<PAGE> 1
Page 1 of 71
Exhibit Index on Pages 17-19
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File Number 1-3437-2
American Water Works Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 51-0063696
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1025 Laurel Oak Road, Voorhees, New Jersey 08043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 609-346-8200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1.25 par value per share New York Stock Exchange
Cumulative Preferred Stock, 5% Series,
$25 par value per share New York Stock Exchange
5% Cumulative Preference Stock,
$25 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 2, 1994 was $637,263,191.
As of March 2, 1994, there were a total of 31,325,089 shares of Common
Stock, $1.25 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The following pages and sections in Registrant's Annual Report to
Stockholders for 1993 are incorporated by reference into Part I, Item 1 and
Part II of this Form 10-K: pages 22 through 33, pages 35 through 53, and the
section entitled "Range of Market Prices" on the inside back cover.
(2) Page 2 (beginning with the fourth full paragraph thereon) through
page 11, with the exception of the second paragraph on page 4 and the
sections entitled "Report of the Compensation and Management Development
Committee of the Board of Directors on Executive Compensation" and
"Performance Graph" on pages 9 and 11, respectively, of the definitive Proxy
Statement relating to Registrant's Annual Meeting of Stockholders on May 5,
1994 are incorporated by reference into Part III of this Form 10-K.
PART I
Item 1. Business
The "Description of the Business" is set forth on page 23 of the Annual
Report to Stockholders for 1993, filed as Exhibit 13 to this Report on Form
10-K; and such description is hereby specifically incorporated herein by
reference thereto. The information provided in that section is supplemented
by the following details:
The water supplies of the operating subsidiaries consist of surface
supplies, wells, and in a limited number of cases, water purchased under
contract. Such supplies are considered adequate to meet present require-
ments. In general, all surface supplies are filtered and substantially all
of the water is treated with chlorine, and, in some cases, special treatment
is provided to correct specific conditions of the water.
In general, the operating utility subsidiaries have valid franchises,
free from unduly burdensome restrictions, sufficient to enable them to carry
on their business as presently conducted. They derive such franchise rights
from statutes under which they were incorporated, municipal consents and
ordinances, or certificates or permits received from state or local
regulatory agencies. In most instances, such franchise rights are non-
exclusive.
<PAGE> 3
In most of the states in which the operations of the operating
subsidiaries are carried on, there exists the right of municipal acquisition
by one or both of the following methods: (1) condemnation; or (2) the right
of purchase given or reserved by the law of the state in which the company
was incorporated or received its franchise. The price to be paid upon
condemnation is usually determined in accordance with the law of the state
governing the taking of land or other property under eminent domain statutes;
in other instances, the price is fixed by appraisers selected by the parties,
or in accordance with a formula prescribed by the law of the state or in the
particular franchise or special charter.
Some of the expenditures for construction by operating subsidiaries have
included facilities to comply with federal and state water quality and safety
standards. The nature of some of the construction is described in the
section entitled "System Growth and Development," located on page 26 of the
Annual Report to Stockholders for 1993, filed as Exhibit 13 to this Report on
Form 10-K; such information is hereby specifically incorporated herein by
reference thereto.
The number of persons employed by the Registrant and subsidiary
companies totaled 4,062 at December 31, 1993.
Item 1A. Executive Officers of the Registrant
The following list sets forth the names, ages and offices held with the
Registrant by each of the executive officers of the Registrant. No family
relationships exist among any of such executive officers, nor do any
arrangements or understandings exist between any such executive officer and
any other person pursuant to which he was selected as an officer.
Name Age Office Held Office Held Since
George W. Johnstone 55 President & Chief Executive
Officer January 2, 1992
J. James Barr 52 Vice President & Treasurer January 20, 1984
Edward W. Limbach 55 Vice President May 3, 1990
Gerald C. Smith 59 Vice President May 2, 1991
W. Timothy Pohl 39 General Counsel & Secretary January 16, 1988
Robert D. Sievers 40 Comptroller February 14, 1992
The executive officers are elected at the annual organizational meeting
of the Board of Directors of the Registrant which is held in May. The
executive officers serve at the pleasure of the Board of Directors.
Successors to officers who resign, die or are removed during the year are
elected by the Board.
Prior to his election as President and Chief Executive Officer,
Mr. Johnstone was named President-elect in March 1991. In addition,
Mr. Johnstone had been a Vice President from May 1987 until January 1992 and
an officer of subsidiary companies for more than five years prior to his
election as a Vice President. Mr. Barr had been an officer of subsidiary
companies for more than five years prior to his election as Treasurer. In
addition, Mr. Barr was elected a Vice President on May 6, 1987. Mr. Limbach
had been an officer of subsidiary companies for more than five years prior to
<PAGE> 4
his election as a Vice President. Mr. Smith had been an officer of
subsidiary companies for more than five years prior to his election as a Vice
President. Mr. Pohl had been an officer of subsidiary companies from May
1984 to his election as Secretary. In addition, Mr. Pohl was elected General
Counsel on May 3, 1990. Prior to being elected to his current position,
Mr. Sievers had been Assistant Comptroller since May 1985.
Item 2. Properties
The Registrant leases its office space, equipment and furniture from one
of its wholly-owned subsidiaries. The office space, equipment and furniture
are located in Voorhees, New Jersey and are utilized by the Registrant's
directors, officers and staff in the conduct of the Registrant's business.
The subsidiary operating companies own, in the states in which they
operate, transmission and distribution mains, pump stations, treatment
plants, storage tanks, reservoirs and related facilities. Properties are
adequately maintained and units of property are replaced as and when
necessary. The Registrant considers the properties of its operating
companies to be in good operating condition.
A substantial acreage of land is owned by the operating companies, the
greater part of which is located in watershed areas, with the balance being
principally sites of pumping and treatment plants, storage reservoirs, tanks
and standpipes.
Item 3. Legal Proceedings
There are no pending material legal proceedings, other than ordinary,
routine litigation incidental to the business, to which the Registrant or any
of its subsidiaries is a party or of which any of their property is the
subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information required under this item is contained in the section
entitled "Range of Market Prices," located on the inside back cover of the
Annual Report to Stockholders for 1993, filed as Exhibit 13 to this Report on
Form 10-K; such information is hereby specifically incorporated herein by
reference thereto.
<PAGE> 5
Item 6. Selected Financial Data
The information required under this item is contained in the section
entitled "Consolidated Summary of Selected Financial Data," located on page
22 of the Annual Report to Stockholders for 1993, filed as Exhibit 13 to this
Report on Form 10-K; such information is hereby specifically incorporated by
reference thereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is contained in the section
entitled "Management's Discussion and Analysis," located on pages 23 through
33 of the Annual Report to Stockholders for 1993, filed as Exhibit 13 to this
Report on Form 10-K; such information is hereby specifically incorporated
herein by reference thereto.
Item 8. Financial Statements and Supplementary Data
The financial statements, together with the report thereon of Price
Waterhouse dated February 1, 1994, appearing on pages 35 through 53 of the
1993 Annual Report to Stockholders, filed as Exhibit 13 to this Report on
Form 10-K, are hereby specifically incorporated herein by reference thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required under this item with respect to the Directors
of the Registrant appears in the fourth full paragraph on page 2 through the
first full paragraph on page 4 and in the section entitled "Compliance with
Section 16(a) of the Securities Exchange Act of 1934, As Amended" which is
located on page 6 of the definitive Proxy Statement relating to the
Registrant's Annual Meeting of Stockholders on May 5, 1994, to be filed by
the Registrant with the Commission pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (the "1934 Act"); such information is hereby
specifically incorporated herein by reference thereto.
The information required under this item with respect to the Executive
Officers of the Registrant is set forth in Item 1A of Part I above pursuant
to paragraph (3) of General Instruction G to Form 10-K.
Item 11. Executive Compensation
The information required under this item is contained in the sections
entitled "Management Remuneration," "Pension Plan," "Report of the
Compensation and Management Development Committee of the Board of Directors
on Executive Compensation," "Director Remuneration" and "Performance Graph"
<PAGE> 6
which are located on pages 7 through 11 of the definitive Proxy Statement
relating to the Registrant's Annual Meeting of Stockholders on May 5, 1994,
to be filed by the Registrant with the Commission pursuant to Section 14(a)
of the 1934 Act, and is hereby specifically incorporated herein by reference
thereto, except for the "Report of the Compensation and Management
Development Committee of the Board of Directors on Executive Compensation"
and "Performance Graph" which are not so incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is contained in the section
entitled "Stock Ownership Information" which is located on pages 4, 5 and 6
of the definitive Proxy Statement relating to the Registrant's Annual Meeting
of Stockholders on May 5, 1994, to be filed by the Registrant with the
Commission pursuant to Section 14(a) of the 1934 Act, and is hereby
specifically incorporated herein by reference thereto.
Item 13. Certain Relationships and Related Transactions
There are no material relationships or related transactions other than
those disclosed in response to Item 11 of this Part III.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) The following documents are filed as part of this report:
1. Financial Statements: the Financial Statements required to be
filed by Item 8 are listed in the Index to Financial Statements,
which appears on Pages 10 and 11 of this Report on Form 10-K.
2. Financial Statement Schedules: the Financial Statement
Schedules required to be filed by Item 8 and by paragraph (d) of
this Item are listed in the Index to Financial Statements, which
appears on Pages 10 and 11 of this Report on Form 10-K.
3. Exhibits: the Exhibits to this Form 10-K are listed in the
Index to Exhibits, which appears on Pages 17 to 19 of this
Report on Form 10-K.
b) Reports on Form 8-K.
During the last quarter of the period covered by this Report on Form
10-K, the Registrant filed no reports on Form 8-K.
<PAGE> 7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN WATER WORKS COMPANY, INC.
By: /s/ George W. Johnstone
George W. Johnstone, President
and Chief Executive Officer
DATE: March 3, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
Principal Executive Officer:
/s/ George W. Johnstone President and March 3, 1994
George W. Johnstone Chief Executive Officer
Principal Financial Officer:
/s/ J. James Barr Vice President and March 3, 1994
J. James Barr Treasurer
Principal Accounting Officer:
/s/ Robert D. Sievers Comptroller March 3, 1994
Robert D. Sievers
<PAGE> 8
SIGNATURES (Cont'd.)
Directors:
/s/ William O. Albertini March 3, 1994
William O. Albertini
/s/ William R. Cobb March 3, 1994
William R. Cobb
/s/ Elizabeth H. Gemmill March 3, 1994
Elizabeth H. Gemmill
/s/ Henry G. Hager March 3, 1994
Henry G. Hager
/s/ Nelson G. Harris March 3, 1994
Nelson G. Harris
/s/ William F. Hyland March 3, 1994
William F. Hyland
/s/ George W. Johnstone March 3, 1994
George W. Johnstone
/s/ Marilyn W. Lewis March 3, 1994
Marilyn W. Lewis
Nancy W. Wainwright
/s/ Paul W. Ware March 3, 1994
Paul W. Ware
/s/ Ross A. Webber March 3, 1994
Ross A. Webber
<PAGE> 9
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1993
AMERICAN WATER WORKS COMPANY, INC.
FINANCIAL STATEMENTS
<PAGE> 10
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS
The following documents are filed as part of this report:
Page(s) in
(1) FINANCIAL STATEMENTS Annual Report*
Report of Independent Accountants . . . . . . . . . . . . . . 35
Consolidated Balance Sheet of American Water Works
Company, Inc. and Subsidiary Companies at December 31,
1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . .36 and 37
Consolidated Statements of Income and Retained
Earnings of American Water Works Company, Inc.
and Subsidiary Companies for each of the three
years in the period ended December 31, 1993 . . . . . . . . . 38
Consolidated Statement of Cash Flows of American
Water Works Company, Inc. and Subsidiary Companies
for each of the three years in the period ended
December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . 39
Balance Sheet of American Water Works Company, Inc.
at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . 40
Statements of Income and Retained Earnings of
American Water Works Company, Inc. for each of the
three years in the period ended December 31, 1993 . . . . . . 41
Statement of Cash Flows of American Water Works
Company, Inc. for each of the three years in the
period ended December 31, 1993. . . . . . . . . . . . . . . . 42
Schedules Accompanying Financial Statements . . . . . . .43 through 45
Notes to Financial Statements . . . . . . . . . . . . . .46 through 53
*Incorporated by reference from the indicated pages of the 1993 Annual Report
to Stockholders, which is Exhibit 13 to this Report on Form 10-K.
<PAGE> 11
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS (Continued)
(2) FINANCIAL STATEMENT SCHEDULES
Description Page*
Report of Independent Accountants on Financial Statement
Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Consent of Independent Accountants. . . . . . . . . . . . . . . 13
Schedule V: Property, Plant and Equipment . . . . . . . . . 14
Schedule VI: Accumulated Depreciation of Property,
Plant and Equipment . . . . . . . . . . . . . . 15
Schedule VIII: Valuation and Qualifying Accounts-Allowance
for Uncollectible Accounts. . . . . . . . . . . 16
Schedule X: Supplementary Income Statement Information. . . 16
Financial Statement Schedules not included in this Report on Form 10-K have
been omitted because they are not applicable or the required information is
shown in the Financial Statements or notes thereto.
*Page number shown refers to the page number in this Report on Form 10-K.
<PAGE> 12
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
American Water Works Company, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 1, 1994 appearing on page 35 of the 1993 Annual Report to
Stockholders of American Water Works Company, Inc. (which report and
consolidated financial statements are incorporated by reference in this
Annual Report on Form 10-K) also included an audit of the Financial Statement
Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these
Financial Statements Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
February 1, 1994
<PAGE> 13
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Number 33-
32051), on Form S-8 (Number 33-34804) and on Form S-8 (Number 33-62438) of
American Water Works Company, Inc. of our report dated February 1, 1994
appearing on page 35 of the Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statements
Schedules, which appears on page 12 of this Form 10-K.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 25, 1994
<PAGE> 14
FINANCIAL STATEMENT SCHEDULE V
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
SCHEDULE V - Property, Plant and Equipment
Years Ended December 31
(In thousands)
Other
Beginning Additions Changes-Add Ending
Year Balance At Cost (A) Retirements (Deduct) (B) Balance
- ---- ---------- ----------- ----------- ------------ ----------
1993 $2 596 267 $363 015 $ 17 103 $ 14 602 $2 956 781
1992 2 412 748 204 792 20 506 (767) 2 596 267
1991 2 244 032 187 396 15 908 (2 772) 2 412 748
1993 1992 1991
-------- -------- --------
(A) Construction expenditures $193 116 $197 579 $182 987
Property acquired 169 899 7 213 4 409
-------- -------- --------
$363 015 $204 792 $187 396
======== ======== ========
(B) Property sold $ (23) $ (251) $ (37)
Return of contributed
property (1 747)
Adoption of Statement of Financial
Accounting Standards No. 109 --
Gross-up of allowance for
borrowed funds used
during construction 16 477
Miscellaneous (1 852) (516) (988)
-------- -------- ---------
$ 14 602 $ (767) $ (2 772)
======== ======== ========
<PAGE> 15
FINANCIAL STATEMENT SCHEDULE VI
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
SCHEDULE VI - Accumulated Depreciation of Property, Plant and Equipment
Years Ended December 31
(In thousands)
Additions
Charged to Other
Beginning Costs and Changes-Add Ending
Year Balance Expenses (A) Retirements (Deduct) (B) Balance
- ---- --------- ------------ ----------- ------------ ---------
1993 $414 482 $66 093 $17 103 $27 808 $491 280
1992 377 646 58 257 20 506 (915) 414 482
1991 342 717 51 887 15 908 (1 050) 377 646
1993 1992 1991
-------- -------- --------
(A) Additions to accumulated
depreciation charged to costs
and expenses $66 093 $58 257 $51 887
Amortization of premature
property retirements 396 289 366
Other 349 (164) (186)
------- ------- -------
Depreciation and amortization
charged to operating expenses $66 838 $58 382 $52 067
======= ======= =======
(B) Property acquired $31 050 $ 984 $ 43
Depreciation charged to
contributed property 2 202 1 861 2 048
Removal costs (6 201) (5 224) (4 815)
Salvage credits 1 744 1 190 1 207
Miscellaneous (987) 274 467
------- ------- -------
$27 808 $ (915) $(1 050)
======= ======= =======
<PAGE> 16
FINANCIAL STATEMENT SCHEDULES VIII & X
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
SCHEDULE VIII - Valuation and Qualifying Accounts
Allowance for Uncollectible Accounts
Years Ended December 31
(In thousands)
Balance Additions Charged to Balance
Beginning ------------------------- End of
Year of Year Expense (A) Other (B) Deductions (C) Year
- ---- --------- ----------- --------- -------------- -------
1993 $ 925 $ 3 377 $ 102 $ 3 297 $ 1 107
1992 871 3 580 3 526 925
1991 844 4 028 4 001 871
(A) Provisions included in operating expense.
(B) Allowance for uncollectible accounts of acquired companies.
(C) Amounts written off as uncollectible, net of recovery of amounts
previously written off.
SCHEDULE X - Supplementary Income Statement Information
(In thousands)
Charged to Costs and Expenses
-----------------------------
During the Years Ended December 31
-----------------------------------
Item 1993 1992 1991
---- ------- ------- -------
1. Maintenance and repairs $45 914 $41 721 $47 043
3. Taxes, other than payroll
and income taxes:
Property and capital stock 24 664 21 867 20 287
Gross receipts and franchise 30 174 28 600 25 540
Miscellaneous 2 186 2 412 2 145
<PAGE> 17
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
3 Articles of Incorporation and By-laws
(a) Certificate of Incorporation of the Registrant, as
amended and restated as of May 15, 1987, is incorporated herein
by reference to Exhibit 3(a) to Form 10-K report of the
Registrant for 1987.
(b) Certificate of Amendment of the Certificate of
Incorporation of the Registrant, effective May 9, 1989, is
incorporated herein by reference to Exhibit 3(a) to Form 10-Q
report of the Registrant for June 30, 1989.
(c) Certificate of Amendment of the Restated Certificate of
Incorporation of the Registrant, effective May 3, 1990, is
incorporated herein by reference to Exhibit 3(a) to Form 10-Q
report of the Registrant for June 30, 1990.
(d) Certificate of Designations of the Registrant relating
to its Cumulative Preferred Stock, 8.50% Series, is
incorporated herein by reference to Exhibit 3(d) to Form 10-K
report of the Registrant for 1990.
(e) By-laws of the Registrant, as amended to January 6,
1994, are filed herewith.
4 Instruments Defining the Rights of Security Holders,
Including Indentures
(a) Indenture dated as of November 1, 1977 between the
Registrant and The Fidelity Bank (name later changed to First
Fidelity Bank, National Association), Trustee, is incorporated
herein by reference to Exhibit E to Form 10-K report of the
Registrant for 1977.
(b) First Supplemental Indenture dated as of December 1,
1989 between the Registrant and Fidelity Bank, National
Association (name later changed to First Fidelity Bank,
National Association), as Trustee, is incorporated herein by
reference to Exhibit 4(i) to Form 10-K report of the Registrant
for 1989.
<PAGE> 18
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
4 (cont.) (c) Second Supplemental Indenture dated as of February 1,
1993 between the Registrant and Fidelity Bank, National
Association (name later changed to First Fidelity Bank,
National Association), as Trustee, is incorporated herein by
reference to Exhibit 4(c) to Form 10-K report of the Registrant
for 1992.
(d) Flip-Over Rights Agreement dated as of March 2, 1989
between the Registrant and Bank of Delaware, as Rights Agent,
is incorporated herein by reference to Exhibit 1 to Form 8-A
Registration Statement of the Registrant, No. 1-3437-2.
(e) Flip-In Rights Agreement dated as of March 2, 1989
between the Registrant and Bank of Delaware, as Rights Agent,
is incorporated herein by reference to Exhibit 1 to Form 8-A
Registration Statement of the Registrant, No. 1-3437-2.
10 Material Contracts
(a) Employees' Stock Ownership Plan of the Registrant and
Its Designated Subsidiaries, as Amended and Restated Effective
January 1, 1987, is incorporated herein by reference to Exhibit
19(b) to Form 10-K report of the Registrant for 1986.
(b) Amendment No. 1 to Employees' Stock Ownership Plan of
the Registrant and Its Designated Subsidiaries, as Amended and
Restated Effective January 1, 1987, is incorporated herein by
reference to Exhibit 19(b) to Form 10-K report of the
Registrant for 1988.
(c) Amendment No. 2 to Employees' Stock Ownership Plan of
the Registrant and Its Designated Subsidiaries, as Amended and
Restated Effective January 1, 1987, is incorporated herein by
reference to Exhibit 10(c) to Form 10-K report of the
Registrant for 1989.
(d) Amendment No. 3 to Employees' Stock Ownership Plan of
the Registrant and Its Designated Subsidiaries, as Amended and
Restated Effective January 1, 1987, is incorporated herein by
reference to Exhibit 10(d) to Form 10-K report of the
Registrant for 1990.
<PAGE> 19
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
10 (cont.) (e) Supplemental Executive Retirement Plan of the
Registrant, effective as of January 1, 1985, is incorporated
herein by reference to Exhibit 19(c) to Form 10-K report of the
Registrant for 1985.
(f) Amendment No. 1 to Supplemental Executive Retirement
Plan of the Registrant is incorporated herein by reference to
Exhibit 10(e) to Form 10-K report of the Registrant for 1989.
(g) Amendment No. 2 to Supplemental Executive Retirement
Plan of the Registrant is incorporated herein by reference to
Exhibit 10(g) to Form 10-K report of the Registrant for 1990.
(h) Supplemental Retirement Plan of the Registrant,
effective as of April 1, 1989, is incorporated herein by
reference to Exhibit 10(f) to Form 10-K report of the
Registrant for 1989.
13 Annual Report to Security Holders
The Registrant's Annual Report to Stockholders for 1993 is
filed as exhibit hereto solely to the extent portions thereof
are specifically incorporated herein by reference.
21 Subsidiaries of the Registrant
Subsidiaries of the Registrant as of December 31, 1993.
23 Consents of Experts and Counsel
See "Consent of Independent Accountants" on page 13 of this
Form 10-K report.
<PAGE> 20
EXHIBIT 3(e)
AMERICAN WATER WORKS COMPANY, INC.
BY-LAWS
ADOPTED APRIL 16, 1970
AS AMENDED TO JANUARY 6, 1994
ARTICLE I
SHAREHOLDERS
Section 1. [As amended January 2, 1986 and further amended July 6,
1989] The annual meeting of the stockholders of the Corporation shall be
held at its office at 1025 Laurel Oak Road, Voorhees, New Jersey, on the
first Thursday in May of each year (or if said day be a legal holiday, then
on the next succeeding day not a holiday), at eleven o'clock in the forenoon,
daylight saving time or standard time whichever shall be legally in effect in
the Township of Voorhees, New Jersey, on that date, or on such other date or
at such other time or at such other place within the continental United
States as may be designated in the notice of the annual meeting, for the
purpose of electing directors and for the transaction of such other business
as may properly be brought before the meeting.
Section 2. [As amended July 6, 1989] Special meetings of the
stockholders may be held upon call of the Board of Directors or the Executive
Committee or the Chairman of the Board or the President or the holders of the
outstanding shares of the Corporation that would be entitled to cast a
majority of the votes on the matter or matters to be considered at the
special meeting, at such place and at such time and date as may be fixed by
the body or person or persons giving such call, and as may be stated in the
notice setting forth such call.
Section 3. [As amended July 6, 1989] Notice of the place, time and
date of every meeting of stockholders shall be delivered personally or mailed
at least ten days prior thereto to each stockholder of record entitled to
vote at such meeting at his address as it appears on the records of the
Corporation. Such further notice shall be given as may be required by law.
Section 4. Except as otherwise provided by law or in the Certificate of
Incorporation, as amended, of the Corporation, at all meetings of the
stockholders the presence in person or the representation by proxy of the
holders of the outstanding shares that would be entitled to cast at least a
majority of votes on a particular matter shall constitute a quorum for the
purpose of considering such matter. If there be no such quorum present for
considering a particular matter, the meeting on such matter may be adjourned
from time to time, by vote of a majority of those present or represented and
entitled to vote on such matter, without notice other than by announcement at
the meeting, until such a quorum be present.
<PAGE> 21
Section 5. Meetings of the stockholders shall be presided over by the
Chairman of the Board, the Vice Chairman of the Board or the President or, if
none of such officers is present, by a Vice President or, if no such officer
is present, by a chairman to be chosen at the meeting. The Secretary of the
Corporation or, in his absence, an Assistant Secretary, or in the absence of
both the Secretary and an Assistant Secretary, a person appointed by the
Chairman of the meeting shall act as secretary of the meeting.
Section 6. Any stockholder entitled to vote at any meeting of
stockholders may so vote in person or by proxy, but no proxy shall be acted
upon after three years from its date, unless such proxy provides for a longer
period.
Section 7. [As amended January 2, 1986 and further amended March 5,
1992] At all elections of directors by the stockholders of the Corporation,
each stockholder shall be entitled to vote as provided in the Certificate of
Incorporation, as amended, of the Corporation. The Chairman of the Board or
the chairman of each meeting at which directors are to be elected shall
appoint an inspector of election, unless such appointment shall be
unanimously waived by those stockholders present or represented by proxy at
the meeting and entitled to vote at the election of directors. No director
or candidate for the office of director shall be appointed as such inspector.
Before undertaking his duties at any such meeting, the inspector shall take
and subscribe an oath or affirmation faithfully to execute the duties of
inspector at such meeting, with strict impartiality and according to the best
of his ability, and shall take charge of the polls and after the balloting
shall make a certificate of the result of the vote taken.
Section 8. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, or such other action.
Section 9. Any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous consent shall be given to those stockholders who have not
consented in writing.
<PAGE> 22
ARTICLE II
BOARD OF DIRECTORS
Section 1. (a) [As amended January 16, 1975 and further amended May 4,
1989 and March 5, 1992 (effective May 7, 1992)] The Board of Directors shall
consist of eleven directors, but the number of directors may be increased or
decreased from time to time, within the limits as to the number specified in
the Certificate of Incorporation, as amended, of the Corporation, in the
manner hereinafter provided for amendment of the by-laws of the Corporation,
but subject to Article Eleventh of the Certificate of Incorporation, as
amended.
(b) [As amended January 16, 1975 and further amended March 5, 1992] A
majority of the number of directors shall constitute a quorum; provided,
however, no amendment of this sentence shall be adopted which is in violation
of the provisions of paragraph (h) of Section 1 of Division D of Article
FOURTH of the Certificate of Incorporation, as amended.
(c) [As amended January 16, 1975] Commencing with the annual election
of directors in the year 1975, no person shall be qualified to serve as a
director of the Corporation unless he is the beneficial holder of at least
100 shares of the common stock of the Corporation.
(d) [As amended January 16, 1975 and further amended August 26, 1976,
December 21, 1978, June 19, 1980, February 16, 1984 (effective June 1, 1984),
January 2, 1986 and January 6, 1994] (i) No person shall be eligible for
election to the Board of Directors of the Corporation in any year if such
person shall be 72 years of age or older on the first day of the year of such
election.
(ii) Each member of the Board of Directors who ceases to be a
director for any reason other than death after reaching the age of 65 shall
thereupon become a Director Emeritus and shall serve as a Director Emeritus
until the date of the second Annual Meeting following the date when such
person first became a Director Emeritus. Each Director Emeritus will have
the right to receive notice of meetings and to attend meetings of the Board
of Directors and of each Committee thereof on which such Director Emeritus
was serving immediately prior to becoming a Director Emeritus but will not
have the right to vote on matters which come before the Board of Directors or
any committee thereof.
Section 2. Vacancies in the Board of Directors shall be filled by a
majority of the remaining directors though less than a quorum and a director
so chosen shall hold office until the next annual meeting of the stockholders
and until the election and qualification of his successor. In case of any
increase in the number of directors as provided in Section 1 of this Article
II, the stockholders of the Board of Directors (by a majority of the
directors constituting the Board prior to such increase), as the case may be,
may, at the meeting at which such increase is voted, or at any adjournment or
adjournments thereof,
<PAGE> 23
elect such additional directors as shall be required, and the directors so
chosen shall hold office until the next annual meeting of the stockholders
and until the election and qualification of their respective successors.
Section 3. Meetings of the Board of Directors shall be held at such
place as may from time to time be fixed by resolution of the Board or as may
be specified in the call of any meeting. Regular meetings of the Board of
Directors shall be held at such times as may from time to time be fixed by
resolution of the Board; and special meetings may be held at any time upon
the call of the Executive Committee or of the Chairman of the Board or the
President, by oral, telegraphic or written notice, duly served on or sent or
mailed to each director not less than two days before the meeting. A meeting
of the Board may be held without notice immediately after the annual meeting
of stockholders at the same place at which such annual meeting is held.
Notice need not be given of regular meetings of the Board held at times fixed
by resolution of the Board.
Section 4. The Board of Directors may, by resolution or resolutions,
passed by a majority of the whole Board, designate an Executive Committee, to
consist of two or more of the directors, as the Board may from time to time
determine. The Executive Committee shall have and may exercise, when the
Board is not in session, all the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall have
power to authorize the seal of the Corporation to be affixed to all papers
which may require it; provided that the Executive Committee shall not have or
exercise any such power or powers if and so long as a "two years' default in
preferred dividends," as defined in subdivision (f) of Section 1 of Division
D of Article FOURTH of the Certificate of Incorporation, as amended, of the
Corporation shall exist. The Executive Committee shall not have power to
fill vacancies in the Board, or to change the membership of or to fill
vacancies in the said Committee, or to make or amend by-laws of the
Corporation. The Board shall have the power at any time to change the
membership of the Executive Committee, to fill vacancies in it, or to
dissolve it. The Board of Directors shall also have the power to designate
one or more alternate members of said Executive Committee, which alternate
members shall have power to serve, subject to such conditions as the Board of
Directors may prescribe, as a member or members of said Executive Committee
during the absence or inability to act of any one or more members of said
Committee. The Executive Committee may make rules for the conduct of its
business and may appoint such committees and assistants as it shall from time
to time deem necessary. A majority of the members of the Executive Committee
shall constitute a quorum.
Section 5. The Board of Directors may also, by resolution or
resolutions, passed by a majority of the whole Board, designate one or more
other committees, each such committee to consist of one or more of the
directors of the Corporation, which, to the extent provided in said
resolution or resolutions, shall have and may exercise the powers of the
Board of Directors in the management of the business affairs of the
Corporation, and may have power to authorize the seal of the Corporation to
be affixed to all papers which may require it; provided that no such
committee shall have or exercise any such power or powers if and so long as
a "two years' default in preferred dividends," as defined in
<PAGE> 24
subdivision (f) of Section 1 of Division D of Article FOURTH of the
Certificate of Incorporation, as amended, of the Corporation shall exist.
Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
A majority of the members of any such committee may determine its action and
fix the time and place of its meetings unless the Board of Directors shall
otherwise provide. The Board of Directors shall have power at any time to
change the membership of, to fill vacancies in, or dissolve any such
committee.
Section 6. One or more of members of the Board of Directors or any
committee thereof may participate in a meeting of the Board or a committee
thereof by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other.
Section 7. [As amended January 16, 1975] In addition to reimbursement
of his reasonable expenses incurred in attending meetings or otherwise in
connection with his attention to the affairs of the Corporation, each
Director and each Director Emeritus as such, and as a member of the Executive
Committee or of any other committee of the Board of Directors, shall be
entitled to receive such compensation as may be fixed from time to time by
the Board of Directors, subject to any applicable restriction imposed by the
Certificate of Incorporation, as amended, of the Corporation.
Section 8. [As amended February 4, 1987] (a) The Corporation shall
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that such person is or was a director, officer or employee of the
Corporation or a constituent Corporation absorbed in a consolidation or
merger or is or was serving at the request of the Corporation or a
constituent Corporation absorbed in a consolidation or merger, as a director,
officer or employee of another Corporation, partnership, joint venture, trust
or other enterprise, including an employee benefit plan, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding to the extent that such person is not otherwise
indemnified and to the extent that such indemnification is not prohibited by
applicable law. For this purpose the Board of Directors may, and on request
of any such person shall be required to, determine in each case whether or
not the applicable standards in any applicable statute have been met, or such
determination shall be made by independent legal counsel if the Board of
Directors so directs or if the Board of Directors is not empowered by statute
to make such determination. Expenses incurred by an officer, director or
employee of the Corporation in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding subject to the provisions of
any applicable statute. The obligations of the Corporation to indemnify a
director, officer or employee under this Article II, including the duty to
advance expenses, shall be considered a contract between the Corporation and
such individual, and no modification or repeal of any provision of this
Article II shall affect, to the detriment of the
<PAGE> 25
individual, such obligations of the Corporation in connection with a claim
based on any act or failure to act occurring before such modification or
repeal.
(b) The indemnification and advancement of expenses provided by this
Article II shall not be deemed exclusive of any other right to which one
indemnified may be entitled, both as to action in such person's official
capacity and as to action in another capacity while holding such office, and
shall inure to the benefit of the heirs, executors and administrators of any
such person.
(c) The Board of Directors shall have the power to (i) authorize the
Corporation to purchase and maintain, at the Corporation's expense, insurance
on behalf of the Corporation and on behalf of others to the extent that power
to do so has been or may be granted by statute, and (ii) give other
indemnification to the extent permitted by law.
ARTICLE III
OFFICERS
Section 1. The Board of Directors as soon as may be after its election
shall choose a President of the Corporation, one or more Vice Presidents, a
Secretary and a Treasurer and from time to time may appoint such Assistant
Secretaries, Assistant Treasurers and such other officers, agents and
employees as it may deem proper. The President shall be chosen from among
the directors. The Board in its discretion may also choose a Chairman of the
Board and a Vice Chairman of the Board from among the directors.
Section 2. The term of office of each officer shall be one year, or
until his successor is elected and qualified or until his earlier resignation
or removal. Any officer may resign at any time upon written notice to the
Corporation. Any officer may be removed from office at any time by the
affirmative vote of a majority of the members of the Board then in office.
Section 3. [As amended May 17, 1984 (effective June 1, 1984) and
further amended May 4, 1988] The Chairman of the Board shall preside at all
meetings of the stockholders (except as otherwise provided by statute) and of
the Board of Directors, and shall have such other powers and duties as may
from time to time be prescribed by the Board of Directors, but shall not
participate in the day-to-day management or operations of the Corporation
except as provided in Section 4 of this Article III in the event of a vacancy
in the office of President. The Vice Chairman of the Board shall assist the
Chairman of the Board in carrying out the Chairman's duties and, in the
absence of the Chairman of the Board, shall have the powers and duties of the
Chairman of the Board. The Vice Chairman shall also have such other powers
and duties as may from time to time be assigned to such officer by the Board
of Directors.
<PAGE> 26
Section 4. The President shall be the chief executive officer of the
Corporation and shall supervise the carrying out of the policies adopted or
approved by the Board. He shall have general power to execute bonds, deeds
and contracts in the name of the Corporation and to affix the corporate seal;
to appoint and fix the compensation of all employees and agents of the
Corporation whose appointment is not otherwise provided for; to remove or
suspend such employees or agents as shall not have been appointed by the
Board of Directors, and to exercise all the powers usually appertaining to
the chief executive officer of a corporation, except those required by
statute or by these by-laws to be exercised by another officer. In the
absence of the Chairman and the Vice Chairman of the Board, he shall preside
at all meetings of the stockholders and of the Board of Directors. In the
event of a vacancy in the office of President, the powers and duties of the
President as chief executive officer of the Corporation shall, without
further action of any kind, devolve upon and to the Chairman of the Board.
Upon the filling of such vacancy, such powers and duties as chief executive
officer shall, without further action of any kind, revert to the President of
the Corporation.
Section 5. The several Vice Presidents shall perform all such duties
and services as shall be assigned to or required of them, from time to time,
by the Board of Directors or the President, respectively, and, unless their
authority be expressly limited, shall act, in the order of their election, in
the place of the President, exercising all his powers and performing his
duties, during his absence or disability.
Section 6. Subject to such limitations as the Board of Directors may
from time to time prescribe, the other officers of the Corporation shall each
have such powers and duties as generally pertain to their respective offices,
as well as such powers and duties as from time to time may be conferred by
the Board of Directors. Any officer, agent or employee of the Corporation
may be required to give bond for the faithful discharge of his duties, in
such sum and with such surety or sureties as the Board of Directors may from
time to time prescribe.
ARTICLE IV
CERTIFICATES OF STOCK
Section 1. [As amended January 2, 1986] The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares
of stock in such form as the Board of Directors may from time to time
prescribe. The shares in the stock of the Corporation shall be transferable
on the books of the Corporation by the holder thereof in person or by his
attorney, upon compliance with Section 3 below or upon surrender for
cancellation of certificates for the same number of shares, with an
assignment and power of transfer endorsed thereon or attached thereto, duly
executed, and with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require.
<PAGE> 27
Section 2. The certificates of stock shall be signed by the President
or a Vice President and by the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer of the Corporation (except that where any
such certificate is manually countersigned by a transfer agent other than the
Corporation or its employee or by a registrar other than the Corporation or
its employee, any other signature on the certificate may be facsimile,
engraved or printed), shall be sealed with the seal of the Corporation (or
shall bear a facsimile of such seal, engraved or printed) and shall be
countersigned and registered in such manner, if any, as the Board of
Directors may by resolution prescribe. In case any officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been
used on any such certificate or certificates, shall cease to be such officer
or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered
by the Corporation, such certificate or certificates may nevertheless be
adopted by the Corporation and be issued and delivered as though the person
or persons who signed such certificate or certificates, or whose facsimile
signature or signatures shall have been used thereon, had not ceased to be
such officer or officers of the Corporation.
Section 3. No certificate for shares of stock in the Corporation shall
be issued in place of any certificate alleged to have been lost, stolen or
destroyed, except upon production of such evidence of such loss, theft or
destruction and upon delivery to the Corporation of a bond of indemnity in
such amount, upon such terms and with such surety, as the Board of Directors
in its discretion may require.
ARTICLE V
CORPORATE RECORDS
The books and records of the Corporation may be kept outside of Delaware
at such other place or places as the Board of Directors may from time to time
determine.
ARTICLE VI
CHECKS, NOTES, ETC.
All checks and drafts on the Corporation bank accounts and all bills of
exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed by such officer or
officers or agent or agents or other employee or employees as shall be
thereunto authorized from time to time by the Board of Directors.
<PAGE> 28
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
January in each year and shall end on the thirty-first day of December
following.
ARTICLE VIII
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation and the words "Incorporated Delaware 1936." In lieu of the
corporate seal, when so authorized by the Board of Directors or a duly
empowered committee thereof, and permitted by law, a facsimile thereof may be
impressed or affixed or reproduced.
ARTICLE IX
OFFICES
The Corporation and the stockholders and the directors may have offices
outside of the State of Delaware at such places as shall be determined from
time to time by the Board of Directors.
ARTICLE X
AMENDMENTS
[As amended May 4, 1989] Subject to the provisions of Section 1 of
Division D of Article Fourth and of Article Eleventh of the Certificate of
Incorporation, as amended, of the Corporation, the by-laws of the
Corporation, regardless of whether made by the stockholders or by the Board
of Directors, may be altered, added to, or repealed at any meeting of the
Board of Directors or of the stockholders, provided notice of the proposed
change is given in the notice of the meeting. No change of the time or place
for the annual meeting of the stockholders for the election of directors
shall be made except in accordance with the Certificate of Incorporation, as
amended, of the Corporation and the laws of Delaware.
<PAGE> 29 (Page 22 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31, 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Water service
Residential $ 400,230 $ 360,800 $ 347,241 $ 310,060 $ 287,074
Commercial 159,359 147,983 143,528 129,976 118,866
Industrial 50,490 47,492 47,071 44,464 42,417
Public and other 84,865 79,196 76,899 69,006 62,309
Other water revenues 5,579 5,372 4,899 3,925 2,993
- -----------------------------------------------------------------------------------------------
700,523 640,843 619,638 557,431 513,659
Sewer service 11,801 11,391 10,427 10,157 9,237
Authority management fees 5,213 5,126 5,914 5,350 4,649
- -----------------------------------------------------------------------------------------------
$ 717,537 $ 657,360 $ 635,979 $ 572,938 $ 527,545
=============================================================
Water sales (million gallons)
Residential 104,223 97,992 99,855 98,069 97,349
Commercial 57,880 55,587 57,144 56,442 55,986
Industrial 33,041 32,681 33,702 34,804 35,779
Public and other 25,669 24,349 25,172 23,539 22,232
- -----------------------------------------------------------------------------------------------
220,813 210,609 215,873 212,854 211,346
=============================================================
Net income $ 75,387 $ 68,160 $ 73,593 $ 57,088 $ 48,318
Earnings per common share on
average shares outstanding $ 2.29 $ 2.07 $ 2.27 $ 1.85 $ 1.56
Common dividends paid per share $ 1.00 $0.925 $ 0.86 $ 0.80 $ 0.74
At year-end
Customers (thousands) 1,685 1,548 1,529 1,514 1,495
Total assets $ 2,994,011 $ 2,415,805 $ 2,240,503 $2,092,596 $1,916,329
Preferred stocks with mandatory
redemption requirements
American Water Works
Company, Inc. $ 40,000 $ 40,480 $ 40,960 $ 1,690 $ 2,420
Subsidiaries 46,515 50,895 47,107 27,664 29,377
Long-term debt
American Water Works
Company, Inc. $ 131,000 $ 73,200 $ 73,200 $ 74,400 $ 85,600
Subsidiaries 1,056,404 870,940 874,804 725,291 689,736
Market price of common
stock at year-end $ 30.00 $ 27.38 $ 26.50 $ 16.00 $ 18.13
</TABLE>
<PAGE> 30 (Page 23 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
DESCRIPTION OF THE BUSINESS
THE COMPANY
The principal business of American Water Works Company is
the ownership of common stock of companies providing water supply
service.
THE SERVICE COMPANY
American Water Works Service Company, a subsidiary, provides
professional and staff services to affiliated companies. These
services include accounting, engineering, operations, finance,
water quality, information systems, personnel administration and
training, purchasing, insurance, safety, and community
relations. This arrangement, which provides these services at
cost, affords affiliated companies support otherwise unavailable
economically or on a timely basis.
THE OPERATING COMPANIES
The 25 subsidiary operating companies provide water service
to approximately six million people in 717 communities in 21
states.
As public utilities, the operating companies function under
rules and regulations prescribed by state regulatory commissions.
Further, each company is subject to the rules of both federal and
state environmental protection agencies, particularly with
respect to the quality of the water they distribute.
AMERICAN COMMONWEALTH MANAGEMENT SERVICES COMPANY
American Commonwealth Management Services Company provides
management services, at a profit, to non-affiliated water and
wastewater systems. These services are provided under contract to
various authorities in Pennsylvania which own nine water systems
and three wastewater systems. In addition, this subsidiary
manages a water district in Massachusetts and provides operating
services for approximately 75 water and wastewater systems near
Sarasota, Florida.
This subsidiary completed construction of a carbon
regeneration facility in 1993. This capability is being marketed
to affiliated and non-affiliated water utilities throughout the
country. Carbon is widely used for water filtration.
Also in 1993, American Commonwealth Management Services
Company and a subsidiary of Anglian Water Plc, a United Kingdom
water and wastewater utility, formed a joint venture, AmericanAnglian
Environmental
[Photo Here]
Members of the company's senior management team include (from left)
Edward W. Limbach and Gerald C. Smith, vice presidents; Robert D. Sievers,
comptroller; J. James Barr, vice president, treasurer and chief financial
officer, and W. Timothy Pohl, Esquire, general counsel and secretary
Technologies. AmericanAnglian will provide both technical expertise
and financing to help communities throughout the United States
upgrade their wastewater treatment systems.
NON-OPERATING COMPANIES
Greenwich Water System and American Commonwealth Company are
non-operating subholding companies. Occoquan Land Corporation
owns land, buildings and equipment, most of which are leased to
affiliated American Water System companies.
THE AMERICAN WATER SYSTEM
The combination of the company and its subsidiaries
constitutes the American Water System - a system that has
functioned well for 46 years. Each subsidiary functions
independently, yet shares in the benefits of size and identity
afforded by the American Water System.
<PAGE> 31 (Page 24 of 1993 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE PHILOSOPHY OF THE AMERICAN WATER SYSTEM
The American Water System is dedicated to providing the best
possible water service at the lowest possible cost consistent
with adequate compensation for investors and reasonable wages and
benefits for its personnel.
We believe there is an unalterable link between quality
service, responsive regulation, and financial success.
Three basic principles are observed under this management
philosophy:
1. The preservation and efficient utilization of capital
assets are best assured by a management approach that draws upon
prudent planning, builds consensus and acts decisively on a
timely basis.
2. An operating subsidiary must exhibit the ability to
attract its capital requirements as a prerequisite to the
initiation of construction of facilities needed to meet water
service demands.
3. The ability to attract needed capital is dependent upon
consistently achieving adequate earnings. This dictates an
aggressive pursuit of regulatory decisions acknowledging this
principle.
In accordance with this philosophy, the company
seeks to enhance the value of its stockholders' investment
through consistent earnings growth generated by earnings
reinvestment.
The market value of the company's common stock is subject to the
volatility always present in the stock market, as well as to the
vagaries of the national economy. The true worth of this stock should
be measured by the intrinsic value of the tangible assets of the American
Water System and the worth of the organization put in place by the
management team. These assets are used to provide a service which is
essential for urban living. There is no substitute for water.
THE INVESTMENT STRATEGY OF AMERICAN WATER WORKS COMPANY
The business of the company is investing in common stock of
water utilities.
The purpose of this business is to protect and enhance the
value of our stockholders' investment through growth in earnings
and dividends per share.
We seek to accomplish this purpose without diluting existing
stockholders.
Viewed over the long term, we believe this strategy has and
will continue to maximize the total return to our stockholders.
The value of the investment in the company has increased due
to earnings growth. Earnings growth has resulted from increased
investment by the company in its subsidiaries funded by the sale of
securities and the reinvestment of income. This reinvestment defers
stockholder payment of income taxes so earnings growth can be compounded
on a larger investment base. It also permits consistent and reliable
dividend increases. Investors preferring a greater current yield
can supplement their cash flow by periodically selling a portion
of their enhanced investment in the company.
The following chart reflects the results of this investment
strategy:
COMPOUNDED ANNUAL GROWTH RATES 1988-1993
[CHART]
9.5% 7.0% 4.5% 8.0% 6.7%
Investment Operating Earnings Dividends Book value
in subsidiaries revenue per share per share per share
The company's investment in its subsidiaries has increased
from $514,190,000 at year-end 1988 to $810,372,000 at year-end
1993. The top schedule on page 25 defines how this has been
accomplished.
<PAGE> 32 (Page 25 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
ANALYSIS OF GROWTH IN INVESTMENT IN SUBSIDIARIES
<TABLE>
<CAPTION>
(000) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment in subsidiaries at December 31 $ 810,372 $ 749,513 $693,312 $ 636,622 $ 573,038
Investment in subsidiaries at January 1 749,513 693,312 636,622 573,038 514,190
- -----------------------------------------------------------------------------------------------------
Change during the year $ 60,859 $ 56,201 $ 56,690 $ 63,584 $ 58,848
=================================================
Sources of additional investment
Undistributed earnings of subsidiaries $ 18,984 $ 19,401 $ 15,690 $ 24,076 $ 10,747
Investment by the company in
subsidiary securities 41,875 36,800 41,000 39,508 48,101
- -----------------------------------------------------------------------------------------------------
Change during the year $ 60,859 $ 56,201 $ 56,690 $ 63,584 $ 58,848
=================================================
Net income of subsidiaries $ 84,248 $ 75,260 $ 80,692 $ 64,408 $ 53,869
Return on January 1 investment in subsidiaries 11.2% 10.9% 12.7% 11.2% 10.5%
Subsidiaries' common stock dividend payout ratio 77% 74% 81% 63% 80%
- -----------------------------------------------------------------------------------------------------
Dividends to the company from subsidiaries $ 65,264 $ 55,859 $ 65,002 $ 40,332 $ 43,122
- -----------------------------------------------------------------------------------------------------
Company's use of cash
Mandatory redemption of securities 480 1,680 16,930 2,680 2,680
Preferred dividends 3,996 4,019 3,420 690 727
Other cash requirements 7,834 6,633 8,465 7,365 5,559
- -----------------------------------------------------------------------------------------------------
12,310 12,332 28,815 10,735 8,966
- -----------------------------------------------------------------------------------------------------
Available for common dividends 52,954 43,527 36,187 29,597 34,156
- -----------------------------------------------------------------------------------------------------
Common dividends declared 31,130 28,609 26,423 24,421 22,542
Dividend reinvestment 2,102 3,028 1,453 1,053
- -----------------------------------------------------------------------------------------------------
Common dividends 29,028 25,581 24,970 23,368 22,542
- -----------------------------------------------------------------------------------------------------
Cash payout ratio 55% 59% 69% 79% 66%
Available after dividends 23,926 17,946 11,217 6,229 11,614
Cash at January 1 78 15 23 6,993 6,975
- -----------------------------------------------------------------------------------------------------
24,004 17,961 11,240 13,222 18,589
Sale of securities and net bank borrowings 63,363 13,707 28,760 29,499 45,000
Early redemption of securities (23,200)
- -----------------------------------------------------------------------------------------------------
64,167 31,668 40,000 42,721 63,589
Investment in securities of subsidiaries 41,875 36,800 41,000 39,508 48,101
Notes and advances to subsidiaries (1,010) (5,210) (1,015) 3,190 8,495
- -----------------------------------------------------------------------------------------------------
40,865 31,590 39,985 42,698 56,596
- -----------------------------------------------------------------------------------------------------
Cash at December 31 $ 23,302 $ 78 $ 15 $ 23 $ 6,993
=================================================
ANALYSIS OF CHANGE IN INCOME
(000) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------
Net income to common stock-current year $ 71,391 $ 64,141 $ 69,890 $ 56,398 $ 47,591
Net income to common stock-prior year 64,141 69,890 56,398 47,591 56,124
- -----------------------------------------------------------------------------------------------------
Change in income 7,250 (5,749) 13,492 8,807 (8,533)
Change in company operating cost 1,738 317 2,792 1,732 1,247
- -----------------------------------------------------------------------------------------------------
Change in investment income $ 8,988 $ (5,432) $ 16,284 $ 10,539 $ (7,286)
==================================================
Sources of change in investment income
Additional investment in subsidiaries $ 6,317 $ 6,154 $ 8,059 $ 6,614 $ 4,345
Change in rate of return on investment 2,671 (11,586) 8,225 3,925 (11,631)
- -----------------------------------------------------------------------------------------------------
Total change in investment income $ 8,988 $ (5,432) $ 16,284 $ 10,539 $ (7,286)
==================================================
</TABLE>
<PAGE> 33 (Page 26 of 1993 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
The top schedule on the previous page illustrates that the
growth in the company's investment in its subsidiaries has been
accomplished by subsidiary earnings retention, the investment of
a portion of the dividends received by the company from
subsidiaries, the sale of securities and bank loans.
Earnings to common stockholders have risen from $56,124,000
in 1988 to $71,391,000 in 1993.
Income to common stockholders of the company is influenced by
three factors:
1. The amount of investment by the company
2. The rate of return on that investment
3. The costs to operate the company
The bottom schedule on the previous page demonstrates the
source of change since 1988 in income to common stock.
This analysis demonstrates that the growth in earnings over
this period is the direct result of new investment in the
subsidiaries. Fluctuations in the rate of return are the result
of the influence of weather conditions on sales volume and the
response of utility regulation to the economic climate. The cost
of operating the company has increased $7,826,000 over this
five-year period.
SYSTEM GROWTH AND DEVELOPMENT
The investment in new facilities in 1993 totaled
$193,116,000, which was 2% below 1992 construction expenditures
of $197,579,000.
Construction activity planned for 1994 totals $258,000,000.
Expenditures recorded in any given year are influenced by many
factors, including the economy, regulation, material delivery and
weather conditions. It is anticipated the American Water System
will invest approximately $1,100,000,000 in new facilities
between now and 1998. These expenditures will support the
company's ongoing program to comply with regulations promulgated
to ensure water quality and protect the environment, to keep pace
with expansion of our operating franchises and to replace plant
as necessary. We expect the investment in this construction
program to be recognized in regulatory decisions.
Investment in new transmission and distribution facilities
accounted for 40% of the 1993 expenditures. Significant projects
included the completion of a pipeline in northern New Jersey
which interconnects the New Jersey-American Water Company with
another major public water supplier to ensure adequate water
service for that region. Our New Jersey subsidiary also
constructed sections of a 20-inch through 54-inch transmission
main for its Tri-County Water Supply Project which will provide a
regional supply for southern New Jersey in 1996.
Pennsylvania-American Water Company completed the
installation of 10 miles of 12-inch transmission main to connect
its Hallstead and Susquehanna service areas and eliminate the
need for more costly treatment facilities at Hallstead.
A similar project was completed by West Virginia-American
Water Company which interconnected the Gassaway and Sutton
service areas to allow Sutton to be eventually supplied by new
treatment facilities constructed in Gassaway. In addition, West
Virginia-American continued the expansion of its service area by
the installation of 16,500 feet of 16-inch pipeline to supply a
newly acquired public service district.
During 1993, construction of additional distribution storage
was completed in several American System companies.
<TABLE>
<CAPTION>
CONSTRUCTION EXPENDITURES BY CATEGORY
(000) 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Water plant
Sources of supply $ 8,054 $ 9,110 $ 10,498 $ 8,882 $ 9,261
Treatment and pumping 51,332 53,303 53,361 66,902 60,969
Transmission and distribution 77,998 80,357 63,232 66,752 79,019
Services, meters and fire hydrants 34,401 33,989 31,000 31,321 31,664
General structures and equipment 19,585 17,935 23,698 23,479 28,583
Sewer plant 1,746 2,885 1,198 1,952 966
-------------------------------------------------
$ 193,116 $197,579 $182,987 $199,288 $210,462
=================================================
</TABLE>
<PAGE> 34 (Page 27 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
Investment by the operating companies in production,
treatment and pumping facilities accounted for 27% of 1993
construction expenditures. During 1993, significant production
facility improvements were completed in Kane, Ellwood City and
Pittsburgh, Pennsylvania; Lexington, Kentucky; Hopewell,
Virginia, and Huntington, West Virginia. Treatment facility
additions were constructed in the Frackville, Pennsylvania;
Monterey, California, and Short Hills, New Jersey service areas.
The final phase of a major treatment plant improvement in Kokomo,
Indiana was also completed. Work began on a major treatment plant
on the Delaware River in New Jersey that will supplement
community water supplies in three counties.
Expenditures for customer service lines, meters and fire
hydrants accounted for 18% of 1993 construction expenditures.
These reflect ongoing programs to ensure meter accuracy, install
and replace fire hydrants, and provide service to new customers.
Supply improvements in 1993 included the construction of
several additional and replacement wells by New Jersey-American
Water Company and a new production well by Paradise Valley Water
Co. Dam improvements were completed in Greenwich, Connecticut and
other dam improvements are in progress in California.
Source-of-supply work accounted for approximately 4% of the 1993
construction expenditures.
The area of engineering planning focused heavily on the
importance of having an adequate source of supply at every
American Water System service area. This goal has been achieved
at most systems and was aggressively addressed at the locations
where challenges still remain due to projected growth or existing
source limitations. Detailed source-of-supply planning was
undertaken in Hingham, Massachusetts; Greenwich, Connecticut;
Indiana, Butler, Yardley and Cumberland County, Pennsylvania;
Lexington, Kentucky, and Bel Air, Maryland.
In addition, the company's comprehensive planning program
proceeded, with reports completed for New Jersey-American Water
Company's Cape May and Atlantic County systems. Comprehensive
planning studies scheduled for 1994 completion are underway
for eight other operating companies.
On August 31, 1993, American Water Works Company, Inc. and
its subsidiaries in Indiana, Missouri, and Ohio acquired the
midwestern water utilities of Avatar Holdings, Inc. A total of
$62,000,000 was paid for the common stock of ICWC Holdings, Inc.
and its subsidiary Indiana Cities Water Corporation, Missouri
Cities Water Company, Ohio Suburban Water Company and Northern
Michigan Water Company. The utilities acquired in these
transactions serve a population of approximately 350,000 in 54
communities. The governments of two of the areas served by these
companies are pursuing acquisition of a portion of these
facilities that serve a total population of 54,000.
West Virginia-American Water Company acquired two public
water supply systems in 1993 for $3,041,000. In April, the
company took over the Washington Public Service District serving
5,500 people in Tornado. In November, it acquired the West Fork
River Public Service District serving 4,000 people.
During 1993, Ohio-American Water Company paid a total of
$465,000 for six water supply companies. The companies serve a
total of 4,200 people in the Mansfield area.
In April 1993, New Jersey-American Water Company completed
its $179,000 acquisition of the Borough of Allenhurst's water
system which serves 1,000 people. The sale was approved by
borough residents in a referendum in 1992.
Pennsylvania-American Water Company acquired the Skyline
Water Company and a water system owned by the Summit Township
Municipal Authority in 1993. These two water systems, which serve
a total of approximately 700 people, were acquired for $108,000.
American Water Works Company and its subsidiaries continue
to seek out and investigate acquisitions with a view toward
expanding the American Water System. The objective is expansion
of its core business which benefits the existing stockholder
rather than growth for the sake of size.
In September, a Virginia Circuit Court judge ruled that the
Prince William County Service Authority could not take over
Virginia-American Water Company's Dale City system which serves
47,000 people. The judge said that the authority had "failed to
meet its burden of proving the necessity of condemnation." He
also noted that Virginia-American provided exemplary service and
that the takeover attempt contradicted a county initiative to
privatize services.
<PAGE> 35 (Page 28 of 1993 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The company's experience in assessing the impact of
inflation on its business indicates that with timely rate
increases authorized by regulators, water revenue can be made to
keep pace with inflation. Inflation did not significantly impact
the company's financial position or results of operations in 1991
through 1993, and it is not expected to materially affect 1994
results.
The company's results of operations for the year ended
December 31, 1993 included four months of results from the four
acquired midwestern companies' operations. These acquisitions did
not have a material impact on the company's reported results of
operations for 1993.
OPERATING REVENUES
(000) 1993 1992 1991
- ---------------------------------------------------------------
Water service $700,523 $640,843 $619,638
Sewer service 11,801 11,391 10,427
Authority management fees 5,213 5,126 5,914
--------------------------------
$717,537 $657,360 $635,979
================================
CONSOLIDATED OPERATING REVENUES
Revenues in 1993 totaled $717,537,000, and were 9% above
those for 1992. The volume of water sold totaled 220.8 billion
gallons in 1993 compared with 210.6 billion gallons in 1992,
reflecting the impact of summer weather patterns and the
company's acquisition in August of the four midwestern water
utilities. The acquisition increased operating revenues by
$10,646,000 in 1993 and added 5.1 billion gallons in water sales
volume.
Rate authorizations adjusted the water service rates in
effect for 16 operating companies during 1993. These
authorizations are expected to increase annual revenues by
$37,833,000. Operating revenues for 1993 included approximately
$25,603,000 which resulted from these rate orders.
Rate adjustments have been authorized for two operating
subsidiaries so far in 1994 which will generate approximately
$3,367,000 of additional annual revenues. Five applications are
awaiting regulatory decisions. If granted in full, they would
produce additional annual revenues of $17,624,000.
Revenues in 1992 were 3% above those for 1991, reflecting
higher water service rates which more than offset a 2% decrease
in water sales volume. Eleven operating companies received rate
orders in 1992 authorizing increases in annual revenues
aggregating $25,651,000.
PERCENTAGE OF WATER REVENUES BY CUSTOMER CLASS
1993 1992 1991
- ---------------------------------------------------
Residential 57.1% 56.3% 56.0%
Commercial 22.8% 23.1% 23.1%
Industrial 7.2% 7.4% 7.6%
Public and other 12.1% 12.4% 12.5%
Other water revenues .8% .8% .8%
--------------------------
100.0% 100.0% 100.0%
==========================
RESIDENTIAL
Residential water service revenues in 1993 amounted to
$400,230,000, an increase of 11% over those for 1992. This 1993
revenue improvement followed an increase of 4% in 1992. The
volume of water sold to residential customers increased by 6% in
1993 to 104.2 billion gallons. The average unit price for water
in 1993 for residential customers increased by 4%, which was less
than the average unit price increase of 6% in 1992.
COMMERCIAL
Revenues from commercial customers in 1993 rose by 8% to
$159,359,000 following an increase of 3% in 1992. Commercial
customers purchased 57.9 billion gallons of water in 1993, 4%
more than in 1992. The average unit price of water increased by
3% in 1993, down from a 6% increase in 1992.
INDUSTRIAL
Industrial water use of 33 billion gallons in 1993 was 1%
higher than in 1992. Revenues from industrial sales in the amount
of $50,490,000 were 6% above those recorded in 1992. An increase
of 6% in the average unit price of water was responsible for the
additional revenue. Despite a 3% decrease in industrial sales
volume, industrial revenues in 1992 were 1% above those for 1991
due to a 4% increase in the average unit price.
Excluding the industrial sales of the four acquired
midwestern companies, the volume of water used by industrial
customers has decreased in each of the last five years. The
company's largest industrial customer, which purchased 2.5
billion gallons from the Virginia-American Water Company in
Hopewell at a cost of $1,977,000 in 1993, is investigating the
possibility of developing its own source of supply.
<PAGE> 36 (Page 29 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
PUBLIC AND OTHER
Public and other revenues in 1993 rose by 7% to $84,865,000
following an increase of 3% in 1992. Revenues derived from
municipal governments for fire protection services and customers
requiring special private fire service facilities totaled
$33,415,000 in 1993, exceeding 1992 revenue from these customers
by 5%. The 25.7 billion gallons of water sold to governmental
entities and resale customers was 5% above the quantities sold in
1992. Revenues generated by these sales totaled $51,450,000 and
exceeded 1992 revenues by 9%.
PERCENTAGE OF WATER SALES (GALLONS)
BY CUSTOMER CLASS
1993 1992 1991
- ------------------------------------------------
Residential 47.2% 46.5% 46.3%
Commercial 26.2% 26.4% 26.5%
Industrial 15.0% 15.5% 15.6%
Public and other 11.6% 11.6% 11.6%
--------------------------
100.0% 100.0% 100.0%
==========================
SEWER SERVICE REVENUES
Operating subsidiaries provide sewer collection service to
two areas in New Jersey and one area in Ohio. Revenues from these
services amounted to $11,801,000 in 1993, compared with
$11,391,000 in 1992 and $10,427,000 in 1991.
AUTHORITY MANAGEMENT FEES
These fees represent charges primarily for management
services provided by American Commonwealth Management Services
Company to public water and sewer authorities in Pennsylvania and
Massachusetts. Fees of $5,213,000 were received for these
services in 1993 compared with management fees of $5,126,000 in
1992 and $5,914,000 in 1991.
CONSOLIDATED OPERATING EXPENSES
Operating expenses in 1993 increased by 11% to $545,070,000,
following a 5% increase in 1992. The acquisition of the four
midwestern water utilities increased operating expenses by
$7,580,000 in 1993.
Operation and maintenance expenses totaled $362,451,000 in
1993,which was 9% higher than in 1992. They had increased by 4%
in 1992.
OPERATING EXPENSES
(000) 1993 1992 1991
- --------------------------------------------------------
Operation and maintenance
expenses $362,451 $333,212 $321,303
Depreciation and
amortization 66,838 58,382 52,067
General taxes 67,917 63,612 58,288
Income taxes 47,864 37,661 38,233
----------------------------
$545,070 $492,867 $469,891
============================
Employee-related costs, representing 47% of operation and
maintenance expenses, increased by 8% in 1993 and 7% in 1992.
Most of the increase in these expenses in 1993 can be attributed
to the company's adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Statement requires the company
to accrue, in a manner similar to that used to account for
pensions, the expected cost of providing postretirement health
care and life insurance benefits as employees render the services
necessary to earn the benefits. The effect of adopting the new
accounting method increased employee-related expenses by
$8,779,000.
The company's operating subsidiaries have pursued recovery
in rates for service of the additional costs resulting from this
change in accounting. During 1993, fifteen decisions reached by
regulatory authorities on this matter have permitted such
recovery. Three regulatory authorities have denied recovery in
current rates, but will continue to allow recovery when the
benefits are paid in the future. The outcome of this issue in the
rate making process in two states served by the operating
subsidiaries is presently uncertain. Where recovery is uncertain
or has been initially denied, operating subsidiaries will
continue to pursue recovery in rates of the increased costs.
Excluding the impact of adopting the new accounting
standard, health care expenses in 1993 were 7% above those of the
prior year, reflecting the continuing upward trend in the cost of
medical treatment programs. They had increased by 15% in 1992.
The increase in health care expenses has been moderated by
certain cost containment measures that were implemented in 1991,
including plan options which provide for employee contributions
toward the cost of health care benefits. Employee contributions
totaled $1,308,000 in 1993, compared with $952,000 in 1992 and
$766,000 in 1991.
<PAGE> 37 (Page 30 of 1993 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Wage and salary expenses were up by 1%. The number of System
employees at year-end totaled 4,062, which is 2% above the
employment level of 3,982 at the close of 1992 and slightly above
the level of 4,044 employees at the end of 1991. With the
acquisition of Avatar Holdings' midwestern water utilities, 158
employees joined the American Water System. Excluding the
employees obtained through this acquisition, the company's
workforce during the year decreased by 78 employees, or 2%, as
the result of improved operating efficiencies.
OPERATION AND MAINTENANCE EXPENSES
(000) 1993 1992 1991
- -------------------------------------------------------
Employee-related costs $171,989 $159,488 $149,280
Fuel and power 30,530 28,808 29,644
Purchased water 38,628 32,996 28,593
Chemicals 11,605 10,982 11,678
Waste disposal 11,235 10,717 10,469
Maintenance materials
and services 21,585 19,026 24,995
Operating supplies
and services 48,573 44,710 42,793
Customer billing and
accounting 14,442 14,672 15,827
Other 13,864 11,813 8,024
----------------------------
$362,451 $333,212 $321,303
============================
Expenses associated with the collection, treatment,
and pumping of water include the cost of fuel and power,
water purchased from other suppliers, chemicals for water
treatment and purification, and waste disposal. These costs
increased by 10% in 1993 after a 4% rise in 1992. The unit cost
of water produced in 1993 exceeded 1992's by 5%. Higher purchased
water costs, reflecting increased volume and rate increases
authorized for utilities supplying water to several System
companies, were primarily responsible for the rise in the unit
cost of production.
Maintenance materials and services, which include emergency
repairs as well as costs for preventive maintenance, increased by
13% in 1993 following a 24% decrease in 1992. Maintenance expense
was higher than normal in 1991, reflecting both non-critical
expenditures that had been postponed because of revenue
shortfalls in 1990 and preventive maintenance that was performed
in 1991 instead of 1992.
Operating supplies and services include the day-to-day
expenses of office operation, legal and other professional
services, as well as information system and other office
equipment rental charges. These costs increased by 9% in 1993
after a 4% increase in 1992. Customer billing and accounting
charges decreased by 2% in 1993, and by 7% in 1992.
Other operation and maintenance expenses include regulatory
costs and system-wide casualty and liability insurance premiums.
These expenses increased by 17% in 1993 primarily due to
increased rate filing activity required to recover increased
costs, including the additional costs associated with the change
in accounting for postretirement health care and life insurance
benefits. Claims experience also increased casualty insurance
premiums. Other operation and maintenance expenses had increased
by 47% in 1992, primarily as a result of claims experience.
Depreciation and amortization increased by 14% in 1993 and
12% in 1992. The higher depreciation expense in both years was
primarily due to growth in utility plant in service.
General taxes, which include gross receipts, franchise,
property, capital stock, payroll and miscellaneous taxes,
increased by 7% in 1993 after a 9% rise in 1992.
Gross receipts and franchise taxes, which are a function of
revenues, increased by 6% in 1993. Property and capital stock
taxes are assessed on the basis of tax values assigned to assets
or capitalization. These taxes in 1993 were 13% above those in
1992 due to higher property values and tax rate increases.
Payroll taxes were up by 1% in 1993, consistent with the slight
increase in the workforce.
Income taxes increased by 27% in 1993, following
a 1% decrease in 1992. The increase in income taxes is
primarily due to higher taxable income in 1993. In addition, the
Revenue Reconciliation Act of 1993 increased the company's
federal income tax rate, retroactive to January 1, 1993, from 34%
to 35%. During 1993, tax expense was adjusted to reflect the 1%
increase in the tax rate, resulting in a reduction in the
company's results of operations for 1993 of approximately
$1,200,000. The company's effective tax rate increased due to the
reversal of temporary differences (primarily accelerated
depreciation for tax purposes on property placed in service prior
to 1981) on which the tax benefit was previously flowed through
to customers. Details regarding the components of the total
amount of state and federal income taxes, and a reconciliation of
statutory
<PAGE> 38 (Page 31 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
to reported federal income tax expense are included in
Note 2 to the financial statements.
SUMMARY OF TAXES
(000) 1993 1992 1991
- -------------------------------------------------------
Gross receipts and
franchise taxes $ 30,174 $ 28,600 $25,540
Property and capital
stock taxes 24,664 21,867 20,287
Payroll taxes 10,893 10,733 10,316
Miscellaneous taxes 2,186 2,412 2,145
State income taxes 7,375 6,246 6,099
Federal income taxes 40,489 31,415 32,134
----------------------------
$115,781 $101,273 $96,521
============================
CONSOLIDATED INCOME DEDUCTIONS
Income deductions -- principally interest expense -- amounted to
$102,446,000 in 1993. This was 3% above those in 1992 due to an
increase in total debt partially offset by lower interest rates.
They had increased by 4% in 1992.
CONSOLIDATED NET INCOME
Consolidated net income in 1993 totaled $75,387,000 and was
11% above 1992 net income. Consolidated net income in 1992 was 7%
below that recorded in 1991.
Dividends paid on preferred stocks of American Water Works
Company, Inc. decreased to $3,996,000 in 1993 from $4,019,000 in
1992 due to mandatory redemptions.
Consolidated net income to common stock totaled $71,391,000
in 1993 and was 11% above that reported for 1992. It had
decreased by 8% in 1992.
NEW ACCOUNTING STANDARDS
In November 1992, Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment
Benefits," was issued by the FASB. The company plans to adopt the
Statement in the first quarter of 1994. The Statement will
require the company to accrue the cost of providing benefits to
former and inactive employees after employment, but before
retirement. The company does not expect adoption of the Statement
to have a material impact on its results of operations.
CAPITALIZATION
Long-term Preferred Common
(000) Debt Stock Equity
- ------------------------------------------------------------
Company
1993 $ 131,074 $ 51,673 $655,275
1992 73,275 52,153 609,572
1991 74,568 52,633 568,733
1990 90,852 13,363 521,792
1989 87,550 14,093 487,407
- ------------------------------------------------------------
Operating Subsidiaries
1993 $1,060,776 $ 54,532 $768,921
1992 966,171 60,093 705,419
1991 919,074 56,812 650,307
1990 763,768 37,376 598,984
1989 747,149 39,123 536,798
- ------------------------------------------------------------
Consolidated
1993 $1,192,809 $104,490 $655,275
1992 1,036,604 109,529 609,572
1991 986,691 106,726 568,733
1990 847,692 48,018 521,792
1989 832,907 50,493 487,407
CAPITALIZATION RATIOS
Long-term Preferred Common
Debt Stock Equity
- ------------------------------------------------------------
Company
1993 16% 6% 78%
1992 10% 7% 83%
1991 11% 7% 82%
1990 15% 2% 83%
1989 15% 2% 83%
- ------------------------------------------------------------
Operating Subsidiaries
1993 56% 3% 41%
1992 56% 3% 41%
1991 57% 3% 40%
1990 54% 3% 43%
1989 56% 3% 41%
Long-term debt includes amounts due within one year.
<PAGE> 39 (Page 32 of 1993 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
Internal sources of cash flow are provided by retention of a
portion of earnings, amortization of deferred charges, deferral
of taxes and depreciation. Internal cash generation is influenced
by weather patterns, economic conditions and the timing of rate
relief. When internal cash generation is not sufficient to meet
corporate obligations on a timely basis, external sources of
funds are utilized. External cash availability and its cost are
dependent upon the consistency and reliability of earnings.
Outside sources of cash consist of short-term bank loans, the
sale of securities - bonds, preferred stock and common stocks
well as advances and contributions from developers.
THE PARENT COMPANY
The company pays all of its administrative and interest
expenses, meets its mandatory contributions to sinking funds and
pays dividends on all classes of stock from the dividends
received from investments in its subsidiary companies. Remaining
funds are retained for additional investment in subsidiaries.
Investments are made when prospective returns are expected to
continue at an adequate level or the potential for satisfactory
earnings has been exhibited.
Periodically, it is necessary to supplement internal sources
of cash flow with short-term bank loans. These loans are repaid
as internal sources of cash allow or with proceeds from the
periodic issuance of new securities. During 1993, the company
sold through private placement an aggregate of $81,000,000 of
7.41% Series C debentures. In addition to repaying short-term
bank loans, proceeds from these debentures were used to finance
additional investment in subsidiaries and to repay $23,200,000 of
its 8 3/4% Series A debentures, which were called for redemption
on March 1, 1993.
A final mandatory sinking fund payment in the amount of
$480,000 was made during 1993, redeeming the company's 4.90%
cumulative preferred stock.
In 1993, the company amended its dividend reinvestment plan
to permit, in addition to the reinvestment of common stock
dividends, the purchase of common stock through optional cash
payments. The company's stockholders and customers of the
operating subsidiaries can purchase up to $5,000 of common stock
each month directly from the company at a 5% discount from the
prevailing market price. Common dividends in the amount of
$2,102,000 were reinvested during 1993, which resulted in the
issuance of 78,932 new shares of common stock. Proceeds received
from optional cash purchases of 21,599 new shares of common stock
totaled $626,000. Another 86,966 shares of common stock were
issued in connection with the Employees' Stock Ownership Plan and
21,163 shares of common stock were issued in connection with a
401(k) Savings Plan for Employees.
The company invested $42,875,000 in new common stock of
subsidiaries during 1993. It also increased its equity investment
in subsidiaries by $18,984,000 from the earnings retained by
them. One operating subsidiary redeemed $1,000,000 of preferred
stock in 1993. A non-operating subsidiary repaid $1,000,000 in
accordance with terms of a note which includes an annual sinking
fund provision.
The company plans to continue to use short-term bank
borrowings, as cash requirements warrant it, to finance
additional investment in subsidiaries. Over the next few years
the company expects to issue new securities to repay bank
borrowings and finance additional investment in subsidiaries.
Common stock is expected to be issued in connection with the
company's Dividend Reinvestment and Stock Purchase Plan, the
Employees' Stock Ownership Plan and the Savings Plan for
Employees.
THE SUBSIDIARY COMPANIES
Operating subsidiary companies fund construction programs
and supplement cash flow by borrowing from banks under individual
credit lines established annually. Ample credit lines are
available to provide funds needed for 1994 construction
requirements and to maintain bank borrowings not yet refinanced
on a long-term basis. Bank borrowings are repaid from the
proceeds obtained from selling bonds and preferred stock either
publicly or to institutional investors on a private placement
basis, and selling common stock to the company. Security
offerings are made when they are of marketable size, meet
indenture and charter requirements and can compete successfully
in the capital market. In order to compete successfully, the
individual company must have exhibited satisfactory earnings.
Capitalization and dividend payout ratios are maintained within a
range deemed acceptable for investor-owned water companies.
Aggregate bank borrowings of subsidiaries at year-end 1993
amounted to $193,620,000 compared to $112,561,000 at year-end
1992. The increase in bank borrowings reflects the acquisition of
Avatar Holdings' midwestern water utilities and the efforts of
subsidiaries to take advantage of lower interest rates by calling
certain higher yielding bonds before maturity.
<PAGE> 40 (Page 33 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
During 1993, four subsidiaries issued a total of $59,000,000
of thirty-year mortgage bonds at interest rates ranging from
5.15% to 5.50% to government entities, which in turn issued
tax-exempt securities. Twelve subsidiaries issued $126,900,000 of
mortgage bonds during 1993 at interest rates between 5.97% and
7.71%. Proceeds from the sale of the bonds were used to repay
bank loans, fund construction programs and to refinance existing
debt at lower rates.
The subsidiary companies plan to fund construction programs
and repay bank borrowings and maturing bonds with the issuance of
approximately $137,100,000 of long-term debt to institutional
investors and $67,300,000 of common stock to the parent company
in 1994. The combined amount of subsidiary bank borrowings and
bonds maturing within one year is expected to remain at the
current level during 1994.
One subsidiary issued $1,000,000 in preferred stock with a
dividend rate of 7.67% during 1993. This issue must be redeemed
in 15 years.
During 1993, subsidiaries repaid $127,701,000 of maturing
bonds and certain higher yielding bonds before maturity. In
addition, subsidiaries made mandatory payments to sinking funds
in amounts adequate to retire $1,149,000 of debt and redeem
$6,591,000 of preferred stocks.
REGULATION
Twenty state commissions regulate the company's operating
subsidiaries. They have broad authority to establish rates for
service, prescribe service standards, review and approve rules
and regulations and, in most instances, they must approve
long-term financing programs prior to their completion. The
jurisdiction exercised by each commission is prescribed by state
legislation and therefore varies from state to state.
The commissioners in Arizona and Tennessee are elected by
the voters in those states. In Virginia, members of the
Corporation Commission are elected by a joint vote of the two
houses of the general assembly. All other state commissioners
regulating operating subsidiaries are appointed by the governors
of the respective states and usually require approval by the
state legislature. Commissions range in size from three to seven
members. The background of the individuals serving in these
important positions covers a broad spectrum.
Economic regulation deals with many competing, if not
conflicting, public pressures. Rate adjustments normally are
initiated by the regulated entity. Public hearings, which are
basically financial fact-finding sessions, are conducted. The
purpose of this process is to set rates for service which assure
the financial viability of the regulated entity while insuring
customers high quality service at reasonable cost. A rate case
focuses on four areas:
1. The amount of investment in facilities which provide
public service
2. The operating cost associated with providing that service
3. The capital costs for the funds used to build the
facilities which serve the public
4. The tariff design which allocates revenue requirements
equitably across the customer base
Prudent management dictates that a water utility anticipate
the time required for the regulatory process and file for rate
adjustments which will reflect the cost of providing service at
the time the authorized rates become effective. Requests that
regulators deal with single issue cost increases as they occur
have met with limited success. Recovery of such costs is
therefore normally delayed for the time required to move through
the full regulatory process.
The operating subsidiaries aggressively pursue various
methods of offsetting the adverse financial impact of regulatory
lag. Several subsidiaries now recover in rates a return on plant
before it is in service instead of capitalizing an allowance for
funds during construction. Another subsidiary recently received a
rate order allowing it to capitalize $400,000 of interest expense
related to the period of time from when a major construction
project was placed in service until new rates reflecting the cost
of the project went into effect.
American Water System personnel participate in regulatory
conferences and meetings, including those conducted by regional
regulatory associations. Our goal in this effort is to increase
understanding of the industry and its unique regulatory
requirements.
The company appreciates the thoughtful work of the Water
Committee of the National Association of Regulatory Utility
Commissioners. Its initiatives and the growing public awareness
of the importance of adequate water supply have led to
progressive regulation which has allowed operating subsidiaries
to address, on a timely basis, water supply issues which
otherwise would still be unresolved.
<PAGE> 41 (Page 35 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors
American Water Works Company, Inc.
In our opinion, the accompanying balance sheets and the
related statements of income and retained earnings and of cash
flows present fairly, in all material respects, the financial
position of American Water Works Company, Inc. and of that
company and its subsidiary companies consolidated at December 31,
1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of
the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 2 and 4 to the Financial Statements,
effective January 1, 1993 the company changed its method of
accounting for income taxes and postretirement benefits other
than pensions.
PRICE WATERHOUSE
Thirty South Seventeenth Street
Philadelphia, Pennsylvania
February 1, 1994
<PAGE> 42 (Page 36 of the Annual Report)
CONSOLIDATED BALANCE SHEET
(In thousands)
At December 31, 1993 1992
- -----------------------------------------------------------------------------
ASSETS
Property, plant and equipment
Utility plant - at original cost less
accumulated depreciation $2,444,277 $2,157,625
Utility plant acquisition adjustments 40,689 1,793
Other utility plant adjustments 246 296
Nonutility property, net of accumulated depreciation 21,224 24,160
Excess of cost of investments in
subsidiaries over book equity at acquisition 22,709 22,608
- -----------------------------------------------------------------------------
2,529,145 2,206,482
- -----------------------------------------------------------------------------
Current assets
Cash and cash equivalents 52,979 29,113
Temporary investments - at cost plus accrued
interest 399 299
Customer accounts receivable 46,795 42,168
Allowance for uncollectible accounts (1,107) (925)
Unbilled revenues 57,298 51,285
Miscellaneous receivables 7,033 4,075
Materials and supplies 8,965 8,261
Deferred vacation pay 8,517 7,759
Other 8,776 8,530
- -----------------------------------------------------------------------------
189,655 150,565
- -----------------------------------------------------------------------------
Regulatory and other long-term assets
Regulatory asset - income taxes recoverable
through rates 198,744
Deferred pension expense 13,437 9,757
Debt and preferred stock expense 15,552 9,934
Tank painting costs 7,906 6,673
Other 39,572 32,394
- -----------------------------------------------------------------------------
275,211 58,758
- -----------------------------------------------------------------------------
$2,994,011 $2,415,805
=====================
<PAGE> 43 (Page 37 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
1993 1992
- --------------------------------------------------------------------
CAPITAL AND LIABILITIES
Capital
Common stock $ 39,055 $ 38,794
Paid-in capital 37,627 32,446
Retained earnings 578,593 538,332
- --------------------------------------------------------------------
Common stockholders' equity 655,275 609,572
Preferred stocks with mandatory
redemption requirements 40,000 40,480
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Preferred stocks of subsidiaries
with mandatory redemption requirements 46,515 50,895
Preferred stocks of subsidiaries
without mandatory redemption
requirements 6,302 6,481
Long-term debt
American Water Works Company, Inc. 131,000 73,200
Subsidiaries 1,056,404 870,940
- --------------------------------------------------------------------
1,947,169 1,663,241
- --------------------------------------------------------------------
Current liabilities
Bank debt 193,620 133,816
Current portion of long-term debt 5,405 92,464
Accounts payable 31,644 27,118
Taxes accrued, including federal income 11,798 10,734
Interest accrued 23,226 23,296
Accrued vacation pay 8,835 8,044
Other 27,852 30,196
- --------------------------------------------------------------------
302,380 325,668
- --------------------------------------------------------------------
Regulatory and other long-term liabilities
Advances for construction 125,031 88,531
Deferred income taxes 309,204 139,614
Regulatory liability - income taxes
refundable through rates 45,942
Deferred investment tax credits 41,644 40,726
Other 38,146 24,084
- --------------------------------------------------------------------
559,967 292,955
- --------------------------------------------------------------------
Contributions in aid of construction 184,495 133,941
- --------------------------------------------------------------------
$2,994,011 $2,415,805
=======================
The accompanying schedules and notes are an integral part of these financial
statements.
<PAGE> 44 (Page 38 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands, except per share amounts)
For the years ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------
CONSOLIDATED INCOME
Operating revenues $717,537 $657,360 $635,979
- ----------------------------------------------------------------------
Operating expenses
Operation and maintenance 362,451 333,212 321,303
Depreciation and amortization 66,838 58,382 52,067
General taxes 67,917 63,612 58,288
State income taxes 7,375 6,246 6,099
Federal income taxes 40,489 31,415 32,134
- ----------------------------------------------------------------------
545,070 492,867 469,891
- ----------------------------------------------------------------------
Operating income 172,467 164,493 166,088
Allowance for other funds used
during construction 3,757 2,711 2,974
Other income 1,609 715 492
- ----------------------------------------------------------------------
177,833 167,919 169,554
- ----------------------------------------------------------------------
Income deductions
Interest 97,235 96,368 94,388
Allowance for borrowed funds used
during construction (3,087) (3,718) (3,436)
Amortization of debt expense 1,563 1,044 825
Preferred dividends of subsidiaries 4,361 4,631 2,971
Other deductions 2,374 1,434 1,213
- ----------------------------------------------------------------------
102,446 99,759 95,961
- ----------------------------------------------------------------------
Net income 75,387 68,160 73,593
Dividends on preferred stocks 3,996 4,019 3,703
- ----------------------------------------------------------------------
Net income to common stock $ 71,391 $ 64,141 $ 69,890
==============================
Average shares of common stock
outstanding 31,139 30,943 30,731
Earnings per common share on
average shares outstanding $ 2.29 $ 2.07 $ 2.27
==============================
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of year $538,332 $502,800 $459,333
Add: net income 75,387 68,160 73,593
- ----------------------------------------------------------------------
613,719 570,960 532,926
- ----------------------------------------------------------------------
Deduct: dividends
Preferred stock 3,540 3,563 3,247
Preference stock 456 456 456
Common stock - $1.00 per share
in 1993; $.925 per share
in 1992; $.86 per share in 1991 31,130 28,609 26,423
- ----------------------------------------------------------------------
35,126 32,628 30,126
- ----------------------------------------------------------------------
Balance at end of year $578,593 $538,332 $502,800
==============================
The accompanying schedules and notes are an integral part of these financial
statements.
<PAGE> 45 (Page 39 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
For the years ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 75,387 $ 68,160 $ 73,593
Adjustments
Depreciation and amortization 66,838 58,382 52,067
Provision for deferred income taxes 7,873 13,042 12,639
Provision for losses on accounts receivable 3,377 3,580 4,028
Allowance for other funds used during
construction (3,087) (2,711) (2,974)
Employee benefit expenses in excess of funding 2,567 1,450 393
Common stock contributions to employee
benefit plans 1,581 1,316 1,165
Deferred revenues, net (398) 2,426 (1,541)
Deferred tank painting costs (1,653) (1,539) (1,440)
Deferred rate case expense (3,008) (3,040) (2,858)
Amortization of deferred charges 8,268 6,270 5,548
Other, net (1,873) (19) (3,205)
Changes in assets and liabilities, net of
effects from acquisitions
Accounts receivable (9,734) (2,308) (5,567)
Unbilled revenues (3,738) 229 (1,934)
Other current assets (352) (598) (1,758)
Accounts payable 2,987 (1,568) (4,165)
Taxes accrued, including federal income (664) 2,958 (1,651)
Interest accrued (674) (3,417) 1,869
Other current liabilities (3,257) (34) 3,185
- -----------------------------------------------------------------------------
Net cash from operating activities 140,440 142,579 127,394
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (193,116) (197,453) (182,649)
Allowance for other funds used
during construction 3,087 2,711 2,974
Water system acquisitions, net of acquired cash (65,889) (5,949) (5,084)
Proceeds from the disposition of property, plant
and equipment 2,183 1,616 2,684
Removal costs from property, plant and equipment
retirements (6,201) (5,224) (4,815)
Funds restricted for construction activity (700) (5,200)
Temporary investments (100) 102 127
- -----------------------------------------------------------------------------
Net cash used in investing activities (260,736) (209,397) (186,763)
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 267,070 244,900 200,300
Proceeds from preferred stock 1,000 5,600 61,000
Proceeds from common stock 2,059 963 858
Net borrowings (repayments) under line-of-credit
agreements 50,535 58,602 (117,987)
Advances and contributions for construction,
net of refunds 20,661 8,535 6,335
Debt issuance costs (5,018) (5,335) (2,257)
Repayment of long-term debt (152,050) (195,113) (61,639)
Redemption of preferred stocks (7,071) (2,797) (2,292)
Dividends paid (33,024) (29,600) (28,390)
- -----------------------------------------------------------------------------
Net cash from financing activities 144,162 85,755 55,928
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 23,866 18,937 (3,441)
Cash and cash equivalents at beginning of year 29,113 10,176 13,617
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 52,979 $ 29,113 $ 10,176
=============================
Cash paid during the year for:
Interest, net of capitalized amount $ 99,433 $ 97,088 $ 91,272
=============================
Income taxes $ 41,880 $ 25,728 $ 31,889
=============================
Common stock issued in lieu of cash in connection with the Dividend
Reinvestment and Stock Purchase Plan, the Employees' Stock Ownership Plan and
the Savings Plan for Employees totaled $3,683 in 1993, $4,344 in 1992 and
$2,618 in 1991. Capital lease obligations of $126 and $338 were recorded in
1992 and 1991, respectively. The accompanying schedules and notes are an
integral part of these financial statements.
<PAGE> 46 (Page 40 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC.
BALANCE SHEET
(In thousands)
At December 31, 1993 1992
- --------------------------------------------------------------------
ASSETS
Investments in subsidiaries
Securities $810,372 $749,513
Notes and advances 3,630 4,640
- --------------------------------------------------------------------
814,002 754,153
- --------------------------------------------------------------------
Current assets
Cash and cash equivalents 23,302 78
Notes receivable from subsidiaries 1,010 1,010
Other 253 437
- --------------------------------------------------------------------
24,565 1,525
- --------------------------------------------------------------------
Deferred debits
Debt expense 402 177
Preferred stock expense 278 305
Other 1,624 1,551
- --------------------------------------------------------------------
2,304 2,033
- --------------------------------------------------------------------
Other long-term assets 6,103 5,429
- --------------------------------------------------------------------
$846,974 $763,140
=====================
CAPITAL AND LIABILITIES
Capital
Common stock $ 39,055 $ 38,794
Paid-in capital 37,627 32,446
Retained earnings 578,593 538,332
- --------------------------------------------------------------------
Common stockholders' equity 655,275 609,572
Preferred stocks with mandatory
redemption requirements 40,000 40,480
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Long-term debt 131,058 73,262
- --------------------------------------------------------------------
838,006 734,987
- --------------------------------------------------------------------
Current liabilities
Bank debt 21,255
Current portion of long-term debt 16 13
Taxes accrued, including federal income 548 (156)
Interest accrued 1,378 885
Other 856 739
- --------------------------------------------------------------------
2,798 22,736
- --------------------------------------------------------------------
Other long-term liabilities 6,170 5,417
- --------------------------------------------------------------------
$846,974 $763,140
=====================
The accompanying schedules and notes are an integral part of these financial
statements.
<PAGE> 47 (Page 41 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands, except per share amount)
For the years ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------
INCOME
Income from subsidiaries
Equity in earnings of subsidiaries
Dividends $ 65,264 $ 55,859 $ 65,002
Undistributed earnings 18,984 19,401 15,690
- -----------------------------------------------------------------------------
84,248 75,260 80,692
Interest 352 804 1,184
Other income 868 304 464
- -----------------------------------------------------------------------------
85,468 76,368 82,340
- -----------------------------------------------------------------------------
Expenses and taxes
Operating and administrative expenses 5,438 4,335 4,081
General taxes 200 200 200
Federal income taxes (5,228) (3,989) (4,061)
Interest 9,618 7,629 8,492
Amortization of debt expense 53 33 35
- -----------------------------------------------------------------------------
10,081 8,208 8,747
- -----------------------------------------------------------------------------
Net income 75,387 68,160 73,593
Dividends on preferred stocks 3,996 4,019 3,703
- -----------------------------------------------------------------------------
Net income to common stock $ 71,391 $ 64,141 $ 69,890
===============================
Average shares of common stock outstanding 31,139 30,943 30,731
Earnings per common share on average shares
outstanding $ 2.29 $ 2.07 $ 2.27
===============================
RETAINED EARNINGS
Balance at beginning of year $538,332 $502,800 $459,333
Add: net income 75,387 68,160 73,593
- -----------------------------------------------------------------------------
613,719 570,960 532,926
- -----------------------------------------------------------------------------
Deduct: dividends
Preferred stock 3,540 3,563 3,247
Preference stock 456 456 456
Common stock - $1.00 per share in 1993;
$.925 per share in 1992;
$.86 per share in 1991 31,130 28,609 26,423
- -----------------------------------------------------------------------------
35,126 32,628 30,126
- -----------------------------------------------------------------------------
Balance at end of year $578,593 $538,332 $502,800
===============================
The accompanying schedules and notes are an integral part of these financial
statements.
<PAGE> 48 (Page 42 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC.
STATEMENT OF CASH FLOWS
(In thousands)
For the years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 75,387 $ 68,160 $ 73,593
Adjustments
Undistributed earnings of subsidiaries (18,984) (19,401) (15,690)
Other, net 739 605 88
Changes in assets and liabilities
Other current assets 184 (180) (42)
Taxes accrued, including federal income 704 109 102
Interest accrued 493 26 (237)
Other current liabilities 117 46 (88)
- -------------------------------------------------------------------------
Net cash from operating activities 58,640 49,365 57,726
- -------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries' common stock (42,875) (36,800) (41,000)
Redemption of preferred stock by subsidiary 1,000
Repayment of promissory notes by subsidiaries 1,010 5,210 1,015
Other (594) (728)
- -------------------------------------------------------------------------
Net cash used in investing activities (41,459) (31,590) (40,713)
- -------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under
line-of-credit agreements (21,255) 11,425 (13,255)
Proceeds from long-term debt 81,000
Proceeds from common stock 3,618 2,282 2,015
Proceeds from preferred stock 40,000
Repayment of long-term debt (23,214) (1,317) (16,310)
Redemption of preferred stock (480) (480) (730)
Dividends paid (33,024) (29,600) (28,390)
Other (602) (22) (351)
- -------------------------------------------------------------------------
Net cash from (used in) financing activities 6,043 (17,712) (17,021)
- -------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 23,224 63 (8)
Cash and cash equivalents at beginning
of year 78 15 23
- -------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 23,302 $ 78 $ 15
============================
Cash paid (received) during the year for:
Interest $ 9,125 $ 7,603 $ 8,729
============================
Income taxes $ (4,846) $ (3,870) $ (3,904)
============================
Common stock issued in lieu of cash in connection with the Dividend
Reinvestment and Stock Purchase Plan totaled $2,102 in 1993, $3,028 in 1992
and $1,453 in 1991. The accompanying schedules and notes are an integral part
of these financial statements.
<PAGE> 49 (Page 43 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
SCHEDULES ACCOMPANYING FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Par value
Shares of shares
CAPITAL STOCK OF AMERICAN WATER WORKS COMPANY, INC. outstanding outstanding Dividends
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock - $1.25 par value
Authorized - 100,000,000 shares
1993 31,243,743 $39,055 $31,130
1992 31,035,083 38,794 28,609
1991 30,793,836 38,492 26,423
</TABLE>
At December 31, 1993, 30,461,581 common shares were reserved for
issuance in connection with the company's Stockholder Rights Plan, 1,619,433
common shares were reserved for issuance in connection with the company's
Dividend Reinvestment and Stock Purchase Plan, 119,568 common shares were
reserved for issuance in connection with the company's Employees' Stock
Ownership Plan and 478,837 common shares were reserved for issuance in
connection with the company's Savings Plan for Employees.
Paid-in capital
Paid-in capital was increased by the net proceeds received in excess of
the par value of 208,660 shares in 1993, 241,247 shares in 1992, and 175,893
shares in 1991 of common stock that was issued. Shares issued in connection
with the company's Dividend Reinvestment and Stock Purchase Plan totaled
100,531 in 1993, 137,635 in 1992 and 72,639 in 1991. Shares issued under the
company's Employees' Stock Ownership Plan totaled 86,966 in 1993, 103,612 in
1992 and 103,254 in 1991. Shares issued through the company's Savings Plan
for Employees totaled 21,163 in 1993.
<TABLE>
<S> <C> <C> <C>
Preferred stocks with mandatory redemption requirements
Cumulative preferred stock - $25 par value
Authorized - 1,770,000 shares
5 1/2% series of 1961 (non-voting)
1991 10
4.90% series (non-voting)
1993 13
1992 19,200 480 36
1991 38,400 960 59
8.50% series (non-voting)
1993 1,600,000 40,000 3,400
1992 1,600,000 40,000 3,400
1991 1,600,000 40,000 3,051
</TABLE>
The terms of the 8.50% preferred stock provide that all shares of the series
shall be redeemed on December 1, 2000. In September 1991 all remaining shares
of the 5 1/2% series of 1961 were redeemed. In June 1993 all remaining shares
of the 4.90% series were redeemed.
<TABLE>
<S> <C> <C> <C>
Preferred stocks without mandatory redemption requirements
Cumulative preferred stock - $25 par value
5% series
1993, 1992 and 1991 101,777 2,544 127
Cumulative preference stock - $25 par value
Authorized - 750,000 shares
5% series (non-voting)
1993, 1992 and 1991 365,158 9,129 456
</TABLE>
<PAGE> 50 (Page 44 of 1993 Annual Report)
SCHEDULES ACCOMPANYING FINANCIAL STATEMENTS
(Dollars in thousands)
PREFERRED STOCKS OF SUBSIDIARIES
At December 31, 1993 1992 1991
- -------------------------------------------------------------------------
Dividend rate
3.9% to less than 5% $ 8,621 $ 9,386 $ 9,972
5% to less than 6% 6,012 5,865 6,000
6% to less than 7% 2,673 2,117 2,281
7% to less than 8% 2,470 1,520 1,570
8% to less than 9% 24,973 25,006 19,439
9% to less than 10% 5,406 5,624 5,977
10% to less than 11% 1,320 1,500 2,180
11% to less than 12% 1,142 6,058 6,274
12% to less than 13% 200 300 400
- -------------------------------------------------------------------------
$52,817 $57,376 $54,093
================================
Preferred stock agreements of certain subsidiaries require annual sinking
fund payments in varying amounts and permit redemption at various redemption
prices at the option of the subsidiaries on thirty days' notice, or, in the
event of involuntary liquidation, at par value plus accrued dividends.
Sinking fund payments for the next five years will amount to $1,703 in 1994;
$1,477 in 1995; $1,332 in 1996; $1,237 in 1997 and $1,231 in 1998.
LONG-TERM DEBT OF AMERICAN WATER WORKS COMPANY, INC.
At December 31, 1993 1993 1992
- -------------------------------------------------------------------------
Due within Due after Due after
one year one year one year
- -------------------------------------------------------------------------
8 3/4% Series A sinking fund
debentures $23,200
8.91% Series B-1 debentures, due
December 1, 1996 $ 15,000 15,000
9.06% Series B-2 debentures, due
December 1, 1999 35,000 35,000
7.41% Series C debentures, due
May 1, 2003 81,000
Capital lease obligation to a subsidiary $ 16 58 62
- -------------------------------------------------------------------------
$ 16 $131,058 $73,262
===============================
In March 1993 the 8 3/4% Series A sinking fund debentures were called for
redemption.
<PAGE> 51 (Page 45 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
LONG-TERM DEBT OF SUBSIDIARIES
At December 31, 1993 1993 1992
- -------------------------------------------------------------------------
Due within Due after Due after
one year one year one year
- -------------------------------------------------------------------------
Interest rate
4% to less than 5% $1,059 $ 399 $ 5,733
5% to less than 6% 77,717 8,200
6% to less than 7% 10 142,349 46,000
7% to less than 8% 32 165,945 128,237
8% to less than 9% 72 198,809 223,330
9% to less than 10% 205 347,440 338,059
10% to less than 11% 484 82,535 78,930
11% to less than 12% 14,500 14,500
12% to less than 13% 11,800 11,800
13% to less than 14% 3,150 12,152 13,000
14% to less than 15% 50 800 850
- -------------------------------------------------------------------------
5,062 1,054,446 868,639
Capital leases 343 1,958 2,301
- -------------------------------------------------------------------------
$5,405 $1,056,404 $870,940
==================================
Maturities of long-term debt, including sinking fund requirements, during the
next five years will amount to $5,405 in 1994; $74,042 in 1995; $28,294 in
1996; $57,618 in 1997 and $22,255 in 1998. Long-term debt of subsidiaries is
substantially secured by utility plant.
UTILITY PLANT
At December 31, 1993 1992
- -------------------------------------------------------------------------
Water plant
Sources of supply $ 134,787 $ 123,700
Treatment and pumping facilities 598,236 540,635
Transmission and distribution facilities 1,379,501 1,204,709
Services, meters and fire hydrants 520,019 450,229
General structures and equipment 184,517 165,143
Sewer plant 30,974 18,852
Construction work in progress 80,475 60,585
- -------------------------------------------------------------------------
2,928,509 2,563,853
Less--accumulated depreciation 484,232 406,228
- -------------------------------------------------------------------------
$2,444,277 $2,157,625
========================
<PAGE> 52 (Page 46 of 1993 Annual Report)
NOTES TO FINANCIAL STATEMENTS
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the operating subsidiaries are in
conformity with generally accepted accounting principles for
regulated public utilities and accounting procedures prescribed
by regulatory authorities of the respective states in which they
operate. Certain reclassifications have been made to conform
previously reported data to the current presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
of the Parent company and all subsidiaries.
All intercompany accounts and transactions are eliminated.
Parent company financial statements reflect the equity method of
accounting for investments in common stock of subsidiaries (cost
plus equity in subsidiaries' undistributed earnings since
acquisition).
PROPERTY, PLANT AND EQUIPMENT
The cost of additions to utility plant and replacement of
retirement units of property is capitalized. Cost includes
material, direct labor and such indirect items as engineering and
supervision, payroll taxes and benefits, transportation and an
allowance for funds used during construction. Repairs,
maintenance and minor replacements of property are charged to
current operations. The cost of property units retired in the
ordinary course of business plus removal cost (less salvage) is
charged to accumulated depreciation. Upon regulatory approval as
an allowable cost recoverable in future rates, losses on major
premature property retirements are deferred and amortized over
periods as authorized. The cost of property, plant and equipment
is depreciated using the straight-line method over the estimated
service lives of the assets.
Utility plant acquisition adjustments and other utility
plant adjustments are being amortized principally over
40 years.
INTANGIBLE ASSETS
The excess of cost of investments in subsidiaries over book
equity at acquisition, which relates primarily to acquisitions
prior to October 31, 1970, is not being amortized because in the
opinion of management there has been no diminution in value.
CASH AND CASH EQUIVALENTS
Substantially all of the company's cash is invested in
interest bearing accounts. The company considers all highly
liquid investments with a maturity of three months or less when
purchased to be cash equivalents. Cash equivalents consist
primarily of bank certificates of deposit and repurchase
agreements. Cash equivalents are stated at cost plus accrued
interest.
MATERIALS AND SUPPLIES
Materials and supplies are stated at average cost.
REGULATORY AND OTHER LONG-TERM ASSETS
In conjunction with the adoption of Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for
Income Taxes", the company has recorded a regulatory asset for
the additional revenues expected to be realized as the tax
effects of temporary differences previously flowed through to
customers reverse. These temporary differences are primarily
related to the depreciation of property acquired before the
adoption of full normalization for rate making purposes by
regulatory authorities. The effects of adopting SFAS No. 109 are
discussed in more detail in Note 2.
Pension expense is deferred by certain subsidiaries when it
is probable such costs will be recovered in future water service
rates as contributions are made to the pension plan.
Debt expense is amortized over the lives of the respective
issues. Call premiums on the redemption of long-term debt, as
well as unamortized debt expense, are deferred and amortized to
the extent they will be recovered through future water service
rates. Expenses of preferred stock issues without sinking fund
provisions are amortized over 30 years from date of issue;
expenses of issues with sinking fund provisions are charged to
operations as shares are retired.
Tank painting costs included in regulatory assets are
generally being amortized on a straight-line basis over periods
ranging from 4 to 20 years as permitted by the regulatory
authorities.
OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1993 and 1992
include payables to banks of $5,308,000 and $9,871,000,
respectively, which represent checks issued but not presented to
the banks for payment, net of the related bank balance.
<PAGE> 53 (Page 47 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
REGULATORY AND OTHER LONG-TERM LIABILITIES
In accordance with SFAS No. 109, the company has recorded a
regulatory liability for the net reduction expected in future
revenues as deferred taxes previously provided, attributable to
the difference between the federal income tax rate under prior
law and the current 35% rate, reverse over the average remaining
service lives of the related assets.
ADVANCES AND CONTRIBUTIONS IN AID OF CONSTRUCTION
Operating subsidiaries may receive advances and
contributions to fund construction necessary to extend service to
new areas. As determined by regulatory authorities, advances for
construction are refundable for limited periods of time as new
customers begin to receive service. Amounts which are no longer
refundable are reclassified to contributions in aid of
construction.
Utility plant funded by advances and contributions is
excluded from rate base and is generally not depreciated for rate
making purposes. Advances and contributions received subsequent
to 1986 must be included in taxable income and the related
property is depreciable for tax purposes.
RECOGNITION OF REVENUES
Water service revenues for financial reporting purposes
include amounts billed to customers on a cycle basis and unbilled
amounts based on estimated usage from the date of the latest
meter reading to the end of the accounting period.
INCOME TAXES
The company and its subsidiaries participate in a
consolidated federal income tax return. For each company,
federal income tax expense for financial reporting purposes is
provided on a separate return basis, except that the federal
income tax rate applicable to the consolidated group is applied
to separate company taxable income and the benefit of net
operating losses is recognized currently.
Certain income and expense items are accounted for in different
time periods for financial reporting than for income tax
reporting purposes. Prior to 1993, deferred income taxes with
respect to these differences were provided to the extent
permitted by regulatory authorities in determining rates for
water service.
In 1993, deferred income taxes have been provided in
accordance with SFAS No. 109 on the difference between the tax
bases of assets and liabilities and the amounts at which they are
carried in the financial statements based on the enacted tax
rates to be in effect when such temporary differences are
expected to reverse. The effects of adopting SFAS No. 109 are
explained in more detail in Note 2.
To the extent permitted by regulatory authorities,
investment tax credits have been deferred and are being amortized
to income over the average estimated service lives of the related
assets.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)
AFUDC is a non-cash credit to income with a corresponding
increase in utility plant which represents the cost of borrowed
funds and a return on equity funds devoted to plant under
construction. The company's operating subsidiaries record AFUDC
to the extent permitted by regulatory authorities.
NOTE 2
INCOME TAXES
Effective January 1, 1993, the company adopted, on a
prospective basis, SFAS No. 109. The Statement requires deferred
income taxes to be provided on the difference between the tax
bases of assets and liabilities and the amounts at which they are
carried in the financial statements, based on the enacted tax
rates to be in effect when such temporary differences are
expected to reverse. SFAS No. 109 requires regulated enterprises
to provide deferred taxes on all temporary differences including
those not previously recognized when the tax effects of the
differences are, at the direction of regulatory authorities,
flowed through to customers. Regulated enterprises are also
required to recognize regulatory assets and liabilities for the
effect on revenues expected to be realized as the tax effects of
temporary differences previously flowed through to customers
reverse.
As a result of the adoption, the company recorded additional
assets and liabilities of approximately $210,000,000 at January
1, 1993. The company's results of operations were not materially
impacted by the adoption of SFAS No. 109.
<PAGE> 54 (Page 48 of 1993 Annual Report)
NOTES TO FINANCIAL STATEMENTS
After adoption of SFAS No. 109, $230,000,000 of the
company's net non-current deferred tax liability at January 1,
1993 was attributable to property, plant, and equipment basis
differences, as well as differences in depreciation methods,
$79,000,000 was attributable to income taxes recoverable through
rates in the future and $(31,000,000) related to the net amount
of all other types of temporary differences.
The Revenue Reconciliation Act of 1993 increased the
company's federal income tax rate, retroactive to January 1,
1993, from 34% to 35%. The increased tax rate also resulted in an
increase in the company's net deferred income tax liability, as
well as increases in tax related regulatory assets and
liabilities which are recorded at revenue requirement levels in
accordance with SFAS No. 109. Where recovery of the increase in
deferred income taxes is expected from regulatory authorities,
operating subsidiaries have recorded a regulatory asset. As a
result, the company recorded additional assets and liabilities of
approximately $5,500,000. During 1993, federal income tax expense
was adjusted to reflect the 1% increase in the tax rate,
resulting in a reduction in the company's results of operations
for 1993 of approximately $1,200,000.
As of December 31, 1993, the company and its subsidiaries
had a net non-current deferred tax liability
of $309,204,000. Non-current deferred tax liabilities of
$496,758,000 were offset by non-current deferred tax assets of
$187,554,000. No valuation allowances were required on deferred
tax assets.
At December 31, 1993, $257,000,000 of the company's net
non-current deferred tax liability was attributed to property,
plant, and equipment basis differences and depreciation methods,
$84,000,000 was attributed to income taxes recoverable in future
rates and $(32,000,000) related to the net of all other types of
temporary differences.
Components of consolidated income tax expense are as follows (in
thousands):
1993 1992 1991
- -----------------------------------------------------------
State income taxes:
Current $ 8,681 $ 5,575 $ 5,438
Deferred
Current (57) (15)
Non-current (1,249) 671 676
- -----------------------------------------------------------
$ 7,375 $ 6,246 $ 6,099
==========================
Federal income taxes:
Current $31,162 $19,111 $20,261
Deferred
Current (92) (67) (90)
Non-current 10,640 13,526 13,183
Amortization of deferred
investment tax credits (1,221) (1,155) (1,220)
- -----------------------------------------------------------
$40,489 $31,415 $32,134
==========================
Following is a reconciliation of federal income tax expense
to income tax at the statutory rate (in thousands):
1993 1992 1991
- -----------------------------------------------------------
Income before federal
income tax $115,876 $99,575 $105,727
===========================
Income tax at federal
statutory rate - 35% in
1993; 34% in 1992
and 1991 $ 40,557 $33,856 $ 35,947
Increases (decreases)
resulting from -
Flow through differences 1,494 (1,683) (1,212)
Investment tax credits (1,221) (1,155) (1,220)
Subsidiary preferred
dividends 1,486 1,533 967
Other (1,827) (1,136) (2,348)
- -----------------------------------------------------------
Federal income tax expense $ 40,489 $31,415 $ 32,134
============================
NOTE 3
COMPENSATING BALANCES AND BANK DEBT
The company and its subsidiaries maintain lines of credit
with various banks. The total of the unused lines of credit at
December 31, 1993 was $181,758,000. Borrowings under such lines
of credit generally are payable on demand and bear interest at
variable rates. None of the agreements with lending banks has
compensating balance requirements.
<PAGE> 55 (Page 49 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
Short-term bank borrowing information is as follows (in
thousands):
1993 1992 1991
- ------------------------------------------------------------
Maximum amount
outstanding $220,150 $133,816 $193,201
Average amount
outstanding 171,340 84,210 103,206
Weighted average
annual interest rate 3.82% 4.56% 7.04%
Interest rate
at December 31 3.71% 3.26% 4.68%
NOTE 4
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
PENSION BENEFITS
The company and its subsidiaries have a noncontributory
defined benefit pension plan covering substantially all
employees. Benefits under the plan are based on the employee's
years of service and average annual compensation in the last five
years of employment.
The following table provides pension cost components and the
expected long-term rate of return on plan assets used in
determining net pension cost (in thousands):
1993 1992 1991
- ------------------------------------------------------------
Service cost-benefits
earned during the year $ 8,659 $ 9,071 $ 7,600
Interest cost on projected
benefit obligation 21,989 21,455 19,556
Actual return on plan assets (23,620) (18,484) (27,654)
Net amortization and deferral (1,595) (6,016) 4,182
- ------------------------------------------------------------
Net pension cost $ 5,433 $ 6,026 $ 3,684
===========================
Assumed asset
earnings rate 8.75% 8.75% 9.00%
The company's policy is to fund pension costs accrued,
subject to the statutory minimum and maximum limits. Due to the
funded status of the plan there were no contributions made in
1993, 1992 or 1991. Pension plan assets are invested in a
guaranteed interest contract with a major insurance company,
United States government securities, equity mutual funds and
publicly traded bonds. The following table reconciles plan assets
and liabilities to the funded status of the plan at December 31
(in thousands):
1993 1992
- ------------------------------------------------------------
Plan assets at fair value $283,772 $268,456
==================
Actuarial present value of benefit
obligations:
Vested benefits $252,289 $201,129
Non-vested benefits 6,259 5,544
- ------------------------------------------------------------
Accumulated benefit obligation 258,548 206,673
Effect of projected future salary
increases 73,427 65,327
- ------------------------------------------------------------
Total projected benefit
obligation $331,975 $272,000
==================
Projected benefit obligation in
excess of plan assets $(48,203) $ (3,544)
Unrecognized net transition
asset (21,173) (23,526)
Unrecognized prior service cost 1,653 1,782
Unrecognized net loss 49,696 13,346
- ------------------------------------------------------------
Accrued pension cost $(18,027) $(11,942)
==================
Discount rate assumption 7.25% 8.00%
Compensation growth rate assumption 5.00% 5.75%
The company also has two unfunded supplemental non-qualified
pension plans that provide additional retirement benefits to
certain employees of the company and its subsidiaries. Pension
costs for the supplemental plans were $1,066,000 for 1993,
$1,017,000 for 1992 and $825,000 for 1991. At December 31, 1993,
the projected benefit obligation for these plans totaled
$9,405,000. $5,876,000 is accrued as a pension liability on the
balance sheet representing $4,393,000 of accrued pension cost and
an unfunded accumulated benefit obligation in excess of accrued
pension cost of $1,483,000.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company and its subsidiaries provide certain life
insurance benefits for retired employees and certain health care
benefits for retired employees and their dependents.
Substantially all employees may become eligible for those
benefits if they reach retirement age while still working for the
company. The program provides for monthly contributions from
post-1990 retirees and their dependents under age 65 that elect a
basic/major medical plan that covers hospital and surgical
expenses at 100%. A comprehensive medical plan, with certain
limitations on benefits, that does not require contributions from
retirees is also available. Both plans contain cost-sharing
features such as deductibles and coinsurance, and require
<PAGE> 56 (Page 50 of 1993 Annual Report)
NOTES TO FINANCIAL STATEMENTS
additional monthly contributions from retirees that took early
retirement after July 31, 1993.
In the first quarter of 1993, the company adopted Statement
of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." The Statement
requires the company to accrue the expected cost of providing
postretirement health care and life insurance benefits as
employees render the services necessary to earn the benefits, in
a manner similar to that used to account for pensions. The effect
of adopting the new accounting method increased postretirement
benefit costs in 1993 by $16,459,000, of which $6,649,000 was
deferred because future recovery in rates is probable and
$1,031,000 was capitalized to utility plant.
The company's operating subsidiaries have been pursuing
recovery in rates for service of the additional costs resulting
from this change in accounting. During 1993, fifteen decisions
reached by regulatory authorities on this matter have permitted
such recovery. Three regulatory authorities have denied recovery
in current rates, but will continue to allow recovery when the
benefits are paid in the future. The outcome of this issue in the
rate making process in two states served by the operating
subsidiaries is presently uncertain. Where recovery is uncertain
or has been initially denied, operating subsidiaries will
continue to pursue recovery in rates of the increased costs. The
operating subsidiaries recovered approximately $5,178,000 of
these increased costs in rates during 1993. This change in
accounting decreased net income for 1993 by $2,207,000, or $.07
per share, after giving effect to the additional amounts
recovered in rates.
Prior to 1993, the company recognized the cost of providing
postretirement benefits by expensing annual insurance premiums as
incurred. Such premiums approximated $4,600,000 in 1992 and
$3,700,000 in 1991.
The following table provides postretirement benefit cost
components for 1993 (in thousands):
- ------------------------------------------------------------
Service cost - benefits earned during the year $ 5,153
Interest cost on accumulated postretirement
benefit obligation 10,100
Amortization of transition obligation 6,173
- ------------------------------------------------------------
Net postretirement benefit cost $21,426
=======
The transition obligation of $122,115,000 at January 1, 1993
is being amortized over twenty years.
The company began making contributions to trust funds
established for its postretirement benefit plans in the second
half of 1993, when $8,235,000 was contributed. In subsequent
years, the company intends to fund postretirement benefit costs
accrued. Plan assets are currently invested in money market funds
and may be invested in United States government securities,
equity mutual funds and publicly traded bonds. The following
table reconciles the funded status of the plans with the
liability included in the consolidated balance sheet at December
31, 1993 (in thousands):
- ------------------------------------------------------------
Plan assets at fair value $ 8,288
==========
Actuarial present value of postretirement
benefit obligations:
Retirees and dependents $ 48,731
Fully eligible active plan participants 4,326
Other active plan participants 86,662
- ------------------------------------------------------------
Total accumulated postretirement
benefit obligation $ 139,719
==========
Accumulated postretirement benefit
obligation in excess of plan assets $ (131,431)
Unrecognized transition obligation 116,009
Unrecognized prior service costs 3,751
Unrecognized loss 2,571
- ------------------------------------------------------------
Accrued postretirement benefit cost $ (9,100)
==========
The health care cost trend rate, used to calculate the
company's cost for postretirement health care benefits, is a 12%
annual increase in 1994 and is assumed to decrease gradually to a
5.5% annual increase for 2004 and remain at that level
thereafter. The assumed long-term rate of annual compensation
increase used for life insurance benefits was an age-related
scale, averaging 5%. The discount rate used was 7.25%. The
assumed weighted average rate of return on plan assets was 7.7%.
A one-percentage-point increase in the health care cost trend
rate would have increased the accumulated postretirement benefit
obligation by $19,800,000 at January 1, 1994, and the aggregate
of the service and interest cost components of postretirement
benefit costs for 1993 by $2,500,000.
POSTEMPLOYMENT BENEFITS
In November 1992, Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment
Benefits,'' was issued by the FASB. The company plans to adopt the
Statement in the first quarter
<PAGE> 57 (Page 51 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
of 1994. The Statement will require the company to accrue the cost
of providing benefits to former and inactive employees after
employment, but before retirement. The company does not expect
adoption of the Statement to have a material impact on its
results of operations.
NOTE 5
LEASES
The company has entered into operating leases involving
certain facilities and equipment. Rental expenses under operating
leases were $8,706,000 for 1993, $7,954,000 for 1992 and
$7,278,000 for 1991. Capital leases currently in effect are not
significant.
At December 31, 1993, the minimum annual future rental
commitment under operating leases that have initial or remaining
noncancellable lease terms in excess of one year are as follows
(in thousands):
- ----------------------------------------
1994 $ 4,278
1995 3,235
1996 2,115
1997 1,711
1998 1,262
Later years 5,320
- ----------------------------------------
$17,921
=======
NOTE 6
COMMON STOCKHOLDERS' EQUITY
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The company's dividend reinvestment plan was amended on July
1, 1993, to provide for optional cash purchases of newly-issued
common stock of the company and is hereinafter referred to as the
Dividend Reinvestment and Stock Purchase Plan. In addition to
permitting record holders of common stock to have all or part of
their dividends automatically reinvested in additional shares of
common stock, the amended plan permits stockholders and customers
of the company's operating subsidiaries to purchase up to $5,000
of common stock each month directly from the company. The
additional shares are offered at a 5% discount from the
prevailing market price.
Dividends paid on common stock of $2,102,000 in 1993,
$3,028,000 in 1992 and $1,453,000 in 1991 were used by
stockholders to purchase 78,932 shares in 1993, 137,635 shares in
1992 and 72,639 shares in 1991 of newly-issued common stock
through the plan. In 1993, $626,000 was received in connection
with optional cash purchases of 21,599 shares of newly-issued
common stock. Costs associated with the plan of $299,000 in 1993
were charged to paid-in capital.
EMPLOYEES' STOCK OWNERSHIP PLAN
The company and its subsidiaries have an Employees' Stock
Ownership Plan which provides for beneficial ownership of company
common stock by all employees who are not included in a
bargaining unit and have more than one year of service. The
company will make a basic annual contribution to the plan equal
to 1/2% of each participating employee's compensation for the
preceding year. Each participant can elect to contribute an
amount that does not exceed 2% of the participant's compensation
for the preceding year. The company will make matching
contributions in an amount equal to 100% of each participant's
contribution.
The company expensed contributions of $1,350,000 for 1993,
$1,316,000 for 1992 and $1,165,000 for 1991 that it made to the
plan.
The trustee of the plan may purchase shares of the company's
common stock from the company, on the open market, or from a
qualified stockholder. The company issued 86,966 shares in 1993,
103,612 shares in 1992 and 103,254 shares in 1991 of newly issued
common stock with a value of $2,367,000, $2,297,000 and
$2,022,000, respectively, to the plan.
SAVINGS PLAN FOR EMPLOYEES
The company and its subsidiaries implemented a 401(k)
Savings Plan for Employees on August 1, 1993 for all employees
who have more than six months of service. Each employee can elect
to contribute up to 6% of their compensation to the plan.
Employee contributions are invested at the direction of the
employee in one or more funds including a fund consisting
entirely of common stock of the company. The company will make
matching contributions in an amount equal to 30% of the first 2%
of each employee's compensation contributed to any fund,
increasing to 40% of the first 3% of each employee's compensation
contributed beginning August 1, 1994. All of the company's
matching contributions are invested in the fund of company common
stock. The trustee of the plan may purchase shares of the
company's common stock from the company at the prevailing market
price, on the open market, or from a qualified stockholder.
<PAGE> 58 (Page 52 of 1993 Annual Report)
NOTES TO FINANCIAL STATEMENTS
During 1993, employees contributed $416,000 to the fund of
company common stock, resulting in the issuance of 13,608 shares.
The company expensed matching contributions to the plan totaling
$231,000 for 1993, which were used by the trustee to purchase
7,555 shares of newly issued common stock from the company at the
prevailing market price.
STOCKHOLDER RIGHTS PLAN
Each share of the company's common stock has one Flip-Over
Right and one Flip-In Right attached. The Rights will not be
exercisable until a person or group (an "Acquiring Person")
acquires or announces an offer for 25% or more of the company's
common stock. The Rights will then entitle the holder to buy from
the company one-half share of the company's common stock for $40.
Thereafter, if the company is acquired in a merger or
business combination in which the company does not survive or, if
50% or more of the company's assets or earning power are sold or
transferred, each Flip-Over Right will become the right to buy,
at twice its then current exercise price, that number of shares
of the acquiring person's common stock which at that time have a
market value of four times the then current exercise price of the
Flip-Over Right. If an Acquiring Person (i) acquires beneficial
ownership of 35% or more of the company's common stock, (ii)
acquires the company in a merger or business combination
transaction in which the company survives and its stock is not
changed or (iii) engages in certain self-dealing transactions,
each Flip-In Right not owned by the acquiror will become the
right to buy, at twice its then current exercise price, that
number of shares of the company's common stock which at that time
has a market value of four times the then current price of the
Flip-In Right.
The Rights are redeemable, in whole but not in part, by the
company at a price of $.0005 per Right under certain
circumstances. The Rights do not have voting or dividend rights
and, until they become exercisable, have no dilutive effect on
the earnings per share of the company.
NOTE 7
COMMITMENTS AND CONTINGENCIES
Construction programs of subsidiaries for 1994 are estimated
to cost approximately $258,000,000. Commitments have been made in
connection with certain construction programs.
In 1988, a subsidiary filed suit against the Grafton Water
District in Massachusetts to recover the fair market value of
water utility assets taken by eminent domain. The District
initially paid $1,099,000 for the system that had served 2,300
customers. In 1990, a jury ruled that the District should pay an
additional $4,501,000 plus interest for the property. After the
jury verdict, the District appealed the decision and also caused
legislation to be enacted by the Commonwealth of Massachusetts
that purports to relieve the District from paying the judgement.
The subsidiary has filed suit to appeal the constitutionality of
the enacted legislation. Because of the uncertainty surrounding
this award, no recognition has been given to it in the
accompanying financial statements.
The company is routinely involved in condemnation
proceedings and legal actions relating to several operating
subsidiaries. In the opinion of management, none of these matters
will have a material adverse effect, if any, on the financial
position or results of operations of the company.
NOTE 8
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the
company in estimating its fair value disclosures for financial
instruments:
Current assets and current liabilities: The carrying amount
reported in the balance sheet for current assets and current
liabilities, including bank debt, approximates their fair values.
<PAGE> 59 (Page 53 of 1993 Annual Report)
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
Preferred stocks with mandatory redemption requirements and
long-term debt: The fair values of the company's preferred stocks
with mandatory redemption requirements and long-term debt are
estimated using discounted cash flow analyses based on the
company's current incremental financing rates for similar types
of securities.
The carrying amounts and fair values of the company's
financial instruments at December 31, 1993 and 1992 are as
follows (in thousands):
Carrying
1993 Amount Fair Value
- --------------------------------------------------------------
Preferred stocks with mandatory
redemption requirements $ 86,515 $ 96,052
Long-term debt 1,190,508 1,343,129
Carrying
1992 Amount Fair Value
- --------------------------------------------------------------
Preferred stocks with mandatory
redemption requirements $ 91,375 $ 97,733
Long-term debt 1,034,001 1,115,601
NOTE 9
ACQUISITION
On August 31, 1993, American Water Works Company, Inc. and
its subsidiaries in Indiana, Missouri, and Ohio acquired the
midwestern water utilities of Avatar Holdings, Inc. A total of
$62,000,000 was paid for the common stock of ICWC Holdings, Inc.
and its subsidiary Indiana Cities Water Corporation, Missouri
Cities Water Company, Ohio Suburban Water Company and Northern
Michigan Water Company.
The acquisitions were accounted for using the purchase
method and resulted in the recording of a utility plant
acquisition adjustment in the amount of $38,000,000 and a
deferred tax liability on this temporary difference of
$10,800,000. The company's results of operations for the year
ended December 31, 1993 included four months of results from the
acquired companies' operations.
NOTE 10
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 (in thousands, except
per share amounts) are as follows:
- ---------------------------------------------------------------------------
First Second Third Fourth
1993 Quarter Quarter Quarter Quarter Total
- ---------------------------------------------------------------------------
Operating revenues $155,472 $179,935 $200,154 $181,976 $717,537
Operating income 35,281 45,532 52,402 39,252 172,467
Net income 10,161 21,857 28,651 14,718 75,387
Net income to common stock 9,159 20,855 27,655 13,722 71,391
Net income per common share $.30 $.67 $.88 $.44 $2.29
- ---------------------------------------------------------------------------
First Second Third Fourth
1992 Quarter Quarter Quarter Quarter Total
- ---------------------------------------------------------------------------
Operating revenues $152,258 $168,180 $176,284 $160,638 $657,360
Operating income 36,332 44,418 46,839 36,904 164,493
Net income 12,114 20,250 23,158 12,638 68,160
Net income to common stock 11,106 19,243 22,156 11,636 64,141
Net income per common share $.36 $.62 $.72 $.37 $2.07
<PAGE> 60 (Inside Back Cover of 1993 Annual Report)
SECURITIES INFORMATION
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Dividends paid by American Water Works Company, Inc. to common
stockholders can be reinvested in accordance with the company's Dividend
Reinvestment and Stock Purchase Plan. The plan permits record holders of the
common stock to have all or part of their dividends automatically reinvested
in additional shares of common stock. It also permits direct investment by
stockholders and operating subsidiary customers of from $100 to $5,000 per
month in common stock. The additional shares are offered at a 5% discount.
Stockholders seeking additional information on the plan or an application for
participation may write to The First National Bank of Boston at Mail Stop
45-02-09, Boston, MA 02102-0644 or call the bank at (617) 575-2900 or
(800) 442-2001.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT FOR COMMON, PREFERRED
AND PREFERENCE STOCKS:
The First National Bank of Boston
Mail Stop 45-02-09
Boston, MA 02102-0644
(617) 575-2900
(800) 442-2001
Inquiries relating to your stock ownership and dividend payments should be
directed to The First National Bank of Boston as indicated above.
Transfer requests sent by mail should be directed with appropriate
instructions to the above-referenced address.
TRANSFER AGENT'S NEW YORK DROP:
BancBoston Trust Company of New York
55 Broadway
Third Floor
New York, NY 10006
INVESTOR RELATIONS
Contact: J. James Barr
Vice President, Treasurer and Chief Financial Officer
P.O. Box 1770
1025 Laurel Oak Road
Voorhees, NJ 08043
(609) 346-8200
STOCKHOLDER RELATIONS
Contact: W. Timothy Pohl
General Counsel and Secretary
P.O. Box 1770
1025 Laurel Oak Road
Voorhees, NJ 08043
(609) 346-8200
RANGE OF MARKET PRICES
AWK is the trading symbol of American Water Works Company, Inc. on the New
York Stock Exchange on which the Common Stock, 5% Preferred Stock and 5%
Preference Stock of the company are traded.
<TABLE>
<CAPTION>
Common Stock 5% Preferred Stock 5% Preference Stock
- --------------------------------------------------------------------------------------------------
Newspaper Listing AmWtr A Wat pr A Wat pf
- --------------------------------------------------------------------------------------------------
1993 High Low High Low High Low
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st quarter $27 5/8 $24 7/8 $20 $18 3/4 $20 $18 5/8
2nd quarter 28 24 5/8 19 5/8 18 1/2 19 5/8 18 1/2
3rd quarter 32 1/4 27 21 19 22 1/2 19 1/8
4th quarter 31 5/8 29 22 1/2 20 1/4 23 21 1/4
Quarterly dividend
paid per share 25 cents 31 1/4 cents 31 1/4 cents
Number of stockholders
at December 31, 1993 9,571 318 1,069
- --------------------------------------------------------------------------------------------------
1992
- --------------------------------------------------------------------------------------------------
1st quarter $28 1/2 $21 7/8 $18 1/2 $17 1/2 $19 $17 1/8
2nd quarter 23 20 5/8 18 16 1/2 17 7/8 16 3/4
3rd quarter 26 1/4 21 3/4 20 17 5/8 19 3/4 17
4th quarter 27 3/8 24 1/8 19 1/2 17 1/4 20 18 3/8
Quarterly dividend
paid per share 23 1/8 cents 31 1/4 cents 31 1/4 cents
- --------------------------------------------------------------------------------------------------
</TABLE>
Each of the stocks except the 5% preference stock has voting rights.
<PAGE> 61
EXHIBIT 21
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
Subsidiaries of the Registrant
The following list includes the Registrant and all of its subsidiaries
as of December 31, 1993. The voting stock of each company shown indented is
owned, to the extent indicated by the percentage, by the company immediately
above which is not indented to the same degree. All subsidiaries of the
Registrant appearing in the following table are included in the consolidated
financial statements of the Registrant and its subsidiaries.
Percentage
State of Voting Stock
Name of Company Incorporation Owned
American Water Works Company, Inc.
American Commonwealth Company Delaware 100
American Commonwealth Management
Services Company, Inc. Delaware 100
American International Water Services Co. Delaware 100
American Water Works Service Company, Inc. Delaware 100
California-American Water Company California 100
Greenwich Water System, Inc. Delaware 100
Connecticut-American Water Company Connecticut 100
The Hampton Water-Works Company New Hampshire 100
Massachusetts-American Water Company Massachusetts 100
New York-American Water Company, Inc. New York 100
The Salisbury Water Supply Company Massachusetts 100
Illinois-American Water Company Illinois 99.54
Indiana-American Water Company, Inc. Indiana 100
Indiana Cities Water Corporation Indiana 100
Iowa-American Water Company Delaware 94.63
Kentucky-American Water Company Kentucky 100
Maryland-American Water Company Maryland 100
Missouri-American Water Company Missouri 100
Missouri Cities Water Company Missouri 100
New Jersey-American Water Company, Inc. New Jersey 100*
New Mexico-American Water Company, Inc. New Mexico 99.98
Northern Michigan Water Company Michigan 100
Occoquan Land Corporation Virginia 100
Ohio-American Water Company Ohio 100
Ohio Suburban Water Company Ohio 100
Paradise Valley Water Company Arizona 100
Pennsylvania-American Water Company Pennsylvania 95.28**
Tennessee-American Water Company Tennessee 99.74
Virginia-American Water Company Virginia 100
West Virginia-American Water Company West Virginia 99.90
Bluefield Valley Water Works Company Virginia 100
- ----------------------------------------------------------------------------
* Includes 10.41% which is owned by American Commonwealth Company, an
affiliate of the Registrant.
** Includes .19% and 2.47% which are owned by American Commonwealth Company
and Greenwich Water System, Inc., respectively, affiliates of the
Registrant.
<PAGE> 62 (Page 2 of 1994 Proxy Statement)
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the annual meeting, 11 directors are to be elected to hold office
until the next annual election of directors and until their respective
successors are elected and qualified. It is the intention of the persons
named in the accompanying form of proxy to vote all shares they are empowered
to vote for the election of as many as possible of the persons named in the
following table, all of whom are now directors of the Company. In case any
nominee named in the table withdraws or is otherwise unable to serve, which
is not anticipated, the persons named in the proxy may vote for another
person of their choice.
Stockholders are entitled to cumulative voting rights in the election of
directors. Each holder of Common Stock is entitled to one vote per share,
and each holder of Cumulative Preferred Stock, 5% Series, is entitled to
one-tenth of a vote per share. Each stockholder may cast as many votes as
such stockholder's number of shares shall entitle him or her to vote in the
election of directors multiplied by the number of directors to be elected,
namely 11, and such stockholder may cast all of such votes for a single
director or distribute them among all of the directors to be voted for, or
any two or more of them. A stockholder wishing to exercise his or her
cumulative voting rights should give instructions on the enclosed form of
proxy as to how such stockholder's votes are to be cumulated.
Unless a stockholder specifically exercises his or her cumulative voting
rights, such stockholder's votes may be distributed among the nominees (other
than those from whom the stockholder withholds his or her vote) by the
persons named in the proxy to elect as many as possible of the nominees.
Such persons may vote cumulatively for such of the nominees (in some
circumstances, less than all) as they in their discretion determine if in
their judgment such action is necessary to elect as many of the nominees as
possible.
Information as of March 7, 1994 concerning the nominees is set forth
below:
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR OF THE
POSITION WITH COMPANY DURING PAST FIVE YEARS; OTHER DIRECTORSHIPS COMPANY SINCE
- ---------------------------------- ----------------------------------------------------------------- ---------------
<S> <C> <C>
WILLIAM O. ALBERTINI, 50 Vice President and Chief Financial Officer, Bell Atlantic 1990
(2) (3) Corporation, provider of telecommunications, since February,
1991; Chairman, President and Chief Executive Officer from May,
1989 until February, 1991, and Vice President-Operations and
Planning from May, 1988 until May, 1989, Bell Atlantic
Enterprises Corporation, provider of cellular communications,
computer maintenance and financial services.
WILLIAM R. COBB, 60 Retired since May, 1991; Regional Vice President from March, 1979 1993
(1) (2) (4) to May, 1991, American Water Works Service Company, Inc., service
subsidiary of the Company.
ELIZABETH H. GEMMILL, 48 Vice President and Secretary, Tasty Baking Company, since 1983
(1) (2) (3) February, 1988.
</TABLE>
- ------------------
See footnotes on next page
2
<PAGE> 63 (Page 3 of 1993 Proxy Statement)
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR OF THE
POSITION WITH COMPANY DURING PAST FIVE YEARS; OTHER DIRECTORSHIPS COMPANY SINCE
- ---------------------------------- ----------------------------------------------------------------- ---------------
<S> <C> <C>
HENRY G. HAGER, 59 President, Insurance Federation of Pennsylvania, Inc. since 1986
(2) (4) January, 1985; Partner, Stradley, Ronon, Stevens & Young,
attorneys, since November, 1993; Senior Partner, Liebert, Short
& Hirshland, attorneys, from January, 1982 to November, 1993.
Director: Commonwealth Bank and Trust, N.A.
NELSON G. HARRIS, 67 Chairman of the Executive Committee since May, 1992 and President 1985
Vice Chairman and Chief Executive Officer prior thereto, Tasty Baking Company.
of the Board Director: CoreStates Financial Corp, Philadelphia Electric
(1) (2) (4) Company, Tasty Baking Company, Phillips & Jacobs, Inc.
WILLIAM F. HYLAND, 70 Of Counsel, Riker, Danzig, Scherer, Hyland & Perretti, attorneys. 1984
(3) (4) Director: First Fidelity Bancorporation.
GEORGE W. JOHNSTONE, 55 President and Chief Executive Officer of the Company since 1991
President and Chief January, 1992 and Vice President of the Company from May, 1987
Executive Officer of until January, 1992; President since May, 1991 and Senior Vice
the Company President-Operating Services from February, 1984 until May, 1991,
(1) American Water Works Service Company, Inc., service subsidiary of
the Company.
MARILYN W. LEWIS, 50 President, KLS Educational Systems, Inc., specialized education 1982
Chairman of the Board and consultants, from March, 1987 until January, 1992; Public
Chairman of the Executive relations consultant and business advisor. Director: Cigna
Committee Corporation, South Jersey Industries, Inc.
(1) (2) (3) (4)
NANCY W. WAINWRIGHT, 57 Vice President, United Propane, Inc., gas distributor. 1984
(2) (3)
PAUL W. WARE, 47 Chairman since June, 1990, Vice Chairman from June, 1987 until 1990(dagger)
(1) (2) June, 1990, President from June, 1989 until March, 1992 and
Executive Vice President from June, 1988 until June, 1989, Penn
Fuel Gas, Inc., gas distributor. Director: York Water Company.
ROSS A. WEBBER, 59 Chairperson of the Management Department and Professor of 1986
(3) (4) Management, The Wharton School, University of Pennsylvania;
Private consultant, general management development. Director:
Heidemij, N.V.
</TABLE>
- ------------------
(dagger) Also Director of the Company from May, 1982 to May, 1986
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation and Management Development Committee
(4) Member of Nominating Committee
3
<PAGE> 64 (Page 4 of 1994 Proxy Statement)
Marilyn W. Lewis and Paul W. Ware are the daughter and son of John H.
Ware, 3rd and Marian S. Ware, who beneficially own more than 5% of the
Company's Common Stock. William R. Cobb is the spouse of Rhoda W. Cobb, who
was a director of the Company and beneficially owns more than 5% of the
Company's Common Stock. Rhoda W. Cobb and Nancy W. Wainwright are sisters
and are cousins of Marilyn W. Lewis and Paul W. Ware.
Attendance at meetings of the Board and committees of the Board by
incumbent directors averaged 95% during 1993. All nominees attended 83% or
more of the meetings of the Board and committees on which he or she served.
There were ten meetings of the Board of Directors and nine meetings of the
Board's Executive Committee during 1993. The Board also has an Audit
Committee, a Compensation and Management Development Committee and a
Nominating Committee. The Audit Committee recommends to the Board the
independent accountants to audit the books and accounts of the Company. The
Audit Committee met with the Company's independent accountants and the
Company's officers three times during 1993 to review the scope of the audit
to be performed and to approve, subject to review by the Board of Directors,
the fee to be paid for the audit and to review the results of the audit of
the financial statements included in the Annual Report and the adequacy of
internal accounting controls and accounting practices. The Compensation and
Management Development Committee met five times during 1993 to evaluate and
report to the Board concerning the Company's compensation practices and
benefit programs and to evaluate and set, subject to the concurrence of the
Board of Directors, the annual salary to be paid to the President and Chief
Executive Officer. The Nominating Committee met three times during 1993.
The Nominating Committee will consider nominees for the Board of Directors
suggested by stockholders. Such suggestions must be in writing and delivered
to the General Counsel and Secretary of the Company.
STOCK OWNERSHIP INFORMATION
The following table sets forth information as of March 7, 1994 with
respect to beneficial ownership of Common Stock of the Company by: (i) the
nominees, (ii) the five most highly compensated executive officers and (iii)
all nominees and executive officers of the Company as a group. If a nominee
owns less than one percent of the Company's Common Stock, no percentage is
shown under the heading "Percent of Class." Information for the table was
obtained from the nominees and executive officers. For purposes of the
table, a person is a "beneficial owner" of the Company's Common Stock if that
person, directly or indirectly, has or shares with others (i) the power to
vote or direct the voting of the Common Stock or (ii) investment power with
respect to the Common Stock, which includes the power to dispose or direct
the disposition of the Common Stock.
4
<PAGE> 65 (Page 5 of 1994 Proxy Statement)
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
----------------------------
SOLE VOTING SHARED VOTING SHARES OWNED
NAME OF INDIVIDUAL OR OR INVESTMENT OR INVESTMENT BY SPOUSE AND PERCENT OF
NUMBER OF PERSONS IN GROUP POWER(dagger) POWER* MINOR CHILDREN* TOTAL CLASS
- ------------------------------------------ ------------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
William O. Albertini...................... 1,691 1,691
William R. Cobb........................... 2,911 5,270 8,181
Elizabeth H. Gemmill...................... 16,141 90,000 15,600 121,741
Henry G. Hager............................ 5,166 5,166
Nelson G. Harris.......................... 2,011 2,011
William F. Hyland......................... 1,109 1,109
George W. Johnstone....................... 6,645 481 7,126
Marilyn W. Lewis.......................... 10,200 443,728 453,928 1.45%
Nancy W. Wainwright....................... 3,462 805,808 809,270 2.58%
Paul W. Ware.............................. 10,200 443,728 453,928 1.45%
Ross A. Webber............................ 851 300 1,151
J. James Barr............................. 357,520 357,520 1.14%
Edward W. Limbach......................... 6,590 6,590
W. Timothy Pohl........................... 1,510 1,510
Gerald C. Smith........................... 7,491 7,491
All nominees and executive officers
as a group (15 persons)................... 433,498 1,479,176 21,651 1,934,325 6.18%
</TABLE>
- ------------------
(dagger) Does not include shares of the Company's Common Stock to be
credited during 1994 to the accounts of the executive officers
pursuant to the Company's Employees' Stock Ownership Plan and
Savings Plan for Employees.
* Ware Foundation, a charitable trust of which Rhoda W. Cobb and
Nancy W. Wainwright are trustees, owns 805,808 shares (2.57%) of
the Common Stock of the Company. Oxford Foundation, Inc., a
non-profit corporation of which Marilyn W. Lewis and Paul W. Ware
are directors, owns 304,088 shares of the Common Stock of the
Company. Warwick Foundation, a charitable foundation of which
Elizabeth H. Gemmill is a trustee, owns 90,000 shares of
the Common Stock of the Company. As the trustees or directors of
these non-profit organizations have voting and investment power,
the shares of the Company's Common Stock held by such non-profit
organizations are shown opposite the name of each such trustee or
director, but such shares are reported only once in the total for
nominees and officers as a group. The nominees deny beneficial
ownership of such shares. The nominees also deny beneficial
ownership of shares owned by their spouses and minor children.
None of the nominees has any material interest in any other stock of the
Company or its subsidiaries.
5
<PAGE> 66 (Page 6 of 1994 Proxy Statement)
Based upon information available to the Company, the following persons
owned beneficially more than 5% of the Company's Common Stock as of March 7,
1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP
----------------------------
SOLE VOTING SHARED VOTING
NAME AND ADDRESS OR INVESTMENT OR INVESTMENT PERCENT OF
OF BENEFICIAL OWNER POWER POWER CLASS
- ---------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
Rhoda W. Cobb....................................... 3,670 1,807,064 5.78%
212 Key Palm Road
Boca Raton, FL 33432
John H. Ware, 3rd and............................... 3,340,662 33,160 10.77%
his wife Marian S. Ware
550-A Bunker Hill Road
Strasburg, PA 17579
John H. Ware, 3rd................................... 12,600
550-A Bunker Hill Road
Strasburg, PA 17579
Marian S. Ware...................................... 39,000 304,088 1.10%
550-A Bunker Hill Road
Strasburg, PA 17579
Northern Trust Corporation.......................... 2,897,550 74,990 9.49%
50 South LaSalle Street
Chicago, IL 60675
</TABLE>
Based upon filings with the Securities and Exchange Commission, as of
March 7, 1994 there are no persons who own beneficially more than 5% of the
outstanding shares of the Company's Cumulative Preferred Stock, 5% Series.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons who own more
than ten percent of the Company's stock to file initial reports of ownership
and reports of changes in ownership of the Company's stock with the
Securities and Exchange Commission and the New York Stock Exchange and to
provide copies of all such reports to the Company. Based solely on a review
of the copies of such reports provided to the Company, the Company believes
that during calendar year 1993 all Section 16(a) filing requirements
applicable to its directors, officers and greater-than-ten-percent owners
were complied with.
6
<PAGE> 67 (Page 7 of 1994 Proxy Statement)
MANAGEMENT REMUNERATION
The following table sets forth the annual compensation paid to each of
the Company's five most highly compensated executive officers for services to
the Company and its subsidiaries in all capacities for each of the last three
calendar years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL
COMPENSATION
NAME OF EXECUTIVE OFFICER ---------------------- ALL OTHER
AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(dagger)
- ----------------------------------------------------------------------- --------- ----------- -------------------
<S> <C> <C> <C>
George W. Johnstone.................................................... 1993 $377,500 $6,098
President and Chief Executive Officer of the Company 1992 351,667 5,556
1991* -0- -0-
J. James Barr.......................................................... 1993 245,833 6,098
Vice President and Treasurer of the Company 1992 233,750 5,396
1991 215,833 4,975
Edward W. Limbach...................................................... 1993 245,833 6,098
Vice President of the Company 1992 233,750 5,365
1991 214,583 4,879
Gerald C. Smith........................................................ 1993 245,833 6,098
Vice President of the Company 1992 233,750 5,192
1991 207,500 4,630
W. Timothy Pohl........................................................ 1993 139,667 3,524
General Counsel and Secretary of the Company 1992 126,667 2,770
1991 110,833 2,450
</TABLE>
- ------------------
(dagger) Value of the shares of the Company's Common Stock purchased with
Company contributions and credited to the account of the named
executive officer under the Employees' Stock Ownership Plan and
Savings Plan for Employees.
* Though Mr. Johnstone has been an employee of the Company or one of
its subsidiaries for more than 27 years, only the compensation
paid to him while serving as President and Chief Executive Officer
is reported.
The Company has maintained since 1976 an Employees' Stock Ownership Plan
(the "ESOP") which has been amended from time to time, primarily to reflect
changes in federal tax law. All employees of the Company and its
subsidiaries who are not included in a bargaining unit and have more than one
year of service with the Company may participate in the ESOP. During 1993,
the Company established a Savings Plan for Employees. All employees of the
Company and its subsidiaries who have completed six months of service may
participate in the Savings Plan. As of March 7, 1994, the ESOP and Savings
Plan together held 3.2% of the Company's Common Stock.
7
<PAGE> 68 (Page 8 of 1994 Proxy Statement)
PENSION PLAN
The following table shows the approximate annual retirement benefits
which will be payable under the Company's Pension Plan, Supplemental
Executive Retirement Plan and Supplemental Retirement Plan at the normal
retirement age of 65 (assuming continuation of the plans) for specified years
of service and levels of average remuneration.
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ----------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$100,000 30,340 40,460 50,570 54,070 57,570 61,070
150,000 46,840 62,460 78,070 83,320 88,570 93,820
200,000 63,340 84,460 105,570 112,570 119,570 126,570
250,000 79,840 106,460 133,070 141,820 150,570 159,320
300,000 96,340 128,460 160,570 171,070 181,570 192,070
350,000 112,840 150,460 188,070 200,320 212,570 224,820
400,000 129,340 172,460 215,570 229,570 243,570 257,570
450,000 145,840 194,460 243,070 258,820 274,570 290,320
</TABLE>
The Company and its subsidiaries have a defined benefit,
non-contributory Pension Plan which covers substantially all employees,
including the executive officers shown above. Annual amounts which are
contributed to the plan and charged to expense during the year are computed
on an aggregate actuarial basis and cannot be individually allocated. The
remuneration covered under the plan includes salaries, but not directors
fees, paid to plan participants. Directors who are not also employees do not
participate in the plan. Benefits under the plan are calculated as a
percentage of average remuneration over the last five years of employment,
which percentage depends on the employee's total number of years of service.
Benefits are not subject to reduction for Social Security or other benefits,
but are restricted under federal tax law to a maximum of $118,800 per year.
As of March 7, 1994, Messrs. Johnstone, Barr, Limbach, Smith and Pohl have
been credited with 27, 32, 29, 41 and 9 years of service, respectively, under
the plan.
In 1985, the Company established a Supplemental Executive Retirement
Plan under which it has agreed to provide additional retirement benefits to
certain employees of the Company and its subsidiaries, designated from time
to time by the Board. Messrs. Johnstone, Barr, Limbach and Smith have been
so designated. Benefits under the Supplemental Executive Retirement Plan are
intended to (i) provide the additional retirement benefits that would be
payable under the Company's Pension Plan if federal tax law did not restrict
such benefits as described in the preceding paragraph, (ii) compute the
benefits payable on the basis of average remuneration over the final three
years of employment rather than the final five years and (iii) provide
additional years of service to those covered employees hired in mid-career.
In 1989, recognizing that the federal tax law restrictions on benefits
payable under the Pension Plan had begun to affect employees who were not
eligible for the Supplemental Executive Retirement Plan, the Company adopted
the Supplemental Retirement Plan (the "SRP"). The SRP is designed to provide
benefits to employees above certain salary grades, or otherwise designated by
the Board of Directors, equal to those that would be provided under the
Pension Plan's benefit formula if it were unaffected by the federal tax law
restrictions on benefits. Benefits payable under the SRP are reduced by any
benefit payable to the same individual under the Supplemental Executive
Retirement Plan.
8
<PAGE> 69 (Page 9 of 1994 Proxy Statement)
REPORT OF THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Board of
Directors (the "Committee") is comprised entirely of the following
independent non-employee directors: William O. Albertini, Elizabeth H.
Gemmill, William F. Hyland, Marilyn W. Lewis, Nancy W. Wainwright and Ross A.
Webber. The Committee establishes, subject to the concurrence of the Board
of Directors, the Company's compensation policy and objective and is
responsible for administering the compensation program for the Company's
executive officers.
The Committee endeavors to ensure that compensation and benefits are at
levels which enable the Company to attract and retain the high-quality
employees it needs. Consistent with this objective, it is the policy of the
Committee that the total compensation paid to executive officers should be
competitive with the remuneration received by those in positions of similar
responsibilities in other utilities of comparable size. To this end, an
independent compensation expert is retained to assist the Committee by
periodically studying the Company's compensation program for officers,
reporting its findings and making recommendations consistent with the
compensation policy. The Committee then establishes the appropriate salary
range or band for each officer position based on the findings of the
independent compensation expert.
The President and Chief Executive Officer, with the concurrence of the
Committee, annually sets the salary within the designated salary band for
each executive officer other than himself based on his personal assessment of
the performance of each such officer.
The Committee, with the concurrence of the Board of Directors, sets a
salary within the designated salary band which is appropriate for the
President and Chief Executive Officer. The salary is reviewed annually, and
an adjustment within the designated salary band is made on the basis of
merit. This evaluation of merit involves an analysis of (i) the Company's
financial performance within the limitations imposed by state utility
regulators and fluctuating and varying weather conditions and (ii) the
performance of the President and Chief Executive Officer in maintaining the
Company as a leader in the water service industry and in expanding the
Company's water service operations consistent with the Company's commitment
to quality water service to customers of its utility subsidiaries.
Inasmuch as water service operations are the Company's principal
business, evaluating the Company's financial performance requires an
understanding of (i) the prevailing regulatory practice in each of the states
in which the Company's utility subsidiaries operate and (ii) the effect
varying weather conditions have on revenues and expenses. Consequently, the
Committee has not adopted a formula relationship between changes in the
Company's financial performance and changes in the level of salary
compensation for the President and Chief Executive Officer. Similarly,
because of the varied subjective considerations involved, the Committee does
not evaluate on a formula basis the performance of the President and Chief
Executive Officer in maintaining the Company as a leader in the water service
industry or in expanding the Company's water service operations.
The salary being paid to George W. Johnstone, the Company's President
and Chief Executive Officer, was reviewed at the April, 1993 meeting of the
Committee, the meeting during each calendar year at which the compensation
paid to executive officers and others is evaluated. Based on the
9
<PAGE> 70 (Page 10 of 1994 Proxy Statement)
analysis described above, Mr. Johnstone's annual salary was increased to
$390,000, effective June 1, 1993.
The independent compensation expert has analyzed various published and
unpublished compensation surveys of utility companies by industry (i.e.,
electric, gas and water) and has found that the salary bands established by
the Committee are competitive, but that the total compensation of the
Company's executives, which is defined by the independent compensation expert
to include incentives in addition to salary, is significantly lower than the
median of total compensation paid to executives of companies reported in the
surveys. At present, the Company does not have an incentive program for its
executives. However, the Committee is recommending the adoption of the
Long-Term Performance-Based Incentive Plan described in this Proxy Statement
to supplement the salaries paid to the Company's executives.
AS SUBMITTED BY THE MEMBERS OF THE COMPENSATION
AND MANAGEMENT DEVELOPMENT COMMITTEE:
William O. Albertini Marilyn W. Lewis
Elizabeth H. Gemmill Nancy W. Wainwright
William F. Hyland Ross A. Webber
Dated: February 4, 1994
DIRECTOR REMUNERATION
The amounts paid to directors who are not employees of the Company or
one of its subsidiaries for their services as such and for their
participation on committees of the Board are as follows: (i) each director
receives a retainer of $15,500 per year plus a fee of $1,200 for each Board
meeting attended, (ii) each member of the Executive Committee receives an
additional retainer of $13,000 per year plus a fee of $1,000 for each
Executive Committee meeting attended and (iii) the Chairmen of the Audit
Committee, Compensation and Management Development Committee and Nominating
Committee each receive an additional retainer of $1,500 per year, and each
member of such committees receives a fee of $1,000 for each meeting attended.
The Chairman of the Board and Executive Committee and Vice Chairman of the
Board receive additional annual retainers of $85,000 and $20,000,
respectively. Directors who are employees of the Company or one of its
subsidiaries do not receive retainers or attendance fees. A retiring
director receives, as a retirement benefit, an annual amount equal to the
retainer for service as a director in effect at the time of retirement. Such
payment continues for a period equal to the lesser of (i) the life of such
director or (ii) the period such director served as a member of the Board,
exclusive of any period when such director was also a salaried employee of
the Company or any of its subsidiaries.
10
<PAGE> 71 (Page 11 of 1994 Proxy Statement)
PERFORMANCE GRAPH
The following graph compares the changes over the last five years in the
value of $100 invested in (i) the Company's Common Stock ("American"), (ii)
the Standard & Poor's 500 Stock Index and (iii) the Dow Jones Water Utilities
Index.
The year-end values of each investment are based on share price
appreciation plus dividends paid in cash, with the dividends reinvested on
the date they were paid. The calculations exclude trading commissions and
taxes. Total stockholder returns from each investment, whether measured in
dollars or percent, can be calculated from the year-end investment values
shown beneath the graph.
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED ON DECEMBER 31, 1988
[ INSERT PERFORMANCE GRAPH ]
<TABLE>
<CAPTION>
Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93
<S> <C> <C> <C> <C> <C> <C>
American 100 110 102 176 189 215
S&P 500 100 132 128 166 179 197
DJ Water
Utils 100 105 93 142 153 172
</TABLE>
11
