FORM 10-Q Page 1 of 17
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 June 30, 1997
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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
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Commission File Number 1-3437-2
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AMERICAN WATER WORKS COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 51-0063696
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1025 Laurel Oak Road, Voorhees, New Jersey 08043
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(Address of principal executive offices) (Zip Code)
(609) 346-8200
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(Registrant's telephone number, including area code)
Not Applicable
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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, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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At August 1, 1997, the number of shares of common stock, $1.25 par value,
outstanding was 79,254,681 shares.
Page 2 FORM 10-Q
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
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AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Consolidated Statements of Income and Retained Earnings (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
June 30,
1997 1996
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CONSOLIDATED INCOME
Operating revenues $237,915 $228,621
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Operating expenses
Operation and maintenance 104,396 108,425
Depreciation and amortization 25,355 22,951
General taxes 21,590 20,448
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151,341 151,824
-------- --------
Operating income 86,574 76,797
Allowance for other funds used during
construction 1,623 1,069
Other income 341 556
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88,538 78,422
-------- --------
Income deductions
Interest 36,483 34,622
Allowance for borrowed funds used
during construction (1,119) (1,041)
Amortization of debt expense 395 376
Preferred dividends of subsidiaries 885 909
Other deductions 530 442
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37,174 35,308
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Income before income taxes 51,364 43,114
Provision for income taxes 19,724 16,609
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Net income 31,640 26,505
Dividends on preferred stocks 996 996
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Net income to common stock $ 30,644 $ 25,509
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Weighted average shares of common stock outstanding 79,100 73,606
Earnings per common share on weighted average
shares outstanding $ 0.39 $ 0.35
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Page 3 FORM 10-Q
Three Months Ended
June 30,
1997 1996
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CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period $664,305 $625,714
Add - net income 31,640 26,505
Deduct - adjustment for 1996 two-for-one
stock split, in the form of a
100% stock dividend, on shares
issued during the period 0 5,716
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695,945 646,503
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Deduct - dividends
Preferred stock 882 882
Preference stock 114 114
Common stock - $.19 per share in 1997;
$.175 per share in 1996 15,006 12,087
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16,002 13,083
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Balance at end of period $679,943 $633,420
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The accompanying notes are an integral part of these financial statements.
Page 4 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Consolidated Statements of Income and Retained Earnings (Unaudited)
(In thousands, except per share amounts)
Six Months Ended
June 30,
1997 1996
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CONSOLIDATED INCOME
Operating revenues $451,272 $426,810
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Operating expenses
Operation and maintenance 205,149 209,069
Depreciation and amortization 50,412 44,493
General taxes 44,234 41,026
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299,795 294,588
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Operating income 151,477 132,222
Allowance for other funds used during
construction 3,027 4,706
Other income 450 839
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154,954 137,767
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Income deductions
Interest 72,101 67,320
Allowance for borrowed funds used
during construction (1,820) (3,669)
Amortization of debt expense 787 717
Preferred dividends of subsidiaries 1,774 1,821
Other deductions 1,391 787
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74,233 66,976
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Income before income taxes 80,721 70,791
Provision for income taxes 31,051 27,255
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Net income 49,670 43,536
Dividends on preferred stocks 1,992 1,992
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Net income to common stock $ 47,678 $ 41,544
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Average shares of common stock outstanding 78,894 70,987
Earnings per common share on average shares
outstanding $ 0.60 $ 0.59
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Page 5 FORM 10-Q
Six Months Ended
June 30,
1997 1996
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CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period $662,183 $622,061
Add - net income 49,670 43,536
Deduct - adjustment for 1996 two-for-one
stock split, in the form of a
100% stock dividend, on shares
issued during the period 0 6,196
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$711,853 659,401
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Deduct - dividends
Preferred stock 1,764 1,764
Preference stock 228 228
Common stock - $.38 per share in 1997;
$.35 per share in 1996 29,918 23,989
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31,910 25,981
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Balance at end of period $679,943 $633,420
======== ========
The accompanying notes are an integral part of these financial statements.
Page 6 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Consolidated Balance Sheet (Unaudited)
(In thousands)
June 30 December 31
1997 1996
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ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $ 3,543,660 $ 3,453,950
Utility plant acquisition adjustments 51,799 52,156
Non-utility property, net of accumulated
depreciation 32,844 31,302
Excess of cost of investments in
subsidiaries over book equity at
acquisition 22,710 22,690
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3,651,013 3,560,098
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Current assets
Cash and cash equivalents 9,449 12,974
Customer accounts receivable 67,614 67,293
Allowance for uncollectible accounts (1,237) (1,115)
Unbilled revenues 63,032 53,868
Miscellaneous receivables 6,660 4,787
Materials and supplies 12,217 11,063
Deferred vacation pay 12,397 10,400
Other 9,045 7,994
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179,177 167,264
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Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 179,297 177,064
Debt and preferred stock expense 28,944 28,736
Deferred pension expense 20,247 18,340
Deferred postretirement benefit expense 11,679 11,852
Deferred treatment plant costs 8,171 8,388
Deferred water utility billings 5,500 6,808
Tank painting costs 10,459 10,224
Funds restricted for construction 14,625 5,791
Other 39,493 37,591
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318,415 304,794
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$ 4,148,605 $ 4,032,156
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Page 7 FORM 10-Q
June 30 December 31
1997 1996
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CAPITALIZATION AND LIABILITIES
Capitalization
Common stock $ 98,994 $ 98,027
Paid-in capital 314,284 298,448
Retained earnings 679,943 662,183
Unearned compensation (1,114) (784)
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Common stockholders' equity 1,092,107 1,057,874
Preferred stocks with mandatory redemption
requirements 40,000 40,000
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Preferred stocks of subsidiaries with
mandatory redemption requirements 40,539 41,060
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,256 6,279
Long-term debt
American Water Works Company, Inc. 116,000 116,000
Subsidiaries 1,676,680 1,600,394
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2,983,255 2,873,280
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Current liabilities
Bank debt 156,741 147,390
Current portion of long-term debt 35,790 57,144
Accounts payable 27,274 36,786
Taxes accrued, including federal income 22,489 10,803
Interest accrued 32,850 32,128
Accrued vacation pay 12,508 10,564
Other 31,289 40,155
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318,941 334,970
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Page 8 FORM 10-Q
June 30 December 31
1997 1996
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Regulatory and other long-term liabilities
Advances for construction $ 124,917 $ 129,466
Deferred income taxes 397,485 382,592
Deferred investment tax credits 36,743 37,345
Accrued pension expense 32,619 35,702
Accrued postretirement benefit expense 10,026 10,034
Other 8,418 4,081
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610,208 599,220
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Contributions in aid of construction 236,201 224,686
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Commitments and contingencies 0 0
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$ 4,148,605 $ 4,032,156
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The accompanying notes are an integral part of these financial statements.
Page 9 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
Six Months Ended
June 30,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 49,670 $ 43,536
Adjustments
Depreciation and amortization 50,412 44,493
Provision for deferred income taxes 12,994 6,108
Provision for losses on accounts receivable 3,495 2,400
Allowance for other funds used during
construction (3,027) (4,706)
Employee benefit expenses (less) than funding 154 (1,352)
Employee stock plan expenses 3,411 3,400
Deferred tank painting costs (984) (258)
Deferred rate case expense (991) (1,324)
Amortization of deferred charges 4,266 4,763
Other, net 1,881 (2,918)
Changes in assets and liabilities,
net of effects from acquisition
Accounts receivable (5,567) (6,559)
Unbilled revenues (9,164) (8,471)
Other current assets (2,205) (5,383)
Accounts payable (9,512) (20,610)
Taxes accrued, including federal income 11,686 10,224
Interest accrued 722 315
Other current liabilities (8,866) (531)
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Net cash from operating activities 98,375 63,127
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CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (142,332) (99,028)
Allowance for other funds used during
construction 3,027 4,706
Water system acquisitions (125) (267,250)
Proceeds from the disposition of property,
plant and equipment 507 531
Removal costs from property, plant and
equipment retirements (3,358) (1,757)
Funds restricted for construction activity (8,834) 6,683
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Net cash used in investing activities (151,115) (356,115)
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Page 10 FORM 10-Q
Six Months Ended
June 30,
1997 1996
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 87,000 $ 71,000
Proceeds from common stock 13,062 173,958
Net borrowings under
line-of-credit agreements 9,351 82,103
Advances and contributions for construction,
net of refunds 5,302 3,862
Debt and stock issuance costs (978) (453)
Repayment of long-term debt (32,068) (12,171)
Redemption of preferred stocks (544) (444)
Dividends paid (31,910) (25,981)
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Net cash from financing activities 49,215 291,874
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Net decrease in cash and
cash equivalents (3,525) (1,114)
Cash and cash equivalents at beginning
of period 12,974 23,204
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Cash and cash equivalents at end of period $ 9,449 $ 22,090
======== ========
Cash paid during the period for:
Interest, net of capitalized amount $ 72,661 $ 66,315
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Income taxes $ 16,155 $ 14,152
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Common stock issued in lieu of cash in connection with the Employees' Stock
Ownership Plan, the Savings Plan for Employees and the Long-Term
Performance-Based Incentive Plan totaled $2,607 in 1997 and $5,551 in 1996.
Debt and liabilities of $141 million and $5.9 million, respectively, were
assumed in connection with the Acquisition in 1996.
The accompanying notes are an integral part of these financial statements.
Page 11 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Information Accompanying Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
June 30 December 31
1997 1996
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Preferred stocks with mandatory redemption requirements
Cumulative preferred stock - $25 par value
Authorized - 1,770,000 shares
8.50% series (non-voting) - 1,600,000 shares
outstanding $ 40,000 $ 40,000
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Preferred stocks without mandatory redemption requirements
Cumulative preferred stock - $25 par value
5% series (one-tenth of a vote per share)
- 101,777 shares outstanding $ 2,544 $ 2,544
Cumulative preference stock - $25 par value
Authorized - 750,000 shares
5% series (non-voting) - 365,158 shares
outstanding 9,129 9,129
Cumulative preferential stock - $35 par value
Authorized - 3,000,000 shares 0 0
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$ 11,673 $ 11,673
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The terms of the 8.50% preferred stock provide that all shares of the
series shall be redeemed on December 1, 2000.
Common stockholders' equity
Common stock - $1.25 par value
Authorized - 300,000,000 shares
Outstanding - 79,195,153 shares at June 30, 1997;
78,421,302 at December 31, 1996 $ 98,994 $ 98,027
Paid-in capital 314,284 298,448
Retained earnings 679,943 662,183
Unearned compensation (1,114) (784)
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$1,092,107 $ 1,057,874
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During the first six months of 1997, 466,808 shares were issued in
connection with the Dividend Reinvestment and Stock Purchase Plan, 134,182
shares were issued in connection with the Employees' Stock Ownership Plan,
112,018 shares were issued in connection with the Savings Plan for
Employees and 60,843 shares were issued in connection with the Long-Term
Performance-Based Incentive Plan. At June 30, 1997, common shares reserved
for issuance in connection with the Company's stock plans were 60,923,162
shares for the Stockholder Rights Plan, 6,574,423 shares for the Dividend
Reinvestment and Stock Purchase Plan, 803,058 shares for the Employees'
Stock Ownership Plan, 202,943 shares for the Savings Plan for Employees and
397,585 shares for the Long-Term Performance-Based Incentive Plan.
Page 12 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts)
NOTE 1 -- Financial Statement Presentation
The information presented in this Form 10-Q is unaudited. In the opinion
of management the information reported reflects all adjustments, consisting
of normal recurring adjustments, which were necessary to a fair statement
of the results for the periods reported. Certain reclassifications have
been made to conform previously reported data to the current presentation.
NOTE 2 -- Acquisition
On February 16, 1996, the Company's subsidiary, Pennsylvania-American Water
Company, acquired the water utility operations of Pennsylvania Gas and
Water Company (now known as PG Energy Inc.) for $409,400. The acquired
operations, which include 10 water treatment plants and 36 reservoirs,
serve approximately 132,000 customers in northeastern Pennsylvania. The
acquisition was accounted for as a purchase, and the accompanying financial
statements reflect the results of operations of the acquired business
subsequent to the purchase date. The purchase price consisted of $262,500
in cash and the assumption of $146,900 of PG Energy Inc.'s liabilities,
including $141,000 of its long-term debt. The cash payment was funded with
short-term debt that was subsequently repaid with the proceeds from the
Company's 1996 common stock offering and a portion of the proceeds from
Pennsylvania-American's 1996 offering of $150,000 of 30-year, 7.8% General
Mortgage Bonds.
The unaudited pro forma results listed below were prepared as if the
acquisition and related offerings had occurred on January 1, 1996, and
include the historical results of the Company and of the acquired
operations. The unaudited pro forma information is not necessarily
indicative of the results of operations that might have occurred had the
acquisition actually taken place on the date indicated, or of future
results of operations of the combined entities.
Six months ended June 30, 1996
- ---------------------------------
Revenues $434,354
Net income 44,419
Earnings per common share $ 0.55
NOTE 3 -- New Accounting Standard
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" and Statement of Financial Accounting Standards No.
129, "Disclosure of Information about Capital Structure," were issued by
the Financial Accounting Standards Board requiring implementation for
periods ending after December 15, 1997.
Adoption of these statements effective December 31, 1997, is not expected
to have a significant effect on the financial statements of the Company.
Page 13 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Results of Operations
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Operating revenues for the second quarter and the first six months of 1997
were higher than for the same periods of 1996 by 4% and 6%, respectively.
The increases are due to authorized rate increases for several subsidiaries
and the acquisition of the regulated water operations in northeastern
Pennsylvania. Revenues included in the second quarter of 1997 from the
northeastern Pennsylvania acquisition were approximately equal to those
included in the second quarter of 1996. In the first six months of 1997,
the northeastern Pennsylvania acquisition increased operating revenues by
$7.4 million in comparison to the same period in 1996.
During the first seven months of 1997, four regulated subsidiaries received
rate orders which are expected to provide approximately $5.4 million in
additional annual revenues. Nine subsidiaries have rate increase
applications on file before regulatory agencies which, if granted in full,
would provide approximately $73.1 million in additional annual revenues.
A rate increase application pending for Pennsylvania-American Water Company
accounts for $41.4 million of the $73.1 million in requested additional
annual revenues awaiting decision. The request addresses the Company's
added investment in water service facilities since its last rate decision
including the northeastern Pennsylvania acquisition. A decision is
expected in late 1997.
Water sales volume during the second quarter of 1997 decreased 1% to 60.5
billion gallons from 60.9 billion gallons in the second quarter of 1996.
The 116.4 billion gallons of sales volume for the first six months of 1997
was approximately equal to 115.8 billion gallons sold in the same period of
1996. The acquisition added approximately 2.0 billion gallons of water
sold for the first six months of 1997 when compared to the first six months
of 1996.
Total operating expenses for the second quarter of 1997 were approximately
equal to those in the second quarter of 1996. The total operating expenses
in the first six months of 1997 increased by 2% over the same period last
year. Continuing efforts to achieve cost efficiencies resulted in decreases
in operation and maintenance expenses of 4% and 2% for the second quarter
and first six months of 1997, respectively, in comparison to the same
periods in 1996. Depreciation expense was higher for the second quarter
and first six months of 1997 when compared to the second quarter and first
six months of 1996 due to growth in utility plant in service. General
taxes increased in the second quarter and first six months of 1997 when
compared to the same periods of 1996 reflecting higher property values and
increased gross receipts.
Page 14 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (contd.)
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Results of Operations (contd.)
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Income deductions, primarily interest, were 5% higher for the second
quarter and 11% higher for the first six months when compared to the same
periods in 1996. The increases can be attributed primarily due to an
increase in total debt to fund the construction of new water service assets
and the northeastern Pennsylvania acquisition.
The total allowance for funds used during construction recorded in the
second quarter of 1997 was 30% greater than the second quarter of 1996 as a
result of construction of new water service assets. The total allowance
for funds used during construction in the first six months of 1997
decreased 42% when compared to the same period in 1996. This decrease was
due to the completion of the Delaware River Regional Water Treatment Plant
in New Jersey which began operation in 1996.
Income taxes increased in the second quarter and the first six months of
1997 when compared to the same periods in 1996. The increases can be
attributed to increased earnings in 1997.
Net income to common stock was $30.6 million for the second quarter of 1997
compared with $25.5 million for the same period in 1996. Net income to
common stock for the first six months of 1997 was $47.7 million compared
with $41.5 million for the first six months of 1996. The first six months
of 1997 results included six months of the northeastern Pennsylvania
acquisition as compared to four and one-half months for the same period in
1996.
Page 15 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (contd.)
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Capital Resources and Liquidity
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All shares of common stock issued during 1997 have been the result of stock
issued in conjunction with the Dividend Reinvestment and Stock Purchase
Plan, the Employees Stock Ownership Plan, the Savings Plan for Employees,
and the Long-Term Performance-Based Incentive Plan.
During the balance of 1997, the Company plans to continue issuing common
stock through its Dividend Reinvestment and Stock Purchase Plan and the
Savings Plan for Employees. Proceeds from the issuance of common stock
will fund additional equity investments in subsidiaries.
Six operating subsidiaries issued $107.0 million of long-term debt during
the first seven months of 1997. In addition, the Company invested $35.3
million in the common stock of seven subsidiaries. The proceeds from these
financing arrangements have been used to fund construction programs and
repay bank borrowings. It is anticipated that some subsidiaries will sell
long-term debt to institutional investors and common stock to the Company
during the remainder of 1997, with the proceeds used to repay bank loans
and to fund construction projects.
Page 16 FORM 10-Q
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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A. Exhibits
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Exhibit number (27), Financial Data Schedule, is filed herewith
electronically.
B. Reports on Form 8-K
-------------------
No report on Form 8-K was filed by the registrant during the quarter ended
June 30, 1997.
Page 17 FORM 10-Q
SIGNATURES
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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.
AMERICAN WATER WORKS COMPANY, INC.
Date August 12, 1997 /s/ George W. Johnstone
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George W. Johnstone, President and CEO
(Authorized Officer)
Date August 12, 1997 /s/ Robert D. Sievers
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Robert D. Sievers, Comptroller
(Chief Accounting Officer)