UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSIONCOMMISION
                       ---------------------------------
                            Washington, D.C. 20549

                                   FORM 10-Q


[X][ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended          September 30, 1999
                                 -----------------------------------------------March 31, 2000
                                 ---------------------

                                       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.
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             (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
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               (Address of principal executive office) (zip code)


                                  201-784-9434
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              (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, 1999    38,865,445April 30, 2000      39,256,322
                                                             ----------


                         PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements
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                 UNITED WATER RESOURCES INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEET
                            (thousands of dollars)
September 30,March 31, December 31, 1999 1998 -------------- ------------ (unaudited) 2000 1999 ---------- ---------- (unaudited) Assets - ------ Utility plant, including $38,814$23,461 and $47,348$24,533 under construction $1,595,336 $1,540,564$1,597,866 $1,620,716 Less accumulated depreciation 351,010 328,224360,549 358,528 ---------- ---------- 1,244,326 1,212,3401,237,317 1,262,188 ---------- ---------- Utility plant acquisition adjustments, net 61,133 61,32055,172 60,714 ---------- ---------- Real estate and other investments, less accumulated depreciation of $9,543$10,155 and $13,628 93,815 81,630$9,721 80,838 79,836 Equity investments 129,235 116,598137,084 134,755 ---------- ---------- 223,050 198,228217,922 214,591 Current assets: Cash and cash equivalents 4,173 8,0118,179 768 Restricted cash 32,764 48,49516,693 24,803 Accounts receivable and unbilled revenues, net 71,108 59,69358,183 62,221 Prepaid and other current assets 18,626 12,23519,026 16,972 ---------- ---------- 126,671 128,434102,081 104,764 ---------- ---------- Deferred charges and other assets: Regulatory assets 66,710 76,54858,507 65,424 Prepaid employee benefits 36,585 29,23736,446 33,913 Unamortized debt expense 34,215 34,74533,248 33,652 Other deferred charges and assets 25,982 28,27028,624 27,819 ---------- ---------- 163,492 168,800156,825 160,808 ---------- ---------- $1,818,672 $1,769,122$1,769,317 $1,803,065 ========== ========== Capitalization and Liabilities - ------------------------------ Capitalization: Common stock and retained earnings $ 475,931456,333 $ 456,029468,790 Preferred stock without mandatory redemption 9,000 9,000 Preferred stock with mandatory redemption 21,943 49,7486,934 6,935 Preference stock, convertible, with mandatory redemption 26,128 30,53426,210 26,169 Long-term debt 663,791 652,969639,993 639,017 ---------- ---------- 1,196,793 1,198,2801,138,470 1,149,911 ---------- ---------- Current liabilities: Notes payable 105,700 93,400129,157 134,000 Preferred stock and long-term debt due within one year 21,894 5,7955,671 21,119 Accounts payable and other current liabilities 42,178 36,52530,845 37,259 Accrued taxes 23,273 24,25729,956 24,466 Accrued interest and dividends 9,114 8,02320,058 9,079 ---------- ---------- 202,159 168,000215,687 225,923 ---------- ---------- Deferred credits and other liabilities: Deferred income taxes and investment tax credits 198,293 195,368191,741 197,072 Customer advances for construction 33,913 30,64833,194 36,206 Contributions in aid of construction 151,633 143,327150,473 154,413 Other deferred credits and liabilities 35,881 33,49939,752 39,540 ---------- ---------- 419,720 402,842415,160 427,231 ---------- ---------- $1,818,672 $1,769,122$1,769,317 $1,803,065 ========== ==========
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 For the nine months ---------------------- ---------------------- ended September 30, ended September 30, ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Operating revenues $107,374 $108,748 $278,431 $270,409 -------- -------- -------- -------- Operating expenses: Operation and maintenance 56,683 44,654 141,717 125,093 Depreciation and amortization 11,534 9,823 33,180 28,792 General Taxes 14,719 14,789 42,038 41,051 -------- -------- -------- -------- Total operating expenses 82,936 69,266 216,935 194,936 -------- -------- -------- -------- Operating income 24,438 39,482 61,496 75,473 -------- -------- -------- -------- Interest and other expenses: Interest expense, net of amount capitalized 12,415 11,262 36,234 34,147 Allowance for funds used during construction (758) (947) (2,358) (2,478) Preferred stock dividends of subsidiaries 540 552 1,635 1,673 Gain on sale of Harrison Plaza -- -- (5,846) -- Equity earnings of affiliates (3,272) (2,071) (9,149) (9,049) Other income, net (1,212) (569) (2,316) (1,401) -------- -------- -------- -------- Total interest and other expenses 7,713 8,227 18,200 22,892 -------- -------- -------- -------- Income before income taxes 16,725 31,255 43,296 52,581 Provision for income taxes 4,915 10,765 13,223 15,817 -------- -------- -------- -------- Net income 11,810 20,490 30,073 36,764 Preferred and preference stock dividends 378 990 2,319 3,088 -------- -------- -------- -------- Net income applicable to common stock $ 11,432 $ 19,500 $ 27,754 $ 33,676 ======== ======== ======== ======== Net income per common share $ 0.29 $ 0.52 $ 0.72 $ 0.91 ======== ======== ======== ======== Average common shares outstanding 38,808 37,268 38,420 36,848 Net income per common share-assuming dilution $ 0.29 $ 0.51 $ 0.72 $ 0.90 ======== ======== ======== ======== Average common shares outstanding 40,845 39,327 40,422 39,023 Dividends per common share $ 0.24 $ 0.23 $ 0.72 $ 0.69 ======== ======== ======== ========
For the three months ended March 31, ------------------------------------ 2000 1999 ---- ---- Operating revenues $77,204 $79,227 ------- ------- Operating expenses: Operation and maintenance 42,858 42,276 Depreciation and amortization 13,239 11,187 General Taxes 13,130 13,367 ------- ------- Total operating expenses 69,227 66,830 ------- ------- Operating income 7,977 12,397 ------- ------- Interest and other expenses: Interest expense, net of amount capitalized 11,837 11,863 Allowance for funds used during construction (319) (942) Preferred stock dividends of subsidiaries 282 549 Gain on sale of Harrison Plaza -- (5,846) Gain on sale of utilities (8,787) -- Equity earnings of affiliates (2,460) (2,525) Other income, net (1,054) (180) -------- -------- Total interest and other expenses (501) 2,919 -------- -------- Income before income taxes 8,478 9,478 Provision for income taxes 2,288 3,119 ------- ------- Net income 6,190 6,359 Preferred and preference stock dividends 379 1,562 ------- ------- Net income applicable to common stock $ 5,811 $ 4,797 ======= ======= Net income per common share $0.15 $0.13 ======= ======= Average common shares outstanding 38,995 37,980 Net income per common share-assuming dilution $0.15 $0.13 ======= ======= Average common shares outstanding 41,063 40,081 Dividends per common share $0.30 $0.24 ======= ======= 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, --------------------------------------- 1999 1998 ---- ---- Operating activities: Net income $ 30,073 $ 36,764 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 34,316 29,799 Equity earnings of affiliates (9,149) (9,049) Gain on sale of South Gate (596) -- Proceeds from sales of properties 225 3,057 Loss/(gain) on sale of properties 42 (1,535) Gain on sale of Harrison Plaza (5,846) -- Improvements to property under development (1,390) (1,207) Deferred income taxes and investment tax credits, net 2,976 9,498 Allowance for funds used during construction (AFUDC) (2,358) (2,478) Changes in assets and liabilities: Accounts receivable and unbilled revenues (11,366) (12,273) Prepaid and other current assets (6,401) (4,259) Prepaid employee benefits (7,287) (5,064) Regulatory assets 6,490 (911) Accounts payable and other current liabilities 5,474 8,366 Accrued taxes (1,281) 2,104 Accrued interest & dividends 1,091 139 Other, net 3,224 6,441 -------- -------- Net cash provided by operating activities 38,237 59,392 -------- -------- Investing activities: Additions to utility plant (excludes AFUDC) (55,610) (62,438) Additions to real estate and other properties (43,329) (3,742) Additions to equity investments (3,600) (2,245) Acquisition of South County Water Company (2,589) -- Proceeds from sale of South Gate 1,888 -- Proceeds from sale of Harrison Plaza 39,502 -- Change in restricted cash 15,731 10,651 -------- -------- Net cash used in investing activities (48,007) (57,774) -------- -------- Financing activities: Change in notes payable 12,300 9,700 Additional long-term debt 30,000 40,233 Reduction in preferred stock and long-term debt (30,884) (48,089) Issuance of common stock 15,301 16,076 Dividends on common stock (27,675) (25,422) Dividends on preferred and preference stock (2,319) (3,088) Net contributions and advances for construction 9,209 7,374 -------- -------- Net cash provided by/(used in) financing activities 5,932 (3,216) -------- -------- Net decrease in cash and cash equivalents (3,838) (1,598) Cash and cash equivalents at beginning of period 8,011 8,546 -------- -------- Cash and cash equivalents at end of period $ 4,173 $ 6,948For the three months ended March 31, ------------------------------------ 2000 1999 ---- ---- Operating activities: Net income $ 6,190 $ 6,359 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,611 11,564 Equity earnings of affiliates (2,460) (2,525) Gain on sales of operating assets (8,787) (5,846) Improvements to property under development (766) (870) Deferred income taxes and investment tax credits, net 2,663 1,811 Allowance for funds used during construction (AFUDC) (319) (942) Changes in assets and liabilities: Accounts receivable and unbilled revenues 3,044 1,756 Prepaid and other current assets (2,267) (2,981) Prepaid employee benefits (2,605) (2,386) Regulatory assets 183 2,667 Accounts payable and other current liabilities (5,307) (6,504) Accrued taxes 5,907 1,742 Accrued interest & dividends 113 1,043 Other, net (206) 3,171 -------- -------- Net cash provided by operating activities 8,994 8,059 -------- -------- Investing activities: Additions to utility plant (excludes AFUDC) (13,696) (14,395) Additions to real estate and other properties (668) (871) Acquisition of South County Water Company - (2,589) Proceeds from sales of operating assets 29,450 39,502 Change in restricted cash 8,110 9,970 -------- -------- Net cash provided by investing activities 23,196 31,617 -------- -------- Financing activities: Change in notes payable (4,843) 3,100 Additional long-term debt - 30,000 Reduction in preferred stock and long-term debt (15,536) (44,534) Issuance of common stock 4,335 7,320 Dividends on common stock (10,686) (9,112) Dividends on preferred and preference stock (379) (1,562) Net contributions and advances for construction 2,330 1,433 -------- -------- Net cash used in financing activities (24,779) (13,355) -------- -------- Net increase in cash and cash equivalents 7,411 26,321 Cash and cash equivalents at beginning of period 768 8,011 -------- -------- Cash and cash equivalents at end of period $ 8,179 $ 34,332 ======== ========
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, ---------------------------------------For the three months ended March 31, ------------------------------------ 2000 1999 1998 ---- ---- Supplemental disclosures of cash flow information: Interest (net of amount capitalized) $33,826 $33,001 Income taxes paid 3,972 4,676
Supplemental disclosures of non-cash transactions: Additional common stock was issued upon the conversioncash flow information: Interest (net of 340,294 and 330,280 shares of preference stock valued at $4.7 million and $4.6 million during 1999 and 1998, respectively.amount capitalized) $11,352 $10,444 Income taxes (refunded)/paid (1,976) 570 UNITED WATER RESOURCES INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1999March 31, 2000 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. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Additional footnote disclosure concerning accounting policies and other matters are disclosed in the Company's audited consolidated financial statements included in its 19981999 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. 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 1310 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 and sales, golf course operations and consulting services. It owns a portfolio of real estate located in New Jersey, New York, Idaho, Delaware, Florida and Maryland. United Properties also provides consulting and advisory services in support of the real estate assets of the other United Water companies. Strategic Initiatives - --------------------- During the third quarter of 1999, United Water announced strategic initiatives designed to strengthen the long-term performance of the Company. . On July 13, United Water announced that it was offering a voluntary early retirement program to employees who qualified based on age and length of service. The program ended September 14, and resulted in a one-time charge to net income of approximately $4.5 million. . OnIn August 23,1999, the Company announced an agreement for Suez Lyonnaise des Eaux to acquire the remaining shares of United Water it doesdid not already own for cash of $35 per share. As a result,The acquisition agreement was approved by United Water's stock price increased. This resulted in an after-tax charge of $1.9 million for existing stock options under the management incentive plan. The acquisition is pending shareholdershareholders on January 20, 2000, and remains subject to regulatory approvals. SaleThe Company expects that this transaction will close during the second quarter of Several Small Utilities - ------------------------------- In2000. . On July 13, 1999, the Company announced that it entered into a definitive agreement to sell several small utility subsidiaries to American Water Works Company for approximately $49 million in cash.cash, which would result in an after- tax gain of approximately $6 million. These utilities collectively contribute annual revenues of approximately $13.8 million, provide water service to about 35,000 customers and represent less than 4% of the Company's regulated assets and under 2% of the population it serves. The decision to sell these subsidiaries was made in an effort to focus United Water's core utility business in service areas experiencing significant growth and development. Completion of the transaction is contingent upon regulatory approvals and is anticipated that closings will occur during 1999 as various approvals are received. On August 26, 1999,approvals. In the first quarter of 2000, the Company announced that it soldconcluded the water system assetssales of United Water South Gate to Utilities, Inc.Indiana and United Water Virginia for $1.9$30.4 million. The saleThese transactions resulted in a pre-taxan after-tax gain of $596,000 and is included in other income in$4.1 million. In April 2000, the accompanying statementCompany completed the sale of consolidated income.United Water Missouri for $9.2 million. Gain on sale of Harrison Plaza - ------------------------------ In March 1999, United Properties sold two office buildings (Harrison Plaza) with a property basis, which contributed annual revenues of $30.7approximately $4.6 million, for $42.1 million. This transaction resulted in a pre-taxan after-tax gain of $5.8$3.3 million and net cash proceeds of $39.5 million. Cash proceeds of $15.6 million were used to pay off long-term debt related to the office buildings. In June 1999, United Properties purchased three office/retail buildings for $40.6 million. Cash proceeds from the sale of Harrison Plaza of $23.9 million, as well as $16.8 million of short-term debt werewas used to finance this purchase. In December 1999, United Properties contributed these buildings to a partnership and in return received preferred units in this partnership, as well as the partnership's assumption of $16.7 million in short-term debt. This investment will generate dividend income, which is accounted for as other income in the statement of consolidated income. Redemption of Preferred Stock - ----------------------------- On December 8, 1998,January 7, 2000, the Company called for redemption of the remaining 285,000all 150,000 shares of its 7 5/3/8% Series B cumulative preferred stock. The redemption which occurred on January 8, 1999, resulted in the payment of principal, accrued dividends and premium totaling $30$15.5 million, with $1.3$.5 million relating to the premium paid on the early redemption. The preferred stock was redeemed with $30 million of 6.07%-7.04% Senior Notes due 2005-2019.short-term financing. 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 $262$264 million over the next five years, including $57$54 million and $58$53 million in 19992000 and 2000,2001, respectively. This total includes $165$153 million for United Waterworks and $92$106 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%11% of the projected capital expenditures over the 1999-20032000-2004 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 and external financings. In addition, United Water's regulated utilities 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 September 30, 1999, $32.8March 31, 2000, $16.7 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 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. An additional $15 million of notes were issued in 1997. 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). In November 1998, United Waterworks issued the final $10 million of notes under this program ($5 million at 6.44% due 2008 and $5 million at 6.97% due 2023). The proceeds were used to redeem outstanding notes payable. In December 1998, United Water New Jersey issued $35 million of 5% Water Facilities Revenue Bonds through the New Jersey Economic Development Authority due 2028. The proceeds are being used to finance the cost of acquiring, constructing and reconstructing certain water transmission, transportation, storage, treatment, and distribution facilities located in Passaic, Bergen, Sussex, and Hudson counties in New Jersey. In January 1999, United Water issued $30 million of Senior Notes ($5 million at 6.07% due 2005, $10 million at 6.43% due 2009, $10 million at 6.7% due 2019, and $5 million at 7.04% due 2019). The proceeds were used to redeem all remaining shares of 7 5/8% Series B cumulative preferred stock. LiquidityIn October 1999, United Water redeemed $25 million of 9.38% Senior Notes due 2019. This early redemption resulted in an extraordinary after-tax loss of $1.1 million, representing the premium paid and Capital Resources (continued) - --------------------------------the write-off of unamortized debt costs. United Properties currently expects to spend $25.9$27.9 million over the next five years for capital expenditures on its existing real estate portfolio. Expenditures are projected to be $8.3$12.3 million and $6.9$3.4 million in 19992000 and 2000,2001, 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 September 30, 1999,March 31, 2000, United Water had cash and cash equivalents of $4.2$8.2 million (excluding restricted cash) and unused short-term bank lines of credit of $199.1$190.9 million. Management expects that unused credit lines currently available and cash flows from operations will be sufficient to meet anticipated future operational needs. Year 2000 Readiness StatusCompliance - ---------------------------------------------- Overview - -------- United Water is implementingsuccessfully implemented a Year 2000 (Y2K) program designed to mitigate, to the fullest extent possible, the impact of the century date change on the Company's computer systems and automated processes, including those that affect the delivery of water and wastewater services. The Company initiated this program in 1994 with the Information Technology Strategic Plan (the ITSP), which addressed all areas of technology and automation within United Water. A key component of that plan was the identification of the Y2K problemissue and the need to address the effect of the Y2K issues affectingissue on all aspects of the Company's operations. With respect toThe Company addressed "Y2K readiness" as a critical component of each project or initiative undertaken at United Water since 1994 that hashad Y2K ramifications, the Company has addressed "Y2K readiness" as a critical component of that project.ramifications. United Water definesdefined Y2K readiness as the ability of the Company to advance into the next century2000 with minimal effect on the Company's critical computer systems and automated processes that control the delivery of water and wastewater services, and affect the Company's operations, liquidity or financial condition. As a result of these readiness activities, United Water encountered no significant problems with the transition to the year 2000. The Y2K program addressesaddressed internal systems and processes consisting of application software, hardware, databases, networks, personal computers, data processing equipment and operating systems (collectively, information technology or IT systems) and embedded technology or microprocessors in non-computer equipment (collectively, non-IT systems). The Y2K program also addressesaddressed the assessment and monitoring of the Y2K compliance status of third parties upon which the Company relies. This program encompasses the following five phases: 1) survey and inventory, 2) assessment of risk, including the identification and survey of critical vendors and service providers, 3) remediation of non- compliant systems, including the replacement of aging legacy applications, 4) testing and validation of the remediation efforts, and 5) contingency planning and related testing. In addition, management believes that United Water has complied with the various Y2K requirements of the regulatory agencies that closely supervise its activities. Such compliance includesincluded responding to surveys and questionnaires, filing status reports, participating in task forces and sub-committees for the purpose of meeting Y2K readiness targets, and contingency planning efforts. The Company's State of Readiness - -------------------------------- ConsistentUnited Water successfully transitioned through the first quarter of year 2000 with no problems encountered by the five phasesCompany's critical computer systems and automated processes. This was a direct result of the Y2K program, the primary element inattention and effort devoted to readiness activities since 1994. United Water's Y2K readiness strategy has been to replace aging IT and non-IT systems, where necessary. This strategy evolved from ITSP which, independent of the Y2K program, identified the need to replaceaging technical infrastructure, including IT and non-IT systems, in order to positionenabled United Water and its operating affiliates forto make a smooth transition into the 21st century. In addition to replacement activities, the Company has also undertaken remediation efforts to upgrade, repair and improve existing IT and non-IT systems where appropriate. These efforts are intended to result in the replacement and upgrading of IT and non-IT systems critical to the operation of the Company, including the provision of water and wastewater services, financial applications, customer information systems and operational systems, such as the Supervisory Control and Data Acquisition System (SCADA), which monitors and controls industrial processes. Year 2000 Readiness Status (continued) - --------------------------- In addition, United Water is currently refining contingency plans and related tests to further mitigate the risk of service interruptions at each of its locations. These contingency plans have been developed, and the initial testing of each plan has been completed. The major focus of the contingency plans is to address the possibility of automation failure of critical vendors and service providers so that the Company can sustain its operational systems in the event of any such failure. As of September 30, 1999, the status of the Company's progress toward completion of the five phases of the Y2K program was as follows: 1) survey and inventory: IT 100%, non-IT 100%; 2) assessment of risk: IT 100%, non-IT 100%; 3) remediation: IT 98%, non-IT 94%; 4) testing: IT 95%, non-IT 94%; and 5) contingency planning: IT 100%, non-IT 100%. In addition to its own Y2K program, the Company has beenwas involved with Y2K compliance efforts undertaken by one of its equity investments, United Water Services (UWS). UWS, which is engaged in providing contract operations to U.S. cities, is implementingsuccessfully implemented a Y2K program followingutilizing the guidelines established by the Company. This program has beenwas applied to all UWS's project sites and has resulted in the production of inventories, risk assessments, testing methodologies and contingency plans for Y2K compliance. All systems are expected to be finalized and tested by the end of November 1999. Where UWS has assumed responsibility for part or all of the Y2K compliance efforts of its operating affiliates in the various cities, it is actively coordinatingcoordinated Y2K corrective measures with the cities and Year 2000 Compliance (continued) - -------------------- their Y2K consultants or representatives, where applicable, to mitigate business interruption exposures associated with the Y2K problem. United Water is maintainingmaintained close contact with UWS and other entities in which it has equity interests to ascertain that appropriate and prudent action is beingwas taken in order to achieve Y2K compliance. Relationships with Third Parties - ----------------------------------------------------------------- United Water has identified the followingmaintained close third party relationships to be addressed as part of the Y2K program:during this effort with regulatory agencies, critical vendors and service providers. United Water is inThis included continuous communicationcommunications with the appropriate regulatory agencies regarding the Y2K issue. All requests for information and status reports, as well as other specific regulatory requirements are handled on a priority basis. Management believes that the Company is in compliance with all regulatory matters relating to Y2K. The Company has contacted its critical vendors and service providers to determine the degree of their Y2K readiness. The responses received to date indicate that those vendors and service providers either are or will be Y2K compliant. The status of those vendors and service providers who have either not responded or are not yet compliant is being tracked closely. The electric power and telecommunications industries have been identified as the most critical service providers for the water industry. In the localities in which United Water operates, it is closely monitoring the progress of the local electric power and telecommunications companies and will continue to scrutinize the progress of these providers. The Company is actively monitoring the Y2K compliance status of its critical vendors Year 2000 Readiness Status (continued) - -------------------------- and service providers and has received approximately 75% of responses. The Company intends to continue monitoring these critical vendors and service providers through its transition into the 21st century.agencies. Costs - ----- United Water's Y2K readiness evolved from the strategic initiatives of the ITSP, which was budgeted as part of the Company's ongoing capital expenditures since 1994. As a result, United Water has been able to keep to a minimumminimize Y2K-related compliance expenses related to Y2K compliance outside of the ITSP budget. The Company's principal technology costs to date have been associated with the planned replacement of IT and non-IT systems, which has not been accelerated due to the Y2K issue. United Water estimates its costs to date related to Y2K compliance efforts that fallfell outside the ITSP budget arewere approximately $.9 million. Additional non-ITSP budgeted costs expected to be incurred over the remainder of the program are estimated to be $.1$1 million. These costs includeincluded SCADA upgrade as required internal employee time, as well as other miscellaneous costs. Risks - ----- The most reasonably likely worst case scenarios due to Y2K non-compliance issues would be fluctuations in water pressure, aesthetic water quality and other temporary service interruptions. This would be attributable to third party failures including electric power and telecommunications outages. In addition, a Y2K failure from any of the Company's large equity investments including its investment in the Northumbrian Partnership, could have a detrimental effect on the Company's results of operations. Contingency Plans - ----------------- The major focus inIn preparation for the Year 2000 and as a prudent measure of contingency planning, United Water reviewed and refined all emergency operating plans for each operating location. In addition, each location developed a full emergency notification plan in the remainderevent of an emergency. The Company also developed a full "business continuity management plan and procedures" designed to coordinate disaster and emergency management throughout the year is to continue to test and revise as necessarycorporation. These plans were tested on December 31, 1999. The focus of the contingency plans was to address the possibility of automation failure so that the Company can sustain its operational systems in place at each operating company.the event of any such failure. Risks - ----- United Water continues to progress through the year 2000 with minimal date related issues. In addition, United Water is assembling a Business Continuity Management Team at the corporate level responsible for directing and implementing corporate-wide Y2K disaster recovery plans. This group is also responsible for declaring a corporate-wide disaster and providing direction to all United Water business units during any recovery process that may be necessary. This team will be called into action under the authority of the executive staff which has the responsibility for approving actions regarding Business Continuity Planning at United Water. The focusadded benefit of well tested contingency planning at United Water continues tomanagement plans, which can be on providing uninterrupted service to our customers. The estimates and conclusions included in this Y2K update are based on management's best estimates of future events. The risks involved in completing Y2K compliance include the availability of resources, unanticipated problems identified in the ongoing compliance review and the ability of outside vendors and service providers to be Y2K compliant.executed as needed. 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 1998,1999, the Company's regulated utilities received fourteen rate settlement awardsdecisions with an aggregate annual revenue increase of $8.7$4.4 million. An estimated $4.7$2.6 million of this amount was reflected in 1998's1999's revenues while the remaining $4$1.8 million of carryover impact of the rate awards received in 19981999 is expected to increase revenues in 1999.2000. At the end of September 1999,March 2000, there were three rate cases pending in which the Company has requested an aggregate annual rate increase of $3.8$6.8 million. The most significant rate casecases pending waswere filed by United Water New Rochelle.Rochelle and United Water Idaho. In July 1999, United Water New Rochelle applied for a multi-year rate increase. The filing requested an increase in revenues of $3.3 million, or 17.2% for the 12 months ending May 31, 2001, an additional increase of $3.7 million, or 16.4% for the 12 months ending May 31, 2002 and a final increase of $4.1 million, or 15.6% for the 12 months ending May 31, 2003. These increases were requested primarily to fund capital investments. On March 11, 1998,February 2, 2000 United Water DelawareIdaho filed a request toan application with the Idaho Public Utilities Commission requesting an increase revenues by $4.1in its rates and charges in the amount of $3.1 million, or 24.8%11.6%. On May 11, 1998, interim rates of $2.4 million were placed in effect, subject to refund. A final decision was received in June 1999 for $2 million. The difference of $.4 million has been refunded to customers. The Company is fully reserved for these refunds. On October 26, 1996, United Water Delaware placed $2.3 million inseeking to recover 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 appealcosts associated with plant additions 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 decided in favor of the Commission. The Company appealed this decision to the Supreme Court of Delaware and on February 11, 1999, the Supreme Court reversed the Commission's decision which denied the $.7 million annual revenue increase, subject to refund and remanded the matter to the Commission. In June 1999, the Commission approved a stipulation permitting the Company to retain all revenues collected without refund and permitting the rates currently in effect to become permanent.various operating expenses. 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 19992000 but does not expect that those rate awards, if received in 1999,2000, will have a significant impact on revenues in 1999.2000. Results of Operations - Three Months Ended September 30, 1999March 31, 2000 - ---------------------------------------------------------------------------------------------------------------------- Overview United Water's net income applicable to common stock for the thirdfirst quarter of 1999 decreased2000 increased to $11.4$5.8 million from $19.5$4.8 million in the comparable period in 1998.1999. Net income per common share for the thirdfirst quarter of 2000 and 1999 and 1998 was 2915 cents and 5213 cents, respectively. Results for 2000 included the sale of two utilities, which resulted in an after-tax gain of $4.1 million. Earnings for 1999 were impacted byincluded an after-tax contribution of $3.3 million resulting from the strategic initiatives announced duringsale of the period, which resulted in a total after-tax charge of $6.4 million, or 17 cents.Harrison Plaza building. Operating Revenues The $1.4$2 million decrease in revenues from the same period in 19981999 was attributable to the following factors:
(thousands of dollars) Increase (Decrease) ---------------------------------------------- Utilities: Rate awards $ 1,197 1.1% Consumption (1,559) (1.4%) Growth 726 0.7% Real estate (1,356) (1.3%) Other operations (382) (0.4%) ---------------------------------------------- ($ 1,374) (1.3%) ----------------------------------------------
(thousands of dollars) (Decrease) Increase ------------------------------------------------------ Utilities: Divested operations ($ 1,207) (1.5%) Rate awards (1,161) (1.5%) Consumption (537) (0.7%) Growth 867 1.1% Real estate (1,097) (1.4%) Other operations 1,112 1.4% ------------------------------------------------------ ($ 2,023) (2.6%) ------------------------------------------------------ The 1.1% increase$1.2 million decrease in revenues from divested operations represents the difference between a partial quarter of operations from the utilities which were sold in the first quarter of 2000 compared with a full 3 months of operations in 1999. The 1.5% decrease in revenues from rate awards in the thirdfirst quarter of 19992000 includes the impact of 1998 and current year increasesa $1.7 million reversal of a reserve for revenues in effect, subject to refund, for which a positive resolution was reached in the first quarter of 1999. This was partially offset by 1999 rate awards for several of the Company's operating utilities. Lower consumption due to mandatory water restrictions from a droughtunfavorable weather conditions resulted in northeast service areas contributed to a decrease in revenues of $1.6$.5 million in 1999.2000. The increase in revenues due to growth is primarily attributable to the acquisition of South County Water Company in Idaho in the first quarter of 1999, as well as increased customers at the Florida operating utility. The 1.3%1.4% decrease in real estate revenues was due to no property salesthe absence of revenues from the Harrison Plaza building which was sold in 1999 compared with nine property sales for the same period in 1998.March 1999. Other operations decreased 0.4%increased $1.1 million mainly due to the timing of recording incentiverevenues from a new public-private partnership in Rahway, New Jersey, which commenced in November 1999, as well as higher revenues from the public-private partnership with Jersey City. Operating Expenses The increase in operating expenses from the same period in 19981999 is due to the following:
Net Impact Excluding Divested Divested (thousands of dollars) Increase (Decrease) -----------------------------------------------------------Operations Operations ----------------------------------------------------------------------------------------------- Operation and maintenance $12,029 26.9%$ 582 1.4% (514) $1,096 2.6% Depreciation and amortization 1,711 17.4%2,052 18.3% (152) 2,204 20.1% General taxes (70) (0.5%(237) (1.8%) -----------------------------------------------------------(79) (158) (1.2%) -----------------------------------------------------------------------------------------------
The $12 million increase in operation and maintenance expenses was due primarily to a $9.9 million charge resulting from the strategic initiatives recorded during the third quarter of 1999. In addition, expenses increased due to higher transmission and distribution expenses as well as outside service costs. These were partially offset by lower land sale costs as a result of fewer property sales in 1999. Results of Operations - Three Months Ended September 30, 1999March 31, 2000 (continued) - ------------------------------------------------------------------------------------------------------------------------------------ The $1.7$1.1 million increase in operation and maintenance expenses, excluding the impact of the divested operations, was due primarily to expenses associated with the new public-private partnership in Rahway, New Jersey, as well as higher employee benefit costs. The $2.2 million increase in depreciation and amortization, excluding the impact of the divested operations, was primarily attributable to an increasethe $2.1 million write off of goodwill associated with sale of the utilities in depreciation rates as a result of regulatory changes as well as the placement in service of a new customer information system at the end of 1998.Indiana and Virginia. Equity Earnings of Affiliates The $1.2 million increaseslight decrease in equity earnings of affiliates is due to $.4a $.3 million increasesdecrease in earnings from United Water Services, partially offset by a $.2 million increase in earnings from the Northumbrian Partnership, as well as from the Company's other equity investment, Dundee Water Power and Land, which resulted from a one-time condemnation settlement recorded in the third quarter of 1998.Partnership. Other Income The Company also experienced a $.4$.9 million increase in earnings fromother income is mainly due to dividend income generated by United Water Services.Properties' investment in a partnership in which it contributed a building in December 1999. Income Taxes The effective income tax rates on income before preferred and preference stock dividends were 28.5%26.1% and 33.8%31.1% in the thirdfirst quarter of 19992000 and 1998,1999, respectively. The decrease in the effective rate is primarily attributable to the tax treatment of the sales of United Water Indiana and United Water Virginia, as well as earnings from the Northumbrian Partnership. The Company considers the undistributed earnings from the Northumbrian Partnership to be permanently reinvested and has not provided deferred taxes on these earnings. Earnings per Share 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 defines two earnings per share calculations, basic and diluted. The following table is a reconciliation of the numerator and denominator under each method:
Results of Operations - Three Months Ended March 31, 2000 (continued) - --------------------------------------------------------- (thousands, except per share data)
For the three months ended September 30,March 31, 2000 1999 1998 ---------------------------------------------------------- Basic EPS: Basic EPS: Net income applicable to common stock $11,432 $19,500$ 5,811 $ 4,797 Average common shares outstanding 38,808 37,26838,995 37,980 Net income per common share $ .29.15 $ .52.13 Assuming dilution: Net income applicable to common stock $11,432 $19,500$ 5,811 $ 4,797 Convertible preference stock 378 423379 441 ------- ------- $11,810 $19,923$ 6,190 $ 5,238 Average common shares outstanding 38,808 37,26838,995 37,980 Stock options 406 143438 190 Convertible preference stock 1,631 1,9161,630 1,911 ------- ------- 40,845 39,32741,063 40,081 Net income per common share $ .29.15 $ .51 ---------------------------------------------------------
Results of Operations - Nine Months Ended September 30, 1999 - ------------------------------------------------------------ Overview United Water's net income applicable to common stock for the nine months ended September 30, 1999 decreased to $27.8 million from $33.7 million in the comparable period in 1998. Net income per common share was 72 cents as compared to 91 cents for the same period last year. Results for 1999 included an after- tax charge of 17 cents per common share from the strategic initiatives partially offset by the Harrison Plaza sale that contributed nine cents per common share. Earnings for 1998 included an eight cent per share contribution from the effect on deferred taxes of a decrease in the UK corporate tax rate. Results for 1999 and 1998 included 18 cents and 19 cents, respectively for corporate charges relating to interest and preferred and preference dividends. Operating Revenues The $8 million increase in revenues from the same period in 1998 was attributable to the following factors:
(thousands of dollars) Increase (Decrease) ------------------------------------------- Utilities: Rate awards $ 6,000 2.2% Consumption 4,470 1.7% Growth 1,875 0.7% Real estate (3,475) (1.3%) Other operations (848) (0.3%) ------------------------------------------- $ 8,022 3.0% -------------------------------------------
The 2.2% increase in revenues from rate awards includes the impact of 1998 and current year increases for several of the Company's operating utilities. Higher consumption due to favorable weather conditions in the majority of service areas resulted in an increase in revenues of $4.5 million in 1999, despite the impact of mandatory water restrictions. The increase in revenues due to growth is primarily attributable to the acquisition of South County Water Company in Idaho in the first quarter of 1999, as well as increased customers at the Florida operating utility. The 1.3% decrease in real estate revenues was due to one property sale in 1999 compared with twenty three property sales for the same period in 1998, as well as lower rental revenue. Other operations decreased 0.3% mainly due to the timing of recording incentive revenues from the public-private partnership with Jersey City. Operating Expenses The increase in operating expenses from the same period in 1998 is due to the following:
(thousands of dollars) Increase ------------------------------------------------- Operation and maintenance $16,624 13.3% Depreciation and amortization 4,388 15.2% General taxes 987 2.4% -------------------------------------------------
Results of Operations - Nine Months Ended September 30, 1999 (continued) - ------------------------------------------------------------ The $16.6 million increase in operation and maintenance expenses was due primarily to a $9.9 million charge resulting from the strategic initiatives recorded during the third quarter of 1999. In addition, expenses increased due to higher power and outside service costs, as well as increased maintenance costs resulting from a greater number of main breaks in the Northeast service area. The Company also experienced higher operating expenses from the public- private partnership with Jersey City. These were partially offset by lower land sale costs as a result of fewer property sales in 1999. The $4.4 million increase in depreciation and amortization was primarily attributable to an increase in depreciation rates as a result of regulatory changes as well as the placement in service of a new customer information system at the end of 1998. General taxes increased $1 million primarily due to higher real estate, gross receipts and franchise taxes in utility operations. Equity Earnings of Affiliates The slight increase in equity earnings of affiliates is due to a $1.2 million decrease in earnings from the Northumbrian Partnership, resulting primarily from the effect on deferred taxes of a decrease in the UK corporate tax rate, during the second quarter of 1998. This was partially offset by a $1 million increase in earnings from United Water Services, as well as an increase in earnings from the Company's other equity investment, Dundee Water Power and Land, which resulted from a one-time condemnation settlement recorded in the third quarter of 1998. Income Taxes The effective income tax rates on income before preferred and preference stock dividends were 29.4% and 29.2% in the first nine months of 1999 and 1998, respectively. The slight increase in the effective rate is primarily attributable to the tax treatment of the Harrison Plaza sale as well as earnings from the Northumbrian Partnership. The Company considers the undistributed earnings from the Northumbrian Partnership to be permanently reinvested and has not provided deferred taxes on these earnings. Earnings per Share In February 1997, the 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 defines two earnings per share calculations, basic and diluted. The following table is a reconciliation of the numerator and denominator under each method: Results of Operations - Nine Months Ended September 30, 1999 (continued) - ------------------------------------------------------------
(thousands, except per share data) For the nine months ended September 30, 1999 1998 ---------------------------------------------------------- Basic EPS: Net income applicable to common stock $27,754 $33,676 Average common shares outstanding 38,420 36,848 Net income per common share $ .72 $ .91 Assuming dilution: Net income applicable to common stock $27,754 $33,676 Convertible preference stock 1,199 1,387 ------- ------- $28,953 $35,063 Average common shares outstanding 38,420 36,848 Stock options 258 148 Convertible preference stock 1,744 2,027 ------- ------- 40,422 39,023 Net income per common share $ .72 $ .90.13 ----------------------------------------------------------
Results of Operations - Nine Months Ended September 30, 1999 (continued) - ------------------------------------------------------------ Segment Information In June 1997, the FASB issued SFAS No. 131, "Disclosure 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. Those segments include utility investments, real estate and non-regulated business. United Water's utility investments include its regulated, domestic subsidiaries, United Water New Jersey, United Water New York, and the utility subsidiaries of United Waterworks and United Water Mid-Atlantic. These regulated utilities provide water and wastewater services to the public at large in areas where they possess franchises or other rights to provide such services. The utility subsidiaries are subject to rate regulation, generally by the regulatory authorities in the states in which they operate. In addition, the Company holds a 50% investment in the Northumbrian Partnership, which acquired a 20% interest in Northumbrian Water Group, a major investor-owned water and wastewater company in the United Kingdom. United Properties Group is a non-regulated business engaged in real estate investment and development activities, including commercial office and retail properties, residential and commercial land development and sales, golf course operations and consulting services. United Properties Group owns a portfolio of real estate located in New Jersey, New York, Delaware, Idaho, Florida and Maryland.Florida. In addition, United Properties contributed buildings to a partnership and in return received preferred units of this partnership. Results of Operations - Three Months Ended March 31, 2000 (continued) - --------------------------------------------------------- The Company's non-regulated sector consists primarily of a 50% investment in United Water Services, a 50/50 joint venture with Suez Lyonnaise des Eaux, which provides contract operations and maintenance services for water and wastewater facilities.facilities, as well as construction management, meter installation and training and advisory services. In addition, United Water entered into public-private partnerships with the cities of Jersey City, Hoboken and Hoboken,Rahway, New Jersey. Under these arrangements, the municipalities retain ownership of their systems while the Company operates and maintains them. Parent and elimination companies are also included in this segment.
Parent, Non-Regulated Utility Real Water Services and (In millions) Investments Estate Eliminations Consolidated - -------------------------------------------------------------------------------- Operating revenues $ 71,932 $ 970 $ 4,302 $ 77,204 Net income/(loss) 8,597 282 (3,068) 5,811 Identifiable assets 1,655,852 81,331 32,134 1,769,317 - -------------------------------------------------------------------------------- Operating revenues $ 259,991 $ 8,424 $ 10,016 $ 278,431 Net income/(loss) 37,820 3,320 (13,386) 27,754 Identifiable assets 1,670,833 98,102 49,737 1,818,672 - --------------------------------------------------------------------------------
New Accounting Standards In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities" effective for all fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income. Due to its limited use of derivative instruments, management believes the adoption of SFAS No. 133 will not have a significant effect on the Company's financial position or results of operations. Results of Operations - Nine Months Ended September 30, 1999 (continued) - ------------------------------------------------------------ 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 - --------------------------- 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 and 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 show 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 initial agreement tolling the statute of limitations for at least eighteen months was signed with the potential plaintiffs and took effect February 1998. A second agreement, extending the tolling period for an additional eighteen months, was executed in July 1999. United Water Toms River has also entered into a joint defense agreement with other potential defendants, Ciba-Geigy and Union Carbide. This agreement will allow the potential defendants to work together until all disputes with the potential plaintiffs have been resolved. On September 22, 1998, Ramapo Land Co., Inc. commenced a lawsuit against United Water New York (UWNY), a wholly-owned subsidiary of the Company, in the Supreme Court of the State of New York, Rockland County, seeking specific performance of certain provisions of a 1990 Water Release Agreement between UWNY and Ramapo Land. The Water Release Agreement allows UWNY to release water from Cranberry and Potake Lakes to augment flows in the Ramapo River. The lawsuit alleges that UWNY has failed to meet certain maintenance and repair obligations with respect to Cranberry and Potake dams and that water releases have exceeded permitted levels. Management is vigorously defending the litigation and is actively pursuing settlement. If the lawsuit is not resolved successfully, UWNY's water releases from Cranberry and Potake Lakes could be affected, which in turn could impact UWNY's operation of the Ramapo Valley Well Field during periods when the Ramapo River is at low flow. 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 January 22, 1998, the Pierson Lakes Homeowners Association, Inc. and various individuals (Plaintiffs) commenced a lawsuit against UWNY and Ramapo Land Co., Inc. in the Supreme Court of the State of New York, Rockland County. This litigation is related to the above-referenced lawsuit by Ramapo Land Co., Inc. against UWNY in connection with maintenance and repair obligations and water releases from Cranberry and Potake Lakes. The Pierson Lakes lawsuit seeks declaratory relief, injunctive relief and money damages against UWNY and Ramapo Land Co. in amounts in excess of $25 million. In addition to claims relating to alleged failure to maintain the dams and spillways, Plaintiffs claim that the water releases have damaged the recreational and aesthetic value of the lakes, as well as their docks, boats and other personal property. Management is vigorously defending this action and is also pursuing settlement negotiations with the various parties. 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. Legal Proceedings (continued) - ----------------- Two lawsuits were recently filed contesting the pending merger by and among Lyonnaise American Holding, Inc. ("LAH"), Suez Lyonnaise des Eaux ("SLDE") and United Water. These suits are (1) Herbert Behrens vs. Donald L. Correll et al., filed on August 25, 1999 in the Superior Court of New Jersey Chancery Division, Bergen County and (2) Lawrence Steinberg vs. United Water et al., filed on August 24, 1999 in the Superior Court of New Jersey Chancery Division, Bergen County. These suits allege, among other things, breach of fiduciary duty by United Water and its directors because the merger was purportedly agreed to without an appropriate evaluation of UWR's worth to an acquisition candidate. Both suits seek, in addition to other relief, an injunction preventing SLDE and LAH from acquiring UWR for the consideration stated in the merger agreement. UWR believes that these suits are entirely without merit and intends to vigorously defend against them. 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. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------- A Special Meeting of Stockholders was held on January 20, 2000. The purpose of the meeting was to adopt and approve an Agreement and Plan of Merger, dated as of August 20, 1999 by and among United Water Resources Inc., Lyonnaise American Holding, Inc., LAH Acquisition Co. and Suez Lyonnaise des Eaux. Number of votes cast: For Against Abstain ---------- ----------- --------- 31,475,924 998,245 189,615 Item 6. Exhibits and Reports on 8-K - ------------------------------------- Exhibits 10 Amendment No. 1 to Executive Employment Agreement between and among United Water Resources Inc. and Donald L. Correll, dated March 24, 2000. 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 9, 1999May 10, 2000 By JOHN J. TURNER ---------------- --------------------------------------- ------------------------------ (Signature) John J. Turner Treasurer DULY AUTHORIZED AND CHIEF ACCOUNTING OFFICER