FORM 10-Q Page 1 of 18
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, 2000
---------------------------------------------
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
--------------------------------------------------
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)
(856) 346-8200
---------------------------------------------------------------------------
(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 August 1, 2000, the number of shares of common stock, $1.25 par value,
outstanding was 98,051,178 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 Comprehensive Income
and of Retained Earnings (Unaudited)
(In thousands, except per share amounts)
<TABLE>
Three Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
Operating revenues $346,409 $318,975
-------- --------
Operating expenses
Operation and maintenance 154,270 139,714
Depreciation and amortization 40,589 37,195
General taxes 31,539 30,768
-------- --------
Total operating expenses 226,398 207,677
-------- --------
Operating income 120,011 111,298
-------- --------
Other income (deductions)
Interest (47,728) (44,581)
Allowance for other funds used during
construction 1,800 2,656
Allowance for borrowed funds used
during construction 1,397 2,706
Amortization of debt expense (708) (716)
Preferred dividends of subsidiaries (795) (825)
Merger related costs -- (13,836)
Other, net 234 (733)
-------- --------
Total other income (deductions) (45,800) (55,329)
-------- --------
Income before income taxes 74,211 55,969
Provision for income taxes 29,072 22,847
-------- --------
Net income 45,139 33,122
Dividends on preferred stocks 996 996
-------- --------
Net income to common stock 44,143 32,126
-------- --------
Other comprehensive income
Unrealized gain (loss) on securities (52,414) 34,368
Income taxes on other comprehensive income 21,412 (13,194)
-------- --------
Other comprehensive income(loss), net (31,002) 21,174
-------- --------
Comprehensive income $ 13,141 $53,300
======== ========
<PAGE> Page 3 FORM 10-Q
Three Months Ended
June 30,
2000 1999
---------- ----------
<S> <C> <C>
Average shares of basic common stock outstanding 97,816 96,341
Basic and diluted earnings per common share on
average shares outstanding $ 0.45 $ 0.33
========== ==========
CONSOLIDATED RETAINED EARNINGS
Balance at April 1 $1,005,216 $ 946,058
Add - net income 45,139 33,122
Less - treasury stock issuances 944 --
---------- ----------
1,049,411 979,180
---------- ----------
Deduct - dividends paid
Preferred stock 882 882
Preference stock 114 114
Common stock - $.225 per share in 2000;
$.215 per share in 1999 21,998 17,488
National Enterprises Inc. common stock -- 1,475
---------- ----------
22,994 19,959
---------- ----------
Balance at June 30 $1,026,417 $ 959,221
========== ==========
The accompanying information and 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 Comprehensive Income
and of Retained Earnings (Unaudited)
(In thousands, except per share amounts)
<TABLE>
Six Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
Operating revenues $654,168 $596,391
-------- --------
Operating expenses
Operation and maintenance 298,628 274,258
Depreciation and amortization 80,413 73,734
General taxes 64,668 62,173
-------- --------
Total operating expenses 443,709 410,165
-------- --------
Operating income 210,459 186,226
-------- --------
Other income(deductions)
Interest (94,474) (88,312)
Allowance for other funds used during
construction 4,506 5,841
Allowance for borrowed funds used
during construction 3,279 5,413
Amortization of debt expense (1,390) (1,360)
Preferred dividends of subsidiaries (1,593) (1,646)
Merger related costs -- (14,014)
Other, net (1,074) (1,605)
-------- --------
Total other income (deductions) (90,746) (95,683)
-------- --------
Income before income taxes 119,713 90,543
Provision for income taxes 47,491 36,999
-------- --------
Net income 72,222 53,544
Dividends on preferred stocks 1,992 1,992
-------- --------
Net income to common stock 70,230 51,552
-------- --------
Other comprehensive income
Unrealized gain(loss)on securities (39,233) 61,130
Income taxes on other comprehensive income 16,027 (23,468)
-------- --------
Other comprehensive income (loss), net (23,206) 37,662
-------- --------
Comprehensive income $ 47,024 $ 89,214
======== ========
<PAGE> Page 5 FORM 10-Q
Six Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
Average shares of basic common stock outstanding 97,647 96,125
Basic and diluted earnings per common share on
average shares outstanding $ 0.72 $ 0.54
======== ========
CONSOLIDATED RETAINED EARNINGS
Balance at January 1 $1,001,029 $945,434
Add - net income 72,222 53,544
Less - treasury stock issuances 944 --
---------- --------
1,072,307 998,978
---------- --------
Deduct - dividends paid
Preferred stock 1,764 1,764
Preference stock 228 228
Common stock - $.45 per share in 2000;
$.43 per share in 1999 43,898 34,874
National Enterprises Inc. common stock -- 2,891
---------- --------
45,890 39,757
---------- --------
Balance at June 30 $1,026,417 $959,221
========== ========
The accompanying information and 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>
June 30 December 31
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $ 5,065,047 $ 4,939,408
Utility plant acquisition adjustments, net 74,695 51,697
Non-utility property, net of accumulated
depreciation 36,570 36,265
Excess of cost of investments in
subsidiaries over book equity at
acquisition, net 54,797 57,118
----------- -----------
Total property, plant and equipment 5,231,109 5,084,488
----------- -----------
Current assets
Cash and cash equivalents 43,148 43,100
Customer accounts receivable 100,970 91,353
Allowance for uncollectible accounts (2,645) (2,346)
Unbilled revenues 93,753 78,205
Miscellaneous receivables 16,316 10,936
Materials and supplies 20,708 20,058
Deferred vacation pay 14,255 10,902
Restricted funds 2,029 14,558
Other 18,625 11,915
----------- -----------
Total current assets 307,159 278,681
----------- -----------
Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 216,235 214,349
Other investments 142,345 181,579
Debt and preferred stock expense 48,498 48,289
Deferred pension expense 32,810 32,872
Deferred postretirement benefit expense 10,605 10,264
Deferred treatment plant costs 5,280 5,811
Deferred tank painting costs 15,555 14,178
Restricted funds 7,366 6,557
Other 87,139 75,138
----------- -----------
Total regulatory and other long-term assets 565,833 589,037
----------- -----------
TOTAL ASSETS $ 6,104,101 $ 5,952,206
=========== ===========
<PAGE> Page 7 FORM 10-Q
June 30 December 31
2000 1999
------------ ------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $1,652,548 $1,634,798
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 33,470 34,020
Preferred stocks of subsidiaries without
mandatory redemption requirements 8,118 8,118
Long-term debt
American Water Works Company, Inc. 211,000 211,000
Subsidiaries 2,180,710 2,182,097
----------- -----------
Total capitalization 4,137,519 4,121,706
----------- -----------
Current liabilities
Bank debt 332,186 239,864
Current portion of long-term debt 65,746 38,355
Accounts payable 37,851 67,064
Taxes accrued, including federal income 36,022 16,030
Interest accrued 42,786 43,672
Accrued vacation pay 14,763 11,532
Other 52,709 75,191
----------- -----------
Total current liabilities 582,063 491,708
----------- -----------
Regulatory and other long-term liabilities
Advances for construction 211,873 207,891
Deferred income taxes 617,452 610,460
Deferred investment tax credits 40,284 40,585
Accrued pension expense 65,187 63,095
Accrued postretirement benefit expense 19,474 12,471
Other 35,193 29,453
----------- -----------
Total regulatory and other long-term
liabilities 989,463 963,955
----------- -----------
Contributions in aid of construction 395,056 374,837
----------- -----------
Commitments and contingencies -- --
----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $ 6,104,101 $ 5,952,206
=========== ===========
The accompanying information and notes are an integral part of these
financial statements.
</TABLE>
<PAGE> Page 8 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
<TABLE>
Six Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 72,222 $ 53,544
Adjustments
Depreciation and amortization 80,413 73,734
Provision for deferred income taxes 10,637 11,101
Provision for losses on accounts receivable 4,174 3,027
Allowance for other funds used during
construction (4,506) (5,841)
Employee benefit expenses greater (less)
than funding 8,615 (1,072)
Employee stock plan expenses (47) 3,379
Deferred tank painting costs (945) (695)
Deferred rate case expense (904) (747)
Amortization of deferred charges 6,358 8,403
Other, net (6,955) (4,351)
Changes in assets and liabilities, net
Accounts receivable (17,859) (10,653)
Unbilled revenues (14,989) (15,543)
Other current assets (7,120) (10,124)
Accounts payable (29,240) (18,739)
Taxes accrued, including federal income 19,485 6,907
Interest accrued (886) 1,524
Other current liabilities (22,505) 4,646
-------- --------
Net cash from operating activities 95,948 98,500
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (161,306) (185,707)
Allowance for other funds used during
construction 4,506 5,841
Acquisitions (48,951) (6,366)
Proceeds from the disposition of property,
plant and equipment 1,758 2,215
Removal costs from property, plant and
equipment retirements (2,905) (1,624)
Restricted funds 11,720 (19,469)
-------- --------
Net cash used in investing activities (195,178) (205,110)
-------- --------
<PAGE> Page 9 FORM 10-Q
Six Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 43,706 $ 96,436
Proceeds from common stock 18,291 19,395
Purchase of common stock for treasury (4,616) (1,190)
Net borrowings under
line-of-credit agreements 92,322 62,361
Advances and contributions for construction,
net of refunds 15,477 16,230
Debt issuance costs (1,760) (5,546)
Repayment of long-term debt (17,702) (42,967)
Redemption of preferred stocks (550) (2,629)
Dividends paid (45,890) (39,757)
-------- --------
Net cash from financing activities 99,278 102,333
-------- --------
Net increase (decrease) in cash and
cash equivalents 48 (4,277)
Cash and cash equivalents at January 1 43,100 51,794
-------- --------
Cash and cash equivalents at June 30 $43,148 $ 47,517
======== ========
Cash paid during the period for:
Interest, net of capitalized amount $ 97,392 $ 88,598
======== ========
Income taxes $ 21,814 $ 24,783
======== ========
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 $1,488 in 2000 and $4,037 in 1999.
Common stock placed into treasury in connection with the Employees Stock
Ownership Plan and Long-Term Performance-Based Incentive Plan totaled
$4,871 in 2000 and $3,675 in 1999.
The accompanying information and notes are an integral part of these
financial statements.
</TABLE>
<PAGE> Page 10 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Information Accompanying Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
June 30 December 31
2000 1999
---------- -----------
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
(one-tenth of a vote per share)-
no 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.
Common stockholders' equity
Common stock - $1.25 par value
Authorized - 300,000,000 shares
Issued - 98,211,082 shares in 2000;
97,303,759 shares in 1999 $ 122,764 $ 121,630
Paid-in capital 440,316 424,434
Retained earnings 1,026,417 1,001,029
Accumulated other comprehensive income 69,252 92,461
Unearned compensation (477) (1,056)
Treasury stock at cost - 246,787 shares in
2000; 109,675 shares in 1999 (5,724) (3,700)
---------- -----------
$1,652,548 $ 1,634,798
========== ===========
At June 30, 2000, common shares authorized but not issued, reserved for
issuance in connection with the Company's stock plans were 80,865,863
shares for the Stockholder Rights Plan, 3,404,859 shares for the Dividend
Reinvestment and Stock Purchase Plan, 565,493 shares for the Employees'
Stock Ownership Plan, 532,381 shares for the Savings Plan for Employees and
296,347 shares for the Long-Term Performance-Based Incentive Plan.
<PAGE> Page 11 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
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
NATIONAL ENTERPRISES INC.
On June 25, 1999, the Company completed the acquisition of National
Enterprises Inc. (NEI), a privately owned company, in a transaction valued
at $700 million. The transaction was accomplished through a tax free
exchange of 14,937,000 shares of the Company's stock for all of the
outstanding shares of NEI and the assumption of $241 million of debt.
Subsidiaries of NEI provided water service to approximately 504,000
customers in Missouri, Illinois, Indiana and New York. NEI also had
passive investments in the telecommunications industry owning 4,000,000
shares of ITC Deltacom and 600,000 shares of Powertel, as well as an
interest in privately held ITC Holdings.
This business combination has been accounted for as a pooling of interests
and, accordingly, the consolidated financial statements for periods prior
to the combination have been restated to include the accounts and results
of operations of NEI.
During the second quarter of 1999, the Company recorded a charge of $13.8
million, and related tax benefits of $5.2 million, for one-time merger
related costs consisting primarily of severance costs as well as vesting of
certain benefits, professional fees and other costs. Merger costs of $.2
million were incurred in the first quarter of 1999. The merger related
costs have been reported on separate lines in the consolidated statement of
income and comprehensive income.
WATER UTILITY SUBSIDIARIES OF UNITED WATER RESOURCES INC.
On May 31, 2000, the Company completed its acquisition of five water
utilities in Missouri, Indiana, Illinois and Virginia from United Water
Resources Inc. for approximately $49 million in cash. These water
utilities provide service to 35,000 customers.
CONTRACT MANAGEMENT BUSINESS
On December 31, 1999, the Company finalized the purchase of its joint
venture partner Anglian Water's interest in AmericanAnglian Environmental
Technologies for $32 million. This business, which now operates as
American Water Services (AWS), manages and operates 175 water and
wastewater facilities in seven states.
Effective January 1, 2000 the results of operations of AWS are being
reported on a consolidated basis. Previously, the results of the joint
venture were being accounted for under the equity method.
Note 3 -- Pending Acquisitions
WATER AND WASTEWATER ASSETS OF CITIZENS UTILITIES
On October 18, 1999, the Company announced it had agreed to purchase the
water and wastewater utility assets of Citizens Utilities Company
(NYSE:CZN) for $835 million in cash and debt. Citizens Utilities provides
water and wastewater service to 305,000 customers in Arizona, California,
Illinois, Indiana, Ohio and Pennsylvania. For the fiscal year ended
December 31, 1999,
<PAGE> Page 12 FORM 10-Q
the operations being acquired had revenues of $102 million.
Requests for regulatory approval are pending with the public service
commissions in all six states impacted by this acquisition. Recent
decisions by the Illinois and California commissions have moved the
potential close date until March and April 2001, respectively, from a
previously anticipated close date in the year 2000. It is expected that the
transaction will be completed as soon as regulatory approvals are obtained.
SJW CORP.
On October 29, 1999, the Company announced an agreement had been reached to
acquire all the common stock of SJW Corp. (SJW) for approximately $390
million in cash, or $128 per share, and the assumption of $90 million in
debt. SJW is a publicly traded holding company (AMEX:SJW) headquartered in
San Jose, California. SJW, through its subsidiary San Jose Water Company,
provides water service to 216,000 customers in San Jose and nearby
communities.
SJW also owns 1,100,000 shares of California Water Service Group (NYSE:CWT)
and SJW Land Company, which owns a parking facility, commercial property
and undeveloped real estate in San Jose. For the fiscal year ended
December 31, 1999, SJW had revenues of $117 million, net income of $16
million and total assets of $372 million.
A request for regulatory approval of the merger of the Company and SJW
Corp. is currently pending with the California Public Utilities Commission
(CPUC). A recent decision by the CPUC has moved the potential close date to
April of 2001, from a previously anticipated close date in the year 2000.
It is expected that the transaction, which will be accounted for as a
purchase, will be completed as soon as regulatory approval is obtained.
As specified in the merger agreement, the Company is required to offer to
acquire all 3,045,000 outstanding shares of SJW Corp. common stock. As of
August 4, 2000 the Company had purchased 48,700 shares of SJW Corp. on the
open market for an average price of $119.38 per share.
CITY OF COATESVILLE PENNSYLVANIA WATER AND WASTEWATER SYSTEMS
On February 15, 2000 one of the Company's subsidiaries agreed to purchase
the City of Coatesville Authority's water and wastewater utility systems
for $48 million. These systems provide water service to more than 8,000
customers and wastewater service to more than 4,000 customers. It is
expected that the transaction will be completed later this year or in the
first quarter of 2001, following regulatory approvals and completion of
other requirements.
NOTE 4 - New Financing Subsidiary
On June 26, 2000 the Company announced the formation of a wholly-owned
subsidiary, American Water Capital Corp. (AWCC), a special purpose
corporation that will serve as the primary funding vehicle for the Company
and its twenty-five (25) utility subsidiaries.
AWCC was assigned an A- corporate rating by Standard & Poor's (S&P) and
Baa1 by Moody's Investors Service. At the same time, S&P lifted a negative
credit watch that previously had been assigned to three of American Water
Works Company's operating subsidiaries. The credit outlook for these three
subsidiaries is now listed as stable by S&P.
On June 29, 2000 AWCC successfully completed a $600 million bank credit
facility. The bank syndication was oversubscribed and included
participation from twelve banks. Initially, the credit facility was used
to consolidate existing bilateral credit lines of the utility subsidiaries.
<PAGE> Page 13 FORM 10-Q
NOTE 5 - 2000 Stock Award and Incentive Plan
The 2000 Stock Award and Incentive Plan approved at the Company's annual
meeting of shareholders on May 4, 2000 provides for the granting of stock
options to executives and other key associates of the Company. On May 4,
2000 the Company awarded options to purchase 769,000 shares of the
Company's common stock to participants at an exercise price of $22.56 per
share. The options will vest and become exercisable in three equal
installments on the first, second, and third anniversaries of the award
date. The options will expire on the tenth anniversary of the award date.
The Company has not recorded any compensation expense associated with these
options in accordance with APB Opinion No. 25.
NOTE 6 - Shareholder Rights Agreement
On June 1, 2000 the Company announced that it had amended its Shareholder
Rights Agreement. The Agreement provides for certain consequences if more
than a stated percentage of the Company's common stock is acquired by any
person or group of persons without prior consent of the Company's Board of
Directors. The amendment lowered that percentage, and the percentage of
ownership that triggers the dilutive effect of the rights issued under the
Agreement, to 10% of the Company's outstanding common shares. The Company
is not aware of any efforts to acquire control at this time.
NOTE 7 -- New Accounting Standards
In 2001, the Company will adopt Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). This statement establishes accounting and reporting standards
for derivative instruments and hedging activities. SFAS 133 was issued by
the Financial Accounting Standards Board (FASB)in June of 1998 and requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value.
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133," requires the
adoption of SFAS 133 on January 1, 2001. In June 2000, the FASB issued
SFAS 138, "Accounting For Certain Derivative Instruments and Certain
Hedging Activities - an Amendment of SFAS 133" that amends certain
provisions of SFAS 133 and addresses a limited number of implementation
issues related to SFAS 133. The adoption of these new accounting standards
are not expected to have a significant effect on the Company's financial
position or results of operations as the Company has no significant
derivative instruments or hedging activities.
<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 second quarter and the first six months of 2000
were higher than for the same periods of 1999 by 9% and 10%, respectively.
The increased revenues were due to increased water sales and rate increases
authorized by regulatory agencies. In addition, the management fees from
the contract management business that are included in the consolidated
results in 2000 increased revenues by 4% for the second quarter and first
six months of 2000.
Water sales volume during the second quarter of 2000 increased 3% to 82.5
billion gallons from 80.0 billion gallons in the second quarter of 1999.
The
158.5 billion gallons of sales volume for the first six months of 2000 was
3% greater than the 154.4 billion gallons sold in the same period of 1999.
The increase in sales volume reflects the addition of more than 67,000
customers over the last 12 months.
During the first seven months of 2000, five utility subsidiaries received
rate orders which are expected to provide approximately $6.2 million in
additional annual revenues. Eight subsidiaries have rate increase
applications on file before regulatory agencies which, if granted in full,
would provide approximately $53 million in additional annual revenues. The
largest portion of this total is $34 million from two separate requests
filed by Missouri subsidiaries. Illinois-American at $9 million and
Kentucky-American at $5 million comprise the majority of the remaining
requests.
A decision in one of the pending cases in Missouri, requesting an
additional $16.5 million, is expected by the end of the third quarter. A
decision in the Kentucky case is expected in the fourth quarter of this
year. The Illinois case should be decided in the first quarter, and the
second Missouri case in the second quarter of 2001.
Operating expenses in the second quarter and the first six months of 2000
were higher compared to the same periods in 1999 by 9% and 8%,
respectively.
Excluding the expenses of the contract management business, operation and
maintenance expenses were up 3% for the quarter and 2% for the first six
months. The increases in depreciation expense for the quarter and first
six months were related to the Company's ongoing program of utility plant
construction.
Interest expense rose by 7% in the second quarter and first six months of
2000 compared to the same periods in 1999, primarily due to an increase in
total debt to fund construction of new water service assets. The total
allowance for funds used (equity and borrowed) during construction
("AFUDC") recorded in the second quarter of 2000 was $3.2 million, compared
to $5.4 million in the second quarter of 1999. AFUDC for the first six
months of 2000 was $7.8 million compared to $11.3 million for the same
period in 1999. The utility subsidiaries record AFUDC to the extent
permitted by the regulatory authorities.
Income taxes increased in the second quarter and first six months of 2000
when compared to the comparable periods in 1999, as a result of increased
earnings in 1999.
<PAGE> Page 15 FORM 10-Q
Net income to common stock was $44.1 million for the second quarter of 2000
compared with $32.1 million for the same period in 1999. Net income to
common stock for the first six months of 2000 was $70.2 million compared
with $51.6 million for the first six months of 1999.
Net income to common stock for the second quarter of 2000 was $44.1 million
compared to $40.8 million before one-time merger costs of $8.6 million
after taxes, for the same period in 1999. For the first six months of
2000, net income to common stock was $70.2 million compared with $60.4
million excluding $8.8 million of merger costs after taxes for the first
six months of 1999.
Capital Resources and Liquidity
-------------------------------
During the first six months of 2000, 809,645 shares of common stock were
issued in connection with the Dividend Reinvestment and Stock Purchase
Plan, 32,134 shares were issued in connection with the Employees' Stock
Ownership Plan and 65,544 shares were issued in connection with the Savings
Plan for
Employees.
During the balance of 2000, the Company plans to issue shares of common
stock through its Dividend Reinvestment and Stock Purchase Plan. Proceeds
from the issuance of common stock will fund additional equity investments
in subsidiaries.
The Company placed 220,727 shares of common stock into and issued 83,615
shares out of treasury in connection with the Long-Term Performance-Based
Incentive Plan, Employees' Stock Ownership Plan, and Savings Plan for
Employees in the first six months of 2000.
As noted above in Note 4, on June 29, 2000 American Water Capital Corp.,
the Company's finance subsidiary, successfully completed a $600 million
bank credit facility. Initially used to consolidate existing bilateral
credit lines of the Company's utility subsidiaries, it will provide the
Company with an additional source of liquidity.
Six subsidiaries issued $43.7 million of long-term debt during the first
six months of 2000. In addition, in the first six months of 2000, the
Company invested $39.9 million in the common stock of five subsidiaries.
The proceeds were used to fund construction programs, continue acquisitions
and repay bank loans.
It is anticipated that some subsidiaries will obtain approximately $120
million of long-term debt financing through American Water Capital Corp.
and issue common stock to the Company during the remainder of 2000, with
the proceeds used to fund construction programs, continue acquisitions and
repay bank loans. Management intends to fund the acquisition of SJW Corp.
and the water and wastewater related assets of Citizens Utilities Company
through a combination of long-term debt and preferred equity securities.
Excluding any short-term borrowings incurred in connection with these
pending transactions, the combined amount of bank borrowings and bonds
maturing within one year is expected to remain at approximately the current
level in 2000.
<PAGE> Page 16 FORM 10-Q
New Accounting Standards
------------------------
In 2001, the Company will adopt Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133). This statement establishes accounting and reporting standards
for derivative instruments and hedging activities. SFAS 133 was issued by
the Financial Accounting Standards Board (FASB)in June of 1998 and requires
that an entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair
value.
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133," requires the
adoption of SFAS 133 on January 1, 2001. In June 2000, the FASB issued
SFAS 138, "Accounting For Certain Derivative Instruments and Certain
Hedging
Activities - an Amendment of SFAS 133" that amends certain provisions of
SFAS 133 and addresses a limited number of implementation issues related to
SFAS 133. The adoption of these new accounting standards are not expected
to have a significant effect on the Company's financial position or results
of operations as the Company has no significant derivative instruments or
hedging activities.
Forward Looking Information
---------------------------
Forward looking statements in this report, including, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to
the safe harbor provisions of the U.S. Private Securities Litigation Reform
Act of 1995. These forward looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by
such forward looking statements. These factors include, among others, the
following: the success of pending applications for rate increases;
inability to obtain, or to meet conditions imposed for, regulatory approval
of pending acquisitions; general economic and business conditions;
competition; success of operating initiatives, advertising and promotional
efforts; existence of adverse publicity or litigation; changes in business
strategy or plans; quality of management; availability, terms and
development of capital;
business abilities and judgment of personnel; changes in, or the failure to
comply with governmental regulations, particularly those affecting the
environment and water quality; and other factors described in filings of
the Company with the SEC. The Company undertakes no obligation to publicly
update or revise any forward looking statement, whether as a result of new
information, future events or otherwise.
<PAGE> Page 17 FORM 10-Q
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
A. Exhibits
--------
Exhibit Number Description
-------------- -----------
10 Material Contracts
(a) 2000 Stock Award and Incentive Plan of the registrant
is incorporated by reference as Appendix A of the
definitive Proxy statement relating to the Registrant's
Annual Meeting of shareholders on May 4, 2000.
(b) Non-Qualified Stock Option Agreement between the
registrant and its executives and other key associates is
filed herewith.
(c) Change in Control Agreement, and summary thereof,
between the registrant and certain executives is filed
herewith.
(d) Employees' Stock Ownership Plan of the Registrant as
amended and restated effective August 1, 1999 is filed
herewith.
27 Financial Data Schedule
Financial Data Schedule, is filed herewith
electronically.
B. Reports on Form 8-K
-------------------
A current report on Form 8-K was filed on June 1, 2000 by the Company
describing the amendment of the Shareholder Rights Agreement.
<PAGE> Page 18 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 11, 2000 \s\Ellen C. Wolf
---------------------- ------------------------------------------
Vice President and Chief Financial Officer
(Authorized Officer)
Date August 11, 2000 \s\Robert D. Sievers
---------------------- ------------------------------------------
Comptroller
(Chief Accounting Officer)
