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, 1998
---------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------- -----------------
Commission File Number 1-3437-2
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AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0063696
- ------------------------------- -----------------------------------
(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
- ---------------------------------------------------------------------------
(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, 1998, the number of shares of common stock, $1.25 par value,
outstanding was 80,676,633 shares.
<PAGE> Page 2 FORM 10-Q
PART I FINANCIAL INFORMATION
----------------------------
Item 1. Financial Statements
-----------------------------
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,
1998 1997
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $282,548 $266,012
-------- --------
Operating expenses
Operation and maintenance 115,819 113,345
Depreciation and amortization 30,425 25,994
General taxes 23,391 21,765
-------- --------
169,635 161,104
-------- --------
Operating income 112,913 104,908
Allowance for other funds used during
construction 2,570 1,817
Other income 942 699
-------- --------
116,425 107,424
-------- --------
Income deductions
Interest 39,484 36,600
Allowance for borrowed funds used
during construction (1,390) (1,329)
Amortization of debt expense 464 400
Preferred dividends of subsidiaries 830 878
Other deductions 993 519
-------- --------
40,381 37,068
-------- --------
Income before income taxes 76,044 70,356
Provision for income taxes 29,399 26,865
-------- --------
Net income 46,645 43,491
Dividends on preferred stocks 996 996
-------- --------
Net income to common stock $ 45,649 $ 42,495
======== ========
Average shares of basic common stock outstanding 80,540 79,332
Basic and diluted earnings per common share on
average shares outstanding $ 0.57 $ 0.54
======== ========
<PAGE> Page 3 FORM 10-Q
Three Months Ended
September 30,
1998 1997
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<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period $739,134 $679,943
Add - net income 46,645 43,491
-------- --------
785,779 723,434
-------- --------
Deduct - dividends paid
Preferred stock 882 882
Preference stock 114 114
Common stock - $.205 per share in 1998;
$.19 per share in 1997 16,476 15,058
-------- --------
17,472 16,054
-------- --------
Balance at end of period $768,307 $707,380
======== ========
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>
Nine Months Ended
September 30,
1998 1997
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $764,528 $717,284
-------- --------
Operating expenses
Operation and maintenance 328,254 318,494
Depreciation and amortization 88,008 76,406
General taxes 69,816 65,999
-------- --------
486,078 460,899
-------- --------
Operating income 278,450 256,385
Allowance for other funds used during
construction 6,676 4,844
Other income 1,369 1,053
-------- --------
286,495 262,282
-------- --------
Income deductions
Interest 114,748 108,701
Allowance for borrowed funds used
during construction (3,454) (3,149)
Amortization of debt expense 1,337 1,187
Preferred dividends of subsidiaries 2,569 2,652
Other deductions 2,458 1,814
-------- --------
117,658 111,205
-------- --------
Income before income taxes 168,837 151,077
Provision for income taxes 65,542 57,916
-------- --------
Net income 103,295 93,161
Dividends on preferred stocks 2,988 2,988
-------- --------
Net income to common stock $100,307 $ 90,173
======== ========
Average shares of basic common stock outstanding 80,146 78,997
Basic and diluted earnings per common share on
average shares outstanding $ 1.25 $ 1.14
======== ========
<PAGE> Page 5 FORM 10-Q
Nine Months Ended
September 30,
1998 1997
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<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period $717,243 $662,183
Add - net income 103,295 93,161
-------- --------
820,538 755,344
-------- --------
Deduct - dividends paid
Preferred stock 2,646 2,646
Preference stock 342 342
Common stock - $.615 per share in 1998;
$.57 per share in 1997 49,243 44,976
-------- --------
52,231 47,964
-------- --------
Balance at end of period $768,307 $707,380
======== ========
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
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $ 3,914,171 $ 3,713,390
Utility plant acquisition adjustments 56,248 58,976
Non-utility property, net of accumulated
depreciation 31,666 32,942
Excess of cost of investments in
subsidiaries over book equity at
acquisition 24,365 22,745
----------- -----------
4,026,450 3,828,053
----------- -----------
Current assets
Cash and cash equivalents 29,209 12,661
Customer accounts receivable 82,092 67,318
Allowance for uncollectible accounts (1,611) (1,249)
Unbilled revenues 60,773 55,750
Miscellaneous receivables 8,157 5,673
Materials and supplies 12,466 11,415
Deferred vacation pay 10,864 11,132
Other 10,518 10,158
----------- -----------
212,468 172,858
----------- -----------
Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 185,100 181,566
Debt and preferred stock expense 32,629 30,216
Deferred pension expense 25,385 22,163
Deferred postretirement benefit expense 11,488 11,372
Deferred treatment plant costs 7,139 7,690
Deferred water utility billings 2,198 4,013
Tank painting costs 12,494 10,531
Funds restricted for construction 18,210 5,340
Other 51,908 40,484
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346,551 313,375
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$ 4,585,469 $ 4,314,286
=========== ===========
<PAGE> Page 7 FORM 10-Q
September 30 December 31
1998 1997
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<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock $ 100,756 $ 99,607
Paid-in capital 352,096 326,382
Retained earnings 768,307 717,243
Unearned compensation (1,201) (816)
----------- -----------
Common stockholders' equity 1,219,958 1,142,416
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 38,567 39,734
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,255 6,256
Long-term debt
American Water Works Company, Inc. 236,000 116,000
Subsidiaries 1,844,746 1,754,766
----------- -----------
3,397,199 3,110,845
----------- -----------
Current liabilities
Bank debt 84,714 134,762
Current portion of long-term debt 18,806 25,148
Accounts payable 29,800 42,766
Taxes accrued, including federal income 27,838 14,409
Interest accrued 42,457 33,404
Accrued vacation pay 11,010 11,239
Other 34,255 44,725
----------- -----------
248,880 306,453
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<PAGE> Page 8 FORM 10-Q
September 30 December 31
1998 1997
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<S> <C> <C>
Regulatory and other long-term liabilities
Advances for construction $ 134,378 $ 127,457
Deferred income taxes 439,964 418,248
Deferred investment tax credits 35,301 36,239
Accrued pension expense 43,303 41,079
Accrued postretirement benefit expense 9,924 10,034
Other 13,689 6,197
----------- -----------
676,559 639,254
----------- -----------
Contributions in aid of construction 262,831 257,734
----------- -----------
Commitments and contingencies 0 0
----------- -----------
$ 4,585,469 $ 4,314,286
=========== ===========
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
-----------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
<TABLE>
Nine Months Ended
September 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $103,295 $ 93,161
Adjustments
Depreciation and amortization 88,008 76,406
Provision for deferred income taxes 19,150 20,317
Provision for losses on accounts receivable 4,550 5,033
Allowance for other funds used during
construction (6,676) (4,844)
Employee benefit expenses greater (less) than
funding (1,219) 761
Employee stock plan expenses 4,486 4,207
Deferred tank painting costs (3,283) (1,393)
Deferred rate case expense (1,137) (1,689)
Deferred treatment plant costs (1,606) (2,265)
Amortization of deferred charges 7,558 6,578
Other, net (8,485) 2,176
Changes in assets and liabilities
Accounts receivable (21,446) (12,763)
Unbilled revenues (5,023) (3,856)
Other current assets (1,411) (5,001)
Accounts payable (12,966) (8,316)
Taxes accrued, including federal income 13,429 16,184
Interest accrued 9,053 6,271
Other current liabilities (10,470) (8,829)
-------- --------
Net cash from operating activities 175,807 182,138
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (241,717) (231,087)
Allowance for other funds used during
construction 6,676 4,844
Utility system acquisitions (42,072) (125)
Proceeds from the disposition of property,
plant and equipment 1,802 934
Removal costs from property, plant and
equipment retirements (4,531) (5,625)
Funds restricted for construction activity (12,870) (6,714)
-------- --------
Net cash used in investing activities (292,712) (237,773)
-------- --------
<PAGE> Page 10 FORM 10-Q
Nine Months Ended
September 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $225,700 $107,000
Proceeds from common stock 21,403 18,231
Net borrowings(repayments)under
line-of-credit agreements (50,048) 6,702
Advances and contributions for construction,
net of refunds 15,588 14,311
Debt issuance costs (3,729) (1,388)
Repayment of long-term debt (22,062) (42,514)
Redemption of preferred stocks (1,168) (1,056)
Dividends paid (52,231) (47,964)
-------- --------
Net cash from financing activities 133,453 53,322
-------- --------
Net increase (decrease) in cash and
cash equivalents 16,548 (2,313)
Cash and cash equivalents at beginning
of period 12,661 12,974
-------- --------
Cash and cash equivalents at end of period $ 29,209 $ 10,661
======== ========
Cash paid during the period for:
Interest, net of capitalized amount $108,821 $104,285
======== ========
Income taxes $ 37,693 $ 31,351
======== ========
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 $6,210 in 1998 and $4,873 in 1997.
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
-----------------------------------------------------------
Information Accompanying Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
Septmber 30 December 31
1998 1997
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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
---------- -----------
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 -- --
---------- -----------
$ 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 - 80,605,145 shares at September 30, 1998;
79,685,612 at December 31, 1997 $ 100,756 $ 99,607
Paid-in capital 352,096 326,382
Retained earnings 768,307 717,243
Unearned compensation (1,201) (816)
---------- -----------
$1,219,958 $ 1,142,416
========== ===========
During the first nine months of 1998, 607,075 shares were issued in
connection with the Dividend Reinvestment and Stock Purchase Plan, 95,499
shares were issued in connection with the Employees' Stock Ownership Plan,
146,509 shares were issued in connection with the Savings Plan for
Employees and 70,450 shares were issued in connection with the Long-Term
Performance-Based Incentive Plan. At September 30, 1998, common shares
reserved for issuance in connection with the Company's stock plans were
60,923,162 shares for the Stockholder Rights Plan, 5,587,811 shares for the
Dividend Reinvestment and Stock Purchase Plan, 707,559 shares for the
Employees' Stock Ownership Plan, 845,512 shares for the Savings Plan for
Employees and 327,135 shares for the Long-Term Performance-Based Incentive
Plan.
<PAGE> Page 12 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
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 -- Acquisitions
On April 1, 1998, the Company completed the previously announced
acquisition of East Honolulu Community Services, Inc. ("EHCS"), a suburban
Honolulu wastewater utility located on the eastern tip of Oahu, Hawaii.
The system was acquired for $17.3 million from Maunalua Associates, Inc., a
subsidiary of Kemper Corporation.
EHCS provides wastewater service to a population of approximately 29,000 in
the community of Hawaii Kai. For the latest fiscal year ended December 31,
1997, EHCS had unaudited revenues of $6.3 million, net income of $.8
million and total assets of $17.1 million.
On October 13, 1998, the Company announced that an agreement in principle
had been reached to acquire National Enterprises, Inc.(NEI)for
approximately $700 million. Subsidiaries of NEI, a privately owned
company, provide water service to more than 1.7 million people in Missouri,
Illinois, Indiana and New York.
The transaction, which will be accounted for as a pooling of interests,
will be accomplished through a tax free exchange of 14,937,000 shares of
the Company's stock valued at $475 million, for all of the outstanding
shares of NEI and $225 million of assumed debt. It is anticipated that the
transaction will be completed in 1999, following regulatory approvals,
termination of the waiting period under Federal anti-trust laws and
completion of other requirements.
NEI is the parent company of Continental Water Company, which in turn owns:
St. Louis County Water Company serving suburban St. Louis, Missouri;
Northwest Indiana Water Company serving Gary, Hobart and surrounding areas;
Northern Illinois Water Company serving Champaign, Urbana and surrounding
areas; and Long Island Water Corporation serving the southwest portion of
Nassau County on Long Island, New York. NEI also has passive investments
in the telecommunications industry owning approximately 4 million shares of
ITC Deltacom and .6 million shares of Powertel as well as an interest in
privately held ITC Holdings.
All of the common stock of NEI is currently owned by descendants of the
Charles Stewart Mott family. Upon completion of this transaction, the Mott
family will hold approximately 16% of the outstanding shares of American
Water Works common stock. It is expected that two representatives of the
Mott family will be elected to the Board of the Company.
NOTE 3 -- New Accounting Standards
In 1998, the Company will adopt two new accounting standards issued by the
Financial Accounting Standards Board in June of 1997. Statement of
<PAGE> Page 13 FORM 10-Q
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information," neither of which will have any effect on the
Company's financial position or results of operations as they require only
changes to, or additions to, current disclosures.
Also in 1998, the Company will adopt SFAS No. 132, "Employers' Disclosures
about Pensions and Postretirement Benefits," which revises and standardizes
employers' disclosures about pension and other postretirement benefit plans
required by SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," but does not
change the measurement or recognition of those plans. This new standard,
issued in February 1998, is effective for fiscal years beginning after
December 15, 1997.
<PAGE> Page 14 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 1998
were higher than for the same periods of 1997 by 6% and 7%, respectively.
The increases are primarily due to authorized rate increases for several
subsidiaries in the latter part of 1997.
During the first ten months of 1998, five utility subsidiaries received
rate orders which are expected to provide approximately $4.8 million in
additional annual revenues. Five subsidiaries have rate increase
applications on file before regulatory agencies which, if granted in full,
would provide approximately $42.7 million in additional annual revenues.
Water sales volume during the third quarter of 1998 increased 1% to 76.7
billion gallons from 76.3 billion gallons in the third quarter of 1997.
The 192.0 billion gallons of sales volume for the first nine months of 1998
was approximately equal to the 192.6 billion gallons sold in the same
period of 1997.
Total operating expenses for the third quarter and for the first nine
months of 1998 increased by 5% over the same periods last year. Operation
and maintenance expenses in the third quarter and first nine months of 1998
increased 2% and 3%, respectively, when compared to the same periods in
1997. Depreciation expense was higher for the third quarter and first nine
months of 1998 when compared to the third quarter and first nine months of
1997 due to growth in utility plant in service. General taxes increased in
the third quarter and first nine months of 1998 when compared to the same
periods of 1997 reflecting higher property values and increased gross
receipts.
Income deductions, primarily interest, were 9% higher for the third quarter
and 6% higher for the first nine months when compared to the same periods
in 1997. The increases can be attributed primarily to an increase in total
debt to fund the construction of new water service assets.
The total allowance for funds used during construction ("AFUDC") recorded
in the third quarter and the first nine months of 1998 increased 26% and
27%, respectively, when compared to the same periods in 1997. The
increases were a result of construction of new water service assets. The
utility subsidiaries record AFUDC to the extent permitted by the regulatory
authorities.
Income taxes increased in the third quarter and the first nine months of
1998 when compared to the same periods in 1997. The increases can be
attributed to increased earnings in 1998 and the reversal of flow-through
differences primarily relating to depreciation.
Net income to common stock was $45.6 million for the third quarter of 1998
compared with $42.5 million for the same period in 1997. Net income to
common stock for the first nine months of 1998 was $100.3 million compared
with $90.2 million for the first nine months of 1997.
<PAGE> Page 15 FORM 10-Q
Capital Resources and Liquidity
- -------------------------------
All shares of common stock issued during 1998 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 1998, 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.
Eleven utility subsidiaries issued $105.7 million of long-term debt during
the first ten months of 1998. The Company issued $120.0 million of
long-term debt on July 15, 1998. In addition, the Company invested $93.4
million in the common stock of thirteen subsidiaries during the first ten
months of 1998. One subsidiary re-purchased $3.5 million of the
subsidiary's common stock from the Company. 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 1998, with the proceeds used to repay bank loans
and to fund construction projects.
Year 2000 Issues
- ----------------
Many computer systems in use today were designed and developed without
regard to the impact of the upcoming century change. Computer programs and
devices often use only two digits for the year to identify dates. As a
result, computer systems may fail completely or create erroneous results
unless corrective measures are taken.
The Company utilizes numerous computerized systems and date sensitive
devices in its operations. If some of these key systems and devices are
not ready for the Year 2000 there will likely be adverse effects on the
Company's business, results of operations, and financial condition. The
Company is also dependent on third parties that supply important materials
and services such as water treatment chemicals, electric power for pumps
and the processing of customer payments. The failure of some of these
third parties to be Year 2000 compliant on a timely basis would also have
an adverse effect on the Company. The Company has assigned a very high
priority to its Year 2000 compliance efforts, and as discussed below,
considerable progress has been made. These efforts are expected to be
substantially completed in the second quarter of 1999.
An inventory of all important computer programs and devices with embedded
technology has been prepared for each utility subsidiary. Those
inventories are being used to track the status of any necessary upgrades or
replacements, and to log the results of testing by Company personnel to
ensure that all important systems are in fact Year 2000 compliant. In some
instances work on other information technology projects has been delayed
because of Year 2000 remediation projects, but these delays are not
expected to have a significant impact on the Company's operations.
<PAGE> Page 16 FORM 10-Q
Because the Company is particularly dependent on its computerized
financial, customer service and treatment plant automation systems, those
systems are the primary areas in which Year 2000 efforts are focused.
The Company is currently implementing two new software packages for
financial and customer service applications that are Year 2000 compliant.
Although the decision to purchase and implement this software was based on
an analysis of all of the Company's current and future systems
requirements, once the decision was made these projects became a key part
of the Company's Year 2000 compliance plan. The enterprise software for
financial applications is already in use by many of the utility
subsidiaries, and implementation and testing is expected to be completed
during the first quarter of 1999. The new customer service software is
currently being used by two of the Company's subsidiaries, and additional
subsidiaries are expected to begin using the new software in 1999.
Implementation of the new customer service software will continue beyond
1999, so the customer service software currently used by many of the
subsidiaries is also being made Year 2000 compliant. All of the utility
subsidiaries are expected to have Year 2000 compliant customer service
software by the middle of 1999. In conjunction with these two projects,
midrange and personal computers have been upgraded with hardware and
operating systems that are Year 2000 compliant.
Many of the Company's water treatment plants utilize automation systems
that are controlled by personal computers. These systems are being tested
and upgraded if necessary, and that work is expected to be completed at
most facilities by the end of 1998. The Company's production and
distribution facilities also utilize many pieces of equipment with embedded
microcontroller chips. These chips, which may be time/date sensitive, are
an integral part of critical operating equipment. Much of this equipment
cannot be field tested to evaluate Year 2000 compliance, so the Company has
developed a systematic approach to identify and resolve this issue that is
expected to be completed during the first quarter of 1999. As a
contingency, the Company's production and distribution facilities can be
operated manually in the event of an internal Year 2000 related failure.
In addition to the work being done on the Company's internal systems,
interfaces used to exchange information with banks and other entities are
being tested to ensure Year 2000 compliance. And where feasible, plans are
being formulated to minimize the impact of problems outside parties may
have in providing supplies and services.
The cost of the new financial and customer service software, implementation
consulting services, and the cost of upgrading and replacing computers and
other equipment will be capitalized by the utility subsidiaries and
included in future rate increase requests. The total cost of these capital
projects is expected to be approximately $45 million, of which
approximately $30 million has been incurred to date. Costs for specific
Year 2000 remediation projects will be charged to expense unless they meet
the requirements for deferral as regulatory assets. However, current
period expenses are not expected to be materially different from the usual
ongoing level of information systems related expenses.
<PAGE> Page 17 FORM 10-Q
Forward Looking Information
- ---------------------------
This report, including management's discussion and analysis, contains
certain forward looking statements regarding the Company's results of
operations and financial position. These forward looking statements are
based on current information and expectations, and are subject to risks and
uncertainties which could cause the Company's actual results to differ
materially from expected results.
<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, 1998.
<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 10, 1998 /s/ J. James Barr
- ---------------------- --------------------------------------
President and CEO
(Authorized Officer)
Date November 10, 1998 /s/ Robert D. Sievers
- ---------------------- --------------------------------------
Comptroller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000318819
<NAME> R. D. SIEVERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,914,171
<OTHER-PROPERTY-AND-INVEST> 112,279
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<TOTAL-DEFERRED-CHARGES> 294,643
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,219,958
78,567
17,928
<LONG-TERM-DEBT-NET> 2,080,746
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0
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<OTHER-INCOME-NET> 5,135
<INCOME-BEFORE-INTEREST-EXPEN> 218,043
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<NET-INCOME> 103,295
2,988
<EARNINGS-AVAILABLE-FOR-COMM> 100,307
<COMMON-STOCK-DIVIDENDS> 49,243
<TOTAL-INTEREST-ON-BONDS> 110,830
<CASH-FLOW-OPERATIONS> 175,807
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
