<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2000 COMMISSION FILE NO. 001-15065
AZURIX CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0589114
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
333 CLAY STREET
SUITE 1000
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (713) 646-6001
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
TITLE OF CLASS OUTSTANDING AT JULY 31, 2000
Common Stock 117,333,765
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AZURIX CORP.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three months and six months ended
June 30, 1999 and 2000 (unaudited).............................................................. 2
Consolidated Balance Sheets as of December 31, 1999 and June 30, 2000 (unaudited)................. 3
Consolidated Statements of Cash Flows for the six months ended
June 30, 1999 and 2000 (unaudited).............................................................. 4
Notes to the Consolidated Financial Statements (unaudited)........................................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 17
Item 4. Submission of Matters to Vote of Security Holders........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................................................ 18
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AZURIX CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
1999 2000 1999 2000
------- ------- -------- -------
<S> <C> <C> <C> <C>
Operating revenues.............................................. $ 131.3 $ 189.2 $ 248.2 $ 383.8
Operating expenses:
Operations and maintenance................................... 37.5 91.4 68.7 174.0
General and administrative................................... 32.0 34.8 55.2 71.3
Depreciation and amortization................................ 24.1 30.9 47.4 62.5
------- ------- -------- -------
Total operating expenses................................. 93.6 157.1 171.3 307.8
------- ------- -------- -------
Operating income................................................ 37.7 32.1 76.9 76.0
------- ------- -------- -------
Other income (expense):
Equity in earnings of unconsolidated affiliates.............. 0.3 2.3 0.5 3.2
Interest expense, net.................................... ... (15.4) (29.9) (30.3) (58.0)
------- ------- -------- -------
Income before minority interest, income taxes and
extraordinary item........................................... 22.6 4.5 47.1 21.2
------- ------- -------- -------
Minority interest............................................... -- (0.6) -- (1.2)
Income tax expense.............................................. 2.4 2.1 10.8 8.0
------- ------- -------- -------
Income before extraordinary item................................ 20.2 3.0 36.3 14.4
------- ------- -------- -------
Extraordinary loss, net of income tax benefit of $3.0........... 6.8 -- 6.8 --
------- ------- -------- -------
Net income...................................................... $ 13.4 $ 3.0 $ 29.5 $ 14.4
======= ======= ======== =======
Earnings per share of common stock:
Before extraordinary item.................................. $ 0.19 $ 0.03 $ 0.36 $ 0.12
Extraordinary loss......................................... (0.06) -- (0.07) --
------- ------- -------- -------
Basic and diluted earnings per share....................... $ 0.13 $ 0.03 $ 0.29 $ 0.12
======= ======= ======== =======
Weighted average shares outstanding:
Basic...................................................... 104.1 117.1 102.1 117.1
======= ======= ======== =======
Diluted.................................................... 104.6 117.3 102.4 117.4
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 4
AZURIX CORP.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, JUNE 30,
1999 2000
----------- --------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................... $ 27.2 $ 24.2
Restricted cash and cash equivalents............................................... 464.2 96.8
Trade receivables (net of allowance for doubtful accounts
of $40.7 and $49.1, respectively)............................................... 115.7 135.2
Unbilled receivables............................................................... 32.5 33.0
Prepaid expenses................................................................... 39.2 52.4
Other.............................................................................. 30.5 28.1
-------- --------
Total current assets....................................................... 709.3 369.7
-------- --------
Property, plant and equipment, at cost............................................... 2,559.1 2,567.3
Less accumulated depreciation........................................................ (90.4) (130.3)
-------- --------
Property, plant and equipment, net......................................... 2,468.7 2,437.0
-------- --------
Investments in and advances to unconsolidated affiliates............................. 110.4 111.4
Concession intangibles, net.......................................................... 451.3 446.9
Goodwill, net........................................................................ 1,029.6 976.6
Other assets......................................................................... 81.1 136.2
-------- --------
Total Assets............................................................... $4,850.4 $4,477.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals...................................................... $ 236.0 $ 230.5
Deferred income.................................................................... 54.6 34.6
Accrued taxes...................................................................... 21.1 29.4
Short-term debt.................................................................... 602.2 242.7
Current maturities of long-term debt............................................... 35.0 32.9
-------- --------
Total current liabilities.................................................. 948.9 570.1
-------- --------
Long-term debt....................................................................... 1,301.9 1,350.1
Long-term debt - affiliates.......................................................... 180.0 226.4
Deferred income taxes................................................................ 443.3 444.2
Other long-term liabilities.......................................................... 31.2 31.1
-------- --------
Total liabilities.......................................................... 2,905.3 2,621.9
-------- --------
Commitments and contingencies (Note 6)
Minority interest............................................................... 3.3 1.9
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized..................... -- --
Common stock, $0.01 par value, 500,000,000 shares authorized, 117,221,895
shares and 117,269,896 shares issued and outstanding, respectively............. 1.2 1.2
Additional paid-in capital......................................................... 1,972.2 1,972.5
Retained earnings.................................................................. 47.9 62.3
Unearned compensation.............................................................. (0.6) (0.3)
Accumulated other comprehensive loss.......................................... (78.9) (181.7)
-------- --------
Total stockholders' equity................................................. 1,941.8 1,854.0
-------- --------
Total Liabilities and Stockholders' Equity................................. $4,850.4 $4,477.8
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 5
AZURIX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1999 2000
--------- ---------
<S> <C> <C>
Operating Activities:
Net income.................................................................... $ 29.5 $ 14.4
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization............................................. 47.4 62.5
Accretion and amortization of debt expenses and write-off of
deferred financing costs............................................... 10.5 2.8
Deferred income taxes..................................................... 6.1 1.3
Equity in earnings of unconsolidated affiliates........................... (0.5) (3.2)
Minority interest........................................................ -- (1.2)
Changes in operating assets and liabilities:
(Increase) Decrease in trade receivables and other current assets...... 7.2 (40.3)
Decrease in current liabilities, excluding debt........................ (14.7) (1.9)
Increase in other assets............................................... (40.2) (1.8)
Increase (Decrease) in other long-term liabilities..................... 2.4 (0.9)
--------- ---------
Net cash provided by operating activities......................................... 47.7 31.7
--------- ---------
Investing Activities:
Capital expenditures.......................................................... (139.8) (153.2)
Investments in and advances to unconsolidated affiliates ..................... (29.1) (2.6)
Business acquisitions, net of cash acquired................................... (545.9) (15.2)
Other......................................................................... (0.7) (45.5)
--------- ---------
Net cash used in investing activities............................................. (715.5) (216.5)
--------- ---------
Financing Activities:
Proceeds from long-term borrowings............................................ 474.1 583.4
Repayments of long-term borrowings............................................ (225.5) (557.3)
Net proceeds from (repayments of) short-term borrowings....................... 394.0 (287.1)
Issuance of common stock...................................................... 300.5 0.3
(Deposit to) withdrawal from restricted cash and cash equivalents account..... (395.7) 394.0
Net proceeds from revolving credit facilities.............................. .. 137.9 --
Advances from affiliates, net of repayments................................... 8.4 53.9
--------- ---------
Net cash provided by financing activities......................................... 693.7 187.2
--------- ---------
Effect of exchange rate changes on cash........................................... (5.9) (5.4)
--------- ---------
Change in cash and cash equivalents............................................... 20.0 (3.0)
--------- ---------
Cash and cash equivalents, beginning of period.................................... 5.3 27.2
--------- ---------
Cash and cash equivalents, end of period.......................................... $ 25.3 $ 24.2
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 6
AZURIX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated interim financial statements and disclosures
are unaudited and have been prepared by Azurix Corp. pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, these
statements reflect all normal recurring adjustments necessary for a fair
presentation, in all material respects, of the results for the interim periods.
The results of operations for the periods ended June 30, 2000 are not
necessarily indicative of results to be expected for the full year. Certain
information and notes normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to such rules and regulations, although Azurix believes that
the disclosures are adequate to make the information presented not misleading.
These consolidated interim financial statements should be read in conjunction
with the financial statements and the notes thereto included in Azurix's Annual
Report on Form 10-K for the year ended December 31, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure 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 those estimates.
Certain reclassifications have been made in the 1999 amounts to conform with
the 2000 presentation.
"Azurix" is used from time to time herein as a collective reference to
Azurix Corp. and its subsidiaries and affiliates.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging contracts.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, which deferred the
effective date of Statement of Financial Accounting Standards No. 133 to fiscal
years beginning after June 15, 2000. Additionally, in June 2000, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," which amended a limited number of accounting and reporting
standards of Statement of Financial Accounting Standards No. 133. Statement of
Financial Accounting Standards No. 133 may be implemented, as of the beginning
of any fiscal quarter after issuance, however, the statement cannot be applied
retroactively. Azurix is currently evaluating and has not yet determined the
effect that the adoption of Statement of Financial Accounting Standards No. 133
will have on its financial statements. Azurix will adopt the statement beginning
fiscal year 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," to
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements. Staff Accounting Bulletin No. 101B was issued in
June 2000 and delays the effective date of Staff Accounting Bulletin No. 101
until no later than the fourth quarter of fiscal years beginning after
December 15, 1999. Azurix is currently evaluating the impact of Staff Accounting
Bulletin No. 101, but does not anticipate that application of this bulletin
will have a material impact on its financial position or results of operations.
NOTE 2 - RESTRICTED CASH AND CASH EQUIVALENTS AND SHORT-TERM DEBT
In April 2000, Azurix used $415.5 million of proceeds from a cash collateral
account to repay a $394.0 million bank loan and related interest of $19.7
million. The cash collateral account was classified on the Consolidated Balance
Sheets as "Restricted cash and cash equivalents" and secured the bank loan that
was used to fund the Buenos Aires concession acquisition. An additional $1.8
million of the proceeds were deposited into a non-restricted cash account. The
bank loan was classified on the Consolidated Balance Sheets as "Short-term
debt."
During the six months ended June 30, 2000, Azurix borrowed $45.0 million
under its Azurix Europe revolving credit facility. These funds were used
primarily to fund capital expenditures, acquisitions and other general corporate
purposes.
5
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NOTE 3 - LONG-TERM DEBT AND LONG-TERM DEBT -- AFFILIATES
In February 2000, Azurix issued U.S. dollar and U.K. pound sterling senior
notes with a U.S. dollar equivalent face value of $599.8 million. The senior
notes consisted of $240.0 million and Pound Sterling 100.0 million, each due in
2007 and bearing an interest rate of 10 3/8% and $200.0 million due in 2010 and
bearing an interest rate of 10 3/4%. Estimated net proceeds after underwriter's
discount and other estimated offering costs were $583.3 million. Of this amount,
$150.0 million was used to pay down the Azurix revolving credit facility, $386.0
million was used to pay down the Azurix Europe revolving credit facility and
$18.1 million was used to pay down amounts outstanding under the credit
agreement with Enron. In addition, $11.5 million was used to pay accrued
interest on the three credit facilities. The remaining proceeds were made
available for general corporate purposes. The notes were issued under an
indenture that contains certain covenants that limit Azurix's ability to incur
additional debt, pay dividends or make other distributions, incur liens on its
assets, enter into sale/leaseback transactions and to enter into transactions
with affiliates, or sell assets to, or merge with, another entity.
As of June 30, 2000, Azurix, through Wessex, had, among other credit
facilities, committed credit facilities with major commercial banks providing
for an aggregate of $113.5 million of borrowing capacity. No amounts were drawn
at December 31, 1999. As a result of borrowings during the six months ended June
30, 2000, the balance outstanding under these facilities at June 30, 2000 was
$54.5 million.
During the six months ended June 30, 2000, Azurix increased its borrowings
under its credit agreement with Enron by $50.4 million, to $103.7 million.
Amounts outstanding under the credit agreement may not exceed $120 million and
$180 million at any time during calendar years 2000 and 2001, respectively.
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest expense is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1999 2000
------- ------
(IN MILLIONS)
<S> <C> <C>
Income taxes................................................... $ 13.4 $ 5.8
Interest expense (net of amounts capitalized).................. 31.2 57.1
</TABLE>
NON-CASH TRANSACTION
During the first quarter of 2000, Azurix acquired assets by entering into
capital leases totaling approximately $3.4 million.
NOTE 5 - RELATED PARTY TRANSACTION
During the second quarter of 2000, Azurix provided certain services that
included arranging, negotiating, and structuring water supply arrangements for a
project being developed by an Enron subsidiary. Revenues earned during the
second quarter of 2000 related to these services were $1.1 million. Under a
separate agreement with the Enron subsidiary, Azurix has agreed to provide
future water supply and water management services to the project for a period of
approximately 25 years. Future services to be provided under this agreement are
contingent upon the Enron subsidiary receiving certain government approvals to
proceed with its project.
6
<PAGE> 8
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Azurix is involved in various claims and lawsuits, the significant items of
which are discussed below. Although no assurances can be given, Azurix believes,
after considering appropriate reserves that have been established, that the
ultimate resolution of such items will not have a material adverse effect on its
results of operations or financial position.
Azurix is party to a lawsuit styled Synagro Technologies, Inc. v. Azurix
Corp. in the 270th Judicial District Court of Harris County, Texas. The lawsuit
relates to various agreements between the parties regarding potential business
transactions and the possible acquisition by Azurix of two subsidiaries of Waste
Management, Inc., commonly called BioGro. On May 1, 2000, Synagro announced that
it had entered into an agreement to purchase BioGro. On May 9, 2000, Synagro
filed its First Amended Petition in the District Court seeking (i) damages in
excess of $57 million resulting from the alleged breach by Azurix of an
agreement to purchase up to $23 million of Synagro convertible preferred stock
and (ii) unspecified damages resulting from Azurix's alleged breach of
confidentiality and standstill agreements. On August 4, 2000, Azurix filed its
First Amended Answer and Counterclaim (i) denying all of the material
allegations contained in Synagro's First Amended Petition and (ii) seeking
damages in excess of $175 million for misrepresentations by Synagro that induced
Azurix to agree to restrictions on its ability to purchase BioGro and to enter
into negotiations with Synagro and Synagro's interference with Azurix's
acquisition of BioGro. Azurix intends to continue to defend itself against
Synagro's claims vigorously and to continue to pursue its claims for damages
resulting from Synagro's conduct regarding BioGro.
During April 2000, residents of the city of Bahia Blanca, Argentina and
surrounding areas began noticing unpleasant taste and odor in their water
supply, which is provided by Azurix Buenos Aires, S.A. The taste and odor were
traced to a substance released by algae that had grown to higher than normal
levels in a reservoir operated by an agency of the Province of Buenos Aires and
that had entered the local water supply. On becoming aware of the cause of the
unpleasant taste and odor, Azurix Buenos Aires instituted measures that restored
the taste and odor to acceptable levels. Tests performed by government officials
as well as Azurix Buenos Aires have shown that there were no harmful biological
or toxic substances in the water supply, and provincial officials have stated
publicly that there was no danger to public health. However, algae continue to
be present in the reservoir, and therefore issues of taste, odor and color may
recur.
Before the situation was corrected, at the request of government officials,
Azurix Buenos Aires acquired water from other sources for delivery in trucks and
bottles to residents in Bahia Blanca. Azurix Buenos Aires has agreed with the
provincial regulatory agency not to bill residential customers for water
services for a 50-day period during which the taste and odor of supplied water
were allegedly unsatisfactory, although the regulatory agency has approved
billing industrial customers for water and all customers for wastewater services
during this time. Azurix's second quarter 2000 results of operations include
$3.3 million of operations and maintenance expense and $0.6 million of general
and administrative expense that were incurred in responding to this situation,
in addition to forgoing approximately $1.5 million in revenues for the 50-day
period. Azurix also incurred $0.2 million of related capital expenditures. Under
the concession contract, the provincial regulatory agency may impose penalties;
however, none have been assessed as of this date.
Under the Azurix Buenos Aires' concession agreement with the province, an
agency of the province was required to construct works to remove algae from the
water. The algae-removing works had not been completed or tested before this
incident occurred. International experts have advised Azurix Buenos Aires that
conventional algae
7
<PAGE> 9
removal facilities and reservoir operations would have prevented the algae from
entering the water system. Azurix Buenos Aires believes the events in Bahia
Blanca resulted directly from the provincial agency's failure to deliver
functioning algae removal works as required under the agreement and is seeking
reimbursement or other compensation from the province for all costs, including
any penalties that may be assessed, and forgone revenues.
Azurix is subject to extensive federal, foreign, state and local
environmental laws and regulations. Azurix anticipates future changes in, or
decisions affecting, regulatory regimes that will serve to expand or tighten
regulatory controls. Some of these changes or decisions could have a material
adverse effect on its financial position and results of operations.
NOTE 7 - EARNINGS PER SHARE
The numerators in the basic and diluted earnings per share calculations are
equal. A reconciliation of the denominators is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
1999 2000 1999 2000
---------- --------- ---------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Denominator:
Weighted average shares - basic............... 104.1 117.1 102.1 117.1
Effect of dilutive securities:
Non-vested restricted stock................... -- 0.1 -- 0.2
Stock options................................. 0.5 0.1 0.3 0.1
----- ----- ----- -----
Weighted average shares-diluted.................. 104.6 117.3 102.4 117.4
===== ===== ===== =====
</TABLE>
NOTE 8 - INCOME TAXES
During 1998, Azurix recorded a valuation allowance on a deferred tax asset
of approximately $5.1 million related to losses incurred in the United States.
During the second quarter of 1999, Azurix determined that the available evidence
attributable to the increased level of 1999 business activities (including
consideration of the proceeds generated from the initial public offering and
available U.S. tax planning strategies) indicated that it is more likely than
not that the deferred tax asset associated with the 1998 U.S. losses will be
realized. Accordingly, the valuation allowance of approximately $5.1 million was
reversed in the second quarter of 1999.
NOTE 9 - EXTRAORDINARY LOSS
In May 1999, Azurix retired borrowings under its former senior credit
facility and terminated the facility prior to its maturity. Unamortized deferred
financing fees related to this facility of $9.8 million ($6.8 million net of tax
benefit) were charged to income as an extraordinary loss.
8
<PAGE> 10
NOTE 10 - COMPREHENSIVE LOSS
Comprehensive loss includes the following for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1999 2000 1999 2000
---------- ----------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net income............................... $ 13.4 $ 3.0 $ 29.5 $ 14.4
Other comprehensive loss:
Foreign currency translation
adjustment......................... (36.9) (80.5) (83.8) (102.2)
Unrealized loss on available
for sale securities................ -- -- -- (0.6)
------ ------ ------ ------
Comprehensive loss....................... $(23.5) $(77.5) $(54.3) $(88.4)
====== ====== ====== ======
</TABLE>
NOTE 11 - RESTRUCTURING CHARGE
In 1998, Azurix adopted a business strategy focused on growth through
acquisitions and development projects around the world. During the fourth
quarter of 1998 and the first half of 1999, Azurix initiated a business
development effort requiring increased personnel to pursue and support
acquisition and privatization activities worldwide. The initiative was based on
Azurix's expectations as to the size, number, location and timing of
privatization projects that would be awarded in 1999, 2000 and beyond. During
the second half of 1999, several large privatization projects were postponed or
cancelled. In the fourth quarter of 1999, Azurix reevaluated its cost structure
in relation to its business development efforts. As a result, Azurix announced a
plan to restructure its operations, which resulted in Azurix recording a
one-time pretax expense totaling $34.2 million in the fourth quarter of 1999.
The restructuring plan includes reducing personnel, reducing its leased office
space and eliminating other costs relating to the pursuit of concessions in
certain regions.
The restructuring plan involves the elimination of 206 employee positions
working in the concession acquisition effort. As of June 30, 2000, 166 employees
had been terminated pursuant to the restructuring plan. Azurix expects that the
restructuring actions will be completed by the end of the fourth quarter of
2000. The restructuring liability has been classified in "Accounts payable and
accruals" on the Consolidated Balance Sheets and is being funded through cash
provided by operating activities and borrowings under credit agreements.
Amounts related to the restructuring liability are shown in the following
table:
<TABLE>
<CAPTION>
BALANCE AT FOREIGN BALANCE AT
DECEMBER 31 2000 EXCHANGE JUNE 30,
1999 PAYMENTS DIFFERENCE 2000
------------ -------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Severance and related
payroll burden.......... $ 16.5 $ (7.8) $ (0.2) $ 8.5
======== ======= ======= ========
</TABLE>
9
<PAGE> 11
NOTE 12 - STOCK PLAN
During the six months ended June 30, 2000, Azurix granted 1,951,870 stock
options to its employees and Board of Directors at a weighted average exercise
price per share of $7.5691. Of this amount, 205,200 stock options will vest over
a one year period and the remainder will vest over periods of three to six
years, unless accelerated vesting occurs due to Azurix Corp. meeting or
exceeding a Board of Directors approved annual financial performance target.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the information
contained in the Consolidated Financial Statements of Azurix and related notes
thereto, contained herein, as well as the Consolidated Financial Statements of
Azurix and related notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in Azurix's Annual
Report on Form 10-K for the year ended December 31, 1999.
RECENT DEVELOPMENTS
During April 2000, residents of the city of Bahia Blanca, Argentina and
surrounding areas began noticing unpleasant taste and odor in their water
supply, which is provided by Azurix Buenos Aires, S.A. The taste and odor were
traced to a substance released by algae that had grown to higher than normal
levels in a reservoir operated by an agency of the Province of Buenos Aires and
that had entered the local water supply. On becoming aware of the cause of the
unpleasant taste and odor, Azurix Buenos Aires instituted measures that restored
the taste and odor to acceptable levels. Tests performed by government officials
as well as Azurix Buenos Aires have shown that there were no harmful biological
or toxic substances in the water supply, and provincial officials have stated
publicly that there was no danger to public health. However, algae continue to
be present in the reservoir, and therefore issues of taste, odor and color may
recur.
Before the situation was corrected, at the request of government officials,
Azurix Buenos Aires acquired water from other sources for delivery in trucks and
bottles to residents in Bahia Blanca. Azurix Buenos Aires has agreed with the
provincial regulatory agency not to bill residential customers for water
services for a 50-day period during which the taste and odor of supplied water
were allegedly unsatisfactory, although the regulatory agency has approved
billing industrial customers for water and all customers for wastewater services
during this time. Azurix's second quarter 2000 results of operations include
$3.3 million of operations and maintenance expense and $0.6 million of general
and administrative expense that were incurred in responding to this situation,
in addition to forgoing approximately $1.5 million in revenues for the 50-day
period. Azurix also incurred $0.2 million of related capital expenditures. Under
the concession contract, the provincial regulatory agency may impose penalties;
however, none have been assessed as of this date.
Under the Azurix Buenos Aires' concession agreement with the province, an
agency of the province was required to construct works to remove algae from the
water. The algae-removing works had not been completed or tested before this
incident occurred. International experts have advised Azurix Buenos Aires that
conventional algae removal facilities and reservoir operations would have
prevented the algae from entering the water system. Azurix Buenos Aires believes
the events in Bahia Blanca resulted directly from the provincial agency's
failure to deliver functioning algae removal works as required under the
agreement and is seeking reimbursement or other compensation from the province
for all costs, including any penalties that may be assessed, and forgone
revenues.
During the second quarter of 2000, Azurix acquired Baker Hughes Industrial
Services, Inc., an industrial water and wastewater operations and engineering
support company primarily serving customers in the refinery and petrochemical
market. The company, subsequently renamed Azurix Industrial Operations Corp.,
serves as a platform for Azurix's industrial services business and adds
expertise in the North American industrial services market.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments, including instruments embedded in other
contracts (collectively
11
<PAGE> 13
referred to as derivatives), and for hedging contracts. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 137, which deferred the effective date of Statement of
Financial Accounting Standards No. 133 to fiscal years beginning after June 15,
2000. Additionally, in June 2000, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," which amended a
limited number of accounting and reporting standards of Statement of Financial
Accounting Standards No. 133. Statement of Financial Accounting Standards No.
133 may be implemented, as of the beginning of any fiscal quarter after
issuance, however, the statement cannot be applied retroactively. Azurix is
currently evaluating and has not yet determined the effect that the adoption of
Statement of Financial Accounting Standards No. 133 will have on its financial
statements. Azurix will adopt the statement beginning fiscal year 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," to
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements. Staff Accounting Bulletin No. 101B was issued in
June 2000 and delays the effective date of Staff Accounting Bulletin No. 101
until no later than the fourth quarter of fiscal years beginning after
December 15, 1999. Azurix is currently evaluating the impact of Staff Accounting
Bulletin No. 101, but does not anticipate that application of this bulletin
will have a material impact on its financial position or results of operations.
1999 RESTRUCTURING CHARGE
In 1998, Azurix adopted a business strategy focused on growth through
acquisitions and development projects around the world. During the fourth
quarter of 1998 and the first half of 1999, Azurix initiated a business
development effort requiring increased personnel to pursue and support
acquisition and privatization activities worldwide. The initiative was based on
Azurix's expectations as to the size, number, location and timing of
privatization projects that would be awarded in 1999, 2000 and beyond. During
the second half of 1999, several large privatization projects were postponed or
cancelled. In the fourth quarter of 1999, Azurix reevaluated its cost structure
in relation to its business development efforts. As a result, Azurix announced a
plan to restructure its operations, which resulted in Azurix recording a
one-time pretax expense totaling $34.2 million in the fourth quarter of 1999.
The restructuring plan includes reducing personnel, reducing its leased office
space and eliminating other costs relating to the pursuit of concessions in
certain regions. The restructuring liability is being funded through cash
provided by operating activities and borrowings under credit agreements. See
Note 11 of the Notes to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
For the year ended December 31, 1999 and for the six months ended June 30,
2000, 73% and 55%, respectively, of Azurix's operating revenues were denominated
in U.K. pound sterling. The average U.S. dollar to pound sterling exchange rate
for the three months and six months ended June 30, 2000 was 1.53 and 1.57,
respectively, compared to the same periods in 1999 of 1.61 and 1.62,
respectively. These rates represent a decrease from 1999 to 2000 for the three
months and six months ended June 30 periods of 5% and 3%, respectively. The
decrease in the pound sterling exchange rates for the three months and six
months ended June 30, reduced 2000 net income by approximately $1.0 and
$1.5 million, respectively.
See "Recent Developments" for a discussion of the impact on results of
operations for the three months and six months ended June 30, 2000 of the Bahia
Blanca water quality issue.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Operating revenues for the three months ended June 30, 2000 of $189.2
million increased $57.9 million, or 44%, when compared to the three months ended
June 30, 1999. The increase resulted primarily from acquisitions that occurred
after March 31, 1999, offset partially by the impact of the Wessex rate cut that
was effective April 1, 2000 and the effect of the lower current period pound
sterling exchange rate.
Operations and maintenance expense for the three months ended June 30, 2000
of $91.4 million increased $53.9 million, or 144%, when compared to the three
months ended June 30, 1999. The increase resulted primarily from acquisitions
that occurred after March 31, 1999, offset partially by the effect of the lower
current period pound sterling exchange rate.
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<PAGE> 14
General and administrative expense for the three months ended June 30, 2000
of $34.8 million increased $2.8 million, or 9%, when compared to the three
months ended June 30, 1999. The increase resulted primarily from acquisitions
that occurred after March 31, 1999, offset partially by a reduction in costs
associated with the pursuit and support of worldwide water and wastewater
privatization projects that was implemented in the fourth quarter of 1999.
Depreciation and amortization expense for the three months ended June 30,
2000 of $30.9 million increased $6.8 million, or 28%, when compared to the three
months ended June 30, 1999. The increase resulted primarily from acquisitions
that occurred after March 31, 1999 and higher depreciation and amortization
expense at Wessex resulting from its capital investment program, offset
partially by the impact of the lower current period pound sterling exchange
rate.
Interest expense, net for the three months ended June 30, 2000 of $29.9
million increased $14.5 million, or 94%, when compared to the three months ended
June 30, 1999. The increase was primarily due to increased borrowings used to
fund acquisitions that occurred after March 31, 1999 and a higher cost of
borrowings during the current period primarily resulting from the senior notes
issued in February 2000. This was partially offset by the impact of the lower
pound sterling exchange rate in the current period. As of June 30, 2000,
approximately 67% of Azurix's debt was denominated in pound sterling.
Income tax expense for the three months ended June 30, 2000 of $2.1 million
decreased $0.3 million, or 13%, when compared to the three months ended June 30,
1999. The effective tax rate for the three months ended June 30, 2000 was 41%
compared to the effective tax rate before extraordinary item for the three
months ended June 30, 1999 of 11%. The effective tax rate for the three months
ended June 30, 1999 included the effect of a reversal of a $5.1 million deferred
tax valuation allowance that was recorded during 1998. As of June 30, 1999,
Azurix had determined that the available evidence indicated that it was more
likely than not that the deferred tax asset would be realized. Accordingly, the
valuation allowance was reversed in the second quarter of 1999. Excluding the
effect of the valuation allowance reversal, the effective tax rate for the three
months ended June 30, 1999 was 33%.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Operating revenues for the six months ended June 30, 2000 of $383.8 million
increased $135.6 million, or 55%, when compared to the six months ended June 30,
1999. The increase resulted primarily from acquisitions that occurred during
1999, offset partially by the impact of the Wessex rate cut and the effect of
the lower current period pound sterling exchange rate.
Operations and maintenance expense for the six months ended June 30, 2000 of
$174.0 million increased $105.3 million, or 153%, when compared to the six
months ended June 30, 1999. The increase resulted primarily from acquisitions
that occurred during 1999.
General and administrative expense for the six months ended June 30, 2000 of
$71.3 million increased $16.1 million, or 29%, when compared to the six months
ended June 30, 1999. The increase resulted primarily from acquisitions that
occurred during 1999, offset partially by a reduction in costs associated with
the pursuit and support of worldwide water and wastewater privatization projects
that was implemented in the fourth quarter of 1999.
Depreciation and amortization expense for the six months ended June 30, 2000
of $62.5 million increased $15.1 million, or 32%, when compared to the six
months ended June 30, 1999. The increase resulted primarily from depreciation
and amortization expense associated with acquisitions that occurred during 1999
and higher depreciation and amortization expense at Wessex resulting from its
capital investment program, offset partially by the effect of the lower current
period pound sterling exchange rate.
13
<PAGE> 15
Interest expense, net for the six months ended June 30, 2000 of $58.0
million increased $27.7 million, or 91%, when compared to the six months ended
June 30, 1999. The increase was primarily due to increased borrowings used to
fund acquisitions that occurred during 1999 and a higher cost of borrowings
during the current period primarily resulting from the senior notes issued in
February 2000. This was partially offset by the impact of the lower pound
sterling exchange rate in the current period. As of June 30, 2000, approximately
67% of Azurix's debt was denominated in pound sterling.
Income tax expense for the six months ended June 30, 2000 of $8.0 million
decreased $2.8 million, or 26%, when compared to the six months ended June 30,
1999. The effective tax rate for the six months ended June 30, 2000 was 36%
compared to the effective tax rate before extraordinary item for the six months
ended June 30, 1999 of 23%. Excluding the effect of the valuation allowance
reversal, the effective tax rate for the six months ended June 30, 1999 was
34%.
LIQUIDITY AND CAPITAL RESOURCES
Azurix's cash provided by operating activities for the six months ended June
30, 2000 was $31.7 million. Included in this amount was the payment of $28.1
million of interest on senior unsecured bonds issued by Wessex in 1999. Interest
payments on these bonds are made annually in March of each year. Cash used in
investing activities for the period was $216.5 million and was comprised
primarily of capital expenditures and business acquisitions which totaled $168.4
million. Cash provided by financing activities for the period was $187.2 million
and primarily resulted from net borrowings during the period.
As of June 30, 2000, Azurix had a working capital deficit of $200.4 million,
compared to a working capital deficit of $239.6 million at December 31, 1999. Of
the working capital deficit at June 30, 2000, $224.0 million is related to
borrowings outstanding or secured by the Azurix Europe revolving credit facility
that terminates in 2002. The Azurix Europe revolving credit facility contains a
provision permitting banks, with two-thirds or more of the commitments, to
terminate the facility at an earlier time if, in their reasonable opinion,
changes have occurred resulting in a material adverse effect on the borrower's
ability to repay the outstanding debt. Azurix has no knowledge of the lenders'
intent to exercise this right; however, the existence of this provision requires
amounts outstanding under the facility to be classified as short-term debt under
generally accepted accounting principles.
In addition, at June 30, 2000, $34.6 million of the working capital deficit
related to funds received from customers in advance of providing services that
are reflected on the Consolidated Balance Sheet as deferred income. This
component of the working capital deficit does not require the use of cash, but
is recognized in income over the period in which the services are provided.
Azurix, and Wessex, its predecessor company, has during the past several years,
operated with a working capital deficit as part of its normal business practice.
In February 2000, the Azurix Europe revolving credit facility was amended so
that Azurix Europe may borrow a portion of the facility capacity in a manner
allowing for its use by Azurix for general corporate purposes. The capacity is
denominated in UK pound sterling and at June 30, 2000 was equivalent to $363.1
million. That portion of the facility capacity was repaid in its entirety with a
portion of the proceeds from the senior notes issued in February 2000.
Subsequent to that date in 2000, Azurix borrowed $45.0 million under this
revolving credit facility that was used primarily to fund capital expenditures,
acquisitions and other general corporate purposes.
As of June 30, 2000, Azurix, through Wessex, had, among other credit
facilities, committed credit facilities with major commercial banks providing
for an aggregate of $113.5 million of borrowing capacity. No amounts were drawn
at December 31, 1999. As a result of borrowings during the six months ended June
30, 2000, the balance outstanding under these facilities at June 30, 2000 was
$54.5 million.
Azurix's credit agreement with Enron provides $180 million of liquidity to
fund general, administrative and operating expenses through December 2001.
During the six months ended June 30, 2000, borrowings outstanding under this
credit agreement increased $50.4 million to $103.7 million. The principal amount
outstanding under the
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<PAGE> 16
credit agreement is limited to no more than $120 million and $180 million at any
time during calendar years 2000 and 2001, respectively.
In February 2000, Azurix issued U.S. dollar and U.K. pound sterling senior
notes with a U.S. dollar equivalent face value of $599.8 million. The senior
notes consisted of $240.0 million and Pound Sterling 100.0 million, each due in
2007 and bearing an interest rate of 10 3/8% and $200.0 million due in 2010 and
bearing an interest rate of 10 3/4%. Estimated net proceeds after underwriter's
discount and other estimated offering costs were $583.3 million. Of this amount,
$150.0 million was used to pay down the Azurix revolving credit facility, $386.0
million was used to pay down the Azurix Europe revolving credit facility and
$18.1 million was used to pay down amounts outstanding under the credit
agreement with Enron. In addition, $11.5 million was used to pay accrued
interest on the three credit facilities. The remaining proceeds were made
available for general corporate purposes. The notes were issued under an
indenture that contains certain covenants that limit Azurix's ability to incur
additional debt, pay dividends or make other distributions, incur liens on its
assets, enter into sale/leaseback transactions and to enter into transactions
with affiliates, or sell assets to, or merge with, another entity.
Azurix estimates that required capital expenditures, primarily related to
its ownership of water and wastewater concessions, will be approximately $1.7
billion for the period 2000 to 2004. Azurix intends to finance its projected
capital expenditures for its existing businesses principally with internally
generated funds and proceeds under existing long-term and short-term borrowing
arrangements and future financing arrangements.
In addition to Azurix's short-term debt, as of June 30, 2000 it has
approximately $192.2 million of long-term debt that matures before the end of
2004. Azurix's existing liquidity capacity under the credit agreement with
Enron, the Wessex committed bank facilities and the Azurix Europe revolving
credit facility mature in December 2001, April 2002 and May 2002, respectively.
Azurix anticipates that it will need to renew, refinance or replace these
facilities when they mature. If Azurix is not successful in these efforts, it
will need to raise capital through other means, which may include issuing
additional equity or disposing of assets.
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<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Azurix is exposed to market risks, particularly changes in U.S. and
international interest rates and changes in currency exchange rates as measured
against the functional currencies in which it operates. Azurix engages in
hedging programs aimed at limiting the impact of significant and sudden
fluctuations, but there can be no assurance that such an approach will be
successful. Factors that could impact the effectiveness of its hedging programs
include the accuracy of revenue forecasts, volatility of the currency and
interest rate markets and the availability of hedging instruments. Azurix
utilizes swap contracts to manage interest rate risk. Currency exchange rate
risk is the result of transactions that are denominated in a currency other than
the functional currencies in which Azurix operates. The primary purpose of
Azurix's foreign currency hedging activities is to manage the volatility
associated with currency exchange rates. Azurix manages these risks by utilizing
derivative financial instruments for non-trading purposes. Azurix enters into
currency or interest rate contracts for the sole purpose of hedging an existing
or anticipated exposure, not for speculation. Azurix's accounting policies for,
and the significant terms of, derivative financial instruments are described in
Note 1 and Note 8, respectively, to the Consolidated Financial Statements
included in Azurix's Annual Report on Form 10-K for the year ended December 31,
1999.
Azurix uses J.P. Morgan's RiskMetricsTM system to estimate the value-at-risk
of its financial instruments. Value-at-risk is a statistical estimate of the
loss that would result from changes in market prices. Value-at-risk is based on
volatility and correlation data provided by J.P. Morgan, a statistical
confidence level and an estimate of the time period required to liquidate the
positions in the various financial instruments. The value-at-risk estimate was
based on normal market conditions, a 95% confidence level and a liquidation
period between 30 days and 60 months, depending on the type of financial
instrument. At December 31, 1999, the value-at-risk estimate for foreign
currency and interest rate exposure was $0.1 million and approximately $19,000,
respectively. At June 30, 2000, the value-at-risk estimate for foreign currency
and interest rate exposure was $0.1 million and approximately $7,000,
respectively. The value-at-risk estimate includes only the risk related to the
financial instruments that serve as hedges and does not include the related
underlying hedged item. Judgment is required in interpreting market data and in
the use of different market assumptions or estimation methodologies that will
affect the estimated value-at-risk amount.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q may constitute
"forward-looking statements" as such term is defined in the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements are based on management's current expectations and
beliefs and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements. Words such as "anticipates," "believes," "expects,"
"estimates," "intends," "plans," "projects," and similar expressions may
identify such forward-looking statements. Important factors that could cause
actual results to differ materially from those described in the forward-looking
statements include the following: political developments in foreign countries;
the ability to enter new water and wastewater markets in the United States and
in other jurisdictions; the timing and extent of deregulation of water resource
markets in the United States and in other countries; regulatory developments in
the United States and in other countries, including tax and environmental
legislation and regulation; the timing and extent of efforts by governments to
privatize water and wastewater industries; the timing and extent of changes in
non-U.S. currencies and interest rates; the extent of success in securing new
service contracts, acquiring water and wastewater assets and developing and
managing water resources; Azurix's ability to access the debt and equity markets
during periods covered by the forward-looking statements; regulatory
developments affecting the purchase and sale of water resources; acceptance and
utilization by buyers and sellers of an internet marketplace for water
transfers; Azurix's ability to enter into, and retain, strategic relationships
with governmental and quasi-governmental agencies; increased competition and
technological changes in the internet-based marketplace; Azurix's ability to
hire and train, in a highly competitive market, individuals highly skilled in
the internet and e-commerce and other factors discussed elsewhere in this Form
10-Q and in Azurix's other filings with the Securities and Exchange Commission.
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<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported in Azurix's Annual Report on Form 10-K for the year
ended December 31, 1999, and other filings, Azurix is party to a lawsuit styled
Synagro Technologies, Inc. v. Azurix Corp. in the 270th Judicial District Court
of Harris County, Texas. The lawsuit relates to various agreements between the
parties regarding potential business transactions and the possible acquisition
by Azurix of two subsidiaries of Waste Management, Inc., commonly called BioGro.
On May 1, 2000, Synagro announced that it had entered into an agreement to
purchase BioGro. On May 9, 2000, Synagro filed its First Amended Petition in the
District Court seeking (i) damages in excess of $57 million resulting from the
alleged breach by Azurix of an agreement to purchase up to $23 million of
Synagro convertible preferred stock and (ii) unspecified damages resulting from
Azurix's alleged breach of confidentiality and standstill agreements. On August
4, 2000, Azurix filed its First Amended Answer and Counterclaim (i) denying all
of the material allegations contained in Synagro's First Amended Petition and
(ii) seeking damages in excess of $175 million for misrepresentations by Synagro
that induced Azurix to agree to restrictions on its ability to purchase BioGro
and to enter into negotiations with Synagro and Synagro's interference with
Azurix's acquisition of BioGro. Azurix intends to continue to defend itself
against Synagro's claims vigorously and to continue to pursue its claims for
damages resulting from Synagro's conduct regarding BioGro. Although no
assurances can be given, Azurix believes that the ultimate resolution of this
litigation will not have a material adverse effect on its results of operations
or financial position.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On June 13, 2000, Azurix held its Annual Meeting of Shareholders. At that
meeting, three proposals were submitted to a vote of Azurix's shareholders. The
proposals submitted were: (1) to elect two directors to a term of office
expiring at the Annual Meeting of Shareholders in 2003; (2) to approve and adopt
the Azurix Corp. 1999 Stock Plan in order to qualify grants under the plan as
performance-based compensation; and (3) to ratify the appointment of Arthur
Andersen LLP as Azurix's auditors for the year ending December 31, 2000. Each of
the nominees was elected to the Board of Directors and each of the proposals was
approved by the shareholders at the meeting.
The following table sets forth the results of the voting on each of the
proposals (including, with respect to the election of directors, the results of
the voting with respect to each nominee):
<TABLE>
<CAPTION>
NUMBER OF VOTES
BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTE
-------- --- ------- ------- --------
<S> <C> <C> <C> <C>
1. Election of Directors
John H. Duncan............................... 107,868,571 274,540 -- --
Joseph W. Sutton............................. 107,884,667 258,444 -- --
2. Approval of Azurix Corp. 1999 Stock Plan....... 100,335,452 7,743,204 64,455 --
3. Ratification of Arthur Andersen LLP as
auditors for year ending December 31, 2000... 107,955,009 149,975 38,127 --
</TABLE>
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<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER: DESCRIPTION
------ -----------
10.1 Azurix Corp. 1999 Stock Plan, as amended and restated
effective June 13, 2000.
10.2 First Amendment to Executive Employment Agreement of
John L. Garrison, Jr., dated June 1, 2000, with the
Registrant.
27 Financial Data Schedule (included only in the electronic
filing of this document).
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AZURIX CORP.
Date: August 14, 2000 By: /s/ J. Michael Anderson
---------------------------------------
Managing Director and
Chief Financial Officer
(Duly Authorized Officer)
(Principal Financial Officer)
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<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Azurix Corp. 1999 Stock Plan, as amended and restated
effective June 13, 2000.
10.2 First Amendment to Executive Employment Agreement of
John L. Garrison, Jr., dated June 1, 2000, with the
Registrant.
27 Financial Data Schedule (included only in the electronic
filing of this document).
</TABLE>
