FORM 10-Q Page 1 of 14
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 March 31, 1998
---------------------------------------------
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.
- ---------------------------------------------------------------------------
(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
- ---------------------------------------------------------------------------
(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 May 1, 1998, the number of shares of common stock, $1.25 par value,
outstanding was 80,107,062 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
March 31,
1998 1997
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $226,000 $213,357
-------- --------
Operating expenses
Operation and maintenance 102,032 100,753
Depreciation and amortization 28,509 25,057
General taxes 23,543 22,644
-------- --------
154,084 148,454
-------- --------
Operating income 71,916 64,903
Allowance for other funds used during
construction 1,577 1,404
Other income, net (169) 109
-------- --------
73,324 66,416
-------- --------
Income deductions
Interest 36,546 35,618
Allowance for borrowed funds used
during construction (783) (701)
Amortization of debt expense 426 392
Preferred dividends of subsidiaries 866 889
Other deductions 807 861
-------- --------
37,862 37,059
-------- --------
Income before income taxes 35,462 29,357
Provision for income taxes 13,874 11,327
-------- --------
Net income 21,588 18,030
Dividends on preferred stocks 996 996
-------- --------
Net income to common stock $ 20,592 $ 17,034
======== ========
Average shares of basic common stock outstanding 79,815 78,676
Basic and diluted earnings per common share on
average shares outstanding $ 0.26 $ 0.22
======== ========
<PAGE> Page 3 FORM 10-Q
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period $717,243 $662,183
Add - net income 21,588 18,030
-------- --------
738,831 680,213
-------- --------
Deduct - dividends
Preferred stock 882 882
Preference stock 114 114
Common stock - $.205 per share in 1998,
$.19 per share in 1997 16,346 14,912
-------- --------
17,342 15,908
-------- --------
Balance at end of period $721,489 $664,305
======== ========
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 Balance Sheet (Unaudited)
(In thousands)
<TABLE>
March 31 December 31
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $ 3,740,883 $ 3,713,390
Utility plant acquisition adjustments, net 58,144 58,976
Non-utility property, net of accumulated
depreciation 32,595 32,942
Excess of cost of investments in
subsidiaries over book equity at
acquisition 22,762 22,745
----------- -----------
3,854,384 3,828,053
----------- -----------
Current assets
Cash and cash equivalents 25,257 12,661
Customer accounts receivable 62,768 67,318
Allowance for uncollectible accounts (1,319) (1,249)
Unbilled revenues 54,735 55,750
Miscellaneous receivables 5,633 5,673
Materials and supplies 12,721 11,415
Deferred vacation pay 12,081 11,132
Other 27,585 10,158
----------- -----------
199,461 172,858
----------- -----------
Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 182,284 181,566
Debt and preferred stock expense 31,463 30,216
Deferred pension expense 23,218 22,163
Deferred postretirement benefit expense 12,318 11,372
Deferred treatment plant costs 7,431 7,690
Deferred water utility billings 3,370 4,013
Deferred tank painting costs 10,222 10,531
Funds restricted for construction 6,180 5,340
Other 47,675 40,484
----------- -----------
324,161 313,375
----------- -----------
$ 4,378,006 $ 4,314,286
=========== ===========
<PAGE> Page 5 FORM 10-Q
March 31 December 31
1998 1997
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<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock $ 99,962 $ 99,607
Paid-in capital 333,830 326,382
Retained earnings 721,489 717,243
Unearned compensation (1,428) (816)
----------- -----------
Common stockholders' equity 1,153,853 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 39,328 39,734
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,256 6,256
Long-term debt
American Water Works Company, Inc. 116,000 116,000
Subsidiaries 1,761,244 1,754,766
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3,128,354 3,110,845
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Current liabilities
Bank debt 160,192 134,762
Current portion of long-term debt 31,303 25,148
Accounts payable 26,877 42,766
Taxes accrued, including federal income 32,360 14,409
Interest accrued 40,490 33,404
Accrued vacation pay 12,204 11,239
Other 35,831 44,725
----------- -----------
339,257 306,453
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<PAGE> Page 6 FORM 10-Q
March 31 December 31
1998 1997
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<S> <C> <C>
Regulatory and other long-term liabilities
Advances for construction $ 128,214 $ 127,457
Deferred income taxes 423,546 418,248
Deferred investment tax credits 35,949 36,239
Accrued pension expense 42,883 41,079
Accrued postretirement benefit expense 13,774 10,034
Other 7,112 6,197
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651,478 639,254
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Contributions in aid of construction 258,917 257,734
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Commitments and contingencies 0 0
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$ 4,378,006 $ 4,314,286
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 7 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
<TABLE>
Three Months Ended
March 31,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 21,588 $ 18,030
Adjustments
Depreciation and amortization 28,509 25,057
Provision for deferred income taxes 4,849 7,275
Provision for losses on accounts receivable 1,299 1,825
Allowance for other funds used during
construction (1,577) (1,404)
Employee benefit expenses greater
than funding 442 46
Employee stock plan expenses 998 973
Deferred tank painting costs (138) (214)
Deferred rate case expense (265) (835)
Amortization of deferred charges 2,334 2,744
Other, net (3,306) (1,812)
Changes in assets and liabilities
Accounts receivable 3,361 133
Unbilled revenues 1,015 1,018
Other current assets (330) (947)
Accounts payable (15,889) (13,516)
Taxes accrued, including federal income 17,951 17,745
Interest accrued 7,086 5,393
Other current liabilities (8,894) (5,640)
-------- --------
Net cash from operating activities 59,033 55,871
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (52,963) (55,096)
Allowance for other funds used during
construction 1,577 1,404
Water and wastewater system acquisitions (21,384) (125)
Proceeds from the disposition of property,
plant and equipment 228 180
Removal costs related to property, plant and
equipment retirements (227) (1,256)
Funds restricted for construction activity (840) (476)
-------- --------
Net cash used in investing activities (73,609) (55,369)
-------- --------
<PAGE> Page 8 FORM 10-Q
Three Months Ended
March 31,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 17,200 $ 19,000
Proceeds from common stock 5,381 5,869
Net borrowings under
line-of-credit agreements 25,430 15,589
Advances and contributions for construction,
net of refunds 2,964 3,901
Debt issuance costs (1,488) (430)
Repayment of long-term debt (4,567) (30,883)
Redemption of preferred stocks (406) (255)
Dividends paid (17,342) (15,908)
-------- --------
Net cash from(used in) financing activities 27,172 (3,117)
-------- --------
Net increase(decrease) in cash and
cash equivalents 12,596 (2,615)
Cash and cash equivalents at beginning
of period 12,661 12,974
-------- --------
Cash and cash equivalents at end of period $ 25,257 $ 10,359
======== ========
Cash paid during the period for:
Interest, net of capitalized amount $ 29,947 $ 31,060
======== ========
Income taxes $ 8,917 $ 6,738
======== ========
Common stock issued in lieu of cash in connection with the Savings Plan for
Employees and the Long-Term Performance-Based Incentive Plan totaled $3,172
in 1998 and $2,046 in 1997.
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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Information Accompanying Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
March 31 December 31
1998 1997
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Common stockholders' equity
Common stock - $1.25 par value
Authorized - 300,000,000 shares
Outstanding - 79,969,126 shares at March 31, 1998,
685,612 at December 31, 1997 $ 99,962 $ 99,607
Paid-in capital 333,830 326,382
Retained earnings 721,489 717,243
Unearned compensation (1,428) (816)
---------- -----------
$1,153,853 $ 1,142,416
========== ===========
During the first three months of 1998, 165,035 shares were issued in
connection with the Dividend Reinvestment and Stock Purchase Plan, 48,029
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 March 31, 1998, common shares
reserved for issuance in connection with the Company's stock plans were
60,923,162 shares for the Stockholder Rights Plan, 6,029,851 shares for the
Dividend Reinvestment and Stock Purchase Plan, 803,058 shares for the
Employees' Stock Ownership Plan, 43,992 shares for the Savings Plan for
Employees and 327,135 shares for the Long-Term Performance-Based Incentive
Plan.
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
---------- -----------
$ 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, no 0 0
outstanding 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.
<PAGE> Page 10 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, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
reclassifications have been made to conform previously reported data to the
current presentation.
NOTE 2 -- Acquisition
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 $18.4 million from Maunalua Associates, Inc., a
subsidiary of Kemper Corporation. At March 31, 1998, the $18.4 million
payment was in escrow and recorded as an other current asset.
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.
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
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 11 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Results of Operations
- ---------------------
Operating revenues for the first quarter of 1998 were 6% higher than for
the first quarter of 1997 primarily due to authorized rate increases for
several subsidiaries in the latter part of 1997.
During the first four months of 1998, two utility subsidiaries received
rate orders which are expected to provide approximately $1.7 million in
additional annual revenues. Six subsidiaries have rate increase
applications on file before regulatory agencies which, if granted in full,
would provide approximately $46.1 million in additional annual revenues.
The 55.3 billion gallons of water sold in the first quarter of 1998 was 1%
less than the 55.9 billion gallons sold in the first quarter of 1997.
Total operating expenses for the first quarter of 1998 were 4% higher than
a year ago. Operation and maintenance expenses were 1% higher than the
first quarter of 1997. Depreciation expense was higher due to growth in
utility plant in service. Increased general tax expense reflects higher
property values and increased gross receipts.
Income deductions increased by 2% in the first quarter of 1998 compared to
the same period last year. Interest expense rose by 3% to $36.5 million in
the first quarter of 1998 compared to the first quarter of 1997, primarily
due to an increase in total debt to fund construction of new water service
assets.
The total allowance for funds used during construction ("AFUDC") recorded
in the first quarter of 1998 was 12% higher than the first quarter of 1997.
The utility subsidiaries record AFUDC to the extent permitted by the
regulatory authorities.
Income taxes increased in the first three months of 1998 when compared to
the first three months in 1997, as a result of increased earnings and the
reversal of flow-through differences primarily relating to depreciation.
Net income to common stock was $20.6 million for the first quarter of 1998
compared with $17.0 million for the same period in 1997.
<PAGE> Page 12 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
- --------------------------------
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 Savings Plan for Employees and the Long-Term Performance-Based
Incentive Plan.
On April 16, 1998, the Company announced that purchases of the Company's
common stock made through the Dividend Reinvestment and Stock Purchase Plan
("Plan") will be priced at a two percent discount effective May 15, 1998.
The two percent discount from the applicable average market price will be
applied to common shares purchased through the reinvestment of dividends
paid on the Company's common, preferred and preference stocks, as well as
to any optional cash investments made by stockholders. The discount will
also be applied to initial cash investments made by customers of the
Company's utility subsidiaries.
During the balance of 1998, the Company plans to issue shares of common
stock through its Dividend Reinvestment and Stock Purchase Plan, the
Employees' Stock Ownership Plan and the Savings Plan for Employees.
Proceeds from the issuance of common stock will fund additional equity
investments in subsidiaries.
Four utility subsidiaries issued $21.7 million of long-term debt during the
first four months of 1998. In addition, the Company invested $30.4 million
in the common stock of five subsidiaries. The proceeds from these
financing arrangements have been used to fund construction programs and
repay bank borrowings. It is anticipated that some subsidiaries will sell
long-term debt to institutional investors and common stock to the Company
during the remainder of 1998, with the proceeds used to repay bank loans
and fund construction projects.
<PAGE> Page 13 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
March 31, 1998.
<PAGE> Page 14 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 May 11, 1998 /s/ J. James Barr
- ---------------------- --------------------------------------
J. James Barr, President and
Chief Executive Officer
(Authorized Officer)
Date May 11, 1998 /s/ Robert D. Sievers
- ---------------------- --------------------------------------
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,740,883
<OTHER-PROPERTY-AND-INVEST> 113,501
<TOTAL-CURRENT-ASSETS> 199,461
<TOTAL-DEFERRED-CHARGES> 276,486
<OTHER-ASSETS> 47,675
<TOTAL-ASSETS> 4,378,006
<COMMON> 99,962
<CAPITAL-SURPLUS-PAID-IN> 332,402
<RETAINED-EARNINGS> 721,489
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,153,853
79,328
17,929
<LONG-TERM-DEBT-NET> 1,877,244
<SHORT-TERM-NOTES> 160,192
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 31,303
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,058,157
<TOT-CAPITALIZATION-AND-LIAB> 4,378,006
<GROSS-OPERATING-REVENUE> 226,000
<INCOME-TAX-EXPENSE> 13,874
<OTHER-OPERATING-EXPENSES> 154,084
<TOTAL-OPERATING-EXPENSES> 167,958
<OPERATING-INCOME-LOSS> 58,042
<OTHER-INCOME-NET> 92
<INCOME-BEFORE-INTEREST-EXPEN> 58,134
<TOTAL-INTEREST-EXPENSE> 36,546
<NET-INCOME> 21,588
996
<EARNINGS-AVAILABLE-FOR-COMM> 20,592
<COMMON-STOCK-DIVIDENDS> 16,346
<TOTAL-INTEREST-ON-BONDS> 34,834
<CASH-FLOW-OPERATIONS> 59,033
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
