American Water Works Company, Inc.

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American Water Works Company, Inc.

1025 Laurel Oak Road
Voorhees, New Jersey 08043
U.S.A.
Telephone: (856) 346-8200
Fax: (856) 346-8360
Web site: http://www.amwater.com

Public Company
Incorporated: 1936
Employees: 4,970
Sales: $1.26 billion (1999)
Stock Exchanges: New York
Ticker Symbol: AWK
NAIC: 22131 Water Supply and Irrigation Systems (pt); 22132 Sewage Treatment Facilities

American Water Works Company, Inc. is the largest investor-owned water supply company in the United States. With 25 utility subsidiaries operating in 23 states, the massive utility company services more than 1,000 communities nationwide and has served more than ten million customers through its 300 water production facilities. Bringing water to residential, commercial, industrial, and public clients, American Water Works continues to broaden both the size and scope of its business through acquisitions and construction projects to ensure its viability in the 21st century and beyond.

Collision of Two Forces: The 1930s to 1947

John H. Ware, Jr., was an eighth grade dropout and self-made millionaire who, during the 1930s, had begun acquiring small U.S. water utilities. While much of the country was still struggling from the devastation of the Great Depression, Ware had managed to amass a small fortune. He was particularly interested in one of President Franklin D. Roosevelt’s New Deal policies, the Public Utility Holding Act of 1935, which required that multilayered holding companies owning or operating utilities be broken up into smaller, independent companies. Among those targeted was the American Water Works & Electric Company, a prime example of the type of company the 1935 law was intended to abolish. Originally founded in 1886 as the American Water Works and Guarantee Company, the company was renamed in 1917 as American Water Works & Electric and owned several utility operating companies in western Pennsylvania, West Virginia, Maryland, and Virginia, and about 80 local water companies in the eastern, southern, and Midwestern states.

Ware was determined to add the water utility assets of American Water Works & Electric to his expanding empire. The company unsuccessfully lobbied the Roosevelt administration to fight the Public Utility Holding Act of 1935, but the act was passed by Congress and signed into law. American Water Works and Guarantee then joined with the North American Company, another huge public utility holding company, in an action before the U.S. Supreme Court to have the law declared unconstitutional. The suit notwithstanding, American Water Works & Electric was the first utility holding company to file a plan of reorganization with the federal government, as the law required. As it was approved in 1937, the plan called for a simple reorganization to reduce its layers and required the company to divest itself of real estate holdings in California. The reorganization was to cost about $60 million and was viewed as a milestone when approved by the U.S. Securities and Exchange Commission, because it demonstrated that the federal regulatory agency could act benevolently when utility holding companies cooperated.

Despite complying with the restructuring and divestment plan, the company, newly renamed American Water Works Company, Inc., bitterly fought in the courts for the next nine years. The end came in 1946 when the Supreme Court found that the 11-year-old Public Utility Holding Act Law was, indeed, constitutional. The same year, American Water Works was forced to revise its reorganization plan when it realized that its inability to pay stock dividends for the previous eight years would make the investment community reluctant to put its money into the company. The reorganization plan had the company selling its cash cow, its water works business, to finance the restructuring. The company’s management thought that its existing shareholders would bid on the company’s stock through sealed bids and nothing would change; they also expected its stock to be sold at $10 or more a share in the sealed bidding process.

Ware, meanwhile, had been waiting in the wings and raising funds. He had not only pursued his interest in buying water companies, but had invested in a series of successful smaller ventures, including several electrical contracting companies, and had been able to raise $13 million in capital. Although an unknown entity to American Water Works’ managers, Ware submitted the only bid for the company, at $8 per share. He invested the entire $13 million and won a company with assets of $183 million, though some of the company’s water works facilities and pipelines were broken down and decrepit. The once mighty holding company had become an aging vestige of a bygone era; American Water Works, with operating revenues of $24 million for the year, joined Ware’s burgeoning resources with little fanfare in 1947.

In New Hands: 1948 Through the 1960s

The previous managers at American Water Works left with Ware’s purchase of the company, and he brought in his own management team, including Lawrence T. (Bill) Reinicker and John J. (Jack) Barr. Reinicker was skilled as an operations manager, and Barr was Ware’s financial expert. Both had joined Ware in his earlier ventures in the late 1930s and had been named vice-presidents. The company Ware, Reinicker, and Barr took over included electrical utilities, but Ware was primarily interested in the water utility operating units. He bid on the entire company to gain a 51 percent ownership share when his financial advisers warned that his $13 million in cash would not be enough to buy the company or its water works assets outright, and he consolidated his ownership in the ensuing years. Within a few years Ware spun off the electrical power business.

The company moved six times in the eight years between 1942 and 1950, to various office buildings in New York City, in Camden, New Jersey, and back to New York City, before finally moving to new headquarters at Three Penn Center in Philadelphia in 1955, where it remained for the next 21 years.

Ware bought and sold smaller water companies at a fast pace during his first few years of owning American Water Works Company. Where cities wanted to own and operate their own water systems, he divested, sometimes after bitter feuds; where municipal utility operations were too small to grow or to remain afloat on their own, he acquired them, and, where new projects were needed, Ware stepped in with his company’s deep financial pockets to establish viable water systems.

Ware scored a major coup in 1948 when he contracted to build a dam and reservoir on the Occoquan River in Alexandria, Virginia. The huge project also called for pumping and treatment stations, but before the ink was dry American Water Works found itself in another bitterly contested court fight. In a move proving all too common, the city wanted to acquire the Alexandria water company and operate it as a community-owned utility. This spurred the court actions, which ended with Ware’s loss of the Alexandria system after a protracted legal battle. Despite the legal wrangles, American Water Works, with its economy of scale and Ware’s inimitable drive, was able to afford the costly improvements and maintenance of water systems taxed by the growing demands of development in the United States’ boom years.

In the executive offices, Bill Reinicker had been named president in 1953 and vice-chairman in 1954; he retired at the age of 61 in 1955. When Reinicker became vice-chairman, Jack Barr was named president of the company and effectively became its CEO and COO, while Ware continued as chairman. Barr oversaw the company’s growth through the turbulence of the 1960s, a period when American Water Works continued its acquisitions of smaller companies while spending huge amounts of money to renovate and build new water treatment, pumping, and storage facilities. It was in 1963 that American Water Works and Ware’s company, Northeastern Water Company, officially merged into one nationwide utility giant. The new company’s size and clout helped make possible one of its largest acquisitions, that of International Utilities (later known as UI International), another sizable water utility operating company.

The 1970s and 1980s

The dawn of the 1970s brought a new era of environmental awareness and, along with it, increasing environmental legislation. In 1975 Barr retired and was succeeded as president by John A. Gubanich. Ware, too, retired as chairman of the company and his son, John H. Ware III, became chairman. Gubanich, former treasurer of the company, was given credit for greatly increasing the company’s profit throughout the decade. During his eight-year term as president of the company, Gubanich continued consolidating the company’s smaller water companies, installing a uniform and centralized management system and merging many of the smaller companies into larger, regional operations. By the end of Gubanich’s presidential term, American Water Works Company had only 33 operating units, a drastic reduction from the 151 companies the company had owned or acquired since its founding.

Company Perspectives:

The core business of American Water Works Company, Inc. is the ownership of common stock of utility companies providing water service. The combination of American Water Works with its subsidiaries constitutes the American Water System —a system that has functioned well for over 50 years. Each subsidiary functions independently, yet shares in the benefits of size and identity afforded by the American Water System.

The stagnant growth and high inflation of the late 1970s left the company strapped for cash. To meet the challenge, Gubanich ushered in a series of cost-cutting moves that included merging several operating units and relocating, in 1976, the corporation’s headquarters from Philadelphia to Voorhees, New Jersey. Gubanich also worked to broaden the American Water Works board to include outside directors, bringing in a fresh perspective and business acumen previously lacking. One of these new directors was Philadelphia banker Sam Ballam, who became the first outside chief executive of the company in 1984 when he replaced the retiring John Ware III as chairman of the board. At the same time, Gubanich was succeeded by James V. LaFrankie as president of the company. LaFrankie had been with American Water Works Company almost from the day John Ware bought it, and he rose through the ranks of various operating units. LaFrankie was the first president of the company from the operations side since Bill Reinicker, and he continued the Herculean task of consolidating the company’s dozens of operating units.

Marilyn Ware Lewis, daughter of John Ware III and granddaughter of John Ware, Jr., was named chairman of American Water Works Company, Inc. in 1987. In a 1989 interview with the Lancaster (Pennsylvania) New Era, she recalled that when she was a little girl her grandfather had told her the availability of water would be one of the most significant issues faced by her generation. Lewis was convinced at an early age that water was the single most essential commodity in a household and she, like her grandfather, had come to believe a company that efficiently treated and supplied clean drinking water to its customers would be a very profitable enterprise. She was right: as the 1980s came to a close American Water Works Company’s utility subsidiaries crisscrossed the country. By 1989 operating revenues had reached $528 million, with the company having sold more than 211 million gallons of water to 1.5 million customers in the residential, commercial, industrial, and public sectors.

A Veritable Giant: 1990-97

The last decade of the 20th century brought further expansion for American Water Works in the Midwest, as well as on both the East and West Coasts. The earliest years, 1990 and 1991, saw unprecedented growth, with operating revenues climbing from $573 million to $636 million and income leaping 30 percent to $74 million. Much of the increase in revenue and income came from the company’s widening scope within the wastewater treatment sector, led by new President and CEO George W. Johnstone, who had been with the company for 25 years. A new water carbon regeneration plant was in operation in Columbus, Ohio, supplying filtered water to other subsidiaries as well as nonaffiliated companies; this was followed by a joint venture in 1993 with the United Kingdom’s Anglian Water Plc to form AmericanAnglian Environmental Technologies (AAET), as an advisor to wastewater treatment plants offering both technical and financial aid. Other acquisitions during the year included water utility companies in Indiana, Michigan, Missouri, and Ohio.

In addition to buying utility holdings throughout the United States, American Water Works maintained its edge by extensive renovations to its subsidiaries as well as undertaking massive building projects. One such plan was the $200 million Tri-County Water Supply Project to augment the existing New Jersey water supply by tapping into the Delaware River; another included adding 26 miles of new pipeline and a wastewater treatment plant to its West Virginia utility. By 1995 the company’s expansion projects were forging ahead to the tune of more than $331 million invested for that year alone and operating revenues at year end were a robust $803 million. In addition, American Water Works executives were delighted when the company was included in Standard & Poor’s well-known MidCap 400 Index.

In 1996 the New Jersey/Delaware River project was completed and put into use while the company’s Pennsylvania unit executed the industry’s largest asset acquisition, for $409 million, to buy Pennsylvania Gas and Water Company’s water holdings, supplying water to Scranton, Wilkes-Barre, and the surrounding areas. American Water Works Company’s utility assets, spread over 21 states, were now worth more than $3.4 billion, and operating revenues had climbed to $895 million. The next year, 1997, marked the end of an era as John Ware III passed away and the company’s president and CEO, George W. Johnstone, retired after more than three decades of service. Taking the helm as CEO was J. James Barr, who had been CFO since the beginning of the decade, and who had held various executive positions in the interim. Marilyn Ware Lewis continued as chairman of the board.

Plans for the Future: 1998 Onward

A new kind of history began in 1998 when American Water Works broke the billion dollar mark with operating revenues of $1.02 billion. The United States’ largest regulated water utility business was not content to rest on its laurels; during the last two years of the century came several sizable acquisitions, including National Enterprises Inc. (for $458 million), SJW Corp. ($390 million), and the water and wastewater assets of Citizens Utilities Company ($745 million). The company’s joint venture with Anglian Water Plc, however, had not lived up to expectations. In an effort to salvage the operation, American Water Works bought out Anglian’s interest and restructured AAET into a new company. Operating revenues for 1999 surpassed $1.26 billion, while stock performance ranged from a low of $17 to a high of more than $34 per share.

Key Dates:

1886:: American Water Works and Guarantee Company is founded.
1917:: The company is renamed American Water Works & Electric Company.
1935:: The Public Utility Holding Act Law is passed.
1936:: The company is incorporated and newly named American Water Works Company, Inc.
1946:: The U.S. Supreme Court rules that the Public Utility Holding Act Law is constitutional.
1947:: American Water Works is acquired by John H.Ware, Jr.
1963:: American Water Works merges with Northeastern Water Company.
1976:: Corporation headquarters relocates from Philadelphia to Voorhees, New Jersey.
1993:: A joint venture with the United Kingdom’s Anglian Water Plc forms American Anglian Environmental Technologies.
1996:: The company’s Pennsylvania unit purchases the water holdings of Pennsylvania Gas and Water Company for $409 million, the industry’s largest asset acquisition.
1998:: The company surpasses the billion dollar mark, with operating revenues of $1.02 billion.

Whereas American Water Works Company’s predecessor was broken up by the Public Utilities Act of 1935 because of its size and stranglehold on the market, the younger behemoth followed in the footsteps of its elder. Although regulated and publicly owned, American Water Works certainly dominated its market, operating two dozen subsidiaries throughout the United States in 23 states, producing some 345 billion gallons of water in 1999 to serve more than ten million customers. The company’s weakness, however, was none other than its client base, which had proven fickle throughout its colorful history. As had happened time and again, communities large and small often decided to obtain and supply their own water; these demands were generally settled in court. American Water Works had had more than its share of legal skirmishes, and to keep its customers happy, had invested millions of dollars to maintain what it touted as the best water utilities and treatment plants in the nation. With the EPA projecting upgrades and maintenance of the nation’s more than 50,000 water systems costing upward of $1.35 billion during the next two decades, American Water Works was already way ahead in the game. In 2000 and beyond, the company’s continued prosperity was a relatively safe bet, and customer service was given a higher priority with plans for a new national service facility to open in Alton, Illinois, in 2001.

Principal Subsidiaries

American Commonwealth Management Services Company; Arizona-American Water Company; California-American Water Company; Connecticut-American Water Company; Hampton Water Works Company; Hawaii-American Water Company; Illinois-American Water Company; Indiana-American Water Company; Iowa-American Water Company; Kentucky-American Water Company; Long Island-American Water Company; Maryland-American Water Company; Massachusetts-American Water Company; Michigan-American Water Company; New Jersey-American Water Company; New Mexico-American Water Company; New York-American Water Company; Ohio-American Water Company; Pennsylvania-American Water Company; St. Louis County Water Company and Missouri-American Water Company; Salisbury Water Supply Company; Tennessee-American Water Company; Virginia-American Water Company; West Virginia-American Water Company.