-----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, BQkwIxtExVk7egLYFM3Gr4C54EBmpqmmJ+9tPzs3oEWU1GAX5c0Sizaq2U4cjjed VqO9ysZKxpJyqi7jW4skBA== 0000912057-01-008584.txt : 20010329 0000912057-01-008584.hdr.sgml : 20010329 ACCESSION NUMBER: 0000912057-01-008584 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN WATER WORKS CO INC CENTRAL INDEX KEY: 0000318819 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 510063696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-03437 FILM NUMBER: 1582604 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-K 1 a2043162z10-k.txt 10-K EXHIBIT INDEX ON PAGES 11-15 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 (I.R.S. Employer Identification No.) Incorporation or Organization) 1025 Laurel Oak Road, Voorhees, New Jersey 08043 - ------------------------------------------ ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code 856-346-8200 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------------ Common Stock, $1.25 par value per share New York Stock Exchange Cumulative Preferred Stock, 5% Series, $25 par value per share New York Stock Exchange 5% Cumulative Preference Stock, $25 par value per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant at March 5, 2001 was $1,927,357,569. As of March 5, 2001, there were a total of 98,964,185 shares of Common Stock, $1.25 par value per share, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained and incorporated by reference herein contains forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Certain factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include, but are not limited to, the unpredictability of weather, rate regulations and timing of rate cases, and changes to existing and proposed environmental regulations. See "Management's Discussion and Analysis" beginning on page 23 of the Company's Annual Report to Shareholders incorporated herein by reference. (1) The following pages and section in Registrant's Annual Report to Shareholders for 2000 are incorporated by reference into Part I, Item 1 and Part II of this Form 10-K: pages 22 through 53, with the exception of the section entitled "Management's Responsibility for Financial Reporting" on page 35; and the section entitled "Range of Market Prices" on page 57. (2) The following pages and section in Registrant's definitive Proxy Statement relating to Registrant's Annual Meeting of Shareholders on May 3, 2001 are incorporated by reference into Part III of this Form 10-K: Page 2 (beginning with the sixth full paragraph thereon) through page 5, the section entitled "Director Remuneration" on page 7, pages 8 and 9,the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" on page 10, and pages 15 through 19. Page 1 PART I Item 1. Business The "Description of the Business" is set forth on pages 23 and 25 of the Annual Report to Shareholders for 2000, filed as Exhibit 13 to this Report on Form 10-K; and such description is hereby specifically incorporated herein by reference thereto. The information provided in that section is supplemented by the following details: The water supplies of the regulated subsidiaries consist of surface supplies, wells, and in a limited number of cases, water purchased under contract. Such supplies are considered adequate to meet present require- ments. In general, all surface supplies are filtered and substantially all of the water is treated with chlorine, and, in some cases, special treatment is provided to correct specific conditions of the water. In general, the regulated subsidiaries have valid franchises, free from unduly burdensome restrictions, sufficient to enable them to carry on their business as presently conducted. They derive such franchise rights from statutes under which they were incorporated, municipal consents and ordinances, or certificates or permits received from state or local regulatory agencies. In most instances, such franchise rights are non-exclusive. In most of the states in which the operations of the regulated subsidiaries are carried on, there exists the right of municipal acquisition by one or both of the following methods: (1) condemnation; or (2) the right of purchase given or reserved by the law of the state in which the company was incorporated or received its franchise. The price to be paid upon condemnation is usually determined in accordance with the law of the state governing the taking of land or other property under eminent domain statutes; in other instances, the price is fixed by appraisers selected by the parties, or in accordance with a formula prescribed by the law of the state or in the particular franchise or special charter. The Registrant and its regulated subsidiary companies acquire water and wastewater utility systems that complement existing service territories or which enhance geographic diversification. Acquisitions of utility systems by the Registrant and its subsidiary companies are described in the subsection entitled "Acquisitions of Utility Systems" under the section entitled "System Growth and Development," located on page 25 and 26 of the Annual Report to Shareholders for 2000, filed as Exhibit 13 to this Report on Form 10-K; such information is hereby specifically incorporated herein by reference thereto. Some of the expenditures for construction by regulated subsidiaries have included facilities to comply with federal and state water quality and safety standards. The nature of some of the construction is described in the subsection entitled "Capital Spending Program" under the section entitled "System Growth and Development," located on page 26 of the Annual Report to Shareholders for 2000, filed as Exhibit 13 to this Report on Form 10-K; such information is hereby specifically incorporated herein by reference thereto. The number of persons employed by the Registrant and subsidiary companies totaled 5,050 at December 31, 2000. Page 2 Item 1A. Executive Officers of the Registrant The following sets forth the names, ages and business experience during the past five years of the executive officers of the Registrant and those who perform equivalent responsibilities for the Registrant. No family relationships exist among any of such executive officers, nor do any arrangements or understandings exist between any such executive officer and any other person pursuant to which he or she was selected as an officer. Name Age Business Experience During Past Five Years J. James Barr 59 President and Chief Executive Officer of the Registrant since March, 1998 and Acting President and Chief Executive Officer of the Registrant from November, 1997 to March, 1998. Vice President and Treasurer of the Registrant prior thereto. Ellen C. Wolf 47 Vice President and Chief Financial Officer of the Registrant since May, 1999. Vice President-Treasurer of Bell Atlantic Corporation prior thereto. W. Timothy Pohl 46 General Counsel and Secretary of the Registrant. Joseph F. Hartnett, Jr. 49 Treasurer of the Registrant since January, 1998 and Vice President-Finance since May, 1998 and Vice President and Treasurer from September, 1992 to May, 1998 of American Water Works Service Company, Inc., the service subsidiary of the Registrant. Robert D. Sievers 47 Comptroller of the Registrant. The executive officers are elected at the annual organizational meeting of the Board of Directors of the Registrant which is held in May. The executive officers serve at the pleasure of the Board of Directors. Successors to officers who resign, die or are removed during the year are elected by the Board. Item 2. Properties The Registrant leases its office space, equipment and furniture from one of its wholly-owned subsidiaries. The office space, equipment and furniture are located in Voorhees, New Jersey and are utilized by the Registrant's directors, officers and staff in the conduct of the Registrant's business. Page 3 The regulated subsidiaries own, in the states in which they operate, transmission and distribution mains, pump stations, treatment plants, storage tanks, reservoirs and related facilities. Properties are adequately maintained and units of property are replaced as and when necessary. The Registrant considers the properties of its regulated subsidiaries to be in good operating condition. A substantial acreage of land is owned by the regulated subsidiaries, the greater part of which is located in watershed areas, with the balance being principally sites of pumping and treatment plants, storage reservoirs, tanks and standpipes. Item 3. Legal Proceedings There are no pending material legal proceedings, other than ordinary, routine litigation incidental to the business, to which the Registrant or any of its subsidiaries is a party or of which any of their property is the subject. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information required under this item is contained in the section entitled "Range of Market Prices," located on page 57 of the Annual Report to Shareholders for 2000, filed as Exhibit 13 to this Report on Form 10-K; such information is hereby specifically incorporated herein by reference thereto. Item 6. Selected Financial Data The information required under this item is contained in the section entitled "Consolidated Summary of Selected Financial Data," located on page 22 of the Annual Report to Shareholders for 2000, filed as Exhibit 13 to this Report on Form 10-K; such information is hereby specifically incorporated by reference thereto. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required under this item is contained in the section entitled "Management's Discussion and Analysis," located on pages 23 through 34 of the Annual Report to Shareholders for 2000, filed as Exhibit 13 to this Report on Form 10-K; such information is hereby specifically incorporated herein by reference thereto. Page 4 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by this item with respect to market risk is contained on page 33, within the section entitled "Management's Discussion and Analysis," located on pages 23 through 34 of the Annual Report to Shareholders for 2000, filed as Exhibit 13 to this Report on Form 10-K; such information is hereby specifically incorporated herein by reference thereto. Item 8. Financial Statements and Supplementary Data The financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated January 30, 2001, except as to Note 4 which is as of March 1, 2001, appearing on pages 35 through 53 of the 2000 Annual Report to Shareholders, filed as Exhibit 13 to this Report on Form 10-K, are hereby specifically incorporated herein by reference thereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The information required under this item with respect to the Directors of the Registrant appears in the sixth full paragraph on page 2 through page 5 and in the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" on page 10 of the definitive Proxy Statement relating to the Registrant's Annual Meeting of Shareholders on May 3, 2001, to be filed by the Registrant with the Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934 (the "1934 Act"); such information is hereby specifically incorporated herein by reference thereto. The information required under this item with respect to the Executive Officers of the Registrant is set forth in Item 1A of Part I above pursuant to paragraph (3) of General Instruction G to Form 10-K. Item 11. Executive Compensation The information required under this item is contained in the section entitled "Director Remuneration" which is located on page 7, and in the sections entitled "Report of the Compensation and Management Development Committee," "Performance Graph," "Management Remuneration," "Stock Option Grants in 2000 Fiscal Year," "Aggregated Option Exercises in 2000 and 2000 Fiscal Year-End Option Values," "Pension Plan" and "Change in Control Agreements and Employment Agreement" which are located on pages 11 through 19 of the definitive Proxy Statement relating to the Registrant's Annual Meeting of Shareholders on May 3, 2001, to be filed by the Registrant with the Commission pursuant to Section 14(a) of the 1934 Act, and is hereby specifically incorporated herein by reference thereto, except for the "Report of the Compensation and Management Development Committee" and "Performance Graph" which are not so incorporated by reference. Page 5 Item 12. Security Ownership of Certain Beneficial Owners and Management The information required under this item is contained in the section entitled "Stock Ownership Information" which is located on pages 8 and 9 of the definitive Proxy Statement relating to the Registrant's Annual Meeting of Shareholders on May 3, 2001, to be filed by the Registrant with the Commission pursuant to Section 14(a) of the 1934 Act, and is hereby specifically incorporated herein by reference thereto. Item 13. Certain Relationships and Related Transactions There are no material relationships or related transactions other than those disclosed in response to Item 11 of this Part III. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K a) The following documents are filed as part of this report: 1. Financial Statements: the Financial Statements required to be filed by Item 8 are listed in the Index to Financial Statements, which appears on Page 9 of this Report on Form 10-K. 2. Exhibits: the Exhibits to this Report on Form 10-K are listed in the Index to Exhibits, which appears on Pages 11 through 15 of this Report on Form 10-K. b) Reports on Form 8-K. During the last quarter of the period covered by this Report on Form 10-K, the Registrant filed no reports on Form 8-K. Page 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ J. James Barr ------------------------------------- J. James Barr, President and Chief Executive Officer DATE: March 1, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date Principal Executive Officer: /s/ J. James Barr - ----------------------------- J. James Barr President, Chief March 1, 2001 Executive Officer and Director Principal Financial Officer: /s/ Ellen C. Wolf - ----------------------------- Ellen C. Wolf Vice President and March 1, 2001 Chief Financial Officer Principal Accounting Officer: /s/ Robert D. Sievers - ----------------------------- Robert D. Sievers Comptroller March 1, 2001 Page 7 SIGNATURES (Cont'd.) Directors: /s/ Marilyn Ware - -------------------------------------- Marilyn Ware (Chairman) March 1, 2001 /s/ Anthony P. Terracciano - -------------------------------------- Anthony P. Terracciano (Vice Chairman) March 1, 2001 /s/ William O. Albertini - -------------------------------------- William O. Albertini March 1, 2001 /s/ Rhoda W. Cobb - -------------------------------------- Rhoda W. Cobb March 1, 2001 /s/ Elizabeth H. Gemmill - -------------------------------------- Elizabeth H. Gemmill March 1, 2001 /s/ Ray J. Groves - -------------------------------------- Ray J. Groves March 1, 2001 /s/ Henry G. Hager - -------------------------------------- Henry G. Hager March 1, 2001 /s/ Frederick S. Kirkpatrick - -------------------------------------- Frederick S. Kirkpatrick March 1, 2001 /s/ Gerald C. Smith - -------------------------------------- Gerald C. Smith March 1, 2001 /s/ Nancy Ware Wainwright - -------------------------------------- Nancy Ware Wainwright March 1, 2001 /s/ Paul W. Ware - -------------------------------------- Paul W. Ware March 1, 2001 /s/ Ross A. Webber - -------------------------------------- Ross A. Webber March 1, 2001 - -------------------------------------- William S. White /s/ Horace Wilkins, Jr. - -------------------------------------- Horace Wilkins, Jr. March 1, 2001 Page 8 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT YEAR ENDED DECEMBER 31, 2000 AMERICAN WATER WORKS COMPANY, INC. FINANCIAL STATEMENTS Page 9 AMERICAN WATER WORKS COMPANY, INC. INDEX TO FINANCIAL STATEMENTS The following documents are filed as part of this report: Page(s) in (1) FINANCIAL STATEMENTS Annual Report* Report of Independent Accountants . . . . . . . . . . . . . . 35 Consolidated Balance Sheet of American Water Works Company, Inc. and Subsidiary Companies at December 31, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . . . .36 and 37 Consolidated Statements of Income and Comprehensive Income and of Retained Earnings of American Water Works Company, Inc. and Subsidiary Companies for each of the three years in the period ended December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . 38 Consolidated Statement of Cash Flows of American Water Works Company, Inc. and Subsidiary Companies for each of the three years in the period ended December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . 39 Consolidated Statement of Capitalization of American Water Works Company, Inc. and Subsidiary Companies at December 31, 2000 and 1999 . . . . . . . . . . . . . .40 and 41 Consolidated Statement of Common Stockholders' Equity of American Water Works Company, Inc. and Subsidiary Companies for each of the three years in the period ended December 31, 2000 . . . . . . . . . . . . . . . . . . . 42 Notes to Financial Statements . . . . . . . . . . . . . .43 through 53 *Incorporated by reference from the indicated pages of the 2000 Annual Report to Shareholders, which is Exhibit 13 to this Report on Form 10-K. (2) FINANCIAL STATEMENT SCHEDULES Financial Statement Schedules not included in this Report on Form 10-K have been omitted because they are not applicable or the required information is shown in the Financial Statements or notes thereto. Page 10 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (Nos. 333-54660 and 33-59059) and on Form S-8 (Nos. 333-52309, 33-52923 and 333-14451) of American Water Works Company, Inc. of our report dated January 30, 2001, except as to Note 4 which is as of March 1, 2001, relating to the financial statements, which appears on page 35 in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania March 28, 2001 Page 11 AMERICAN WATER WORKS COMPANY, INC. INDEX TO EXHIBITS Exhibit Number Description 3 Articles of Incorporation and By-laws (a) Certificate of Incorporation of the Registrant, as amended and restated as of May 15, 1987, is incorporated herein by reference to Exhibit 3(a) to Form 10-K report of the Registrant for 1996. (b) Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant, effective May 9, 1989, is incorporated herein by reference to Exhibit 3(b) to Form 10-K report of the Registrant for 1996. (c) Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant, effective May 3, 1990, is incorporated herein by reference to Exhibit 3(c) to Form 10-K report of the Registrant for 1996. (d) Certificate of Designations of the Registrant, effective February 6, 1991, relating to its Cumulative Preferred Stock, 8.50% Series, is incorporated herein by reference to Exhibit 3(d) to Form 10-K report of the Registrant for 1996. (e) Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant, effective May 2, 1996, is incorporated herein by reference to Exhibit 3(e) to Form 10-K report of the Registrant for 1996. (f) Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant effective May 6, 1999, is incorporated herein by reference to Exhibit 3(a) to Form 10-Q report of the Registrant for the period ended March 31, 1999. (g) By-laws of the Registrant, as amended to October 14, 1999 are incorporated herein by reference to Exhibit 3 to Form 10-Q report of Registrant for the period ended September 30, 1999. Page 12 INDEX TO EXHIBITS Exhibit Number Description 4 Instruments Defining the Rights of Security Holders, Including Indentures (a) Agreement of the Registrant to furnish to the Securities and Exchange Commission upon request copies of debt instruments under which there the total securities authorized is less than 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis (including the Indenture dated as of November 1, 1977 between the Registrant and The Fidelity Bank (name later changed to First Union National Bank), Trustee, the Second Supplemental Indenture dated as of February 1, 1993 between the Registrant and Fidelity Bank, National Association (name later changed to First Union National Bank), as Trustee, and the Third Supplemental Indenture dated as of July 2, 1998 between the Registrant and First Union National Bank, as Trustee) is filed herewith. (b) Dividend Reinvestment and Stock Purchase Plan, incorporated herein by reference to Exhibit 2 to the Registrant's Registration Statement on Form S-3, Registration No. 33-59059. (c) Rights Agreement dated as of February 18, 1999 between the Registrant and BankBoston, N.A., as Rights Agent, is incorporated herein by reference to Exhibit 4 to Form 8-A Registration Statement of the Registrant, No. 1-3437-2, filed with the Securities and Exchange Commission on March 1, 1999). (d) First Amendment to the Rights Agreement, dated June 1, 2000 (incorporated by reference to the Company's Amendment No. 1 to the Registration Statement on Form 8-A, No. 1-3437-2, filed with the Securities and Exchange Commission on June 1, 2000). (e) Indenture, dated as of , 2001 between _____ American Water Capital Corp. and American Water Works Company, Inc. To First Union National Bank as Trustee, Providing for Issuance of Debt Securities, is incorporated by reference to Exhibit 4A to the Registration Statement on Form S-3, filed by the Registrant and American Water Capital Corp. on January 3, 2001, SEC File Number 333-54660. (f) Support Agreement between American Water Works Company, Inc. and American Water Capital Corp. made June 22, 2000 and the First Amendment thereto made July 26, 2000 is incorporated by reference to Exhibit 4B to the Registration Statement on From S-3, filed by the Registrant and American Water Capital Corp. on January 3, 2001, SEC File Number 333-54660. 10 Material Contracts (a) Supplemental Executive Retirement Plan of the Registrant, as amended and restated July 1, 1997, is incorporated herein by reference to Exhibit 10(d) to Form 10-K report of the Registrant for 1997. Page 13 INDEX TO EXHIBITS Exhibit Number Description 10 (cont'd) (b) Supplemental Retirement Plan of the Registrant, as amended and restated effective July 1, 1997, is incorporated herein by reference to Exhibit 10(e) to Form 10-K report of the Registrant for 1997. (c) Deferred Compensation Plan of the Registrant, as amended and restated effective January 1, 2001, is filed herewith. (d) Director Deferred Compensation Plan of the Registrant, as in effect on January 1, 2001, is filed herewith. (e) Contract dated May 5, 1999 between Registrant and Ellen C. Wolf, is incorporated herein by reference to Exhibit 10 to Form 10-Q report of the Registrant for the period ended September 30, 1999. (f) 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, Sec File Number: 001-03437, as filed with the Securities and Exchange Commission on March 27, 2000. (g) Non-Qualified Stock Option Agreement between the Registrant and its executives and other key associates is hereby incorporated by reference to Exhibit 10(b) to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 filed with the Securities and Exchange Commission on August 14, 2000. The summary of stock option grants thereunder is incorporated herein by reference to the information appearing in the table under the caption "Stock Option Grants in 2000 Fiscal Year" on page 16 of the definitive Proxy Statement relating to the Registrant's Annual Meeting of Shareholders on May 3, 2001, Sec File Number: 001-03437. (h) Change in Control Agreement, and summary thereof, between the Registrant and certain executives is hereby incorporated by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 filed with the Securities and Exchange Commission on August 14, 2000. (i) Employee's Stock Ownership Plan of the Registrant as amended and restated effective August 1, 1999 is hereby incorporated by reference to Exhibit 10(d) to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2000 filed with the Securities and Exchange Commission on August 14, 2000. Page 14 INDEX TO EXHIBITS Exhibit Number Description 10 (cont'd) (j) 364-Day Credit Agreement, dated as of June 27, 2000, among American Water Capital Corp., as Borrower, American Water Works Company, Inc., as Parent, the Lenders Identified Herein, as Lenders, First Union National Bank, as Administrative Agent, PNC Bank, National Association, as Syndication Agent, and Mellon Bank, N.A., as Documentation Agent, First Union Securities, Inc., as Sole Lead Arranger and Book Manager, is incorporated herein by reference to Exhibit 10(e) to Amendment No. 1 to Form 10-Q/A report of the Registrant for the period ended June 30, 2000. (k) Asset Purchase Agreement among Citizens Utilities Company and Certain of its Affiliates and American Water Works Company, Inc. and Arizona-American Water Company, dated as of October 15, 1999, is hereby incorporated by reference to Exhibit 10(q) to the Registrant's Annual Report of Form 10-K for the period ended December 31, 1999 filed with the Securities and Exchange Commission on March 25, 2000. (l) Asset Purchase Agreement among Citizens Utilities Company and Certain of its Affiliates and American Water Works Company, Inc. and California-American Water Company, dated as of October 15, 1999, is hereby incorporated by reference to Exhibit 10(r) to the Registrant's Annual Report of Form 10-K for the period ended December 31, 1999 filed with the Securities and Exchange Commission on March 25, 2000. (m) Asset Purchase Agreement among Citizens Utilities Company and Certain of its Affiliates and American Water Works Company, Inc. and Illinois-American Water Company, dated as of October 15, 1999, is hereby incorporated by reference to Exhibit 10(s) to the Registrant's Annual Report of Form 10-K for the period ended December 31, 1999 filed with the Securities and Exchange Commission on March 25, 2000. (n) Asset Purchase Agreement among Citizens Utilities Company and Certain of its Affiliates and American Water Works Company, Inc. and Indiana-American Water Company, Inc., dated as of October 15, 1999, is hereby incorporated by reference to Exhibit 10(t) to the Registrant's Annual Report of Form 10-K for the period ended December 31, 1999 filed with the Securities and Exchange Commission on March 25, 2000. (o) Asset Purchase Agreement among Citizens Utilities Company and Certain of its Affiliates and American Water Works Company, Inc. and Ohio-American Water Company, dated as of October 15, 1999, is hereby incorporated by reference to Exhibit 10(u) to the Registrant's Annual Report of Form 10-K for the period ended December 31, 1999 filed with the Securities and Exchange Commission on March 25, 2000. Page 15 INDEX TO EXHIBITS Exhibit Number Description 10 (cont'd) (p) Asset Purchase Agreement among Citizens Utilities Company and Certain of its Affiliates and American Water Works Company, Inc. and Pennsylvania-American Water Company, dated as of October 15, 1999, is hereby incorporated by reference to Exhibit 10(v) to the Registrant's Annual Report of Form 10-K for the period ended December 31, 1999 filed with the Securities and Exchange Commission on March 25, 2000. 13 Annual Report to Security Holders The Registrant's Annual Report to Shareholders for 2000 is filed as exhibit hereto solely to the extent portions thereof are specifically incorporated herein by reference. 21 Subsidiaries of the Registrant as of December 31, 2000. 23 Consents of Experts and Counsel See "Consent of Independent Accountants" on page 10 of this Report on Form 10-K. EX-10.(C) 2 a2043162zex-10_c.txt EXHIBIT 10(C) EXHIBIT 10C AMERICAN WATER WORKS COMPANY, INC. DEFERRED COMPENSATION PLAN (As amended and restated effective January 1, 2001) TABLE OF CONTENTS PAGE ARTICLE I INTRODUCTION....................................... 1 1.1. Name ................................................... 1 1.2. Effective Date........................................... 1 1.3. Employers ............................................... 1 1.4. Purpose ................................................. 1 ARTICLE II DEFINITIONS........................................ 1 2.1. "Administrator" ......................................... 1 2.2. "Annual Incentive Plan" ................................. 1 2.3. "Beneficiary" ........................................... 1 2.4. "Board".................................................. 2 2.5. "Change in Control" ..................................... 2 2.6. "Committee" ............................................. 2 2.7. "Deferred Compensation Account" ......................... 2 2.8. "Deferred Compensation Agreement" ....................... 2 2.9. "Disability"............................................. 2 2.10 "Elective Deferred Compensation"......................... 2 2.11. "Eligible Employee" ..................................... 2 2.12. "Participant" ........................................... 2 2.13. "Plan Year".............................................. 3 2.14. "Retirement"............................................. 3 2.15. "Stock".................................................. 3 2.16. "Stock Equivalent Unit".................................. 3 ARTICLE III PARTICIPATION BY ELIGIBLE EMPLOYEES ............... 3 3.1. Participation ........................................... 3 3.2. Continuity of Participation ............................. 3 3.3. Immediate Cash-Out of Ineligible Employee ............... 3 ARTICLE IV DEFERRALS AND DEFERRED COMPENSATION ACCOUNTS ...... 4 4.1. Compensation Eligible for Deferral....................... 4 4.2. Irrevocability of Deferral Elections..................... 4 4.3. Date of Election ........................................ 4 4.4. Establishment of Deferred Compensation Accounts.......... 5 4.5. Hypothetical Investment Vehicles......................... 5 4.6. Allocation and Reallocation of Hypothetical Investments.. 5 4.7. Dividend Equivalents..................................... 6 4.8. Restrictions on Participant Direction.................... 6 TABLE OF CONTENTS PAGE ARTICLE V DISTRIBUTIONS ..................................... 7 5.1. Election of Distribution Date ........................... 7 5.2. Distribution of Mandatory Deferrals Not Elected To Be Extended................................................. 7 5.3. Method of Payment ....................................... 7 5.4. Special Election for Early Distribution ................. 7 5.5. Distributions on Death. ................................. 8 5.6. Valuation of Cash Distributions.......................... 8 5.7. Financial Emergency and Other Payments................... 8 ARTICLE VI FUNDING AND PARTICIPANT"S INTEREST................. 8 6.1. Deferred Compensation Plan Unfunded ..................... 8 6.2. Participant's Interest in Plan .......................... 9 ARTICLE VII ADMINISTRATION AND INTERPRETATION ................. 9 7.1. Administration. ......................................... 9 7.2. Interpretation........................................... 9 7.3. Records and Reports ..................................... 10 7.4. Payment of Expenses ..................................... 10 7.5. Indemnification for Liability............................ 11 7.6. Claims Procedure......................................... 11 7.7. Review Procedure......................................... 11 ARTICLE VIII AMENDMENT AND TERMINATION......................... 12 8.1. Amendment and Termination ............................... 12 ARTICLE IX MISCELLANEOUS PROVISIONS........................... 12 9.1. Right of Employers to Take Employment Actions ........... 12 9.2. Alienation or Assignment of Benefits..................... 13 9.3. Right to Withhold ....................................... 13 9.4. Construction............................................. 13 9.5. Headings................................................. 13 9.6. Number and Gender ....................................... 13 ARTICLE I INTRODUCTION 1.1. NAME. The name of this plan is the American Water Works Company, Inc. Deferred Compensation Plan ("Deferred Compensation Plan"). 1.2. EFFECTIVE DATE. The effective date of this Deferred Compensation Plan is January 1, 1996. 1.3. EMPLOYERS. American Water Works Company, Inc. ("American Water Works"), and each subsidiary or affiliate of American Water Works that employs one or more Eligible Employees who have become Participants in accordance with Article III, shall each be an "Employer" under this Deferred Compensation Plan. 1.4. PURPOSE. This Deferred Compensation Plan is established effective January 1, 1996 by American Water Works for the purpose of providing deferred compensation benefits for a select group of management or highly compensated employees of the Employers. ARTICLE II DEFINITIONS Whenever the following initially capitalized words and phrases are used in this Deferred Compensation Plan, they shall have the meanings specified below unless the context clearly indicates to the contrary: 2.1. "ADMINISTRATOR" shall mean the Retirement Committee of American Water Works Company, Inc., or its delegate. 2.2. "ANNUAL INCENTIVE PLAN" shall mean American Water Works Company, Inc.'s Annual Incentive Plan, effective January 1, 1996. 2.3. "BENEFICIARY" shall mean such person or legal entity as may be designated by a Participant under Section 5.5 to receive benefits hereunder after such Participant's death. 2.4. "BOARD" shall mean the Board of Directors of American Water Works Company, Inc. -4- 2.5. "CHANGE IN CONTROL" shall have the meaning given to such term in the American Water Works Company, Inc. 2000 Stock Award and Incentive Plan. 2.6. "COMMITTEE" shall mean the Compensation and Management Development Committee of the Board. 2.7. "DEFERRED COMPENSATION ACCOUNT" shall mean the account or subaccount established and maintained by the Administrator for specified deferrals by a Participant, as described in Article IV of this Deferred Compensation Plan. Deferred Compensation Accounts shall be maintained solely as bookkeeping entries to evidence unfunded obligations of American Water Works. 2.8. "DEFERRED COMPENSATION AGREEMENT" shall mean a document (or documents) as made available from time to time by the Administrator, whereby an Eligible Employee enrolls as a Participant and elects to defer compensation pursuant to Article IV of this Deferred Compensation Plan. 2.9. "DISABILITY" shall mean a physical or mental impairment of sufficient severity such that a Participant is eligible for benefits under the long-term disability provisions of his Employer"s benefit plans. 2.10. "ELECTIVE DEFERRED COMPENSATION" shall mean that portion of the Participant's Compensation which the Participant elects to defer pursuant to Article IV of this Deferred Compensation Plan in accordance with the Deferred Compensation Agreement. 2.11. "ELIGIBLE EMPLOYEE" shall mean an individual employed by an Employer who is a member of a select group of management or highly compensated employees participating in the Annual Incentive Plan. 2.12. "PARTICIPANT" shall mean an Eligible Employee who has amounts standing to his credit under a Deferred Compensation Account. 2.13. "PLAN YEAR" shall mean the calendar year. -5- 2.14. "RETIREMENT" shall mean a Participant"s voluntary termination of employment at or after the date on which he is eligible promptly thereafter to commence receipt of retirement benefits under the Pension Plan for Employees of American Water Works Company, Inc. and Its Designated Subsidiaries or any supplemental retirement plan maintained by American Water Works or any successor plan thereto. 2.15. "STOCK" shall mean American Water Works Company, Inc. common stock, or any other equity securities of American Water Works designated by the Administrator. 2.16. "STOCK EQUIVALENT UNIT" shall mean a bookkeeping entry representing a hypothetical investment in Stock. ARTICLE III PARTICIPATION BY ELIGIBLE EMPLOYEES 3.1. PARTICIPATION. Participation in this Deferred Compensation Plan is limited to Eligible Employees. An Eligible Employee shall participate in this Deferred Compensation Plan as determined by the Administrator in its sole discretion; provided, however, that all executive officers of American Water Works shall automatically be considered Eligible Employees. 3.2. CONTINUITY OF PARTICIPATION. A Participant who separates from service with all of the Employers will cease active participation hereunder. However, the separation from service of an Eligible Employee with one Employer will not interrupt the continuity of his active participation if, concurrently with or immediately after such separation, he is employed by one or more of the other Employers. 3.3. IMMEDIATE CASH-OUT OF INELIGIBLE EMPLOYEE. This Deferred Compensation Plan is intended to be an unfunded "top-hat" plan, maintained primarily for the purposes of providing deferred compensation for a select group of management or highly compensated employees. Accordingly, if the Administrator determines that any Participant does not qualify as a member of the select group, one hundred percent (100%) of such Participant's Deferred Compensation Account shall be paid to the Participant immediately. -6- ARTICLE IV DEFERRALS AND DEFERRED COMPENSATION ACCOUNTS 4.1. COMPENSATION ELIGIBLE FOR DEFERRAL. To the extent authorized by the Committee, a Participant may elect to defer compensation or awards which may be in the form of cash, Stock, Stock-denominated awards or other property to be received from an Employer, including salary, annual bonus awards, long-term awards, shares issuable on stock option exercise and compensation payable under other plans and programs, employment agreements or other arrangements, or otherwise, as may be provided under the terms of such plans, programs and arrangements or as designated by the Administrator. The Committee may impose limitations on the amounts permitted to be deferred and other terms and conditions on deferrals under the Deferred Compensation Plan. Any such limitations, and other terms and conditions of deferral, shall be set forth in the rules relating to the Deferred Compensation Plan or election forms, other forms, or instructions published by or at the direction of the Administrator. The Committee may permit awards and other amounts to be treated as deferrals under the Deferred Compensation Plan, including deferrals that may be mandatory as determined by the Committee in its sole discretion or under the terms of another plan or arrangement of an Employer, for administrative convenience or otherwise to serve the purposes of the Deferred Compensation Plan and such other plan or arrangement. 4.2. IRREVOCABILITY OF DEFERRAL ELECTIONS. Once a Deferred Compensation Agreement, properly completed, is received by the Administrator, the elections of the Participant shall be irrevocable; provided, however, that the Administrator may, in its discretion, permit a Participant to elect a further deferral of amounts credited to a Deferred Compensation Account by filing a later election form; provided, further, that, unless otherwise approved by the Administrator, any election to further defer amounts credited to a Deferred Compensation Account must be made at least six months prior to the date such amounts would otherwise be payable. 4.3. DATE OF ELECTION. An election to defer compensation or awards hereunder must be received by the Administrator prior to the date specified by the Administrator. Under no circumstances may a Participant defer compensation or awards if the Participant has, at the time of deferral, a legally enforceable right to current receipt of such compensation or awards. 4.4. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS. One or more Deferred Compensation Accounts will be established for each Participant, as determined by the Administrator. The amount of compensation or awards deferred with respect to each Deferred Compensation Account will be credited to such Account as of the date on which such amounts -7- would have been paid to the Participant but for the Participant's election to defer receipt hereunder, unless otherwise determined by the Administrator. With respect to any fractional shares of Stock or Stock-denominated awards, the Administrator, in its sole discretion, shall pay such fractional shares to the Participant in cash, credit the Deferred Compensation Account with cash in lieu of depositing fractional shares into the Deferred Compensation Account, or credit the Deferred Compensation Account with a fraction of a share calculated to at least three decimal places. Unless otherwise determined by the Administrator, amounts credited to a Deferred Compensation Account shall be deemed invested in a hypothetical investment as of the date of deferral. The amounts of hypothetical income and appreciation and depreciation in the value of such Account will be credited and debited to, or otherwise reflected in, such Account from time to time. 4.5. HYPOTHETICAL INVESTMENT VEHICLES. Subject to the provisions of Sections 4.6 and 4.8, amounts credited to a Deferred Compensation Account shall be deemed to be invested, at the Participant's direction, in one or more investment vehicles as may be specified from time to time by the Administrator. The Administrator may change or discontinue any hypothetical investment vehicle available under the Deferred Compensation Plan in its discretion; provided, however, that each affected Participant shall be given the opportunity, without limiting or otherwise impairing any other right of such Participant regarding changes in investment directions, to redirect the allocation of his Deferred Compensation Account deemed invested in the discontinued investment vehicle among the other hypothetical investment vehicles, including any replacement vehicle. 4.6. ALLOCATION AND REALLOCATION OF HYPOTHETICAL INVESTMENTS. A Participant may allocate amounts credited to his Deferred Compensation Account to one or more of the hypothetical investment vehicles authorized under the Deferred Compensation Plan. Subject to the rules established by the Administrator, a Participant may reallocate amounts credited to his Deferred Compensation Account to one or more of such hypothetical investment vehicles as of the next day following the filing of the Participant's election to reallocate amounts credited to his Deferred Compensation Account. The Administrator may, in its discretion, restrict allocation into or reallocation by specified Participants into or out of specified investment vehicles or specify minimum or maximum amounts that may be allocated or reallocated by Participants. 4.7. DIVIDEND EQUIVALENTS. Dividend equivalents will be credited on Stock Equivalent Units credited to a Participant's Deferred Compensation Account as follows: (a) CASH AND NON-STOCK DIVIDENDS. If American Water Works declares and pays a dividend on Stock in the form of cash or property other than shares of Stock, then a -8- number of additional Stock Equivalent Units shall be credited to a Participant's Deferred Compensation Account as of the payment date for such dividend equal to (i) the number of Stock Equivalent Units credited to the Deferred Compensation Account as of the record date for such dividend, multiplied by (ii) the amount of cash plus the fair market value of any property other than shares actually paid as a dividend on each share at such payment date, divided by (iii) the closing market price of a share of Stock at such payment date as published in The Wall Street Journal report of New York Stock Exchange Composite Transactions. (b) STOCK DIVIDENDS AND SPLITS. If American Water Works declares and pays a dividend on Stock in the form of additional shares of Stock, or there occurs a forward split of Stock, then a number of additional Stock Equivalent Units shall be credited to the Participant's Deferred Compensation Account as of the payment date for such dividend or forward Stock split equal to (i) the number of Stock Equivalent Units credited to the Deferred Compensation Account as of the record date for such dividend or split, multiplied by (ii) the number of additional shares actually paid as a dividend or issued in such split in respect of each share of Stock. 4.8. RESTRICTIONS ON PARTICIPANT DIRECTION. The provisions of Sections 4.5 and 4.6 notwithstanding, the Administrator may restrict or prohibit reallocations of amounts deemed invested in specified investment vehicles, and subject such amounts to a risk of forfeiture and other restrictions, in order to conform to restrictions applicable to Stock, a Stock-denominated award, or any other award or amount deferred under the Deferred Compensation Plan and resulting in such deemed investment, to comply with any applicable law or regulation, or for such other purpose as the Administrator may determine is not inconsistent with the Deferred Compensation Plan. Notwithstanding any other provision of the Deferred Compensation Plan to the contrary, deferrals of all Stock-denominated awards under the American Water Works Company, Inc. Long-Term Performance-Based Incentive Plan shall be credited to the Participant"s Deferred Compensation Account in the form of Stock Equivalent Units and may not be reallocated or deemed reinvested in any other investment vehicle. ARTICLE V DISTRIBUTIONS -9- 5.1. ELECTION OF DISTRIBUTION DATE. At the time a Participant makes an election to defer compensation under Article IV, such Participant shall also specify in writing in the Deferred Compensation Agreement the date or event on which the payment of the Participant's Deferred Compensation Account shall be made. Payments in settlement of a Deferred Compensation Account shall be made as soon as practicable after the date or dates (including upon the occurrence of specified events), and in such number of installments, as may be directed by the Participant in his election relating to such Deferred Compensation Account, provided that, in the event of termination of employment for reasons other than Retirement or Disability, a single lump sum payment in settlement of any Deferred Compensation Account (including an Account with respect to which one or more installment payments have previously been made) shall be made as promptly as practicable thereafter, unless otherwise determined by the Administrator. 5.2. DISTRIBUTION OF MANDATORY DEFERRALS NOT ELECTED TO BE EXTENDED. If the Participant has not made an election to extend the deferral period of any mandatory deferral of a portion of his annual incentive award to be earned under the Annual Incentive Plan for any Plan Year, a payment of the cash value of the Stock Equivalent Units credited to his Deferred Compensation Account attributable to such mandatory deferral, including additional units credited as a result of dividends as provided under Section 4.7, shall be made on the date the period of mandatory deferral ends. 5.3. METHOD OF PAYMENT. All distributions under this Deferred Compensation Plan shall be in the form of a cash payment; provided, however, that all deferrals of Stock-denominated awards under the American Water Works Company, Inc. Long-Term Performance-Based Incentive Plan shall be paid by delivery of shares of Stock reserved under such Plan. 5.4. SPECIAL ELECTION FOR EARLY DISTRIBUTION. A Participant may apply to the Administrator for early distribution of all or any part of his Deferred Compensation Account excluding any amounts attributable to mandatory deferrals that have not been credited to his Deferred Compensation Account for the minimum period of mandatory deferral. Such early distribution shall be made in a single lump sum, provided that 10% of the amount withdrawn in such early distribution shall be forfeited to the Participant's Employer prior to payment of the remainder to the Participant. In the event a Participant's early distribution election is submitted within one year after a Change in Control, the forfeiture penalty shall be reduced to 5%. 5.5. DISTRIBUTIONS ON DEATH. In the event of a Participant's death before his Deferred Compensation Account has been distributed, distribution of his entire account (including mandatory deferrals) shall be made to the Beneficiary selected by the Participant in a single lump sum -10- payment within 30 days after the date of death (or, if later, after the proper Beneficiary has been identified). A Participant may from time to time change his designated Beneficiary without the consent of such Beneficiary by filing a new designation in writing with the Administrator. If no Beneficiary designation is in effect at the time of the Participant's death, or if the designated Beneficiary is missing or has predeceased the Participant, distribution shall be made to the Participant's estate. 5.6. VALUATION OF CASH DISTRIBUTIONS. All cash distributions under this Deferred Compensation Plan shall be based upon the cash value of the investment credited to a Participant's Deferred Compensation Account as of the date immediately preceding the date of the distribution. It is understood that administrative requirements may lead to a delay between such valuation date and the date of distribution, not to exceed 30 days. 5.7. FINANCIAL EMERGENCY AND OTHER PAYMENTS. Other provisions of this Deferred Compensation Plan notwithstanding, if, upon the written application of a Participant, the Administrator determines that the Participant has a financial emergency of such a substantial nature and beyond the individual's control that payment of amounts previously deferred under this Deferred Compensation Plan is warranted, the Administrator may direct the payment to the Participant of all or a portion of the balance of his Deferred Compensation Account and the time and manner of such payment. ARTICLE VI FUNDING AND PARTICIPANT'S INTEREST 6.1. DEFERRED COMPENSATION PLAN UNFUNDED. This Deferred Compensation Plan shall be unfunded and no trust shall be created by this Deferred Compensation Plan. The crediting to each Participant's Deferred Compensation Account shall be made through record keeping entries. No actual funds shall be set aside; provided, however, that nothing herein shall prevent the Employers from establishing one or more grantor trusts from which benefits due under this Deferred Compensation Plan may be paid in certain instances. All distributions shall be paid by the Employer from its general assets and a Participant (or his Beneficiary) shall have the rights of a general, unsecured creditor against the Employer for any distributions due hereunder. This Deferred Compensation Plan constitutes a mere promise by the Employers to make benefit payments in the future. -11- 6.2. PARTICIPANT'S INTEREST IN PLAN. A Participant has an interest in the cash value of amounts credited to his Deferred Compensation Account. A Participant has no rights or interests in Stock or dividends and has no right to elect delivery of shares of Stock except as provided in Section 5.3. ARTICLE VII ADMINISTRATION AND INTERPRETATION 7.1. ADMINISTRATION. Except where certain duties are delegated to the Administrator, the Committee shall be in charge of the operation and administration of this Deferred Compensation Plan. The Committee has, to the extent appropriate and in addition to the powers described elsewhere in this Deferred Compensation Plan, full discretionary authority to construe and interpret the terms and provisions of this Deferred Compensation Plan; to adopt, alter and repeal administrative rules, guidelines and practices governing this Deferred Compensation Plan; to perform all acts, including the delegation of its administrative responsibilities to advisors or other persons who may or may not be employees of the Employers; and to rely upon the information or opinions of legal counsel or experts selected to render advice with respect to this Deferred Compensation Plan, as it shall deem advisable, with respect to the administration of this Deferred Compensation Plan. 7.2. INTERPRETATION. The Committee may take any action, correct any defect, supply any omission or reconcile any inconsistency in this Deferred Compensation Plan, or in any election hereunder, in the manner and to the extent it shall deem necessary to carry this Deferred Compensation Plan into effect or to carry out the Board's purposes in adopting the Plan. Any decision, interpretation or other action made or taken in good faith by or at the direction of the Employers, the Board, the board of directors of any Employer, the Committee, or the Administrator arising out of or in connection with this Deferred Compensation Plan, shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Employers and all Participants and Beneficiaries and their respective heirs, executors, administrators, successors and assigns. The Committee's or Administrator"s determinations hereunder need not be uniform, and may be made selectively among Eligible Employees, whether or not they are similarly situated. Any actions to be taken by the Committee or Administrator will require majority vote of the Committee or the Administrator. If a member of the Committee or the Administrator is a Participant in this Deferred Compensation Plan, such member may not decide or -12- determine any matter or question concerning his benefits under this Deferred Compensation Plan that such member would not have the right to decide or determine if he were not a member. 7.3. RECORDS AND REPORTS. The Administrator shall keep a record of proceedings and actions and shall maintain or cause to be maintained all such books of account, records, and other data as shall be necessary for the proper administration of this Deferred Compensation Plan. Such records shall contain all relevant data pertaining to Participants and their rights under this Deferred Compensation Plan. The Administrator shall have the duty to carry into effect all rights or benefits provided hereunder to the extent assets of the Employers are properly available. 7.4. PAYMENT OF EXPENSES. The Employers, in such proportions as the Committee determines, shall bear all expenses incurred by them and by the Committee in administering this Deferred Compensation Plan. If a claim or dispute arises concerning the rights of a Participant or Beneficiary to amounts deferred under this Deferred Compensation Plan, regardless of the party by whom such claim or dispute is initiated, the Employers shall (in such proportions as between the Employers as the Committee determines), and upon presentation of appropriate vouchers, pay all legal expenses, including reasonable attorneys' fees, court costs, and ordinary and necessary out-of-pocket costs of attorneys, billed to and payable by the Participant or by anyone claiming under or through the Participant (such person being hereinafter referred to as the "Participant's Claimant"), in connection with the bringing, prosecuting, defending, litigating, negotiating, or settling of such claim or dispute; provided, that: (a) The Participant or the Participant's Claimant shall repay to his Employer any such expenses theretofore paid or advanced by his Employer if and to the extent that the party disputing the Participant's rights obtains a judgment in its favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has expired or otherwise, and it is determined by the court that such expenses were not incurred by the Participant or the Participant's Claimant while acting in good faith; provided, further, that (b) In the case of any claim or dispute initiated by a Participant or the Participant's Claimant, such claim shall be made, or notice of such dispute given, with specific reference to the provisions of this Deferred Compensation Plan, to the Committee within two years (three years, in the event of a Change in Control) after the occurrence of the event giving rise to such claim or dispute. -13- 7.5. INDEMNIFICATION FOR LIABILITY. The Employers shall indemnify the Administrator, the members of the Committee, and the employees of any Employer to whom the Administrator delegates duties under this Deferred Compensation Plan, against any and all claims, losses, damages, expenses and liabilities arising from their responsibilities in connection with this Deferred Compensation Plan, unless the same is determined to be due to gross negligence or willful misconduct. 7.6. CLAIMS PROCEDURE. If a claim for benefits or for participation under this Deferred Compensation Plan is denied in whole or in part, a Participant will receive written notification. The notification will include specific reasons for the denial, specific reference to pertinent provisions of this Deferred Compensation Plan, a description of any additional material or information necessary to process the claim and why such material or information is necessary, and an explanation of the claims review procedure. If the Committee fails to respond within 90 days, the claim is treated as denied. 7.7. REVIEW PROCEDURE. Within 60 days after the claim is denied or, if the claim is deemed denied, within 150 days after the claim is filed, a Participant (or his duly authorized representative) may file a written request with the Committee for a review of his denied claim. The Participant may review pertinent documents that were used in processing his claim, submit pertinent documents, and address issues and comments in writing to the Committee. The Committee will notify the Participant of its final decision in writing. In its response, the Committee will explain the reason for the decision, with specific references to pertinent Deferred Compensation Plan provisions on which the decision was based. If the Committee fails to respond to the request for review within 60 days, the review is treated as denied. ARTICLE VIII AMENDMENT AND TERMINATION 8.1. AMENDMENT AND TERMINATION. The Committee shall have the right, at any time, to amend or terminate this Deferred Compensation Plan, in whole or in part, provided that such amendment or termination shall not adversely affect the right of any Participant or Beneficiary to payment of Participant's Deferred Compensation Account. The Administrator, upon review of the effectiveness of this Deferred Compensation Plan, may at any time recommend amendments to, or termination of, this Deferred Compensation Plan to the Committee. American Water Works reserves the right, in its sole discretion, to discontinue deferrals under, or completely terminate, this Deferred Compensation Plan at any time. If this Deferred Compensation Plan is discontinued with -14- respect to future deferrals, Participants' Deferred Compensation Accounts shall be distributed on the distribution dates elected in accordance with Section 5.1, unless the Committee designates that distributions shall be made on an earlier date. If the Committee designates such earlier date, each Participant shall receive distribution of his entire Deferred Compensation Account as specified by the Committee. If this Deferred Compensation Plan is completely terminated, each Participant shall receive distribution of his entire Deferred Compensation Account in one lump sum payment as of the date this Deferred Compensation Plan terminates. -15- ARTICLE IX MISCELLANEOUS PROVISIONS 9.1. RIGHT OF EMPLOYERS TO TAKE EMPLOYMENT ACTIONS. The adoption and maintenance of this Deferred Compensation Plan shall not be deemed to constitute a contract between an Employer and any Eligible Employee, or to be a consideration for, or an inducement or condition of, the employment of any individual. Nothing herein contained, or any action taken hereunder, shall be deemed to give any Eligible Employee the right to be retained in the employ of an Employer or to interfere with the right of an Employer to discharge any Eligible Employees at any time, nor shall it be deemed to give to an Employer the right to require the Eligible Employee to remain in its employ, nor shall it interfere with the Eligible Employee's right to terminate his employment at any time. Nothing in this Deferred Compensation Plan shall prevent an Employer from amending, modifying, or terminating any other benefit plan, including the Annual Incentive Plan. 9.2. ALIENATION OR ASSIGNMENT OF BENEFITS. A Participant's rights and interest under this Deferred Compensation Plan shall not be assigned or transferred except as otherwise provided herein, and a Participant's rights to benefit payments under this Deferred Compensation Plan shall not be subject to alienation, pledge or garnishment by or on behalf of creditors (including heirs, beneficiaries, or dependents) of the Participant or of a Beneficiary. 9.3. RIGHT TO WITHHOLD. To the extent required by law in effect at the time a distribution is made from this Deferred Compensation Plan, the Employer or its agents shall have the right to withhold or deduct from any distributions or payments any taxes required to be withheld by federal, state or local governments. 9.4. CONSTRUCTION. All legal questions pertaining to this Deferred Compensation Plan shall be determined in accordance with the laws of the State of New Jersey, to the extent such laws are not superseded by the Employee Retirement Income Security Act of 1974, as amended, or any other federal law. 9.5. HEADINGS. The headings of the Articles and Sections of this Deferred Compensation Plan are for reference only. In the event of a conflict between a heading and the contents of an Article or Section, the contents of the Article or Section shall control. 9.6. NUMBER AND GENDER. Whenever any words used herein are in the singular form, they shall be construed as though they were also used in the plural form in all cases where they -16- would so apply, and references to the male gender shall be construed as applicable to the female gender where applicable, and vice versa. AMERICAN WATER WORKS COMPANY, INC. By: /s/ J. James Barr ---------------------------------------------------- J. James Barr President and Chief Executive Officer Attest: /s/ W. Timothy Pohl ------------------------------------------------- W. Timothy Pohl General Counsel and Secretary -17- EX-10.(D) 3 a2043162zex-10_d.txt EXHIBIT 10(D) EXHIBIT 10D AMERICAN WATER WORKS COMPANY, INC. DIRECTOR DEFERRED COMPENSATION PLAN TABLE OF CONTENTS Page ---- ARTICLE I INTRODUCTION....................................... 1 1.1. Name ................................................... 1 1.2. Effective Date........................................... 1 1.3. Purpose ................................................. 1 ARTICLE II DEFINITIONS........................................ 1 2.1. "Administrator" ......................................... 1 2.2. "Beneficiary" ........................................... 1 2.3. "Board".................................................. 1 2.4. "Change in Control" .................................... 1 2.5. "Committee" ............................................. 2 2.6. "Deferred Compensation Account" ......................... 2 2.7. "Deferred Compensation Agreement" ....................... 2 2.8. "Elective Deferred Compensation"......................... 2 2.9. "Eligible Director"...................................... 2 2.10. "Participant" ........................................... 2 2.11. "Plan Year" ............................................. 2 2.12. "Stock".................................................. 2 2.13. "Stock Equivalent Unit................................... 2 ARTICLE III PARTICIPATION BY ELIGIBLE DIRECTORS ............... 3 3.1. Participation ........................................... 3 3.2. Continuity of Participation ............................. 3 ARTICLE IV DEFERRALS AND DEFERRED COMPENSATION ACCOUNTS ...... 3 4.1. Compensation Eligible for Deferral....................... 3 4.2. Irrevocability of Deferral Elections..................... 3 4.3. Date of Election ........................................ 3 4.4. Establishment of Deferred Compensation Accounts.......... 4 4.5. Hypothetical Investment Vehicles......................... 4 4.6. Allocation and Reallocation of Hypothetical Investments.. 4 4.7. Dividend Equivalents..................................... 4 4.8. Restrictions on Participant Direction.................... 5 2 TABLE OF CONTENTS Page ---- ARTICLE V DISTRIBUTIONS ..................................... 6 5.1. Election of Distribution Date ........................... 6 5.2. Method of Payment ....................................... 6 5.3. Special Election for Early Distribution ................. 6 5.4. Distributions on Death. ................................. 6 5.5. Valuation of Cash Distributions.......................... 7 5.6. Financial Emergency and Other Payments................... 7 ARTICLE VI FUNDING AND PARTICIPANT"S INTEREST................. 7 6.1. Deferred Compensation Plan Unfunded ..................... 7 6.2. Participant's Interest in Plan .......................... 7 ARTICLE VII ADMINISTRATION AND INTERPRETATION ................. 8 7.1. Administration. ......................................... 8 7.2. Interpretation........................................... 8 7.3. Records and Reports ..................................... 9 7.4. Payment of Expenses ..................................... 9 7.5. Indemnification for Liability ........................... 9 7.6. Claims Procedure......................................... 10 7.7. Review Procedure......................................... 10 ARTICLE VIII AMENDMENT AND TERMINATION ........................ 10 8.1. Amendment and Termination ............................... 10 ARTICLE IX MISCELLANEOUS PROVISIONS........................... 11 9.1. Alienation or Assignment of Benefits..................... 11 9.2. Right to Withhold ....................................... 11 9.3. Construction............................................. 11 9.4. Headings................................................. 11 9.5. Number and Gender ....................................... 11 3 ARTICLE I INTRODUCTION 1.1. NAME. The name of this plan is the American Water Works Company, Inc. Director Deferred Compensation Plan ("Deferred Compensation Plan"). 1.2. EFFECTIVE DATE. The effective date of this Deferred Compensation Plan is January 1, 2001. 1.3. PURPOSE. This Deferred Compensation Plan is established effective January 1, 2001 by American Water Works Company, Inc. ("American Water Works") for the purpose of providing deferred compensation benefits for members of American Water Works" Board of Directors who are not employees of American Water Works. ARTICLE II DEFINITIONS Whenever the following initially capitalized words and phrases are used in this Deferred Compensation Plan, they shall have the meanings specified below unless the context clearly indicates to the contrary: 2.1. "ADMINISTRATOR" shall mean the Retirement Committee of American Water Works or its delegate. 2.2. "BENEFICIARY" shall mean such person or legal entity as may be designated by a Participant under Section 5.4 to receive benefits hereunder after such Participant's death. 2.3. "BOARD" shall mean the Board of Directors of American Water Works. 2.4. "CHANGE IN CONTROL" shall have the meaning given to such term in the American Water Works Company, Inc. 2000 Stock Award and Incentive Plan. 2.5. "COMMITTEE" shall mean the Compensation and Management Development Committee of the Board. 4 2.6. "DEFERRED COMPENSATION ACCOUNT" shall mean the account or subaccount established and maintained by the Administrator for specified deferrals by a Participant, as described in Article IV of this Deferred Compensation Plan. Deferred Compensation Accounts shall be maintained solely as bookkeeping entries to evidence unfunded obligations of American Water Works. 2.7. "DEFERRED COMPENSATION AGREEMENT" shall mean a document (or documents) as made available from time to time by the Administrator, whereby an Eligible Director enrolls as a Participant and elects to defer compensation pursuant to Article IV of this Deferred Compensation Plan. 2.8. "ELECTIVE DEFERRED COMPENSATION" shall mean that portion of the Participant's compensation which the Participant elects to defer pursuant to Article IV of this Deferred Compensation Plan in accordance with the Deferred Compensation Agreement. 2.9. "ELIGIBLE DIRECTOR" shall mean any active member of American Water Works" Board of Directors who is not an employee of American Water Works. 2.10. "PARTICIPANT" shall mean an Eligible Director who has amounts standing to his credit under a Deferred Compensation Account. 2.11. "PLAN YEAR" shall mean the calendar year. 2.12. "STOCK" shall mean American Water Works" common stock, or any other equity securities of American Water Works designated by the Administrator. 2.13. "STOCK EQUIVALENT UNIT" shall mean a bookkeeping entry representing a hypothetical investment in Stock. ARTICLE III PARTICIPATION BY ELIGIBLE DIRECTORS 3.1. PARTICIPATION. Participation in this Deferred Compensation Plan is limited to Eligible Directors. 5 3.2. CONTINUITY OF PARTICIPATION. A Participant who no longer serves as a member of the Board of American Water Works will cease active participation hereunder. ARTICLE IV DEFERRALS AND DEFERRED COMPENSATION ACCOUNTS 4.1. COMPENSATION ELIGIBLE FOR DEFERRAL. An Eligible Director may elect to defer cash compensation payable by American Water Works, including any annual retainer, meeting fees, committee fees and chair fees. The Committee may impose limitations on the amounts permitted to be deferred and other terms and conditions on deferrals under the Deferred Compensation Plan. Any such limitations, and other terms and conditions of deferral, shall be set forth in the rules relating to the Deferred Compensation Plan or election forms, other forms, or instructions published by or at the direction of the Administrator. The Committee may permit awards and other amounts to be treated as deferrals under the Deferred Compensation Plan. 4.2. IRREVOCABILITY OF DEFERRAL ELECTIONS. Once a Deferred Compensation Agreement, properly completed, is received by the Administrator, the elections of the Participant shall be irrevocable; provided, however, that the Administrator may, in its discretion, permit a Participant to elect a further deferral of amounts credited to a Deferred Compensation Account by filing a later election form; provided, further, that, unless otherwise approved by the Administrator, any election to further defer amounts credited to a Deferred Compensation Account must be made at least six months prior to the date such amounts would otherwise be payable. 4.3. DATE OF ELECTION. An election to defer cash compensation hereunder must be received by the Administrator prior to the date specified by the Administrator. Under no circumstances may a Participant defer cash compensation if the Participant has, at the time of deferral, a legally enforceable right to current receipt of such cash compensation. 4.4. ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS. One or more Deferred Compensation Accounts will be established for each Participant, as determined by the Administrator. The amount of cash compensation deferred with respect to each Deferred Compensation Account will be credited to such Account as of the date on which such amounts would have been paid to the Participant but for the Participant's election to defer receipt hereunder, unless otherwise determined by the Administrator. Unless otherwise determined by the Administrator, amounts credited to a Deferred Compensation Account shall be deemed invested in a hypothetical investment as of the date of deferral. The amounts of hypothetical income and 6 appreciation and depreciation in the value of such Account will be credited and debited to, or otherwise reflected in, such Account from time to time. 4.5. HYPOTHETICAL INVESTMENT VEHICLES. Subject to the provisions of Sections 4.6 and 4.8, amounts credited to a Deferred Compensation Account shall be deemed to be invested, at the Participant's direction, in one or more investment vehicles as may be specified from time to time by the Administrator. The Administrator may change or discontinue any hypothetical investment vehicle available under the Deferred Compensation Plan in its discretion; provided, however, that each affected Participant shall be given the opportunity, without limiting or otherwise impairing any other right of such Participant regarding changes in investment directions, to redirect the allocation of his Deferred Compensation Account deemed invested in the discontinued investment vehicle among the other hypothetical investment vehicles, including any replacement vehicle. 4.6. ALLOCATION AND REALLOCATION OF HYPOTHETICAL INVESTMENTS. A Participant may allocate amounts credited to his Deferred Compensation Account to one or more of the hypothetical investment vehicles authorized under the Deferred Compensation Plan. Subject to the rules established by the Administrator, a Participant may reallocate amounts credited to his Deferred Compensation Account to one or more of such hypothetical investment vehicles as of the next day following the filing of the Participant's election to reallocate amounts credited to his Deferred Compensation Account. The Administrator may, in its discretion, restrict allocation into or reallocation by specified Participants into or out of specified investment vehicles or specify minimum or maximum amounts that may be allocated or reallocated by Participants. 4.7. DIVIDEND EQUIVALENTS. Dividend equivalents will be credited on Stock Equivalent Units credited to a Participant's Deferred Compensation Account as follows: (a) CASH AND NON-STOCK DIVIDENDS. If American Water Works declares and pays a dividend on Stock in the form of cash or property other than shares of Stock, then a number of additional Stock Equivalent Units shall be credited to a Participant's Deferred Compensation Account as of the payment date for such dividend equal to (I) the number of Stock Equivalent Units credited to the Deferred Compensation Account as of the record date for such dividend, multiplied by (ii) the amount of cash plus the fair market value of any property other than shares actually paid as a dividend on each share at such payment date, divided by (iii) the closing market price of a share of Stock at such payment date as published in The Wall Street Journal report of New York Stock Exchange Composite Transactions. 7 (b) STOCK DIVIDENDS AND SPLITS. If American Water Works declares and pays a dividend on Stock in the form of additional shares of Stock, or there occurs a forward split of Stock, then a number of additional Stock Equivalent Units shall be credited to the Participant's Deferred Compensation Account as of the payment date for such dividend or forward Stock split equal to (I) the number of Stock Equivalent Units credited to the Deferred Compensation Account as of the record date for such dividend or split, multiplied by (ii) the number of additional shares actually paid as a dividend or issued in such split in respect of each share of Stock. 4.8. RESTRICTIONS ON PARTICIPANT DIRECTION. The provisions of Sections 4.5 and 4.6 notwithstanding, the Administrator may restrict or prohibit reallocations of amounts deemed invested in specified investment vehicles, and subject such amounts to a risk of forfeiture and other restrictions, in order to conform to restrictions applicable to any award or amount deferred under the Deferred Compensation Plan and resulting in such deemed investment, to comply with any applicable law or regulation, or for such other purpose as the Administrator may determine is not inconsistent with the Deferred Compensation Plan. ARTICLE V DISTRIBUTIONS 5.1. ELECTION OF DISTRIBUTION DATE. At the time a Participant makes an election to defer compensation under Article IV, such Participant shall also specify in writing in the Deferred Compensation Agreement the date or event on which the payment of the Participant's Deferred Compensation Account shall be made. Payments in settlement of a Deferred Compensation Account shall be made as soon as practicable after the date or dates (including upon the occurrence of specified events), and in such number of installments, as may be directed by the Participant in his election relating to such Deferred Compensation Account. 5.2. METHOD OF PAYMENT. All distributions under this Deferred Compensation Plan shall be made in cash. 5.3. SPECIAL ELECTION FOR EARLY DISTRIBUTION. A Participant may apply to the Administrator for early distribution of all or any part of his Deferred Compensation Account excluding any amounts attributable to mandatory deferrals that have not been credited to his Deferred Compensation Account for the minimum period of mandatory deferral. Such early distribution shall be made in a single lump sum, provided that 10% of the amount withdrawn in such early distribution shall be 8 forfeited to American Water Works prior to payment of the remainder to the Participant. In the event a Participant's early distribution election is submitted within one year after a Change in Control, the forfeiture penalty shall be reduced to 5%. 5.4. DISTRIBUTIONS ON DEATH. In the event of a Participant's death before his Deferred Compensation Account has been distributed, distribution of his entire account (including mandatory deferrals) shall be made to the Beneficiary selected by the Participant in a single lump sum payment within 30 days after the date of death (or, if later, after the proper Beneficiary has been identified). A Participant may from time to time change his designated Beneficiary without the consent of such Beneficiary by filing a new designation in writing with the Administrator. If no Beneficiary designation is in effect at the time of the Participant's death, or if the designated Beneficiary is missing or has predeceased the Participant, distribution shall be made to the Participant's estate. 5.5. VALUATION OF CASH DISTRIBUTIONS. All cash distributions under this Deferred Compensation Plan shall be based upon the cash value of the investment credited to a Participant's Deferred Compensation Account as of the date immediately preceding the date of the distribution. It is understood that administrative requirements may lead to a delay between such valuation date and the date of distribution, not to exceed 30 days. 5.6. FINANCIAL EMERGENCY AND OTHER PAYMENTS. Other provisions of this Deferred Compensation Plan notwithstanding, if, upon the written application of a Participant, the Administrator determines that the Participant has a financial emergency of such a substantial nature and beyond the individual's control that payment of amounts previously deferred under this Deferred Compensation Plan is warranted, the Administrator may direct the payment to the Participant of all or a portion of the balance of his Deferred Compensation Account and the time and manner of such payment. 9 ARTICLE VI FUNDING AND PARTICIPANT'S INTEREST 6.1. DEFERRED COMPENSATION PLAN UNFUNDED. This Deferred Compensation Plan shall be unfunded and no trust shall be created by this Deferred Compensation Plan. The crediting to each Participant's Deferred Compensation Account shall be made through record keeping entries. No actual funds shall be set aside; provided, however, that nothing herein shall prevent American Water Works from establishing one or more grantor trusts from which benefits due under this Deferred Compensation Plan may be paid in certain instances. All distributions shall be paid by American Water Works from its general assets and a Participant (or his Beneficiary) shall have the rights of a general, unsecured creditor against American Water Works for any distributions due hereunder. This Deferred Compensation Plan constitutes a mere promise by American Water Works to make benefit payments in the future. 6.2. PARTICIPANT'S INTEREST IN PLAN. A Participant has an interest in the cash value of amounts credited to his Deferred Compensation Account. ARTICLE VII ADMINISTRATION AND INTERPRETATION 7.1. ADMINISTRATION. Except where certain duties are delegated to the Administrator, the Committee shall be in charge of the operation and administration of this Deferred Compensation Plan. The Committee has, to the extent appropriate and in addition to the powers described elsewhere in this Deferred Compensation Plan, full discretionary authority to construe and interpret the terms and provisions of this Deferred Compensation Plan; to adopt, alter and repeal administrative rules, guidelines and practices governing this Deferred Compensation Plan; to perform all acts, including the delegation of its administrative responsibilities to advisors or other persons who may or may not be employees of American Water Works; and to rely upon the information or opinions of legal counsel or experts selected to render advice with respect to this Deferred Compensation Plan, as it shall deem advisable, with respect to the administration of this Deferred Compensation Plan. 7.2. INTERPRETATION. The Committee may take any action, correct any defect, supply any omission or reconcile any inconsistency in this Deferred Compensation Plan, or in any election hereunder, in the manner and to the extent it shall deem necessary to carry this Deferred 10 Compensation Plan into effect or to carry out the Board's purposes in adopting the Plan. Any decision, interpretation or other action made or taken in good faith by or at the direction of American Water Works, the Board, the Committee, or the Administrator arising out of or in connection with this Deferred Compensation Plan, shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on American Water Works and all Participants and Beneficiaries and their respective heirs, executors, administrators, successors and assigns. The Committee's or Administrator"s determinations hereunder need not be uniform, and may be made selectively among Eligible Directors, whether or not they are similarly situated. Any actions to be taken by the Committee or Administrator will require majority vote of the Committee or the Administrator. If a member of the Committee or the Administrator is a Participant in this Deferred Compensation Plan, such member may not decide or determine any matter or question concerning his benefits under this Deferred Compensation Plan that such member would not have the right to decide or determine if he were not a member. 7.3. RECORDS AND REPORTS. The Administrator shall keep a record of proceedings and actions and shall maintain or cause to be maintained all such books of account, records, and other data as shall be necessary for the proper administration of this Deferred Compensation Plan. Such records shall contain all relevant data pertaining to Participants and their rights under this Deferred Compensation Plan. The Administrator shall have the duty to carry into effect all rights or benefits provided hereunder to the extent assets of American Water Works are properly available. 7.4. PAYMENT OF EXPENSES. American Water Works shall bear all expenses incurred by it and by the Committee in administering this Deferred Compensation Plan. If a claim or dispute arises concerning the rights of a Participant or Beneficiary to amounts deferred under this Deferred Compensation Plan, regardless of the party by whom such claim or dispute is initiated, American Water Works shall, and upon presentation of appropriate vouchers, pay all legal expenses, including reasonable attorneys' fees, court costs, and ordinary and necessary out-of-pocket costs of attorneys, billed to and payable by the Participant or by anyone claiming under or through the Participant (such person being hereinafter referred to as the "Participant's Claimant"), in connection with the bringing, prosecuting, defending, litigating, negotiating, or settling of such claim or dispute; provided, that: (a) The Participant or the Participant's Claimant shall repay to American Water Works any such expenses theretofore paid or advanced by American Water Works if and to the extent that the party disputing the Participant's rights obtains a judgment in its favor from a court of competent jurisdiction from which no appeal may be taken, whether because the time to do so has 11 expired or otherwise, and it is determined by the court that such expenses were not incurred by the Participant or the Participant's Claimant while acting in good faith; provided, further, that (b) In the case of any claim or dispute initiated by a Participant or the Participant's Claimant, such claim shall be made, or notice of such dispute given, with specific reference to the provisions of this Deferred Compensation Plan, to the Committee within two years (three years, in the event of a Change in Control) after the occurrence of the event giving rise to such claim or dispute. 7.5. INDEMNIFICATION FOR LIABILITY. American Water Works shall indemnify the Administrator, the members of the Committee, and the employees of American Water Works to whom the Administrator delegates duties under this Deferred Compensation Plan, against any and all claims, losses, damages, expenses and liabilities arising from their responsibilities in connection with this Deferred Compensation Plan, unless the same is determined to be due to gross negligence or willful misconduct. 7.6. CLAIMS PROCEDURE. If a claim for benefits or for participation under this Deferred Compensation Plan is denied in whole or in part, a Participant will receive written notification. The notification will include specific reasons for the denial, specific reference to pertinent provisions of this Deferred Compensation Plan, a description of any additional material or information necessary to process the claim and why such material or information is necessary, and an explanation of the claims review procedure. If the Committee fails to respond within 90 days, the claim is treated as denied. 7.7. REVIEW PROCEDURE. Within 60 days after the claim is denied or, if the claim is deemed denied, within 150 days after the claim is filed, a Participant (or his duly authorized representative) may file a written request with the Committee for a review of his denied claim. The Participant may review pertinent documents that were used in processing his claim, submit pertinent documents, and address issues and comments in writing to the Committee. The Committee will notify the Participant of its final decision in writing. In its response, the Committee will explain the reason for the decision, with specific references to pertinent Deferred Compensation Plan provisions on which the decision was based. If the Committee fails to respond to the request for review within 60 days, the review is treated as denied. 12 ARTICLE VIII AMENDMENT AND TERMINATION 8.1. AMENDMENT AND TERMINATION. The Committee shall have the right, at any time, to amend or terminate this Deferred Compensation Plan, in whole or in part, provided that such amendment or termination shall not adversely affect the right of any Participant or Beneficiary to payment of Participant's Deferred Compensation Account. The Administrator, upon review of the effectiveness of this Deferred Compensation Plan, may at any time recommend amendments to, or termination of, this Deferred Compensation Plan to the Committee. American Water Works reserves the right, in its sole discretion, to discontinue deferrals under, or completely terminate, this Deferred Compensation Plan at any time. If this Deferred Compensation Plan is discontinued with respect to future deferrals, Participants' Deferred Compensation Accounts shall be distributed on the distribution dates elected in accordance with Section 5.1, unless the Committee designates that distributions shall be made on an earlier date. If the Committee designates such earlier date, each Participant shall receive distribution of his entire Deferred Compensation Account as specified by the Committee. If this Deferred Compensation Plan is completely terminated, each Participant shall receive distribution of his entire Deferred Compensation Account in one lump sum payment as of the date this Deferred Compensation Plan terminates. ARTICLE IX MISCELLANEOUS PROVISIONS 9.1. ALIENATION OR ASSIGNMENT OF BENEFITS. A Participant's rights and interest under this Deferred Compensation Plan shall not be assigned or transferred except as otherwise provided herein, and a Participant's rights to benefit payments under this Deferred Compensation Plan shall not be subject to alienation, pledge or garnishment by or on behalf of creditors (including heirs, beneficiaries, or dependents) of the Participant or of a Beneficiary. 9.2. RIGHT TO WITHHOLD. To the extent required by law in effect at the time a distribution is made from this Deferred Compensation Plan, American Water Works or its agents shall have the right to withhold or deduct from any distributions or payments any taxes required to be withheld by federal, state or local governments. 9.3. CONSTRUCTION. All legal questions pertaining to this Deferred Compensation Plan shall be determined in accordance with the laws of the State of New Jersey, to the extent such laws are not superseded by applicable federal law. 13 9.4. HEADINGS. The headings of the Articles and Sections of this Deferred Compensation Plan are for reference only. In the event of a conflict between a heading and the contents of an Article or Section, the contents of the Article or Section shall control. 9.5. NUMBER AND GENDER. Whenever any words used herein are in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply, and references to the male gender shall be construed as applicable to the female gender where applicable, and vice versa. AMERICAN WATER WORKS COMPANY, INC. By: /s/ J. James Barr ------------------------------------- President and Chief Executive Officer Attest: /s/ W. Timothy Pohl ------------------------------------- General Counsel and Secretary 14 EX-13 4 a2043162zex-13.txt EXHIBIT 13 Exhibit 13 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - -------------------------------------------------------------------------------- CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA (Dollars in thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31, 2000 1999 1998 1997 1996 ===================================================================================================== Revenues Water service Residential $ 759,697 $ 733,956 $ 691,279 $ 658,955 $ 617,846 Commercial 278,463 262,940 249,564 235,561 224,354 Industrial 82,406 77,953 78,092 73,596 72,101 Public and other 153,302 149,531 146,299 137,289 122,951 Other water revenues 11,859 11,997 13,983 11,064 9,868 - ----------------------------------------------------------------------------------------------------- 1,285,727 1,236,377 1,179,217 1,116,465 1,047,120 Wastewater service 24,389 24,480 20,820 14,909 15,378 Management fees 40,474 -- -- -- -- - ----------------------------------------------------------------------------------------------------- $1,350,590 $1,260,857 $1,200,037 $1,131,374 $1,062,498 ============================================================== Water sales (million gallons) Residential 171,548 175,487 168,617 169,307 164,700 Commercial 82,455 81,857 79,115 78,542 77,319 Industrial 46,348 45,862 46,361 46,088 46,009 Public and other 40,784 41,477 40,110 39,831 36,152 - ----------------------------------------------------------------------------------------------------- 341,135 344,683 334,203 333,768 324,180 ============================================================== Net income* $ 161,061 $ 138,949 $ 150,439 $ 137,691 $ 116,820 Earnings per common share on average shares outstanding* $ 1.61 $ 1.40 $ 1.54 $ 1.42 $ 1.26 Common dividends paid per share $ .90 $ .86 $ .82 $ .76 $ .70 AT YEAR-END Water customers (thousands) 2,541 2,476 2,446 2,400 2,380 Wastewater customers (thousands) 40 40 39 25 24 Total assets $6,134,798 $5,952,206 $5,458,658 $4,992,023 $4,682,097 Preferred stocks with mandatory redemption requirements American Water Works Company, Inc. $ -- $ 40,000 $ 40,000 $ 40,000 $ 40,000 Subsidiaries 32,902 34,020 37,298 39,734 41,060 Long-term debt American Water Works Company, Inc. $ 159,000 $ 211,000 $ 216,500 $ 131,000 $ 132,000 Subsidiaries 2,112,165 2,182,097 2,115,687 1,965,924 1,796,170 Market price of common stock at year-end $ 29.38 $ 21.25 $ 33.75 $ 27.31 $ 20.63
*Includes one-time merger costs of $20,535 ($12,905 net of tax) and $.13 per share in 1999, and $352 in 1998. 22 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS THE STRATEGIES OF AMERICAN WATER WORKS COMPANY The Company's goal is to consistently enhance long-term shareholder value. Our strategies to produce value are: investing in the business of water services, providing management services to water and wastewater utilities, and delivering value added services and products. Historically, the Company primarily invested in acquisitions of water and wastewater utilities that complemented our existing service territories or that enhanced the Company's geographic diversification. In addition, the Company has invested in the common equity of its utility subsidiaries so that they could reinforce, rehabilitate and replace existing service infrastructure and provide for growth within existing service territories. The Parent Company's investment in its subsidiaries has increased from $1.6 billion at year-end 1997 to $1.9 billion at year-end 2000. The schedule at the top of page 24 illustrates that the growth in the Parent Company's investment in its subsidiaries has been accomplished by subsidiary earnings retention, the investment of a portion of the dividends received from subsidiaries and the sale of equity, debt and bank loans. Earnings to common shareholders have risen from $133.7 million in 1997 to $157.4 million in 2000. Income to common shareholders of American Water Works Company is influenced by three factors: the amount of investment in subsidiaries, the rate of return on that investment and the costs of operating the Parent Company. The schedule at the bottom of page 24 demonstrates that the growth in earnings over this period is the direct result of new investment in subsidiaries. Fluctuations in the rate of return are the result of the influence of weather conditions on water sales and the response of utility regulation to the economic climate. DESCRIPTION OF THE BUSINESS AMERICAN WATER WORKS COMPANY AND THE AMERICAN WATER SYSTEM The core business of American Water Works Company is the ownership of common stock of companies that enable American Water Works to be a full water resource provider. The combination of American Water Works with its subsidiaries constitutes the American Water System -- a system that has functioned well for over 50 years. Each subsidiary function s independently, yet shares in the benefits of size and identity afforded by the American Water System. However, the water utility industry is changing rapidly. Changes in regulation, the need for significant capital replacement, low growth in consumption within existing service territories and continuing pressures for increased efficiencies and productivity are changing the nature of the industry. To maintain its leadership position in this evolving industry, the Company will continue to grow through acquisitions of water and wastewater utilities, through the expansion of its unregulated businesses and by emphasizing shared services among its utility subsidiaries. REGULATED UTILITY SERVICE The utility subsidiaries provide water and/or wastewater service to approximately nine million people in 22 states. As public utilities, each company is subject to the rules of both federal and state environmental protection agencies, particularly with respect to the quality of the water they distribute. In addition, with the exception of Michigan-American Water Company, the utility companies function under economic regulations prescribed by state regulatory commissions. The goal of the utility subsidiaries of the Company is to provide high quality, reliable water and wastewater service at an affordable price. There are several keys to continued success in this endeavor: efficient planning and deployment of capital investment, cultivating experienced managers and knowledgeable staff, supporting state-of-the-art water quality programs, and maintaining responsive customer service. WATER AND WASTEWATER MANAGEMENT SERVICES American Water Services became a wholly owned subsidiary when the Company acquired its joint venture partner's 50 percent interest in AmericanAnglian Environmental Technologies on December 31, 1999. American Water Services is focused on the growing contract operations segment of the water and wastewater market, including municipal, industrial, and military clients. Municipally owned water and wastewater utilities face the same challenges associated with providing high quality service as our own utility subsidiaries. They need access to specialized expertise and capital resources to meet these challenges. American Water Services continues our long-standing record of providing these services and has broadened the array of options available for management services, technical assistance, and capital participation. It currently manages and operates 175 water and wastewater facilities, providing service to approximately one million people in nine states, eight of which also have communities served by our utility subsidiaries. 23 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - -------------------------------------------------------------------------------- ANALYSIS OF GROWTH IN AMERICAN WATER WORKS COMPANY'S INVESTMENT IN SUBSIDIARIES
(000) 2000 1999 1998 1997 ============================================================================================= Investment in subsidiaries at December 31 $1,937,896 $1,819,412 $1,708,659 $1,556,631 Investment in subsidiaries at January 1 1,819,412 1,708,659 1,556,631 1,438,681 - --------------------------------------------------------------------------------------------- Change during the year $ 118,484 $ 110,753 $ 152,028 $ 117,950 ================================================= Sources of additional investment Undistributed earnings of subsidiaries $ 43,268 $ 37,677 $ 49,481 $ 49,802 Investment in subsidiary securities 75,216 73,076 102,547 68,148 - --------------------------------------------------------------------------------------------- Change during the year $ 118,484 $ 110,753 $ 152,028 $ 117,950 ================================================= Net income of subsidiaries $ 184,206 $ 166,537 $ 168,764 $ 152,085 Return on January 1 investment in subsidiaries 10.1% 9.7% 10.8% 10.6% Subsidiaries' common stock dividend payout ratio 77% 77% 71% 67% - --------------------------------------------------------------------------------------------- Dividends from subsidiaries 140,938 128,860 119,283 102,283 - --------------------------------------------------------------------------------------------- Parent Company's use of cash Preferred dividends 3,700 3,984 3,984 3,984 Other cash requirements (includes merger related cash requirements of $12,704 in 1999) 18,821 33,185 16,742 14,387 - --------------------------------------------------------------------------------------------- 22,521 37,169 20,726 18,371 - --------------------------------------------------------------------------------------------- Available for common dividends 118,417 91,691 98,557 83,912 Common dividends declared 88,103 79,370 71,389 66,424 Cash payout ratio 74% 87% 72% 79% Available after dividends 30,314 12,321 27,168 17,488 Parent Company cash at beginning of year 4,702 18,042 879 75 - --------------------------------------------------------------------------------------------- 35,016 30,363 28,047 17,563 Investment in securities of subsidiaries (75,216) (73,076) (102,547) (68,148) Notes and advances to subsidiaries, net 10 692 (672) 10 - --------------------------------------------------------------------------------------------- (40,190) (42,021) (75,172) (50,575) - --------------------------------------------------------------------------------------------- Net bank borrowings (46,500) 46,500 (59,500) 21,400 Proceeds from long-term debt -- -- 120,000 -- Intercompany borrowings, net 97,039 -- (3,013) 3,013 Proceeds from common stock, net 30,066 40,723 36,227 28,041 Redemption of securities (40,000) (40,500) (500) (1,000) - --------------------------------------------------------------------------------------------- 40,605 46,723 93,214 51,454 - --------------------------------------------------------------------------------------------- Parent Company cash at end of year $ 415 $ 4,702 $ 18,042 $ 879 =================================================
ANALYSIS OF CHANGE IN INCOME
(000) 2000 1999 1998 1997 ============================================================================================= Net income to common stock-current year $ 157,361 $ 134,965 $ 146,455 $ 133,707 Net income to common stock-prior year 134,965 146,455 133,707 112,836 - --------------------------------------------------------------------------------------------- Change in income 22,396 (11,490) 12,748 20,871 Change in Parent Company operating cost (includes after tax merger costs of $6,422 in 1999) (4,727) 9,263 3,931 (3,703) - --------------------------------------------------------------------------------------------- Change in investment income $ 17,669 $ (2,227) $ 16,679 $ 17,168 ================================================= Sources of change in investment income Additional investment in subsidiaries $ 11,213 $ 14,818 $ 12,788 $ 28,236 Change in rate of return on investment (includes $6,483 of after tax merger costs in 1999) 6,456 (17,045) 3,891 (11,068) - --------------------------------------------------------------------------------------------- Total change in investment income $ 17,669 $ (2,227) $ 16,679 $ 17,168 =================================================
24 - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS WATER RESOURCE MANAGEMENT American Water Resources is a subsidiary formed to offer water and wastewater related products and services that provide value to our customers and shareholders. American Water Resources is entering the consumer market by offering various products and services to the existing customer base. American Water Resources has introduced a program to provide ide protection against leaks for customer owned water service lines of the Company's utility subsidiaries and is offering a pilot program to provide home water conditioning products. It plans additional offerings. SHARED SERVICES American Water Works Service Company, a subsidiary, provides professional services as required to affiliated companies. These services include accounting, administration, communication, corporate secretarial, engineering, financial, human resources, information systems, operations, rates and revenue, risk management and water quality. This arrangement, which provides these services at cost, affords affiliated companies professional and technical talent otherwise unavailable economically or on a timely basis. In April 2001, this subsidiary will open a national customer service center, and later in the year will be opening another facility to consolidate treasury and accounting functions. American Water Capital is a subsidiary that was formed in 2000 to provide a single source of debt capital for the Company and its utility subsidiaries. By consolidating its financing requirements the Company created cash management efficiencies and has access to a broader investor base. SYSTEM GROWTH AND DEVELOPMENT ACQUISITIONS OF UTILITY SYSTEMS Consistent with the Company's growth strategy, management continues to search for opportunities to acquire water and wastewater systems that represent the prospect for enhanced shareholder value. The year 2000 began with 24 acquisitions that were then awaiting regulatory approval. During the year, contract negotiations for 10 more acquisitions were completed. Of that total of 34 transactions, 12 were finalized during 2000, adding approximately 38,000 new customers. At year-end there were 22 pending acquisitions. On October 15, 1999 the Company entered into an agreement to acquire all of the water and wastewater assets of Citizens Communications Company, a multi-utility holding company. The transaction calls for American Water Works' utility subsidiaries to acquire the water and wastewater assets of Citizens and its subsidiaries in Arizona, California, Ill inois, Indiana, Ohio and Pennsylvania. This transaction accounts for six of the pending acquisitions. When completed, it will add approximately 305,000 water and wastewater customers to the American Water System. The largest group of customers being acquired in this transaction is in Arizona, and the addition of those operations will significantly strengthen the Company's opportunities in one of the fastest growing regions in the country. Regulatory agencies in Pennsylvania, Indiana and Ohio have approved the acquisition of Citizen's water and wastewater assets in those states and evidentiary hearings have been completed in Arizona and Illinois. Decisions are anticipated in Arizona during the first quarter of 2001, in Illinois during the second quarter of 2001 and in California dur ing the third quarter of 2001. The Office of Ratepayer Advocates of the California Public Utilities Commission (CPUC) issued a report on October 16, 2000 opposing the Company's acquisition of the California water and wastewater assets of Citizens. The Company strongly disagrees with this report and has filed rebuttal testimony with the CPUC contesting the report's analysis and conclusions. Members of the staff of the Illinois Commerce Commission have also submitted testimony opposing the Citizens acquisition. Consummation of the Citizens transaction requires approval by regulatory agencies in each of the states in which the assets are located. The Company continues to work to complete this acquisition, but recognizes th at there is no assurance that approval will be obtained on a timely basis, if at all. On October 28, 1999 the Company executed a definitive agreement to acquire all of the outstanding common stock of SJW Corp. 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 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.
CONSTRUCTION EXPENDITURES BY CATEGORY (000) 2000 1999 1998 1997 1996 ============================================================================================ Water plant Sources of supply $ 18,505 $ 18,038 $ 19,744 $ 17,841 $ 12,210 Treatment and pumping 106,321 114,830 113,725 102,011 84,024 Transmission and distribution 151,079 191,700 180,545 157,635 131,531 Services, meters and fire hydrants 68,331 70,998 69,606 64,050 52,982 General structures and equipment 24,054 66,019 52,347 48,246 31,267 Wastewater plant 8,927 5,766 3,250 4,646 1,800 - -------------------------------------------------------------------------------------------- $377,217 $467,351 $439,217 $394,429 $313,814 ========================================================
25 - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS In Pennsylvania, a subsidiary of the Company is acquiring the water and wastewater assets of the City of Coatesville for $48 million. The Coatesville system serves 8,600 water customers and 6,500 wastewater customers, making this purchase of municipally-owned assets the largest privatization project of its kind in the nation. The remaining 14 acquisitions for which signed agreements are in hand will give the Company's utility subsidiaries approximately 15,000 additional customers. In 1999, 21 acquisitions added approximately 518,000 new customers. The most significant of these transactions was the acquisition of National Enterprises Inc., a privately owned holding company with operations primarily in the water utility business. National Enterprises' subsidiaries provided water utility service to more than 500,000 customers in Illinois, Indiana, Missouri and New York. Since most of National Enterprises' customers were in the mid-west this acquisition significantly furthered the Company's strategy of geographic diversification. As a part of the National Enterprises acquisition, the Company also acquired investments in two publicly traded companies, ITC/\DeltaCom, Inc. and Powertel, Inc., and in privately owned ITC Holding Company, Inc. The Company completed 22 acquisitions in 1998 that added approximately 27,000 new customers. More information about acquisitions can be found in Notes 3 and 4 to the financial statements. CAPITAL SPENDING PROGRAM Investment in new facilities in 2000 totaled $377 million, which is 19% below the 1999 construction expenditures of $467 million. Construction activities planned for 2001 total approximately $410 million. With the benefit of comprehensive engineering, operational and financial planning, each utility subsidiary prepares a capital expenditure plan representing a balance of water quality and source of supply initiatives, operational improvements, system growth opportunities, regulatory compliance requirements, and infrastructure replacement needs. The actual expenditures recorded in any given year are influenced by many factors including the timing of required governmental approvals of projects, weather conditions, availability of labor resources, and equipment and material deliveries. The percentage decrease in 2000 construction costs from those of the prior year is within a normal range of such changes. It is anticipated that approximately $2 billion will be invested in new facilities between now and the end of 2005. The full investment in this construction program is expected to be recognized in regulatory decisions. Source of supply improvements accounted for approximately 5% of the year's construction expenditures. Projects included the construction of new groundwater sources in Joplin and Mexico, Missouri; San Marino, California; Frenchtown, Mt. Olive Township and Logan Township, New Jersey; and Pike County and Coolbaugh Township, Pennsylvania. The source of supply in St. Joseph, Missouri was converted to a groundwater source and a new surface water source was developed to support the recently constructed Fayette County, West Virginia treatment plant. Investment in treatment and pumping facilities comprised about 28% of the 2000 construction expenditures. The reliability of the water treatment facilities in Alton, Illinois and St. Joseph, Missouri were significantly increased by the completion of treatment plants at each of these locations. An innovative treatment plant was constructed in James burg, New Jersey for radium removal. Additional new treatment facilities were completed in Fayette County, West Virginia and Pekin, Illinois. A new wastewater treatment plant was constructed in Coolbaugh Township, Pennsylvania. Major treatment plant upgrades were completed in Huntington and Charleston, West Virginia; Norristown and New Castle, Pennsylvania; Bel Air, Maryland; Hopewell, Virginia; Mexico and Warrensburg, Missouri; and Monterey, California. Additional finished water storage was provided at the Cairo, Illinois and Monterey, California plants. Transmission and distribution facilities accounted for approximately 40% of the 2000 construction expenditures. Significant capital expenditures occurred across a large number of service areas for distribution system improvements. These projects improve existing service conditions, provide service to new areas, and allow full utilization of existing sources of supply and treatment facilities between neighboring systems. Prominent projects include continuing regionalization efforts in Beaver, Monroe and Clarion Counties in Pennsylvania; and Kanawha, Cabell and Boone Counties in West Virginia. Other major distribution/transmission projects were completed in St. Louis County, Missouri; Peoria and Brooklyn, Illinois; Brownsville and Wilkes Barre, Pennsylvania; and Lexington, Kentucky to improve system hydraulics or enhance system growth. Distribution storage tanks were constructed in Chattanooga, Tennessee; Putnam County, West Virginia; Mt. Olive Township, New Jersey; Merrillville, Indiana; Parkville, Missouri; West Norriton Township and Coolbaugh Township, Pennsylvania. The Company's formal planning process involves a comprehensive evaluation by each utility subsidiary of all aspects of public water supply. This includes reviews of source of supply reliability, adequacy of water treatment facilities and distribution systems, and the potential for regional water supply solutions and acquisitions. In 2000, planning reports were issued for the Terre Haute and Muncie service areas in Indiana; the Coronado, Duarte, San Marino, and Thousand Oaks service areas in California; the Atlantic County, Cape May Court House, and Ocean City/Strathmore service areas in New Jersey; the Butler and Ellwood service areas in Pennsylvania; and Chattanooga, Tennessee systems. Studies are underway for utility subsidiaries in California, Connecticut, Hawaii, Illinois, Indiana, Kentucky, Massachusetts, New Jersey, New York, Pennsylvania, Virginia and West Virginia. These continuing studies encompass 44 service areas. BUSINESS SERVICES PROJECTS During 2000 the Company announced the consolidation of its various customer service centers and financial services operations. The new national customer service center in Alton, Illinois is scheduled to begin operation in the second quarter of 2001, and will enhance the Company's ability to respond to the needs of its customers. This center will be more cost-effective and 26 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ equipped with technology far beyond what can be provided by the individual subsidiaries. Beginning in the third quarter of 2001 a new shared services center will assume responsibility for various accounting and treasury functions. The new shared services center will improve the Company's financial processes and significantly reduce costs. CONDEMNATIONS OF UTILITY SYSTEMS In November 1998 the City of Chattanooga, Tennessee, began an effort to condemn the assets of Tennessee-American Water Company through an eminent domain proceeding. The Company responded with a vigorous and ultimately successful defense that led to a settlement between the two parties in October 1999. In August 2000 an earlier court decision that the Company has a perpetual franchise was affirmed, and the case is now closed. In Illinois, the cities of Pekin and Peoria have also been considering acquiring, by eminent domain or otherwise, the utility assets of Illinois-American Water Company that are used to provide water service to their respective communities. As with Tennessee-American, Illinois-American is vigorously contesting these proposed takeovers. In Pekin, the residents have voted to retain Illinois-American's ownership of the water system. The November non-binding referendum results have, at least temporarily, placed the issue of eminent domain by that city on hold. Illinois- American and the City of Peoria are involved in a court proceeding over the applicability of an 1889 franchise agreement that the city believes grants it a unilateral right to purchase the Company's assets there. WATER AND WASTEWATER MANAGEMENT SERVICES The mission of American Water Services is to provide water and wastewater utility operating and management services to clients in the United States. During its initial year of operation as a wholly owned subsidiary of American Water Works Company, a new management team was selected to lead this enterprise. This business focuses on providing wastewater services to communities already served with water by our utility subsidiaries and pursues new opportunities to serve communities not currently served by the American Water System. The business also offers contract management services to industrial clients that operate their own water and wastewater treatment facilities and to military clients interested in outsourcing the operations and ownership of their utility facilities. The current United States market for contract services is approximately $1.6 billion in annual revenues, with most of the recent growth in design-build contracts and industrial operation and maintenance services. The governmental operation and maintenance services segment of the market has been growing at an annual rate of approximately 14%, and should continue to grow at that rate. Competition within this market was active in 2000 and should continue to grow as this market expands. Several foreign competitors have established market share in the United States which has intensified the competitiveness of this business. The Company intends to be a key player within the full-service water and wastewater management market. The ability of American Water Services to be competitive and to actively participate in this market's growth is significantly enhanced by American Water Works Company's presence in the United States regulated utility market. American Water Services is the seventh largest operations and maintenance contractor in the United States. During 2000, American Water Services added new contracts for East Palo Alto, California (interim management contract to be converted to long term contract); expanded the scope of the Danville, Virginia contract; and secured a contract to assess the utility facilities of Ft. Bragg, North Carolina and to negotiate a 50-year contract to own and operate Ft. Bragg's water and wastewater facilities. American Water Services also renewed all contracts eligible for renewal in 2000, including Hazleton, Meadville, Butler, Rush Township, and Schuylkill Valley, Pennsylvania; Narrows, Virginia; and Dedham-Westwood, Massachusetts. RESULTS OF OPERATIONS The Company's experience in assessing the impact of inflation on its business indicates that with timely rate increases authorized by regulators, revenue will likely keep pace with inflation. Inflation did not significantly impact the Company's financial position or results of operations in 1998 through 2000, and it is not expected to materially affect 2001 results. The results of operations for the year ended December 31, 2000 reflect the operations of American Water Services. Prior to January 1, 2000 the results of operations of the Company's former contract management business joint venture were accounted for under the equity method.
OPERATING REVENUES (000) 2000 1999 1998 =============================================================== Water service $1,285,727 $1,236,377 $1,179,217 Wastewater service 24,389 24,480 20,820 Management fees 40,474 -- -- - --------------------------------------------------------------- $1,350,590 $1,260,857 $1,200,037 ======================================
OPERATING REVENUES Revenues for 2000 increased 7% or almost $90 million, to $1.351 billion from the $1.261 billion recorded in 1999. Contract management revenues from American Water Services accounted for $40.5 million of this revenue increase. The remainder of the increase resulted from rate increases and the addition of 65,000 customers through acquisitions and growth in existing service territories. These growth factors served to offset the sales volume losses caused by abnormal summer weather conditions. The volume of water sold decreased 1% to 341.1 billion gallons in 2000 compared with 1999. 27 - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS Rate authorizations adjusted the water service rates in effect for ten utility subsidiaries during 2000. These authorizations are expected to increase annual revenues by $27.2 million. Operating revenues for 2000 included approximately $8.9 million that resulted from these rate orders. A more detailed discussion of authorizations to increase rates in 2000 appears on page 32. Five applications requesting additional annual revenues of $30 million were awaiting regulatory decisions as of the end of 2000. A $17.6 million request by one of the Company's Missouri subsidiaries accounts for more than one-half of the total requests pending approval. A $9 million request in Illinois that comprised the majority of the remainder of those requests resulted in an order effective February 21, 2001 that granted an increase in annual revenues of $7.2 million. Revenues of $1.261 billion in 1999 were 5% above those for 1998. Nine utility subsidiaries received rate orders in 1999, authorizing increases in annual revenues aggregating $59.3 million. Operating revenues for 1999 included approximately $15.8 million which resulted from these rate orders. The 344.7 billion gallons of water sold in 1999 was 3% above sales in 1998.
PERCENTAGE OF REVENUES BY CUSTOMER CLASS 2000 1999 1998 =============================================================== Residential 56.2% 58.2% 57.6% Commercial 20.6% 20.8% 20.8% Industrial 6.1% 6.2% 6.5% Public and other 11.3% 11.9% 12.2% Other water revenues 1.0% 1.0% 1.2% Wastewater service 1.8% 1.9% 1.7% Management fees 3.0% -- -- - --------------------------------------------------------------- 100.0% 100.0% 100.0% ======================
RESIDENTIAL Residential water service revenues in 2000 amounted to $759.7 million, an increase of 4% over those for 1999. This 2000 revenue improvement followed an increase of 6% in 1999. The volume of water sold to residential customers decreased by 2% in 2000 to 171.5 billion gallons. The average unit price of residential water increased by 6% in 2000 and by 2% in 1999. COMMERCIAL Revenues from commercial customers in 2000 rose by 6% to $278.5 million, following an increase of 5% in 1999. Commercial customers purchased 82.5 billion gallons of water in 2000, 1% more than in 1999. The average unit price of commercial water increased by 5% in 2000 and by 2% in 1999. INDUSTRIAL Industrial water use of 46.3 billion gallons in 2000 was 1% greater than in 1999. Revenues from industrial sales of $82.4 million in 2000 were 6% above those recorded in 1999 and the average unit price of water increased 5%. In 1999, revenues from industrial sales were equal to those for 1998 and the average unit price of water increased by 1%. PUBLIC AND OTHER Public and other revenues in 2000 increased by 3% to $153.3 million following an increase of 2% in 1999. Revenues derived from municipal governments for fire protection services and customers requiring special private fire service facilities totaled $62.6 million in 2000, exceeding 1999 revenue from these customers by 2%. The 40.8 billion gallons of water sold to governmental entities and resale customers in 2000 was 2% less than the quantities sold in 1999. Revenues generated by these sales in 2000 totaled $90.7 million and exceeded 1999 revenues by 3%. PERCENTAGE OF WATER SALES (GALLONS) BY CUSTOMER CLASS
2000 1999 1998 ============================================================== Residential 50.3% 50.9% 50.4% Commercial 24.1% 23.8% 23.7% Industrial 13.6% 13.3% 13.9% Public and other 12.0% 12.0% 12.0% - -------------------------------------------------------------- 100.0% 100.0% 100.0% ======================
WASTEWATER SERVICE Utility subsidiaries provided wastewater service in Hawaii and to portions of the Company's service areas in New Jersey, Pennsylvania, Indiana, Missouri, West Virginia and Kentucky. Revenues from these services amounted to $24.4 million in 2000, $24.5 million in 1999 and $20.8 million in 1998. The growth in wastewater revenues in 1999 reflects the April 1998 acquisition of the operations in Hawaii. MANAGEMENT FEES These fees represent charges for management services provided to municipal, industrial and military clients by American Water Services. It currently manages and operates 175 water and wastewater facilities in nine states. OPERATING EXPENSES
(000) 2000 1999 1998 ============================================================== Operation and maintenance expenses $603,305 $566,948 $536,519 Depreciation and amortization 165,888 151,641 139,661 General taxes 125,219 122,674 118,132 - -------------------------------------------------------------- $894,412 $841,263 $794,312 ==============================
OPERATING EXPENSES Operating expenses in 2000 increased by 6% to $894.4 million, following a 6% increase in 1999. Operation and maintenance expenses totaled $603.3 million in 2000, 6% higher than in 1999. This increase is solely due to the inclusion of American Water Services' expenses in consolidated operations for the first time in 2000. Operation and maintenance expenses had increased by 6% in 1999. Excluding $5.6 million of costs related to resisting unwe lcome takeover attempts in Tennessee and Illinois, operation and maintenance expenses increased by 4.5% in 1999. 28 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ Associate-related costs include wage and salary, group insurance, and pension expense. These costs, representing 41% of operation and maintenance expenses, decreased 2% in 2000 after a 2% increase in 1999. The primary components of associate-related costs are wage and salary expenses, which were up 2% to $205.1 million in 2000 following a 1% increase in 1999. The number of associates employed at year-end totaled 5,050, compared to 4,970 at the close of 1999 and 5,128 at the end of 1998. Excluding the 227 associates at American Water Services who were included in the 2000 number only, the number of associates decreased by 147 during 2000. Group insurance expense, which includes the cost of providing current health care and life insurance benefits as well as the expected cost of providing postretirement benefits, decreased by 6% to $40.3 million in 2000 after a 10% increase in 1999. The decreased group insurance expense in 2000 reflects lower postretirement benefit costs due to a change in actuarial assumptions which were partially offset by increased group insurance premiums for active associates. Pension expense was $.1 million in 2000 compared to $6.5 million in 1999. In 2000 the Company terminated a restrictive contract with an insurance company that limited investment opportunities and returns. This change resulted in a settlement gain that offset periodic pension cost in 2000, and is expected to increase the long-term investment return on plan assets. Pension expense also decreased in 2000 due to a change in actuarial assumptions. Pension cost in excess of the amount contributed to the pension plans is deferred by certain regulated subsidiaries pending future recovery in rates charged for water services as contributions are made to the plans. These subsidiaries have recorded their portion of the settlement gain as a reduction of the regulatory asset. At December 31, 2000 the Company lowered the discount rate assumption used for its pension and postretirement benefit plans to reflect current high-quality corporate bond yields. This change is expected to result in increased benefit plan expense in 2001. OPERATION AND MAINTENANCE EXPENSES
(000) 2000 1999 1998 ============================================================== Associate-related costs $245,464 $250,649 $244,695 Fuel and power 54,116 48,661 46,332 Purchased water 47,869 45,404 43,407 Chemicals 23,643 22,749 23,639 Waste disposal 18,610 16,137 15,336 Maintenance materials and services 40,396 39,152 36,846 Operating supplies and services 124,121 102,173 86,647 Customer billing and accounting 28,219 26,168 23,846 Other 20,867 15,855 15,771 - -------------------------------------------------------------- $603,305 $566,948 $536,519 ==============================
Expenses associated with the collection, treatment, and pumping of water include the cost of fuel and power, water purchased from other suppliers, chemicals for water treatment and purification, and waste disposal. These production costs increased by 8% in 2000 after a 3% rise in 1999. The production costs of the regulated subsidiaries in 2000 was 2% greater than in 1999, and the unit cost of water produced was up 4% in 2000 after remaining level in 1999. Maintenance materials and services, which include emergency repairs as well as costs for preventive maintenance, increased by 3% in 2000 following a 6% increase in 1999. Operating supplies and services include the day-to-day expenses of office operation, legal and other professional services, as well as information systems and other office equipment rental charges. These costs increased by 21% in 2000 after an 18% increase in 1999. The large increase in 2000 is primarily attributable to the inclusion of American Water Services' costs. The expenses in this category in 1999 included $5.6 million of costs connected with the takeover attempts of the Company's operations in Chattanooga, Tennessee and Peoria, Illinois. Customer billing and accounting expenses increased by 8% in 2000 and by 10% in 1999. The increase in 1999 reflects higher charge-offs of uncollectible customer accounts. Other operation and maintenance expenses include casualty and liability insurance premiums and regulatory costs. These expenses increased by 32% in 2000 after increasing by 1% in 1999. The large increase in 2000 was due to an increase in insurance claims. Depreciation and amortization increased by 9% in both 2000 and 1999. The higher depreciation expense in both years was primarily due to growth in utility plant in service. General taxes, which include gross receipts, franchise, property, capital stock, payroll and other taxes, increased by 2% in 2000 after a 4% rise in 1999. Gross receipts and franchise taxes that are a function of revenues, increased by 4% in 2000. Property and capital stock taxes are assessed on the basis of tax values assigned to assets and capitalization, and these taxes in 2000 were 4% above those in 1999. OTHER INCOME AND INCOME DEDUCTIONS Interest expense rose 8% to $191.8 million in 2000 compared to 1999. This expense had increased by 6% in 1999. The increases in 2000 and 1999 are primarily attributable to an increase in long and short-term debt to fund the construction of new water service assets. The total allowance for funds used during construction (AFUDC) recorded in 2000 was $13.7 million, compared to $22.4 million in 1999 and $16.1 million in 1998. The amount of AFUDC recorded reflects the level of construction of new water service assets. The utility subsidiaries record AFUDC to the extent permitted by the regulatory authorities. Merger related costs of $20.5 million in 1999 and $.4 million in 1998 reflect the one-time costs incurred in connection with the National Enterprises merger. These costs consist primarily of severance costs as well as vesting of certain benefits, professional fees and other costs. 29 - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS Other income deductions in 2000 reflect $4.5 million of one-time charges related to rate orders received in Missouri and Kentucky. The most significant of these charges was related to the missouri public service commission's decision to deny recognition of certain investments in the former treatment plant the Company deemed essential to provide water service while a new treatment plant was being constructed. The Company is appealing both of these orders. Other income deductions in 1999 and 1998 include the Company's share of losses at its former contract management joint venture. INCOME TAXES Income taxes increased by 15% in 2000, following a 4% decrease in 1999. Income tax expense in 1999 reflects the decrease in taxable income primarily related to one-time merger related costs. Details regarding the components of the total amount of state and federal income taxes, and a reconciliation of statutory to reported income tax expense are included in Note 11 to the financial statements. SUMMARY OF TAXES
(000) 2000 1999 1998 ================================================================== Gross receipts and franchise taxes $ 43,425 $ 41,839 $ 40,014 Property and capital stock taxes 55,680 53,458 53,705 Payroll taxes 16,243 18,445 16,911 Other general taxes 9,871 8,932 7,502 State income taxes 17,453 14,282 13,575 Federal income taxes 87,853 77,118 81,973 - ------------------------------------------------------------------ $230,525 $214,074 $213,680 ==============================
NET INCOME TO COMMON STOCK Net income to common stock in 2000 was $157.4 million, compared to net income to common stock before merger costs of $147.9 million in 1999 and $146.8 million in 1998. In addition, one-time after tax merger costs of $12.9 million and $.4 million were incurred in 1999 and 1998, respectively, in connection with the national enterprise transaction. After accounting for these merger costs, net income to common stock was $135.0 million in 1999 compared to $146.5 million in 1998. COMPREHENSIVE INCOME Other comprehensive income reflected a net loss of $67.2 million in 2000, compared to net gains of $59.3 million in 1999 and $29.1 million in 1998. The Company's other comprehensive income represents the after tax unrealized gain or loss on passive investments in publicly traded companies. The most significant holdings are in ITC/\DeltaCom, Inc. and Powertel, Inc., two telecommunications firms acquired in the merger with National Enterprises, and an investment in SJW Corp. Comprehensive income was $90.2 million in 2000 compared to $194.3 million in 1999 and $175.6 million in 1998. CONSOLIDATED CAPITALIZATION
COMMON PREFERRED LONG-TERM (000) EQUITY STOCK DEBT ================================================= 2000 $1,669,677 $52,693 $2,432,560 1999 1,634,798 93,811 2,431,452 1998 1,481,611 97,089 2,385,950 1997 1,341,946 97,663 2,129,228 1996 1,241,167 99,012 2,006,966 - ------------------------------------------------- CONSOLIDATED CAPITALIZATION RATIOS COMMON PREFERRED LONG-TERM EQUITY STOCK DEBT ================================================= 2000 40% 1% 59% 1999 39% 2% 59% 1998 37% 3% 60% 1997 37% 3% 60% 1996 37% 3% 60% - -------------------------------------------------
Note: Long-term debt includes amounts due within one year. LIQUIDITY AND CAPITAL RESOURCES Internal sources of cash flow are provided by retention of a portion of earnings, amortization of deferred charges, deferral of taxes and depreciation expense. Internal cash generation is influenced by weather patterns, economic conditions and the timing of rate relief. When internal cash generation is not sufficient to meet corporate obligations on a timely basis, external sources of funds are utilized. The availability and cost of external cash reflect the consistency and reliability of earnings. External sources of cash consist of short-term bank loans, the sale of securities -- commercial paper, bonds, preferred stock and common stock -- as well as advances and contributions from developers. The Company's Dividend Reinvestment and Stock Purchase Plan allows shareholders and customers of the utility subsidiaries to purchase up to $5,000 of common stock each month directly from the Company at a 2% discount from the then prevailing market price. The discount may be discontinued by the Company at any time. New shares of common stock may also be issued in connection with the continuation of the Company's Dividend Reinvestment and Stock Purchase Plan, the Employees' Stock Ownership Plan, the Savings Plan for Employees and the 2000 Stock Award and Incentive Plan. The Board of Directors has also authorized management to purchase shares of the Company's common stock to cover the obligations under the employee benefit plans and dividend reinvestment and stock purchase plan. 30 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ The Company's utility subsidiaries fund construction programs and supplement cash flow through the use of short-term borrowings. In June 2000 the Company created American Water Capital to provide a single source of debt capital for the Company and its utility subsidiaries. As a result of consolidating subsidiary credit lines and cash management activities in American Water Capital, the Company was able to reduce the consolidated credit requirements by approximately $150 million. American Water Capital derives its credit worthiness from a strong support agreement with the Company, which is considered the equivalent of an unconditional guarantee of the obligations of American Water Capital. As a result, American Water Capital was rated A- by Standard and Poor's and Baa1 by Moodys Investor Service at December 31, 2000. During 2000 American Water Capital instituted a $600 million commercial paper program, the first of its kind in the water utility industry. American Water Capital also has a $600 million bank credit facility involving twelve domestic and international banks that supports the commercial paper program. The issuance of commercial paper reduces the amount available under the bank credit facility. At December 31, 2000 $170 million of commercial paper and $233 million of bank borrowings were outstanding. Ample credit lines are available to provide funds needed for 2001 construction requirements and to maintain short-term borrowings not yet refinanced on a long-term basis. Short-term borrowings are repaid with internally generated cash, and the proceeds obtained from selling debt securities either publicly or to institutional investors on a private placement basis. During 2000, three subsidiaries issued $10 million of mortgage bonds at interest rates between 7.92% and 8.04% and one subsidiary issued $29 million of tax-exempt debt at an interest rate of 5.90%. Proceeds from the sale of the bonds were used to repay short-term borrowings, fund construction programs, and to refinance existing debt. The utility subsidiaries plan to fund construction programs, continue acquisitions and repay short-term borrowings and maturing bonds in 2001 with the issuance of approximately $309 million of long-term debt, and with additional common equity investments from the Company. In addition, during 2001 the Company will arrange acquisition financing of approximately $850 million to fund the closing of the Citizens Communications water and wastewater sector acquisition. Management intends to fund these transactions permanently through a combination of long-term debt and equity or hybrid equity securities. Effective February 7, 2001 American Water Capital had the ability to issue up to $1.6 billion aggregate principal amount of debt securities under a shelf registration filed with the Securities and Exchange Commission. In addition, the Company may issue approximately $350 million in equity or hybrid equity securities within a year after completing the Citizens acquisition. Excluding any short-term borrowing incurred in connection with this pending transaction, the combined amount of short-term borrowings and bonds maturing within one year is expected to decline to approximately $325 million in 2001. A discussion of the acquisition and capital spending programs begins on page 25. REGULATION ECONOMIC Twenty state commissions regulate the Company's utility subsidiaries. They have broad authority to establish rates for service, prescribe service standards, review and approve rules and regulations and, in most instances, they must approve long-term financing programs, transactions between the utility and affiliated interests, reorganizations, mergers and acquisitions prior to their completion. The jurisdiction exercised by each commission is prescribed by state legislation and therefore varies from state to state. Economic regulation deals with many competing, and often conflicting, public pressures and policy goals. Rate adjustment proceedings normally are initiated by the utility. After appropriate investigation by commission staff and intervenors, public hearings are held. These hearings, which are economic and service quality fact-finding proceedings, are conducted in a trial-like setting where evidence is submitted, subject to cross examination, which then forms the basis for a commission decision. The purpose of this regulatory process is to set rates that will cover the reasonable operating costs of providing quality service to customers and which will also allow the utility the opportunity to earn a fair return on the investment necessary to provide that service. A rate proceeding generally focuses on four areas: o The amount of investment in facilities which provide public service o The operating costs and taxes associated with providing the service o The capital costs for the funds used to provide the facilities o The tariff design which allocates revenue requirements equitably across the customer base The regulatory rate setting process is time-consuming. Utility management anticipates the time required for the regulatory process and files for rate adjustments or other proceedings that will reflect as closely as possible the cost of providing service at the time the rates become effective. Management pursues methods of offsetting any adverse financial impact of regulatory lag and a number of approaches have proven successful in achieving this result. For example, five states permit the use of forward- looking test years to set rates that are more reflective of costs that are likely to be incurred during the period the rates will be effective. In addition, five subsidiaries have received rate orders allowing recovery of interest and depreciation expense related to the interim period from the time a major construction project is placed in service until new rates reflecting the cost of the project are placed into effect. Six subsidiaries also now recover in rates a return on utility plant before it is in service instead of capitalizing an allowance for funds used during construction. Seven subsidiaries have implemented staged rate increases over several years, reflecting additional annual investments and expenses approximately when they are incurred, and relieving the need to file annual rate increase requests. 31 - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS Through legislation or administrative rulemaking, three states allow utilities to recover certain costs of distribution system infrastructure replacement without the necessity of filing a full rate proceeding. Since distribution system infrastructure replacement is a significant element of capital expenditures made by subsidiaries, such programs can reduce regulatory lag, and increase the time between full rate cases. Additionally, eight regulatory jurisdictions permit forms of rate design known as single tariff pricing. This is a concept which sets similar rates for service to customers of subsidiaries with multiple service districts. It allows simplification of administration, and reduces the complexity of rate proceedings. This concept also spreads fixed costs over a larger customer base and helps to mitigate adverse rate impacts to customers resulting from necessary capital improvements, while permitting flexibility in timing of utility subsidiary financing. During the past year, regulatory commissions authorized ten subsidiaries to increase rates for service by an annual amount of $27.2 million. The primary driving force for price increases was to reflect a return on the additional investment in essential water service facilities. This has been the case for a number of years and will continue to be the situation for the foreseeable future, as a result of the ongoing need for additional capital investments to reinforce and replace water utility infrastructure and to comply with increasing water quality requirements. On August 31, 2000, the Missouri Public Service Commission issued an order in the Missouri-American Water Company rate case granting additional annual revenues of $10.2 million. The primary factors in this rate proceeding were the completion of a new water treatment facility at St. Joseph at a cost of $70.1 million and other capital investment of approximately $14.3 million since the last rate case. Various intervenors have filed appeals contesting the amount of increase the Commission authorized and Missouri-American has appealed elements of the Commission's Order, including certain disallowances related to construction costs and amortization of the former treatment facility. These appeals are pending before several Missouri circuit courts. The West Virginia Public Service Commission approved implementation of several scheduled rate increases that were negotiated as part of a joint settlement of West Virginia-American's last general rate case. The total amount of increase is $5.6 million. This includes the third step of a general increase, and step increases related to West-Virginia American's investment in water treatment plant improvements. The Fayette Plateau regional water project, a public private partnership, providing service to over 8,000 customers, was completed and placed in service during the year, accounting for a portion of the increased rates. Effective April 19, 2000 the Connecticut Department of Public Utility Control approved a revenue increase of $2.6 million on an annual basis for the Connecticut-American Water Company. The largest portion of this rate filing was associated with a $7.5 million investment associated with renovation of the Putnam Water Treatment Facility. Investments in the Bargh Reservoir dam, Putnam dam, and Putnam clearwell improvements totaled another $5.9 million recognized in this proceeding. A general rate case for the Monterey Division California-American Water Company was resolved by settlement between the parties resulting in an allowed increase in rates of $.9 million on an annual basis beginning in March 2000. The Monterey settlement also resulted in agreements between the parties concerning special requests providing for recovery of expenses related to conservation programs, emergency water treatment projects, catastrophic events, and rationing programs. In June 2000, the Company received an offset rate increase for its Coronado Division of $.9 million related to an increase in purchased water cost from its supplier, the City of San Diego. In addition, two step increases providing additional annual revenues of $.7 million were also authorized. Kentucky-American Water Company was awarded an increase in annual revenues of $2.2 million effective December 12, 2000. The rate base component of the Kentucky-American rate increase was due to numerous construction projects which have taken place, or are planned for the year 2001, since Kentucky is one of the commissions that permits projected rate case elements. The Commission has granted a petition Kentucky-American filed requesting a re-hearing regarding several issues. ADDITIONAL ANNUAL REVENUES AUTHORIZED BY RATE DECISIONS
(000) 2000 1999 1998 ======================================================= Arizona $ -- $ 811 $ -- California 2,481 780 -- Connecticut 2,628 -- -- Illinois -- -- 750 Indiana -- 14,219 2,000 Iowa -- -- 1,836 Kentucky 2,171 -- -- Maryland -- 360 -- Michigan -- -- 80 Missouri 10,233 -- 3,800 New Hampshire 545 -- -- New Jersey -- 13,083 -- New Mexico -- -- 790 New York 539 100 440 Ohio 1,310 -- 733 Pennsylvania 780 24,600 -- Virginia 936 776 -- West Virginia 5,561 4,522 6,287 - ------------------------------------------------------- $27,184 $59,251 $16,716 =========================
32 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ MARKET RISK The Company is exposed to market risk, including changes in interest rates, certain commodity prices and equity prices. The exposure to changes in interest rates is a result of financing through the issuance of fixed-rate preferred stocks and long-term debt. The following table provides the principal amounts by period of maturity and the weighted average effective interest rate for all such obligations outstanding in the period for the Company's obligations that are sensitive to interest rate changes. The exposure to equity price risk is generally associated with the Company's investments in equity securities of several telecommunications companies.
INTEREST RATE RISK Fair Value at Dec. 31, (000) 2001 2002 2003 2004 2005 Thereafter Total 2000 ============================================================================================================== Fixed-rate long-term debt, including current portion $160,944 $146,088 $207,998 $49,470 $63,134 $1,802,010 $2,429,644 $2,478,382 Average interest rate 7.07% 7.01% 7.00% 6.95% 6.92% 6.89% Fixed-rate preferred stocks with mandatory redemption requirements $ 1,028 $ 2,208 $ 648 $ 648 $ 648 $ 27,722 $ 32,902 $ 34,395 Average interest rate 8.11% 8.12% 8.11% 8.14% 8.16% 8.19% Fair Value at Dec. 31, (000) 2000 2001 2002 2003 2004 Thereafter Total 1999 ============================================================================================================== Fixed-rate long-term debt, including current portion $37,932 $160,382 $146,424 $207,919 $64,411 $1,811,044 $2,428,112 $2,332,683 Average interest rate 7.14% 7.11% 7.05% 7.04% 6.99% 6.97% Fixed-rate preferred stocks with mandatory redemption requirements $42,031 $ 996 $ 668 $ 608 $ 608 $ 29,109 $ 74,020 $ 74,627 Average interest rate 8.31% 8.11% 8.12% 8.15% 8.18% 8.20%
ENVIRONMENTAL The Safe Drinking Water Act was last amended by Congress in 1996, and requires the U.S. Environmental Protection Agency (EPA) to develop certain drinking water regulations over a prescribed timeline. Those regulations included new health limits for contaminants, and the EPA was also required to establish new treatment standards. In addition, Congress mandated that annual notices be mailed to consumers about the quality of drinking water, a national plan be established to certify water plant operators, more stringent bottled water standards, the development of guidance for water conservation, a prohibition against non-viable water systems from starting up, and provision for low interest loans for projects which improve the purity of drinking water. Many of these mandates have already been met by EPA, and the agency is working diligently to meet the others. In 2001, EPA expects to finalize regulation for a revised arsenic limit, a radon limit, a limitation on handling filter backwash water, and a way to determine the need to disinfect groundwater. A lower limit for disinfection by-products that became final in late 1998 becomes mandatory in late 2001. American Water System utilities are prepared to meet that mandate. EPA also intends to propose a revised, lower limit for disinfection by-products in 2001 to become effective approximately 2008. The Company has been intimately involved in all these rule makings, and has developed cost estimates for all proposed rules. Through collaboration with EPA using the American Water System's national water quality and construction cost database, and national scope of operations, the Company has assisted the Agency in developing the most practical regulations. It is the specific intent of the Company to know in advance what capital requirements are associated with future health mandates, so it can plan for that investment accordingly. The American Water System has a history of complying with new regulations before the mandatory deadline. The Company also recognizes the value of satisfying our customers' desire for pleasing water, and our associates are committed to meeting those expectations. 33 - ------------------------------------------------------------------------------ MANAGEMENT'S DISCUSSION AND ANALYSIS The American Water System's record of compliance with the Safe Drinking Water Act in 2000 was outstanding. However, the Company's water quality commitment goes beyond the minimum requirements. A voluntary EPA Partnership for Safe Water has been embraced by the Company as part of its commitment to provide higher quality drinking water than required by regulation. Through a cooperative effort between federal and state health agencies, and water utilities, this Partnership requires a special effort to produce outstanding quality water, and to conduct a very thorough assessment of treatment facilities in order to identify even further quality improvements. Once those steps and milestones are reached, the EPA may grant an award. This type of voluntary program offers public health protection in lieu of federal mandates. The Company's accomplishments have been acknowledged by receipt of 34 EPA awards by the utility subsidiaries. The record for other environmental compliance is equally impressive. Environmental legislation such as the Clean Water Act, the Resource Conservation and Recovery Act, and the Toxic Substances Control Act require prevention of air, water and land contamination. Wastes generated during water treatment and wastewater treatment must be properly treated and disposed of. American Water System utility subsidiaries recycle a large portion of liquid waste, in order to conserve water, and they hold permits to properly dispose of other materials to the land or watercourses. In addition, hazardous materials such as chemicals used in water treatment and oil products used in vehicles are appropriately contained to prevent release to the environment. Periodic environmental audits are conducted to ensure compliance with laws and regulations. Each utility maintains plans to notify the appropriate agencies and to clean up any accidental discharge which might occur. In the future, it is expected that EPA will continue to develop more stringent standards for drinking water to protect public health to an even greater extent, and will develop more limiting regulation of materials that may be released to the environment. The American Water System continues to emphasize the criticality of keeping abreast of such future developments, to be involved in the development of such rules, and to meet all requirements imposed on the business entities. While these new regulations result in increased capital and operating costs, those costs are expected to be recognized in rates as they reflect better service to the customer and protection of the environment. 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), as amended. 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. The adoption of this new accounting standard is not expected to have a significant 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 in accordance with 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 pendi ng 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 judgement 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 the 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. 34 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of the Company is responsible for the preparation of the following financial statements and for their integrity and objectivity. These financial statements conform to accounting principles generally accepted in the United States of America and, where required, include amounts which represent management's best judgments and estimates. The Company's management also prepared the other information in this Annual Report and is responsible for its accuracy and consistency with the financial statements. The Company maintains internal control systems to enable it to fulfill its obligations for responsible financial reporting. These systems include an Internal Audit Department which monitors internal controls and reports directly to the Audit Committee of the Board of Directors. Management views the purpose of internal auditing as an independent examination and assessment of Company activities related to compliance with policy, procedures and the law as well as the safeguarding of assets. The Audit Committee of the Board of Directors consists of five independent directors who meet with the Company's senior financial personnel, internal auditors and independent accountants. They report their findings to the Board of Directors and recommend a firm of independent accountants. The Company's independent accountants, Price-waterhouseCoopers LLP, are engaged to conduct an independent audit of the Company's financial statements in accordance with auditing standards generally accepted in the United States of America. Their audit includes obtaining a sufficient understanding of the internal control structure to establish a basis for reliance thereon in determining the nature, extent and timing of the tests applied in the audit of the financial statements. Their opinion on the fairness of the reported operating results, cash flows and financial condition appears below. /s/ ELLEN C. WOLF Ellen C. Wolf Vice President and Chief Financial Officer January 30, 2001 - ------------------------------------------------------------------------------ REPORT OF INDEPENDENT ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF AMERICAN WATER WORKS COMPANY, INC. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income and of retained earnings, of cash flows, of capitalization and of common stockholders' equity present fairly, in all material respects, the financial position of American Water Works Company, Inc. and Subsidiary Companies at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PRICEWATERHOUSECOOPERS LLP Philadelphia, Pennsylvania January 30, 2001, except as to Note 4 which is as of March 1, 2001 35 - ------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEET (Dollars in thousands)
At December 31, 2000 1999 ============================================================================= ASSETS Property, plant and equipment Utility plant - at original cost less accumulated depreciation $5,202,833 $4,939,408 Utility plant acquisition adjustments, net 75,294 51,697 Nonutility property, net of accumulated depreciation 37,831 36,265 Excess of cost of investments in subsidiaries over book equity at acquisition, net 55,590 57,118 - ----------------------------------------------------------------------------- Total property, plant and equipment 5,371,548 5,084,488 - ----------------------------------------------------------------------------- Current assets Cash and cash equivalents 28,571 43,100 Customer accounts receivable 103,975 91,353 Allowance for uncollectible accounts (2,575) (2,346) Unbilled revenues 83,878 78,205 Miscellaneous receivables 15,117 10,936 Materials and supplies 20,683 20,058 Deferred vacation pay 10,923 10,902 Restricted funds 224 14,558 Other 16,900 11,915 - ----------------------------------------------------------------------------- Total current assets 277,696 278,681 - ----------------------------------------------------------------------------- Regulatory and other long-term assets Regulatory asset - income taxes recoverable through rates 216,652 214,349 Other investments 73,997 181,579 Debt and preferred stock expense 47,630 48,289 Deferred pension expense 23,479 32,872 Deferred postretirement benefit expense 10,129 10,264 Deferred treatment plant costs 4,748 5,811 Deferred business services project expenses 4,796 -- Deferred tank painting costs 16,829 14,178 Restricted funds 8,343 6,557 Other 78,951 75,138 - ----------------------------------------------------------------------------- Total regulatory and other long-term assets 485,554 589,037 - ----------------------------------------------------------------------------- TOTAL ASSETS $6,134,798 $5,952,206 ==========================
36 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------
2000 1999 ============================================================================== CAPITALIZATION AND LIABILITIES Capitalization Common stockholders' equity $1,669,677 $1,634,798 Preferred stocks with mandatory redemption requirements -- 40,000 Preferred stocks without mandatory redemption requirements 11,673 11,673 Preferred stocks of subsidiaries with mandatory redemption requirements 32,902 34,020 Preferred stocks of subsidiaries without mandatory redemption requirements 8,118 8,118 Long-term debt American Water Works Company, Inc. 159,000 211,000 Subsidiaries 2,112,165 2,182,097 - ------------------------------------------------------------------------------ Total capitalization 3,993,535 4,121,706 - ------------------------------------------------------------------------------ Current liabilities Short-term debt 412,179 239,864 Current portion of long-term debt 161,395 38,355 Accounts payable 52,447 67,064 Taxes accrued, including federal income 25,960 16,030 Interest accrued 42,641 43,672 Accrued vacation pay 11,564 11,532 Other 67,865 75,191 - ------------------------------------------------------------------------------ Total current liabilities 774,051 491,708 - ------------------------------------------------------------------------------ Regulatory and other long-term liabilities Advances for construction 216,125 207,891 Deferred income taxes 605,343 610,460 Deferred investment tax credits 40,098 40,585 Accrued pension expense 50,414 63,095 Accrued postretirement benefit expense 13,930 12,471 Other 37,823 29,453 - ------------------------------------------------------------------------------ Total regulatory and other long-term liabilities 963,733 963,955 - ------------------------------------------------------------------------------ Contributions in aid of construction 403,479 374,837 - ------------------------------------------------------------------------------ Commitments and contingencies -- -- - ------------------------------------------------------------------------------ TOTAL CAPITALIZATION AND LIABILITIES $6,134,798 $5,952,206 =========================
The accompanying notes are an integral part of these financial statements. 37 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME AND OF RETAINED EARNINGS (Dollars in thousands, except per share amounts)
For the years ended December 31, 2000 1999 1998 ============================================================================== CONSOLIDATED INCOME AND COMPREHENSIVE INCOME Operating revenues $1,350,590 $1,260,857 $1,200,037 - ------------------------------------------------------------------------------ Operating expenses Operation and maintenance 603,305 566,948 536,519 Depreciation and amortization 165,888 151,641 139,661 General taxes 125,219 122,674 118,132 - ------------------------------------------------------------------------------ 894,412 841,263 794,312 - ------------------------------------------------------------------------------ Operating income 456,178 419,594 405,725 Other income (deductions) Interest (191,783) (178,215) (168,779) Allowance for other funds used during construction 7,804 11,849 9,803 Allowance for borrowed funds used during construction 5,891 10,577 6,312 Amortization of debt expense (2,770) (2,754) (2,494) Preferred dividends of subsidiaries (3,165) (3,311) (3,408) Merger related costs -- (20,535) (352) Other, net (5,788) (6,856) (820) - ------------------------------------------------------------------------------ (189,811) (189,245) (159,738) - ------------------------------------------------------------------------------ Income before income taxes 266,367 230,349 245,987 Provision for income taxes 105,306 91,400 95,548 - ------------------------------------------------------------------------------ Net income 161,061 138,949 150,439 Dividends on preferred stocks 3,700 3,984 3,984 - ------------------------------------------------------------------------------ Net income to common stock 157,361 134,965 146,455 - ------------------------------------------------------------------------------ Other comprehensive income Unrealized gain (loss) on securities (113,552) 102,604 47,083 Income taxes on other comprehensive income 46,394 (43,281) (17,959) - ------------------------------------------------------------------------------ Other comprehensive income (loss), net (67,158) 59,323 29,124 - ------------------------------------------------------------------------------ Comprehensive income $ 90,203 $ 194,288 $ 175,579 ==================================== Average shares of basic common stock outstanding 97,988 96,544 95,234 Basic and diluted earnings per common share on average shares outstanding $ 1.61 $ 1.40 $ 1.54 ==================================== CONSOLIDATED RETAINED EARNINGS Balance at beginning of year $1,001,029 $ 945,434 $ 870,368 Add: net income 161,061 138,949 150,439 Less: treasury stock issuances 801 -- -- - ------------------------------------------------------------------------------ 1,161,289 1,084,383 1,020,807 - ------------------------------------------------------------------------------ Deduct: dividends paid Preferred stock 3,244 3,528 3,528 Preference stock 456 456 456 Common stock - $.90 per share in 2000, $.86 per share in 1999, $.82 per share in 1998 88,103 76,479 65,781 National Enterprises Inc. common stock -- 2,891 5,608 - ------------------------------------------------------------------------------ 91,803 83,354 75,373 - ------------------------------------------------------------------------------ Balance at end of year $1,069,486 $1,001,029 $ 945,434 ====================================
The accompanying notes are an integral part of these financial statements. 38 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands)
For the years ended December 31, 2000 1999 1998 ============================================================================== CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 161,061 $ 138,949 $ 150,439 Adjustments Depreciation and amortization 165,888 151,641 139,661 Provision for deferred income taxes 27,431 31,411 29,922 Provision for losses on accounts receivable 8,608 7,731 6,832 Allowance for other funds used during construction (7,804) (11,849) (9,803) Employee stock plan expenses 3,330 5,185 5,648 Employee benefit expenses greater (less) than funding (1,698) 4,217 (1,848) Deferred business services project expense (4,586) -- -- Deferred tank painting costs (3,188) (3,349) (4,081) Deferred rate case expense (2,108) (2,024) (1,894) Amortization of deferred charges 10,671 13,985 10,709 Other, net (6,205) (1,352) (7,443) Changes in assets and liabilities, net of effects from acquisitions Accounts receivable (24,169) (10,934) (16,327) Unbilled revenues (5,114) (2,262) (4,064) Other current assets (5,370) (1,978) (1,130) Accounts payable (14,644) (3,150) 13,208 Taxes accrued, including federal income 9,423 (8,751) 5,591 Interest accrued (1,031) 1,809 4,212 Other current liabilities (7,349) 20,113 (7,437) - ------------------------------------------------------------------------------ Net cash from operating activities 303,146 329,392 312,195 - ------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Construction expenditures (377,217) (467,351) (437,627) Allowance for other funds used during construction 7,804 11,849 9,803 Acquisitions (51,821) (41,764) (46,203) Proceeds from the disposition of property, plant and equipment 6,827 2,703 1,484 Removal costs from property, plant and equipment retirements (14,309) (15,409) (7,543) Restricted funds 12,548 1,737 (14,786) - ------------------------------------------------------------------------------ Net cash used in investing activities (416,168) (508,235) (494,872) - ------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 47,908 128,332 330,174 Proceeds from common stock, net of issuance costs 33,304 36,617 29,942 Net borrowings (repayments) under short-term debt agreements 172,315 150,024 (46,172) Advances and contributions for construction, net of refunds 31,565 43,121 38,719 Debt issuance costs (2,262) (5,376) (8,070) Repayment of long-term debt (46,800) (82,830) (75,042) Redemption of preferred stocks (41,118) (3,278) (2,438) Dividends paid (91,803) (83,354) (75,373) Purchase of common stock for treasury (4,616) (1,190) -- - ------------------------------------------------------------------------------ Net cash from financing activities 98,493 182,066 191,740 - ------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (14,529) 3,223 9,063 Cash and cash equivalents at beginning of year 43,100 39,877 30,814 - ------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 28,571 $ 43,10 $ 39,877 =================================== Cash paid during the year for: Interest, net of capitalized amount $ 196,841 $ 180,475 $ 169,044 =================================== Income taxes $ 57,725 $ 69,015 $ 75,510 ===================================
Common stock issued in lieu of cash in connection with the Employee Stock Ownership Plan, the Savings Plan for Employees and the 2000 Stock Award and Incentive Plan totaled $1,488 in 2000, $5,428 in 1999 and $6,854 in 1998. Common stock placed into treasury in connection with the Employee Stock Ownership Plan, the Savings Plan for Employees and the 2000 Stock Award and Incentive Plan totaled $4,872 in 2000 and $3,675 in 1999. Capital lease obligations of $1,590 were recorded in 1998. The accompanying notes are an integral part of these financial statements. 39 - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENT OF CAPITALIZATION (Dollars in thousands, except per share amounts) At December 31, 2000 1999 ============================================================================== COMMON STOCKHOLDERS' EQUITY: Common stock - $1.25 par value, authorized 300,000,000 shares, issued 98,819,845 shares in 2000 and 97,303,759 shares in 1999 $ 123,525 $ 121,630 Paid-in capital 454,568 424,434 Retained earnings 1,069,486 1,001,029 Accumulated other comprehensive income 25,303 92,461 Unearned compensation (359) (1,056) Treasury stock at cost - 129,216 shares in 2000 and 109,675 shares in 1999 (2,846) (3,700) - ------------------------------------------------------------------------------ 1,669,677 1,634,798 - ------------------------------------------------------------------------------ At December 31, 2000, common shares reserved for issuance in connection with the Company's stock plans were 80,865,863 shares for the Stockholder Rights Plan, 2,796,096 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 3,434,935 shares for the 2000 Stock Award and Incentive Plan. PREFERRED STOCKS WITH MANDATORY REDEMPTION REQUIREMENTS: Cumulative preferred stock - $25 par value, authorized 1,770,000 shares 8.5% series (non-voting), outstanding 1,600,000 shares, redeemed at par value on December 1, 2000 -- 40,000 - ------------------------------------------------------------------------------- PREFERRED STOCKS WITHOUT MANDATORY REDEMPTION REQUIREMENTS: Cumulative preferred stock - $25 par value 5% series (one-tenth of a vote per share), outstanding 101,777 shares 2,544 2,544 Cumulative preference stock - $25 par value, authorized 750,000 shares 5% series (non-voting), outstanding 365,158 shares 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 - ------------------------------------------------------------------------------- PREFERRED STOCKS OF SUBSIDIARIES: Dividend rate 3.9% to less than 5% 4,610 4,917 5% to less than 6% 4,669 4,726 6% to less than 7% 1,455 1,559 7% to less than 8% 3,984 4,034 8% to less than 9% 23,050 23,350 9% to less than 10% 3,112 3,272 10% to less than 11% 140 280 - ------------------------------------------------------------------------------- 41,020 42,138 - ------------------------------------------------------------------------------- Preferred stock agreements of certain subsidiaries require annual sinking fund payments in varying amounts and permit redemption at various prices at the option of the subsidiaries on thirty days notice, or in the event of involuntary liquidation, at par value plus accrued dividends. Sinking fund payments for the next five years will amount to $1,028 in 2001, $2,208 in 2002, $648 in 2003, $648 in 2004 and $648 in 2005. Redemptions of preferred stock amounted to $41,118 in 2000 and $3,278 in 1999. 40 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - --------------------------------------------------------------------------------
CURRENT MATURITIES 2000 1999 =================================================================================== LONG-TERM DEBT OF AMERICAN WATER WORKS COMPANY, INC.: 7.41% Series C debentures, due May 1, 2003 -- $ 81,000 $ 81,000 6.21% Series D debentures, due July 2, 2001 $ 50,000 -- 50,000 6.28% Series D debentures, due July 2, 2002 -- 10,000 10,000 6.28% Series D debentures, due July 2, 2003 -- 45,000 45,000 6.32% Series D debentures, due July 2, 2004 -- 15,000 15,000 7.02% Senior Notes, due August 1, 2005 2,000 8,000 10,000 - ----------------------------------------------------------------------------------- 52,000 159,000 211,000 - ----------------------------------------------------------------------------------- LONG-TERM DEBT OF SUBSIDIARIES: Interest rate 1% to less than 2% 368 16,913 8,486 3% to less than 4% 40 353 393 4% to less than 5% 442 3,552 3,994 5% to less than 6% 57 487,922 459,304 6% to less than 7% 440 513,182 513,628 7% to less than 8% 11,141 706,580 711,221 8% to less than 9% 68,200 113,200 177,900 9% to less than 10% 26,909 214,646 249,555 10% to less than 11% 1,347 53,352 54,699 - ----------------------------------------------------------------------------------- 108,944 2,109,700 2,179,180 Capital leases 451 2,465 2,917 - ----------------------------------------------------------------------------------- $109,395 2,112,165 2,182,097 - ----------------------------------------------------------------------------------- $3,993,535 $4,121,706 =======================
Maturities of long-term debt of subsidiaries, including sinking fund requirements, during the next five-years will amount to $109,395 in 2001, $134,494 in 2002, $80,433 in 2003, $47,810 in 2004 and $61,229 in 2005. Long-term debt of subsidiaries is substantially secured by utility plant and by a pledge of certain securities of subsidiaries and affiliates. The accompanying notes are an integral part of these financial statements. 41 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY (Dollars in thousands, except per share amounts)
Accumu- lated Other Common Compre- Unearned Stock- Common Stock Paid-in Retained hensive Compen- Treasury Stock holders' Shares Par Value Capital Earnings Income sation Shares At Cost Equity ======================================================================================================================== BALANCE AT DECEMBER 31, 1997 94,622,612 $118,278 $350,127 $870,368 $4,014 ($816) 800 ($25) $1,341,946 Net income -- -- -- 150,439 -- -- -- -- 150,439 Dividend reinvestment 249,250 312 7,082 -- -- -- -- - -- 7,394 Stock purchase 600,036 750 17,267 -- -- -- -- -- 18,017 Employees' stock ownership plan 95,499 119 2,903 -- -- -- -- - -- 3,022 Savings plan for employees 193,943 242 5,593 -- -- -- -- - -- 5,835 Incentive plan 70,450 88 1,283 -- -- (164) -- - -- 1,207 Other comprehensive income -- -- -- -- 29,124 -- -- -- 29,124 Dividends: Preferred stocks -- -- -- (3,984) -- -- -- -- (3,984) Common stock -- -- -- (71,389) -- -- -- -- (71,389) - ------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1998 95,831,790 119,789 384,255 945,434 33,138 (980) 800 (25) 1,481,611 Net income -- -- -- 138,949 -- -- -- -- 138,949 Dividend reinvestment 291,808 365 7,896 -- -- -- -- - -- 8,261 Stock purchase 839,288 1,050 22,714 -- -- -- -- -- 23,764 Employees' stock ownership plan 109,932 137 3,040 -- -- -- -- - -- 3,177 Savings plan for employees 200,153 251 5,699 -- -- -- -- - -- 5,950 Incentive plan 30,788 38 830 -- -- (76) -- - -- 792 Other comprehensive income -- -- -- -- 59,323 -- -- -- 59,323 Treasury stock -- -- -- -- -- -- 108,875 (3,675) (3,675) Dividends: Preferred stocks -- -- -- (3,984) -- -- -- -- (3,984) Common stock -- -- -- (79,370) -- -- -- -- (79,370) - ------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1999 97,303,759 121,630 424,434 1,001,029 92,461 (1,056) 109,675 (3,700) 1,634,798 Net income -- -- -- 161,061 -- -- -- -- 161,061 Dividend reinvestment 389,151 486 8,337 -- -- -- -- - -- 8,823 Stock purchase 1,029,257 1,287 22,256 -- -- -- -- -- 23,543 Employees' stock ownership plan 32,134 40 631 -- -- -- -- - -- 671 Savings plan for employees 65,544 82 1,293 -- -- -- -- - -- 1,375 Incentive plan -- -- (2,383) -- -- 697 -- -- (1,686) Other comprehensive income -- -- -- -- (67,158) -- -- -- (67,158) Treasury stock -- -- -- (801) -- -- 19,541 854 53 Dividends: Preferred stocks -- -- -- (3,700) -- -- -- -- (3,700) Common stock -- -- -- (88,103) -- -- -- -- (88,103) - ------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 2000 98,819,845 $123,525 $454,568 $1,069,486 $25,303 ($359) 129,216 ($2,846) $1,669,677 ================================================================================================
The accompanying notes are an integral part of these financial statements. 42 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) NOTE 1: ORGANIZATION AND OPERATION American Water Works Company, Inc. through its regulated and unregulated subsidiaries provides water and wastewater service in 23 states. As public utilities, its regulated subsidiaries function under rules and regulations prescribed by state regulatory commissions. The Company manages and operates water and wastewater facilities through its unregulated contract management subsidiary, American Water Services. This subsidiary had been operated as a joint venture until December 31, 1999 when the Company acquired its partner's interest (see Contract Management Business in Note 3). In addition, American Water Resources is a wholly owned subsidiary whose function is to provide water and wastewater related services and products. The Company, however, reflects one reportable segment for financial statement purposes as the Company's utility subsidiaries represent similar entities offering substantially identical water and wastewater services to similar customers. The Company's unregulated operations, primarily the contract management business, has not been reflected as a reportable segment as revenues, net income and assets associated with these operations are less than 10% of those for the Company as a whole. NOTE 2: SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent company and all of its subsidiaries. Intercompany accounts and transactions are eliminated. Prior to January 1, 2000 the results of operations of the Company's former contract management business joint venture were accounted for under the equity method of accounting (see Contract Management Business in Note 3). USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. REGULATION The utility subsidiaries have incurred various costs and received various credits which have been reflected as regulatory assets and liabilities on the Company's consolidated balance sheet. Accounting for such costs and credits as regulatory assets and liabilities is in accordance with Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). This statement sets forth the application of generally accepted accounting principles for those companies whose rates are established by or are subject to approval by an independent third-party regulator. Under SFAS 71, utility companies defer costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that those costs and credits will be recognized in the rate making process in a period different from the period in which they would have been reflected in income by an unregulated company. These deferred regulatory assets and liabilities are then reflected in the income statement in the period in which the same amounts are reflected in the rates charged for service. PROPERTY, PLANT AND EQUIPMENT Additions to utility plant and replacements of retirement units of property are capitalized. Costs include material, direct labor and such indirect items as engineering and supervision, payroll taxes and benefits, transportation and an allowance for funds used during construction. The costs incurred to acquire and internally develop computer software for internal use are capitalized as a unit of property. Repairs, maintenance and minor replacements of property are charged to current operations. The cost of property units retired in the ordinary course of business plus removal cost (less salvage) is charged to accumulated depreciation. The cost of property, plant and equipment is generally depreciated using the straight-line method over the estimated service lives of the assets. The depreciation rates, based on the average balance of depreciable property, were 2.54% in 2000, 2.51% in 1999 and 2.51% in 1998. Utility plant acquisition adjustments include the difference between the purchase price of utility plant and its original cost (less accumulated depreciation) and are generally being amortized over a period of 40 years. The excess of cost of investments in subsidiaries over book equity at acquisition includes $33,000 of goodwill associated with the Company's acquisition of its joint venture partner's interest in the contract management business that is being amortized over a period of 20 years (see Contract Management Business in Note 3). The balance of the excess cost of investments in subsidiaries is primarily attributable to various acquisitions of utility subsidiaries that occurred prior to October 31, 1970, and it is not being amortized because, in the opinion of management, there has been no diminution in value. CASH AND CASH EQUIVALENTS Substantially all of the Company's cash is invested in interest bearing accounts. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist primarily of investment grade commercial paper, bank certificates of deposit and United States Government securities. Cash equivalents are stated at cost plus accrued interest which approximates market value. 43 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) MATERIALS AND SUPPLIES Materials and supplies are stated at average cost. REGULATORY ASSETS The Company has recorded a regulatory asset for the additional revenues expected to be realized as the tax effects of temporary differences previously flowed through to customers reverse. These temporary differences are primarily related to the difference between book and tax depreciation on property placed in service before the adoption by the regulatory authorities of full normalization for rate making purposes. The regulatory asset for income taxes recoverable through rates is net of the reduction expected in future revenues as deferred taxes previously provided, attributable to the difference between the state and federal income tax rates under prior law and the current statutory rates, reverse over the average remaining service lives of the related assets. Debt expense is amortized over the lives of the respective issues. Call premiums on the redemption of long-term debt, as well as unamortized debt expense, are deferred and amortized to the extent they will be recovered through future service rates. Expenses of preferred stock issues without sinking fund provisions are amortized over 30 years from date of issue; expenses of issues with sinking fund provisions are charged to operations as shares are retired. Pension expense in excess of the amount contributed to the pension plans is deferred by certain subsidiaries. These costs will be recovered in future service rates as contributions are made to the pension plan. Postretirement benefit expense in excess of the amount recovered in rates through 1997 has been deferred by certain subsidiaries. These costs are now recognized in the rates charged for water service and will be fully recovered over a 20-year period ending in 2012 as authorized by the regulatory authorities. Deferred treatment plant costs consist of operating expenses, including depreciation and property taxes, and the carrying charges associated with several water treatment plants and related facilities from the time the assets were placed in service until recovery of such costs is allowed in future service rates. These costs have been recognized in the rates charged for water service and are being amortized over a 10-year period as authorized by the regulatory authorities. Deferred business services project expenses consist of reengineering and start-up activities for consolidated customer and shared administrative service centers that are being established. These costs are being deferred as it is expected that these costs will be recovered in the rates charged for utility service in the future. Tank painting costs are generally deferred and amortized to current operations on a straight-line basis over periods ranging from 4 to 20 years, as authorized by the regulatory authorities in their determination of rates charged for service. OTHER INVESTMENTS AND ACCUMULATED OTHER COMPREHENSIVE INCOME Other investments include primarily equity securities of publicly and privately held companies. Investments in publicly traded securities are classified as available for sale and are recorded in the balance sheet at fair market value with the change in market value, net of the tax effect, recorded as part of comprehensive income. Investments in privately held companies are carried at cost. The principal publicly traded investments are approximately 4,000,000 shares of ITC/\ DeltaCom, Inc. (NASDQ: ITCD), 600,000 shares of Powertel, Inc. (NASDQ: PTEL) and 50,000 shares of SJW Corp. (AMEX: SJW). The cost basis of these publicly traded securities is $23,027, and the fair value of these investments is determined using quoted market prices. There were no realized gains or losses recorded for any of the years presented below, as the Company did not sell any of the securities during those years.
2000 1999 1998 =========================================================================== Beginning balance $92,461 $33,138 $ 4,014 Unrealized gain (loss) on securities (113,552) 102,604 47,083 Income taxes on other comprehensive income 46,394 (43,281) (17,959) - --------------------------------------------------------------------------- Ending balance $25,303 $92,461 $33,138 =============================
The Company has equity investments in ITC Holding Company, Inc., Knology, Inc. and United States Sugar Corporation that are not publicly traded. The cost basis of these securities was $9,554 at December 31, 2000. OTHER CURRENT LIABILITIES Other current liabilities at December 31, 2000 and 1999 include payables to banks of $17,288 and $21,621 respectively, which represent checks issued but not presented to banks for payment, net of the related bank balance. ADVANCES AND CONTRIBUTIONS IN AID OF CONSTRUCTION Utility subsidiaries may receive advances and contributions to fund construction necessary to extend service to new areas. As determined by the regulatory authorities, advances for construction are refundable for limited periods of time as new customers begin to receive service. Amounts which are no longer refundable are reclassified to contributions in aid of construction. Utility plant funded by advances and contributions is excluded from rate base and is generally not depreciated for rate making purposes. Generally, advances and contributions received during the period January 1, 1987 through June 12, 1996 have been included in taxable income and the related property is depreciable for tax purposes. As a result of a tax law change, advances and contributions received subsequent to June 12, 1996 are excluded from taxable income and the related property is not depreciable for tax purposes. 44 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ On January 11, 2001 the Internal Revenue Service issued regulations that excluded lateral service lines from its definition of contributions in aid of construction that are not included in taxable income. These customer connection fees are defined as the cost of installing a connection or service line from the Company's main lines to the lines owned by the customer. The regulations were effective immediately, and the Company is now paying tax on money or property received for these connections. RECOGNITION OF REVENUES Revenues of the regulated utility subsidiaries include amounts billed to customers on a cycle basis and unbilled amounts based on estimated usage from the date of the latest meter reading to the end of the accounting period. Revenue from American Water Services' long-term service contracts is recognized over the contract term based on the percentage of costs incurred during the period compared to the total estimated costs to be incurred over the entire contract. Losses on contracts are recognized during the period in which the loss first becomes known. Revenue in excess of billings on service contracts are recorded as unbilled revenue. Billings in excess of revenues recognized on service contracts are recorded as a liability on the Company's balance sheet until the above revenue recognition criteria are met. Changes in contract performance and related estimated contract profitability may result in revisions to costs and revenues and are recognized in the period in which revisions are determined. INCOME TAXES The Company and its subsidiaries participate in a consolidated federal income tax return. Federal income tax expense for financial reporting purposes is provided on a separate return basis, except that the federal income tax rate applicable to the consolidated group is applied to separate company taxable income and the benefit of net operating losses, principally at the parent company level, is recognized currently. Certain income and expense items are accounted for in different time periods for financial reporting than for income tax reporting purposes. Deferred income taxes have been provided on the difference between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements. These deferred income taxes are based on the enacted tax rates to be in effect when such temporary differences are expected to reverse. The utility subsidiaries also recognize regulatory assets and liabilities for the effect on revenues expected to be realized as the tax effects of temporary differences previously flowed through to customers reverse. Investment tax credits have been deferred and are being amortized to income over the average estimated service lives of the related assets. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) AFUDC is a non-cash credit to income with a corresponding charge to utility plant which represents the cost of borrowed funds and a return on equity funds devoted to plant under construction. The utility subsidiaries record AFUDC to the extent permitted by the regulatory authorities. ENVIRONMENTAL COSTS Environmental expenditures that relate to current operations or provide a future benefit are expensed or capitalized as appropriate. Remediation costs that relate to an existing condition caused by past operations are accrued when it is probable that these costs will be incurred and can be reasonably estimated. ASSET IMPAIRMENT Long-lived assets and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets, on a separate entity basis, may not be recoverable. If the sum of the future cash flows expected to result from the use of the assets and their eventual disposition is less than the carrying amount of the assets, an impairment loss is recognized. Measurement of an impairment loss is based on the fair value of the assets. A regulatory asset is charged to earnings if and when future recovery in rates of that asset is no longer probable. EARNINGS PER SHARE The average number of shares used to calculate diluted earnings per share includes 4,784, 51,837 and 57,831 of potential common shares issuable in connection with the long-term incentive program in 2000, 1999 and 1998, respectively, and 45,227 potential common shares for employee stock options in 2000 (see Note 9). 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), as amended. 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. The adoption of this new accounting standard is not expected to have a significant 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. 45 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) RECLASSIFICATION Certain reclassifications have been made to conform previously reported data to the current presentation. NOTE 3: ACQUISITIONS NATIONAL ENTERPRISES INC. On June 25, 1999, the Company completed the acquisition of National Enterprises Inc., a privately owned company, in a transaction valued at $700,000. 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 National Enterprises and the assumption of $241,000 of debt. Subsidiaries of National Enterprises provided water service to approximately 504,000 customers in Missouri, Illinois, Indiana and New York. National Enterprises also had passive investments in the telecommunications industry owning 4,000,000 shares of ITC/\DeltaCom, Inc. and 600,000 shares of Powertel, Inc. as well as an interest in privately held ITC Holding Company, Inc. This business combination has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements for periods prior to the combination were restated to include the accounts and results of operations of National Enterprises. During 1999 the Company recorded a charge of $20,535, and related tax benefits of $7,630, reflecting the one-time costs incurred in connection with the merger. The merger related costs consist primarily of severance costs as well as vesting of certain benefits, professional fees and other costs. 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 $50,000 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 $32,000. This business, which now operates as American Water Services, manages and operates 175 water and wastewater facilities in nine states. Effective January 1, 2000 the results of operations of American Water Services are being reported on a consolidated basis. Previously, the results of the joint venture were being accounted for under the equity method. HAWAII WASTEWATER SYSTEM On April 1, 1998, the Company acquired East Honolulu Community Services, Inc. ("EHCS"), a suburban Honolulu wastewater utility located on the eastern tip of Oahu, Hawaii. The Company acquired this system for $17,300 from Maunalua Associates, Inc., a subsidiary of Kemper Corporation. This utility, now operating as Hawaii-American Water Company, provides wastewater service to approximately 10,000 customers in the community of Hawaii Kai. NOTE 4: PENDING ACQUISITIONS WATER AND WASTEWATER ASSETS OF CITIZENS COMMUNICATIONS COMPANY 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 $835,000 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 $110,000. Regulatory agencies in Pennsylvania, Indiana and Ohio have approved the acquisition of Citizen's water and wastewater assets in those states and evidentiary hearings have been completed in Arizona and Illinois. Decisions are anticipated in Arizona during the first quarter of 2001, in Illinois during the second quarter of 2001 and in California during the third quarter of 2001. The Office of Ratepayer Advocates of the California Public Utilities Commission (CPUC) issued a report on October 16, 2000 opposing the Company's acquisition of the California water and wastewater assets of Citizens. The Company strongly disagrees with this report and has filed rebuttal testimony with the CPUC contesting the report's analysis and conclusions. Members of the staff of the Illinois Commerce Commission have also submitted testimony opposing the Citizens acquisition. 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. 46 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ 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. 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 $48,000. These systems provide water service to 8,600 customers and wastewater service to 6,500 customers. It is expected that the transaction will be completed in the first quarter of 2001. NOTE 5: UTILITY PLANT The components of utility plant by category at December 31 are as follows: 2000 1999 ========================================================================= Water plant Sources of supply $ 287,892 $ 262,662 Treatment and pumping 1,467,320 1,336,457 Transmission and distribution 2,935,265 2,768,971 Services, meters and fire hydrants 1,062,997 994,843 General structures and equipment 476,632 421,621 Wastewater plant 81,716 72,606 Construction work in progress 167,397 234,823 - ------------------------------------------------------------------------- 6,479,219 6,091,983 Less-accumulated depreciation 1,276,386 1,152,575 - ------------------------------------------------------------------------- $5,202,833 $4,939,408 ======================== NOTE 6: DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The Company's Dividend Reinvestment and Stock Purchase Plan provides for optional cash purchases of newly issued common stock of the Company. In addition to permitting record holders of common stock to have all or part of their dividends automatically reinvested in additional shares of common stock, the plan permits stockholders to purchase up to five thousand dollars of common stock each month directly from the Company. NOTE 7: SHAREHOLDERS RIGHTS PLAN 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. Each Right under the amended plan entitles shareholders to buy one share of the Company's common stock at an exercise price of $150. Each Right entitles its holder to purchase, at the Right's then-current exercise price, shares of the Company's common stock, or a number of shares of an acquiring company's stock, which would have a market value of two times the exercise price. The Rights become exercisable if there is a public announcement that a person or group acquires, or commences a tender offer to acquire, 10% or more of the outstanding shares of the Company. The Rights also become exercisable if the Company is acquired in a merger or a person or group acquires 10% or more of the outstanding shares of the Company. The Rights are redeemable, in whole, but not in part, by the Company at a price of $.0005 per Right under certain circumstances. The Rights do not have voting or dividend rights and, until they become exercisable, have no dilutive effect on the earnings per share of the Company. 47 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) NOTE 8: EMPLOYEE BENEFITS PENSION AND OTHER POSTRETIREMENT BENEFITS The Company maintains noncontributory defined benefit pension plans covering substantially all associates. Benefits under the plans are based on the associate's years of service and compensation. The Company's funding policy is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974. Pension plan assets are invested in a number of investments including equity mutual funds, United States Government securities, guaranteed interest contracts with a major insurance company and publicly traded bonds. The Company realized a $16,574 settlement gain in 2000 in connection with the purchase of non-participating annuity contracts to cover vested benefits of certain retirees. These benefits had previously been provided through an immediate participation guarantee contract. Pension expense in excess of the amount contributed to the pension plans is deferred by certain regulated subsidiaries pending future recovery in rates charged for water services as contributions are made to the plans (see Regulatory Assets in Note 2). These subsidiaries have recorded their portion of the settlement gain as a reduction of the regulatory asset. The Company also has several unfunded noncontributory supplemental non-qualified pension plans that provide additional retirement benefits to certain associates of the Company and its subsidiaries. The Company maintains postretirement benefit plans providing varying levels of medical and life insurance to eligible retirees. The adoption of a new accounting standard for other postretirement benefits caused a transition obligation of $143,391 at January 1, 1993 which is being amortized over 20 years. The Company's policy is to fund postretirement benefit costs accrued. Plan assets are invested in equity and bond mutual funds. Other Pension Postretirement Benefits Benefits 2000 1999 2000 1999 ============================================================================== CHANGE IN BENEFIT OBLIGATION Benefit obligation at January 1 $548,074 $607,065 $204,441 $208,387 Service cost 14,198 17,614 6,728 7,581 Interest cost 39,952 41,151 16,455 14,938 Plan participants' contributions -- -- 1,080 875 Amendments -- 1,271 637 -- Actuarial (gain) loss 51,057 (94,959) 20,864 (18,192) Acquisitions 374 -- 1,035 -- Settlement (212,660) -- -- -- Benefits paid (17,532) (24,068) (11,047) (9,148) - ------------------------------------------------------------------------------ Benefit obligation at December 31 $423,463 $548,074 $240,193 $204,441 ============================================ CHANGE IN PLAN ASSETS Fair value of plan assets at January 1 $598,302 $556,668 $148,014 $117,351 Actual return on plan assets 7,404 64,463 (3,341) 18,343 Employer contribution 1,109 1,239 15,641 20,593 Plan participants' contributions -- -- 1,080 875 Settlement (212,660) -- -- -- Acquisitions 374 -- -- -- Benefits paid (17,532) (24,068) (11,047) (9,148) Other 3,776 -- -- -- - ------------------------------------------------------------------------------ Fair value of plan assets at December 31 $380,773 $598,302 $150,347 $148,014 ============================================ Funded status at December 31 ($42,690) $ 50,228 ($89,846) ($56,427) Unrecognized net transition obligation (asset) (2,554) (6,698) 81,681 88,556 Unrecognized prior service cost 7,356 10,163 6,249 5,393 Unrecognized net actuarial gain (12,526) (116,788) (12,014) (49,993) - ------------------------------------------------------------------------------ Net amount recognized ($50,414) ($63,095) ($13,930) ($12,471) ============================================ Amounts recognized in the balance sheet consist of: Prepaid benefit cost $ 439 $ 274 $ -- $ 23 Accrued benefit liability (50,853) (63,369) (13,930) (12,494) Additional minimum liability (1,078) (1,048) -- -- Intangible asset 1,078 1,048 -- -- - ------------------------------------------------------------------------------ Net amount recognized ($50,414) ($63,095) ($13,930) ($12,471) ============================================ 48 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ The projected benefit obligation and accumulated benefit obligation for pension plans with accumulated benefit obligations in excess of plan assets (the supplemental plans are unfunded) were $21,847 and $18,131, respectively, as of December 31, 2000, and $16,787 and $14,414, respectively, as of December 31, 1999. 2000 1999 1998 ============================================================================== COMPONENTS OF NET PERIODIC PENSION BENEFIT COST Service cost $14,198 $17,614 $16,541 Interest cost 39,952 41,151 39,079 Expected return on plan assets (44,146) (46,387) (43,357) Amortization of transition asset (1,828) (2,159) (2,159) Amortization of prior service cost 2,405 2,312 2,230 Recognized net actuarial (gain) loss (5,580) 19 (964) - ------------------------------------------------------------------------------ Net periodic pension benefit cost 5,001 12,550 11,370 Settlement gain (16,574) -- -- - ------------------------------------------------------------------------------ Total pension (income) cost ($11,573) $12,550 $11,370 ================================== COMPONENTS OF NET PERIODIC OTHER POSTRETIREMENT BENEFIT COST Service cost $ 6,728 $ 7,581 $ 6,224 Interest cost 16,455 14,938 13,452 Expected return on plan assets (11,976) (9,759) (7,808) Amortization of transition obligation 6,812 6,812 6,813 Amortization of prior service cost 455 458 458 Recognized net actuarial (gain) loss (2,407) 213 (699) - ------------------------------------------------------------------------------ Net periodic other postretirement benefit cost $16,067 $20,243 $18,440 ================================== Other Pension Postretirement Benefits Benefits 2000 1999 2000 1999 ============================================================================== WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate 7.50% 8.00% 7.50% 8.00% Expected return on plan assets 9.00% 8.50% 8.30% 7.90% Rate of compensation increase 4.75% 4.75% 4.75% 4.75% The health care cost trend rate, used to calculate the Company's cost and obligation for postretirement health care benefits, is an 8.0% annual rate in 2001 that is assumed to decrease gradually to a 5.0% annual rate in 2007 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement benefit plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects: One-Percentage- One-Percentage- Point Increase Point Decrease ============================================================================== Effect on total of service and interest cost components $ 3,497 $ (2,933) Effect on other postretirement benefit obligation $30,996 $(26,626) SAVINGS PLANS FOR EMPLOYEES The Company maintains 401(k) savings plans that allow substantially all associates to save for retirement on a tax-deferred basis. Compensation expense associated with these savings plans was $3,373 in 2000, $3,491 in 1999 and $3,391 in 1998. Included in the above expenses were the Company's matching contributions to the primary savings plan totaling $2,958 for 2000, $2,781 for 1999 and $2,705 for 1998 that are invested in a fund of Company common stock. The trustee of this plan may purchase shares of the Company's common stock at the prevailing market price from the Company, in the open market, or in a private transaction. EMPLOYEES' STOCK OWNERSHIP PLAN The Company maintains an Employees' Stock Ownership Plan which provides for beneficial ownership of Company common stock by most associates who are not included in a bargaining unit. Each participating associate can elect to contribute an amount that does not exceed 2% of their wages. In addition to the associate's participation, the Company makes a contribution equivalent to 1/2% of each participant's qualified compensation, and matches 100% of the contribution by each participant. The Company recorded as an expense contributions of $1,765 for 2000, $1,805 for 1999 and $1,706 for 1998 that it made to the plan. The trustee of the plan may purchase shares of the Company's common stock from the Company, in the open market, or in a private transaction. 49 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) NOTE 9: STOCK-BASED COMPENSATION On May 4, 2000 the Company's shareholders approved the 2000 Stock Award and Incentive Plan (2000 Plan). The Plan replaced the Company's previous Long-Term Performance-Based Incentive Plan (Previous Plan) that had been in effect since 1994. Under the Previous Plan, awards could be paid in the form of cash, restricted shares of common stock, or a combination of both. The 2000 Plan allows the Company to continue to grant long-term performance-based awards similar to those that could be paid under the Previous Plan, and also authorizes a broad range of other awards, including options, reload options, deferred stock, performance awards, stock appreciation rights and other stock-based awards, as well as cash-based awards. Up to 4,276,551 shares of common stock may be issued under the 2000 Plan, of which 3,434,935 shares were available to be granted at December 31, 2000. STOCK OPTIONS On May 4, 2000 the Board of Directors approved the issuance of non-qualified stock options to executives and other key associates as permitted under the 2000 Plan. Under this plan the options generally are granted at prices not less than the market value of the stock at the date of grant, become exercisable ratably over a three-year period beginning one-year from the date of grant, and expire ten years from the date of grant. The options immediately vest in the event of a change in control. The Company applies the intrinsic value-based methodology in accounting for stock options. Accordingly, no compensation expense has been recognized for stock option awards. Had compensation cost for stock option awards under the 2000 Plan been determined by using the fair value at the grant date, the Company's net income, basic and diluted earnings per share would have been $158,996, $1.58 and $1.58, respectively, for the year ended December 31, 2000. The foregoing impact of compensation cost was determined using a modified Black-Scholes methodology and the following assumptions: Risk-Free Weighted Expected Interest Average Expected Dividend Fair Value at Rate Expected Life Volatility Yield Grant Date ================================================================== 6.58% 7 years 28.70% 3.99% $22.58 Option activity was as follows for the year ended December 31, 2000: Options to Weighted- Purchase Average Shares Exercise Price ========================================================== Outstanding at January 1, 2000 -- -- Granted 809,806 $22.58 Exercised -- -- Cancelled (28,175) (22.56) - ---------------------------------------------------------- Outstanding at December 31, 2000 781,631 $22.58 ======================== In 2000, a total of 195,706 options were granted under the Company's long-term incentive program for the three-year performance cycle beginning on January 1, 2000. Also in 2000, all of the participants in the long-term incentive program's three-year performance cycles beginning on January 1, 1998 and 1999 accepted the opportunity to relinquish their participation in those cycles in exchange for a total of 614,100 options. There were 19,975 exercisable at December 31, 2000. RESTRICTED STOCK Under the 2000 Plan and the Previous Plan, designated executives and other key associates are eligible to receive restricted stock awards if performance cycle goals based on earnings-per-share growth and total return to Company shareholders in comparison to a designated peer group of companies are met. The fair value of the restricted stock is being charged to expense over each three-year performance cycle. The Company awarded 19,796 shares with a value of $380 in 2000, 30,788 shares with a value of $893 in 1999, and 70,450 shares with a value of $2,069 in 1998. The market value of the common stock expected to be awarded has been recorded as unearned compensation and is shown as a separate component of common stockholders' equity. 50 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ NOTE 10: GENERAL TAXES Components of general tax expense for the years presented in the consolidated statement of income and comprehensive income are as follows: 2000 1999 1998 ============================================================================== Gross receipts and franchise $ 43,425 $ 41,839 $ 40,014 Property and capital stock 55,680 53,458 53,705 Payroll 16,243 18,445 16,911 Other general 9,871 8,932 7,502 - ------------------------------------------------------------------------------ $125,219 $122,674 $118,132 ================================== NOTE 11: INCOME TAXES Components of income tax expense for the years presented in the consolidated statement of income and comprehensive income are as follows: 2000 1999 1998 ============================================================================== STATE INCOME TAXES: Current $14,265 $10,483 $10,517 Deferred Current 30 199 (24) Non-current 3,158 3,600 3,082 - ------------------------------------------------------------------------------ $17,453 $14,282 $13,575 ================================= FEDERAL INCOME TAXES: Current $63,545 $47,858 $54,961 Deferred Current 35 1,449 172 Non-current 25,826 29,248 28,277 Amortization of deferred investment tax credits (1,553) (1,437) (1,437) - ------------------------------------------------------------------------------ $87,853 $77,118 $81,973 ================================= A reconciliation of income tax expense at the statutory federal income tax rate to actual income tax expense is as follows: 2000 1999 1998 ============================================================================== Income tax at statutory rate $ 93,228 $80,622 $86,095 Increases (decreases) resulting from - State taxes, net of federal taxes 11,345 9,283 8,824 Flow through differences 1,736 1,708 1,311 Amortization of investment tax credits (1,553) (1,437) (1,437) Subsidiary preferred dividends 1,088 1,144 1,177 Other, net (538) 80 (422) - ------------------------------------------------------------------------------ Actual income tax expense $105,306 $91,400 $95,548 ================================== The following table provides the components of the net deferred tax liability at December 31: 2000 1999 ============================================================================== DEFERRED TAX ASSETS Advances and contributions $197,390 $185,424 Deferred investment tax credits 16,324 16,731 Other 31,932 32,637 - ------------------------------------------------------------------------------ 245,646 234,792 - ------------------------------------------------------------------------------ DEFERRED TAX LIABILITIES Utility plant, principally due to depreciation 700,627 647,964 Income taxes recoverable through rates 93,307 93,167 Other comprehensive income 16,180 62,574 Other 40,875 41,547 - ------------------------------------------------------------------------------ 850,989 845,252 - ------------------------------------------------------------------------------ $605,343 $610,460 ======================= No material valuation allowances were required on deferred tax assets at December 31, 2000 and 1999. NOTE 12: LEASES The Company has entered into operating leases involving certain facilities and equipment. Rental expenses under operating leases were $16,532 for 2000, $15,192 for 1999 and $13,037 for 1998. Capital leases currently in effect are not significant. At December 31, 2000, the minimum annual future rental commitment under operating leases that have initial or remaining noncancellable lease terms in excess of one year are $9,735 in 2001, $8,052 in 2002, $5,633 in 2003, $3,537 in 2004, $2,304 in 2005 and $8,245 thereafter. NOTE 13: REVOLVING CREDIT AGREEMENTS On June 26, 2000 the American Water Works Company announced the formation of a new wholly owned subsidiary, American Water Capital Corp., a special purpose corporation that will serve as the primary funding vehicle for American Water Works and its utility subsidiaries. American Water Works has fully and unconditionally guaranteed the securities of American Water Capital. 51 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) American Water Capital has a 364-day $600,000 revolving credit agreement with a group of 12 domestic and international banks. The initial renewal date for this facility is June 29, 2001. Borrowing under the revolving credit line, at the Company's option, bears interest at a rate based upon either a defined base rate or the London Interbank Offered Rate (LIBOR). The Company pays a commitment fee of 10 basis points on the entire amount of the commitment (whether borrowed or not borrowed) and a usage fee of 32.5 basis points (42.5 basis points if borrowings exceed $200,000). These fees may fluctuate based upon the Company's current bond rating. Under the credit agreement, the Company must maintain certain financial ratios and meet certain balance sheet tests. No compensating balances are required under the agreement. During 2000 the Company and its subsidiaries also maintained lines of credit with various banks, most of which were replaced by American Water Capital's credit agreement. Borrowings under such lines of credit generally are payable on demand and bear interest at variable rates. Agreements with lending banks generally do not have compensating balance requirements. At December 31, 2000 and 1999, there were $412,179 and $239,864 of short-term bank borrowings outstanding, respectively. The weighted average annual interest rate on these borrowings was 7.02% and 5.37%, respectively. At December 31, 2000, American Water Capital had $170,367 outstanding under commercial paper borrowings, all of which was classified as short-term debt. American Water Capital's revolving credit agreement supports these borrowings. Commercial paper borrowings at December 31, 2000 had a weighted-average interest rate of 7.31%. The total of the unused lines of credit and commercial paper borrowings at December 31, 2000 was $218,821. NOTE 14: FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Current assets and current liabilities: The carrying amount reported in the balance sheet for current assets and current liabilities, including revolving credit debt due to the short-term maturities and variable interest rates, approximates their fair values. Preferred stocks with mandatory redemption requirements and long-term debt: The fair values of the Company's preferred stocks with mandatory redemption requirements and long-term debt are estimated using discounted cash flow analyses based on the Company's current incremental financing rates for similar types of securities. The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows: CARRYING 2000 AMOUNT FAIR VALUE ============================================================================== Preferred stocks of subsidiaries with mandatory redemption requirements $32,902 $34,395 Long-term debt of the Company 211,000 211,211 Long-term debt of subsidiaries 2,218,644 2,267,171 CARRYING 1999 AMOUNT FAIR VALUE ============================================================================== Preferred stocks of the Company with mandatory redemption requirements $40,000 $40,668 Preferred stocks of subsidiaries with mandatory redemption requirements 34,020 33,959 Long-term debt of the Company 211,000 205,793 Long-term debt of subsidiaries 2,217,112 2,126,890 52 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES - ------------------------------------------------------------------------------ NOTE 15: COMMITMENTS AND CONTINGENCIES Construction programs of subsidiaries for 2001 are estimated to cost approximately $410,000. Commitments have been made in connection with certain construction programs. The Company is routinely involved in condemnation proceedings and legal actions relating to several utility subsidiaries. In the opinion of management, none of these matters will have a material adverse effect, if any, on the financial position or results of operations of the Company. NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 2000 and 1999 are as follows: FIRST SECOND THIRD FOURTH 2000 QUARTER QUARTER QUARTER QUARTER ============================================================================== Operating revenues $307,759 $346,409 $364,125 $332,297 Operating income 90,448 120,011 136,135 109,584 Net income 27,083 45,139 50,731 38,108 Net income to common stock 26,087 44,143 49,735 37,396 Net income per common share $ .27 $ .45 $ .51 $ .38 FIRST SECOND THIRD FOURTH 1999 QUARTER QUARTER QUARTER QUARTER ============================================================================== Operating revenues $277,416 $318,975 $353,578 $310,888 Operating income 74,928 111,298 136,343 97,025 Net income 20,422 33,122 52,847 32,558 Net income to common stock 19,426 32,126 51,851 31,562 Net income per common share $ .20 $ .33 $ .54 $ .33 53 COMPANY INFORMATION RANGE OF MARKET PRICES AWK is the trading symbol of American Water Works Company, Inc. on the New York Stock Exchange on which the Common Stock, 5% Preferred Stock and 5% Preference Stock of the Company are traded.
Common Stock 5% Preferred Stock 5% Preference Stock - ------------------------------------------------------------------------------- Newspaper listing AmWtrWks A Wat pr A Wat pf - ------------------------------------------------------------------------------- 2000 High Low High Low High Low =============================================================================== 1st quarter $24-1/2 $18-15/16 $18 $17 $18-3/4 $16 2nd quarter 25-3/4 21-1/8 19-1/2 17 20-1/2 17 3rd quarter 27-7/8 23-3/4 19-1/2 17-1/2 19-1/2 17-3/4 4th quarter 29-3/8 23-5/16 19-1/2 18 19-1/2 17-3/4
Quarterly dividend paid per share $.225 $.3125 $.3125 Number of shareholders at December 31, 2000 41,391 172 590
- ------------------------------------------------------------------------------- 1999 High Low High Low High Low =============================================================================== 1st quarter $34-3/4 $28-1/4 $24 $20 $23-1/2 $21 2nd quarter 31-7/16 27-1/2 22-1/2 20-1/2 22-1/2 19 3rd quarter 31-7/16 28-1/8 21-1/2 18-1/2 21-1/4 19-3/16 4th quarter 30 20-1/2 21-1/2 17-1/4 21 17-1/4
Quarterly dividend paid per share $.215 $.3125 $.3125 Number of shareholders at December 31, 1999 43,577 198 645 - -------------------------------------------------------------------------------
The common and 5% preferred stocks have voting rights. OPTIONS TRADING Options for Company stock (AWK) are traded on the Philadelphia Stock Exchange (Newspaper listing: PB). 57 EX-21 5 a2043162zex-21.txt EXHIBIT 21 EXHIBIT 21 AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES SUBSIDIARIES OF THE REGISTRANT The following list includes the Registrant and all of its subsidiaries as of December 31, 2000. The voting stock of each company shown indented is owned, to the extent indicated by the percentage, by the company immediately above which is not indented to the same degree. All subsidiaries of the Registrant appearing in the following table are included in the consolidated financial statements of the Registrant and its subsidiaries.
Percentage State of Voting Stock Name of Company Incorporation Owned --------------- ------------- ----------- American Water Works Company, Inc. American Water Capital Corp. Delaware 100 American Water Resources, Inc. Virginia 100 AmericanAnglian Canada Company Canada 100 American Water Services, Inc. Delaware 100 AmericanAnglian Environmental Technologies, Inc. Delaware 100 AmericanAnglian Environmental Technologies, L.P. Delaware 100 American Water Works Service Company, Inc. Delaware 100 Arizona-American Water Company Arizona 100 California-American Water Company California 100 Greenwich Water System, Inc. Delaware 100 Connecticut-American Water Company Connecticut 100 Hampton Water Works Company New Hampshire 100 Massachusetts-American Water Company Massachusetts 100 New York-American Water Company, Inc. New York 100 The Salisbury Water Supply Company Massachusetts 100 Hawaii-American Water Company Nevada 100 Illinois-American Water Company Illinois 99.9 Indiana-American Water Company, Inc. Indiana 100 Iowa-American Water Company Delaware 95.84 Kentucky-American Water Company Kentucky 100 Long Island Water Corporation New York 100 Maryland-American Water Company Maryland 100 Massachusetts Capital Resources Company Delaware 100 Michigan-American Water Company Michigan 100 Missouri-American Water Company Missouri 100 Jefferson City Water Works Company, Inc. Missouri 100 New Jersey-American Resources Company New Jersey 100 New Jersey-American Water Company, Inc. New Jersey 100 New Mexico-American Water Company, Inc. New Mexico 99.99 Ohio-American Water Company Ohio 100 Pennsylvania-American Water Company Pennsylvania 96.06* SJW Acquisition Corp. Delaware 100 St. Louis County Water Company Missouri 100 Tennessee-American Water Company Tennessee 99.89 Virginia-American Water Company Virginia 100 United Water Virginia, Inc. Virginia 100 West Virginia-American Water Company West Virginia 99.97 Bluefield Valley Water Works Company Virginia 100
- --------------------------------------------------------------------------- * Includes 2.27% which is owned by Greenwich Water System, Inc., an affiliate of the Registrant. -----END PRIVACY-ENHANCED MESSAGE-----