FORM 10-Q Page 1 of 19
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, 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 November 1, 1996, the number of shares of common stock, $1.25 par value,
outstanding was 78,196,975 shares, reflecting a two-for-one stock split in
the form of a 100% stock dividend consummated July 25, 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
-----------------------------------------------------------
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In thousands, except per share amounts)
<TABLE>
Three Months Ended
September 30,
1996 1995
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<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $247,616 $222,961
-------- --------
Operating expenses
Operation and maintenance 112,012 105,631
Depreciation and amortization 23,620 20,054
General taxes 20,439 19,137
-------- --------
156,071 144,822
-------- --------
Operating income 91,545 78,139
Allowance for other funds used during
construction 657 3,372
Other income 1,875 375
-------- --------
94,077 81,886
-------- --------
Income deductions
Interest 34,068 29,715
Allowance for borrowed funds used
during construction (615) (2,557)
Amortization of debt expense 383 310
Preferred dividends of subsidiaries 901 923
Other deductions 417 611
-------- --------
35,154 29,002
-------- --------
Income before income taxes 58,923 52,884
Provision for income taxes 22,617 20,285
-------- --------
Net income 36,306 32,599
Dividends on preferred stocks 996 996
-------- --------
Net income to common stock $ 35,310 $ 31,603
======== ========
Weighted average shares of common stock outstanding* 77,949 66,918
Earnings per common share on weighted average
shares outstanding* $ 0.45 $ 0.47
======== ========
<PAGE> Page 3 FORM 10-Q
Three Months Ended
September 30,
1996 1995
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<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period* $633,420 $595,263
Add - net income 36,306 32,599
Deduct - adjustment for 1996 two-for-one
stock split, in the form of a
100% stock dividend, on shares
issued during the period 73 445
-------- --------
669,653 627,417
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Deduct - dividends
Preferred stock 882 882
Preference stock 114 114
Common stock* - $.175 per share in 1996;
$.16 per share in 1995 13,625 10,689
-------- --------
14,621 11,685
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Balance at end of period* $655,032 $615,732
======== ========
*Adjusted for a two-for-one stock split, in the form of a 100% stock
dividend, consummated on July 25, 1996.
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
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Consolidated Statements of Income and Retained Earnings (Unaudited)
(In thousands, except per share amounts)
<TABLE>
Nine Months Ended
September 30,
1996 1995
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<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $674,426 $604,467
-------- --------
Operating expenses
Operation and maintenance 321,081 298,186
Depreciation and amortization 68,113 58,990
General taxes 61,465 57,351
-------- --------
450,659 414,527
-------- --------
Operating income 223,767 189,940
Allowance for other funds used during
construction 5,363 8,144
Gain from eminent domain litigation 0 6,600
Other income 2,714 890
-------- --------
231,844 205,574
-------- --------
Income deductions
Interest 101,388 87,632
Allowance for borrowed funds used
during construction (4,284) (6,836)
Amortization of debt expense 1,100 951
Preferred dividends of subsidiaries 2,722 2,783
Other deductions 1,204 1,601
-------- --------
102,130 86,131
-------- --------
Income before income taxes 129,714 119,443
Provision for income taxes 49,872 45,872
-------- --------
Net income 79,842 73,571
Dividends on preferred stocks 2,988 2,988
-------- --------
Net income to common stock $ 76,854 $ 70,583
======== ========
Weighted average shares of common stock outstanding* 73,347 66,237
Earnings per common share on weighted average
shares outstanding* $ 1.05 $ 1.07
======== ========
<PAGE> Page 5 FORM 10-Q
Nine Months Ended
September 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 79,842 73,571
Deduct - adjustment for 1996 two-for-one
stock split, in the form of a
100% stock dividend, on shares
issued during the period 6,269 1,175
-------- --------
695,634 650,447
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Deduct - dividends
Preferred stock 2,646 2,646
Preference stock 342 342
Common stock* - $.525 per share in 1996;
$.48 per share in 1995 37,614 31,727
-------- --------
40,602 34,715
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Balance at end of period $655,032 $615,732
======== ========
*Adjusted for a two-for-one stock split, in the form of a 100% stock
dividend, consummated on July 25, 1996.
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
-----------------------------------------------------------
Consolidated Balance Sheet (Unaudited)
(In thousands)
<TABLE>
**
September 30 December 31
1996 1995
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<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $ 3,343,169 $ 2,884,681
Utility plant acquisition adjustments 52,615 34,974
Other utility plant adjustments 109 147
Non-utility property, net of accumulated
depreciation 24,872 20,144
Excess of cost of investments in
subsidiaries over book equity at
acquisition 22,675 22,638
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3,443,440 2,962,584
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Current assets
Cash and cash equivalents 36,638 23,204
Temporary investments - at cost plus
accrued interest 515 513
Customer accounts receivable 74,200 61,786
Allowance for uncollectible accounts (1,161) (1,030)
Unbilled revenues 57,357 47,790
Miscellaneous receivables 4,648 4,571
Materials and supplies 12,125 9,599
Deferred vacation pay 10,849 9,374
Other 10,285 8,563
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205,456 164,370
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Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 176,192 172,265
Funds restricted for construction 6,905 13,927
Debt and preferred stock expense 27,314 20,753
Deferred pension expense 16,997 16,468
Deferred postretirement benefit expense 11,740 11,418
Accrued revenue 8,410 1,717
Deferred treatment plant costs 8,533 0
Tank painting costs 9,621 8,901
Other 42,455 30,738
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308,167 276,187
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$ 3,957,063 $ 3,403,141
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<PAGE> Page 7 FORM 10-Q
**
September 30 December 31
1996 1995
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<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock* $ 97,655 $ 84,783
Paid-in capital 292,385 114,161
Retained earnings* 655,032 622,061
Unearned compensation (2,058) (2,066)
------------ -----------
Common stockholders' equity 1,043,014 818,939
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 41,349 42,326
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,284 6,288
Long-term debt
American Water Works Company, Inc. 116,000 116,000
Subsidiaries 1,598,459 1,268,649
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2,856,779 2,303,875
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Current liabilities
Bank debt 97,998 148,639
Current portion of long-term debt 64,054 44,321
Accounts payable 25,656 43,300
Taxes accrued, including federal income 23,750 13,098
Interest accrued 37,019 26,263
Accrued vacation pay 10,989 9,512
Other 32,391 35,940
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291,857 321,073
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<PAGE> Page 8 FORM 10-Q
**
September 30 December 31
1996 1995
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<S> <C> <C>
Regulatory and other long-term liabilities
Advances for construction $ 133,218 $ 131,141
Deferred income taxes 372,641 356,608
Deferred investment tax credits 37,576 38,515
Accrued pension expense 27,882 30,652
Accrued postretirement benefit expense 9,100 9,100
Other 11,307 3,840
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591,724 569,856
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Contributions in aid of construction 216,703 208,337
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Commitments and contingencies 0 0
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$ 3,957,063 $ 3,403,141
============ ===========
*Adjusted for a two-for-one stock split, in the form of a 100% stock
dividend, consummated on July 25, 1996.
**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>
Nine Months Ended
September 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 79,842 $ 73,571
Adjustments
Depreciation and amortization 68,113 58,990
Provision for deferred income taxes 13,751 10,929
Provision for losses on accounts receivable 4,051 3,121
Allowance for other funds used during
construction (5,363) (8,144)
Employee benefit expenses less
than funding (1,064) (3,169)
Common stock contributions to employee
benefit plans 3,000 2,481
Deferred acquisition expense (3,826) 0
Deferred tank painting costs (1,466) (672)
Deferred rate case expense (1,676) (1,955)
Amortization of deferred charges 7,495 5,495
Other, net (871) (927)
Changes in assets and liabilities,
net of effects from acquisition
Accounts receivable (10,469) (21,380)
Unbilled revenues (9,567) (2,288)
Other current assets (2,740) (1,106)
Accounts payable (17,644) (11,514)
Taxes accrued, including federal income 10,356 10,322
Interest accrued 8,356 6,155
Other current liabilities (3,549) 574
-------- --------
Net cash from operating activities 136,729 120,483
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (173,438) (223,616)
Allowance for other funds used during
construction 5,363 8,144
Water system acquisition, net of acquired cash (263,526) (4,676)
Proceeds from the disposition of property,
plant and equipment 2,982 15,938
Removal costs from property, plant and
equipment retirements (3,264) (3,581)
Funds restricted for construction activity 7,022 3,407
Temporary investments (2) 731
-------- --------
Net cash used in investing activities (424,863) (203,653)
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<PAGE> Page 10 FORM 10-Q
Nine Months Ended
September 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 231,700 $ 92,794
Proceeds from common stock 181,114 24,422
Net borrowings (repayments)
under line-of-credit agreements (50,641) 21,563
Advances and contributions for construction,
net of refunds 7,652 12,852
Debt and stock issuance costs (3,521) (1,505)
Repayment of long-term debt (23,153) (35,896)
Redemption of preferred stocks (981) (1,110)
Dividends paid (40,602) (34,715)
--------- --------
Net cash from financing activities 301,568 78,405
--------- --------
Net increase/(decrease) in cash and
cash equivalents 13,434 (4,765)
Cash and cash equivalents at beginning
of period 23,204 30,091
--------- --------
Cash and cash equivalents at end of period $ 36,638 $ 25,326
========= ========
Cash paid during the period for:
Interest, net of capitalized amount $ 93,155 $ 83,399
========= ========
Income taxes $ 28,690 $ 25,179
========= ========
Common stock issued in lieu of cash in connection with the Employees Stock
Ownership Plan and the Savings Plan for Employees totaled $3,000 in 1996
and $2,481 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)
September 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*- 78,123,830 shares at September 30, 1996;
67,826,670 at December 31, 1995 $ 97,655 $ 84,783
Paid-in capital 292,385 114,161
Retained earnings* 655,032 622,061
Unearned compensation (2,058) (2,066)
---------- -----------
$1,043,014 $ 818,939
========== ===========
During the first nine months of 1996*, 8,400,000 shares of common stock
were issued in connection with public and private offerings, 1,320,634
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, 202,496 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 September 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,
7,281,694 shares for the Dividend Reinvestment and Stock Purchase Plan,
937,240 shares for the Employees' Stock Ownership Plan, 371,970 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 on July 25, 1996.
<PAGE> Page 12 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Notes to Consolidated Financial Statements (Unaudited)
September 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 ("PAWC"), a
subsidiary of American Water Works Company, Inc. (the "Company"), purchased
the water utility operations of Pennsylvania Gas and 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 accounted for
the Acquisition as a purchase. The purchase price was 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 price, as adjusted, was $409.4 million consisting of $262.5
million in cash and the assumption of $146.9 million of PG & W's
liabilities, including $141.0 million of its long-term debt. The purchase
was funded through short-term borrowings and the assumption of the long-
term debt and other liabilities. A portion of the short-term debt was
repaid with proceeds from the Company's public and private offerings. The
remaining short-term indebtedness was repaid with a portion of the proceeds
from PAWC's offering of $150 million principal amount 7.8% General Mortgage
Bonds due September 1, 2026. For additional discussion on the public and
private offerings, and the PAWC bond offering, see Item 2 of 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 third quarter and first nine months of 1996
was approximately $2.6 million ($.03 per share) and $4.2 million ($.06 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):
Nine months ended
September 30,
1996 1995
-------- --------
Revenues $681,970 $655,069
Net income 80,344 79,939
Earnings per common share $ 1.00 $ 1.03
<PAGE> Page 13 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)(contd.)
September 30, 1996
NOTE 3 -- Public and Private Offerings of Common Stock (This note reflects
share amounts on a pre-split basis)
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
-----------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited) (contd.)
September 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. A subsequent appeal has been filed
with the Superior Court of New Jersey, Appellate Division, within the time
provided in the applicable court rules. The appeal has challenged the
design of the rate, but not the level of revenues established by the New
Jersey Board of Public Utilities order. 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 third quarter and the first nine months of 1996
were higher than for the same periods of 1995 by 11% 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 third
quarter and first nine months of 1996 reflect $17.2 million and $40.9
million, respectively, related to the Acquisition.
During the first ten months of 1996, eleven regulated subsidiaries received
rate orders which are expected to provide approximately $61.6 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. Three subsidiaries have rate
increase applications on file before regulatory agencies which, if granted
in full, would provide approximately $6.0 million in additional annual
revenues.
The water sales volume during the third quarter of 1996 of 71.3 billion
gallons was approximately equal to the 71.2 billion gallons sold in the
second quarter of 1995. Sales volume for the first nine months of 1996
increased 5% to 187.2 billion gallons versus 178.6 billion gallons in the
same period of 1995. Residential, commercial, industrial, and other
customers accounted for 49%, 21%, 19%, and 11%, respectively, of the 5%
increase in the first nine months. The acquisition accounted for
approximately 3.5 billion gallons of water sold in the third quarter of
1996 and 7.9 billion gallons for the first nine months of 1996.
Total operating expenses for the third quarter and the first nine months of
1996 increased by 8% and 9%, respectively, over the same periods last year.
Operating expenses in 1996 include expenses related to 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 21% higher for the third
quarter and 19% higher for the first nine months when compared to 1995.
This increase can be attributed primarily to an increase in debt to fund
the Acquisition.
Income taxes increased 11% in the third quarter and 9% in the first nine
months of 1996 when compared to the same periods in 1995. The third
quarter and first nine months increases 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 $35.3 million for the third quarter of 1996
compared with $31.6 million for the same period in 1995. Net income to
common stock for the first nine months of 1996 was $76.9 million compared
with $70.6 million for the first nine 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 first nine
months of 1995 was $66.7 million. The net income to common stock for the
third quarter and first nine months of 1996 included approximately $2.6
million and $4.2 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.
Nine regulated subsidiaries issued $237.4 million of long-term debt during
the first nine 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 $69.9 million in the common
stock of nine 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 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 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. On
October 3, 1996, the Company declared its quarterly dividend of 17 1/2
cents per share of common stock, payable November 15, 1996, to shareholders
of record on October 25, 1996.
<PAGE> Page 18 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
-------------------
No report on Form 8-K was filed by the registrant during the quarter ended
September 30, 1996.
<PAGE> Page 19 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 November 12, 1996 /s/ George W. Johnstone
- ---------------------- --------------------------------------
George W. Johnstone, President and CEO
(Authorized Officer)
Date November 12, 1996 /s/ Robert D. Sievers
- ---------------------- --------------------------------------
Robert D. Sievers, Comptroller
(Chief Accounting Officer)
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