FORM 10-Q Page 1 of 17
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
---------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------------- -----------------
Commission File Number 1-3437-2
--------------------------------------------------
AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0063696
- ------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1025 Laurel Oak Road, Voorhees, New Jersey 08043
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(609) 346-8200
- ---------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
At August 1, 1998, the number of shares of common stock, $1.25 par value,
outstanding was 80,367,099 shares.
<PAGE> Page 2 FORM 10-Q
PART I FINANCIAL INFORMATION
----------------------------
Item 1. Financial Statements
-----------------------------
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In thousands, except per share amounts)
<TABLE>
Three Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $255,980 $237,915
-------- --------
Operating expenses
Operation and maintenance 110,403 104,396
Depreciation and amortization 29,074 25,355
General taxes 22,882 21,590
-------- --------
162,359 151,341
-------- --------
Operating income 93,621 86,574
Allowance for other funds used during
construction 2,529 1,623
Other income 596 341
-------- --------
96,746 88,538
-------- --------
Income deductions
Interest 38,718 36,483
Allowance for borrowed funds used
during construction (1,281) (1,119)
Amortization of debt expense 447 395
Preferred dividends of subsidiaries 873 885
Other deductions 658 530
-------- --------
39,415 37,174
-------- --------
Income before income taxes 57,331 51,364
Provision for income taxes 22,269 19,724
-------- --------
Net income 35,062 31,640
Dividends on preferred stocks 996 996
-------- --------
Net income to common stock $ 34,066 $ 30,644
======== ========
Average shares of basic common stock outstanding 80,174 79,033
Basic and diluted earnings per common share on
average shares outstanding $ 0.42 $ 0.39
======== ========
<PAGE> Page 3 FORM 10-Q
Three Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period $721,489 $664,305
Add - net income 35,062 31,640
-------- --------
756,551 695,945
-------- --------
Deduct - dividends paid
Preferred stock 882 882
Preference stock 114 114
Common stock - $.205 per share in 1998;
$.19 per share in 1997 16,421 15,006
-------- --------
17,417 16,002
-------- --------
Balance at end of period $739,134 $679,943
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 4 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Statements of Income and Retained Earnings (Unaudited)
(In thousands, except per share amounts)
<TABLE>
Six Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
CONSOLIDATED INCOME
Operating revenues $481,980 $451,272
-------- --------
Operating expenses
Operation and maintenance 212,435 205,149
Depreciation and amortization 57,583 50,412
General taxes 46,425 44,234
-------- --------
316,443 299,795
-------- --------
Operating income 165,537 151,477
Allowance for other funds used during
construction 4,106 3,027
Other income 427 450
-------- --------
170,070 154,954
-------- --------
Income deductions
Interest 75,264 72,101
Allowance for borrowed funds used
during construction (2,064) (1,820)
Amortization of debt expense 873 787
Preferred dividends of subsidiaries 1,739 1,774
Other deductions 1,465 1,391
-------- --------
77,277 74,233
-------- --------
Income before income taxes 92,793 80,721
Provision for income taxes 36,143 31,051
-------- --------
Net income 56,650 49,670
Dividends on preferred stocks 1,992 1,992
-------- --------
Net income to common stock $ 54,658 $ 47,678
======== ========
Average shares of basic common stock outstanding 79,995 78,827
Basic and diluted earnings per common share on
average shares outstanding $ 0.68 $ 0.60
======== ========
<PAGE> Page 5 FORM 10-Q
Six Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of period $717,243 $662,183
Add - net income 56,650 49,670
-------- --------
773,893 711,853
-------- --------
Deduct - dividends paid
Preferred stock 1,764 1,764
Preference stock 228 228
Common stock - $.41 per share in 1998;
$.38 per share in 1997 32,767 29,918
-------- --------
34,759 31,910
-------- --------
Balance at end of period $739,134 $679,943
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 6 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Balance Sheet (Unaudited)
(In thousands)
<TABLE>
June 30 December 31
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $ 3,839,020 $ 3,713,390
Utility plant acquisition adjustments 55,339 58,976
Non-utility property, net of accumulated
depreciation 31,768 32,942
Excess of cost of investments in
subsidiaries over book equity at
acquisition 24,347 22,745
----------- -----------
3,950,474 3,828,053
----------- -----------
Current assets
Cash and cash equivalents 24,334 12,661
Customer accounts receivable 68,375 67,318
Allowance for uncollectible accounts (1,404) (1,249)
Unbilled revenues 68,686 55,750
Miscellaneous receivables 7,472 5,673
Materials and supplies 12,420 11,415
Deferred vacation pay 12,866 11,132
Other 10,240 10,158
----------- -----------
202,989 172,858
----------- -----------
Regulatory and other long-term assets
Regulatory asset - income taxes
recoverable through rates 183,741 181,566
Debt and preferred stock expense 31,205 30,216
Deferred pension expense 24,316 22,163
Deferred postretirement benefit expense 11,868 11,372
Deferred treatment plant costs 7,404 7,690
Deferred water utility billings 2,930 4,013
Tank painting costs 11,299 10,531
Funds restricted for construction 5,785 5,340
Other 49,747 40,484
----------- -----------
328,295 313,375
----------- -----------
$ 4,481,758 $ 4,314,286
=========== ===========
<PAGE> Page 7 FORM 10-Q
June 30 December 31
1998 1997
----------- -----------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock $ 100,383 $ 99,607
Paid-in capital 343,735 326,382
Retained earnings 739,134 717,243
Unearned compensation (1,228) (816)
----------- -----------
Common stockholders' equity 1,182,024 1,142,416
Preferred stocks with mandatory redemption
requirements 40,000 40,000
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Preferred stocks of subsidiaries with
mandatory redemption requirements 39,075 39,734
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,255 6,256
Long-term debt
American Water Works Company, Inc. 116,000 116,000
Subsidiaries 1,778,298 1,754,766
----------- -----------
3,173,325 3,110,845
----------- -----------
Current liabilities
Bank debt 230,410 134,762
Current portion of long-term debt 21,053 25,148
Accounts payable 27,507 42,766
Taxes accrued, including federal income 24,025 14,409
Interest accrued 34,491 33,404
Accrued vacation pay 12,996 11,239
Other 35,588 44,725
----------- -----------
386,070 306,453
----------- -----------
<PAGE> Page 8 FORM 10-Q
June 30 December 31
1998 1997
----------- -----------
<S> <C> <C>
Regulatory and other long-term liabilities
Advances for construction $ 129,328 $ 127,457
Deferred income taxes 431,338 418,248
Deferred investment tax credits 35,637 36,239
Accrued pension expense 41,240 41,079
Accrued postretirement benefit expense 10,034 10,034
Other 13,873 6,197
----------- -----------
661,450 639,254
----------- -----------
Contributions in aid of construction 260,913 257,734
----------- -----------
Commitments and contingencies 0 0
----------- -----------
$ 4,481,758 $ 4,314,286
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 9 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
<TABLE>
Six Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 56,650 $ 49,670
Adjustments
Depreciation and amortization 57,583 50,412
Provision for deferred income taxes 11,622 12,994
Provision for losses on accounts receivable 2,838 3,495
Allowance for other funds used during
construction (4,106) (3,027)
Employee benefit expenses greater (less) than
funding (1,518) 154
Employee stock plan expenses 3,903 3,411
Deferred tank painting costs (1,643) (984)
Deferred rate case expense (493) (991)
Amortization of deferred charges 4,354 4,266
Other, net (4,814) 1,881
Changes in assets and liabilities
Accounts receivable (5,539) (5,567)
Unbilled revenues (12,936) (9,164)
Other current assets (1,087) (2,205)
Accounts payable (15,259) (9,512)
Taxes accrued, including federal income 9,616 11,686
Interest accrued 1,087 722
Other current liabilities (9,137) (8,866)
-------- --------
Net cash from operating activities 91,121 98,375
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (150,232) (142,332)
Allowance for other funds used during
construction 4,106 3,027
Utility system acquisitions (29,938) (125)
Proceeds from the disposition of property,
plant and equipment 1,213 507
Removal costs from property, plant and
equipment retirements (3,006) (3,358)
Funds restricted for construction activity (445) (8,834)
-------- --------
Net cash used in investing activities (178,302) (151,115)
-------- --------
<PAGE> Page 10 FORM 10-Q
Six Months Ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 33,901 $ 87,000
Proceeds from common stock 13,356 13,062
Net borrowings under
line-of-credit agreements 95,648 9,351
Advances and contributions for construction,
net of refunds 7,519 5,302
Debt issuance costs (1,687) (978)
Repayment of long-term debt (14,464) (32,068)
Redemption of preferred stocks (660) (544)
Dividends paid (34,759) (31,910)
-------- --------
Net cash from financing activities 98,854 49,215
-------- --------
Net increase (decrease) in cash and
cash equivalents 11,673 (3,525)
Cash and cash equivalents at beginning
of period 12,661 12,974
-------- --------
Cash and cash equivalents at end of period $ 24,334 $ 9,449
======== ========
Cash paid during the period for:
Interest, net of capitalized amount $ 76,437 $ 72,661
======== ========
Income taxes $ 19,731 $ 16,155
======== ========
Common stock issued in lieu of cash in connection with the Employees' Stock
Ownership Plan, the Savings Plan for Employees and the Long-Term
Performance-Based Incentive Plan totaled $5,607 in 1998 and $2,607 in 1997.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> Page 11 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Information Accompanying Financial Statements (Unaudited)
(In thousands, except share and per share amounts)
June 30 December 31
1998 1997
---------- -----------
Preferred stocks with mandatory redemption requirements
Cumulative preferred stock - $25 par value
Authorized - 1,770,000 shares
8.50% series (non-voting) - 1,600,000 shares
outstanding $ 40,000 $ 40,000
---------- -----------
Preferred stocks without mandatory redemption requirements
Cumulative preferred stock - $25 par value
5% series (one-tenth of a vote per share)
- 101,777 shares outstanding $ 2,544 $ 2,544
Cumulative preference stock - $25 par value
Authorized - 750,000 shares
5% series (non-voting) - 365,158 shares
outstanding 9,129 9,129
Cumulative preferential stock - $35 par value
Authorized - 3,000,000 shares -- --
---------- -----------
$ 11,673 $ 11,673
========== ===========
The terms of the 8.50% preferred stock provide that all shares of the
series shall be redeemed on December 1, 2000.
Common stockholders' equity
Common stock - $1.25 par value
Authorized - 300,000,000 shares
Outstanding - 80,306,735 shares at June 30, 1998;
79,685,612 at December 31, 1997 $ 100,383 $ 99,607
Paid-in capital 343,735 326,382
Retained earnings 739,134 717,243
Unearned compensation (1,228) (816)
---------- -----------
$1,182,024 $ 1,142,416
========== ===========
During the first six months of 1998, 358,791 shares were issued in
connection with the Dividend Reinvestment and Stock Purchase Plan, 95,499
shares were issued in connection with the Employees' Stock Ownership Plan,
96,383 shares were issued in connection with the Savings Plan for Employees
and 70,450 shares were issued in connection with the Long-Term
Performance-Based Incentive Plan. At June 30, 1998, common shares reserved
for issuance in connection with the Company's stock plans were 60,923,162
shares for the Stockholder Rights Plan, 5,836,095 shares for the Dividend
Reinvestment and Stock Purchase Plan, 707,559 shares for the Employees'
Stock Ownership Plan, 895,638 shares for the Savings Plan for Employees and
327,135 shares for the Long-Term Performance-Based Incentive Plan.
<PAGE> Page 12 FORM 10-Q
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
-----------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
(Dollars in thousands, except per share amounts)
NOTE 1 -- Financial Statement Presentation
The information presented in this Form 10-Q is unaudited. In the opinion
of management the information reported reflects all adjustments, consisting
of normal recurring adjustments, which were necessary to a fair statement
of the results for the periods reported. Certain reclassifications have
been made to conform previously reported data to the current presentation.
NOTE 2 -- Acquisition
On April 1, 1998, the Company completed the previously announced
acquisition of East Honolulu Community Services, Inc. ("EHCS"), a suburban
Honolulu wastewater utility located on the eastern tip of Oahu, Hawaii.
The system was acquired for $18.4 million from Maunalua Associates, Inc., a
subsidiary of Kemper Corporation.
EHCS provides wastewater service to a population of approximately 29,000 in
the community of Hawaii Kai. For the latest fiscal year ended December 31,
1997, EHCS had unaudited revenues of $6.3 million, net income of $.8
million and total assets of $17.1 million.
NOTE 3 -- New Accounting Standards
In 1998, the Company will adopt two new accounting standards issued by the
Financial Accounting Standards Board in June of 1997. Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131 "Disclosures About Segments of an Enterprise and
Related Information," neither of which will have any effect on the
Company's financial position or results of operations as they require only
changes to, or additions to, current disclosures.
Also in 1998, the Company will adopt SFAS No. 132, "Employers' Disclosures
about Pensions and Postretirement Benefits," which revises and standardizes
employers' disclosures about pension and other postretirement benefit plans
required by SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," but does not
change the measurement or recognition of those plans. This new standard,
issued in February 1998, is effective for fiscal years beginning after
December 15, 1997.
<PAGE> Page 13 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------
Results of Operations
- ---------------------
Operating revenues for the second quarter and the first six months of 1998
were higher than for the same periods of 1997 by 8% and 7%, respectively.
The increases are primarily due to authorized rate increases for several
subsidiaries in the latter part of 1997.
During the first seven months of 1998, two utility subsidiaries received
rate orders which are expected to provide approximately $1.7 million in
additional annual revenues. Six subsidiaries have rate increase
applications on file before regulatory agencies which, if granted in full,
would provide approximately $46.1 million in additional annual revenues.
Water sales volume during the second quarter of 1998 decreased 1% to 60.0
billion gallons from 60.5 billion gallons in the second quarter of 1997.
The 115.3 billion gallons of sales volume for the first six months of 1998
was 1% less than the 116.4 billion gallons sold in the same period of 1997.
Total operating expenses for the second quarter of 1998 increased 7% in
comparison to those in the second quarter of 1997. The total operating
expenses in the first six months of 1998 increased by 6% over the same
period last year. Operation and maintenance expenses in the second quarter
and first six months of 1998 increased 6% and 4%, respectively, when
compared to the same periods in 1997. Depreciation expense was higher for
the second quarter and first six months of 1998 when compared to the second
quarter and first six months of 1997 due to growth in utility plant in
service. General taxes increased in the second quarter and first six
months of 1998 when compared to the same periods of 1997 reflecting higher
property values and increased gross receipts.
Income deductions, primarily interest, were 6% higher for the second
quarter and 4% higher for the first six months when compared to the same
periods in 1997. The increases can be attributed primarily to an increase
in total debt to fund the construction of new water service assets.
The total allowance for funds used during construction ("AFUDC") recorded
in the second quarter and the first six months of 1998 increased 39% and
27%, respectively, when compared to the same periods in 1997. The
increases were a result of construction of new water service assets. The
utility subsidiaries record AFUDC to the extent permitted by the regulatory
authorities.
<PAGE> Page 14 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (contd.)
- --------------------------------------------------------------------------
Results of Operations (contd.)
- ------------------------------
Income taxes increased in the second quarter and the first six months of
1998 when compared to the same periods in 1997. The increases can be
attributed to increased earnings in 1998 and the reversal of flow-through
differences primarily relating to depreciation.
Net income to common stock was $34.1 million for the second quarter of 1998
compared with $30.6 million for the same period in 1997. Net income to
common stock for the first six months of 1998 was $54.7 million compared
with $47.7 million for the first six months of 1997.
Capital Resources and Liquidity
- -------------------------------
All shares of common stock issued during 1998 have been the result of stock
issued in conjunction with the Dividend Reinvestment and Stock Purchase
Plan, the Employees' Stock Ownership Plan, the Savings Plan for Employees,
and the Long-Term Performance-Based Incentive Plan.
During the balance of 1998, the Company plans to continue issuing common
stock through its Dividend Reinvestment and Stock Purchase Plan and the
Savings Plan for Employees. Proceeds from the issuance of common stock
will fund additional equity investments in subsidiaries.
Ten utility subsidiaries issued $95.2 million of long-term debt during the
first seven months of 1998. The Company issued $120.0 million of
long-term debt on July 15, 1998. In addition, the Company invested $92.9
million in the common stock of twelve subsidiaries during the first seven
months of 1998. The proceeds from these financing arrangements have been
used to fund construction programs and repay bank borrowings. It is
anticipated that some subsidiaries will sell long-term debt to
institutional investors and common stock to the Company during the
remainder of 1998, with the proceeds used to repay bank loans and to fund
construction projects.
Year 2000 Issues
- ----------------
Many computer systems in use today were designed and developed without
regard to the impact of the upcoming century change. Computer programs and
devices often use only two digits for the year to identify dates. As a
result, computer systems may fail completely or create erroneous results
unless corrective measures are taken.
An inventory of all important computer programs and devices with embedded
technology has been prepared for each utility subsidiary. Those
inventories are being used to track the status of any necessary upgrades or
replacements, and to log the results of testing by Company personnel to
ensure that all important systems are in fact Year 2000 compliant. In some
instances work on other information technology projects has been delayed
because of Year 2000 remediation projects, but these delays are not
expected to have a significant impact on the Company's operations. Because
the Company is particularly dependent on its computerized financial,
customer service and treatment plant automation systems, those systems are
the primary areas in which Year 2000 efforts are focused.
<PAGE> Page 15 FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (contd.)
- --------------------------------------------------------------------------
Year 2000 Issues (cont.d)
- -------------------------
The Company is currently implementing two new software packages for
financial and customer service applications that are Year 2000 compliant.
Although the decision to purchase and implement this software was based on
an analysis of all of the Company's current and future systems
requirements, once the decision was made these projects became critical
parts of the Company's Year 2000 compliance plan. Implementation and
testing of the financial system is expected to be completed by the end of
1998, while work on the customer service software project will continue
into 1999. If the implementation of the new customer service software does
not progress as expected over the next few months, the Company will
postpone the implementation of the new software and instead make its
current software Year 2000 compliant. In conjunction with these two
projects, midrange and personal computers have been upgraded with hardware
and operating systems that are Year 2000 compliant.
Many of the Company's water treatment plants utilize automation systems
that are controlled by personal computers. These systems are being tested
and upgraded if necessary, and that work is expected to be completed by the
end of 1998.
In addition to the work being done on the Company's internal systems,
interfaces used to exchange information with banks and other entities are
being tested to ensure Year 2000 compliance. And where feasible, plans are
being formulated to minimize the impact of problems outside parties may
have in providing supplies and services.
The cost of the new financial and customer service software, implementation
consulting services, and the cost of upgrading and replacing computer
equipment will be capitalized by the utility subsidiaries and included in
future rate increase requests. The total cost of these capital projects is
expected to be approximately $40 million, of which approximately $20
million has been incurred to date. Costs for specific Year 2000
remediation projects will be charged to expense unless they meet the
requirements for deferral as regulatory assets. However, current period
expenses are not expected to be materially different from the usual ongoing
level of information systems related expenses.
Forward Looking Information
- ---------------------------
This report, including management's discussion and analysis, contains
certain forward looking statements regarding the Company's results of
operations and financial position. These forward looking statements are
based on current information and expectations, and are subject to risks and
uncertainties which could cause the Company's actual results to differ
materially from expected results.
<PAGE> Page 16 FORM 10-Q
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
A. Exhibits
--------
Exhibit number (10), Material Contracts, is filed herewith electronically.
Exhibit number (27), Financial Data Schedule, is filed herewith
electronically.
B. Reports on Form 8-K
-------------------
No report on Form 8-K was filed by the registrant during the quarter ended
June 30, 1998.
<PAGE> Page 17 FORM 10-Q
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN WATER WORKS COMPANY, INC.
Date August 13, 1998 J. James Barr
- ---------------------- --------------------------------------
President and CEO
(Authorized Officer)
Date August 13, 1998 Robert D. Sievers
- ---------------------- --------------------------------------
Comptroller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000318819
<NAME> R. D. SIEVERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,839,020
<OTHER-PROPERTY-AND-INVEST> 111,454
<TOTAL-CURRENT-ASSETS> 202,989
<TOTAL-DEFERRED-CHARGES> 278,548
<OTHER-ASSETS> 49,747
<TOTAL-ASSETS> 4,481,758
<COMMON> 100,383
<CAPITAL-SURPLUS-PAID-IN> 342,507
<RETAINED-EARNINGS> 739,134
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,182,024
79,075
17,928
<LONG-TERM-DEBT-NET> 1,894,298
<SHORT-TERM-NOTES> 230,410
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 21,053
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,056,970
<TOT-CAPITALIZATION-AND-LIAB> 4,481,758
<GROSS-OPERATING-REVENUE> 481,980
<INCOME-TAX-EXPENSE> 36,143
<OTHER-OPERATING-EXPENSES> 316,443
<TOTAL-OPERATING-EXPENSES> 352,586
<OPERATING-INCOME-LOSS> 129,394
<OTHER-INCOME-NET> 2,520
<INCOME-BEFORE-INTEREST-EXPEN> 131,914
<TOTAL-INTEREST-EXPENSE> 75,264
<NET-INCOME> 56,650
1,992
<EARNINGS-AVAILABLE-FOR-COMM> 54,658
<COMMON-STOCK-DIVIDENDS> 32,767
<TOTAL-INTEREST-ON-BONDS> 72,112
<CASH-FLOW-OPERATIONS> 91,121
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
</TABLE>
EXHIBIT 10
CONSULTING AGREEMENT
THIS IS A CONSULTING AGREEMENT by and between Anthony P.
Terracciano, an individual whose mailing address is 1123 3rd Avenue, Spring
Lake, New Jersey 07762 ("Consultant") and American Water Works Company,
Inc. ("the Company"), a Delaware corporation.
BACKGROUND
Consultant is currently a member of the Board of Directors of the
Company (the "Board"). At the Board's request, Consultant has agreed to
provide, working with the Board and the Company's President and Chief
Executive Officer (the "CEO"), consulting services as the Company reviews
its growth strategy.
NOW, THEREFORE, in consideration of the covenants set forth
herein, and intending to be legally bound hereby, the parties agree as
follows:
AGREEMENT
1. Retention. Subject to the terms and conditions hereinafter
set forth, the Company hereby retains Consultant, and Consultant accepts
that retention, to serve as a business consultant, for the term and at the
compensation and benefits hereinafter stated.
2. Term. The initial term of this Agreement shall commence on
May 7, 1998 and shall continue for a period of 12 months. The term of this
Agreement may be extended thereafter by mutual agreement of the Consultant
and the Board.
3. Duties. As a consultant to the Company, Consultant shall
provide consulting and advisory services, from time to time, on behalf of
the Company with respect to the Company's strategic growth planning.
Consultant shall use his best efforts to be available to render consulting
services at such times and locations as the Board or the CEO shall
reasonably request.
4. Compensation. As compensation and consideration for such
services and responsibilities under this Agreement, the Company agrees to
pay Consultant and Consultant agrees to accept compensation of $250,000
annually. Such compensation shall be payable in equal, or as nearly equal
as practicable, monthly installments during each month, beginning May 1,
1998 in which the Consultant provides services hereunder. The Company
shall not be required to provide Consultant with any other payments or
benefits for his services hereunder, provided that the services to be
performed hereunder, and the compensation to be paid therefore, shall be in
addition to Consultant's services and compensation as a member of the
Board.
5. Reimbursement of Expenses. The Company agrees that, during
the time Consultant is retained hereunder, Consultant shall be allowed
reasonable business expenses in connection with the performance of his
duties hereunder upon submission by Consultant of vouchers or itemized
statements thereof prepared in compliance with such rules relating thereto
as the Company may from time to time adopt and as may be required in order
<PAGE> Page 2 EXHIBIT 10
to permit such payments as proper deductions to the Company under the
Internal Revenue Code and the rules and regulations adopted pursuant
thereto now or hereafter in effect.
6. Representations and Warranties. Consultant represents and
warrants to the Company that his execution and performance of this
Agreement will not conflict with, or result in a breach of, any other
agreements to which he is a party or any employment relationships or other
fiduciary duties he may have. Consultant will indemnify and hold harmless
the Company from any claims, liabilities, damages, costs or expenses
(including legal fees) resulting from third-party claims of any such
conflict or breach.
7. Nondisclosure of Confidential Information.
7.1 Consultant shall not, during the term of this
Agreement or at any time for a period of five years following termination
of this Agreement, unless authorized to do so in writing by the Company,
directly or indirectly disclose or permit to be known to, or used for the
benefit of, any person, corporation or other entity (outside of the employ
of the Company), or himself, any confidential information acquired by him
during the course of or as an incident to his employment or retention by or
association with the Company, whether or not pursuant to this Agreement.
For the purposes of this Section 7, the term confidential information shall
include, but not be limited to, all trade secrets, confidential or
proprietary knowledge or information with respect to the conduct or details
of the Company's business and other information about the Company's
business not in the public domain.
7.2 All confidential information described in Section 7.1
shall be the exclusive property of the Company, and Consultant shall use
his best efforts to prevent any publication or disclosure thereof. Upon
termination of Consultant's services with the Company, Consultant shall
return to the Company all documents, records, reports, writings and other
similar documents containing confidential information, including copies
thereof, then in his possession or control.
7.3 The provisions of this Section 7 shall survive the
termination, for any reason, of this Agreement and shall continue for the
period contemplated by this Section 7.
8. No Employee Relationship. Consultant and the Company agree
that Consultant shall be treated for all purposes as an independent
contractor and nothing hereunder shall be considered to create an
employment relationship between Consultant and the Company.
9. Waiver of Breach. The waiver by the Company of a breach of
any provision of this Agreement by Consultant shall not operate or be
construed as a waiver of any other or subsequent breach by Consultant of
such or any other provision.
<PAGE> Page 3 EXHIBIT 10
10. Notices. Any notice required or permitted to be given under
this Agreement shall be in writing and shall be delivered by hand or be
sent by certified mail addressed to Consultant at his address set forth in
the first paragraph of this Agreement, and to the Company at 1025 Laurel
Oak Road, Voorhees, NJ, 08043 ATTN: W. Timothy Pohl, Esq. or to such other
address as either of such parties may designate in a written notice served
upon the other party in the manner provided herein. Any such notice shall
become effective upon being mailed or, in the case of delivery by hand,
upon receipt.
11. Severability. If any term or provision of this Agreement or
the application thereof to any person or circumstance shall, to any extent,
be held invalid or unenforceable by a court of competent jurisdiction, the
remainder of this Agreement or the application of any such term or
provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law. If any of the provisions contained in
this Agreement shall for any reason be held to be excessively broad as to
duration, scope, activity or subject, it shall be construed by limiting and
reducing it, so as to be valid and enforceable to the extent compatible
with the applicable law or the determination by a court of competent
jurisdiction.
12. Governing Law. The implementation and interpretation of
this Agreement shall be governed by and enforced in accordance with the
laws of the State of New Jersey.
13. Binding Effect and Assignability. The rights and
obligations of both parties under this Agreement shall inure to the benefit
of and shall be binding upon their heirs, successors and assigns, but shall
not be assigned without the written consent of both parties.
14. Entire Agreement. This instrument constitutes the entire
agreement with respect to the subject matter hereof between the parties
hereto and replaces and supersedes as of the date hereof any and all prior
oral or written agreements and understandings between the parties hereto.
This Agreement may only be modified by an agreement in writing executed by
both Consultant and the Company.
IN WITNESS WHEREOF, the undersigned have executed this Agreement.
AMERICAN WATER WORKS COMPANY, INC.
By: Marilyn Ware Lewis
----------------------------------
Chairman of the Board of Directors
CONSULTANT:
Anthony P. Terracciano
----------------------------------
Anthony P. Terracciano
