-----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, DJUyh91IKLBGodV1fx0N4BjGhtAbF/SyIPPs/CY4yce2QBLtDNNfwpv9iz7HP4tp DLbl4mo7+QzDNnJBNNW1Sw== 0000950130-98-002522.txt : 19980610 0000950130-98-002522.hdr.sgml : 19980610 ACCESSION NUMBER: 0000950130-98-002522 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980511 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: SEC FILE NUMBER: 001-08586 FILM NUMBER: 98615339 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 MARCH 31, 1998 --------------------- 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 April 30, 1998 36,892,226 ----------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - - ------------------------------- UNITED WATER RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (THOUSANDS OF DOLLARS)
MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------ (UNAUDITED) ASSETS - - ------ UTILITY PLANT, including $48,936 and $49,301 under construction $1,458,311 $1,439,854 LESS accumulated depreciation 305,145 296,820 ---------- ---------- 1,153,166 1,143,034 ---------- ---------- UTILITY PLANT ACQUISITION ADJUSTMENTS, NET 62,585 63,026 ---------- ---------- REAL ESTATE AND OTHER INVESTMENTS, less accumulated depreciation of $11,945 and $11,497 82,051 79,487 EQUITY INVESTMENTS 101,365 99,197 ---------- ---------- 183,416 178,684 CURRENT ASSETS: Cash and cash equivalents 5,579 8,546 Restricted cash 30,125 34,581 Accounts receivable and unbilled revenues, net 53,729 57,723 Prepaid and other current assets 13,594 11,705 ---------- ---------- 103,027 112,555 ---------- ---------- DEFERRED CHARGES AND OTHER ASSETS: Regulatory assets 80,394 79,748 Prepaid employee benefits 23,641 21,426 Unamortized debt expense 32,648 31,019 Other deferred charges and assets 26,907 28,850 ---------- ---------- 163,590 161,043 ---------- ---------- $1,665,784 $1,658,342 ========== ========== CAPITALIZATION AND LIABILITIES - - ------------------------------ CAPITALIZATION: Common stock and retained earnings $ 410,222 $ 418,601 Preferred stock without mandatory redemption 9,000 9,000 Preferred stock with mandatory redemption 51,833 51,838 Preference stock, convertible, with mandatory redemption 34,785 34,741 Long-term debt 624,813 622,737 ---------- ---------- 1,130,653 1,136,917 ---------- ---------- CURRENT LIABILITIES: Notes payable 72,542 74,925 Preferred stock and long-term debt due within one year 8,038 8,022 Accounts payable and other current liabilities 34,384 40,156 Accrued taxes 30,057 26,878 Accrued interest and dividends 16,714 8,117 ---------- ---------- 161,735 158,098 ---------- ---------- DEFERRED CREDITS AND OTHER LIABILITIES: Deferred income taxes and investment tax credits 188,630 183,490 Customer advances for construction 28,630 27,356 Contributions in aid of construction 135,677 133,684 Other deferred credits and liabilities 20,459 18,797 ---------- ---------- 373,396 363,327 ---------- ---------- $1,665,784 $1,658,342 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. UNITED WATER RESOURCES INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (THOUSANDS, EXCEPT PER SHARE DATA ) (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, -------------------------------------- 1998 1997 ---- ---- OPERATING REVENUES $75,442 $80,006 ------- ------- OPERATING EXPENSES: Operation and maintenance 39,301 44,062 Depreciation amortization 9,368 8,628 General taxes 13,053 12,672 ------- ------- TOTAL OPERATING EXPENSES 61,722 65,362 ------- ------- OPERATING INCOME 13,720 14,644 ------- ------- INTEREST AND OTHER EXPENSES: Interest expense, net of amount capitalized 11,341 11,029 Allowance for funds used during construction (863) (697) Preferred stock dividends of subsidiaries 562 567 Equity earnings of affiliates (2,158) (2,681) Other income, net (462) (696) ------- ------- TOTAL INTEREST AND OTHER EXPENSES 8,420 7,522 ------- ------- INCOME BEFORE INCOME TAXES 5,300 7,122 PROVISION FOR INCOME TAXES 1,096 1,885 ------- ------- NET INCOME 4,204 5,237 Preferred and preference stock dividends 1,070 1,135 ------- ------- NET INCOME APPLICABLE TO COMMON STOCK $ 3,134 $ 4,102 ======= ======= NET INCOME PER COMMON SHARE $ 0.09 $ 0.12 ======= ======= Average common shares outstanding 36,400 34,741 NET INCOME PER COMMON SHARE-ASSUMING DILUTION $ 0.09 $ 0.12 ======= ======= Average common shares outstanding 38,767 34,741 DIVIDENDS PER COMMON SHARE $ 0.23 $ 0.23 ======= =======
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 THREE MONTHS ENDED MARCH 31, ------------------------------------ 1998 1997 ---- ---- OPERATING ACTIVITIES: NET INCOME $ 4,204 $ 5,237 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 9,702 8,931 Equity earnings of affiliates (2,158) (2,681) Proceeds from sales of properties 406 6,864 Gain on sale of properties (112) (3,215) Improvements to property under development (269) (324) Deferred income taxes and investment tax credits, net 5,140 1,523 Allowance for funds used during construction (AFUDC) (863) (697) Changes in assets and liabilities: Accounts receivable and unbilled revenues 3,994 5,888 Prepaid and other current assets (1,889) (2,902) Prepaid employee benefits (2,215) (223) Regulatory assets (646) (1,315) Accounts payable and other current liabilities (5,772) (720) Accrued taxes 3,179 7,727 Accrued interest (354) 437 Other, net 1,664 2,081 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 14,011 26,611 -------- -------- INVESTING ACTIVITIES: Additions to utility plant (excludes AFUDC) (17,744) (10,922) Additions to real estate and other investments (3,013) (919) Change in restricted cash 4,456 1,505 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (16,301) (10,336) -------- -------- FINANCING ACTIVITIES: Change in notes payable (2,383) (22,300) Additional long-term debt 40,000 368 Reduction in preferred stock and long-term debt (37,913) (360) Issuance of common stock 5,789 7,845 Dividends on common stock (8,367) (7,967) Dividends on preferred and preference stock (1,070) (1,135) Net contributions and advances for construction 3,267 1,006 -------- -------- NET CASH USED IN FINANCING ACTIVITIES (677) (22,543) -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,967) (6,268) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,546 8,961 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,579 $ 2,693 ======== ========
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 THREE MONTHS ENDED MARCH 31, ------------------------------------ 1998 1997 ---- ---- Supplemental disclosures of cash flow information: Interest (net of amount capitalized) $11,361 $10,289 Income taxes paid/(refunded) 1,040 (827)
UNITED WATER RESOURCES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 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 1997 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 - INVESTMENT IN UNITED WATER SERVICES - - --------------------------------------------- On July 28, 1997, United Water Services LLC (formerly the United Water Resources-Lyonnaise des Eaux Partnership), 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, United Water Services Inc. (formerly JMM-OSI) became a wholly owned subsidiary of United Water Services LLC. Prior to the restructuring, United Water Services LLC 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, 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. 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 $277 million over the next five years, including $62 million and $61 million in 1998 and 1999, respectively. This total includes $178 million for United Waterworks and $95 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 1998-2002 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 March 31, 1998, $30.1 million of proceeds from these financings have not yet been disbursed to the Company and are included in the consolidated balance sheet as restricted cash. The amount and timing of the use of these proceeds and of future financings will depend on actual capital expenditures, the timeliness and adequacy of rate relief, the availability and cost of capital, and the ability to meet interest and fixed charge coverage requirements. In 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). In December 1994, United Waterworks entered into a medium-term note program that enabled United Waterworks to issue up to $75 million of debt with terms ranging from 9 months to 30 years. The interest rates are set as notes are issued under the program. The first $10 million of notes under this program were issued in 1995. In October 1997, United Waterworks issued $15 million of notes under this program, at a rate of 6.8%, with the full amount maturing in 2007. In February 1998, United Waterworks issued an additional $40 million of notes under this program ($20 million at 6.97% due 2023, $15 million at 7.1% due 2028 and $5 million at 6.9% due 2017). The proceeds were used to redeem outstanding notes payable. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) - - ------------------------------- United Properties currently expects to spend $29.4 million over the next five years for capital expenditures on its existing real estate portfolio. Expenditures are projected to be $10.6 million and $5.3 million in 1998 and 1999, respectively. Funding for these expenditures is anticipated to come from sales of properties, operations of existing commercial properties and golf courses, and proceeds of new financings. At March 31, 1998, United Water had cash and cash equivalents of $5.6 million (excluding restricted cash) and unused short-term bank lines of credit of $184.9 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. YEAR 2000 COMPLIANCE - - -------------------- United Water has assembled a task force to ensure all computer systems and applications are prepared for the year 2000. Since 1994, the Company has been in the process of replacing the core business and operating systems with newer technology. As a result, all systems are scheduled to be year 2000 compliant by the end of 1998. All work done in relation to addressing year 2000 compliance has been performed as a by-product of another project. To date, there have been no significant costs associated solely with year 2000 compliance issues. The Company is currently seeking compliance certification from external interface vendors and service providers. An action plan has been developed that will identify any additional costs and resource commitments required. The Company does not believe there will be material future costs associated with year 2000 requirements. 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 1997, the Company's regulated utilities received fifteen rate settlement awards with an aggregate annual revenue increase of $10.7 million. An estimated $5.6 million of this amount was reflected in 1997's revenues while the remaining $5.1 million of carryover impact of the rate awards received in 1997 is expected to increase revenues in 1998. At the end of March 1998, there were six rate cases pending in which the Company has requested an aggregate annual rate increase of $9.3 million. The most significant rate cases pending were filed by United Water Delaware and United Water Idaho. On March 11, 1998, United Water Delaware filed a request to increase revenues by $4.1 million, or 24.8%. The Company is expecting permission to place into effect on an interim basis $2.4 million on May 11, 1998. In November 1997, United Water Idaho applied to the Idaho Public Utilities Commission for rate relief in the amount of $3.4 million, or 15.5%, in water revenues to meet increased investment in utility plant and higher operation and maintenance costs. A decision is expected by the end of the second quarter of 1998. On October 26, 1996, United Water Delaware placed $2.3 million in increased revenues in effect, subject to refund. On July 15, 1997, the Delaware Public Utility Commission granted the Company a permanent rate increase of $1.6 million. On July 16, 1997, the Company filed an appeal and application for a stay of the Commission's Order. On July 29, 1997, the Delaware Superior Court granted a stay of the Commission decision pending the appeal. On March 31, 1998, the Delaware Superior Court handed down a decision finding for the Commission on all issues. The Company has filed a Notice of Appeal with the Supreme Court of Delaware. The Company is fully reserved for all amounts subject to refund and therefore, the final outcome will not have a material effect on earnings. Generally, the rate awards the Company's operating utilities actually receive are less than the amounts requested, primarily due to differing positions of the parties involved and/or updated information provided during the proceedings. The Company expects to file additional rate cases in 1998 but does not expect that those rate awards, if received in 1998, will have a significant impact on revenues in 1998. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 - - --------------------------------------------------------- OVERVIEW United Water's net income applicable to common stock for the first quarter of 1998 decreased to $3.1 million from $4.1 million in the comparable period in 1997. Net income per common share for the first quarter of 1998 was nine cents as compared to 12 cents for the same period last year. Utility investments, which include the Northumbrian Partnership, contributed 17 cents per share in 1998 compared with 14 cents per share for the first quarter of 1997. Results for 1997 included a significant land sale that contributed five cents per share. Results for 1998 and 1997 included six cents for corporate charges relating to interest and preferred and preference dividends. OPERATING REVENUES The $4.6 million increase in revenues from the same period in 1997 was attributable to the following factors: (thousands of dollars) Increase (Decrease) ----------------------------------------------------- Utilities: Rate awards $ 1,411 1.8% Consumption 95 0.1% Growth 660 0.8% Real estate (6,260) (7.8%) Other operations (470) (0.6%) ----------------------------------------------------- $ (4,564) (5.7%) ----------------------------------------------------- The 1.8% increase in revenues from rate awards in the first quarter of 1998 includes the impact of 1997 rate awards for fifteen of the Company's operating utilities. The increase in revenues due to growth is primarily attributable to the acquisition of a utility in Florida in the fourth quarter of 1997, as well as increased customers at several operating utilities. The 7.8% decrease in real estate revenues was due to a significant land sale in the first quarter of 1997. Other operations decreased slightly mainly due to the absence of revenues from the Company's meter installation subsidiary, which was sold in the fourth quarter of 1997, partially offset by higher revenues from the public-private partnership with Jersey City. OPERATING EXPENSES The increase in operating expenses from the same period in 1997 is due to the following: (thousands of dollars) (Decrease) Increase ----------------------------------------------------------- Operation and maintenance $(4,761) (10.8%) Depreciation and amortization 740 8.6% General taxes 381 3.0% ----------------------------------------------------------- The $4.8 million decrease in operation and maintenance expenses was due primarily to the absences of costs associated with a significant land sale in 1997, as well as operating expenses incurred by the Company's meter installation subsidiary, which was sold in December 1997. In addition, the Company's utility subsidiaries experienced lower employee benefits costs. These were partially offset by higher operating expenses resulting from the public-private partnership with Jersey City. RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED) - - --------------------------------------------------------- The $740,000 increase in depreciation and amortization was primarily attributable to utility plant additions by the Company's utility subsidiaries. General taxes increased $381,000 primarily due to higher gross receipts and franchise taxes in utility operations. EQUITY EARNINGS OF AFFILIATES The $523,000 decrease in equity earnings of affiliates is due to a $.7 million decrease in earnings from United Water Services. This decrease was attributable to additional ownership interest in United Water Services (see Note 3) as well as business development costs associated with ongoing efforts to expand contract operations. This was partially offset by a $.2 million increase in earnings from the Northumbrian Partnership. INCOME TAXES The effective income tax rates on income before preferred and preference stock dividends were 18.7% and 24.5% in the first quarter of 1998 and 1997, 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. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Earnings per Share"(EPS), which specifies the computation, presentation and disclosure requirements for earnings per share for entities with publicly held common stock or potential common stock. This statement supersedes Accounting Principles Board Opinion No. 15, "Earnings per Share". This statement defines two earnings per share calculations, basic and diluted. The objective of basic EPS is to measure the performance of an entity over the reporting period by dividing income available to common stock by the weighted average shares outstanding. The objective of diluted EPS is consistent with that of basic EPS, that is to measure the performance of an entity over the reporting period, while giving effect to all dilutive potential common shares that were outstanding during the period. The calculation of diluted EPS is similar to basic EPS except both the numerator and denominator are increased for the conversion of potential common shares. The following table is a reconciliation of the numerator and denominator under each method: RESULTS OF OPERATIONS--THREE MONTHS ENDED MARCH 31, 1998 (CONTINUED) - - -------------------------------------------------------------------- (thousands, except per share data) For the three months ended March 31, 1998 1997 - - ----------------------------------------------------------------------------- BASIC EPS: Net income applicable to common stock $ 3,134 $ 4,102 Average common shares outstanding 36,400 34,741 Net income per common share $ 0.09 $ 0.12 ASSUMING DILUTION: Net income applicable to common stock $ 3,134 $ 4,102 Convertible preference stock 503 568 ------- ------- $ 3,637 $ 4,670 Average common shares outstanding 36,400 34,741 Stock options 177 99 Convertible preference stock 2,190 2,488 ------- ------- 38,767 37,328 Net income per common share $ 0.09 $ 0.13 * * According to SFAS No. 128, diluted EPS shall not have an antidilutive effect on earnings. Therefore, basic EPS figures are presented on the face of the statement of consolidated income. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which requires that business segment financial information be reported in the financial statements utilizing the management approach. The Company believes it is in compliance with this statement. 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 - - ------- ----------------- 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., an affiliate of United Water Services, 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. The case is scheduled for the September 1998 Term of the Court. 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 United Waterworks, in the Supreme Court of the State of New York, Westchester County (the Westchester Court). The suit seeks to recover for alleged property damage arising out of 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 the plaintiff involves monetary damages for the cost of replacing the service lines, which belong to United Water New Rochelle. The plaintiff did not seek injunctive relief. A default judgment on the issue of liability was entered against United Water New Rochelle on December 2, 1994. United Water New Rochelle has diligently prosecuted motions to reopen and appeal from the default judgment, on the principal ground that the default resulted from a failure by United Water New Rochelle'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 judgment have not been successful. Following an inquest on the issue of damages, the Westchester Court issued a decision, dated December 20, 1996, awarding the plaintiff $1,330,000. The Westchester 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. On October 7, 1997, the Westchester Court entered a judgment in favor of the plaintiff in the amount of $862,758, which included interest from December 20, 1996. United Water New Rochelle has filed a Notice of Appeal from the judgment, and is also appealing prior decisions on its motions to vacate the default judgment. United Water New Rochelle believes that it has meritorious arguments on appeal and on the original matter, should it be reopened. Further, United Water New Rochelle is seeking 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. LEGAL PROCEEDINGS (CONTINUED) - - ----------------- United Water Toms River, a wholly-owned subsidiary of United Waterworks, has been approached by counsel for several families in its franchise area to notify them that counsel is considering filing a class action lawsuit naming United Water Toms River as one of at least three defendants alleging personal injuries sustained as a result of contaminated water being delivered to the potential plaintiffs. Counsel has reviewed testing data accumulated by the New Jersey Department of Environmental Protection and United Water Toms River which shows that United Water Toms River has delivered water to its customers in complete conformance with all applicable federal and state water quality standards. Suit has not been filed. An agreement tolling the statute of limitations for at least one year has been signed with the potential plaintiffs. Company counsel and officials continue in a dialogue with counsel for the potential plaintiffs and other potential defendants. United Water is not a party to any other litigation other than routine litigation incidental to the business of United Water. None of such litigation, either individually or in the aggregate, is material to the business of United Water. S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED WATER RESOURCES INC. ------------------------------ (Registrant) Date: May 11, 1998 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 Statement of Consolidated Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 PER-BOOK 1,153,166 183,416 103,027 163,590 62,585 1,665,784 371,056 0 39,166 410,222 86,618 9,000 624,813 0 72,542 0 5,966 2,072 0 0 454,551 1,665,784 75,442 1,096 61,722 62,818 12,624 2,921 15,545 11,341 4,204 1,070 3,134 8,367 0 14,011 .09 .09
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