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 March 31, 1996
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
incorporation or organization) identification 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 April
30, 1996, was 8,576,416.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
PART I ITEM I
March 31, December 31,
1996 1995
---------------- ------------
(Unaudited)
ASSETS
Property, Plant and Equipment, at cost:
Water utility plant, in service $438,237 $436,248
Less - Accumulated depreciation 76,680 74,414
-------- --------
361,557 361,834
-------- --------
Other subsidiaries 2,257 2,197
Less - Accumulated depreciation 1,372 1,307
-------- --------
885 890
-------- --------
Construction work in progress 22,012 18,067
-------- --------
Net property, plant and equipment 384,454 380,791
-------- --------
Investments, at cost 1,590 1,762
-------- --------
Current Assets:
Cash and cash equivalents 3,226 2,576
Accounts receivable, net of reserves of $970
in 1996 and $848 in 1995 11,866 12,719
Unbilled revenue 6,720 7,014
Inventories 2,676 2,833
Prepayments and other 5,293 6,143
-------- --------
Total current assets 29,781 31,285
-------- --------
Other Assets:
Funds restricted for construction activity 291 287
Deferred charges and other assets 16,741 17,959
-------- ---------
17,032 18,246
-------- ---------
$432,857 $432,084
======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)
PART I ITEM I
March 31, December 31,
1996 1995
----------------------------
(Unaudited)
SHAREHOLDERS' INVESTMENT
AND LIABILITIES
Capitalization:
Common Stock, $1 par value
Authorized: 15,000,000 shares
Issued: 8,569,183 shares in 1996 and
8,494,686 in 1995 $ 8,569 $ 8,495
Amounts in excess of par value 72,985 71,718
Reinvested Earnings 25,028 25,786
-------- --------
Common shareholders' investment $106,582 $105,999
-------- --------
Preferred shareholders' investment 1,054 1,069
Minority interest 2,335 2,355
Long-term debt 160,530 162,161
-------- --------
Total capitalization 270,501 271,584
-------- --------
Contributions in Aid of Construction 67,828 67,439
-------- --------
Current Liabilities:
Interim Financing 18,205 12,537
Accounts payable 3,294 6,060
Accrued taxes 7,117 7,611
Accrued interest 3,738 3,609
Accrued expenses and other 11,935 13,632
------- --------
Total current liabilities 44,289 43,449
------- --------
Commitments and Contingencies
Deferred Credits:
Customers' advances for construction 22,828 22,507
Deferred income taxes 22,599 22,260
Unamortized investment tax credits 4,812 4,845
------- -------
$ 50,239 $ 49,612
------- -------
$ 432,857 $ 432,084
======== ========
Book Value Per Share of Common Stock $ 12.44 $ 12.48
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
PART I ITEM I
Three Months Ended
March 31, March 31,
-------------------------
1996 1995
Revenue and Sales:
Water utility operations $21,902 $19,665
Other operations 3,153 2,865
--------- --------
Operating revenue 25,055 22,530
--------- --------
Costs and Expenses:
Water utility operations 15,701 14,639
Other operations 3,332 3,207
--------- --------
Operating expenses 19,033 17,846
--------- --------
Operating Income 6,022 4,684
--------- --------
Other Income and (Expense):
Interest expense (3,562) (3,423)
Construction interest capitalized 186 342
Preferred dividends and minority
interest of subsidiaries (29) (33)
Other net 91 242
--------- --------
(3,314) (2,872)
Earnings Before Income Taxes and Gains --------- --------
from Sales of Properties 2,708 1,812
Income Taxes 970 580
--------- --------
Earnings from Operations :
Before Gains from Sales of Properties 1,738 1,232
Gains from Sales of Properties, Net 86 363
--------- ---------
Net Income $ 1,824 $ 1,595
========= =========
Weighted Average Shares Outstanding #8,547 #8,296
Earnings per Common Share:
Before Gains from Sales $ 0.20 $ 0.15
========= =========
Total $ 0.21 $ 0.19
========= =========
Dividends Declared Per Common Share: $ 0.30 -
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In Thousands)
(Unaudited)
PART I ITEM I
Three Months Ended
March 31, March 31,
1996 1995
---------- -----------
Operating Activities:
Net income $ 1,824 $ 1,595
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,836 2,626
Deferred income taxes and investment
tax credits 437 376
Gains on sales of properties (86) (363)
Changes in assets and liabilities:
Decrease in accounts receivable and
unbilled revenue 1,147 988
Decrease in inventories 157 14
Decrease in prepaid expenses 850 855
Decrease in accounts payable and
accrued expenses (3,331) (1,952)
Change in other assets, net of change in
other liabilities ( 329) (1,340)
------- -------
Total adjustments 1,685 1,204
------- -------
Net cash provided by operating activities 3,505 2,799
------- -------
Investing activities:
Capital expenditures (6,125) (6,883)
Funds restricted for construction activity (4) 1,100
Decrease in construction accounts payable (1,495) (1,511)
Payment receivd on a note receivable 1,330 -
Net proceeds from sales of properties 90 1,522
------- -------
Net cash used in investing activities (6,204) (5,772)
------- -------
Financing activities:
Net borrowings of short-term debt 5,670 4,629
Proceeds from issuance of long-term debt - 32
Repayment of long-term debt (1,633) (2,171)
Proceeds from issuance of stock 1,317 1,202
Advances and contributions in aid of
construction, net of repayments 710 673
Deferred taxes paid by developers on advances
and contributions in aid of construction (131) (4)
Cash dividends paid (2,584) (2,459)
------- -------
Net cash provided by financing activities 3,349 1,902
------- -------
Net increase (decrease) in cash and cash
equivalents 650 (1,071)
Cash and cash equivalents at beginning
of year 2,576 2,906
------- -------
Cash and cash equivalents at end of period $ 3,226 $ 1,835
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized) $3,180 $3,216
Income taxes $ 171 $ 38
Non-cash investing and financing activities for the period:
Property advanced or contributed $ - $ 52
The accompanying notes are an integral part of these consolidated financial
statements.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
PART I ITEM 1
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 3,526 in 1996 and
64 in 1995.
C. COMMITMENTS AND CONTINGENCIES
In March, 1993, an outside contractor spilled a small amount of
mercury while working at the Company's Consumers Ohio Water
Company's water treatment plant. Several areas in an around the
plant were contaminated by the spill, although no mercury
contaminated Consumers Ohio's water supply. The cleanup was
completed at a total cost of approximately $900,000. Consumers
Ohio 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 to the ultimate outcome of
Consumers Ohio's efforts to obtain such recovery, management
believed it probable that consumers Ohio would recover cleanup
costs from the contractor and/or the contractor's insurer and
therefore deferred the cost incurred in connection with the
spill. Due to the progress of the case to date and to the
expected cost of the litigation, Consumers Ohio reserved $375,000
in 1995 for possible losses on this claim.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
March 31, 1996
PART I 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 March 31, 1996 and the results of
its operations for the three months then ended as compared to the same
period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
*******************************
CONSTRUCTION PROGRAM
=====================
Capital construction expenditures totaled $5.4 million, net of contributions
and advances, in the first quarter of 1996, substantially all of which relate
to the Company's utility subsidiaries. Projects include $1.3 million spent on
a new water treatment plant expansion in Ohio, which is expected to cost $6.3
million when it is completed in 1996; and many smaller projects throughout
the Company.
The Company expects capital expenditures for 1996 through 1998 to be $92
million, net of contributions and advances.
The capital construction budget is down from the $103 million for the
1995-1997 planning period. The Company's capital spending is beginning to
decrease as the Company has made many of the improvements required by the
Safe Drinking Water Act (SDWA), the Clean Water Act (CWA), and other
regulations.
The Company has started work on a major plant upgrade at Consumers
Pennsylvania Water Company - Shenango Valley Division. This project is
expected to cost $30 million when it is completed in 1999. This upgrade of
one of the Company's older water treatment plants is required to keep it in
compliance with current and future regulations and to meet expected increases
in demand. The project is still in the planning stage. Several design and
financing alternatives for this project are still being explored.
Several of the Company's water utility subsidiaries have filed or 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. Given the large rate increases in recent years, management expects
the current increased scrutiny of rate requests by the state public utility
commissions to continue even with decreasing capital construction budgets.
FINANCING AND CAPITALIZATION
==============================
The table below shows the cash generated and used by the Company during the
first three months of 1996.
Cash was generated from:
Dollars in millions
Operations $ 5.0
Common stock issued 1.3
Proceeds from sale of properties .1
Increase in short-term debt 5.7
---------
Total Cash Generated $ 12.1
---------
Cash was used:
Capital expenditures, net of Contributions
and Advances $ (5.4)
Repay long-term debt (1.6)
Pay dividends (2.6)
Net change in working capital (1.2)
Other ( .6)
---------
Total Cash Used $ (11.4)
---------
Increase in Cash $ .7
=========
Water utilities now require higher equity ratios to maintain favorable 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 Company's capital expenditure program, makes it likely that
the Company will return to the equity market again in the next few years.
Any cash flow not provided through a stock issuance will, as usual, be
financed with short-term lines of credit until the subsidiary's short-term
debt level is high enough to warrant placement of long-term debt, generally,
in the $4-$6 million range. The Company had unused lines of credit available
at March 31, 1996 of $48 million. In addition, the Company obtained two lines
of credit for a total of $25 million, which are committed until mid-1997. At
March 31, 1996, $14.5 million was outstanding on these lines and was shown as
long-term debt on the balance sheet. In addition to the short-term debt, the
Company plans to continue to use tax-exempt, long-term debt financing in
appropriate situations.
ACQUISITIONS AND DISPOSITIONS
=============================
Over the past five years, the Company has acquired six water systems. The
Company currently has no material acquisitions pending, however, the Company
has agreed to purchase a small system in Maine. Management anticipates
continuing the acquisition policy of recent years.
The Company has sold four divisions with customers totaling approximately
15,000 under the threat of eminent domain in the last six years. The gain on
these sales totaled over $7 million including $353,000 from the sale of a
small system in Maine during the first quarter of 1995. The Company is
working with the 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 to the ultimate outcome of Consumers Ohio Water's efforts
to obtain such recovery, Management believed it probable that Consumers Ohio
Water would recover cleanup costs from the contractor and/or the contractor's
insurer and, therefore, deferred the costs incurred in connection with the
spill. Due to the progress of the case to date and to the expected cost of
the litigation, Consumers Ohio reserved $375,000 in 1995 for possible losses
on this claim.
RESULTS OF OPERATIONS
**********************
First Quarter 1996, Compared to First Quarter, 1995
UTILITY REVENUE
================
Utilities revenues increased $2,237,000 or 11.4% compared to the first three
months of 1995, primarily due to $1,897,000 in rate increases. Currently,
there are five rate cases pending in which over $5.9 million in
additionalannual revenue is sought. The Company's water utility subsidiaries
plan to file three additional cases in 1996, timed to seek recovery of and
return on funds used to finance their large capital expenditure program.
UTILITY OPERATING EXPENSES
==========================
Utility operating expenses increased $1,062,000 or 7.3%. Depreciation
increased $296,000 due to higher plant balances and higher depreciation rates.
Property taxes increased $229,000 due to higher plant balances. The remainder
of the increase was due to increased operating expenses at the new treatment
plant at the Roaring Creek Division in Pennsylvania which went on line in May,
1995, and normal expense increases.
OTHER OPERATIONS - REVENUE AND EXPENSE
======================================
Other operating revenues increased $288,000 or 10.1%, while other operating
expenses increased $125,000 or 3.9%. Consumers Applied Technologies has begun
work on three new meter installation contracts, which are expected to generate
$4.9 million in revenue over the life of the projects. In addition, CAT has
increased sales in corrosion engineering work which provides higher margins.
CAT continued to operate at a loss, however. It lost $152,000 in the first
quarter of 1996 compared to a loss of $188,000 in the first quarter of 1995.
CONSUMERS WATER COMPANY AND SUBSIDIARIES
March 31, 1996
PART II
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 March 31,
1996.
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)
5/7/96 /s/ Peter L. Haynes
- ---------------------------- ----------------------------
Date Peter L. Haynes
Chief Executive Officer
5/7/96 /s/ John F. Isacke
- ---------------------------- ----------------------------
Date John F. Isacke
Chief Financial Officer
CONSUMERS WATER COMPANY AND SUBSIDIARIES
March 31, 1996
PART II
Exhibit Index
27. Financial Data Schedule is submitted herewith as Exhibit 27.