FORM 10-Q Page 1 of 20
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, 1996
---------------------------------------------
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
----- -----
At August 1, 1996, the number of shares of common stock, $1.25 par value,
outstanding was 77,857,160 shares, reflecting a two-for-one stock split in
the form of a 100% stock dividend, consummated after the close of the
period ended June 30, 1996.
<PAGE> 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)
<TABLE>
Three Months Ended
June 30,
1996 1995
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $228,621 $200,662
-------- --------
Operating expenses
Operation and maintenance 108,425 98,381
Depreciation and amortization 22,951 19,566
General taxes 20,448 18,924
-------- --------
151,824 136,871
-------- --------
Operating income 76,797 63,791
Allowance for other funds used during
construction 1,069 2,654
Gain from eminent domain litigation 0 6,600
Other income 556 178
-------- --------
78,422 73,223
-------- --------
Income deductions
Interest 34,622 29,239
Allowance for borrowed funds used
during construction (1,041) (2,434)
Amortization of debt expense 376 321
Preferred dividends of subsidiaries 909 926
Other deductions 442 579
-------- --------
35,308 28,631
-------- --------
Income before income taxes 43,114 44,592
Provision for income taxes 16,609 17,167
Net income 26,505 27,425
Dividends on preferred stocks 996 996
-------- --------
Net income to common stock $ 25,509 $ 26,429
======== ========
Average shares of common stock outstanding* 73,606 66,266
Earnings per common share on average shares
outstanding* $ 0.35 $ 0.40
======== ========
<PAGE> Page 3 FORM 10-Q
Three Months Ended
June 30,
1996 1995
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<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period* $625,714 $579,798
Add - net income 26,505 27,425
Deduct - adjustment for 1996 two-for-one
stock split, in the form of a
100% stock dividend, on shares
issued after the close of the period 5,716 397
-------- --------
646,503 606,826
-------- --------
Deduct - dividends
Preferred stock 882 882
Preference stock 114 114
Common stock* - $.175 per share in 1996;
$.16 per share in 1995 12,087 10,567
-------- --------
13,083 11,563
-------- --------
Balance at end of period* $633,420 $595,263
======== ========
*Adjusted for a two-for-one stock split, in the form of a 100% stock
dividend, consummated after the close of the period.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 4 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In thousands, except per share amounts)
<TABLE>
Six Months Ended
June 30,
1996 1995
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<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $426,810 $381,506
-------- --------
Operating expenses
Operation and maintenance 209,069 192,555
Depreciation and amortization 44,493 38,936
General taxes 41,026 38,214
-------- --------
294,588 269,705
-------- --------
Operating income 132,222 111,801
Allowance for other funds used during
construction 4,706 4,772
Gain from eminent domain litigation 0 6,600
Other income 839 515
-------- --------
137,767 123,688
-------- --------
Income deductions
Interest 67,320 57,917
Allowance for borrowed funds used
during construction (3,669) (4,279)
Amortization of debt expense 717 641
Preferred dividends of subsidiaries 1,821 1,860
Other deductions 787 990
-------- --------
66,976 57,129
-------- --------
Income before income taxes 70,791 66,559
Provision for income taxes 27,255 25,587
Net income 43,536 40,972
Dividends on preferred stocks 1,992 1,992
-------- --------
Net income to common stock $ 41,544 $ 38,980
======== ========
Average shares of common stock outstanding* 70,987 65,890
Earnings per common share on average shares
outstanding* $ 0.59 $ 0.59
======== ========
<PAGE> Page 5 FORM 10-Q
Six Months Ended
June 30,
1996 1995
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<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period* $622,061 $578,051
Add - net income 43,536 40,972
Deduct - adjustment for 1996 two-for-one
stock split, in the form of a
100% stock dividend, on shares
issued after the close of the period 6,196 730
-------- --------
659,401 618,293
-------- --------
Deduct - dividends
Preferred stock 1,764 1,764
Preference stock 228 228
Common stock* - $.35 per share in 1996;
$.32 per share in 1995 23,989 21,038
-------- --------
25,981 23,030
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Balance at end of period $633,420 $595,263
======== ========
*Adjusted for a two-for-one stock split, in the form of a 100% stock
dividend, consummated after the close of the period.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 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
1996 1995
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ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $3,290,366 $ 2,884,681
Utility plant acquisition adjustments 55,972 34,974
Other utility plant adjustments 121 147
Non-utility property, net of accumulated
depreciation 24,048 20,144
Excess of cost of investments in
subsidiaries over book equity at
acquisition 22,661 22,638
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3,393,168 2,962,584
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Current assets
Cash and cash equivalents 22,090 23,204
Temporary investments - at cost plus
accrued interest 510 513
Customer accounts receivable 71,289 61,786
Allowance for uncollectible accounts (1,167) (1,030)
Unbilled revenues 60,888 47,790
Miscellaneous receivables 5,417 4,571
Materials and supplies 12,206 9,599
Deferred vacation pay 12,912 9,374
Other 12,774 8,563
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196,919 164,370
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Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 175,332 172,265
Funds restricted for construction 7,528 13,927
Debt and preferred stock expense 26,137 20,753
Deferred pension expense 15,773 16,468
Deferred postretirement benefit expense 11,701 11,418
Accrued revenue 9,494 1,717
Deferred treatment plant costs 8,678 0
Tank painting costs 8,504 8,901
Other 36,712 30,738
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299,859 276,187
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$3,889,946 $ 3,403,141
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<PAGE> Page 7 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Balance Sheet (Unaudited)
(In thousands)
<TABLE>
**
June 30 December 31
1996 1995
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<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock* $ 97,174 $ 84,783
Paid-in capital 285,324 114,161
Retained earnings* 633,420 622,061
Unearned compensation (2,119) (2,066)
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Common stockholders' equity 1,013,799 818,939
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 41,885 42,326
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,285 6,288
Long-term debt
American Water Works Company, Inc. 116,000 116,000
Subsidiaries 1,447,988 1,268,649
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2,677,630 2,303,875
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Current liabilities
Bank debt 230,742 148,639
Current portion of long-term debt 64,788 44,321
Accounts payable 22,690 43,300
Taxes accrued, including federal income 23,322 13,098
Interest accrued 28,955 26,263
Accrued vacation pay 13,068 9,512
Other 35,409 35,940
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418,974 321,073
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<PAGE> Page 8 FORM 10-Q
**
June 30 December 31
1996 1995
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<S> <C> <C>
Regulatory and other long-term liabilities
Advances for construction $ 131,077 $ 131,141
Deferred income taxes 364,589 356,608
Deferred investment tax credits 37,913 38,515
Accrued pension expense 25,962 30,652
Accrued postretirement benefit expense 9,100 9,100
Other 9,989 3,840
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578,630 569,856
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Contributions in aid of construction 214,712 208,337
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Commitments and contingencies 0 0
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$3,889,946 $ 3,403,141
========== ===========
*Adjusted for a two-for-one stock split, in the form of a 100% stock
dividend, consummated after the close of the period.
**Restated
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 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)
<TABLE>
Six Months Ended
June 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 43,536 $ 40,972
Adjustments
Depreciation and amortization 44,493 38,936
Provision for deferred income taxes 6,108 8,977
Provision for losses on accounts receivable 2,400 2,000
Allowance for other funds used during
construction (4,706) (4,772)
Employee benefit expenses less
than funding (1,352) (1,920)
Common stock contributions to employee
benefit plans 2,433 717
Deferred tank painting costs (258) (231)
Deferred rate case expense (1,324) (1,206)
Amortization of deferred charges 4,763 3,710
Other, net (2,209) 582
Changes in assets and liabilities,
net of effects from acquisition
Accounts receivable (6,559) (9,586)
Unbilled revenues (8,471) (10,153)
Other current assets (5,383) (2,534)
Accounts payable (20,610) (2,137)
Taxes accrued, including federal income 10,224 5,518
Interest accrued 315 246
Other current liabilities (531) (2,561)
-------- --------
Net cash from operating activities 62,869 66,558
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (99,028) (136,517)
Allowance for other funds used during
construction 4,706 4,772
Water system acquisition, net of acquired cash (267,250) (4,215)
Proceeds from the disposition of property,
plant and equipment 531 1,166
Removal costs from property, plant and
equipment retirements (1,757) (2,122)
Funds restricted for construction activity 6,683 26,213
Temporary investments 3 906
-------- --------
Net cash used in investing activities (356,112) (109,797)
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<PAGE> Page 10 FORM 10-Q
Six Months Ended
June 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 71,000 $ 13,500
Proceeds from common stock 174,213 13,835
Net borrowings (repayments)
under line-of-credit agreements 82,103 32,747
Advances and contributions for construction,
net of refunds 3,862 4,053
Debt and stock issuance costs (453) (937)
Repayment of long-term debt (12,171) (12,233)
Redemption of preferred stocks (444) (561)
Dividends paid (25,981) (23,030)
-------- --------
Net cash from financing activities 292,129 27,374
-------- --------
Net decrease in cash and
cash equivalents (1,114) (15,865)
Cash and cash equivalents at beginning
of period 23,204 30,091
-------- --------
Cash and cash equivalents at end of period $ 22,090 $ 14,226
======== ========
Cash paid during the period for:
Interest, net of capitalized amount $ 66,315 $ 59,041
======== ========
Income taxes $ 14,152 $ 13,392
======== ========
Common stock issued in lieu of cash in connection with the Employees Stock
Ownership Plan and the Savings Plan for Employees totaled $2,433 in 1996
and $717 in 1995.
Debt and liabilities of $141 million and $7 million, respectively, were
assumed in connection with the Acquisition.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 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
1996 1995
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Capital Stock of American Water Works Company, Inc.
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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$ 40,000 $ 40,000
========== ===========
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
---------- -----------
$ 11,673 $ 11,673
========== ===========
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*- 77,739,518 shares at June 30, 1996;
67,826,670 at December 31, 1995 $ 97,174 $ 84,783
Paid-in capital 285,324 114,161
Retained earnings* 633,420 622,061
Unearned compensation (2,119) (2,066)
---------- -----------
$1,013,799 $ 818,939
========== ===========
During the first six months of 1996*, 8,400,000 shares of common stock were
issued in connection with public and private offerings, 1,013,826 shares
were issued in connection with the Dividend Reinvestment and Stock Purchase
Plan, 132,458 shares were issued in connection with the Employees' Stock
Ownership Plan, 124,992 shares were issued in connection with the Savings
Plan for Employees and 241,572 shares were issued in connection with the
Long-Term Performance-Based Incentive Plan. At June 30, 1996, common
shares reserved for issuance in connection with the Company's stock plans
were 60,923,162 shares for the Stockholder Rights Plan, 7,588,502 shares
for the Dividend Reinvestment and Stock Purchase Plan, 937,240 shares for
the Employees' Stock Ownership Plan, 449,474 shares for the Savings Plan
for Employees and 458,428 shares for the Long-Term Performance-Based
Incentive Plan.
*Adjusted for a two-for-one stock split, in the form of a 100% stock
dividend, consummated after the close of the period.
<PAGE> Page 12 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Notes to Consolidated Financial Statements (Unaudited)
June 30, 1996
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, Pennsylvania-American Water Company, a subsidiary of
American Water Works Company, Inc. (the "Company"), purchased the water
utility operations of Pennsylvania Gas & Water Company ("PG&W," now known
as PG Energy Inc.) for approximately $414 million (subject to certain
adjustments) (the "Acquisition"). The operations acquired generated
revenues of $66.3 million in calendar year 1995. The Company is accounting
for the Acquisition as a purchase. The purchase price is subject to
adjustment based upon the actual value of the net assets of the acquired
operations as of the date of consummation of the Acquisition as compared to
the estimated value of the net assets as of December 31, 1995. The
purchase was funded through short-term borrowings and the assumption of
$141 million of long-term debt and $7 million of other liabilities. A
portion of the short-term debt has been repaid with proceeds from the
Company's public and private offerings as discussed in Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Capital Resources and Liquidity on page 17. Included in the Company's net
income to common stock for the second quarter and first six months of 1996
was approximately $1.0 million ($.02 per share) and $1.6 million ($.03 per
share), respectively, attributable to the Acquisition.
The pro forma results listed below were prepared as if the Acquisition and
the public and private offerings had occurred on January 1, 1995 and
include the historical results of the Company and the acquired operations.
This 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 (dollars in thousands, except per share data):
Six months ended
June 30,
1996 1995
-------- --------
Revenues $434,354 $413,956
Net income 43,962 45,657
Earnings per common share $ 0.59 $ 0.66
<PAGE> Page 13 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Notes to Consolidated Financial Statements (Unaudited)(contd.)
June 30, 1996
NOTE 3 -- Public and Private Offerings of Common Stock
On April 5, 1996, the Company filed a registration statement with the
Securities and Exchange Commission for a proposed public offering of
3,643,100 shares of its common stock.
Concurrently with and conditioned upon the completion of this offering,
certain members of families that are existing large holders of common stock
(the "Ware Family Buyers") agreed to purchase from the Company and the
Company agreed to sell to the Ware Family Buyers 556,900 shares of common
stock at the price to public less underwriting discounts and commissions in
a private offering.
The Ware Family Buyers include a special purpose company of which Marilyn
Ware Lewis is Manager, which was established by three trusts for the
benefit of the children of John H. Ware, 3rd and his wife Marian S. Ware
and which agreed to purchase 450,000 of the 556,900 shares to be sold to
the Ware Family Buyers. The Ware Family Buyers also include Rhoda C. Ware
(through a limited partnership controlled by her) and certain members of
her family who agreed to purchase a total of 106,900 of the 556,900 shares
to be sold to the Ware Family Buyers (including 10,000 to be purchased by
William R. Cobb).
Marilyn Ware Lewis, the Chairman of the Board of the Company, and Paul W.
Ware, a director of the Company, are the daughter and son of John H. Ware,
3rd and Marian S. Ware. Nancy W. Wainwright and William R. Cobb are
directors of the Company and the daughter and son-in-law, respectively, of
Rhoda C. Ware.
As of March 27, 1996, members of the Ware Family, and charitable
foundations set up by such members, beneficially owned approximately 9.2
million (or approximately 27%) of the outstanding shares of common stock.
On May 9, 1996, the Company sold 3,643,100 shares of common stock to the
public at $37.625 per share and 556,900 shares to the Ware Family Buyers at
the price to the public of the public offering, less underwriting discounts
and commissions. The net proceeds from the sale were $152.6 million, after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by the Company.
NOTE 4 -- Stock Split
On July 3, 1996, the Company's Board of Directors authorized a two-for-one
common stock split, in conjunction with stockholder's approval of an
increase in the number of shares of common stock the Company is authorized
to issue. Stockholders of the Company approved the increase in the number
of shares of common stock the Company is authorized to issue from
100,000,000 shares to 300,000,000 shares at the Company's Annual Meeting of
Stockholders held May 2, 1996. The stock split was paid in the form of a
100% stock dividend whereby each holder of shares of common stock received
one additional share of common stock for each share owned. The stock
dividend was paid on July 25, 1996 to shareholders of record on July 15,
1996. Upon effecting the stock dividend, the Company's dividend was
adjusted accordingly.
<PAGE> Page 14 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Notes to Consolidated Financial Statements (Unaudited) (contd.)
June 30, 1996
NOTE 5 -- Regulatory Decision
On March 13, 1996, the New Jersey Board of Public Utilities approved a
$39.5 million per annum rate increase for New Jersey-American Water Company
("New Jersey-American"), including an estimated $13.5 million in annual
revenues from potential wholesale customers. The increase reflects the
completion of the Tri-County Water Supply Project that takes water from the
Delaware River to a new treatment plant and then delivers it throughout the
southern New Jersey area by way of a 29 mile pipeline. This regional
project was designed partly as a supply source for certain water resellers
who have been mandated by the state to reduce their intake from an aquifer
that is suffering from declining water levels. The actual revenues that
New Jersey-American receives will depend on many factors, including the
number of potential wholesale customers that ultimately enter into
contracts to use water from the project as their alternative source of
supply and the volume of water sold. The applicable New Jersey statute
provides for a 45 day appeal period from the date of the order. Rates,
however, may be placed in effect, subject to refund, prior to the end of
the appeal period. An appeal was filed with the New Jersey Board of Public
Utilities. A subsequent appeal has been filed with the Appellate Division
of the Superior Court of New Jersey. New Jersey-American is contesting
this appeal, and in the opinion of its management, such appeal is not
likely to succeed. However, should this appeal be upheld, the result would
not have a material adverse effect on the operating results or financial
position of New Jersey-American or the Company.
<PAGE> Page 15 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------
Results of Operations
- ---------------------
Operating revenues for the second quarter and the first six months of 1996
were higher than for the same periods of 1995 by 14% and 12%, respectively.
The increases are due to the acquisition of the regulated water operations
of PG Energy Inc. (formerly known as Pennsylvania Gas and Water Company) on
February 16, 1996 (The "Acquisition"), and authorized rate increases and
increased sales volume for several subsidiaries. Revenues for the second
quarter and first six months of 1996 reflect $15.8 million and $23.7
million, respectively, related to the Acquisition.
During the first seven months of 1996, nine regulated subsidiaries received
rate orders which are expected to provide approximately $57.8 million in
additional annual revenues. On March 13, 1996, the New Jersey Board of
Public Utilities approved a $39.5 million per annum rate increase for the
Company's subsidiary in New Jersey. See Note 5 to the "Notes to
Consolidated Financial Statements (Unaudited)" on page 14 for more
information on the regulatory decision. Five subsidiaries have rate
increase applications on file before regulatory agencies which, if granted
in full, would provide approximately $12.2 million in additional annual
revenues.
Water sales volume for the first six months of 1996 increased 8% to 115.9
billion gallons versus 107.4 billion gallons in the same period of 1995.
Residential, commercial, industrial, and other customers accounted for 53%,
22%, 15%, and 10%, respectively, of the 8% increase in the first six
months. The sales volume during the second quarter of 1996 increased 10%
to 60.9 billion gallons from 55.6 billion gallons in the second quarter of
1995. Residential, commercial, industrial, and other customers accounted
for 58%, 23%, 12%, and 7%, respectively, of the 10% increase in the second
quarter. The acquisition accounted for approximately 3.0 billion gallons
of water sold in the second quarter of 1996 and 4.4 billion gallons for the
first six months of 1996.
Total operating expenses for the second quarter and the first six months of
1996 increased by 11% and 9%, respectively, over the same periods last
year. Operating expenses in 1996 include expenses relating to the
regulated water operations of the Acquisition. Increases in operation and
maintenance expenses were limited by continuing efforts to achieve cost
efficiencies. Depreciation expense was higher due to growth in utility
plant in service. Higher general tax expense reflects higher property
values and increased gross receipts.
Income deductions, primarily interest, were 23% higher for the second
quarter and 17% higher for the first six months when compared to 1995.
This increase can be attributed primarily to an increase in debt to
initially fund the Acquisition.
Income taxes decreased in the second quarter and increased in the first six
months of 1996 when compared to the same periods in 1995. The second
quarter decrease was the result of the tax effect of a one-time gain from
the conclusion of litigation relating to the sale of assets in
Massachusetts in 1995. The first six months increase can be attributed to
increased earnings in 1996.
<PAGE> Page 16 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (contd.)
- --------------------------------------------------------------------------
Results of Operations
- ------------------------------
Net income to common stock was $25.5 million for the second quarter of 1996
compared with $26.4 million for the same period in 1995. Net income to
common stock for the first six months of 1996 was $41.5 million compared
with $39.0 million for the first six months of 1995. A one-time after-tax
gain of $3.9 million was recorded in the second quarter of 1995 reflecting
proceeds of $6.6 million from the conclusion of eminent domain litigation
relating to the sale of water system assets in Grafton, Massachusetts.
Without this one-time gain, net income to common stock for the second
quarter and the first six months of 1995 was $22.5 million and $35.1
million. The net income to common stock for the first quarter and first
six months of 1996 included approximately $1.0 million and $1.6 million,
respectively, attributed to the Acquisition.
<PAGE> Page 17 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (contd.)
- --------------------------------------------------------------------------
Capital Resources and Liquidity
- --------------------------------
During the balance of 1996, 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.
Four operating subsidiaries issued $71.0 million of long-term debt during
the first six months of 1996. One subsidiary, Pennsylvania-American Water
Company, assumed $141 million of long-term debt in conjunction with the
Acquisition. In addition, the Company invested $195.1 million in the
common stock of six subsidiaries. The proceeds from these financing
arrangements have been used to partially fund the Acquisition, fund
construction programs and repay bank borrowings. It is anticipated that
some subsidiaries will sell long-term debt to institutional investors, tax-
exempt bonds through a government entity to the market place and common
stock to the Company during the remainder of 1996, with the proceeds used
to repay bank loans and to fund construction projects.
In May, the Company's public offering of 3,643,100 shares of common stock
at $37.625 per share was completed. All of the shares were sold by the
Company. In addition, a private offering of 556,900 shares occurred at the
price to the public of the public offering, less underwriting discounts and
commissions. The Company used the proceeds from the sale of the common
stock to invest in the common equity of its subsidiary, Pennsylvania-American
Water Company, which in turn reduced short-term indebtedness
incurred to finance the Acquisition. See Notes 2 and 3 to the "Notes to
Consolidated Financial Statements (Unaudited)" on pages 12 and 13 for
additional information relating to the Acquisition and the public and
private offerings .
The Company paid a 100 percent stock dividend on July 25, 1996 to
shareholders of record on July 15, 1996. The Company also declared its
regular quarterly dividend of 17.5 cents per share on its post-split common
stock, payable August 15, 1996 to shareholders of record on August 2, 1996.
For additional information relating to the stock split, see Note 4 to the
"Notes to Consolidated Financial Statements (Unaudited)" on page 13.
<PAGE> Page 18 FORM 10-Q
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The 1996 annual meeting of stockholders of the Company was held on
Thursday, May 2, 1996. A proposal to amend the Company's Restated
Certificate of Incorporation, as amended, to increase the Company's number
of authorized shares of common stock from 100,000,000 to 300,000,000 was
voted upon at the meeting. Results of the voting were 25,332,483 votes
cast in favor of the proposal to increase the number of authorized shares
of the Company's common stock and 4,313,160 votes cast against such
proposal and 232,047 votes abstained from voting on the proposal.
"Abstain" votes and broker non-votes and the effect of an "against" vote in
as much as the affirmative vote of a majority of the votes entitled to be
cast on the proposal was necessary for approval.
<PAGE> Page 19 FORM 10-Q
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
A. Exhibits
--------
Exhibit number (27), Financial Data Schedule, is filed herewith
electronically.
B. Reports on Form 8-K
-------------------
A current report on Form 8-K was filed on March 1, 1996, by the
Company describing a subsidiary's acquisition (the "Acquisition") of
the regulated water operations and certain related assets of PG Energy
Inc. (formerly known as Pennsylvania Gas and Water Company)(the "Acquired
Business"), as required under Item 2 of Form 8-K.
Form 8-K/A was filed on April 3, 1996, amending Item 7. Financial
Statements, Pro Forma Financial Information and Exhibits to the Current
Form 8-K filed on March 1, 1996. The required financial statements
were not filed with the Current Report on March 1, 1996, due to the
impracticability of filing such information as allowed by Item 7(a)(4)
and Item 7(b)(2). Form 8-K/A filed on April 3, 1996, included the
unaudited pro forma balance sheet presenting the combined financial
position of the Company and the Acquired Business as of December 31,
1995, assuming that the Acquisition had occurred as of December 31,
1995. The unaudited pro forma condensed statement of income was filed
giving effect to the Acquisition by combining the results of operations
of the Company for the year ended December 31, 1995, with the results
of operations of the Acquired Business for the year ended December 31,
1995. In addition, the Report of Independent Public Accountants and
the audited financial statements of the Acquired Business were included
with the 8-K/A filed on April 3, 1996.
A current report on Form 8-K was filed by the Company on April 25,
1996, reporting the results of operations for the quarter ended March 31,
1996.
<PAGE> Page 20 FORM 10-Q
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.
AMERICAN WATER WORKS COMPANY, INC.
Date August 7, 1996 /s/ George W. Johnstone
- ------------------- --------------------------------------
George W. Johnstone, President and CEO
(Authorized Officer)
Date August 7, 1996 /s/ Robert D. Sievers
- --------------------- --------------------------------------
Robert D. Sievers, Comptroller
(Chief Accounting Officer)
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