SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 0-493
CONSUMERS WATER COMPANY
(Exact name of registrant as specified in its Charter)
Maine 01-0049450
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication number)
Three Canal Plaza, Portland, ME 04101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (207) 773-6438
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
The number of common shares of Consumers Water Company outstanding as of
October 25, 1995, was 8,447,608.
PART I
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Item 1. Financial Statements
September 30, December 31,
1995 1994
(Unaudited)
ASSETS
Property, Plant and Equipment, at cost:
Water utility plant, in service $422,993 $395,900
Less: Accumulated depreciation 72,981 69,148
-------- --------
350,012 326,752
-------- --------
Other subsidiaries 2,121 1,947
Less: Accumulated depreciation 1,238 1,119
-------- --------
883 828
-------- --------
Construction work in progress 16,420 21,674
Net property, plant and -------- --------
equipment 367,315 349,254
-------- --------
Investments, at cost 1,905 1,984
-------- --------
Current Assets:
Cash and cash equivalents 3,748 2,906
Accounts receivable, net of
reserves of $915 in 1995 and
$682 in 1994 13,315 10,465
Unbilled revenue 8,845 8,966
Inventories 2,512 2,258
Prepayments and other 2,899 6,116
------- -------
Total current assets 31,319 30,711
------- -------
Other Assets:
Funds restricted for construction
activity 283 2,503
Deferred charges and other assets 17,841 16,928
------- -------
18,124 19,431
------- -------
$ 418,663 $ 401,380
========= =========
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
September 30, December 31,
1995 1994
(Unaudited)
SHAREHOLDERS' INVESTMENT
AND LIABILITIES
Capitalization:
Common Stock, $1 par value
Authorized: 15,000,000 shares
Issued: 8,444,420 shares in 1995 and
8,259,685 in 1994 $ 8,444 $ 8,260
Amounts in excess of par value 70,864 68,084
Reinvested earnings 25,999 24,584
Common shareholders' -------- --------
investment $105,307 $100,928
-------- --------
Preferred shareholders'
investment 1,069 1,069
Minority interest 2,349 2,218
Long-term debt 150,015 130,038
-------- --------
Total capitalization 258,740 234,253
-------- --------
Contributions in Aid of
Construction 64,242 61,576
-------- --------
Current Liabilities:
Notes payable 19,275 27,306
Sinking fund requirements and
current maturities 734 2,510
Accounts payable 4,592 5,916
Accrued taxes 4,985 6,496
Accrued interest 2,944 3,435
Accrued expenses and other 13,676 12,352
-------- --------
Total current liabilities 46,206 58,015
-------- --------
Commitments and Contingencies
Deferred Credits:
Customers' advances for
construction 22,637 21,917
Deferred income taxes 21,950 20,613
Unamortized investment tax credits 4,888 5,006
-------- --------
$ 49,475 $ 47,536
-------- --------
$418,663 $401,380
Book Value Per Share of Common ======== ========
Stock $ 12.47 $ 12.22
======== ========
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
Nine Months Ended
September 30, September 30,
1995 1994
Revenue and Sales:
Water utility operations $66,818 $60,069
Other operations 9,709 9,364
-------- --------
Operating revenue 76,527 69,433
-------- --------
Costs and Expenses:
Water utility operations 45,056 42,389
Other operations 10,239 9,011
-------- --------
Operating expenses 55,295 51,400
-------- --------
Operating Income 21,232 18,033
-------- --------
Other Income and (Expense):
Interest expense (10,366) (9,175)
Construction interest capitalized 802 1,133
Preferred dividends and minority
interest of subsidiaries (115) (106)
Other net 557 723
-------- --------
(9,122) (7,425)
-------- --------
Earnings before Income Taxes and
Gains from Sales of Properties 12,110 10,608
Income Taxes 4,269 3,625
-------- --------
Earnings:
Before Gains from Sales of
Properties 7,841 6,983
Gains from Sales of Properties,
Net 1,098 -
-------- --------
Net Income $8,939 $6,983
======== ========
Weighted Average Shares Outstanding 8,358 8,137
Earnings per Common Share:
Before Gains from Sales $0.93 $0.85
Total $1.06 $0.85
======== ========
Dividends Declared per Common Share: $0.890 $0.875
======== ========
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended
September 30, September 30,
1995 1994
Revenue and Sales:
Water utility operations $ 25,414 $ 21,553
Other operations 3,065 3,617
--------- ---------
Operating revenue $ 28,479 $ 25,170
--------- ---------
Costs and Expenses:
Water utility operations 15,116 14,200
Other operations 3,211 3,397
--------- ---------
Operating expenses 18,327 17,597
--------- ---------
Operating Income 10,152 7,573
--------- ---------
Other Income and (Expense):
Interest expense (3,460) (3,176)
Construction interest capitalized 148 352
Preferred dividends and minority
interest of subsidiaries (48) (44)
Other net 154 400
-------- --------
(3,206) (2,468)
Earnings before Income -------- --------
Taxes and Gains from Sales of
Properties 6,946 5,105
Income Taxes 2,507 1,813
Earnings -------- --------
Before Gains from Sales of
Properties 4,439 3,292
Gains from Sales of Properties,
Net 11 -
-------- --------
Net Income $ 4,450 $ 3,292
======== ========
Weighted Average Shares Outstanding 8,416 8,184
Earnings per Common Share:
Before Gains from Sales $0.53 $0.40
Total $0.53 $0.40
======== ========
Dividends Declared per Common Share $0.30 $0.295
======== ========
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30, September 30,
1995 1994
Operating Activities:
Net income $ 8,939 $ 6,983
Adjustments to reconcile net income -------- --------
to net cash provided by operating
activities:
Depreciation and amortization 8,215 6,816
Deferred income taxes and investment
tax credits 1,383 1,832
Gains on sales of properties (1,098) -
Change in assets and liabilities:
Increase in accounts receivable
and unbilled revenue (2,765) (3,709)
Increase in inventories (254) (442)
Decrease in prepaid expenses 3,217 3,760
Decrease in accounts payable and
accrued expenses (1,242) (3,836)
Change in other assets, net of
change in other liabilities (3,962) (1,947)
Change in other assets, net of
change in other liabilities of
discontinued operations - 528
-------- --------
Total adjustments 3,494 3,002
-------- --------
Net cash provided by operating
activities 12,433 9,985
-------- --------
Investing activities:
Capital expenditures (24,270) (27,880)
Funds restricted for
construction activity 2,220 5,394
Decrease in construction
accounts payable ( 857) (1,073)
Net cash cost of acquisitions (1,300) (1,426)
Net proceeds from sales of properties 4,221 -
-------- --------
Net cash used in investing
activities (19,986) (24,985)
-------- --------
Financing activities:
Net (repayments) borrowing
of short-term debt (8,031) 13,869
Proceeds from issuance of
long-term debt 36,049 53
Repayments of long-term debt (17,848) (1,256)
Proceeds from issuance of stock 2,968 2,860
Advances and contributions in aid of
construction, net of repayments 3,074 4,710
Deferred taxes paid by developers on
advances and contributions in aid of
construction (395) (655)
Cash dividends paid (7,422) (7,110)
-------- --------
Net cash provided by financing
activities 8,395 12,471
-------- --------
Net decrease in cash and cash
equivalents 842 (2,529)
Cash and cash equivalents at
beginning of year 2,906 4,993
-------- --------
Cash and cash equivalents at
end of period $ 3,748 $ 2,464
======== ========
Supplemental disclosures of cash flow
information from continuing operations:
Cash paid during the period for:
Interest (net of amounts
capitalized) $ 9,880 $ 8,260
Income taxes $ 2,505 $ 2,352
Non-cash investing and financing
activities for the year:
Property advanced or
contributed $ 312 $ 929
See attached notes.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1995
A. PREPARATION OF FINANCIAL STATEMENTS
The condensed financial statements included herein have been
prepared by the registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the registrant
believes that the disclosures which are made are adequate to make the
information presented not misleading, particularly when read in conjunction
with the financial statements and notes thereto included in the registrants'
latest annual report on Form 10-K. In management's opinion, the attached
interim financial statements reflect all adjustments which are necessary for a
fair statement of the results for the periods presented. All adjustments made
were of a normal and recurring nature.
B. EARNINGS PER SHARE
Earnings per common share are based on the weighted average
number of shares and common share equivalents actually outstanding during the
period. The effect of employee stock options which are included as common
share equivalents is to increase the number of shares outstanding by 21 in
1995 and 2,420 in 1994.
C. DISPOSITIONS
In October, 1994, the Damariscotta Division of Consumers Maine
Water Company was taken by the local communities by eminent domain for
approximately $600,000 or 75% of rate base. Consumers Maine Water challenged
the purchase price and in February, 1995, settled for a price of $1.5 million.
The sale generated a gain of approximately $363,000 net of taxes. The
Damariscotta Division had approximately 600 customers.
On June 5, 1995, the Company's Consumers Ohio Water Company
subsidiary closed on the sale of Girard Lake and Liberty Lake. These two
lakes once supplied raw water to the area's steel industry. The lakes have
not been needed as a source of supply for several years. The lakes were sold
for $2.5 million and generated a gain, net of taxes, of $724,000.
D. COMMITMENTS AND CONTINGENCIES
In March, 1993, an outside contractor spilled a small amount of
mercury while working at the Company's subsidiary, Consumers Ohio Water's
water treatment plant. Several areas in and around the plant were
contaminated by the spill, although no mercury has contaminated Consumers Ohio
Water's water supply. The cleanup has been completed at a total cost of
approximately $900,000. Consumers Ohio Water has received $100,000 from its
insurer and is currently seeking recovery of all the cleanup costs from the
contractor. While there can be no assurances as to the ultimate outcome of
Consumers Ohio Water's efforts to obtain such recovery, Management believes
that it is probable that Consumers Ohio Water will recover cleanup costs from
the contractor and/or the contractor's insurer and, therefore, has deferred
the costs incurred in connection with the spill.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
September 30, 1995
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
The following discussion and analysis sets forth certain factors relative to
the Company's financial condition at September 30, 1995 and the results of its
operations for the three months and nine months then ended as compared to the
same periods of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
CONSTRUCTION PROGRAM
Capital construction expenditures in the first nine months of 1995 totaled
$21.2 million, net of contributions and advances, substantially all of which
relates to the Company's utility subsidiaries. Projects include $2 million
spent on a new water treatment plant in Pennsylvania that cost $16 million and
was completed in the second quarter of 1995, $1.8 million spent on a
wastewater treatment plant in Illinois, which is expected to cost $3.6 million
when completed in 1996, and many smaller projects throughout the Company.
The Company expects capital expenditures for 1995 through 1997 to be
approximately $103 million, net of contributions and advances. Almost 29% of
these expenditures are required by the Safe Drinking Water Act (SDWA), the
Clean Water Act (CWA) and other regulations. The new $16 million treatment
plant and transmission main in Pennsylvania were required by State regulations
under the SDWA.
The Company's water utility subsidiaries plan to file cases in their
respective jurisdictions for recovery of and return on capital used to fund
their capital expenditure programs. Costs which have been prudently incurred
in the judgement of the appropriate public utility commission have been, and
are expected to continue to be, recognized in rate setting. To support these
capital expenditures over the next three years, some subsidiaries will be
required to file for large percentage rate increases in part due to the
significant capital expenditures resulting from compliance with the SDWA and
the CWA. Given these large rate increases, Management expects the current
increased scrutiny of rate requests by the state public utility
commissions to continue.
FINANCING AND CAPITALIZATION
The table below shows the cash generated and used by the Company during the
first nine months of 1995.
Cash was generated from:
Dollars in millions
Operations $ 17.4
Long-term debt issued 36.0
Common stock issued 3.0
Proceeds from sale of properties 4.2
Decrease in funds restricted for
construction 2.2
-------
Total Cash Generated $62.8
-------
Cash was used:
Capital expenditures, net
of Contributions
and Advances $ (21.2)
Net decrease in short-term debt ( 8.0)
Repay long-term debt (17.8)
Pay dividends (7.4)
Net cash cost of acquisitions (1.3)
Net change in working capital (1.1)
Other (5.2)
--------
Total Cash Used $ (62.0)
--------
Increase in Cash $ .8
--------
During the third quarter of 1995, one of the Company's utility subsidiaries
issued $20.8 million in new 30 year debt including a tax exempt financing
totaling $12.8 million at approximately 6.10% and a taxable issue of $8.0
million at 7.63%. The proceeds were used in part to refinance at more
favorable rates existing debt. In addition, Consumers Water renewed two
short-term lines of credit, which are now committed until 1997. The balances
carried on these lines have been recorded as long-term debt.
Water utilities will require higher equity ratios to maintain current debt
ratings due to the recognition by Standard & Poor's rating system of
additional risk of the SDWA requirements and the uncertainty of future
regulatory treatment of the cost of these requirements. This coupled with the
size of the 1995 through 1997 capital expenditure program makes it likely that
the Company will return to the equity market again in the next two years. Any
cash flow not provided through a stock issuance will, as usual, be financed
with short-term lines of credit until the subsidiaries' short-term debt level
is high enough to warrant placement of long-term debt, generally, in the $4-$6
million range. As of September 30, 1995, the Company had unused lines of
credit available of $39.0 million. In addition to short-term debt, the
Company plans to continue to use tax-exempt, long-term debt financing in
appropriate situations.
ACQUISITIONS AND DISPOSITIONS
On September 14, 1995, the Company's New Jersey subsidiary acquired the water
utility assets of Lakeland County Hospital for $1.3 million.
Over the past five years, the Company has acquired eight water systems.
Although the Company currently has no material acquisitions pending,
management anticipates continuing the acquisition policy of recent years.
In October, 1994, the Damariscotta Division of Consumers Maine Water Company
was taken by the local communities by eminent domain for approximately
$600,000 or 75% of rate base. Consumers Maine Water challenged the purchase
price and in February, 1995, settled for a price of $1.5 million. The sale
generated a gain of approximately $363,000, net of taxes. The Damariscotta
Division had approximately 600 customers.
On June 5, 1995, the Company's Consumers Ohio Water Company subsidiary closed
on the sale of Girard Lake and Liberty Lake. These two lakes once supplied
raw water to the area's steel industry. The lakes have not been needed as a
source of supply for several years. The lakes were sold for $2.5 million and
generated a gain, net of taxes, of $724,000.
The Company has sold four divisions with customers totaling approximately
15,000 under threat of eminent domain in the last four years. The gain on
these sales totaled almost $7 million. The Company is working with local
communities in its service areas in an effort to prevent future eminent domain
proceedings.
OTHER
In March, 1993, an outside contractor spilled a small amount of mercury while
working at the Company's subsidiary, Consumers Ohio Water's water treatment
plant. Several areas in and around the plant were contaminated by the spill,
although no mercury has contaminated Consumers Ohio Water's water supply. The
cleanup has been completed at a total cost of approximately $900,000.
Consumers Ohio Water has received $100,000 from its insurer and is currently
seeking recovery of all the cleanup costs from the contractor. While there
can be no assurances as to the ultimate outcome of Consumers Ohio Water's
efforts to obtain such recovery, Management believes that it is probable that
Consumers Ohio Water will recover cleanup costs from the contractor and/or the
contractor's insurer and, therefore, has deferred the costs incurred in
connection with the spill.
RESULTS OF OPERATIONS
Nine Months, 1995 versus Nine Months, 1994
UTILITY REVENUE
Utility revenues increased $6,749,000 or 11.2% compared to the first nine
months of 1994, primarily due to $4.5 million in rate increases and $2.1
million in increased consumption due to the dry summer weather. During 1995,
the Company has settled six rate cases allowing for total annual revenues of
$6.9 million. Currently, there are three rate cases pending in which $3.5
million in additional revenue is sought.
UTILITY OPERATING EXPENSES
Water utility operating expenses increased approximately $2,667,000, or 6.3%.
Expenses are up due primarily to increased depreciation of $1,102,000 and
property taxes of $703,000 due to increased property balances and higher
depreciation and tax rates.
OTHER OPERATIONS - REVENUE AND EXPENSE
Other operating revenue increased approximately $345,000, or 3.7% while other
operating expenses are up $1,228,000, or 13.6%, compared to the first nine
months of 1994, primarily due to reduced margins in meter installation work as
Consumers Applied Technologies, Inc., completes its meter installation
contracts with the City of New York. Consumers Applied Technologies, Inc.,
formerly C/P Utility Services, was unsuccessful in its bid for additional New
York City meter installation projects in the first quarter of 1995. Management
plans to shift Consumers Applied Technologies' focus to higher margin
technical and engineering work to help compensate for the lost contracts,
while still looking for other meter installation projects.
OTHER
Interest expense is up $1,191,000 due to higher debt balances and interest
rates.
Third Quarter, 1995 versus Third Quarter, 1994
UTILITY REVENUE
Utility revenues increased $3,861,000, or 17.9%, for the three months ended
September 30, 1995, as compared to the same period in 1994, due primarily to
$1.8 million in rate increases and to $2.1 million in increased sales due to
the dry weather.
UTILITY OPERATING EXPENSES
Water Utility operating expenses have increased approximately $916,000 or 6.5%
in the three months ended September 30, 1995, as compared to the same period
in 1994. Expenses are up due primarily to increased power and chemical costs
of $280,000 due to increased sales and increased depreciation of $249,000 and
property taxes of $197,000 due to the increased property balances and higher
depreciation and tax rates.
OTHER OPERATIONS - REVENUES AND EXPENSE
Other operating revenue decreased by $552,000, or 15.3%, while other operating
expenses are down $186,000, or 5.5%, compared to the third quarter of 1994,
primarily due to reduced sales in meter installation work as Consumers Applied
Technologies, Inc. completes its meter installation contracts with the City of
New York. Consumers Applied Technologies, Inc., formerly C/P Utility
Services, was unsuccessful in its bid for additional New York City meter
installation projects in the first quarter of 1995. Management plans to shift
Consumers Applied Technologies' focus to higher margin technical and
engineering work to help compensate for the lost contracts while still looking
for additional meter installation work.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
September 30, 1995
PART II
Item 1. Legal Proceedings.
(a) Schiavi Homes Litigation. As reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, the Penobscot
Indian Nation had commenced litigation against the Company, a former
subsidiary of the Company, a current subsidiary of the Company and John
H. Schiavi, a Director of the Company, among others. The Complaint filed
in the case alleged, among other things, that one or all of the defendants
defrauded the Penobscot Indian Nation by breaching their duty of good faith
and fair dealing and by making misrepresentations in connection with the
acquisition of the assets of SHC Corporation, then a subsidiary of the
Company, by a Maine limited partnership in which the Penobscot Indian
Nation held a limited partnership interest.
On October 25, 1995, the United States District Court, for the
district of Maine issued an Order granting the summary judgment motions
of certain of the defendants, including the Company, its current and former
subsidiaries and John H. Schiavi. Unless appealed, the granting of the
summary judgment motions terminates the litigation against the Company
and the other defendants.
(b) Candlewick Treatment Plant Litigation. On August 25, 1995,
the State of Illinois filed a Complaint in the Circuit Court of the
17th Judicial Circuit of Illinois in Boone County, Illinois, against the
Company and its subsidiary, Consumers Illinois Water Company, alleging
violation of the effluent discharge standards under various state and
federal environmental regulations. The Complaint alleges that Consumers
Illinois Water Company's Candlewick wastewater treatment plant violated
such effluent standards at various times since 1991 and seeks, among other
things, a civil penalty of $10,000 per day for each day that the alleged
violations have continued and a civil penalty of $50,000 for each and every
alleged violation of the Illinois Environmental Protection Act and the
Illinois Pollution Control Board's Water Pollution Regulations.
On or about September 20, 1995, the Candlewick Lake Association,
Inc., an association of owners of lots within a lake community development
known as Candlewick Lake and served by the Consumers Illinois wastewater
treatment plant, sought to intervene in the case. In its Complaint, the
Candlewick Lake Association, Inc. alleges that effluent from the Consumers
Illinois plant has interfered with and damaged the recreational use of
Candlewick Lake. The Complaint seeks $1 million in damages from Consumers
Illinois Water Company. The Company has filed a motion to dismiss the
State of Illinois' Complaint as to it on the basis of lack of jurisdiction.
The Company is not named as a defendant in the Complaint filed by the
Candlewick Lake Association, Inc. Consumers Illinois Water Company has
not yet filed an answer to the Complaints.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule is submitted herewith as
Exhibit 27.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended September 30,
1995.
SIGNATURES
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.
CONSUMERS WATER COMPANY
(Registrant)
11/2/95 /s/ Peter L. Haynes
- ------------------------- --------------------------
Date Peter L. Haynes
Chief Executive
Officer
11/2/95 /s/ John F. Isacke
- -------------------------- --------------------------
Date John F. Isacke
Chief Financial
Officer
Exhibit Index
27. Financial Data Schedule is submitted herewith as Exhibit 27.