CONFORMED COPY
FORM 10-Q Page 1 of 16
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, 2001
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- OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-3437-2
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AMERICAN WATER WORKS COMPANY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 51-0063696
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1025 Laurel Oak Road, Voorhees, New Jersey 08043
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(Address of principal executive offices) (Zip Code)
(856) 346-8200
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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At May 1, 2001, the number of shares of common stock, $1.25 par value,
outstanding was 99,138,967 shares.
Page 2 FORM 10-
Q
PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
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AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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Consolidated Statements of Income and Comprehensive Income
and of Retained Earnings (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
2001 2000
-------- --------
CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
Operating revenues $316,427 $307,759
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Operating expenses
Operation and maintenance 150,823 144,358
Depreciation and amortization 44,360 39,824
General taxes 33,311 33,129
-------- --------
Total operating expenses 228,494 217,311
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Operating income 87,933 90,448
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Other income (deductions)
Interest (48,597)
(46,746)
Allowance for other funds used during
construction 1,081 2,706
Allowance for borrowed funds used
during construction 979 1,882
Amortization of debt expense (678)
(682)
Preferred dividends of subsidiaries (783)
(798)
Other, net (671)
(1,308)
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Total other income (deductions) (48,669)
(44,946)
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Income before income taxes 39,264 45,502
Provision for income taxes 15,803 18,419
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Net income 23,461 27,083
Dividends on preferred stocks 146 996
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Net income to common stock 23,315 26,087
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Page 3 FORM 10-
Q
Other comprehensive income
Unrealized gain (loss) on securities (3,362) 13,181
Income taxes on other comprehensive income 1,368
(5,385)
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Other comprehensive income (loss),net (1,994) 7,796
-------- --------
Comprehensive income $ 21,321 $ 33,883
======== ========
Average shares of basic common stock outstanding 98,873 97,479
Basic and diluted earnings per common share on
average shares outstanding $ 0.24 $ 0.27
========== ==========
CONSOLIDATED RETAINED EARNINGS
Balance at January 1 $1,069,486 $1,001,029
Add - net income 23,461 27,083
treasury stock issuances 338 --
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1,093,285 1,028,112
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Deduct - dividends paid
Preferred stock 32 882
Preference stock 114 114
Common stock - $.235 per share in 2001;
$.225 per share in 2000 23,212 21,900
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23,358 22,896
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Balance at March 31 $1,069,927 $1,005,216
========== ==========
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
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Consolidated Balance Sheet (Unaudited)
(In thousands)
March 31 December 31
2001 2000
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ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $ 5,269,297 $ 5,202,833
Utility plant acquisition adjustments, net 74,996 75,294
Non-utility property, net of accumulated
depreciation 41,513 37,831
Excess of cost of investments in
subsidiaries over book equity at
acquisition, net 55,171 55,590
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Total property, plant and equipment 5,440,977 5,371,548
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Current assets
Cash and cash equivalents 20,232 28,571
Customer accounts receivable 89,645 103,975
Allowance for uncollectible accounts (2,615)
(2,575)
Unbilled revenues 81,508 83,878
Miscellaneous receivables 11,463 15,117
Materials and supplies 21,467 20,683
Deferred vacation pay 13,861 10,923
Other 16,690 17,124
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Total current assets 252,251 277,696
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Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 216,899 216,652
Other investments 70,635 73,997
Debt and preferred stock costs 47,192 47,630
Deferred pension costs 25,307 23,479
Deferred postretirement benefit costs 9,926 10,129
Deferred treatment plant costs 4,483 4,748
Deferred business services project costs 12,471 4,796
Deferred tank painting costs 16,165 16,829
Restricted funds 8,590 8,343
Other 85,042 78,951
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Total regulatory and other long-term assets 496,710 485,554
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TOTAL ASSETS $ 6,189,938 $ 6,134,798
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Page 5 FORM 10-Q
March 31 December 31
2001 2000
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CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $1,677,252 $1,669,677
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Preferred stocks of subsidiaries with
mandatory redemption requirements 32,583 32,902
Preferred stocks of subsidiaries without
mandatory redemption requirements 8,118 8,118
Long-term debt
American Water Works Company, Inc. 159,000 159,000
Subsidiaries 2,254,210 2,112,165
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Total capitalization 4,142,836 3,993,535
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Current liabilities
Short-term debt 352,041 412,179
Current portion of long-term debt 105,310 161,395
Accounts payable 34,283 52,447
Taxes accrued, including federal income 49,768 25,960
Interest accrued 47,784 42,641
Accrued vacation pay 14,083 11,564
Other 63,379 67,865
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Total current liabilities 666,648 774,051
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Regulatory and other long-term liabilities
Advances for construction 218,179 216,125
Deferred income taxes 607,484 605,343
Deferred investment tax credits 39,754 40,098
Accrued pension expense 54,898 50,414
Accrued postretirement benefit expense 18,087 13,930
Other 36,148 37,823
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Total regulatory and other long-term
liabilities 974,550 963,733
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Contributions in aid of construction 405,904 403,479
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Commitments and contingencies -- --
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TOTAL CAPITALIZATION AND LIABILITIES $ 6,189,938 $ 6,134,798
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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
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Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,461 $ 27,083
Adjustments
Depreciation and amortization 44,360 39,824
Provision for deferred income taxes 3,165 6,340
Provision for losses on accounts receivable 1,943 2,163
Allowance for other funds used during
construction (1,081)
(2,706)
Employee benefit expenses greater
than funding 3,876 4,579
Employee stock plan expense 1,212 972
Deferred business services project expense (7,675) -
Deferred revenue (1,544) -
Deferred tank painting costs (247)
(118)
Deferred rate case expense (503)
(319)
Amortization of deferred charges 3,684 3,103
Other, net (8,735)
(6,178)
Changes in assets and liabilities,net
Accounts receivable 16,081 8,288
Unbilled revenues 2,370 111
Other current assets (350)
(2,474)
Accounts payable (18,164)
(26,566)
Taxes accrued, including federal income 23,808 20,391
Interest accrued 5,143 7,302
Other current liabilities (4,486)
(23,645)
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Net cash from operating activities 86,318 58,150
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CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (62,523)
(67,321)
Allowance for other funds used during
construction 1,081 2,706
Acquisitions (48,575)
(29,451)
Proceeds from the disposition of property,
plant and equipment 410 400
Removal costs related to property, plant and
equipment retirements (1,880)
(774)
Restricted funds (247) 4,062
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Net cash used in investing activities (111,734)
(90,378)
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Page 7 FORM 10-Q
Three Months Ended
March 31,
2001 2000
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $143,788 $ 41,945
Proceeds from common stock 9,269 10,367
Purchase of common stock for treasury (63)
(704)
Net borrowings (repayments) under
short-term debt agreements (60,138)
(4,234)
Advances and contributions for construction,
net of refunds 6,506 6,384
Debt issuance costs (780)
(1,492)
Repayment of long-term debt (57,828)
(1,424)
Redemption of preferred stocks (319)
(411)
Dividends paid (23,358)
(22,896)
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Net cash from financing activities 17,077 27,535
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Net decrease in cash and cash equivalents (8,339)
(4,693)
Cash and cash equivalents at January 1 28,571 43,100
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Cash and cash equivalents at March 31 $ 20,232 $ 38,407
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Cash paid during the period for:
Interest, net of capitalized amount $ 44,086 $ 40,552
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Income taxes $ 7,211 $ 7,154
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Common stock issued in lieu of cash in connection with the Employees'
Stock Ownership Plan, the Savings Plan for Employees and the 2000 Stock
Award and Incentive Plan totaled $1,488 in 2000.
Common stock placed into treasury in connection with the Employees' Stock
Ownership Plan and 2000 Stock Award and Incentive Plan totaled $890 in
2001 and $704 in 2000.
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
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Information Accompanying Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
March 31 December 31
2001 2000
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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 - $35 par value
Authorized - 3,000,000 shares
(one-tenth of a vote per share) -- --
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$ 11,673 $ 11,673
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Common stockholders' equity
Common stock - $1.25 par value
Authorized - 300,000,000 shares
Issued - 99,161,694 shares in 2001;
98,819,845 shares in 2000 $ 123,952 $ 123,525
Paid-in capital 463,410 454,568
Retained earnings 1,069,927 1,069,486
Accumulated other comprehensive income 23,309 25,303
Unearned compensation (808)
(359)
Treasury stock at cost - 105,644 shares in
2001; 129,216 shares in 2000 (2,538)
(2,846) ---------- -
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$1,677,252 $ 1,669,677
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At March 31, 2001, common shares reserved for issuance in connection with
the Company's stock plans were 80,865,863 shares for the Stockholder
Rights Plan, 2,454,247 shares for the Dividend Reinvestment and Stock
Purchase Plan, 565,493 shares for the Employees' Stock Ownership Plan and
532,381 shares for the Savings Plan for Employees. Up to 4,276,551 shares
of common stock may be issued under the 2000 Stock Award and Incentive
Plan, of which approximately 3,300,000 shares were available to be granted
at March 31, 2001.
Page 9 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
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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, that 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
CITY OF COATESVILLE PENNSYLVANIA WATER AND WASTEWATER SYSTEMS
On March 22, 2001 the Company's subsidiary in Pennsylvania completed the
purchase of the City of Coatesville Authority's water and wastewater
utility systems for $48.225 million. These systems provide water service
to 8,600 customers and wastewater service to 6,500 customers.
SJW CORP.
On October 28, 1999, the Company agreed to acquire all of the common stock
of SJW Corp. (AMEX:SJW). On March 1, 2001 the Company and SJW announced
that, in light of additional delays outlined in a new procedural
scheduling order issued by the California Public Utilities Commission
(CPUC) on February 20, 2001, they had mutually agreed to terminate the
merger agreement between them immediately. The CPUC scheduling order
extended the date for a final decision regarding review of the merger
application to at least September 2001, and thereby made it impossible to
plan and effectively implement the transaction contemplated by the
agreement.
Note 3 -- Pending Acquisitions
WATER AND WASTEWATER ASSETS OF CITIZENS UTILITIES
On October 15, 1999, the Company entered into an agreement to acquire all
of the water and wastewater utility assets of Citizens Communications
Company (formerly Citizens Utilities Company) (NYSE:CZN) for $835 million
in cash and debt. Citizens provides water and wastewater service to
305,000 customers in Arizona, California, Illinois, Indiana, Ohio and
Pennsylvania. For the latest fiscal year ended December 31, 2000, the
operations being acquired had revenues of approximately $110 million.
Regulatory agencies in Pennsylvania, Indiana, Ohio and Arizona have
approved the acquisition of Citizen's water and wastewater assets in those
states and evidentiary hearings have been completed in Illinois and
California. Decisions are anticipated in Illinois during the second
quarter of 2001 and in California during the third quarter of 2001.
The Office of Ratepayer Advocates (ORA) of the California Public Utilities
Commission issued a report on October 16, 2000 opposing the Company's
acquisition of the California water and wastewater assets of Citizens.
The Company has filed testimony rebutting the position of the ORA.
On April 10, 2001, a hearing examiner of the Illinois Commerce Commission
issued a proposed order approving the acquisition of the Illinois water
and wastewater assets of Citizens. However, the proposed order in
Illinois rejected the Company's savings sharing proposal and an alternate
proposal
PAGE> Page 10 FORM 10-Q
that the Company be allowed to recover the acquisition premium in rates to
the extent that savings can be demonstrated. The Company has filed
exceptions to the hearing examiner's proposed order based on the evidence
in the record.
Consummation of the Citizens transaction requires approval by regulatory
agencies in each of the six states in which the assets are located. The
Company continues to work to complete this acquisition, but recognizes
that there is no assurance that approval will be obtained on a timely
basis, if at all.
NOTE 4 -- New Accounting Standard
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended. The statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
SFAS 133 was issued by the Financial Accounting Standards Board 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.
This new accounting standard did not have any effect on the Company's
financial position or results of operations. The Company's contracts that
meet the definition of a derivative are for normal purchases and normal
sales, are expected to result in a physical delivery, and are of
quantities expected to be used or sold over a reasonable period in the
normal course of business. The Company has no hedging activities.
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
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Revenues of $316.4 million for the quarter were 3% higher than those
recorded in the first quarter of 2000. Increased revenues from customer
growth and favorable rate decisions were partially offset by lower than
expected water sales resulting from a 3% decline in usage per customer.
Water consumption comparable to last year's normal level would have
produced earnings that were $.05 per share greater than those realized for
the first quarter 2001. Notably, the volume of water sold in the
Company's western subsidiaries was 9% lower in the first quarter this year
due to significant precipitation in that region of the country.
During 2001, eight utility subsidiaries have received rate orders that are
expected to provide $16.9 million in additional annual revenues. Three
subsidiaries have rate increase applications on file before regulatory
agencies that, if granted in full, would provide approximately $53.5
million in additional annual revenues. The largest of these, the
Company's Pennsylvania and West Virginia subsidiaries rate cases, have
been filed requesting $38.7 and $11.8 million in additional annual
revenues, respectively.
Operating expenses were up 5% to $228.5 million in 2001 from $217.3
million in the first quarter of 2000. Operation and maintenance expenses
increased 4% from those in the first quarter of 2000 primarily for
purchased water, waste disposal and fuel and power costs. The increase in
depreciation expense was related to the Company's ongoing program of
utility plant construction.
Interest expense rose by 4% to $48.6 million in the first quarter of 2001
compared to the first quarter of 2000, 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 first quarter of 2001 was $2.1 million, compared to $4.6 million in
the first quarter of 2000. The utility subsidiaries record AFUDC to the
extent permitted by the regulatory authorities.
Income taxes decreased in the first three months of 2001 when compared to
the first three months in 2000, as a result of decreased earnings.
Net income to common stock was $23.3 million for the first quarter of 2001
compared with $26.1 million for the same period in 2000.
Page 12 FORM 10-Q
Other comprehensive loss was $2.0 million in the first quarter of 2001
compared to other comprehensive income of $7.8 million in the same period
in 2000. The Company's other comprehensive income or loss represents the
after tax unrealized gain or loss on passive investments in publicly
traded securities.
Comprehensive income was $21.3 million in the first quarter of 2001
compared to $33.9 million in the same period in 2000.
Capital Resources and Liquidity
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During the first three months of 2001, 341,849 shares of common stock were
issued in connection with the Dividend Reinvestment and Stock Purchase
Plan and 137,000 non-qualified stock options were granted under the 2000
Stock Award and Incentive Plan.
The Company issued 53,989 shares of common stock out of treasury in the
first three months of 2001 in conjunction with its Employees' Stock
Ownership Plan, the Savings Plan for Employees and the 2000 Stock Award
and Incentive Plan.
On March 29, 2001 the Company's financing subsidiary, American Water
Capital Corp. (AWCC) closed on its inaugural long-term debt financing of
$140 million. The securities issued are senior unsecured notes carrying
an interest rate of 6.87% maturing on March 29, 2011. The proceeds were
loaned to nine utility subsidiaries to repay short-term debt. In the
first three months of 2001, the Company invested $3.2 million in the
common stock of one subsidiary.
The Company and its subsidiaries plan to fund construction programs,
continue acquisitions and repay short-term debt and maturing bonds with
cash from operations and from the issuance of approximately $100 million
of long-term debt during the remainder of 2001. In addition, during 2001
the Company plans to arrange acquisition financing of approximately $850
million to fund the closing of the Citizens Communications water and
wastewater sector acquisition. Management intends to fund this
transaction permanently through a combination of long-term debt and equity
or hybrid equity securities. Excluding any short-term debt incurred in
connection with the pending transaction, the combined amount of short-term
debt and bonds maturing within one year is expected to decline to
approximately $325 million in 2001.
PAGE> Page 13 FORM 10-Q
New Accounting Standards
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On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended. The statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
SFAS 133 was issued by the Financial Accounting Standards Board 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.
This new accounting standard did not have any effect on the Company's
financial position or results of operations. The Company's contracts that
meet the definition of a derivative are for normal purchases and normal
sales, are expected to result in a physical delivery, and are of
quantities expected to be used or sold over a reasonable period in the
normal course of business. The Company has no 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 that 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; weather conditions that tend
to extremes of temperature or duration; 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;
competition; success of operating initiatives, advertising and promotional
efforts; existence of adverse publicity or litigation; changes in business
strategy or plans; quality of management; general economic and business
conditions; 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 14 FORM 10-Q
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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(a) The Company held its annual meeting of shareholders on May 3, 2001.
(b) Class I Directors (with a term expiring in 2004) were elected by
a vote of:
For Withheld
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Henry G. Hager 91,152,771 465,419
Frederick S. Kirkpatrick 91,191,581 426,609
Gerald C. Smith 88,801,828 2,816,362
Anthony P. Terracciano 91,185,341 432,849
Marilyn Ware 91,183,853 434,337
The appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for the year ending December 2001 was approved by a vote of
91,151,771 for the appointment and 288,960 against, with 177,459
abstentions.
Page 15 FORM 10-Q
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
B. Reports on Form 8-K
-------------------
No report on Form 8-K was filed by the registrant during the quarter ended
March 31, 2001.
Page 16 FORM 10-
Q
SIGNATURES
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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 14, 2001 \s\Ellen C. Wolf
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Vice President and Chief Financial
Officer
(Authorized Officer)
Date May 14, 2001 \s\Robert D. Sievers
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Comptroller
(Chief Accounting Officer)