Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(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
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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 1-8060
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AQUARION COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 06-0852232
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
835 Main Street, Bridgeport, Connecticut 06601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 335-2333
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------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of November 6, 1995:
Common Stock
No Par Value (Stated Value: $1) 6,847,099
------------------------------- --------------------
Class Number of Shares
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Quarter Ended Nine Months Ended
September 30, September 30,
----------------------- ---------------------
1995 1994 1995 1994
------ ------ ------ ------
(In thousands, except share data)
Operating revenues $ 29,999 $ 29,649 $ 84,015 $ 85,118
---------- --------- --------- ----------
Costs and expenses:
Operating 10,511 11,101 30,322 31,511
General and administrative 5,497 4,764 13,943 13,486
Depreciation 2,907 2,982 8,721 8,944
Interest expense 2,327 2,126 6,620 6,299
Taxes other than income taxes 3,242 3,190 9,455 9,466
---------- -------- --------- ----------
Total costs and expenses 24,484 24,163 69,061 69,706
---------- -------- --------- ----------
5,515 5,486 14,954 15,412
Allowance for funds used during
construction 221 140 509 330
---------- -------- --------- ----------
Income before income taxes 5,736 5,626 15,463 15,742
Income taxes 2,494 2,207 6,723 6,177
---------- -------- -------- ----------
Net income $ 3,242 $ 3,419 $ 8,740 $ 9,565
========== ========= ========= ==========
Per share $ 0.48 $ 0.52 $ 1.31 $ 1.47
========== ========= ========= ==========
Weighted average common shares
outstanding 6,688,199 6,546,851 6,655,419 6,514,409
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
-2-
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
UNAUDITED
Quarter Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
------ ------ ------ ------
(In thousands, except share data)
RETAINED EARNINGS
Beginning of period $16,736 $15,889 $16,628 $15,015
Net income 3,242 3,419 8,740 9,565
------- ------- ------- -------
19,978 19,308 25,368 24,580
Deduct: Cash dividends declared on
common stock, $.405 per
share per quarter in 1995
and 1994 2,715 2,661 8,105 7,933
------- ------- ------- -------
End of period $17,263 $16,647 $17,263 $16,647
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
September 30, December 31,
ASSETS 1995 1994
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(In thousands)
Property, plant and equipment $407,989 $378,708
Less: accumulated depreciation 131,150 123,166
-------- --------
Net property, plant and equipment 276,839 255,542
-------- --------
Current assets:
Cash and cash equivalents 151 1,335
-------- --------
Accounts receivable:
Customers 18,141 15,946
Miscellaneous 773 1,158
-------- --------
18,914 17,104
Less: allowance for doubtful accounts 3,150 2,762
-------- --------
15,764 14,342
Accrued revenues 9,209 9,596
Inventories 3,919 3,077
Prepaid expenses 9,040 8,006
-------- --------
Total current assets 38,083 36,356
-------- --------
Goodwill 9,978 10,283
Recoverable income taxes 46,874 47,099
Other assets 24,487 22,665
-------- --------
$396,261 $371,945
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND September 30, December 31,
SHAREHOLDERS' EQUITY 1995 1994
------------- ------------
(In thousands, except share data)
Shareholders' equity:
Preferred stock, no par value,
authorized 2,500,000 shares not to
exceed aggregate value of
$25,000,000, issuable in series-none $ $
issued - -
Common stock, stated value: $1
Authorized-16,000,000 shares
Issued-6,784,154 shares in 1995 and
6,690,013 shares in 1994 6,784 6,690
Capital in excess of stated value 96,060 94,152
Retained earnings 17,263 16,628
------------- ----------
120,107 117,470
Less: cost of treasury stock, 81,295
shares in 1995 and 84,992 shares in
1994 2,231 2,338
-------------- ----------
Total shareholders' equity 117,876 115,132
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Redeemable preferred stock of 330 330
-------------- ----------
Long-term debt and other obligations 126,318 111,466
-------------- ----------
Current liabilities:
Short-term borrowings, unsecured 10,100 -
Current maturities of long-term debt 71 4,077
Accounts payable and accrued liabilities 12,469 12,832
Dividends payable 2,715 2,675
Accrued interest 1,911 2,035
Taxes other than income taxes 1,626 1,532
Income taxes 1,459 4,171
------------ ----------
Total current liabilities 30,351 27,322
------------ ----------
Advances for construction 25,049 23,407
Contributions in aid of construction 21,736 21,589
Deferred land sale gains 694 427
Accrued postretirement benefit cost 3,220 2,231
Recoverable income taxes 6,005 6,005
Deferred taxes 64,682 64,036
----------- -----------
$396,261 $371,945
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine months ended September 30,
-------------------------------
1995 1994
------ ------
(In thousands)
Cash flows from operating activities:
Net income $8,740 $9,565
Adjustments reconciling net income to net cash
provided by operating activities:
Depreciation and amortization 9,394 9,623
Allowance for funds used during construction (509) (330)
Provision for losses on accounts receivable 590 919
Deferred and prepaid income taxes, net 872 1,928
Proceeds from sale of surplus land, net of gains 1,446 1,204
Change in assets and liabilities (NOTE 3) (8,271) (5,992)
------- -------
Net cash provided by operating activities 12,262 16,917
------- -------
Cash flows from investing activities:
Capital additions, excluding an allowance
for funds used during construction (29,849) (12,363)
Advances and contributions in aid of construction 1,949 1,658
Refunds on advances for construction (160) (507)
Other investing activities 105 (52)
------- -------
Net cash used in investing activities (27,955) (11,264)
------- -------
Cash flows from financing activities:
Net proceeds from short-term borrowings 10,100 700
Proceeds from the issuance of common stock, net 2,001 2,069
Proceeds from the issuance of long-term debt 14,903 -
Principal payments on long-term debt (4,057) (53)
Common dividends paid (8,065) (7,894)
Bond finance charges (373) (228)
------- -------
Net cash provided by (used in) financing activities 14,509 (5,406)
------- -------
Net (decrease) increase in cash and cash (1,184) 247
Cash and cash equivalents, beginning of period 1,335 90
------- -------
Cash and cash equivalents, end of period $ 151 $ 337
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
AQUARION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Aquarion Company (Aquarion) is a holding company whose subsidiaries
are engaged both in the regulated utility business of public water supply
and in various nonutility businesses. Aquarion's utility subsidiary,
Bridgeport Hydraulic Company (BHC) and BHC's subsidiary, Stamford Water
Company (SWC), (collectively, the Utilities) collect, treat and distribute
water for residential, commercial and industrial customers, to other
utilities for resale and for private and municipal fire protection. The
Utilities provide water to customers in 23 communities with a population
of approximately 500,000 people in Fairfield, New Haven, and Litchfield
Counties in Connecticut, including communities served by other utilities
to which BHC makes water available on a wholesale basis for back-up supply
or peak demand purposes through BHC's Southwest Regional Pipeline. BHC is
the largest investor-owned water company in Connecticut and, with its SWC
subsidiary, is among the ten largest investor-owned water companies in the
nation. The Utilities are regulated by several Connecticut agencies,
including the Connecticut Department of Public Utility Control (DPUC).
Aquarion and its subsidiaries (collectively, the Company) are also engaged
in various nonutility activities. The Company conducts an environmental
testing laboratory business through its Industrial and Environmental
Analysts, Inc. (IEA) group of laboratories which analyze contaminants in
hazardous waste, soil, air and water. Additionally, the Company is
engaged in various utility management service businesses through
Hydrocorp, Inc. (Hydrocorp) and Aquarion Management Services, Inc. (AMS),
owns a forest products business through Timco, Inc. (Timco) and owns a
real estate subsidiary, Main Street South Corporation (MSSC).
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting
principles for interim financial information, with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X and as applied in the case of
rate-regulated public utilities, comply with the Uniform System of
Accounts and rate making practices prescribed by the DPUC. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. The results of operations are not necessarily
indicative of the results of operations for the calendar year. For
example, water consumption is less in the first quarter of the year than
during the warmer months. The laboratory testing business is seasonal as
well with traditionally lower first quarter revenues. Other factors
affecting the comparability of various accounting periods include the
timing of rate increases granted the Utilities and the timing and
magnitude of property sales. For further information, refer to the
consolidated financial statements and accompanying footnotes included in
the Company's annual report on Form 10-K for the year ended December 31,
1994.
-7-
NOTE 2 - INVENTORIES
- --------------------
Inventories were comprised of the following (in thousands):
September 30, December 31,
1995 1994
-------------- ------------
(Unaudited)
Lumber and logs $2,159 $1,333
Materials and supplies 1,760 1,744
------ ------
$3,919 $3,077
====== ======
NOTE 3 - SUPPLEMENTAL DISCLOSURE FOR CONSOLIDATED STATEMENTS OF
- ---------------------------------------------------------------
CASH FLOWS
- -----------
Changes in assets and liabilities for the nine-month period ended
September 30, are set forth below (in thousands):
1995 1994
------ ------
(Unaudited)
Increase in accounts receivable ($1,941) ($3,503)
(Increase) decrease in inventory (842) 689
(Increase) in prepayments (1,034) (2,240)
Increase in accounts payable and accrued liabilities 626 1,417
(Decrease) increase in interest and taxes payable (2,741) 419
Net changes in other noncurrent balance sheet items (2,339) (2,774)
------ -------
($8,271) ($5,992)
====== ======
Supplemental cash flow information:
Cash paid for:
Interest $6,586 $6,557
Income taxes $8,775 $4,622
NOTE 4 - SALE OF SURPLUS LAND
- -----------------------------
For the first nine months of 1995, the Company sold approximately 42
acres of surplus land in 14 separate transactions for a total of
$2,025,000. Total gains approximated $579,000 or $.09 per share. During
the first nine months of 1994, the Company sold approximately 41 acres of
surplus land for a total of $1,970,000. Total gains approximated $766,000
or $.12 per share.
NOTE 5 - ACQUISITIONS
- ---------------------
On June 1, 1995, the Company completed the previously announced
acquisition of all of the operating assets of Kent Water Company, a
privately held water company serving 315 customers in Kent, Connecticut,
for $60,000 in cash, the assumption of liablities of $120,000 and the
assumption of debt of $1,220,000. Kent Water Company has annual revenues
of approximately $200,000.
-8-
On July 11, 1995, the Company filed an application with the DPUC to
acquire all of the operating assets of Lakeside Water Company for $100,000
in cash and the assumption of Lakeside's CDA loan of approximately
$101,000. Lakeside, which has 160 customers, serves Southbury,
Connecticut and has approximate annual revenues of $48,000.
On July 25, 1995, the Company filed an application with the DPUC to
acquire all of the operating assets of Timber Trails Community Service
Corporation's Water Division for $15,000 in cash, with the option to
purchase two additional parcels of land for future improvements to serve
existing customers. Timber Trails, which has 114 customers, serves
Sherman and New Fairfield, Connecticut and has approximate annual revenues
of $50,000.
NOTE 6 - TERMINATION OF AGREEMENT
- ---------------------------------
In November 1994, Timco entered into an agreement with the Public
Service Company of New Hampshire (PSNH) under which Timco agreed to
terminate its long-term rate order with PSNH. Under this rate order,
Timco sold electricity produced at its cogeneration plant to PSNH. PSNH
paid Timco $8,195,105 in exchange for the assignment of the rate order to
PSNH and a release of PSNH's obligations to buy power from Timco. As a
result of this transaction, Timco will not have these cogeneration
revenues in the future. Revenues from electricity cogeneration were
approximately $2,600,000 for the first nine months of 1994 and
approximately $3,000,000 for the year-ended December 31, 1994.
NOTE 7 - RATE MATTERS
- ---------------------
On October 20, 1995, BHC filed an application with the DPUC for a
Construction-Work-in-Progress (CWIP) water rate surcharge of 4.27 percent
of current revenues to recover 90 percent of the carrying costs, through
September 30, 1995, of capital used in the construction of a filter plant
at its Hemlocks Reservoir in Fairfield, Connecticut. This plant, mandated
by the Federal Safe Drinking Water Act of 1974 (SDWA), as amended, is
estimated to cost approximately $50,000,000. This application updated the
CWIP rate surcharge of 3.00 percent granted in August 1995.
BHC will continue to file quarterly applications for increases in
the CWIP rate surcharge as construction continues through 1997, at which
time the filtration facility is expected to be operational and subject to
general ratemaking regulations.
NOTE 8 - SUBSEQUENT EVENTS
- --------------------------
On October 12, 1995 Aquarion completed the acquisition of The New
Canaan Water Company (NCWC) and Ridgefield Water Supply Company (RWSC) for
123,053 shares of Aquarion common stock with a market value of $2,828,692
and the repayment of certain indebtedness of The New Canaan Company (NCC)
in an amount of $100,000. Immediately after the acquisition closed, the
parties completed a property exchange whereby the Monroe Environmental
Leasing Partnership (MELP) transferred to NCWC a commercial building and
the property on which it is situated, NCWC transferred a reservoir and
related property to the Second Taxing District of Norwalk (STD) and STD in
turn paid $2,200,000 to MELP, which also received $214,157 from Aquarion.
The property exchange resulted in net income to Aquarion of approximately
$1,100,000 or $.16 per share, which will be recognized in the fourth
quarter. Consolidated annual revenues from NCWC and RWSC were
approximately $2,900,000 for the year-ended December 31, 1994 and
approximately $2,500,000 for the nine-months ended September 30, 1995.
-9-
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
- -----------------------------------
Management's Discussion and Analysis of the Results of Operations
and Financial Condition contained in Aquarion's Annual Report on Form 10-K
for the year ended December 31, 1994 (1994 Form 10-K) should be read in
conjunction with the comments below.
Capital Resources and Liquidity
- -------------------------------
Capital Expenditures
--------------------
The Company invested $29,849,000 in property, plant and equipment in
the first nine months of 1995, compared with $12,363,000 for the same 1994
period. The Utilities accounted for approximately $27,665,000 of plant
additions during the current nine month period, including $13,300,000
expended on SDWA mandated filtration facilities, approximately $1,400,000
for the acquisition of Kent Water Company, and approximately $2,100,000
invested in hardware and software primarily for a new computer information
system for the Utility Operations. Environmental testing laboratories and
forest products operations accounted for approximately $2,184,000 of plant
additions in 1995. Management estimates that capital expenditures will
total $41,500,000 in 1995, of which approximately $39,000,000 will be for
water utility construction programs. Nonutility capital expenditures will
approximate $2,500,000 in 1995, primarily for laboratory equipment, and
computer equipment and software at IEA.
Financing Activities
--------------------
Due to the magnitude of the Company's construction programs and the
capital-intensive nature of the public water supply business, financing
has been provided from both internal and external sources. Historically,
the Company's ability to finance its capital expenditures has depended
substantially on rate relief. Pursuant to DPUC regulations, BHC is
deriving additional revenues through the implementation of a CWIP rate
surcharge in conjunction with the construction of its Hemlocks Reservoir
filtration plant. The current surcharge of 3.00 percent will increase the
Company's revenues by $1,812,000 on an annual basis. This surcharge,
however, is expected to increase quarterly as BHC will continue to file
quarterly applications during the construction period. (Note 7)
On May 11, 1995, BHC issued a $30,000,000 unsecured note in
consideration for a loan of the proceeds from the issuance by the
Connecticut Development Authority (CDA) of an equal amount of tax-exempt
Water Facilities Revenue Bonds. The tax-exempt CDA bonds have a 40-year
maturity and initially bear interest at a weekly rate. At the option of
the Company, the bonds may be converted or reconverted from time to time
to or from a daily, weekly or flexible rate mode and with the consent of
the CDA to a multiannual (fixed for periods of one year or multiples
thereof) rate mode. In addition, the bonds, with the consent of the CDA,
may be converted for their remaining term to bear interest at a fixed
rate. While the bonds are in the daily, weekly or flexible rate modes, a
letter of credit facility or substitute credit facility will be
maintained. The proceeds of this bond issuance are to be used to finance
costs incurred in the construction of the Hemlocks Reservoir Filtration
Project and the filtration facilities at BHC's Lakeville and Norfolk
Reservoirs. Under the terms of the CDA bonds, proceeds are to be
requisitioned from a construction fund held by a trustee for planned
capital improvements and, at least initially, used to reduce short-term
borrowings incurred to finance the cost of construction. At September 30,
1995, the Company had requisitioned approximately $14,903,000 for the
filtration projects.
The percentage of capital expenditures financed by net cash from
operating activities was 41 percent and 100 percent for the nine months
ended September 30, 1995 and 1994, respectively. (See
-10-
Consolidated Financial Statements-Consolidated Statements of Cash Flows.)
The remainder has been provided from external financing sources. The Company
obtained funds of $1,949,000 from advances and contributions in aid of
construction from developers and customers for the nine months ended
September 30, 1995.
Funds from external sources historically have been borrowed on a
short-term basis and periodically refinanced through long-term debt or
equity issues. In May 1995, Aquarion renewed unsecured revolving credit
agreements with five banks. These agreements, which are renewed annually
provide $50,000,000 ($10,000,000 with each bank) of short-term credit
availability on a committed basis. At September 30, 1995, $10,100,000 of
short-term borrowings under the agreements was outstanding.
The Company obtained funds of $2,028,000 from issuances of Common
Stock under its Dividend Reinvestment and Common Stock Purchase Plan (the
Plan) for the nine months ended September 30, 1995.
Future Financing Requirements
-----------------------------
The Company's ability to finance future utility construction
programs depends substantially on rate relief. Rate relief has an impact
on cash flow from operating activities and consequently affects the
Company's ability to obtain external financing, since sufficient operating
cash flows are necessary to maintain certain debt coverage ratios to allow
for the issuance of additional debt securities. Additionally, rate relief
will have an impact on the Company's ability to generate sufficient cash
flows to provide a reasonable return in the form of dividends to
Aquarion's stockholders. In light of the Company's substantial need for
additional funds, the Company will need additional debt and equity capital
to finance future utility construction. The type, amount and timing of
new financings will be based on the Company's general financial policies
regarding capitalization, as well as on market conditions and other
economic factors.
Results of Operations for the nine months
- -----------------------------------------
ended September 30, 1995 and 1994
- ---------------------------------
Net income for the nine months ended September 30, 1995 was
$8,740,000 compared with $9,565,000 for the same 1994 period.
Operating results during the first nine months of 1995 reflect the
impact of the lack of cogeneration income from the forest products segment
versus 1994 as well as a higher utility effective income tax rate in 1995
compared with the previous year.
Operating revenues for the first nine months of 1995 decreased
$1,103,000 from the comparable 1994 period. Forest Products experienced a
decrease in revenues of $2,852,000 due to the termination of the
cogeneration operation in November 1994. Revenues from the Utilities
increased $1,388,000 principally due to the CWIP rate surcharge and
increased consumption during the hot, dry summer of 1995. Revenues from
the Laboratories increased $404,000 reflecting the impact of higher
sampling receipts in 1995. Revenues from Property Sales and the Utility
Management Services businesses account for the remainder of the variance.
Operating expenses for the first nine months of 1995 decreased
$1,189,000 from the comparable 1994 period. Forest products experienced a
decrease in operating expenses of $2,122,000 which was primarily the
result of the termination of the cogeneration operation. The Laboratories
experienced an increase in operating expenses of $459,000 which was
largely due to higher operating and payroll costs associated with the
increased sampling receipts in 1995. Operating expenses from the Utilities
-11-
increased by $409,000 due to higher expenses associated with
purchased water, fuel purchases and maintenance. Operating expenses from
Property Sales and the Utility Management Service businesses account for
the remainder of the variance.
General and administrative expenses for the first nine months of
1995 increased $457,000 from the comparable 1994 period. This increase
was primarily the result of the recognition of retirement benefits for
Jack E. McGregor. The Laboratories experienced an increase of $199,000
which was largely the result of the costs associated with the shutdown of
the Florida lab partially offset by the collection of a note receivable
from a previous sale of a lab facility. The Utilities, Forest Products,
Real Estate and the Utility Management Services businesses account for the
remainder of the variance.
Depreciation expense for the first nine months of 1995 was $223,000
lower than the 1994 comparable period. This decrease is primarily
attributable to the retirement of the Cogeneration Plant at the Timco
facility.
Interest expense for the first nine months of 1995 was $321,000
higher than the 1994 comparable period due to the interest expense
associated with the 1995 debt issuance by BHC of $30,000,000 and higher
short-term borrowing rates partially offset by lower outstanding average
short-term debt. Short-term debt was reduced in the fourth quarter 1994
with the proceeds received from PSNH in connection with the termination of
the cogeneration operation.
Taxes other than income taxes for the first nine months of 1995
decreased $11,000 over the comparable 1994 period. Decreased property
taxes of $206,000 offset by increased payroll and gross earnings taxes of
$195,000 account for this variance.
Income taxes for the nine months of 1995 were $546,000 higher than
the comparable 1994 period. The 1994 effective income tax rate was lower
as a result of the tax benefits associated with non-recurring
refinancings.
Results of Operations for the three months
- ------------------------------------------
ended September 30, 1995 and 1994
- ---------------------------------
Net income for the three months ended September 30, 1995 was
$3,242,000 compared with $3,419,000 for the same 1994 period.
Operating results during the third quarter of 1995 reflect the
impact of a higher utility effective income tax rate in 1995 compared with
the previous year's quarter.
Operating revenues during the third quarter of 1995 increased
$350,000 from the comparable 1994 period. Revenues from the Utilities
increased by $1,849,000 primarily due to increased consumption during the
hot, dry summer of 1995 and the CWIP rate surcharge. Property Sales
revenues increased by $700,000 due to a higher level of sales in the third
quarter of 1995. Forest Products experienced a decrease in revenues of
$1,200,000 due to the termination of the cogeneration operation in
November 1994. Revenues from the Laboratories decreased $979,000,
reflecting the impact of lower sampling receipts in the third quarter of
1995. Revenues from the Utility Management Services businesses account
for the remainder of the variance.
Operating expenses during the third quarter of 1995 decreased $590,000
from the comparable 1994 period. Forest Products experienced a decrease
in operating expenses of $921,000 which was primarily the result of the
termination of the cogeneration operation. The Laboratories experienced a
-12-
decrease in operating expenses of $415,000 which was largely
due to lower operating costs associated with the decreased sampling
receipts in the third quarter of 1995, offset by higher payroll costs.
Operating expenses from property sales increased by $439,000 due to the
higher level of land sales in the third quarter of 1995. The Utilities
experienced an increase of $354,000 which was largely the result of higher
costs associated with purchased water and maintenance costs. Operating
expenses from Utility Management Service businesses account for the
remainder of the variance.
General and administrative expenses during the third quarter of 1995
increased $733,000 from the comparable 1994 period. This increase was
primarily the result of the recognition of retirement benefits for
Jack E. McGregor. Expenses from the Utilities increased $210,000
primarily due to increased costs for outside services partially offset by
lower costs associated with bad debt expense, health insurance, pension
and employee benefits expenses. The Laboratories experienced an increase
of $130,000 which was largely the result of the costs associated with the
shutdown of the Florida lab partially offset by the collection of a note
receivable from a previous sale of a lab facility. Forest Products, Real
Estate and the Utility Management Services businesses account for the
remainder of the variance.
Depreciation expense for the third quarter of 1995 was $75,000
lower than the 1994 comparable period. This decrease is primarily
attributable to the retirement of the Cogeneration Plant at the Timco
facility.
Interest expense for the third quarter of 1995 was $201,000 higher
than the 1994 comparable period. This increase was largely attributable
to the interest expense associated with the 1995 debt issuance by BHC of
$30,000,000 and higher short-term borrowing rates.
Taxes other than income taxes for the third quarter of 1995
increased $52,000 over the comparable 1994 period. Increased payroll and
gross earnings taxes of $76,000 partially offset by decreased property
taxes of $24,000 account for this variance.
Income taxes for the third quarter of 1995 were $287,000 higher than
the comparable 1994 period. The 1994 third quarter effective income tax
rate was lower due to the tax benefits associated with non-recurring
refinancings.
Significant changes in balance sheet accounts
- ---------------------------------------------
for the nine months ended September 30, 1995
- --------------------------------------------
The increase of $842,000 in inventory is largely the result of the
Forest Products division's build-up of inventory to reach a level
appropriate with the current market conditions.
The increase in prepaid expenses of $1,034,000 is primarily
attributable to prepaid property taxes that were paid in July 1995 and
will be expensed over the second half of the year.
Short-term borrowings increased by $10,100,000 primarily due to
increased construction costs for normal utility construction projects.
Short-term debt was reduced in the fourth quarter 1994 with the proceeds
received from PSNH in connection with the termination of the cogeneration
operation.
Income taxes payable decreased by $2,712,000 due primarily to the
payment of taxes related to the 1994 termination of the long-term rate
order with PSNH, which did not have to be reflected in earlier estimated
tax payments and accelerated state tax payments in 1995.
-13-
Accrued postretirement benefit costs increased by $989,000 in 1995
which was largely the result of the recognition of the transition
obligation resulting from the Company's adoption of FASB No. 106
"Employers Accounting for Postretirement Benefits Other than Pensions" in
1993. As allowed by FASB No. 106, the Company has elected to recognize
the transition obligation of $10,471,000 over 20 years.
PART II. OTHER INFORMATION
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ITEM 1. - LEGAL PROCEEDINGS
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All legal proceedings have previously been reported on the Annual
Report on Form 10-K in Part I, Item 3 for the year ended December 31,
1994.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
All "Submission of Matters to a Vote of Security Holders" have been
previously reported on Form 10-Q in Part II, Item 4 for the quarter ended
March 31, 1995.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits.
27 Financial Data Schedule (filed herewith).
(b) On September 8, 1995, the Company filed a report on Form
8-K pursuant to the Securities Exchange Act of 1934,
which under Item 5 reported the management succession
plan that took effect on October 1, 1995.
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SIGNATURE
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.
AQUARION COMPANY
Date: November 9, 1995 By /s/JANET M. HANSEN
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Janet M. Hansen
Executive Vice President,
Chief Financial Officer and
Treasurer
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