-----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, mCOyZZxJiWzFGAQMS+G8sivy1/KqaspBc1D0WRigZMzP44wAMIx1WfhiH7GfkeX0 CiXhCriy2Ieqb3S8E6RQmg== 0000950130-94-001608.txt : 19941116 0000950130-94-001608.hdr.sgml : 19941116 ACCESSION NUMBER: 0000950130-94-001608 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NONE 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: 94558943 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 SEPTEMBER 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 October 31, 1994 30,920,147 ----------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------------------------------- UNITED WATER RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (THOUSANDS OF DOLLARS)
SEPTEMBER 30, DECEMBER 31, 1994 1993 ------------- ------------ (UNAUDITED) ASSETS - ------ UTILITY PLANT, including $16,411 and $ 5,815 under construction $ 1,244,794 $ 605,036 LESS - Accumulated depreciation 232,292 103,557 ---------- -------- 1,012,502 501,479 ---------- -------- UTILITY PLANT ACQUISITION ADJUSTMENT, NET 75,860 632 ---------- -------- REAL ESTATE AND OTHER INVESTMENTS, less accumulated depreciation of $ 12,769 and $ 10,889 107,903 96,312 ---------- -------- CURRENT ASSETS: Cash and temporary cash investments 2,900 8,933 Construction funds 17,756 8,502 Accounts receivable and unbilled revenues, net 67,232 30,544 Materials and supplies 4,649 2,422 Prepayments 11,137 8,213 ---------- -------- 103,674 58,614 ---------- -------- DEFERRED CHARGES AND OTHER ASSETS: Recoverable income taxes 47,377 26,384 Prepaid and deferred employee benefits 19,840 10,569 Unamortized debt expense 23,387 15,276 Other deferred charges and assets 31,969 31,260 ---------- -------- 122,573 83,489 ---------- -------- $ 1,422,512 $ 740,526 ========== ======== CAPITALIZATION AND LIABILITIES - ------------------------------ CAPITALIZATION: Common stock and retained earnings $ 348,840 $ 202,110 Preferred stock without mandatory redemption 9,000 9,000 Preferred stock with mandatory redemption 54,706 23,840 Preference stock, convertible, with mandatory redemption 43,424 -- Long-term debt 475,739 276,753 ---------- -------- 931,709 511,703 ---------- -------- CURRENT LIABILITIES: Notes payable 80,750 15,500 Preferred stock and long-term debt due within one year 9,674 16,843 Accounts payable and other accruals 32,883 12,066 Accrued taxes 25,424 20,454 Accrued interest 9,070 6,590 Accrued customer benefits 4,488 6,771 ---------- -------- 162,289 78,224 ---------- -------- DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes and investment tax credits 164,619 104,864 Customer advances for construction 31,394 9,319 Contributions in aid of construction 112,431 7,586 Other deferred credits and liabilities 20,070 28,830 ---------- -------- 328,514 150,599 ---------- -------- $ 1,422,512 $ 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 MONTHS FOR THE NINE MONTHS -------------------- -------------------- ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------- -------------------- 1994 1993 1994 1993 ------- ------- -------- -------- OPERATING REVENUES $93,487 $78,225 $214,899 $157,461 ------- ------- -------- -------- OPERATING EXPENSES: Operation and maintenance 40,442 41,222 101,917 79,968 Depreciation and amortization 7,164 3,635 17,520 10,713 General taxes 12,347 8,577 31,194 22,492 ------- ------- -------- -------- TOTAL OPERATING EXPENSES 59,953 53,434 150,631 113,173 ------- ------- -------- -------- OPERATING INCOME 33,534 24,791 64,268 44,288 ------- ------- -------- -------- INTEREST AND OTHER EXPENSES: Interest expense, net of amount capitalized 10,071 6,002 25,591 16,758 Allowance for funds used during construction (242) (114) (906) (378) Preferred stock dividends of subsidiaries 578 574 1,740 1,755 Other income (1,660) (237) (5,116) (699) ------- ------- -------- -------- TOTAL INTEREST AND OTHER EXPENSES 8,747 6,225 21,309 17,436 ------- ------- -------- -------- INCOME BEFORE INCOME TAXES 24,787 18,566 42,959 26,852 Provision for income taxes 9,497 7,360 16,502 11,016 ------- ------- -------- -------- NET INCOME 15,290 11,206 26,457 15,836 Preferred stock dividends 568 -- 1,143 -- Preference stock dividends 628 -- 1,114 -- ------- ------- -------- -------- NET INCOME APPLICABLE TO COMMON STOCK $14,094 $11,206 $ 24,200 $ 15,836 ======= ======= ======== ======== AVERAGE COMMON SHARES OUTSTANDING (THOUSANDS) 30,625 19,566 26,463 19,246 NET INCOME PER COMMON SHARE $0.46 $0.57 $0.91 $0.82 ======= ======= ======== ======== DIVIDENDS PER COMMON SHARE $0.23 $0.23 $0.69 $0.69 ======= ======= ======== ========
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 NINE MONTHS ENDED SEPTEMBER 30 -------------------------------------- 1994 1993 ---- ---- OPERATING ACTIVITIES: NET INCOME $ 26,457 $ 15,836 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,650 11,780 Deferred income taxes and investment tax credits, net 7,150 33,315 Gain from release of security deposit to United Properties Group (2,811) -- Gain on land transfer -- (10,398) Valuation reserve -- 4,100 Allowance for funds used during construction (AFUDC) (906) (378) Changes in assets and liabilities, net of effect of acquisition of GWC: Accounts receivable and unbilled revenues (17,351) (4,753) Prepayments 1,946 (837) Prepaid and deferred employee benefits (2,836) (2,266) Recoverable income taxes (671) (24,325) Accounts payable and other accruals 2,203 2,772 Accrued taxes (1,227) (3,524) Accrued interest (3,540) (1,912) Accrued customer benefits (2,283) (4,113) Other, net (6,703) 911 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 18,078 16,208 -------- -------- INVESTING ACTIVITIES: Additions to utility plant (excludes AFUDC) (33,236) (12,347) Additions to real estate and other properties (2,753) (4,022) Acquisition of GWC, net of cash received (5,059) -- Investment in Hoboken service contract (5,464) -- Draw down of construction funds, net 12,981 -- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (33,531) (16,369) -------- -------- FINANCING ACTIVITIES: Change in notes payable 41,350 4,065 Reduction in preferred stock and long-term debt (31,555) (13,363) Issuance of common stock 18,064 13,909 Dividends on common stock (18,704) (13,304) Dividends on preferred and preference stock (2,257) -- Net contributions and advances for construction 2,522 (1,110) -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 9,420 (9,803) -------- -------- Net decrease in cash and temporary cash investments (6,033) (9,964) Cash and temporary cash investments at beginning of period 8,933 17,994 -------- -------- CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 2,900 $ 8,030 ======== ========
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 NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------- 1994 1993 ---- ---- Interest paid (net of amount capitalized) $20,920 $17,770 Income taxes paid 4,063 941
Supplemental schedule of noncash investing and financing activities involved with the acquisition of GWC Corporation: Fair value of assets purchased $648,100 Less: Liabilities assumed 445,371 Common stock issued 123,170 Fair value of preferred stock assumed 31,178 Fair value of preference stock issued 43,322 -------- 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 SEPTEMBER 30, 1994 NOTE 1 - GENERAL - ---------------- In the opinion of United Water Resources (UWR, 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, commitments and contingencies and other matters are disclosed in the Company's audited consolidated financial statements included in its 1993 Annual Report on Form 10-K, which should be read in conjunction with these financial statements. 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 - 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 nine month periods ended September 30, 1994 and 1993 gives effect to the Merger as if it had occurred at the beginning of each of these periods. 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 NINE MONTHS ENDED:
(UNAUDITED) SEPTEMBER 30, 1994 1993 ---- ---- Operating revenues $244,095 $252,679 Operating income 70,298 72,973 Net income applicable to common stock 24,159 25,624 Net income per common share $ 0.80 $ 0.90
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 has 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. UWR anticipates that this construction program will be funded by internally generated funds from operations and proceeds from external financings. In addition, General Waterworks and Spring Valley 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 September 30, 1994, $17.7 million of proceeds from these financings have not yet been disbursed to the Company. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) - ------------------------------- In January 1994, Hackensack redeemed $10 million of First Mortgage Bonds, 9-3/4% Series, due 2006, and in April 1994 refinanced $40 million of tax-exempt 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, by issuing $12 million of 6.15% notes and $15 million of 6.3% notes, due 2024. In August 1994, Spring Valley filed a petition with the PSC seeking the Commission's approval to issue $12 million of long-term debt so as to reduce its short-term borrowings. This short-term debt was incurred in part when Spring Valley redeemed $5 million of Series E, 4.7% First Mortgage Bonds at maturity on August 1, 1994. The Company expects approval by December 31, 1994. In October 1994, General Waterworks issued $20 million of 6.40% tax-exempt bonds, due 2024, to finance certain capital expenditures of Boise Water Corporation, a wholly-owned subsidiary of General Waterworks. United Properties Group (United Properties), formerly Rivervale Realty Company, currently expects to spend $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 expected to be provided by internally generated cash. At September 30, 1994, UWR had cash and temporary cash investments of $2.9 million and unused short-term bank lines of credit of $108.5 million. Management expects that unused credit lines currently available and cash flows from operations will be sufficient to meet the Company's anticipated future operational and capital needs. GENERAL - ------- Hackensack and Spring Valley, (a subsidiary of Hackensack) provide public water supply service to more than one 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. Its major utility operations are located in 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, as both revenues and earnings are higher in the summer months when customer consumption is higher than in the cooler months. 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 owns properties in Bergen and Essex Counties, New Jersey; and Orange, Westchester and Rockland Counties, New York. 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) of the State of New York 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 and 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 of revenue, which was used in part to recover certain deferred costs. The remaining balance, along with previous RRC credit balances, is being refunded to Spring Valley's customers 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 UWR 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 Spring Valley customers of $281,000 in April 1994. RATE MATTERS (CONTINUED) - ------------ GENERAL WATERWORKS During the period from April 1, 1994 through September 30, 1994, the utility subsidiaries of General Waterworks received eight rate awards, representing an aggregate annual revenue increase of $5.5 million. An estimated $2.5 million of this amount will be reflected in revenues in the current year. At September 30, 1994, the utility subsidiaries of General Waterworks had five rate cases pending. In these five cases, General Waterworks has requested an aggregate annual revenue increase of approximately $5.4 million, none of which is expected to affect 1994. The Company expects the utility subsidiaries of General Waterworks to file additional rate cases in 1994, but does not anticipate that these rate cases will have any impact on the Company's 1994 results. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1994 - ------------------------------------------------------------- OVERVIEW UWR's net income applicable to common stock for the third quarter of 1994 was $14.1 million, an increase of 25.8% from $11.2 million in the comparable period in 1993. Net income per common share for the third quarter of 1994 was 46 cents as compared to 57 cents for the same period last year. The increase in net income as compared to the third quarter of 1993 represents the net favorable effect of two offsetting events. Net income increased as a result of the operations acquired in the merger with GWC in April 1994, which was partially offset by a one-time gain on an intercompany real estate transaction in 1993. Earnings per share for the third quarter decreased as compared to 1993; while the results of General Waterworks produced an increase in earnings per share, that increase was offset by the effect of the absence in 1994 of a comparable real estate transaction. REVENUES The $15.3 million, or 19.5%, increase in revenues from the same period in 1993 was attributable to the following factors:
OPERATING REVENUES (thousands of dollars) Increase (Decrease) ------------------------------------------------------- Utilities: Merger with GWC $ 39,393 50.3% Rate awards 1,462 1.9% Consumption (2,595) (3.3%) Other 815 1.0% Real estate (25,680) (32.8%) Other operations 1,867 2.4% -------- ------ $ 15,262 19.5%
The merger with GWC increased revenues by $39.4 million, or 50.3%, from the same period in 1993. The increase in revenues from rate awards of 1.9% in 1994 resulted from a 3.1% Hackensack rate increase in October 1993 and a 3.8% Spring Valley increase in July 1994. The decrease in revenue due to consumption of $2.6 million, or 3.3%, was due to a return to more normal weather conditions in 1994 in Hackensack and Spring Valley. Real estate revenues decreased from the comparable quarter due to the aforementioned 1993 intercompany real estate transaction. Meter installation contracts for the City of New York and a service contract with the City of Hoboken contributed to the increase in operating revenues from other operations. COSTS AND EXPENSES The increase (decrease) in operating expenses from the same period in 1993 is due to the following:
OPERATING EXPENSES (thousands of dollars) Total Effect of Net of Merger Increase (Decrease) Merger Increase (Decrease) -------------------------------------------------------- Operation and maintenance ($780) (1.9%) $17,204 ($17,984) (43.6%) Depreciation and amortization 3,529 97.0% 3,505 24 0.7% General taxes 3,770 44.0% 3,593 177 2.1%
The decrease in operation and maintenance expense, excluding the effect of the merger with GWC, represents the net effect of the decrease in costs related to the intercompany real estate transaction in 1993, offset by higher costs in 1994 related to meter installations under contracts with the City of New York, the costs of property sales and the service contract with the City of Hoboken. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1994 (CONTINUED) - ------------------------------------------------------------- INTEREST AND OTHER Interest expense increased $4.1 million, or 67.8%, representing the net effect of a $4.5 million increase as a result of the merger, offset, in part, by lower interest expense due to a reduction in long term debt and lower interest rates. Other income increased in the third quarter of 1994 by $1.4 million, primarily due to the gain on the sale of a wastewater transmission facility in Pine Bluff, Arkansas. INCOME TAXES Federal income tax expense increased by $2.1 million, or 29%, largely due to the increase in income before income taxes. The effective tax rate in the third quarter of 1994 was 37.4%, down from 38.5% in the third quarter of 1993, due to lower taxes on real estate transactions. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1994 - ------------------------------------------------------------ OVERVIEW UWR's net income applicable to common stock for the nine months ended September 30, 1994 increased $8.4 million, or 52.8%, as compared to the comparable period in 1993, while earnings per share of common stock increased 9 cents per share. The increase in net income was primarily the result of the operations acquired in the merger with GWC. Net income from utitily operations was lower in 1994, primarily because dry weather in 1993 caused revenues, and net income, to be higher than normal. Net income from real estate was lower in 1994 due to a one-time gain on an intercompany real estate transaction recognized in 1993. REVENUES The $57.4 million, or 36.4%, increase in revenues from the same period in 1993 was attributable to the following factors:
OPERATING REVENUES (thousands of dollars) Increase (Decrease) ----------------------------------------------------------------- Utilities: Merger with GWC $74,078 47.1% Rate awards 4,132 2.6% Consumption (2,130) (1.4%) Other 49 0.0% Real Estate (23,419) (14.9%) Other operations 4,728 3.0% -------- ------ $57,438 36.4%
The merger with GWC increased revenues $74.1 million, or 47.1%, in 1994. The increase in revenues from rate awards of 2.6% resulted from rate increases of 5.7% and 3.8% in May 1993 and July 1994, respectively, for Spring Valley and a 3.1% rate increase in October 1993 for Hackensack. Lower consumption due to a return to more normal weather conditions in 1994 resulted in a $2.1 million decrease in operating revenues from the prior year. Real estate revenues decreased, primarily due to the aforementioned 1993 intercompany land transaction. Meter installation contracts for the City of New York and a service contract with the City of Hoboken contributed to the increase in operating revenues from other operations over the same period in 1993. COSTS AND EXPENSES The increase (decrease) in operating expenses from the first nine months in 1993 was due to the following:
OPERATING EXPENSES (thousands of dollars) Total Effect of Net of Merger Increase (Decrease) Merger Increase (Decrease) --------------------------------------------------------- Operation and maintenance $21,949 27.4% $33,490 ($11,541) (14.4%) Depreciation and amortization 6,807 63.5% 7,025 (218) (2.0%) General Taxes 8,702 38.7% 7,283 1,419 6.3%
The decrease in operation and maintenance expense, excluding the effect of the merger with GWC, represents the net effect of the decrease in costs related to the intercompany real estate transaction in 1993, offset by higher costs in 1994 related to meter installations under contracts with the City of New York, the cost of property sales and the service contract with the City of Hoboken. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1994 (CONTINUED) - ------------------------------------------------------------ INTEREST AND OTHER Interest expense increased $8.8 million, or 52.7%, primarily as a result of the merger. Other income increased $4.4 million in the first nine months of 1994 primarily due to the favorable settlement of a foreclosure action filed by United Properties related to a golf course property and the gain from the sale of a wastewater transmission facility in Pine Bluff, Arkansas. INCOME TAXES Income tax expense increased $5.5 million, or 49.8%, primarily due to the merger with GWC. The effective income tax rate decreased to 36.9%, from 38.5% in 1993, largely due to a rate decision in Spring Valley which resulted in the recognition in 1993 of deferred IRS audit adjustments relating to the 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 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 - ------------------------------ The Paterson Municipal Utilities Authority (PMUA) filed suit against Hackensack and the North Jersey District Water Supply Commission in 1990. The suit was based on PMUA's alleged ownership of various water rights in the Passaic River, which rights the PMUA 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 appealed to the New Jersey Supreme Court, which denied certification of this appeal on September 13, 1994. A suit was filed against UWR, Dundee Water, Power & Land Co. (Dundee) and Hackensack in September 1994. The suit alleges that the plaintiff 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 UWR owns 50% of the outstanding common stock. While an assessment of the property damages being alleged has not yet been completed, it is believed that such claims will be in excess of $500,000. An answer to the Complaint will be filed on behalf of UWR, Hackensack and Dundee. All three companies have adequate insurance to cover claims of this nature. UWR is undertaking a continuing investigation of the claims in conjunction with the North Jersey District Water Supply Commission, the other 50% co-owner of Dundee. Management believes UWR, Hackensack and Dundee have meritorious defenses to the aforementioned claims and intends to contest them vigorously. General Waterworks owns a utility subsidiary which provides water and wastewater services to customers in Rio Rancho, New Mexico ("Rio Rancho"). The City of Rio Rancho notified General Waterworks that it intends to acquire the utility operations, and on October 28, 1994 commenced condemnation proceedings. 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. 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. 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. LEGAL PROCEEDINGS (CONTINUED) - ----------------- On October 28, 1994, IU International Corporation ("IU") filed suit against General Waterworks alleging breach of contract and seeking reimbursement of more than $3 million of income tax payments by IU, as well as interest on such amounts. In 1982, LAH purchased 50% of the outstanding common stock of GWC from IU, and in 1985 purchased the remaining 50%. IU's claim is based on certain tax indemnifications that were part of a stock purchase agreement entered into by IU, LAH, General Waterworks and GWC in connection with the 1992 purchase. The management of General Waterworks believes it has meritorious defenses to the aforementioned claims and that its resolution will not have a material adverse effect upon the financial position or results of operations of the Company. 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 UWR and its affiliates, including Hackensack, Spring Valley, General Waterworks and its subsidiaries 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 of legal proceedings would have a material effect upon the financial position or results of operations of UWR or its subsidiaries is considered to be remote. 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: November 14, 1994 By___________________________________ ----------------- (Signature) John J. Turner Treasurer DULY AUTHORIZED AND CHIEF ACCOUNTING OFFICER EX-27 2 EXHIBIT 27
UT This schedule contains summary financial 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. 1000 9-MOS DEC-31-1994 JAN-01-1994 SEP-30-1994 PER-BOOK 1,088,362 107,903 103,674 122,573 0 1,422,512 279,691 0 69,149 348,840 98,130 9,000 475,739 0 80,750 0 9,414 260 0 0 400,379 1,422,512 214,899 16,502 150,631 167,133 47,766 4,282 52,048 25,591 26,457 2,257 24,200 18,704 10,347 18,078 0.91 0.91
-----END PRIVACY-ENHANCED MESSAGE-----