1,775 4.1% ------- ----- $39,056 90.1%
The merger increased revenues by $34.7 million, or 80.0% from the same period in 1993. The rate impact of 3.4% in utility revenues in 1994 resulted from a 5.7% Spring Valley rate increase in May 1993, and a 3.1% Hackensack rate increase in October 1993. The decrease in other utility revenues was a result of Spring Valley recognizing approximately $1 million in revenue in 1993 relating to the settlement of the rate case. Real estate revenues increased 4.3% due to a land sale in the second quarter of 1994. Meter installation contracts for the City of New York contributed to the 4.1% increase in other operation revenues over the same quarter in 1993. COSTS AND EXPENSES The increase (decrease) in operating expenses from the same period in 1993 is due to the following:
OPERATING EXPENSES Net of Consolidated Merger Merger 1994 vs. 1993 Effect 1994 vs. 1993 ---------------- ------- ---------------- Operation and Maintenance $20,055 98.0% $16,286 $3,769 18.4% Depreciation 2,765 77.6% 3,102 (337) (9.5%) Amortization of Goodwill 418 100.0% 418 - - General Taxes 4,720 69.9% 3,690 1,030 15.2%
Operation and maintenance increased $20.1 million, or 98.0%, compared to the same period in 1993, with $16.3 million, or 81.2% of the increase resulting from the merger. The remaining increase was primarily related to meter installations for the New York City contract and the cost of property sold. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994 (CONTINUED) - - -------------------------------------------------------- Depreciation increased by $2.8 million, or 77.6%, over the same period in 1993, including a $3.1 million increase as a result of the merger. The remaining decrease in depreciation expense was primarily due to a retroactive adjustment in 1994 related to the depreciation on contributed plant. General taxes increased by $4.7 million, or 69.9% over 1993; $3.7 million of the increase was due to the merger. The remainder was due to the recognition by Spring Valley of $755,000 of reductions in franchise and real estate taxes in 1993. INTEREST AND OTHER Consolidated interest expense increased $4.5 million or 83.7% primarily due to the merger. Other income increased in the second quarter of 1994 by $143,000, or 55.2%, largely due to the merger. INCOME TAXES Federal income tax expense increased by $2.3 million, or 74.5%, from the same quarter last year, largely due to the increase in income before income taxes. The effective income tax rate decreased to 36.4% in 1994 from 40.6% in 1993, primarily due to the recognition in 1993 of additional income tax expense of $946,000 relating to a previously settled 1981 through 1988 IRS Audit. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30. 1994 OVERVIEW - - -------- United Water's consolidated net income applicable to common stock for the six months ended June 30, 1994 increased $5.5 million or 118% compared to the same period in 1993. This increase was primarily the result of the impact of the Merger on April 22, 1994. Also contributing to this increase was the recognition of the award of escrow monies to United Properties following a foreclosure settlement in the first quarter of 1994. The terms of the settlement required the owner to give up any claims against United Properties relating to the Emerson golf course, the ownership of which was received in the settlement by United Properties. REVENUES The $42 million, or 53.2%, increase in revenues from the same period in 1993 is attributable to the following factors:
SIX MONTHS ENDED JUNE 30, OPERATING REVENUES 1994 VS. 1993 (thousands of dollars) ------------------------- ------------------------------------------------------------- Utilities: Merger $34,685 43.8% Rate impact 2,670 3.4% Consumption 465 0.6% Other (766) (1.1%) Real Estate 2,261 2.9% Other operations 2,861 3.6% ------- ----- $42,176 53.2%
The effect of the merger contributed $34.7 million, or 43.8%, to utility revenues. The rate impact of 3.4% resulted from a 5.7% Spring Valley rate increase in May 1993, and a 3.1% Hackensack rate increase in October 1993. The decrease in other utility revenues was a result of Spring Valley recognizing approximately $1 million in revenue in 1993 relating to the settlement of the rate case. Real estate revenues increased 2.9% due to land sales in the first and second quarters of 1994. Meter installation contracts for the City of New York contributed to the 3.6% increase in other operation revenues over the same period in 1993. COSTS AND EXPENSES The increase (decrease) in operating expenses from the same period in 1993 is due to the following:
OPERATING EXPENSES Net of (thousands of dollars) Consolidated Merger Merger 1994 vs. 1993 Effect 1994 vs. 1993 ---------------- ------- ---------------- Operation and Maintenance $22,730 58.7 % $16,286 $6,444 16.6% Depreciation 2,860 40.4 % 3,102 (242) (3.4%) Amortization of Goodwill 418 100.0 % 418 -- -- General Taxes 4,932 35.4 % 3,690 1,242 (8.9%)
Operation and maintenance increased $22.7 million, or 58.7%, compared to the same period in 1993, with $16.3 million, or 71.6%, of the increase resulting from the merger. The remaining increase was primarily due to expenses related to meter installation contracts and the cost of properties sold. An increased number of main breaks caused by severe winter weather and higher chemical costs for water treatment also contributed to the increase in operation and maintenance expenses in 1994. In 1993, Spring Valley's expenses were higher due to the recognition of previously deferred expenses of approximately $850,000. RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1994 (CONTINUED) - - ------------------------------------------------------ Depreciation increased $2.9 million, or 40.4%, with the merger causing $3.1 million of this increase. A retroactive adjustment in 1994 on contributed plant offset this increase. General taxes increased $4.9 million, or 35.4%, $3.7 million of the increase was due to the merger. The remainder was due in part to the recognition in 1993 of $755,000 of reductions in franchise and real estate taxes. INTEREST AND OTHER Consolidated interest expense increased $4.8 million, or 44.3%, primarily as a result of the merger. Other income increased in the first half of 1994 by $3 million, or 648.1%, primarily due to the recognition of the award of escrow monies to United Properties following a foreclosure settlement. INCOME TAXES Income tax expense increased $3.3 million, or 91.6% over the same period last year primarily due to the increase in income before income taxes. The effective income tax rate decreased to 36.2% from 38.6% in 1993 largely due to the recognition in 1993 of additional income tax expense of $946,000 relating to a previously settled 1981 through 1988 IRS Audit. 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 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 - - ---------------------------- The Paterson Municipal Utilities Authority (PMUA) filed suit against Hackensack and the North Jersey District Water Supply Commission. A Summons and Complaint were served on August 8, 1990. The suit was based on alleged ownership of various water rights in the Passaic River owned by the Authority and which the Authority claimed were, or may have been, affected by diversions from the Wanaque South Project, in which Hackensack is an equal partner with the North Jersey District Water Supply Commission. Hackensack's Motion for Summary Judgement, dismissing the Complaint, was granted by the trial court on July 23, 1992. On October 5, 1992, the PMUA filed a Notice of Appeal; the matter was argued before the Appellate Division in April 1994, and the Appellate Division in May 1994 affirmed the dismissal. The PMUA has appealed to the New Jersey Supreme Court. In 1985, the New York PSC authorized the sale and transfer of 23 acres of land from Spring Valley to Rivervale. Subsequently, the PSC initiated an administrative proceeding arising from an Order inquiring into the price for the transfer of the land, and in September 1990 ordered Spring Valley to record a deferred credit that reduced rate base by $1.9 million to reflect the appreciated value of the property as of the date of sale of the land. In January 1991 Spring Valley filed an appeal with the New York State Supreme Court Appellate Division regarding the PSC decision, and in February 1992 the Appellate Division affirmed the action of the PSC. The effect of that decision on United Water was recognized by an after-tax charge against income of $809,000 in 1991. Spring Valley filed with the New York Court of Appeals a Motion for Leave to Appeal, which was denied on September 17, 1992. Spring Valley submitted a proposal to the PSC to make a one-time customer refund through billing credits of a portion of the deferred credit, and this was approved by the Commission on April 6, 1994. The net effect of this decision on UWR was to recognize a one-time refund to customers of $281,000 in April 1994. General Waterworks owns a utility subsidiary which provides water and wastewater services to Rio Rancho, New Mexico ("Rio Rancho"). The City of Rio Rancho has notified General Waterworks that it intends to acquire the utility operations and has offered to negotiate before commencing condemnation proceedings, and on March 1, 1994 the citizens of the city approved a proposition authorizing the city to acquire, by all lawful means, the utility operations in Rio Rancho. The City has since commenced a due diligence review of General Waterworks operations in Rio Rancho. In 1993, Rio Rancho had revenues of $10,280,000 and at December 31, 1993 had a net investment in utility plant of $43,904,000. New Mexico's condemnation laws require that the city pay the Company fair market value for any assets that are taken by the city in a condemnation proceeding. Consequently, the Company expects that any condemnation, or sale in lieu of condemnation, should result in the Company at least recovering its investment in its Rio Rancho operations. Wilmington Suburban Water Corporation ("Wilmington Suburban"), a subsidiary of General Waterworks, is the subject of a Criminal Violation Notice issued by the 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. Wilmington Suburban alleges that the illegal fill was placed on land it owns by one or more third parties without the knowledge or approval of Wilmington Suburban. The management of Wilmington Suburban has responded to the Notice by engaging hydrogeological engineers to investigate the feasibility of a mitigation and remediation plan which would be consistent with the appropriate County Ordinances. Violation notice forms also were issued to other similarly situated property owners, and Wilmington Suburban has taken part in many discussions concerning the level of participation by all such parties in a remediation. Wilmington Suburban has met with the New Castle County authorities and presented a plan to partially remediate the fill. It is expected that the County will accept this proposal. ITEM 1. LEGAL PROCEEDINGS (CONTINUED) - - -------------------------- In addition to the matters mentioned herein, UWR is involved in litigation dealing with numerous aspects of its business operations. Based upon advice from counsel, management believes Hackensack, Spring Valley, General Waterworks and United Properties have meritorious defenses in all of the claims which remain pending and intends to contest them vigorously. The likelihood that the ultimate resolution will have a material effect upon the financial position or results of operations of United Water or its subsidiaries is considered to be remote. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - - ------- -------------------------------- (b) A current report on Form 8-K regarding the merger of GWC Corporation with and into United Water Resources Inc. was filed by UWR on May 4, 1994. 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 13, 1994 By /s/ John J. Turner --------------------------- ----------------------------- (Signature) John J. Turner Vice President and Controller DULY AUTHORIZED AND CHIEF ACCOUNTING OFFICER -----END PRIVACY-ENHANCED MESSAGE-----