-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IpAjccJAI8dUnLv9l2OE8T9+7LZDaJ2PzccdWbkfXXb1PKwhaP6pbcVOhZIfCpew VR/xhxh9HxlKTpin7awNcw== /in/edgar/work/0000318819-00-500015/0000318819-00-500015.txt : 20001115 0000318819-00-500015.hdr.sgml : 20001115 ACCESSION NUMBER: 0000318819-00-500015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN WATER WORKS CO INC CENTRAL INDEX KEY: 0000318819 STANDARD INDUSTRIAL CLASSIFICATION: [4941 ] IRS NUMBER: 510063696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03437 FILM NUMBER: 766148 BUSINESS ADDRESS: STREET 1: 1025 LAUREL OAK RD CITY: VOORHEES STATE: NJ ZIP: 08043 BUSINESS PHONE: 6093468200 MAIL ADDRESS: STREET 1: 1025 LAUREL OAK ROAD CITY: VOORHEES STATE: NJ ZIP: 08043 10-Q 1 q10900.txt 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 September 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 November 1, 2000, the number of shares of common stock, $1.25 par value, outstanding was 98,412,326 shares. 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) Three Months Ended September 30, 2000 1999 -------- -------- CONSOLIDATED INCOME AND COMPREHENSIVE INCOME Operating revenues $364,125 $353,578 -------- -------- Operating expenses Operation and maintenance 154,400 148,045 Depreciation and amortization 41,648 38,116 General taxes 31,942 31,074 -------- -------- Total operating expenses 227,990 217,235 -------- -------- Operating income 136,135 136,343 -------- -------- Other income (deductions) Interest (48,556) (44,942) Allowance for other funds used during construction 1,241 2,841 Allowance for borrowed funds used during construction 931 2,765 Amortization of debt expense (691) (730) Preferred dividends of subsidiaries (789) (812) Merger related costs -- (6,521) Other, net (4,052) (1,539) -------- -------- Total other income (deductions) (51,916) (48,938) -------- -------- Income before income taxes 84,219 87,405 Provision for income taxes 33,488 34,558 -------- -------- Net income 50,731 52,847 Dividends on preferred stocks 996 996 -------- -------- Net income to common stock 49,735 51,851 -------- -------- Other comprehensive income Unrealized gain (loss) on securities (40,344) 13,286 Income taxes on other comprehensive income 16,488 (5,874) -------- -------- Other comprehensive income (loss), net (23,856) 7,412 -------- -------- Comprehensive income $ 25,879 $ 59,263 ======== ======== Page 3 FORM 10-Q Three Months Ended September 30, 2000 1999 ---------- ---------- Average shares of basic common stock outstanding 98,139 96,672 Basic and diluted earnings per common share on average shares outstanding $ 0.51 $ 0.54 ========== ========== CONSOLIDATED RETAINED EARNINGS Balance at July 1 $1,026,417 $ 959,221 Add - net income 50,731 52,847 Less - treasury stock issuances 15 -- ---------- ---------- 1,077,133 1,012,068 ---------- ---------- Deduct - dividends paid Preferred stock 882 882 Preference stock 114 114 Common stock - $.225 per share in 2000; $.215 per share in 1999 22,062 20,768 ---------- ---------- 23,058 21,764 ---------- ---------- Balance at September 30 $1,054,075 $ 990,304 ========== ========== The accompanying information and notes are an integral part of these financial statements.
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) Nine Months Ended September 30, 2000 1999 ---------- -------- CONSOLIDATED INCOME AND COMPREHENSIVE INCOME Operating revenues $1,018,293 $949,969 ---------- -------- Operating expenses Operation and maintenance 453,028 422,303 Depreciation and amortization 122,061 111,850 General taxes 96,610 93,247 ---------- -------- Total operating expenses 671,699 627,400 ---------- -------- Operating income 346,594 322,569 ---------- -------- Other income(deductions) Interest (143,030) (133,254) Allowance for other funds used during construction 5,747 8,682 Allowance for borrowed funds used during construction 4,210 8,178 Amortization of debt expense (2,081) (2,090) Preferred dividends of subsidiaries (2,382) (2,458) Merger related costs -- (20,535) Other, net (5,126) (3,144) ---------- -------- Total other income (deductions) (142,662) (144,621) ---------- -------- Income before income taxes 203,932 177,948 Provision for income taxes 80,979 71,557 ---------- -------- Net income 122,953 106,391 Dividends on preferred stocks 2,988 2,988 ---------- -------- Net income to common stock 119,965 103,403 ---------- -------- Other comprehensive income Unrealized gain(loss)on securities (79,577) 74,551 Income taxes on other comprehensive income 32,515 (29,477) ---------- -------- Other comprehensive income (loss), net (47,062) 45,074 ---------- -------- Comprehensive income $ 72,903 $148,477 ========== ======== Page 5 FORM 10-Q Nine Months Ended September 30, 2000 1999 --------- --------- Average shares of basic common stock outstanding 97,944 96,309 Basic and diluted earnings per common share on average shares outstanding $ 1.22 $ 1.07 ========== ========= CONSOLIDATED RETAINED EARNINGS Balance at January 1 $1,001,029 $ 945,434 Add - net income 122,953 106,391 Less - treasury stock issuances 959 -- ---------- --------- 1,123,023 1,051,825 ---------- --------- Deduct - dividends paid Preferred stock 2,646 2,646 Preference stock 342 342 Common stock - $.675 per share in 2000; $.645 per share in 1999 65,960 55,642 National Enterprises Inc. common stock -- 2,891 ---------- --------- 68,948 61,521 ---------- --------- Balance at September 30 $1,054,075 $ 990,304 ========== ========= The accompanying information and notes are an integral part of these financial statements.
Page 6 FORM 10-Q AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES ----------------------------------------------------------- Consolidated Balance Sheet (Unaudited) (In thousands) September 30 December 31 2000 1999 ----------- ----------- ASSETS Property, plant and equipment Utility plant - at original cost less accumulated depreciation $ 5,113,952 $ 4,939,408 Utility plant acquisition adjustments, net 74,419 51,697 Non-utility property, net of accumulated depreciation 36,053 36,265 Excess of cost of investments in subsidiaries over book equity at acquisition, net 54,657 57,118 ----------- ----------- Total property, plant and equipment 5,279,081 5,084,488 ----------- ----------- Current assets Cash and cash equivalents 22,746 43,100 Customer accounts receivable 113,192 91,353 Allowance for uncollectible accounts (2,734) (2,346) Unbilled revenues 86,253 78,205 Miscellaneous receivables 13,622 10,936 Materials and supplies 21,372 20,058 Deferred vacation pay 12,958 10,902 Restricted funds 232 14,558 Other 15,067 11,915 ----------- ----------- Total current assets 282,708 278,681 ----------- ----------- Regulatory and other long-term assets Regulatory asset - income taxes recoverable through rates 213,390 214,349 Other investments 107,973 181,579 Debt and preferred stock expense 47,836 48,289 Deferred pension expense 20,693 32,872 Deferred postretirement benefit expense 10,374 10,264 Deferred treatment plant costs 5,014 5,811 Deferred tank painting costs 15,908 14,178 Restricted funds 8,343 6,557 Other 83,634 75,138 ----------- ----------- Total regulatory and other long-term assets 513,165 589,037 ----------- ----------- TOTAL ASSETS $ 6,074,954 $ 5,952,206 =========== =========== Page 7 FORM 10-Q September 30 December 31 2000 1999 ------------ ------------ CAPITALIZATION AND LIABILITIES Capitalization Common stockholders' equity $1,665,273 $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 33,094 34,020 Preferred stocks of subsidiaries without mandatory redemption requirements 8,118 8,118 Long-term debt American Water Works Company, Inc. 161,000 211,000 Subsidiaries 2,171,432 2,182,097 ----------- ----------- Total capitalization 4,090,590 4,121,706 ----------- ----------- Current liabilities Bank debt 313,447 239,864 Current portion of long-term debt 118,238 38,355 Accounts payable 40,611 67,064 Taxes accrued, including federal income 37,743 16,030 Interest accrued 48,351 43,672 Accrued vacation pay 13,552 11,532 Other 55,436 75,191 ----------- ----------- Total current liabilities 627,378 491,708 ----------- ----------- Regulatory and other long-term liabilities Advances for construction 211,635 207,891 Deferred income taxes 604,588 610,460 Deferred investment tax credits 39,780 40,585 Accrued pension expense 48,620 63,095 Accrued postretirement benefit expense 16,540 12,471 Other 36,562 29,453 ----------- ----------- Total regulatory and other long-term liabilities 957,725 963,955 ----------- ----------- Contributions in aid of construction 399,261 374,837 ----------- ----------- Commitments and contingencies -- -- ----------- ----------- TOTAL CAPITALIZATION AND LIABILITIES $ 6,074,954 $ 5,952,206 =========== =========== The accompanying information and notes are an integral part of these financial statements.
Page 8 FORM 10-Q AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES ----------------------------------------------------------- Consolidated Statement of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $122,953 $106,391 Adjustments Depreciation and amortization 122,061 111,850 Provision for deferred income taxes 13,757 14,305 Provision for losses on accounts receivable 6,334 4,939 Allowance for other funds used during construction (5,747) (8,682) Employee benefit expenses greater (less) than funding 4,946 (273) Employee stock plan expenses (2) 4,299 Deferred tank painting costs (1,591) (2,243) Deferred rate case expense (1,322) (1,434) Amortization of deferred charges 8,266 10,568 Other, net (7,047) (6,814) Changes in assets and liabilities, net Accounts receivable (29,458) (21,520) Unbilled revenues (7,489) (3,553) Other current assets (4,226) (7,983) Accounts payable (26,480) (20,528) Taxes accrued, including federal income 21,206 12,979 Interest accrued 4,679 8,584 Other current liabilities (19,778) 20,416 -------- -------- Net cash from operating activities 201,062 221,301 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Construction expenditures (253,011) (305,174) Allowance for other funds used during construction 5,747 8,682 Acquisitions (48,951) (7,288) Proceeds from the disposition of property, plant and equipment 2,342 2,730 Removal costs from property, plant and equipment retirements (4,500) (2,694) Restricted funds 12,540 (16,762) -------- -------- Net cash used in investing activities (285,833) (320,506) -------- -------- Page 9 FORM 10-Q Nine Months Ended September 30, 2000 1999 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt $ 46,014 $118,237 Proceeds from common stock 25,455 27,745 Purchase of common stock for treasury (3,426) (1,190) Net borrowings under line-of-credit agreements 73,583 31,277 Advances and contributions for construction, net of refunds 21,243 32,418 Debt issuance costs (1,782) (3,685) Repayment of long-term debt (26,796) (46,790) Redemption of preferred stocks (926) (3,097) Dividends paid (68,948) (61,521) -------- -------- Net cash from financing activities 64,417 93,394 -------- -------- Net decrease in cash and cash equivalents (20,354) (5,811) Cash and cash equivalents at January 1 43,100 51,794 -------- -------- Cash and cash equivalents at September 30 $22,746 $ 45,983 ======== ======== Cash paid during the period for: Interest, net of capitalized amount $141,284 $124,205 ======== ======== Income taxes $ 47,579 $ 42,266 ======== ======== 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 $4,750 in 1999. Common stock placed into treasury in connection with the Employees Stock Ownership Plan, the Savings Plan for Employees and the 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.
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) September 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 - 98,497,742 shares in 2000; 97,303,759 shares in 1999 $ 123,122 $ 121,630 Paid-in capital 447,122 424,434 Retained earnings 1,054,075 1,001,029 Accumulated other comprehensive income 45,399 92,461 Unearned compensation (477) (1,056) Treasury stock at cost - 179,273 shares in 2000; 109,675 shares in 1999 (3,968) (3,700) ---------- ----------- $1,665,273 $ 1,634,798 ========== =========== At September 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, 3,118,199 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 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 third quarter of 1999, the Company recorded a charge of $6.5 million, and related tax benefits of $2.4 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 for the first nine months of 1999 amounted to $20.5 million with related tax benefits of $7.6 million. The merger related costs have been reported on a separate line 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 $50 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 approximately 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 Communications Company (formerly Citizens Utilities Company) (NYSE:CZN) (Citizens)for $835 million in cash and debt. Citizens Communications provides water and wastewater service to 305,000 customers in Arizona, California, Illinois, Indiana, Ohio Page 12 FORM 10-Q and Pennsylvania. For the fiscal year ended December 31, 1999, the operations being acquired had revenues of $102 million. The Office of Ratepayer Advocates of the California Utilities Commission (CPUC) recently issued reports opposing the Company's acquisitions of SJW Corp. (see below) and of the California water and wastewater assets of Citizens Communications Company. The Company strongly disagrees with those reports and has filed rebuttal testimony with the CPUC contesting the reports' analysis and conclusions. The Company continues to work to complete the acquisitions as scheduled, but recognizes that there is no assurance approval will be obtained on a timely basis, if at all. The Ohio Public Utility Commission and the Indiana Utility Regulatory Commission have approved the Company's acquisition of the Ohio and Indiana water and wastewater assets of Citizens. However, consummation of the Citizens' transaction requires approval of public utility commissions in each of the six states in which Citizens' water and wastewater assets are located. Requests for regulatory approval are pending with the public service commissions in the other three states impacted by the Citizens' acquisition. 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. The Office of Ratepayer Advocates of the California Utilities Commission recently issued reports opposing the Company's acquisitions of SJW Corp. and of the California water and wastewater assets of Citizens. The Company strongly disagrees with those reports and has filed rebuttal testimony with the CPUC contesting the reports' analysis and conclusions. The Company continues to work to complete the acquisitions as scheduled, but recognizes that there is no assurance approval will be obtained on a timely basis, if at all. 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 November 1, 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 in the first quarter of 2001, following regulatory approvals and completion of other requirements. Page 13 FORM 10-Q 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. On October 30, 2000 AWCC issued almost $250 million from a $600 million commercial paper program. 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. Under the plan, the options are granted at prices not less than the market value of the stock at the date of the grant. Accordingly, 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 Page 14 FORM 10-Q 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. 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 2000 were higher than for the same periods of 1999 by 3% and 7%, respectively. The increased revenues were due to rate increases authorized by regulatory agencies and the management fees from the contract management business that are included in the consolidated results in 2000. Management fees increased revenues by 3% for the third quarter and first nine months of 2000. Water sales volume during the third quarter of 2000 decreased 5% to 99.5 billion gallons from 105.2 billion gallons in the third quarter of 1999. The 258 billion gallons of sales volume for the first nine months of 2000 was 1% less than the 259.7 billion gallons sold in the same period of 1999. The decrease in sales volume reflects cooler temperatures and frequent rainfall in the entire eastern half of the nation during the third quarter. During the first ten months of 2000, six utility subsidiaries received rate orders which are expected to provide approximately $16.5 million in additional annual revenues. One of these decisions authorized implementation of new rates in Missouri effective September 20, 2000 to provide additional annual revenues of $10.2 million. Six subsidiaries have rate increase applications on file before regulatory agencies which, if granted in full, would provide approximately $36.9 million in additional annual revenues. The largest portion of this total is $17.6 million from a request filed by a second Missouri subsidiary. Illinois- American at $9 million and Kentucky-American at $5 million comprise the majority of the remaining requests. A decision is expected on the Kentucky case during the fourth quarter of 2000. Decisions are anticipated in Illinois and in Missouri in the first and second quarters of 2001, respectively. Operating expenses in the third quarter and the first nine months of 2000 were higher compared to the same periods in 1999 by 5% and 7%, respectively. Excluding the expenses of the contract management business, operation and maintenance expenses were level for the quarter and up 2% for the first nine months. The increases in depreciation expense for the quarter and first nine months were related to the Company's ongoing program of utility plant construction. Interest expense rose by 8% in the third quarter and 7% for the first nine 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 third quarter of 2000 was $2.2 million, compared to $5.6 million in the third quarter of 1999. AFUDC for the first nine months of 2000 was $10 million compared to $16.9 million for the same period in 1999. The utility subsidiaries record AFUDC to the extent permitted by the regulatory authorities. Page 15 FORM 10-Q In connection with the authorization of new rates to produce $10.2 million in additional annual revenue, the Missouri Public Service Commission denied recognition of certain investments in the former treatment plant deemed essential to provide water service until a new treatment plant was completed. The impact of this ruling was a one-time charge of $4.6 million ($3.2 million after tax). Income taxes decreased in the third quarter of 2000 as a result of decreased third quarter earnings. Income taxes increased for the first nine months of 2000 when compared to the comparable period in 1999 as a result of increased earnings. Net income to common stock was $49.7 million for the third quarter of 2000 compared with $51.9 million for the same period in 1999. Net income to common stock for the first nine months of 2000 was $120 million compared with $103.4 million for the first nine months of 1999. Net income to common stock for the third quarter of 2000 was $49.7 million compared to $55.9 million before one-time merger costs of $4 million after taxes, for the same period in 1999. For the first nine months of 2000, net income to common stock was $120 million compared with $116.3 million excluding $12.9 million of merger costs after taxes for the first nine months of 1999. Capital Resources and Liquidity - ------------------------------- During the first nine months of 2000, 1,096,305 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 151,129 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 nine months of 2000. As noted above in Note 4, on June 29, 2000 American Water Capital Corp.(AWCC), 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, AWCC will provide the Company with an additional source of liquidity. On October 30, 2000 AWCC issued almost $250 million from a $600 million commercial paper program. This was the first commercial paper issued by AWCC and the only commercial paper program of an investor-owned water utility available in the marketplace. Establishing a commercial paper program gives the Company a range of financing vehicles to meet its future short-term capital needs. Six subsidiaries issued $46 million of long-term debt during the first nine months of 2000. In addition, in the first nine 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. Page 16 FORM 10-Q It is anticipated that some subsidiaries will 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 Communications Company initially with short-term debt, and ultimately through a combination of long-term debt and preferred equity securities. The Company does not plan to issue any additional long term debt during the remainder of 2000. 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 17 FORM 10-Q PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- A. Exhibits -------- Exhibit Number Description - -------------- ----------- 27 Financial Data Schedule 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, 2000. 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 November 14, 2000 \s\Ellen C. Wolf - ---------------------- ------------------------------------------ Vice President and Chief Financial Officer (Authorized Officer) Date November 14, 2000 \s\Robert D. Sievers - ---------------------- ------------------------------------------ Comptroller (Chief Accounting Officer) EX-27 2 fds930.xfd
OPUR1 9-MOS Jan-01-2000 Dec-31-2000 Sep-30-2000 PER-BOOK 5,113,952 165,129 282,708 321,558 191,607 6,074,954 119,154 446,645 1,054,075 1,665,273 73,094 19,791 2,332,432 313,447 0 0 118,238 0 0 0 1,552,679 6,074,954 1,018,293 80,979 671,699 752,678 265,615 368 265,983 143,030 122,953 2,988 119,965 65,960 130,886 201,062 1.22 1.22
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