<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
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 (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES [X]
NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at March 6, 1995 was $635,243,961.
As of March 6, 1995, there were a total of 32,855,209 shares of Common
Stock, $1.25 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The following pages and section in Registrant's Annual Report to
Stockholders for 1994 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 page 57.
(2) The following pages and section in Registrant's definitive Proxy
Statement relating to Registrant's Annual Meeting of Stockholders on May 4,
1995 are incorporated by reference into Part III of this Form 10-K: Page 2
(beginning with the fourth full paragraph thereon) through page 8, with the
exception of the second paragraph on page 4, and the section entitled
"Director Remuneration" on page 12.
<PAGE> 1 of 92 EXHIBIT INDEX ON PAGES 14-16
PART I
Item 1. Business
The "Description of the Business" is set forth on page 23 of the
Annual Report to Stockholders for 1994, 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.
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 pages 24
through 27 of the Annual Report to Stockholders for 1994, 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 3,992 at December 31, 1994.
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
<PAGE> 2
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 56 President & Chief Executive
Officer January 2, 1992
J. James Barr 53 Vice President & Treasurer January 20, 1984
Edward W. Limbach 56 Vice President May 3, 1990
Gerald C. Smith 60 Vice President May 2, 1991
W. Timothy Pohl 40 General Counsel & Secretary January 16, 1988
Robert D. Sievers 41 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 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.
<PAGE> 3
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 page 57 of the Annual Report
to Stockholders for 1994, filed as Exhibit 13 to this Report on Form 10-K;
such information is hereby specifically incorporated herein by reference
thereto.
Item 6. Selected Financial Data
The information required under this item is contained in the section
entitled "Consolidated Summary of Selected Financial Data," located on page
22 of the Annual Report to Stockholders for 1994, 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 1994, 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 LLP dated January 31, 1995, appearing on pages 35 through 53 of
the 1994 Annual Report to Stockholders, filed as Exhibit 13 to this Report
on Form 10-K, are hereby specifically incorporated herein by reference
thereto.
<PAGE> 4
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 4, 1995, 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," "Performance Graph" and "Director Remuneration"
which are located on pages 7 through 12 of the definitive Proxy Statement
relating to the Registrant's Annual Meeting of Stockholders on May 4, 1995,
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 through
6 of the definitive Proxy Statement relating to the Registrant's Annual
Meeting of Stockholders on May 4, 1995, 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.
<PAGE> 5
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 9 and 10 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 9 and 10 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 14 to 16 of this
Report on Form 10-K.
b) Reports on Form 8-K.
During the last quarter of the period covered by this Report on
Form 10-K, the Registrant filed no reports on Form 8-K.
<PAGE> 6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN WATER WORKS COMPANY, INC.
By: George W. Johnstone, President
and Chief Executive Officer
DATE: March 2, 1995
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:
George W. Johnstone President and March 2, 1995
Chief Executive Officer
Principal Financial Officer:
J. James Barr Vice President and March 2, 1995
Treasurer
Principal Accounting Officer:
Robert D. Sievers Comptroller March 2, 1995
<PAGE> 7
SIGNATURES (Cont'd.)
Directors:
William O. Albertini March 2, 1995
William R. Cobb March 23, 1995
Elizabeth H. Gemmill March 2, 1995
Henry G. Hager March 2, 1995
Nelson G. Harris March 2, 1995
George W. Johnstone March 2, 1995
Marilyn W. Lewis March 2, 1995
Nancy W. Wainwright March 2, 1995
Paul W. Ware March 2, 1995
Ross A. Webber March 2, 1995
<PAGE> 8
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1994
AMERICAN WATER WORKS COMPANY, INC.
FINANCIAL STATEMENTS
<PAGE> 9
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS
The following documents are filed as part of this report:
Page(s) in
(1) FINANCIAL STATEMENTS Annual Report*
Report of Independent Accountants . . . . . . . . . . . . . . 35
Consolidated Balance Sheet of American Water Works
Company, Inc. and Subsidiary Companies at December 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . .36 and 37
Consolidated Statement 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, 1994 . . . . . . . . . 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, 1994 . . . . . . . . . . . . . . . . . . . . . . 39
Consolidated Statement of Capitalization of American
Water Works Company, Inc. and Subsidiary Companies
at December 31, 1994 and 1993 . . . . . . . . . . . . . . .40 and 41
Consolidated Statement of Common Stockholders' Equity
of American Water Works Company, Inc. and Subsidiary
Companies for each of the five years in the period
ended December 31, 1994 . . . . . . . . . . . . . . . . . . . 42
Balance Sheet of American Water Works Company, Inc.
at December 31, 1994 and 1993 . . . . . . . . . . . . . . . . 43
Statements of Income and Retained Earnings of
American Water Works Company, Inc. for each of the
three years in the period ended December 31, 1994 . . . . . . 44
Statement of Cash Flows of American Water Works
Company, Inc. for each of the three years in the
period ended December 31, 1994. . . . . . . . . . . . . . . . 45
Notes to Financial Statements . . . . . . . . . . . . . .46 through 53
*Incorporated by reference from the indicated pages of the 1994 Annual
Report to Stockholders, which is Exhibit 13 to this Report on Form 10-K.
<PAGE> 10
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS (Continued)
(2) FINANCIAL STATEMENT SCHEDULES
Description Page*
Schedule II: Valuation and Qualifying Accounts
Allowance for Uncollectible Accounts. . . . . . . 13
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> 11
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
American Water Works Company, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 31, 1995 appearing on page 35 of the 1994 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 Schedule listed in Item 14(a) of this Form 10-K. In our opinion,
this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with
the related consolidated financial statements.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
January 31, 1995
<PAGE> 12
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 33-62438), and on Form S-8 (Number 33-52923) of
American Water Works Company, Inc. of our report dated January 31, 1995
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 Statement
Schedule, which appears on page 11 of this Form 10-K.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 24, 1995
<PAGE> 13
FINANCIAL STATEMENT SCHEDULE II
AMERICAN WATER WORKS COMPANY, INC. AND SUBSIDIARY COMPANIES
SCHEDULE II - 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
- ---- --------- ----------- --------- -------------- -------
1994 $ 1 107 $ 3 762 $ $ 3 870 $ 999
1993 925 3 377 102 3 297 1 107
1992 871 3 580 3 526 925
(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.
<PAGE> 14
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 incorporated herein by reference to Exhibit 3(e)
to Form 10-K report of the Registrant for 1993.
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> 15
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
4 (cont'd.) (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, 1989, is filed herewith.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
<PAGE> 16
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
10 (cont'd.) (f) Long-Term Performance-Based Incentive Plan of the
Registrant, effective as of January 1, 1993, is filed
herewith.
13 Annual Report to Security Holders
The Registrant's Annual Report to Stockholders for 1994
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, 1994.
23 Consents of Experts and Counsel
See "Consent of Independent Accountants" on page 12 of
this Form 10-K report.
27 Financial Data Schedule
Financial Data Schedule for the fiscal year ended
December 31, 1994.
<PAGE> 17
EXHIBIT 10(a)
EMPLOYEES' STOCK OWNERSHIP PLAN OF
AMERICAN WATER WORKS COMPANY, INC.
AND ITS DESIGNATED SUBSIDIARIES
(As Amended and Restated Effective January 1, 1989)
<PAGE> 18
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS.......................................... 1
ARTICLE II. PARTICIPATION........................................ 9
ARTICLE III. CONTRIBUTIONS BY THE COMPANY AND ITS DESIGNATED
SUBSIDIARIES......................................... 11
ARTICLE IV. PARTICIPANT CONTRIBUTIONS............................ 11
ARTICLE V. LIMITATION ON MATCHING AND PARTICIPANT
CONTRIBUTIONS........................................ 12
ARTICLE VI. PURCHASE OF STOCK.................................... 14
ARTICLE VII. PARTICIPANTS' ACCOUNTS............................... 14
ARTICLE VIII. VESTING.............................................. 17
ARTICLE IX. VOTING OF STOCK...................................... 18
ARTICLE X. AMOUNT AND DISTRIBUTION OF BENEFITS.................. 18
ARTICLE XI. WITHDRAWALS BY PARTICIPANTS; DIVERSIFICATION
ELECTION............................................. 20
ARTICLE XII. PLAN ADMINISTRATION.................................. 21
ARTICLE XIII. AMENDMENTS, DISCONTINUANCE AND LIABILITIES........... 23
ARTICLE XIV. MISCELLANEOUS........................................ 24
APPENDIX A TOP-HEAVY PROVISIONS................................. 26
APPENDIX B LIST OF DESIGNATED SUBSIDIARIES...................... 31
<PAGE> 19
EMPLOYEES' STOCK OWNERSHIP
PLAN OF AMERICAN WATER WORKS COMPANY, INC.
AND ITS DESIGNATED SUBSIDIARIES
American Water Works Company, Inc. hereby amends and restates, in
its entirety, the following Stock Ownership Plan for its employees and the
employees of its Designated Subsidiaries. Except as may otherwise be
specifically provided herein, any Participant's right to benefits
hereunder, and the allocation procedures to be used, with respect to
contributions made for any Plan Year beginning before January 1, 1989,
shall be governed by the terms of the Plan in effect on January 1, 1987, as
amended, or such earlier date as may be applicable in a specific case.
The Plan is intended to be an "employee stock ownership plan" as
defined in section 4975(e)(7) of the Code. As such, the Plan is designed
to invest primarily in qualifying employer securities.
ARTICLE I. DEFINITIONS.
The following words and phrases as used herein have the following
meanings unless a different meaning is plainly required by the context:
1.1 "Account" means a Participant's Account in the Plan, including
the following sub-Accounts:
(a) "Participant ESOP Account" to hold the amounts allocated to
the Participant's Account through December 31, 1986;
(b) "Participant Contribution Account" to hold the amounts
contributed by the Participant pursuant to Section 4.1 of the Plan;
(c) "Company Basic Contribution Account" to hold the Company
and Designated Subsidiary basic contributions made pursuant to Section
3.1(a);
(d) "Company Matching Contribution Account" to hold the Company
and Designated Subsidiary matching contributions made pursuant to Section
3.1(b); and
(e) "Qualified Matching Contribution Account" to hold Qualified
Matching Contributions, if any, made pursuant to Section 3.1(c).
1.2 "Annual Addition" means the sum credited to the Participant
under each Defined Contribution Plan for any Limitation Year, of:
(a) Employer contributions,
(b) Employee contributions (other than Rollover Contributions),
and
(c) forfeitures.
1
<PAGE> 20
The term "Annual Addition" shall also include the amount allocated to a
separate account of the Participant to provide post-retirement medical
benefits (a) under a Defined Benefit Plan, as described in
section 415(l)(1) of the Code, and (b) with respect to a Participant who
is, or was, a Key Employee for any Plan Year, under a welfare benefit fund,
as described in section 419A(d)(2) of the Code.
1.3 "Beneficiary" means (a) the Participant's spouse, or (b) the
person, persons or trust designated by the Participant, with the consent of
the Participant's spouse if the Participant is married, as direct or
contingent beneficiary in a manner prescribed by the Committee, or (c) if
the Participant has no spouse and has made no effective beneficiary
designation, the Participant's heirs under the intestate law of the state
of the Participant's domicile at his death. A married Participant may
designate a person, persons or trust as beneficiary other than his spouse
provided that such spouse consents to such designation in writing in a
manner prescribed by the Committee. Such consent shall not be required if
the Participant establishes to the satisfaction of the Committee that the
consent cannot be obtained because the spouse cannot be located. No
subsequent spouse of the Participant shall be bound by any such consent.
1.4 "Board of Directors" means the Board of Directors of American
Water Works Company, Inc.
1.5 "Break-in-Service" means a period of 12 consecutive months
measured from an Employee's Severance from Service Date, or any anniversary
thereof, during which the Employee does not perform an Hour of Service as
defined in Section 1.25(a).
1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Committee" means the Committee appointed under Article XII as
administrator of the Plan.
1.8 "Company" means American Water Works Company, Inc.
1.9 "Compensation."
(a) General Rule. Compensation means, except as otherwise
provided in this Section 1.9, total annual salaries and other compensation
for services as an Employee paid by the Company and its Designated
Affiliates and reported to the Employee on Internal Revenue Service Form W-
2, but not including expense allowances or reimbursements or benefits under
an long-term disability plan. Notwithstanding the preceding sentence,
Compensation shall not include contributions by the Employer to this or any
other plan or plans for the benefit of its employees, except as otherwise
expressly provided in this Section 1.9.
(b) Limitations on Annual Additions. For the purpose of
Section 7.3 and Appendix A, Compensation shall include all amounts that are
treated as wages for Federal income tax withholding under section 3401(a)
2
<PAGE> 21
of the Code (determined without regard to any rules that limit the
remuneration included in wages based on the nature or location of the
employment or the services performed) and actually paid to the Participant
during the Limitation Year, excluding the following: (i) contributions of
the Company or a Designated Subsidiary to a plan of deferred compensation
that are not includable in the Employee's gross income for the taxable year
in which contributed, or employer contributions under a simplified employee
pension plan to the extent such contributions are deductible by the
Employee, or any distribution from a plan of deferred compensation; (ii)
amounts realized from the exercise of a non-qualified stock option, or when
restricted stock (or property) held by the Employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture;
(iii) amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and (iv) other amounts that
received special tax benefits, or contributions made by the Company or a
Designated Subsidiary (whether or not under a salary reduction agreement)
towards the purchase of an annuity described in section 403(b) of the Code,
(whether or not the amounts are actually excludable from the gross income
of the Employee).
(c) Highly Compensated Employee; Key Employee. For the purpose
of Section 1.24, defining the term "Highly Compensated Employee," and for
the purpose of the definition of "Key Employee" in Appendix A, Compensation
shall include the amount determined under Section 1.9(b), plus amounts that
would be paid to the Employee during the year but for the Employee's
election under a cash or deferred arrangement described in section 401(k)
of the Code, a cafeteria plan described in section 125 of the Code, a
simplified employee pension described in section 402(h) of the Code or an
annuity program described in section 403(b) of the Code.
(d) Maximum Annual Dollar Limit. The annual Compensation of
each Employee taken into account for any purpose under the Plan, other than
those described below in this Section (d), shall not exceed the applicable
limit on compensation specified under section 401(a)(17) of the Code (as
adjusted thereunder); provided, however, that for purposes of applying this
limit, the Compensation of a Highly Compensated Employee shall include the
Compensation of a Family Member who is his spouse or his lineal descendant
who has not reached age 19 at the close of the Plan Year. This Section (d)
shall not apply for purposes of determining which individuals are Key
Employees under Appendix A or for purposes of the limitations on Annual
Additions to Accounts under section 415 of the Code.
1.10 "Defined Benefit Plan" means any employee pension plan
maintained by the Employer that is a qualified plan under section 401(a) of
the Code and is not a Defined Contribution Plan.
1.11 "Defined Contribution Plan" means an employee pension plan
maintained by the Employer that is a qualified plan under section 401(a) of
the Code and is described in section 414(l) of the Code.
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1.12 "Designated Subsidiary" means any Subsidiary named from time to
time by the Board of Directors as such under this Plan, or any Subsidiary
which, prior to September 15, 1977, was a Designated Subsidiary under the
Pension Plan (as defined therein). A Subsidiary's status as a Designated
Subsidiary may be changed by the Board of Directors from time to time. Set
forth on Appendix B is the list of Designated Subsidiaries.
1.13 "Dividend Reinvestment Plan" means the American Water Works
Company, Inc. Dividend Reinvestment Plan, as set forth in prospectus of the
Company dated December 8, 1989 filed with the Securities and Exchange
Commission, and as such Plan may be amended, interpreted or regulated by
the Company from time to time.
1.14 "Effective Date" means January 1, 1976, except as otherwise
specified. The effective date of this amendment and restatement is
January 1, 1989, except as otherwise specified.
1.15 "Employee" means:
(a) an individual who is employed by the Employer;
(b) an individual who is not employed by the Employer but is a
leased employee within the meaning of section 414(n)(2) of the Code;
provided that, if the total number of leased employees constitutes 20% or
less of the Employer's nonhighly compensated work force, within the meaning
of section 414(n)(5)(C)(ii) of the Code, the term "Employee" shall not
include those leased employees covered by a "safe harbor" plan described in
section 414(n)(5)(B) of the Code; and
(c) when required under Section 1.25 for purposes of crediting
Hours of Service, a former Employee.
1.16 "Employer" means the Company and:
(a) any other employer included with the Company in a
controlled group of corporations or trades or businesses within the meaning
of section 414(b) or section (c) of the Code, or an affiliated service
group within the meaning of section 414(m) of the Code; and
(b) any other entity required to be aggregated with the Company
pursuant to regulations under section 414(o) of the Code;
provided that any such employer shall be included within the term
"Employer" only while a member of such a group including the Company.
1.17 "Employment Commencement Date" means the date upon which an
individual was first credited with an Hour of Service, as defined in
Section 1.25(a).
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1.18 "Employment Recommencement Date" means the date upon which an
individual was first credited with an Hour of Service, as defined in
Section 1.25(a) after a Severance from Service Date.
1.19 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.20 "Excess Aggregate Contributions" means that amount of Matching
and Participant Contributions made by or on behalf of a Participant for a
Plan Year that exceeds the limitation on Matching and Participant
Contributions set forth in Article V.
1.21 "Family Member" means an Employee who is a family member (as
defined in section 414(q)(6) of the Code) of a Highly Compensated Employee
who is:
(a) a Five-Percent Owner; or
(b) one of the 10 Highly Compensated Employees paid the
greatest Compensation during the Plan Year.
1.22 "Five-Percent Owner" means any Employee who owns (or is
considered as owning within the meaning of section 318 of the Code) more
than 5% of the outstanding stock of any Participating Employer or stock
possessing more than 5% of the total combined voting power of all stock of
any Participating Employer. For purposes of this Section 1.22, section
318(a)(2)(C) of the Code shall be applied by substituting "5%" for "50%"
each time it appears therein.
1.23 "Fund" means the assets and all earnings, appreciation or
additions thereto held by the Trustee under the Trust for the exclusive
benefit of Participants or their Beneficiaries.
1.24 "Highly Compensated Employee" means any Employee who, during the
current Plan Year or immediately preceding Plan Year:
(a) is at any time a Five-Percent Owner;
(b) receives Compensation from the Employer in excess of
$75,000 (as adjusted under section 414(q) of the Code);
(c) receives Compensation from the Employer in excess of
$50,000 (as adjusted under section 414(q) of the Code) and is in the group
consisting of the top 20% of Employees (excluding, solely for purposes of
determining the number of Employees in the top 20%, Employees described in
section 414(q)(8) of the Code) when ranked on the basis of Compensation
paid during such Plan Year; or
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(d) is an officer of the Employer who receives Compensation
greater than 50% of the amount in effect under section 415(b)(1)(A) of the
Code for such Plan Year; provided that in no event shall the number of
individuals treated as officers exceed 50 employees, or, if it would result
in a smaller number of officers, the greater of three employees or 10% of
the total number of employees.
For purposes of determining the number of officers taken into account under
Section (d), (i) if more than the maximum number of employees who may be
treated as officers are officers, only those officers who had the largest
annual Compensation in any one of the five Plan Years ending on the
Determination Date shall be treated as officers, and (ii) employees
described in section 414(q)(8) of the Code shall be excluded.
An Employee who is not described in Sections 1.24(b), 1.24(c), or 1.24(d)
for the Plan Year prior to the Plan Year of determination, shall not be
treated as being described in Sections 1.24(b), 1.24(c) or 1.24(d) for the
Plan Year of determination, unless such Employee is a member of the group
consisting of the 100 Employees paid the greatest Compensation during the
Plan Year for which such determination is being made. A former Employee
(including an Employee who performs no services for the Employer during the
Plan Year) shall be treated as a Highly Compensated Employee if he was (or
would have been, had this Section 1.24 been applicable) described in this
Section 1.24 during the last Plan Year he performed any services for the
Employer or in any Plan Year ending on or after the date he reached age 55.
In lieu of identifying Highly Compensated Employees in accordance with the
preceding provisions, the Employer may identify Highly Compensated
Employees in accordance with Section 4 of Revenue Procedure 93-42.
1.25 "Hour of Service" means:
(a) each hour for which an Employee is paid, or entitled to
payment for the performance of duties for the Employer;
(b) each hour for which an Employee is paid or entitled to
payment by the Employer with respect to a period of time during which no
duties are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military leave or leave of absence,
provided that no more than 501 Hours of Service shall be credited to an
Employee on account of any single continuous period during which that
Employee performs no duties;
(c) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer; and
(d) if an Employee is absent from employment for any period
because of:
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(1) the pregnancy of the individual,
(2) the birth of a child of the individual,
(3) the placement of a child with the individual in
connection with the adoption of such child by the
individual, or
(4) the provision of care for such child for a period
beginning immediately following such birth or
placement,
each hour that normally would have been credited to such Employee but for
such absence; provided that an Employee shall be credited with no more than
501 Hours of Service on account of any single period of absence described
in this Section 1.25(d);
(e) any other hour required to be credited pursuant to
applicable regulations of the Department of Labor.
Hours of Service shall be credited to the Employee for the
applicable 12 month period or periods in which the duties are performed,
for which the payment is made, or to which the award, agreement or leave
pertains, except that in the case of hours credited under Section 1.25(d)
relating to maternity or paternity leave such hours shall be credited if
the year in which the absence from work begins if necessary to avoid a
Break-in-Service in that year, or in any other case, in the following year.
Hours of Service under this Section 1.25 shall be calculated and credited
under the provisions of 29 CFR Section 2530.200b-2 issued by the United
States Department of Labor, which regulations are incorporated herein by
reference.
1.26 "Limitation Year" means the Plan Year.
1.27 "Non-Highly Compensated Employee" means an Employee who is
neither a Highly Compensated Employee nor a Family Member.
1.28 "Normal Retirement Date" means the date a Participant reaches
age 65.
1.29 "Participant" means an Employee who has satisfied the
eligibility requirements of Article II.
1.30 "Participant Contributions" means a Participant's after-tax
contributions that he elects to make pursuant to Section 4.1.
1.31 "Pension Plan" means the Pension Plan for Employees of American
Water Works Company, Inc. and its Designated Subsidiaries as amended from
time to time.
1.32 "Period of Service" means the period between the later of (a)
the Employee's Employment Commencement Date or (b) the Employee's
Employment Recommencement Date, and the Employee's Severance from Service
Date.
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1.33 "Plan" means the Employee's Stock Ownership Plan of American
Water Works Company, Inc. and its Designated Subsidiaries, as set forth in
this document and the related trust agreement pursuant to which the Trust
is established.
1.34 "Plan Year" means the year ending December 31.
1.35 "Prior Plan" means the version of the Plan in effect on
December 31, 1986.
1.36 "Qualified Matching Contribution" means a Matching Contribution
made by a Participating Employer pursuant to Section 3.1(c) and allocated
to a Participant's Qualified Matching Contribution Account that:
(a) is 100% vested and nonforfeitable when made; and
(b) may not be distributed earlier than the Participant's
separation from service
1.37 "Required Beginning Date" means:
(a) except as provided in Section 1.37(b), April 1 of the
calendar year following the calendar year in which the Participant reaches
age 70-1/2 whether or not he is still an Employee; or
(b) with respect to a Participant who reached age 70-1/2 before
1988:
(1) who is not a Five-Percent Owner, April 1 of the
calendar year following the calendar year in which occurs the later of
his retirement or his reaching age 70-1/2; or
(2) who is a Five-Percent Owner during any year beginning
after 1979, April 1 following the later of (i) the calendar year in
which he reaches age 70-1/2, or (ii) the earlier of the calendar year
with or within which ends the Plan Year in which he becomes a Five-
Percent Owner, or the calendar year in which he retires.
1.38 "Severance from Service Date" means the date upon which an
Employee severs his service with the Company or an Affiliated Company,
which date shall be the earlier of:
(a) the date upon which the Employee quits, is discharged,
dies, or retires; or
(b) the first anniversary of the first date of such Employee's
absence from service for any other reason; provided that an Employee who is
absent from service beyond that first anniversary by reason of a maternity
or paternity leave resulting from the Employee's pregnancy, the birth of
the Employee's child, the placement with the Employee of a child for
adoption, or the need to provide care for such a child following its birth
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or adoption, that Employee's Severance From Service Date shall be the
second anniversary of the first date of such absence. The period between
the first and second anniversaries of the first date of such absence shall
be considered neither a Period of Service nor a period of severance.
1.39 "Stock" means voting common stock of the Company of the same
class and having the same voting and dividend rights as that common stock
of the Company which from time to time is listed for trading on the New
York Stock Exchange.
1.40 "Subsidiary" means any corporation which is a member of the
affiliated group of corporations of which the Company is the common parent
corporation for purposes of section 1504 of the Code.
1.41 "Trust" means the legal entity created by the trust agreement
between the Company and the Trustee, fixing the rights and liabilities with
respect to controlling and managing the Fund for the purposes of the Plan.
1.42 "Trustee" means The Fidelity Bank, Broad and Walnut Streets,
Philadelphia, Pennsylvania 19109 or any corporate trustee or trustees
hereafter designated by the Board of Directors and named in the trust
agreement or any amendment thereto.
1.43 "Year of Service" means a 12 consecutive month period included
within a Period of Service; provided that the following special rules
apply:
(a) If an Employee quits, is discharged or retires and within
12 months thereafter returns to service and is credited with an Hour of
Service, his Years of Service shall be computed as though his service had
not been severed.
(b) If an Employee who is absent from service for any reason
other than those specified in subparagraph (a) above, while so absent,
quits, is discharged, is placed on indefinite layoff or retires, within 12
months after the first date upon which he was absent from service, returns
to service and is credited with an Hour of Service, his Years of Service
shall be computed as though his service had not been severed.
(c) An Employee who is absent by reason of service in the armed
forces of the United States or on a leave of absence authorized by the
Employer and who returns to service with the Employer within the time
during which his reemployment rights are protected by federal law or at the
expiration of his authorized leave of absence, as applicable, shall be
treated as though he had been actively performing services for the Employer
during such period of absence.
ARTICLE II. PARTICIPATION.
2.1 Eligibility Rule. Except as provided in Section 2.2, an
Employee shall be eligible to participate in the Plan beginning on the
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January 1 coincident with or next following his being credited with one
Year of Service.
2.2 Ineligible Employees. Each of the following Employees shall be
ineligible to participate in the Plan:
(a) an Employee who is employed by an Employer that is not the
Company or a Designated Subsidiary;
(b) an Employee included within a unit of Employees covered by
a collective bargaining agreement, unless that collective bargaining
agreement provides for their participation in the Plan;
(c) a leased employee, within the meaning of section 414(n)(2)
of the Code; and
(d) an Employee who is a non-resident alien and who has no
income from sources within the United States.
2.3 Reemployed Individuals. An Employee who is reemployed after a
Break-in-Service shall become a Participant;
(a) in accordance with Section 2.1 if that individual was not a
Participant prior to the Break-in-Service, or
(b) as of his reemployment date if he was a Participant prior
to the Break-in-Service.
2.4 Breaks-in-Service for Eligibility. For purposes of determining
an individual's eligibility to participate under Section 2.3(a), if an
Employee has five or more consecutive Breaks-in-Service, measured from the
date he is first credited with an Hour of Service and any anniversary
thereof, Years of Service credited before such Breaks-in-Service shall not
be counted in determining an Employee's eligibility to participate in the
Plan after such Breaks unless the number of his Years of Service before
such Breaks-in-Service equals or exceeds the number of his consecutive
years of Breaks-in-Service.
2.5 Time of Participation - Excluded Employees. An Employee
otherwise eligible to be a Participant in the Plan, but excluded under
Section 2.2, shall be eligible to become a Participant beginning on the
first day of the month coincident with or next following the date upon
which the applicable provision of Section 2.2 ceases to apply. A
Participant who becomes subject to any provision of Section 2.2 shall cease
to be eligible to make or receive contributions under the Plan as of the
last day of the payroll period coincident with, or within which, any such
provision becomes applicable.
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ARTICLE III. CONTRIBUTIONS BY THE COMPANY AND ITS DESIGNATED
SUBSIDIARIES.
3.1 Amount of Contributions.
(a) Basic Contributions. The Company and its Designated
Subsidiaries shall contribute to the Fund, for each Plan Year, an amount
equal to 0.5% of the Compensation for the immediately preceding Plan Year
of each Participant who was an Employee on the preceding December 31.
(b) Matching Contributions. The Company and its Designated
Subsidiaries shall contribute to the Fund, for each Plan Year, on behalf of
each Participant who was an Employee on the preceding December 31, an
amount equal to 100% of each Participant's Contributions made pursuant to
Section 4.1.
(c) Qualified Matching Contributions. If the limitation on
Matching and Participant Contributions set forth in Article V is exceeded,
at the direction of the Committee, the Company and its Designated
Subsidiaries shall make Qualified Matching Contributions to the Qualified
Matching Contribution Account of each Participant who is a Non-Highly
Compensated Employee in the amount necessary to meet the limitation set
forth in such Section. Qualified Matching Contributions shall be treated
as Matching Contributions for all purposes of the Plan.
(d) Form of Contributions. Contributions under Section 3.1
shall be made in cash, in Stock, or a combination thereof.
3.2 Payment of Company and Designated Subsidiary Contributions.
Contributions under Section 3.1 shall be made no earlier than the first day
of the Plan Year to which they relate and no later than the due date
(including extensions) for the Company's federal income tax return for the
Plan Year to which those contributions relate.
ARTICLE IV. PARTICIPANT CONTRIBUTIONS.
4.1 Amount of Participant Contributions. Each Participant who was
an Employee on the preceding December 31 may elect to contribute to the
Plan for each Plan Year an amount that does not exceed 2% of his
Compensation for the immediately preceding Plan Year. Such contributions
shall be made at such time and in such manner as the Committee, in its
discretion, may permit. The Committee shall have the right to vary the
time and manner of Participant contributions from year to year, so long as
all such changes are applied in a nondiscriminatory manner.
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ARTICLE V. LIMITATION ON MATCHING AND PARTICIPANT
CONTRIBUTIONS.
5.1 Limitation - Code Section 401(m).
(a) Notwithstanding Section 3.1 (b) and Section 4.1, for each
Plan Year commencing after December 31, 1986, Matching and Participant
Contributions shall be limited as provided in section 401(m) of the Code,
so that the "average contribution percentage," for the eligible Highly
Compensated Employees shall bear a relationship to the "average
contribution percentage" for the eligible Non-Highly Compensated Employees
that meets one of the alternative tests described in section 401(m) of the
Code and summarized below, as the Committee shall determine for such Plan
Year:
(1) the average contribution percentage for the eligible
Highly Compensated Employees shall not exceed 125% of the average
contribution percentage for the eligible Non-Highly Compensated
Employees; or
(2) the average contribution percentage for the eligible
Highly Compensated Employees shall not exceed the lesser of:
(A) 200% of the average contribution percentage for
the eligible Non-Highly Compensated Employees, or
(B) the average contribution percentage for the
eligible Non-Highly Compensated Employees plus two
percentage points.
(b) The term "average contribution percentage" means the
average of each eligible Employee's actual contribution percentage which is
equal to the following ratio:
(1) the amount of the Matching and Participant
Contribution made on behalf of each eligible Employee for the Plan
Year, to
(2) the Employee's compensation, as defined in section
414(s) of the Code.
(c) Family Aggregation. The actual contribution percentage of
a Highly Compensated Employee who has any Family Members who are eligible
to participate shall be determined by combining the Participant
Contributions, Matching Contributions, amounts treated as Matching
Contributions and compensation of all eligible Highly Compensated Employees
and Family Members.
(d) Treatment of Excess Aggregate Contributions. If neither
test described in Section 5.1(a) is met, or in the Committee's opinion will
be met, the Committee, at its discretion, shall:
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(1) cause the Participating Employer to make Qualified
Matching Contributions to the Qualified Matching Contribution Account
of each Participant who is a Non-Highly Compensated Employee to the
extent necessary to meet one of the tests, provided such Participating
Employer authorizes such contribution; or
(2) cause Excess Aggregate Contributions, adjusted for
income or loss thereon, to be forfeited, if otherwise forfeitable
under the terms of the Plan, or if not forfeitable, distributed as
additional compensation to Participants on whose behalf the Excess
Aggregate Contributions were contributed within two and one-half
months after the end of the Plan Year for which they were contributed.
(e) Determination of Amount of Excess Aggregate Contributions.
The amount of a Highly Compensated Employee's Excess Aggregate
Contributions for a Plan Year is the amount necessary to reduce the amount
of his Matching and Participant Contributions to a maximum adjusted
percentage, which shall be the highest percentage that would cause one of
the tests in Section 5.1(a) to be met if each such Highly Compensated
Employee who had an actual contribution percentage greater than the maximum
adjusted percentage had, instead, such lower percentage. The Matching and
Participant Contributions of the Highly Compensated Employees shall be
adjusted in order, beginning with the Highly Compensated Employee(s) with
the highest actual contribution percentage(s).
(f) Determination of Income or Loss. The Committee shall
determine the income or loss allocable to Excess Aggregate Contributions by
using any reasonable method it selects, provided that the method does not
violate section 401(a)(4) of the Code, is used consistently for all
Participants and all corrective distributions under the Plan for the Plan
Year, and is used by the Plan for allocating income to Participant
Accounts.
(g) Family Aggregation. In the case of a Highly Compensated
Employee whose actual contribution percentage is determined under Section
5.1(c), the determination of the amount of Excess Aggregate Contributions
shall be made by reducing his actual contribution percentage as required
under Section 5.1(e) and allocating the Excess Aggregate Contributions for
the Highly Compensated Employee and his Family Members among each such
Employee in proportion to his Matching and Participant Contributions.
5.2 Plan Aggregation; Special Rule.
(a) The actual contribution percentage under Section 5.1(b) for
an eligible Employee who is a Highly Compensated Employee for the Plan Year
and who is eligible to have Matching Contributions or Participant
Contributions allocated to his accounts under two or more plans described
in section 401(a) or arrangements described in section 401(m) of the Code
that are maintained by the Employer, shall be determined as if all such
Matching Contributions and Participant Contributions were made under a
single arrangement.
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(b) For purposes of satisfying the limitation on Matching and
Participant Contributions of Section 5.1, in the event that this Plan
satisfies the requirements of section 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other plans satisfy the
requirements of section 410(b) of the Code only if aggregated with this
Plan, then actual contribution percentages under Section 5.1.2 of eligible
Employees shall be determined as if all such plans were a single plan.
(c) The determination and treatment of the actual contribution
percentage of any Participant shall satisfy such other requirements as may
be prescribed by the Secretary of the Treasury.
ARTICLE VI. PURCHASE OF STOCK.
6.1 The Trustee shall invest and reinvest all contributions to the
Fund in Stock in accordance with this Article VI and the terms of the Trust
Agreement.
6.2 (a) All contributions to the Fund shall be used by the Trustee
to purchase whole shares of Stock, at the time specified by Section 6.3,
from the Company, on the open market, or in a private transaction from a
shareholder of the Company who is neither a "disqualified person" within
the meaning of section 4975 of the Code nor a "party in interest" within
the meaning of section 3(14) of ERISA.
(b) If Stock is to be purchased from the Company, the price
shall be the average of the closing prices of such Stock on the New York
Stock Exchange during the 20 consecutive trading days preceding the date of
purchase, and no commission shall be paid on any purchase.
6.3 Purchases of Stock with contributions made pursuant to Section
3.1 and Section 4.1 shall be made by the Trustee on or before the 30th day
following the receipt of such contributions.
6.4 Notwithstanding any other provision of the Plan, the Trustee may
at all times maintain a balance of cash in an amount not in excess of the
amount which it reasonably anticipates will be necessary to make cash
distributions to Participants in lieu of shares or fractional shares over
the next 12 months. The Company may advance to the Trustee, in any Plan
Year, the amount which the Company anticipates will be necessary for the
purposes of this Section 6.4. All advances made under this Section 6.4
shall be credited against the contribution required under Section 3.1 for
the Plan Year during which the advance is made.
ARTICLE VII. PARTICIPANTS' ACCOUNTS.
7.1 (a) The Committee, based upon information supplied by the
Trustee, shall maintain a separate Account for each Participant.
(b) The records of the Accounts required under subsection
7.1(a) shall be maintained on a Plan Year basis and shall separately
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<PAGE> 33
reflect (1) the total number of shares of Stock allocated to each Account
for each Plan Year which are attributable to contributions under Section
3.1(a), Section 3.1(b) and Section 3.1(c), (2) the total number of shares
of Stock allocated to each Account for each Plan Year which are
attributable to contributions under Section 4.1, (3) the total number of
shares of Stock allocated to each Account for each Plan Year which are
attributable to contributions made under Section 4.2 of the Prior Plan, (4)
the total number of shares of Stock allocated to each Account for each Plan
Year which are attributable to contributions made under Section 4.3 of the
Prior Plan, (5) any cash or other property allocated to such Account, and
(6) the Trustee's basis in each share of stock held as part of each
Account.
7.2 Allocations to Participants' Accounts. (a) As of each
December 31, the Account of each individual who is a Participant on that
date and who, on the date on which the contribution allocable as of that
December 31, determined under Section 7.4, is actually made, is either an
Employee or has a vested interest in his Account shall be credited with his
allocable share of (1) any Stock which is allocable to the Plan Year ending
on that December 31, (2) any contributions allocable to the Plan Year
ending on that December 31 but not yet applied to the purchase of Stock and
(3) any earnings of the Fund allocable to the Plan Year ending on that
December 31.
(b) Earnings. A Participant's allocable share of any earnings
of the Fund allocable to a particular Plan Year shall be that portion which
bears the same ratio to the total of all such earnings as the number of
shares of Stock allocated to such Participant's Account as of the
December 31 immediately preceding that Plan Year bears to the number of
shares of Stock allocated to all Participants' Accounts as of that date.
For the purposes of this Section 7.2(b), the term "earnings of the Fund"
shall include (l) Stock received as a distribution with respect to Stock
held in the Fund, and (2) other property, not including cash, or the
proceeds of the sale of such other property, received as a distribution
with respect to Stock held in the Fund.
(c) Fractional Shares of Stock. Subject to Section 7.3, all
shares of Stock purchased by the Trustee shall be allocated to
Participants' Accounts even though the result may be the allocation of
fractional shares, computed to at least the nearest two decimal places.
7.3 (a) In the event that the Annual Additions to any Participant's
Account under Section 7.2 for any Plan Year shall exceed the subsection (b)
hereof, the excess shall be reallocated to the Accounts of all other
Participants in accordance with Section 7.2. If, after applying this
section to all Participants' Accounts, there remains an amount which may
not be allocated to any Participant's Account without violating the limits
of subsection (b) hereof, such amount shall be held in an unallocated
account by the Trustee and allocated, in subsequent Plan Years in
accordance with subsection 7.2(a) and this Section. No fund assets may be
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held in any such unallocated account except to the extent failure to hold
such assets unallocated would violate this Section.
(b) The maximum Annual Addition to any Participant's Account
under this Section 7.3 for any Limitation Year shall be the lesser of:
(1) $30,000 (or, if greater, one-fourth of the defined
benefit dollar limitation set forth in section 415(b)(1)(A) of the
Code); or
(2) 25% of the Participant's Compensation, as defined in
Section 1.9(b) for such Limitation Year.
(c) If a Participant in the Plan is also a participant in a
Defined Benefit Plan, the sum of the defined benefit plan fraction and the
defined contribution fraction shall not exceed 1.0. In calculating the
defined contribution fraction, the Committee may, in its discretion, make
the election provided under section 415(e) (6) of the Code.
(1) The defined benefit plan fraction for any Limitation
Year is a fraction (A) the numerator of which is the Participant's
projected annual benefit under all such Defined Benefit Plans
(determined as of the close of the Limitation Year), and (B) the
denominator of which is the lesser of (i) $90,000 or the applicable
dollar limit for such Limitation Year multiplied by 1.25 (1.0 if the
Plan is a Super Top-Heavy Plan within the meaning of A.10 of the
Appendix), or (ii) the Participant's average Compensation for the
three consecutive calendar years of active participation that produce
the highest average, multiplied by 1.4.
(2) The defined contribution plan fraction for any
Limitation Year is a fraction (A) the numerator of which is the total
of the Participant's Annual Additions for the Limitation Year and all
prior Limitation Years under all Defined Contribution Plans, and (B)
the denominator of which is the lesser of the following amounts
determined for the Limitation Year and for each prior Limitation Year
during which the Participant was an Employee (regardless of whether
any defined contribution plan was in existence during those years):
(A) 1.25 (1.0 if the Plan is a Super Top-Heavy Plan
within the meaning of Section A.10 of the Appendix)
multiplied by $30,000, or the applicable limit for
each such Limitation Year, or
(B) 35% of the Participant's Compensation, as defined
in Section 1.9(b), for each such Limitation Year.
7.4 Contributions allocated under Sections 7.2 and 7.3 above shall
be deemed to have been made on the December 31 immediately preceding the
date on which they were made. Contributions and Stock purchased with those
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contributions will be considered allocable to a particular Plan Year if
they are taken into account in computing the federal income tax deduction
to which the Company and its Designated Subsidiaries are entitled for that
Plan Year, although such contributions may be made, or such Stock may be
purchased, following the end of such Plan Year.
7.5 For the purposes of subsections 7.2(a) and 7.2(b), a former
Participant whose service was terminated at any time during a Plan Year by
reason of retirement or death or whose service was terminated because of a
reorganization, relocation, merger or similar transaction involving the
Company or any of its Designated Subsidiaries shall be considered to be a
Participant on the last day of that Plan Year.
7.6 Disposition of Forfeitures. Any amounts released from a
Participant's Basic, Matching and Qualified Matching Accounts upon a
termination of employment before the Participant has been credited with a
100% vested interest in those Accounts shall be placed in a suspense
account and held for five complete calendar years, at which time the
amounts shall be forfeited. During that five year period, dividends paid
on Stock held in the suspense account shall be accumulated in that account.
If the Participant again becomes an Employee before he incurs five
consecutive Breaks-in-Service, the amounts held in the suspense account
shall be restored to him. After the Participant has incurred five
consecutive Breaks-in-Service amounts held in the suspense account shall be
released and used to reduce Basic and then Matching Contributions of the
Company or Designated Subsidiary employing such Participant of the time of
his termination of employment for the Plan Year in which such amounts are
released from the suspense account or any succeeding Plan Year.
ARTICLE VIII. VESTING.
8.1 Rate of Vesting in ESOP, Participant Contribution and Qualified
Matching Accounts. A Participant shall have a 100% vested interest, at all
times, in all shares of Stock or other assets standing to the credit of his
ESOP Account, his Participant Contribution Account and his Qualified
Matching Contribution Account.
8.2 Rate of Vesting in Basic and Matching Accounts. A Participant
shall have no vested interest in his Basic and Matching Accounts until he
has been credited with five Years of Service at which time he shall have a
100% vested interest in all shares of Stock or other assets standing to the
credit of those Accounts. In any event, a Participant shall be 100% vested
in his Basic and Matching Accounts on (i) his Normal Retirement Date if he
is employed by the employer on that date, or (ii) upon his death while
employed by the Employer.
8.3 Breaks-in-Service for Vesting. If a former Participant is re-
employed by the Company or a Designated Subsidiary, all of his Years of
Service shall be recognized for purposes of vesting in his Basic and
Matching Accounts unless, at the time of his return to employment, the
period of his absence was at least five consecutive Breaks-in-Service in
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which event Years of Service occurring before those Breaks-in-Service shall
not thereafter be recognized for any purpose of the Plan unless, before
those Breaks-in-Service, the Participant had become vested in his Account
under the Plan.
ARTICLE IX. VOTING OF STOCK.
9.1 The Trustee shall vote all shares of Stock, including fractional
shares, allocated to a Participant's Account, in the manner directed by the
Participant to whose Account such shares are allocated.
9.2 The Committee shall establish and maintain a procedure by which
Participants will be timely notified of their right to direct the voting of
Stock allocated to their Accounts and the manner in which any such
directions are to be conveyed to the Trustee.
9.3 If a Participant fails to direct the voting of shares of Stock
allocated to his Account, the Trustee shall abstain from voting any such
shares of Stock. If shares of Stock are being held unallocated pursuant to
Section 7.3 or Section 7.6, the Trustee may vote, or abstain from voting,
any such shares of Stock as the Trustee, in its sole discretion, shall
determine.
ARTICLE X. AMOUNT AND DISTRIBUTION OF BENEFITS.
10.1 At the election of the Participant on a form provided by the
Committee (until such election is amendment or revoked) any cash dividends
received by the Trustee shall be:
(a) distributed to such Participant as soon as practical after
those amounts are received by the Trustee, less any taxes required to be
withheld under federal or state laws; or
(b) reinvested by the Trustee in Stock pursuant to the Dividend
Reinvestment Plan.
If no election is made by the Participant pursuant to this Section 10.1,
dividends will be distributed in accordance with Section 10.1(a). The
amount to be distributed or reinvested shall be that portion of the total
cash dividend which bears the same ratio to that total dividend as the
number of shares of Stock allocated to the Participant's Account as of the
preceding December 31 bears to the number of shares of Stock allocated to
all Participants' Accounts as of that date. Shares of Stock acquired
through the Dividend Reinvestment Plan pursuant to a Participant's election
under this Section 10.1 shall no be considered assets of this Plan, but
rather shall be governed by the terms of the Dividend Reinvestment Plan.
10.2 Upon termination of his service for reasons other than his
death, a Participant shall be entitled to receive the balance of his
Account as of the December 31 coincident with or immediately preceding his
termination of service plus any amounts subsequently allocated to his
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Account under Section 7.2. Any distribution pursuant to this Section 10.2
shall be made at such time as the Committee shall direct, but, except as
may otherwise be legally required, shall begin not later than 90 days
following the close of the Plan Year in which the last allocation to the
Participant's Account is contributed. Provided a written election form is
submitted at least 60 days in advance, a Participant may elect to have his
Account distributed beginning not later than 60 days following the close of
the Plan Year in which he reaches age 65. For the purpose of this Section
10.2 a Participant's service shall not be deemed to have terminated by
reason of his transfer to an employment status with the Company or a
Designated Subsidiary which is not covered by this Plan. Notwithstanding
the foregoing, the entire value of a Participant's Accounts must be
distributed beginning no later than the Participant's Required Beginning
Date.
10.3 Upon termination of a Participant's service by reason of his
death, the balance of his Account as of the December 31 coincident with or
immediately preceding the Participant's date of death, plus any amounts
subsequently allocated to his Account under Section 7.2, shall be
distributed to the Participant's Beneficiary, beginning within 90 days
following the end of the Plan Year in which occurs the last allocation to
the Participant's Account is contributed.
10.4 If a Participant dies following his termination of service, but
before any distribution is made pursuant to Section 10.2, the balance of
his Account, as of the December 31 coincident with or immediately preceding
his termination of service plus any amounts subsequently allocated to his
Account under Section 7.2, shall be distributed to the Participant's
Beneficiary, beginning within 90 days following the end of the Plan Year in
which the last allocation to the Participant's Account is contributed. To
the extent practicable, the Committee shall insure that any distribution
pursuant to this Section 10.4 is completed within the recipient's taxable
year in which it begins.
10.5 A Participant, or in the case of a distribution under Section
10.3 or 10.4 as to which the Participant has made no election, a
Participant's Beneficiary, may elect to receive distribution pursuant to
this Article IX in cash or in Stock. If the Participant or beneficiary
elects distribution in cash, the Trustee shall convert all shares of Stock
allocated to the Participant's Account, including fractional shares, to
cash, at the price at which such Stock is traded on the New York Stock
Exchange on the conversion date and shall distribute the proceeds to the
Participant or Beneficiary.
10.6 Before a distribution of a Participant's Account pursuant to
this Article X is made to a Participant or Beneficiary who has elected to
receive the distribution in Stock, any cash, or assets other than Stock,
allocated to such Account shall be applied to the purchase of Stock, either
in the manner and at the price specified in Section 6.2 or from an
unallocated account established pursuant to Section 7.3 at the price at
which such Stock could currently be purchased on the New York Stock
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Exchange, so that all distributions will be made in shares of Stock, except
that cash shall be distributed in lieu of fractional shares of Stock. For
the purpose of this Article X, a fractional share of Stock allocated to a
Participant's Account shall be valued at its pro rata share of the closing
price of a whole share of Stock on the New York Stock Exchange on the
deemed distribution date preceding the date upon which the Participant's
Account is to be distributed.
10.7 Any shares of Stock distributed pursuant to the terms of this
Plan shall be subject to such restrictions on their transfer as shall be
necessary or appropriate, in the opinion of counsel for the Company and the
Trust, to comply with applicable federal and state securities laws.
10.8 No distribution of all or any part of any Participant's Account
under this Plan shall be made except in accordance with this Article X, or
the withdrawal provisions of Article XI.
10.9 Direct Rollovers. This Section 10.9 will apply to distributions
from a Participant's Account made after December 31, 1992. If one or more
distributions from a Participant's Account constitutes an "eligible
rollover distribution," within the meaning of sections 402(c)(2) and (4) of
the Code and regulations thereunder, the Participant may elect to have all
or a portion (but not less than $500) of the distribution paid directly to
an individual retirement account or annuity (an "IRA") or a plan qualified
under Code Section 401(a) or 403(a) (collectively, an "eligible retirement
plan"). The Participant may not elect to have portions of an eligible
rollover distribution paid directly to more than one eligible retirement
plan. In addition, the Participant will not be permitted to elect a direct
rollover with respect to eligible rollover distributions that are
reasonably expected to total less than $200 during the year. The Committee
shall make such payment upon receipt from the Participant of the name of
the eligible retirement plan to which such payment is to be made, a
representation that the eligible retirement plan is an IRA or a plan
qualified under section 401(a) or 403(a) of the Code, and such other
information and/or documentation as the Committee may reasonably require to
make such payment. If the Participant fails to elect whether or not a
distribution is to be paid in a direct rollover, the Participant will be
deemed to have elected not to have any portion of the distribution paid in
a direct rollover. This Section shall apply, to the extent required by
law, to a Beneficiary who is the Participant's surviving spouse and to a
spouse or former spouse who is an alternate payee under a qualified
domestic relations order as defined in section 414(p) of the Code, except
that only an IRA will be deemed to be an eligible retirement plan with
respect to a surviving spouse or a deceased Participant.
ARTICLE XI. WITHDRAWALS BY PARTICIPANTS; DIVERSIFICATION ELECTION.
11.1 A Participant may, by written election, in the form prescribed
by the Committee and filed with the Committee at least 30 days prior to the
end of a Plan Year, elect to receive, during the first 90 days of the
succeeding Plan Year, a distribution of any shares of Stock (except Stock
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<PAGE> 39
attributable to Qualified Matching Contributions) which have been allocated
to the Participant's Account for at least 84 months preceding the last day
of the Plan Year immediately preceding the Plan Year in which the
distribution is to be made. Withdrawals shall be made by Plan Year
beginning with the earliest eligible Plan Year. Each withdrawal must
include all shares credited to the Participant's Account for each Plan Year
to which the withdrawal election applies. Cash shall be paid in lieu of
fractional shares.
11.2 Diversification Election. Notwithstanding Section 11.1, if an
"eligible Participant" makes a diversification election, in writing in a
form prescribed by the Committee, an amount equal to 25% (50% in the case
of the last Plan Year during which the Participant is an eligible
Participant) of the value of the Participant's Accounts attributable to
Stock acquired after December 31, 1986, reduced by the amount distributed
pursuant to any previous election, shall be distributed to the Participant
within 90 days after the close of the "election period". For purposes of
this Section 11.2, a Participant is an "eligible Participant" during each
of the five Plan Years following the first Plan Year in which the
Participant has both attained age 55 and completed 10 years of
participation, including participation before the effective date of this
amendment and restatement. The "election period" is the 90-day period
immediately following the close of each Plan Year during which the
Participant is an eligible Participant.
ARTICLE XII. PLAN ADMINISTRATION.
12.1 The Plan shall be administered by the Committee, which shall be
deemed to be the Plan's "named fiduciary" and "administrator", as those
terms are defined by the Employee Retirement Income Security Act of 1974,
as amended. All matters relating to the administration of the Plan,
including the duties imposed upon the Plan administrator by law, except
those duties relating to the control or management of Plan assets, shall be
the responsibility of the Committee. All matters relating to the control
or management of Plan assets shall, except to the extent delegated in
accordance with the trust agreement, be the sole exclusive responsibility
of the Trustee.
12.2 The Committee shall consist of not less than three persons who
shall be appointed and may be removed by the Board of Directors. Persons
appointed to the Committee may be, but need not be, employees of the
Company or a Designated Subsidiary. Any Committee member may resign by
giving written notice to the Board of Directors, which notice shall be
effective 30 days after delivery. A Committee member may be removed by the
Board of Directors by written notice to such Committee member, which notice
shall be effective upon delivery. The Board of Directors shall promptly
select a successor following the resignation or removal of any Committee
member.
12.3 Members of the Committee who are employees of the Company shall
serve without compensation. Members of the Committee who are not employees
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of the Company or a Designated Subsidiary may be paid reasonable
compensation for services rendered to the Plan. Such compensation, if any,
and all ordinary and necessary expenses of the Committee shall be paid by
the Company.
12.4 The Committee may enact such rules and regulations for the
conduct of its business and for the administration of the Plan as it may
deem desirable. The Committee may act either at meetings at which a
majority of its members are present or by a writing signed by a majority of
its members without the holding of a meeting. Records shall be kept of the
meetings and actions of the Committee. No member of the Committee who is a
Participant in the Plan shall vote upon any matter affecting only his
Account.
12.5 The Committee shall have the authority and responsibility to
interpret and construe the Plan and to decide all questions arising
thereunder, including without limitation, questions of eligibility for
participation, eligibility for benefits, Account balance, and the timing of
the distribution thereof, and shall have the authority to deviate from the
literal terms of the Plan to the extent the Committee shall determine to be
necessary or appropriate to operate the Plan in compliance with the
provisions of applicable law.
12.6 The Committee shall administer and interpret the Plan for the
exclusive benefit of Participants and their Beneficiaries.
12.7 The Committee may, and to the extent required for the
preparation of reports shall, employ such accountants, actuaries,
attorneys, consultants and other advisors or agents, as necessary. The
fees charged by such accountants, actuaries, attorneys, consultants or
other advisors and agents shall be paid by the Company.
12.8 The Committee may delegate any of its responsibilities to any
officer of the Company, and may allocate any of its responsibilities to one
or more members of the Committee. In the event of any such delegation or
allocation the Committee shall establish procedures for the thorough and
frequent review of the performance of such duties. Persons to whom
responsibilities have been delegated may not delegate to others any
discretionary authority or discretionary control with respect to the
management or administration of the Plan.
12.9 The Committee shall administer a claims procedure as follows:
(a) If a claim for benefits is denied by the Committee either
in whole or in part, the Committee shall notify any Participant or
Beneficiary adversely affected by such denial by a written notice setting
forth the specific reason or reasons for the denial, a specific reference
to the provisions of the Plan upon which the denial is based, a description
of any additional material or information necessary for the Participant or
Beneficiary to obtain a review of the decision denying the claim in whole
or in part together with an explanation of the reasons such material or
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information may be necessary for these purposes, and an explanation of the
claim review procedures for the Plan.
(b) The Participant or Beneficiary whose claim has been denied
in whole or in part (or the authorized representative of the Participant or
Beneficiary) may, within 60 days after receipt of the written notification
described in (a) above, appeal the denial of the claim by delivering to a
member of the Committee a written request for a review of the denial. Such
written request for a review may be supplemented, within 30 days following
delivery of the request for a review, by written comments prepared by the
claimant or his duly authorized representative, and the claimant or his
duly authorized representative shall for purposes of preparing the request
for a review or the additional written comments have made available to him
any pertinent documents.
(c) Within 60 days following the later of receipt of a request
for review by a member of the Committee or receipt of any additional
written comments, the Committee shall give notice to the claimant of its
decision on review, which decision shall include specific reasons for the
decision and specific references to the provisions of the Plan upon which
the decision on review is based.
ARTICLE XIII. AMENDMENTS, DISCONTINUANCE AND LIABILITIES.
13.1 This Plan may be amended at any time and from time to time by
the Board of Directors, provided that no amendment shall divest any
interest of any Participant or Beneficiary, nor be effective unless the
Plan continues to be for the exclusive benefit of the Participants and
their beneficiaries.
13.2 The Company reserves the right to discontinue the Plan at any
time by action of the Board of Directors. If the Plan is so discontinued
the Fund shall continue to be held for distribution as provided in Article
X and Article XI. No new Participants may thereafter be admitted to the
Plan and the Company shall make no further contributions to the Fund.
13.3 The Company reserves the right, by action of the Board of
Directors, to merge or consolidate this Plan with any other employee stock
ownership plan qualified under section 401(a) of the Code, or to transfer
Plan assets and liabilities to any other such plan qualified under section
401(a) of the Code, including such a transfer in connection with the
termination of a Subsidiary's status as a Designated Subsidiary, provided
that the amount standing to the credit of each Participant's Account
immediately after any such merger, consolidation or transfer of assets and
liabilities shall be at least equal to the amount standing to the credit of
the Participant's Account immediately before such merger, consolidation or
transfer.
13.4 In the event a Subsidiary ceases to be a Designated Subsidiary,
but continues in existence as a corporate entity, no further allocations
shall be made to the Accounts of the Participants employed by that
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Subsidiary, other than Stock, money or other property distributed with
respect to Stock held in those Accounts, for any Plan Year beginning after
the Subsidiary ceases to be a Designated Subsidiary. Those Participants'
Accounts shall either be:
(a) transferred-to another qualified plan, in accordance with
Section 13.3, or
(b) completely distributed to the Participants entitled thereto
in accordance with the provisions of Article X.
ARTICLE XIV. MISCELLANEOUS.
14.1 The establishment or existence of the Plan shall not confer upon
any Employee the right to be continued in the employ of the Company or any
Designated Subsidiary. The Company and its Designated Subsidiaries
expressly reserve the right to discharge any Employee whenever in their
judgment their best interests so require.
14.2 No benefit payable under the Plan shall be subject in any manner
to anticipation, assignment, or voluntary or involuntary alienation. This
section shall not preclude the Trustee from complying with the terms of any
qualified domestic relations order under section 414(p) of the Code.
14.3 If the Committee, in its sole discretion, deems a Participant or
Beneficiary who is entitled to receive any payment hereunder to be
incompetent to receive the same by reason of age, illness or any infirmity
or incapacity of any kind, the Committee may direct the Trustee to apply
such payment directly for the benefit of such person, or to make payment to
any person selected by the Committee to disburse the same for the benefit
of the Participant or Beneficiary. The receipt given by such a person
shall be complete discharge therefor. Payments made pursuant to this
section shall operate as a discharge, to the extent thereof, of all
liabilities of the Company, any Designated Subsidiary, the Committee, the
Trustee, and the Fund to the person for which benefit the payments are
made.
14.4 Impossibility of Diversion. All Plan assets shall be held, in
trust, as part of the Fund, until paid to provide benefits to Participants
or their Beneficiaries or to pay reasonable Plan expenses. It shall be
impossible for any part of the Fund to be used for, or diverted to,
purposes other than the exclusive benefit of the Participants or their
beneficiaries, and the Trust shall continue for such time as may be
necessary to accomplish the purpose for which it is created.
14.5 Provisions Relating to Top-Heavy Plan. Notwithstanding anything
in the Plan to the contrary, if the Plan is determined to be a Top-Heavy
Plan within the meaning of Section A.12 of Appendix A and Code section
416(g) for any Plan Year, then Article B of Appendix A shall apply.
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14.6 The effectiveness of this amendment and restatement, including
but not limited to the contributions made by the Company and its Designated
Subsidiaries, shall be subject to and contingent upon a determination of
the District Director of Internal Revenue that the Plan and Trust continue
to meet the requirements for qualification under the applicable provisions
of the Code. If the amendment and restatement should be determined by the
District Director not to continue to meet the requirements for
qualification, then, upon notice to the Trustee, the Company shall have the
right further to amend the Plan or to rescind the amendment and
restatement.
To record the adoption of the amendment and restatement of the Plan,
the Company and its Designated Subsidiaries have caused this document to be
executed, on their behalf, by the appropriate officers of the Company on
this 22nd day of December, 1994.
AMERICAN WATER WORKS COMPANY, INC.
AND ITS DESIGNATED SUBSIDIARIES
ATTEST: W. Timothy Pohl By: George W. Johnstone
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APPENDIX A
TOP-HEAVY PROVISIONS
ARTICLE A. TOP-HEAVY PLAN DEFINITIONS.
The following words and phrases as used herein have the following
meanings unless a different meaning is plainly required by the context:
A.l "Account Balance" means, for all plans included in an
Aggregation Group, the sum of:
A.1.1 the balance, as of the Top-Heavy Valuation Date, standing
to the credit of a Participant (including a Beneficiary of such
Participant) in his Account, including contributions that would be
allocated as of the Top-Heavy Valuation Date, even though these amounts are
not yet required to be contributed, except for amounts maintained in a
subaccount attributable to "unrelated" rollover contributions or plan-to-
plan transfers; and
A.1.2 the aggregate distributions made with respect to such
Participant (including a Beneficiary of such Participant) under the Plan
during the five-year period ending on the Determination Date.
The term "Account Balance" shall not include any amount held or distributed
on behalf of any Participant who is a Former Key Employee, or who has not
received compensation from the Employer (other than benefits under
qualified plans maintained by the Employer) at any time during the five-
year period ending on the Determination Date.
A.2 "Aggregation Group" means:
A.2.1 a Required Aggregation Group, or
A.2.2 a Permissive Aggregation Group.
A.3 "Determination Date" means:
A.3.1 if the Plan is not included in an Aggregation Group, the
last day of the preceding Plan Year; or
A.3.2 if the Plan is included in an Aggregation Group, the
Determination Date as determined under Section A.3.1 that falls within the
same calendar year as does the determination date of each other plan
included in such Aggregation Group.
A.4 "Employer" means the Company and any Designated Subsidiary.
A.5 "Former Key Employee" means a Participant who is a Non-Key
Employee with respect to the Plan for the Plan Year if such Participant was
a Key Employee with respect to the Plan for any prior Plan Year.
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A.6 "Key Employee" means an Employee, including a deceased former
Employee, with respect to the Plan Year, who at any time during the Plan
Year that includes the Determination Date or any of the four preceding Plan
Years is (or was):
A.6.1 An officer of the Employer having annual compensation
greater than 150% of the amount in effect under Code section 415(b)(1)(A)
for the calendar year in which such Plan Year ends, provided that in no
event shall he number of individuals treated as officers exceed 50
employees, or, if lesser, the greater of three employees or 10% of the
total number of employees:
If more than the maximum number of employees who may be treated as officers
are officers, only those officers who had the largest annual compensation
in any one of the five Plan Years ending on the Determination Date shall be
treated as officers.
A.6.2 One of the 10 Employees having annual Compensation from
the Employer of more than the maximum dollar limitation of Code section
415(c)(1)(A) and owning (or considered as owning within the meaning of Code
section 318) the largest interest in the Employer, provided that such
interest is more than 0.5% of the ownership interest in the Employer. If
an Employee's ownership interest change, during a Plan Year, his ownership
interest for the year is the largest interest owned at any time during the
year. If two Employees have the same ownership interest in the Employer
during the five Plan Years ending on the Determination Date, the Employee
having the larger annual compensation from the Employer for the Plan Year
during any part of which that ownership interest existed shall be treated
as having a larger interest;
A.6.3 If the Employer is a corporation, an Employee who owns
(or is considered as owning within the meaning of Code section 318) more
than 5% of the outstanding stock of the Employer or more than 5% of the
total combined voting power of all stock of the Employer; if the Employer
is not a corporation, an Employee who owns more than 5% of the capital or
profits interest in the Employer; or
A.6.4 A person who has annual compensation from the Employer of
more than $150,000 and who would be described in Section A.3.3 if "1%" were
substituted for "5%" each time it appears in Section A.6.3.
For purposes of this Section A.6, Code section 318(a)(2)(C) shall be
applied by substituting "5%"' for "50%". In addition, for purposes of
determining ownership in the Employer under this Section A.3, Section A.4
shall not apply.
A.7 "Non-Key Employee" means any Employee, including a deceased
former Employee who is not a Key Employee with respect to the Plan for the
Plan Year.
A.8 "Permissive Aggregation Group" means:
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A.8.1 each plan of the Employer included in a Required
Aggregation Group; and
A.8.2 each other plan of the Employer if the group of plans
consisting of such plan and the plan or plans described in Section A.8.1,
when considered as a single plan, meets the requirements of Code section
401(a)(4) and Code section 410.
A.9 "Required Aggregation Group" means:
A.9.1 each plan of the Employer in which a Key Employee
participated during the five Plan Years ending on the Determination Date;
and
A.9.2 each other plan of the Employer that enables any plan
described in Section A.9.1 to meet the requirements of Code section
401(a)(4) or Code section 410.
A.10 "Super Top-Heavy Plan" means the Plan if it would be a Top-Heavy
Plan if "90%" were substituted for "60%" each time it appears in Section
A.11 and Section A.12.
A.11 "Top-Heavy Group" means an Aggregation Group in which, as of the
Determination Date, the sum of:
A.11.1 the aggregate of the Account Balances of Key Employees
under all Defined Contribution Plans included in an Aggregation Group, and
A.11.2 the aggregate of the present value of cumulative accrued
benefits for Key Employees under all Defined Benefit Plans included in an
Aggregation Group,
exceeds 60% of the sum of such aggregate determined for all Employees.
A.12 "Top-Heavy Plan" means the Plan, if as of the Determination
Date:
A.12.1 the aggregate of the Account Balances of Participants
who are Key Employees exceeds 60% of the aggregate of the Account Balances
of all Participants; or
A.12.2 the Plan is part of a Required Aggregation Group which
is a Top-Heavy Group.
Notwithstanding Section A.12.1 and Section A.12.2, the Plan shall not be
considered a Top-Heavy Plan for any Plan Year in which the Plan is a part
of a Required Aggregation Group or a Permissive Aggregation Group which is
not a Top-Heavy Group.
28
<PAGE> 47
A.13 "Top-Heavy Valuation Date" means the Determination Date.
ARTICLE B. PROVISIONS RELATING TO TOP-HEAVY PLAN.
Notwithstanding anything in the Plan to the contrary, if the Plan
is a Top-Heavy Plan within the meaning of Section A.12 and Code section
416(g) for any Plan Year, then the Plan shall meet the requirements of
Section B.1, Section B.2 and Section B.3 for any such Plan Year. If the
Plan is a Super Top-Heavy Plan for any Plan Year, then in addition to
meeting the requirements of Sections B.1 through B.4, it shall also meet
the requirements of Section B.4.
B.1 Minimum Vesting Requirements. The vested interest of a
Participant who is credited with an Hour of Service after the Plan becomes
a Top-Heavy Plan will be determined under a schedule that is not less
favorable to the Participant than the following:
Years of Service Vested Interest
Less than two 0%
Two but less than three 20%
Three but less than four 40%
Four but less than five 60%
Five but less than six 80%
Six or more 100%
B.2 Minimum Contribution Requirement.
B.2.1 The Employer will meet the minimum benefit and
contribution requirements of Code section 416(s) by providing a minimum
benefit that complies with Code section 416(c) (1) under the Pension Plan
for such Plan Year for each Participant who is a Non-Key Employee and
participates in the Pension Plan.
B.2.2 For each Participant who is a Non-Key Employee, but who
does not participate in the Pension Plan, this Plan shall provide a minimum
contribution allocation for such Plan Year for each Participant who is a
Non-Key Employee in an amount equal to at least 3% of such Participant's
Compensation for such Plan Year. Such 3% minimum contribution requirement
shall be increased to 4% for any Plan Year in which the Employer also
maintains a Defined Benefit Plan if necessary to avoid the application of
Code section 416(h)(1), relating to special adjustments to the Code section
415 limits for Top-Heavy Plans, if the adjusted limitations of Code section
416(h)(1) would otherwise be exceeded if such minimum contribution were not
so increased.
B.2.3 For each Participant who is a Non-Key Employee, and who
also participates in the Pension Plan for the Plan Year, the Plan will
provide a minimum contribution allocation in an amount equal to at least 5%
of such Participant's Compensation for such Plan Year. Such 5% minimum
contribution requirement shall be increased to 7-1/2% for any Plan Year in
29
<PAGE> 48
which the Employer also maintains such plan if necessary to avoid the
application of Code section 416(h)(1), relating to special adjustments to
the Code section 415 limits for Top-Heavy Plans, if the adjusted
limitations of Code section 416(h)(1) would otherwise be exceeded if such
minimum contribution were not so increased.
B.2.4 The minimum contribution requirements set forth above
shall be reduced in the following circumstances:
B.2.4.1 The percentage minimum contribution required
hereunder shall in no event exceed the percentage contribution made
for the Key Employee for whom such percentage is the highest for the
Plan Year after taking into account contributions or benefits under
other qualified plans in an Aggregation Group of which the Plan is a
part; and
B.2.4.2 No minimum contribution will be required (or the
minimum contribution will be reduced, as the case may be) for a
Participant under this Plan for any Plan Year if the Employer
maintains another qualified plan under which a minimum benefit or
contribution is being accrued or made for such year in whole or in
part for the Participant in accordance with Code section 416(c).
B.2.4.3 The minimum contribution shall be made for each
Non-Key Employee who is employed at the end of the Plan Year in
question, regardless of whether such Non-Key Employee has been
credited with 1,000 Yours of Service in such Plan Year and regardless
of such Non-Key Employee's level of Compensation and whether such Non-
Key Employee elected to make contributions under Section 4.1 of the
Plan for such Plan Year.
B.3 Change in Top-Heavy Status. If the Plan becomes a Top-Heavy
Plan and subsequently ceases to be a Top-Heavy Plan, the vesting schedule
in Section B.1 shall continue to apply in determining the vested percentage
of the Account of any Participant who had at least three Years of Service
as of the last day of the last Plan Year in which the Plan was a Top-Heavy
Plan. For all other Participants, the vesting schedule in Section B.1 shall
apply only to their Accounts as of such last day.
B.4 Adjustment for Super Top-Heavy Plan. If the Plan is a Super
Top-Heavy Plan for any Plan Year, then for purposes of Section 7.3 the
defined contribution fraction and the defined benefit fraction shall be
adjusted in the manner described in Code section 416(h)(1).
30
<PAGE> 49
APPENDIX B
LIST OF DESIGNATED SUBSIDIARIES
American Water Works Company, Inc.
American Commonwealth Company
American Commonwealth Management
Services Company, Inc.
American International Water Services Company
American Water Works Service Company, Inc.
California-American Water Company
Greenwich Water System, Inc.
Connecticut-American Water Company
Hampton Water Works Company
Massachusetts-American Water Company
New York-American Water Company, Inc.
The Salisbury Water Supply Company
Illinois-American Water Company
Indiana-American Water Company, Inc.
Iowa-American Water Company
Kentucky-American Water Company
Maryland-American Water Company
Missouri-American Water Company
New Jersey-American Water Company, Inc.
New Mexico-American Water Company, Inc.
Northern Michigan Water Company
Occoquan Land Corporation
Ohio-American Water Company
Ohio Suburban Water Company
Paradise Valley Water Company
Pennsylvania-American Water Company
Tennessee-American Water Company
Virginia-American Water Company
West Virginia-American Water Company
Bluefield Valley Water Works Company
31
<PAGE> 50
EXHIBIT 10(f)
AMERICAN WATER WORKS COMPANY, INC.
LONG-TERM PERFORMANCE-BASED
INCENTIVE PLAN
<PAGE> 51
LONG-TERM PERFORMANCE-BASED
INCENTIVE PLAN
---------------------------
I. PURPOSE
The purpose of the Plan is to promote the success of the Company
by linking incentive opportunities to stockholder gains and
enabling the Company to attract and retain individuals of
outstanding ability.
II. DEFINITIONS
A. Award: An Award granted pursuant to Section VI. hereof.
B. Award Agreement: An agreement entered into between the
Company and a Participant, setting forth the terms and
conditions applicable to the Award granted to the Participant.
C. Board: The Board of Directors of the Company.
D. Change of Control Event: A Change of Control Event occurs
when any person or group acquires or announces an offer for
25% or more of the Company's Common Stock or when, during any
two consecutive calendar years, individuals who at the
beginning of such period were members of the Board of
Directors cease for any reason to constitute at least a
majority of the Board of Directors.
E. Committee: The Compensation and Management Development
Committee of the Board.
F. Common Stock: The Common Stock of the Company (par value of
$1.25 per share) or any security of the Company issued in
substitution, exchange, or in lieu thereof.
G. Company: American Water Works Company, Inc. a Delaware
corporation, its successors and assigns. Except where the
context indicates otherwise, Company shall include such
Subsidiaries as shall be designated by the Board to
participate in the Plan.
H. Earnings Per Share Growth: The average percentage change in
earnings per share, as reported in the Company's annual report
1
<PAGE> 52
to stockholders during the Performance Cycle, but without
regard to any extraordinary items determined in accordance
with generally accepted accounting principles consistently
applied.
I. Effective Date: January 1, 1993, the date as of which the
first Performance Cycle commenced.
J. Exchange Act: The Securities Exchange Act of 1934, and any
successor statute, as it may be amended from time to time.
K. Insider: Any person who is subject to Section 16.
L. Market Price: The average of the closing sale prices of the
Company's Common Stock as reported on the New York Stock
Exchange Composite Transaction Tape during the twenty
trading-day period consisting of the last ten trading days of
December and the first ten trading days of January. For any
Plan Year, Market Price for or at the beginning of such Plan
Year shall be determined by reference to the twenty-day
trading period commencing in the immediately preceding Plan
Year, and Market Price for or at the end of such Plan Year
shall be determined by reference to the twenty-day trading
period ending in the immediately succeeding Plan Year.
M. Participant: An executive or other key employee of the
Company designated by the Committee to receive an Award under
the Plan.
N. Performance Cycle: A period of three consecutive Plan Years,
over which performance against the Performance Cycle Goals is
to be measured.
O. Performance Cycle Goals: The performance goals established by
the Committee for a Performance Cycle.
P. Peer Group: Those water utility companies designated by the
Committee as members of a comparison group for a Performance
Cycle.
Q. Plan Year: The calendar year.
R. President: The President and Chief Executive Officer of the
Company.
S. Section 16: Section 16 of the Exchange Act, and any successor
statutory provision, and the rules promulgated thereunder, as
it or they may be amended from time to time.
2
<PAGE> 53
T. Subsidiary: Any corporation in which the Company, directly or
indirectly, controls a majority of the voting stock.
U. Total Return to Stockholders: The average return to
stockholders for each Plan Year of the Performance Cycle,
where, for each such Plan Year, return to stockholders is
measured by dividing (i) the sum of the cumulative dividends
for such Plan Year, assuming dividend reinvestment, and the
difference between the Market Price at the end and at the
beginning of such Plan Year by (ii) the Market Price at the
beginning of such Plan Year.
III. ADMINISTRATION
A. The Plan shall be administered by the Committee, which shall
have the full power, subject to, and within the limits of the
Plan, to (i) make, interpret and approve all rules for the
administration of the Plan, (ii) exercise all powers allocated
to it under the Plan, (iii) determine the time when Awards
will be granted and the terms and conditions thereof and (iv)
exercise all other powers and perform all other acts in
connection with the Plan as it deems necessary or appropriate.
B. The Committee shall, from time to time, consult with the
President and receive and consider his recommendations
regarding the Plan. Notwithstanding the foregoing, the
Committee shall have the sole power and authority to adopt,
amend and rescind administrative guidelines, rules and
regulations pertaining to the Plan; to accept, modify or
reject recommendations of the President; to set final Awards;
and to interpret and rule on any questions pertaining to the
Plan.
C. No member of the Committee shall be eligible to participate in
the Plan.
D. The Committee shall be constituted so as to permit the Plan to
comply with the administration requirement of Rule
16b-3(c)(2)(i) of the Exchange Act. A majority of the members
of the Committee shall constitute a quorum. The vote of a
majority of a quorum shall constitute action by the Committee.
E. It is the intent of the Company that this Plan and Awards
hereunder satisfy, and be interpreted in a manner that in the
case of Participants who are or may be Insiders, satisfy the
applicable requirements of Rule 16b-3 of the Exchange Act, so
that such persons will be entitled to the benefits of Rule
16b-3, or other exemptive rules under Section 16, and will not
3
<PAGE> 54
be subjected to avoidable liability thereunder. If any
provision of this Plan or of any Award would otherwise
frustrate or conflict with the intent expressed in this
Section, that provision to the extent possible shall be
interpreted and deemed amended so as to avoid such conflict.
To the extent of any remaining irreconcilable conflict with
such intent, such provision shall be deemed void as applicable
to Insiders.
F. The actions and determinations of the Committee on all matters
relating to the Plan and any Awards thereunder shall be final
and conclusive.
G. No member of the Committee or the Board shall be liable for
any action taken or determination made in good faith with
respect to the Plan or any Award thereunder, and the Company
shall defend the Committee and Board members for any actions
taken or decisions made in good faith under the Plan.
IV. PARTICIPATION
Executives and other key employees of the Company who are
designated from time to time by the Committee will be eligible for
Awards. The receipt of an Award shall not confer upon any
Participant the right to receive any additional Awards.
V. PERFORMANCE CYCLE GOALS
A. Performance Cycle Goals for each Performance Cycle will be
recommended by the President and established by the Committee
based on Earnings Per Share Growth and Total Return to
Stockholders relative to the Peer Group. The Committee may
also establish Performance Cycle Goals based on individual
Participant, subsidiary, unit or division performance, or any
combination thereof, provided, however, that in the case of a
Participant who is not an Insider, the President may establish
such other Performance Goals as he deems appropriate.
B. Once a Performance Cycle has commenced and Performance Cycle
Goals have been established, such goals may not be changed for
such Performance Cycle except in the event of (i) a
significant acquisition of another business by the Company,
(ii) a disposition of a significant part of the business by
the Company, (iii) any significant changes due to legislation
or regulations adversely affecting the operation of the Plan
or (iv) any other extraordinary event, all as determined by
the Committee.
4
<PAGE> 55
VI. TARGET INCENTIVE AWARDS
A. An Award will entitle a Participant to receive a specified
amount determined by the Committee if the terms and conditions
specified in the Award Agreement are satisfied. Each Award
shall be subject to the following terms and conditions, and to
such other terms and conditions, including but not limited to,
restrictions upon any cash, Common Stock, or any combination
thereof, issued in respect of the Award, as the Committee, in
its discretion, shall establish, and shall be embodied in the
Award Agreement.
B. The Committee shall determine the value or range of values,
including the maximum value, of an Award to each Participant.
The value of each Award shall be based in whole or in part on
the Market Value of the Common Stock, and dividends paid with
respect thereto, and the extent to which the Performance Cycle
Goals have been attained. Awards may be issued in different
classes or series having different names, terms, and
conditions.
C. The President shall report to the Committee regarding actual
performance as soon as practicable following the conclusion of
each Performance Cycle. The Committee shall determine the
extent to which the Performance Cycle Goals have been met;
provided, however, that in the case of a Participant who is
not an Insider, the President shall determine the extent to
which the Performance Cycle Goals, if any, established by the
President pursuant to Section V.A. with respect to such
Participant have been met. Anything in this Plan to the
contrary notwithstanding, the amount paid to a Participant
shall not exceed the maximum value of the Award established by
the Committee and set forth in the Award Agreement.
D. In the event of the termination of employment of a Participant
during a Performance Cycle due to death, disability or
retirement on or after attaining age 62, Awards shall become
vested on a pro rata basis, provided the Participant has been
an employee for at least one Plan Year during the Performance
Cycle. In all other cases of termination, Awards shall be
forfeited.
E. All Awards shall be paid as soon as practicable after the end
of the Performance Cycle to which the Award relates. Awards
may be paid in the form of cash, restricted shares of Common
Stock, or a combination of both. Awards paid in the form of
restricted shares of Common Stock shall be subject to such
restrictions as the Committee shall determine.
5
<PAGE> 56
F. The Committee may, in its discretion, provide for the deferral
of any component of the Award and the terms and conditions
thereof.
G. Upon a Change of Control Event, all Awards which have been
earned by Participants shall immediately vest and all
restrictions applicable to the Awards shall immediately
expire. In addition, for the Performance Cycles not yet
concluded at the time of a Change of Control Event, pro rata
Awards for each of those Performance Cycles shall be paid to
each Participant as soon as practicable and each such Award
shall be vested and without restriction.
VII. SHARES RESERVED
The number of shares of Common Stock authorized to be issued
pursuant to the Plan is 350,000 shares. Common Stock may be
issued from authorized and unissued shares or out of shares held
in the Company's treasury, or both.
VIII. AMENDMENTS
All amendments to the Plan shall be in writing and shall be
effective when adopted by the Board, provided that no amendment
shall be made to increase the number of shares of Common Stock
authorized or available under the Plan without stockholder
approval.
IX. OTHER PROVISIONS
A. The following provisions shall apply to all Common Stock
authorized for issuance under the Plan.
1. In the event of a stock dividend, stock split or other
subdivision or combination of the Common Stock, the number
of shares of Common Stock authorized under the Plan will
be adjusted proportionately. Similarly, in any such event
there will be a proportionate adjustment in the number of
shares of Common Stock subject to restriction.
2. In the event that the outstanding shares of Common Stock
are changed or converted into, or exchanged or
exchangeable for, a different number or kind of shares or
other securities of the Company or of another corporation
by reason of a reorganization, merger, consolidation,
reclassification or combination, appropriate adjustment
shall be made by the Board in the number of shares and
kind of Common Stock for which Awards may be or may have
6
<PAGE> 57
been made under the Plan, to the end that the
proportionate interests of Participants shall be
maintained as before the occurrence of such event.
B. No Award pursuant to the Plan shall be transferable or
assignable by a Participant other than by will or the laws of
descent and distribution and during the lifetime of a
Participant shall be exercisable or payable only by or to him.
C. The Company shall deduct from all Awards paid hereunder any
federal, state or local taxes required by law to be withheld.
D. Subject to stockholder approval, the Plan will become
effective January 1, 1993. The Board may terminate the Plan
at any time, effective at the end of the then-current Plan
Year.
E. This Plan shall be construed in accordance with and governed
by the laws of the State of Delaware, without regard to the
conflict of law rules thereof.
F. The Committee's determinations under the Plan need not be
uniform and may be made by it selectively among persons who
receive, or are eligible to receive, Awards under the Plan,
whether or not such persons are similarly situated. Without
limiting the generality of the foregoing, the Committee will
be entitled, among other things, to make non-uniform and
selective determinations and to establish non-uniform and
selective Awards; provided, however, the Committee may not
increase the amount of compensation that would otherwise be
payable upon achievement of the Performance Cycle Goals.
G. Nothing contained in the Plan will be deemed in any way to
limit or restrict the Company or the Committee from making any
Award or payment to any person under any other plan,
arrangement or understanding, whether now existing or
hereafter in effect.
H. If payments are legally required to be made to any person
other than the person to whom any amount is available under
the Plan, payments will be made accordingly. Any such payment
will be a complete discharge of the liability of the Company.
I. No provision of the Plan will require the Company, for the
purpose of satisfying any obligations under the Plan, to
purchase assets or place any assets in a trust or other entity
to which contributions are made or otherwise to segregate any
assets, nor will the Company maintain separate bank accounts,
7
<PAGE> 58
books, records or other evidence of the existence of a
segregated or separately maintained or administered fund for
such purposes. Participants will have no rights under the
Plan other than as unsecured general creditors of the Company,
except that insofar as they may have become entitled to
payment of additional compensation by performance of services,
they will have the same rights as other employees under
generally applicable law.
J. Nothing contained in this Plan will confer upon any employee
or Participant any right to continue in the employ or other
service of the Company or constitute any contract or limit in
any way the right of the Company to change such person's
compensation or other benefits or to terminate the employment
or other service of such person, with or without cause.
K. The headings contained herein are for the purposes of
convenience only, and in the event of any conflict, the text
of the Plan, rather than the headings, will control.
L. If any term or provision contained herein is held to any
extent invalid or unenforceable, such term or provision will
be reformed so that it is valid and such invalidity or
unenforceability will not affect any other provision or part
hereof.
8
<PAGE> 59 (Page 22 of the 1994 Annual Report) EXHIBIT 13
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, 1994 1993 1992 1991 1990
======================================================================================================
<S> <C> <C> <C> <C> <C>
Revenues
Water service
Residential $ 431,225 $ 399,916 $ 360,800 $ 347,241 $ 310,060
Commercial 169,532 159,335 147,983 143,528 129,976
Industrial 53,049 50,490 47,492 47,071 44,464
Public and other 90,436 84,861 79,196 76,899 69,006
Other water revenues 6,502 5,579 5,372 4,899 3,925
- ------------------------------------------------------------------------------------------------------
750,744 700,181 640,843 619,638 557,431
Wastewater service 13,933 12,143 11,391 10,427 10,157
Authority management fees 5,564 5,213 5,126 5,914 5,350
- ------------------------------------------------------------------------------------------------------
$ 770,241 $ 717,537 $ 657,360 $ 635,979 $ 572,938
==========================================================
Water sales (million gallons)
Residential 113,950 104,721 97,992 99,855 98,069
Commercial 60,901 57,880 55,587 57,144 56,442
Industrial 34,735 33,040 32,681 33,702 34,804
Public and other 26,953 25,172 24,349 25,172 23,539
- ------------------------------------------------------------------------------------------------------
236,539 220,813 210,609 215,873 212,854
==========================================================
Net income $ 78,652 $ 75,387 $ 68,160 $ 73,593 $ 57,088
Earnings per common share on average
shares outstanding $ 2.34 $ 2.29 $ 2.07 $ 2.27 $ 1.85
Common dividends paid per share $ 1.08 $ 1.00 $ 0.925 $ 0.86 $ 0.80
AT YEAR-END
Customers (thousands) 1,706 1,685 1,548 1,529 1,514
Total assets $3,206,654 $2,994,011 $2,415,805 $2,240,503 $2,092,596
Preferred stocks with mandatory
redemption requirements
American Water Works Company, Inc. $ 40,000 $ 40,000 $ 40,480 $ 40,960 $ 1,690
Subsidiaries 43,737 46,515 50,895 47,107 27,664
Long-term debt
American Water Works Company, Inc. $ 131,000 $ 131,000 $ 73,200 $ 73,200 $ 74,400
Subsidiaries 1,177,043 1,056,404 870,940 874,804 725,291
Market price of common stock at year-end $ 27.00 $ 30.00 $ 27.38 $ 26.50 $ 16.00
</TABLE>
<PAGE> 60 (Page 23 of the 1994 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
The American Water Works Service Company, a subsidiary, provides
professional and staff services as required 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 services at cost, affords affiliated
companies support otherwise unavailable economically or on a timely
basis. The regulated companies with less than 100,000 customers have a
greater need to utilize these services than do larger companies.
THE REGULATED COMPANIES
The 23 regulated subsidiary companies provide water service to
approximately six million people in 734 communities in 21 states.
As public utilities, the regulated 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 and operating services, at a profit, to non-affiliated water
and wastewater systems. These services are provided under contract to
various authorities, utilities and businesses in Pennsylvania,
Massachusetts, Delaware and Florida.
This subsidiary also owns a carbon regeneration facility. These
capabilities are being marketed to affiliated and non-affiliated water
utilities throughout the country. Carbon is widely used for water
filtration.
AmericanAnglian Environmental Technologies, a joint venture of
American Commonwealth Management Services Company and Anglian Water Plc,
a British water and wastewater utility, provides both technical
expertise and financing to help communities throughout the United
States upgrade their wastewater treatment systems.
OTHER NON-REGULATED COMPANIES
Greenwich Water System and American Commonwealth Company are
non-regulated subholding companies. Occoquan Land Corporation owns
land, buildings and equipment, most of which are leased to affiliated
companies.
THE PHILOSOPHY OF AMERICAN WATER WORKS COMPANY
American Water Works Company is dedicated to providing the best
water service at the lowest 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
assured by a management approach that draws upon prudent planning,
builds consensus and acts decisively on a timely basis.
2. A regulated subsidiary must exhibit the ability to attract the
capital it requires as a prerequisite to the initiation of
construction of facilities needed to meet water service demands.
3. The ability to raise needed capital is dependent upon consistently
achieving adequate earnings. This dictates a diligent pursuit of
regulatory decisions acknowledging this principle.
In accordance with this philosophy, the company seeks to enhance the
value of its shareholders' 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 assets of American Water Works and the
quality of the organization put in place by the management team. These
assets are used to provide a service which is essential for living. There
is no substitute for water.
<PAGE> 61 (Page 24 of the 1994 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE INVESTMENT STRATEGY OF AMERICAN
WATER WORKS COMPANY
The business of the company is the investment in common stock of water
utilities.
The purpose of this business is to protect and enhance the value of our
shareholders' investment through growth in earnings and dividends per
share.
We seek to accomplish this purpose without diluting earnings to
existing shareholders.
Viewed over the long term, we believe this strategy maximizes the total
return to our shareholders.
The value of investment in the company increases due to earnings
growth. Earnings growth results from increased investment by the company
in its subsidiaries funded by the sale of securities and reinvestment of
income.
The following chart reflects the results of this investment strategy:
COMPOUND ANNUAL GROWTH RATES 1989-1994
[ID: GRAPHIC -- BAR CHART]
9.4% 7.9% 8.4% 7.9% 7.0%
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
$573,038,000 at year-end 1989 to $898,219,000 at year-end 1994. The top
schedule on page 25 shows how this has been accomplished. This analysis
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 shareholders have risen from $47,591,000 in 1989 to
$74,668,000 in 1994.
Income to common shareholders 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 page 25 demonstrates the source of change since
1989 in income to common stock.
This analysis shows that the growth in earnings over this period is the
direct result of new investment in subsidiaries. Fluctuations in the rate
of return are the result of the influence of weather conditions on sales
volume and the response of utility regulation to the economic climate. The
cost to operate the company has increased $8,503,000 over this five-year
period.
SYSTEM GROWTH AND DEVELOPMENT
CAPITAL SPENDING PROGRAM
The investment in new facilities in 1994 totaled $265,739,000, which
was 38% above 1993 construction expenditures of $193,116,000. Construction
activity planned for 1995 totals $314,000,000.
Expenditures recorded in any given year are influenced by many factors,
including the economy, regulation, material delivery and weather
conditions. It is anticipated that approximately $1,500,000,000 will be
invested in new facilities between now and 1999. These expenditures will
support ongoing programs to comply with regulations promulgated to ensure
water quality and protect the environment; to keep pace with the
development of our service territories; and to replace plant as necessary.
We expect the investment in this construction program to be recognized in
regulatory decisions.
<PAGE> 62 (Page 25 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
<TABLE>
<CAPTION>
ANALYSIS OF GROWTH IN INVESTMENT IN SUBSIDIARIES
(000) 1994 1993 1992 1991 1990
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Investment in subsidiaries at December 31 $898,219 $810,372 $749,513 $693,312 $636,622
Investment in subsidiaries at January 1 810,372 749,513 693,312 636,622 573,038
- ---------------------------------------------------------------------------------------------------------
Change during the year $ 87,847 $ 60,859 $ 56,201 $ 56,690 $ 63,584
====================================================
Sources of additional investment
Undistributed earnings of subsidiaries $ 24,532 $ 18,984 $ 19,401 $ 15,690 $ 24,076
Investment by the company in
subsidiary securities 63,315 41,875 36,800 41,000 39,508
- ---------------------------------------------------------------------------------------------------------
Change during the year $ 87,847 $ 60,859 $ 56,201 $ 56,690 $ 63,584
====================================================
Net income of subsidiaries $ 89,449 $ 84,248 $ 75,260 $ 80,692 $ 64,408
Return on January 1 investment in subsidiaries 11.0% 11.2% 10.9% 12.7% 11.2%
Subsidiaries' common stock dividend payout ratio 73% 77% 74% 81% 63%
- ---------------------------------------------------------------------------------------------------------
Dividends to the company from subsidiaries $ 64,917 $ 65,264 $ 55,859 $ 65,002 $ 40,332
- ---------------------------------------------------------------------------------------------------------
Company's use of cash
Mandatory redemption of securities -- 480 1,680 16,930 2,680
Preferred dividends 3,984 3,996 4,019 3,420 690
Other cash requirements 10,744 7,556 6,630 8,471 7,306
- ---------------------------------------------------------------------------------------------------------
14,728 12,032 12,329 28,821 10,676
- ---------------------------------------------------------------------------------------------------------
Available for common dividends 50,189 53,232 43,530 36,181 29,656
Common dividends declared 34,386 31,130 28,609 26,423 24,421
Cash payout ratio 69% 58% 66% 73% 82%
Available after dividends 15,803 22,102 14,921 9,758 5,235
Cash at January 1 23,302 78 15 23 6,993
- ---------------------------------------------------------------------------------------------------------
39,105 22,180 14,936 9,781 12,228
Investment in securities of subsidiaries (63,315) (41,875) (36,800) (41,000) (39,508)
Notes and advances to subsidiaries 4,510 1,010 5,210 1,015 (3,190)
- ---------------------------------------------------------------------------------------------------------
(19,700) (18,685) (16,654) (30,204) (30,470)
- ---------------------------------------------------------------------------------------------------------
Net bank borrowings -- (21,255) 11,425 (13,255) 23,085
Proceeds from long-term debt -- 81,000 -- -- 5,000
Proceeds from preferred stock -- -- -- 40,000 --
Proceeds from common stock 37,347 5,442 5,307 3,474 2,408
Early redemption of securities -- (23,200) -- -- --
- ---------------------------------------------------------------------------------------------------------
37,347 41,987 16,732 30,219 30,493
- ---------------------------------------------------------------------------------------------------------
Cash at December 31 $ 17,647 $ 23,302 $ 78 $ 15 $ 23
====================================================
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF CHANGE IN INCOME
(000) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income to common stock-current year $ 74,668 $ 71,391 $ 64,141 $ 69,890 $ 56,398
Net income to common stock-prior year 71,391 64,141 69,890 56,398 47,591
- ---------------------------------------------------------------------------------------------------------
Change in income 3,277 7,250 (5,749) 13,492 8,807
Change in company operating cost 1,924 1,738 317 2,792 1,732
- ---------------------------------------------------------------------------------------------------------
Change in investment income $ 5,201 $ 8,988 $ (5,432) $ 16,284 $ 10,539
====================================================
Sources of change in investment income
Additional investment in subsidiaries $ 6,718 $ 6,317 $ 6,154 $ 8,059 $ 6,614
Change in rate of return on investment (1,517) 2,671 (11,586) 8,225 3,925
- ---------------------------------------------------------------------------------------------------------
Total change in investment income $ 5,201 $ 8,988 $ (5,432) $ 16,284 $ 10,539
====================================================
</TABLE>
<PAGE> 63 (Page 26 of the 1994 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Investment in new transmission and distribution facilities accounted
for 41% of the 1994 expenditures. Significant projects included
construction of sections of 20-inch through 54-inch transmission mains for
the Tri-County Water Supply Project which will provide a regional supply
for southern New Jersey in 1996. Kentucky-American Water Company installed
approximately 10 miles of 24-inch pipe to serve developing areas.
Pennsylvania-American Water Company completed the installation of
approximately 4 miles of 16-inch main to connect its Hershey service area
to the recently acquired Skyline Water Company. Similarly,
Illinois-American Water Company completed the installation of 10 miles of
16-inch main to service the community of Waterloo. Also, construction of
several additional distribution storage facilities was completed during the
year.
Investment in water production, treatment and pumping facilities
accounted for 31% of 1994 construction expenditures. During 1994,
significant water production facility improvements were completed in Kane,
Frackville, Indiana, and Pittsburgh, Pennsylvania; Haddon Heights and Short
Hills, New Jersey; East St. Louis and Pekin, Illinois; Tiffin, Ohio;
Seymour, Indiana; and Charleston, West Virginia. An innovative treatment
plant, which uses ozone to treat a ground water supply, was constructed by
California-American Water Company in its Monterey service area.
Significant renovations were also made to the filter plants in St. Joseph,
Missouri and Alton, Illinois in response to the damage caused by flooding
during the summer of 1993. Work continues on the 30 million
gallons-per-day treatment plant on the Delaware River by New
Jersey-American Water Company as part of the Tri-County Water Supply
Project that will supplement community water supplies in three counties.
Expenditures for customer service lines, meters and fire hydrants
accounted for 15% of 1994 construction expenditures. These expenditures
reflect ongoing programs to ensure meter accuracy, install and replace fire
hydrants, and provide service to new customers.
Additional water supply projects in 1994 included the construction of
new and replacement wells by New Jersey-American and California-American.
New Jersey-American also converted an existing well to aquifer storage and
recovery, an innovative technique used to store finished water in an
aquifer for future withdrawal. Investigations to supplement or replace
existing supplies are ongoing in Alton and Peoria, Illinois; St. Joseph,
Missouri; Tiffin, Ohio; Hampton, New Hampshire; and southern Indiana.
During 1994, the use of regional supply resources supplemented the supply
available to both Connecticut-American Water Company and
California-American. Source of supply projects accounted for approximately
4% of the 1994 construction expenditures.
Engineering analysis remained focused on the importance of having
adequate source of supply and production facilities in every 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 and production
planning was undertaken in Greenwich, Connecticut; Salisbury,
Massachusetts; and Hopewell and Dale City, Virginia.
In addition, the company's comprehensive planning program proceeded,
with reports completed for New Jersey-American's Burlington, Camden, Ocean,
Middlesex and Monmouth counties water service areas and Ocean City and
Lakewood wastewater systems. Comprehensive Planning Studies were also
completed for the New Mexico-American and Missouri-American water
companies.
<TABLE>
<CAPTION>
CONSTRUCTION EXPENDITURES BY CATEGORY
(000) 1994 1993 1992 1991 1990
=======================================================================================
<S> <C> <C> <C> <C> <C>
Water plant
Sources of supply $ 11,511 $ 8,054 $ 9,110 $ 10,498 $ 8,882
Treatment and pumping 82,700 51,332 53,303 53,361 66,902
Transmission and distribution 108,929 77,998 80,357 63,232 66,752
Services, meters and fire hydrants 40,506 34,401 33,989 31,000 31,321
General structures and equipment 20,703 19,585 17,935 23,698 23,479
Wastewater plant 1,390 1,746 2,885 1,198 1,952
- ---------------------------------------------------------------------------------------
$265,739 $193,116 $197,579 $182,987 $199,288
================================================
</TABLE>
<PAGE> 64 (Page 27 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
ACQUISITIONS OF WATER SYSTEMS
In addition to the investment of capital in facilities which are
absolutely essential to safe and reliable water service, we continue to
search for opportunities to acquire water systems that represent the
prospect for enhanced shareholder value. In that regard,
California-American Water Company has proposed to acquire for
$300,000,000 the water and wastewater systems of the Santa Margarita
Water District in Orange County, California. Santa Margarita is a
public water district that serves a population of 80,000 with the
potential for expansion to 180,000 people. California-American has
proposed to defease the district's outstanding debt, acquire the assets
of the district and assume its service obligations.
The proposed acquisition requires action by two government
commissions. The Orange County Local Agency Formation Commission must
decide if the district will be dissolved and its assets sold to
California-American. The California Public Utilities Commission will
decide whether to authorize the company to provide services to the
district's customers and the rates charged. If approved after public
hearings, California-American expects to complete the acquisition in
1995.
New Jersey-American Water Company acquired three water supply
systems in 1994 for $4,932,000. In June, nearly 9,000 people who
formerly received water from the Borough of Highlands Water Department
began to receive service from the company. In September, the company
acquired the Brookside Water Company in Oxford Township of Warren County
serving 300 people. In October, the company took over the Brookside
portion of the Southeast Morris County Municipal Utilities Authority in
Mendham Township serving 800 people.
In 1994, Pennsylvania-American Water Company paid $560,000 for two
water systems. The Municipal Authority of Gregg Township which serves
300 people was acquired in May. In August, the Paris-Florence Water
Association, serving 2,300 people in northwestern Washington County, was
purchased.
California-American Water Company purchased the Carmel Valley Mutual
Water Company situated in the "Hidden Hills" area in 1994. Serving a
population of 1,100, it was acquired for $519,000.
During 1994, the integration of utilities acquired in 1993 in
Indiana, Missouri, Ohio and Michigan was completed, resulting in more
efficient and productive water service. A total of $62,000,000 was paid
for the common stock of these Midwestern utilities that serve a
population of approximately 355,000 in 17 communities. The acquired
utilities in Indiana and Missouri were merged with American Water's
existing subsidiaries in those states effective January 1, 1995. The
community served by the acquired utility in Ohio is pursuing acquisition
of those facilities that serve a population of approximately 40,000.
RESULTS OF OPERATIONS
American Water'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 1992 through 1994, and it is not expected to
materially affect 1995 results.
The company's results of operations for the year ended December 31,
1994 included a full year of results from the four acquired Midwestern
companies' operations, compared to the 1993 results of operations which
reflected four months of those companies' results.
<TABLE>
<CAPTION>
OPERATING REVENUES
(000) 1994 1993 1992
===============================================================
<S> <C> <C> <C>
Water service $750,744 $700,181 $640,843
Wastewater service 13,933 12,143 11,391
Authority management fees 5,564 5,213 5,126
- ---------------------------------------------------------------
$770,241 $717,537 $657,360
===============================================================
</TABLE>
CONSOLIDATED OPERATING REVENUES
Revenues in 1994 totaled $770,241,000 and were 7% above those for
1993. The volume of water sold increased 7% to 236.5 billion gallons in
1994, primarily due to the company's August 1993 acquisition of the four
Midwestern water utilities. Lower summer water sales in the Northeast
due to more frequent rainfall than in 1993 were offset by increased
sales in the West and Midwest, demonstrating the importance of the
company's geographical diversity. In 1994, the Midwest acquisition
increased operating revenues by $22,700,000 and added 11.6 billion
gallons in water sales volume in comparison to 1993.
<PAGE> 65 (Page 28 of the 1994 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Rate authorizations adjusted the water service rates in effect for
ten regulated companies during 1994. These authorizations are expected
to increase annual revenues by $27,145,000. Operating revenues for 1994
included approximately $10,432,000 which resulted from these rate orders.
To date in 1995, one rate adjustment has been authorized for a
regulated subsidiary which will generate approximately $1,475,000 of
additional annual revenues. Six applications are awaiting regulatory
decisions. If granted in full, they would produce additional annual
revenues of $36,711,000.
Revenues of $717,537,000 in 1993 were 9% above those for 1992,
reflecting higher water service rates and increased sales volume.
Sixteen regulated companies received rate orders in 1993, authorizing
increases in annual revenues aggregating $37,833,000. The 220.8 billion
gallons of water sold in 1993 increased 5% compared to 1992. The
acquisition of the Midwestern utilities increased operating revenues by
$10,600,000 in 1993 and added 5.1 billion gallons in water sales volume.
<TABLE>
<CAPTION>
PERCENTAGE OF WATER REVENUES BY CUSTOMER CLASS
1994 1993 1992
===============================================================
<S> <C> <C> <C>
Residential 57.4% 57.1% 56.3%
Commercial 22.6% 22.8% 23.1%
Industrial 7.1% 7.2% 7.4%
Public and other 12.0% 12.1% 12.4%
Other water revenues .9% .8% .8%
- ---------------------------------------------------------------
100.0% 100.0% 100.0%
================================
</TABLE>
Residential
Residential water service revenues in 1994 amounted to $431,225,000,
an increase of 8% over those for 1993. This 1994 revenue improvement
followed an increase of 11% in 1993. The volume of water sold to
residential customers increased by 9% in 1994 to 114.0 billion gallons.
A 2% increase in the unit price for water due to rate increases was
offset by the comparatively low unit price of water sold by the acquired
Midwestern utilities, resulting in the average unit price for water in
1994 for residential customers decreasing by 1%. The average unit price
had increased by 4% in 1993.
Commercial
Revenues from commercial customers in 1994 rose by 6% to
$169,532,000 following an increase of 8% in 1993. Commercial customers
purchased 60.9 billion gallons of water in 1994, 5% more than in 1993.
The average unit price of water increased by 1% in 1994, down from a 3%
increase in 1993.
Industrial
Industrial water use of 34.7 billion gallons in 1994 was 5% higher
than in 1993. Revenues from industrial sales in the amount of
$53,049,000 were 5% above those recorded in 1993 due to the increased
sales volume. There was no change in the average unit price of water in
1994. Industrial revenues in 1993 were 6% above those for 1992 due to a
6% increase in the average unit price of water and a 1% increase in
sales volume. Excluding the industrial sales of the four acquired
Midwestern utilities, the volume of water used by industrial customers
increased in 1994 for the first time in six years.
Public and Other
Public and other revenues in 1994 rose by 7% to $90,436,000
following an increase of 7% in 1993. Revenues derived from municipal
governments for fire protection services and customers requiring special
private fire service facilities totaled $35,472,000 in 1994, exceeding
1993 revenue from these customers by 6%. The 27.0 billion gallons of
water sold to governmental entities and resale customers was 7% above
the quantities sold in 1993. Revenues generated by these sales totaled
$54,964,000 and exceeded 1993 revenues by 7%.
<TABLE>
<CAPTION>
PERCENTAGE OF WATER SALES (GALLONS)
BY CUSTOMER CLASS
1994 1993 1992
===============================================================
<S> <C> <C> <C>
Residential 48.2% 47.4% 46.5%
Commercial 25.7% 26.2% 26.4%
Industrial 14.7% 15.0% 15.5%
Public and other 11.4% 11.4% 11.6%
- ---------------------------------------------------------------
100.0% 100.0% 100.0%
================================
</TABLE>
Wastewater Service Revenues
Regulated subsidiaries provide wastewater collection service to two
areas in New Jersey and to customers in Ohio. Revenues from these
services amounted to $13,933,000 in 1994, compared with $12,143,000 in
1993 and $11,391,000 in 1992.
<PAGE> 66 (Page 29 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
Authority Management Fees
These fees represent charges primarily for management and operating
services provided by American Commonwealth Management Services Company
to water and wastewater authorities, utilities, and businesses in
Pennsylvania, Massachusetts, Delaware and Florida. Fees of $5,564,000
were received for these services in 1994 compared with management fees
of $5,213,000 in 1993 and $5,126,000 in 1992.
<TABLE>
<CAPTION>
OPERATING EXPENSES
(000) 1994 1993 1992
====================================================================
<S> <C> <C> <C>
Operation and maintenance
expenses $391,539 $362,451 $333,212
Depreciation and amortization 72,892 66,838 58,382
General taxes 73,085 67,917 63,612
Income taxes 49,912 47,864 37,661
- --------------------------------------------------------------------
$587,428 $545,070 $492,867
==================================
</TABLE>
CONSOLIDATED OPERATING EXPENSES
Operating expenses in 1994 increased by 8% to $587,428,000,
following an 11% increase in 1993. The acquisition of the four
Midwestern water utilities increased operating expenses by $16,500,000
in 1994 and $7,600,000 in 1993. Excluding the effect of the
acquisition, operating expenses increased by 5% in 1994.
Operation and maintenance expenses totaled $391,539,000 in 1994, 8%
higher than in 1993. They had increased by 9% in 1993. The Midwestern
acquisition increased operation and maintenance expenses by $12,400,000
in 1994 and $5,000,000 in 1993.
Employee-related costs, representing 48% of operation and
maintenance expenses, increased by 9% in 1994 and 8% in 1993. The
primary component of employee-related costs are wage and salary
expenses, which were up 5% to $143,330,000 in 1994 following a 1%
increase in 1993. The increased expenses in 1994 reflect the harsh
winter weather conditions throughout most of the eastern half of the
country which complicated operations, necessitating a high level of
overtime to maintain dependable water service at all times. The number of
employees at year end totaled 3,992, 2% below the employment level of
4,062 at the close of 1993 and approximately equal to the 3,982
employees at the end of 1992. Through the acquisition of the four
Midwestern water utilities, 158 employees joined the company in 1993.
Excluding the employees obtained through this acquisition, the company's
work force has decreased by 148 employees or 4% since 1992, as the
result of continued efforts to improve operating efficiencies.
The company adopted Statement of Financial Accounting Standards No.
106 (SFAS No. 106), "Employers' Accounting for Postretirement Benefits
Other Than Pensions," effective January 1, 1993. The effect of adopting
the new accounting method increased employee-related expenses by
$8,779,000 in 1993, and by an additional $3,520,000 in 1994. The
increase in 1994 expenses reflects costs that were being deferred in
1993 pending future recovery in rates. 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 company's regulated subsidiaries have been pursuing recovery in
rates for service of the additional costs resulting from this change in
accounting. As of December 31, 1994, 17 decisions reached by
regulatory authorities on this matter have permitted such recovery
currently or indicated that recovery of these costs will be included in
rates within approximately five years from the date of adoption of SFAS
No. 106 with the combined deferral recovery period not exceeding
approximately 20 years. Two 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 one state is presently uncertain. Where recovery is
uncertain or has been initially denied, regulated subsidiaries will
continue to pursue recovery of the increased costs in rates.
Excluding the impact of adopting the new accounting standard, health
care expenses in 1994 increased $2,727,000, 12% above those of the prior
year, reflecting in part the continuing increases in the cost of medical
treatment programs. They had increased by 7% in 1993. 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 $1,435,000 in 1994 compared
with $1,308,000 in 1993 and $952,000 in 1992.
<PAGE> 67 (Page 30 of the 1994 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Pension expense increased by 113% in 1994 to $6,096,000 following a
14% increase in 1993. Pension cost 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. A cash
contribution was made to the pension plan in 1994 after a period of
several years during which no contributions were made due to the funded
status of the plan. Deferrals of pension cost decreased in conjunction
with the resumption of contributions, resulting in the large increase in
pension expense in 1994.
<TABLE>
<CAPTION>
OPERATION AND MAINTENANCE EXPENSES
(000) 1994 1993 1992
====================================================================
<S> <C> <C> <C>
Employee-related costs $187,735 $171,989 $159,488
Fuel and power 33,216 30,530 28,808
Purchased water 40,375 38,628 32,996
Chemicals 13,089 11,605 10,982
Waste disposal 11,994 11,235 10,717
Maintenance materials
and services 22,115 21,585 19,026
Operating supplies and services 53,399 48,573 44,710
Customer billing and accounting 14,809 14,442 14,672
Other 14,807 13,864 11,813
- --------------------------------------------------------------------
$391,539 $362,451 $333,212
==================================
</TABLE>
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 7% in 1994 after a 10% rise in 1993.
The unit cost of water produced was unchanged in 1994, after a 5%
increase in 1993. Higher purchased water costs, reflecting increased
volume and rate increases authorized for utilities supplying water to
several subsidiaries, were primarily responsible for the rise in the
unit cost of production in 1993.
Maintenance materials and services, which include emergency repairs
as well as costs for preventive maintenance, increased by 2% in 1994
following a 13% increase in 1993. Maintenance expense was lower than
normal in 1992, reflecting preventive maintenance 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 systems and other office equipment rental charges. These
costs increased by 10% in 1994 after a 9% increase in 1993. Customer
billing and accounting charges increased by 3% in 1994, and decreased by
2% in 1993.
Other operation and maintenance expenses include regulatory costs
and casualty and liability insurance premiums. These expenses increased
by 7% in 1994 due to increased casualty insurance premiums as a result
of claims experience. Other operation and maintenance expenses had
increased by 17% in 1993, primarily as a result of 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.
Depreciation and amortization increased by 9% in 1994 and 14% in
1993. 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 8% in 1994
after a 7% rise in 1993.
Gross receipts and franchise taxes, which are a function of
revenues, increased by 7% in 1994. Property and capital stock taxes are
assessed on the basis of tax values assigned to assets or
capitalization. These taxes in 1994 were 10% above those in 1993 due to
higher property values and tax rate increases. Payroll taxes were up 6%
in 1994.
Income taxes increased by 4% in 1994, following a 27% increase in
1993. The 1994 increase in income taxes is primarily due to higher
taxable income. The Revenue Reconciliation Act of 1993 increased the
company's federal income tax rate from 34% to 35%, resulting in a
reduction in the company's results of operations for 1993 of
approximately $1,200,000. The company's effective tax rate also
increased in 1993 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 to reported federal income tax expense are included in Note 2
to the financial statements.
<PAGE> 68 (Page 31 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
<TABLE>
<CAPTION>
SUMMARY OF TAXES
(000) 1994 1993 1992
==============================================================================
<S> <C> <C> <C>
Gross receipts and franchise taxes $ 32,168 $ 30,174 $ 28,600
Property and capital stock taxes 27,245 24,664 21,867
Payroll taxes 11,521 10,893 10,733
Miscellaneous taxes 2,151 2,186 2,412
State income taxes 7,718 7,375 6,246
Federal income taxes 42,194 40,489 31,415
- ------------------------------------------------------------------------------
$122,997 $115,781 $101,273
==================================
</TABLE>
CONSOLIDATED INCOME DEDUCTIONS
Income deductions -- principally interest expense -- amounted to
$112,434,000 in 1994, 10% above those in 1993 due to an increase in
total debt to fund construction of new water service assets. They had
increased by 3% in 1993.
CONSOLIDATED NET INCOME
Consolidated net income in 1994 totaled $78,652,000 and was 4% above
1993 net income. Consolidated net income in 1993 was 11% above that
recorded in 1992. Consolidated net income to common stock totaled
$74,668,000 in 1994 and was 5% above that reported for 1993. It had
increased by 11% in 1993.
<TABLE>
<CAPTION>
CAPITALIZATION
LONG-TERM PREFERRED COMMON
(000) DEBT STOCK EQUITY
=================================================================
<S> <C> <C> <C>
Company
1994 $ 131,071 $ 51,673 $733,440
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
Regulated Subsidiaries
1994 $1,251,101 $ 51,738 $856,196
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
Consolidated
1994 $1,381,972 $101,698 $733,440
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
</TABLE>
<TABLE>
<CAPTION>
CAPITALIZATION RATIOS
LONG-TERM PREFERRED COMMON
(000) DEBT STOCK EQUITY
=================================================================
<S> <C> <C> <C>
Company
1994 14% 6% 80%
1993 16% 6% 78%
1992 10% 7% 83%
1991 11% 7% 82%
1990 15% 2% 83%
Regulated Subsidiaries
1994 58% 2% 40%
1993 56% 3% 41%
1992 56% 3% 41%
1991 57% 3% 40%
1990 54% 3% 43%
</TABLE>
Note: Long-term debt includes amounts due within one year.
LIQUIDITY AND CAPITAL RESOURCES
Internal sources of cash flow are provided by retention of a portion
of earnings, amortization of deferred charges, deferral of taxes, and
depreciation. 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
stock -- as 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.
<PAGE> 69 (Page 32 of the 1994 Annual Report)
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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
shareholders can purchase up to $5,000 of common stock each month
directly from the company at a 5% discount from the applicable average
market price. Common dividends in the amount of $4,099,000 were
reinvested during 1994, which resulted in the issuance of 151,254 new
shares of common stock. Proceeds received from optional cash purchases
of 1,092,536 new shares of common stock totaled $28,358,000 in 1994, the
first full year that such purchases were permitted. Another 82,354
shares of common stock were issued in connection with the Employees'
Stock Ownership Plan and 89,300 shares of common stock were issued in
connection with the 401(k) Savings Plan for Employees in return for cash
contributions from employees totaling $2,580,000 and company
contributions with a value of $2,310,000.
The company invested $63,315,000 in new shares of common stock of
subsidiaries during 1994. It also increased its equity investment in
subsidiaries by $24,532,000 from the earnings retained by them. A non-
regulated subsidiary repaid in 1994 the entire outstanding balance of
$4,500,000 on a note.
The company plans to continue to use short-term bank borrowings, as
cash requirements warrant, 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 continuation of the company's Dividend Reinvestment and Stock
Purchase Plan, the Employees' Stock Ownership Plan and the 401(k)
Savings Plan for Employees.
THE SUBSIDIARY COMPANIES
Regulated subsidiary companies fund construction programs and
supplement cash flow by borrowing from banks under individual credit
lines established annually. It is anticipated that ample credit lines
will be available to provide funds needed for 1995 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
found acceptable for investor-owned water companies.
Aggregate bank borrowings of subsidiaries at year-end 1994 amounted
to $82,425,000 compared to $193,620,000 at year-end 1993. The year-end
1993 bank borrowings reflect the acquisition of four Midwestern water
utilities and the efforts of subsidiaries to take advantage of lower
interest rates by calling certain higher yielding bonds before maturity.
During 1994, New Jersey-American issued a total of $100,000,000 of tax
exempt mortgage bonds to a state economic development authority which in
turn were issued as tax-exempt securities. The interest rate on
$65,000,000 of the bonds is 6.875%, and the remaining $35,000,000 had a
variable short-term interest rate of 5.05% at year-end 1994 which will
be replaced by a fixed long-term interest rate in 1995. Six
subsidiaries issued $91,400,000 of taxable mortgage bonds at interest
rates between 6.56% and 7.83%, and one subsidiary issued a two-year
variable rate $5,000,000 note during 1994. Proceeds from the sale of
the bonds were used to repay bank loans, fund construction programs and
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 $105,700,000 of long-term debt and $72,900,000 of new
shares of common stock to the parent company in 1995. Excluding
short-term borrowings that may be incurred in connection with the
proposed acquisition of the Santa Margarita Water District, the combined
amount of subsidiary bank borrowings and bonds maturing within one year
is expected to remain at approximately the current level during 1995.
<PAGE> 70 (Page 33 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
During 1994, subsidiaries repaid $5,845,000 of maturing bonds and
certain higher yielding bonds before maturity. In addition,
subsidiaries made mandatory payments to sinking funds in amounts
adequate to retire $1,458,000 of debt and redeem $2,792,000 of preferred
stocks.
REGULATION
Twenty state commissions regulate the company's utility
subsidiaries. They have broad authority to establish rates for service,
prescribe service standards, review and approve rules and regulations
and, in most instances, they must approve long-term financing programs
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 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:
o The amount of investment in facilities which provide public
service
o The capital costs for the funds used to build the facilities which
serve the public
o The operating cost associated with providing that service
o 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 address single issue
cost increases as they occur have met with limited success. Recovery of
such costs is therefore normally delayed by the time required to move
through the full regulatory process.
The regulated 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. Certain subsidiaries have also received rate orders
allowing recovery of interest and depreciation 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 Works and subsidiary companies 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 utility subsidiaries to address, on a timely basis, water supply
issues which otherwise would still be unresolved.
<PAGE> 71 (Page 35 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN WATER WORKS COMPANY, INC.
In our opinion, the accompanying consolidated balance sheet and
consolidated statement of capitalization and the related consolidated
statements of income and retained earnings, of cash flows and of common
stockholders' equity of American Water Works Company, Inc. and
Subsidiary Companies and the accompanying balance sheet and the related
statements of income and retained earnings and of cash flows of American
Water Works Company, Inc., present fairly, in all material respects, the
consolidated financial position of American Water Works Company, Inc.
and Subsidiary Companies and the financial position of American Water
Works Company, Inc. at December 31, 1994 and 1993, and the consolidated
results of operations and cash flows of American Water Works Company,
Inc. and Subsidiary Companies for each of the three years in the period
ended December 31, 1994 and the changes in consolidated common
stockholders' equity of American Water Works Company, Inc. and
Subsidiary Companies for each of the five years in the period ended
December 31, 1994 and the results of operations and cash flows of
American Water Works Company, Inc. for each of the three years in the
period ended December 31, 1994, 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 Note 4 to the Financial Statements, effective
January 1, 1993 the company changed its method of accounting for
postretirement benefits other than pensions.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania
January 31, 1995
<PAGE> 72 (Page 36 of the 1994 Annual Report)
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
At December 31, 1994 1993
=====================================================================================================================
<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant -- at original cost less accumulated depreciation $2,645,079 $2,444,277
Utility plant acquisition adjustments 39,212 40,689
Other utility plant adjustments 196 246
Nonutility property, net of accumulated depreciation 18,951 21,224
Excess of cost of investments in subsidiaries over book equity at acquisition 22,681 22,709
- ---------------------------------------------------------------------------------------------------------------------
2,726,119 2,529,145
- ---------------------------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents 30,091 52,979
Temporary investments -- at cost plus accrued interest 1,448 399
Customer accounts receivable 50,375 46,795
Allowance for uncollectible accounts (999) (1,107)
Unbilled revenues 57,687 57,298
Miscellaneous receivables 5,342 7,033
Materials and supplies 9,846 8,965
Deferred vacation pay 9,256 8,517
Other 7,531 8,776
- ---------------------------------------------------------------------------------------------------------------------
170,577 189,655
- ---------------------------------------------------------------------------------------------------------------------
Regulatory and other long-term assets
Regulatory asset -- income taxes recoverable through rates 202,967 198,744
Funds restricted for construction 26,213 5,899
Debt and preferred stock expense 18,882 15,552
Deferred pension expense 17,931 13,437
Deferred postretirement benefit expense 8,545 7,563
Tank painting costs 8,997 7,906
Other 26,423 26,110
- ---------------------------------------------------------------------------------------------------------------------
309,958 275,211
- ---------------------------------------------------------------------------------------------------------------------
$3,206,654 $2,994,011
=================================
</TABLE>
<PAGE> 73 (Page 37 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
<TABLE>
<CAPTION>
1994 1993
===============================================================================================================
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $ 733,440 $ 655,275
Preferred stocks with mandatory redemption requirements 40,000 40,000
Preferred stocks without mandatory redemption requirements 11,673 11,673
Preferred stocks of subsidiaries with mandatory redemption requirements 43,737 46,515
Preferred stocks of subsidiaries without mandatory redemption requirements 6,288 6,302
Long-term debt
American Water Works Company, Inc. 131,000 131,000
Subsidiaries 1,177,043 1,056,404
- ---------------------------------------------------------------------------------------------------------------
2,143,181 1,947,169
- ---------------------------------------------------------------------------------------------------------------
Current liabilities
Bank debt 82,425 193,620
Current portion of long-term debt 73,929 5,405
Accounts payable 43,629 31,644
Taxes accrued, including federal income 13,352 11,798
Interest accrued 26,296 23,226
Accrued vacation pay 9,575 8,835
Other 27,587 27,852
- ---------------------------------------------------------------------------------------------------------------
276,793 302,380
- ---------------------------------------------------------------------------------------------------------------
Regulatory and other long-term liabilities
Advances for construction 130,617 125,031
Deferred income taxes 331,889 309,204
Regulatory liability -- income taxes refundable through rates 42,946 45,942
Deferred investment tax credits 39,702 41,644
Accrued pension expense 29,121 23,903
Accrued postretirement benefit expense 9,100 9,100
Other 4,902 5,143
- ---------------------------------------------------------------------------------------------------------------
588,277 559,967
- ---------------------------------------------------------------------------------------------------------------
Contributions in aid of construction 198,403 184,495
- ---------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------------------
$3,206,654 $2,994,011
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 74 (Page 38 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31, 1994 1993 1992
==========================================================================================
<S> <C> <C> <C>
CONSOLIDATED INCOME
Operating revenues $770,241 $717,537 $657,360
- ------------------------------------------------------------------------------------------
Operating expenses
Operation and maintenance 391,539 362,451 333,212
Depreciation and amortization 72,892 66,838 58,382
General taxes 73,085 67,917 63,612
State income taxes 7,718 7,375 6,246
Federal income taxes 42,194 40,489 31,415
- ------------------------------------------------------------------------------------------
587,428 545,070 492,867
- ------------------------------------------------------------------------------------------
Operating income 182,813 172,467 164,493
Allowance for other funds used during construction 5,890 3,757 2,711
Other income 2,383 1,609 715
- ------------------------------------------------------------------------------------------
191,086 177,833 167,919
- ------------------------------------------------------------------------------------------
Income deductions
Interest 110,088 97,235 96,368
Allowance for borrowed funds used during construction (4,570) (3,087) (3,718)
Amortization of debt expense 1,229 1,563 1,044
Preferred dividends of subsidiaries 3,814 4,361 4,631
Other deductions 1,873 2,374 1,434
- ------------------------------------------------------------------------------------------
112,434 102,446 99,759
- ------------------------------------------------------------------------------------------
Net income 78,652 75,387 68,160
Dividends on preferred stocks 3,984 3,996 4,019
- ------------------------------------------------------------------------------------------
Net income to common stock $ 74,668 $ 71,391 $ 64,141
==============================
Average shares of common stock outstanding 31,918 31,139 30,943
Earnings per common share on average shares outstanding $ 2.34 $ 2.29 $ 2.07
==============================
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of year $578,593 $538,332 $502,800
Add: net income 78,652 75,387 68,160
- ------------------------------------------------------------------------------------------
657,245 613,719 570,960
- ------------------------------------------------------------------------------------------
Deduct: dividends
Preferred stock 3,528 3,540 3,563
Preference stock 456 456 456
Common stock -- $1.08 per share in 1994,
$1.00 per share in 1993, $.925 per share in 1992 34,386 31,130 28,609
- ------------------------------------------------------------------------------------------
38,370 35,126 32,628
- ------------------------------------------------------------------------------------------
Balance at end of year $618,875 $578,593 $538,332
==============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 75 (Page 39 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1994 1993 1992
=========================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 78,652 $ 75,387 $ 68,160
Adjustments
Depreciation and amortization 72,892 66,838 58,382
Provision for deferred income taxes 17,482 7,873 13,042
Provision for losses on accounts receivable 3,762 3,377 3,580
Allowance for other funds used during construction (5,890) (3,757) (2,711)
Employee benefit expenses greater (less) than funding (1,999) 2,567 1,450
Common stock contributions to employee benefit plans 2,310 1,581 1,316
Deferred revenues, net 138 (398) 2,426
Deferred tank painting costs (2,308) (1,653) (1,539)
Deferred rate case expense (2,171) (3,008) (3,040)
Deferred extraordinary weather costs (1,248) -- --
Amortization of deferred charges 7,726 8,268 6,270
Other, net (2,562) (1,873) (19)
Changes in assets and liabilities, net of effects from acquisitions
Accounts receivable (5,759) (9,734) (2,308)
Unbilled revenues (389) (3,738) 229
Other current assets 364 (352) (598)
Accounts payable 11,985 2,987 (1,568)
Taxes accrued, including federal income 1,554 (664) 2,958
Interest accrued 3,070 (674) (3,417)
Other current liabilities (265) (3,257) (34)
- ---------------------------------------------------------------------------------------------------------
Net cash from operating activities 177,344 139,770 142,579
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (265,673) (193,116) (197,453)
Allowance for other funds used during construction 5,890 3,757 2,711
Water system acquisitions, net of acquired cash (6,011) (65,889) (5,949)
Proceeds from the disposition of property, plant and equipment 3,013 2,183 1,616
Removal costs from property, plant and equipment retirements (6,375) (6,201) (5,224)
Funds restricted for construction activity (20,314) (700) (5,200)
Temporary investments (1,049) (100) 102
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (290,519) (260,066) (209,397)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 196,400 267,070 244,900
Proceeds from preferred stock -- 1,000 5,600
Proceeds from common stock 35,037 3,861 3,991
Net borrowings (repayments) under line-of-credit agreements (111,195) 50,535 58,602
Advances and contributions for construction, net of refunds 22,586 20,661 8,535
Debt issuance costs (4,076) (4,718) (5,335)
Repayment of long-term debt (7,303) (152,050) (195,113)
Redemption of preferred stocks (2,792) (7,071) (2,797)
Dividends paid (38,370) (35,126) (32,628)
- ---------------------------------------------------------------------------------------------------------
Net cash from financing activities 90,287 144,162 85,755
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (22,888) 23,866 18,937
Cash and cash equivalents at beginning of year 52,979 29,113 10,176
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 30,091 $ 52,979 $ 29,113
===============================
Cash paid during the year for:
Interest, net of capitalized amount $ 108,653 $ 99,433 $ 97,088
===============================
Income taxes $ 34,429 $ 41,880 $ 25,728
===============================
</TABLE>
Common stock issued in lieu of cash in connection with the Employees' Stock
Ownership Plan and the Savings Plan for Employees totaled $2,310 in 1994,
$1,581 in 1993 and $1,316 in 1992. Capital lease obligations of $66 and
$126 were recorded in 1994 and 1992, respectively. The accompanying notes
are an integral part of these financial statements.
<PAGE> 76 (Page 40 of the 1994 Annual Report)
CONSOLIDATED STATEMENT OF CAPITALIZATION
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
At December 31, 1994 1993
==================================================================================================================
<S> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
Common stock -- $1.25 par value, authorized 100,000,000 shares,
outstanding 32,659,187 shares in 1994 and 31,243,743 shares in 1993 $ 40,824 $ 39,055
Paid-in capital 76,003 37,627
Retained earnings 618,875 578,593
Unearned compensation (2,262) --
- ------------------------------------------------------------------------------------------------------------------
733,440 655,275
- ------------------------------------------------------------------------------------------------------------------
At December 31, 1994, common shares reserved for issuance in connection with the
company's stock plans were 30,461,581 shares for the Stockholder Rights Plan, 375,643
shares for the Dividend Reinvestment and Stock Purchase Plan, 612,214 shares for the
Employees' Stock Ownership Plan, 389,537 shares for the Savings Plan for Employees and
350,000 shares for the Long-Term Performance-Based Incentive Plan.
PREFERRED STOCKS WITH MANDATORY REDEMPTION REQUIREMENTS:
Cumulative preferred stock -- $25 par value, authorized 1,770,000 shares
8.50% series (non-voting), outstanding 1,600,000 shares, due for
redemption on December 1, 2000 40,000 40,000
- ----------------------------------------------------------------------------------------------------------------
The Company redeemed the remaining shares of the 4.90% series preferred stock by
making sinking fund payments in the amount of $480 in 1993 and $480 in 1992.
PREFERRED STOCKS WITHOUT MANDATORY REDEMPTION REQUIREMENTS:
Cumulative preferred stock -- $25 par value
5% series, outstanding 101,777 shares 2,544 2,544
Cumulative preference stock -- $25 par value, authorized 750,000 shares
5% series (non-voting), outstanding 365,158 shares 9,129 9,129
- ----------------------------------------------------------------------------------------------------------------
11,673 11,673
- ----------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS OF SUBSIDIARIES:
Dividend rate
3.9% to less than 5% 8,052 8,621
5% to less than 6% 5,866 6,012
6% to less than 7% 2,479 2,673
7% to less than 8% 2,420 2,470
8% to less than 9% 24,940 24,973
9% to less than 10% 5,188 5,406
10% to less than 11% 980 1,320
11% to less than 12% -- 1,142
12% to less than 13% 100 200
- ----------------------------------------------------------------------------------------------------------------
50,025 52,817
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Preferred stock agreements of certain subsidiaries require annual sinking
fund payments in varying amounts and permit redemption at various prices at
the option of the subsidiaries on thirty days' notice, or, in the event of
involuntary liquidation, at par value plus accrued dividends. Sinking fund
payments for the next five years will amount to $1,411 in 1995, $1,266 in
1996, $1,171 in 1997, $1,165 in 1998 and $933 in 1999.
The subsidiaries issued preferred stock with a value of $1,000 in 1993 and
$5,600 in 1992. Redemptions of preferred stock amounted to $2,792 in 1994,
$6,591 in 1993 and $2,317 in 1992.
<PAGE> 77 (Page 41 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
<TABLE>
<CAPTION>
1994 1993
================================================================================
<S> <C> <C>
LONG-TERM DEBT OF AMERICAN WATER WORKS COMPANY, INC.:
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 81,000
- --------------------------------------------------------------------------------
131,000 131,000
- --------------------------------------------------------------------------------
</TABLE>
Capital lease obligations to a subsidiary were $51
in 1994 and $58 in 1993.
<TABLE>
<CAPTION>
LONG-TERM DEBT OF SUBSIDIARIES: Current
Interest Rate Maturities
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
4% to less than 5% 36 363 399
5% to less than 6% 41 113,151 77,717
6% to less than 7% 9 229,140 142,349
7% to less than 8% 33 240,212 165,945
8% to less than 9% 41 196,589 198,809
9% to less than 10% 20,095 327,525 347,440
10% to less than 11% 16,855 65,680 82,535
11% to less than 12% 14,500 -- 14,500
12% to less than 13% 11,800 -- 11,800
13% to less than 14% 10,150 2,002 12,152
14% to less than 15% 50 750 800
- --------------------------------------------------------------------------------
73,610 1,175,412 1,054,446
Capital leases 319 1,631 1,958
- --------------------------------------------------------------------------------
73,929 1,177,043 1,056,404
- --------------------------------------------------------------------------------
$2,143,181 $1,947,169
========================
</TABLE>
Maturities of long-term debt, including sinking fund requirements, during
the next five years will amount to $73,929 in 1995, $33,605 in 1996,
$55,911 in 1997, $22,260 in 1998 and $15,094 in 1999. Long-term debt of
subsidiaries is substantially secured by utility plant. The accompanying
notes are an integral part of these financial statements.
<PAGE> 78 (Page 42 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Stock Common
--------------------- Paid-in Retained Unearned Stockholders'
Shares Par Value Capital Earnings Compensation Equity
================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1989 30,461,581 $38,077 $21,974 $427,356 -- $487,407
Net income -- -- -- 57,088 -- 57,088
Dividend reinvestment 69,762 87 907 -- -- 994
Employees' stock ownership plan 86,600 108 1,306 -- -- 1,414
Dividends:
Preferred stocks -- -- -- (690) -- (690)
Common stock, $.80 per share -- -- -- (24,421) -- (24,421)
- ----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1990 30,617,943 38,272 24,187 459,333 521,792
Net income -- -- -- 73,593 -- 73,593
Dividend reinvestment 72,639 91 1,361 -- -- 1,452
Employees' stock ownership plan 103,254 129 1,893 -- -- 2,022
Dividends:
Preferred stocks -- -- -- (3,703) -- (3,703)
Common stock, $.86 per share -- -- -- (26,423) -- (26,423)
- ----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1991 30,793,836 38,492 27,441 502,800 -- 568,733
Net income -- -- -- 68,160 -- 68,160
Dividend reinvestment 137,635 172 2,838 -- -- 3,010
Employees' stock ownership plan 103,612 130 2,167 -- -- 2,297
Dividends:
Preferred stocks -- -- -- (4,019) -- (4,019)
Common stock, $.925 per share -- -- -- (28,609) -- (28,609)
- ----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 31,035,083 38,794 32,446 538,332 -- 609,572
Net income -- -- -- 75,387 -- 75,387
Dividend reinvestment 78,932 99 1,956 -- -- 2,055
Stock purchase 21,599 27 355 -- -- 382
Employees' stock ownership plan 86,966 109 2,250 -- -- 2,359
Savings plan for employees 21,163 26 620 -- -- 646
Dividends:
Preferred stocks -- -- -- (3,996) -- (3,996)
Common stock, $1.00 per share -- -- -- (31,130) -- (31,130)
- ----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 31,243,743 39,055 37,627 578,593 -- 655,275
Net income -- -- -- 78,652 -- 78,652
Dividend reinvestment 151,254 189 3,910 -- -- 4,099
Stock purchase 1,092,536 1,365 26,993 -- -- 28,358
Employees' stock ownership plan 82,354 103 2,283 -- -- 2,386
Savings plan for employees 89,300 112 2,392 -- -- 2,504
Long-term performance-based
incentive plan -- -- 2,798 -- (2,262) 536
Dividends:
Preferred stocks -- -- -- (3,984) -- (3,984)
Common stock, $1.08 per share -- -- -- (34,386) -- (34,386)
- ----------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 32,659,187 $40,824 $76,003 $618,875 $(2,262) $733,440
==========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 79 (Page 43 of the 1994 Annual Report)
American Water Works Company, Inc.
BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
At December 31, 1994 1993
=========================================================================================
<S> <C> <C>
ASSETS
Investments in subsidiaries
Securities $898,219 $810,372
Notes and advances 120 3,630
- -----------------------------------------------------------------------------------------
898,339 814,002
- -----------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents 17,647 23,302
Notes receivable from subsidiaries 10 1,010
Other 476 253
- -----------------------------------------------------------------------------------------
18,133 24,565
- -----------------------------------------------------------------------------------------
Deferred debits
Debt expense 346 402
Preferred stock expense 255 278
Other 2,027 1,624
- -----------------------------------------------------------------------------------------
2,628 2,304
- -----------------------------------------------------------------------------------------
Other long-term assets 5,815 6,103
- -----------------------------------------------------------------------------------------
$924,915 $846,974
========================
CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $733,440 $655,275
Preferred stocks with mandatory redemption requirements 40,000 40,000
Preferred stocks without mandatory redemption requirements 11,673 11,673
Long-term debt 131,051 131,058
- -----------------------------------------------------------------------------------------
916,164 838,006
- -----------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt 20 16
Taxes accrued, including federal income 53 548
Interest accrued 1,414 1,378
Other 750 856
- -----------------------------------------------------------------------------------------
2,237 2,798
- -----------------------------------------------------------------------------------------
Other long-term liabilities 6,514 6,170
- -----------------------------------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------------------------------
$924,915 $846,974
========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 80 (Page 44 of the 1994 Annual Report)
American Water Works Company, Inc.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31, 1994 1993 1992
==========================================================================================
<S> <C> <C> <C>
INCOME
Income from subsidiaries
Equity in earnings of subsidiaries
Dividends $ 64,917 $ 65,264 $ 55,859
Undistributed earnings 24,532 18,984 19,401
- ------------------------------------------------------------------------------------------
89,449 84,248 75,260
Interest 154 352 804
Other income 510 868 304
- ------------------------------------------------------------------------------------------
90,113 85,468 76,368
- ------------------------------------------------------------------------------------------
Expenses and taxes
Operating and administrative expenses 6,897 5,438 4,335
General taxes 232 200 200
Federal income taxes (6,366) (5,228) (3,989)
Interest 10,642 9,618 7,629
Amortization of debt expense 56 53 33
- ------------------------------------------------------------------------------------------
11,461 10,081 8,208
- ------------------------------------------------------------------------------------------
Net income 78,652 75,387 68,160
Dividends on preferred stocks 3,984 3,996 4,019
- ------------------------------------------------------------------------------------------
Net income to common stock $ 74,668 $ 71,391 $ 64,141
==============================
Average shares of common stock outstanding 31,918 31,139 30,943
Earnings per common share on average shares outstanding $ 2.34 $ 2.29 $ 2.07
==============================
RETAINED EARNINGS
Balance at beginning of year $578,593 $538,332 $502,800
Add: net income 78,652 75,387 68,160
- ------------------------------------------------------------------------------------------
657,245 613,719 570,960
- ------------------------------------------------------------------------------------------
Deduct: dividends
Preferred stock 3,528 3,540 3,563
Preference stock 456 456 456
Common stock -- $1.08 per share in 1994,
$1.00 per share in 1993, $.925 per share in 1992 34,386 31,130 28,609
- ------------------------------------------------------------------------------------------
38,370 35,126 32,628
------------------------------
Balance at end of year $618,875 $578,593 $538,332
==============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 81 (Page 45 of the 1994 Annual Report)
American Water Works Company, Inc.
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1994 1993 1992
==============================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 78,652 $ 75,387 $ 68,160
Adjustments
Undistributed earnings of subsidiaries (24,532) (18,984) (19,401)
Other, net 1,558 739 605
Changes in assets and liabilities
Other current assets (223) 184 (180)
Taxes accrued, including federal income (495) 704 109
Interest accrued 36 493 26
Other current liabilities (106) 117 46
- ----------------------------------------------------------------------------------------------
Net cash from operating activities 54,890 58,640 49,365
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries' common stock (63,315) (42,875) (36,800)
Redemption of preferred stock by subsidiary -- 1,000 --
Repayment of promissory notes by subsidiaries 4,510 1,010 5,210
Other (684) (594) --
- ----------------------------------------------------------------------------------------------
Net cash used in investing activities (59,489) (41,459) (31,590)
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt -- 81,000 --
Proceeds from common stock 37,347 5,442 5,307
Net borrowings (repayments) under line-of-credit agreements -- (21,255) 11,425
Repayment of long-term debt (15) (23,214) (1,317)
Redemption of preferred stock -- (480) (480)
Dividends paid (38,370) (35,126) (32,628)
Other (18) (324) (19)
- ----------------------------------------------------------------------------------------------
Net cash from (used in) financing activities (1,056) 6,043 (17,712)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,655) 23,224 63
Cash and cash equivalents at beginning of year 23,302 78 15
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 17,647 $ 23,302 $ 78
==============================
Cash paid (received) during the year for:
Interest $ 10,606 $ 9,125 $ 7,603
==============================
Income taxes $ (5,848) $ (4,846) $ (3,870)
==============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 82 (Page 46 of the 1994 Annual Report)
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the regulated 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. 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 investment grade commercial paper,
bank certificates of deposit and United States Government securities. 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 accordance with 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.
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.
The company adopted Statement of Financial Accounting Standards No. 106
(SFAS No. 106), "Employers' Accounting for Postretirement Benefits Other
Than Pensions," effective January 1, 1993. Postretirement benefit expense
in excess of the amount recovered in rates is deferred by certain
subsidiaries when it is probable that recovery of such costs will be
included in rates within approximately five years from the date of adoption
of SFAS No. 106, and the combined deferral recovery period will not exceed
approximately 20 years.
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.
<PAGE> 83 (Page 47 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
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, 1994 and 1993 include
payables to banks of $7,009,000 and $5,308,000, respectively, which
represent checks issued but not presented to the banks for payment, net of
the related bank balance.
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 state
and federal income tax rates under prior law and the current statutory
rates, reverse over the average remaining service lives of the related
assets.
Advances and Contributions in Aid of Construction
Regulated 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 the company and each of its subsidiaries, federal
income tax expense for financial reporting purposes is provided on a
separate return basis, except that the federal income tax rate applicable
to the consolidated group is applied to separate company taxable income and
the benefit of net operating losses, principally at the parent company
level, is recognized currently.
Certain income and expense items are accounted for in different time
periods for financial reporting than for income tax reporting purposes.
Deferred income taxes have been provided 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. These
deferred income taxes are based on the enacted tax rates to be in effect
when such temporary differences are expected to reverse. This has the
effect of grossing-up these assets and liabilities to a revenue
requirements level.
The regulated subsidiaries 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.
Investment tax credits have been deferred and are being amortized to
income over the average estimated services lives of the related assets.
Allowance for Funds Used During Construction (AFUDC)
AFUDC is a non-cash credit to income with a corresponding charge to
utility plant which represents the cost of borrowed funds and a return on
equity funds utilized to fund plant under construction. The regulated
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 difference 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.
<PAGE> 84 (Page 48 of the 1994 Annual Report)
NOTES TO FINANCIAL STATEMENTS
As a result of the adoption of SFAS 109, the company and its
subsidiaries recorded additional assets and liabilities of approximately
$210,000,000. The company's consolidated results of operations were not
materially impacted by the adoption of SFAS No. 109. The effect of
adopting SFAS No. 109 was not material to the financial position or results
of operations of the parent company.
The Revenue Reconciliation Act of 1993 increased the company's federal
income tax rate, retroactively 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, regulated
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, 1994, the company and its subsidiaries had a net
non-current deferred tax liability of $331,889,000. Non-current deferred
tax liabilities of $491,154,000 were offset by total non-current deferred
tax assets of $159,265,000. Of the company's net non-current deferred tax
liability, $266,000,000 was attributed to property, plant, and equipment
basis differences and depreciation methods, $69,000,000 was attributed to
income taxes recoverable in future rates and $(3,000,000) related to the
net of all other types of temporary differences.
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 $452,428,000 were offset by total non-current deferred
tax assets of $143,224,000. Of the company's net non-current deferred tax
liability, $243,000,000 was attributed to property, plant, and equipment
basis differences and depreciation methods, $71,000,000 was attributed to
income taxes recoverable in future rates and $(5,000,000) related to the
net of all other types of temporary differences.
As of December 31, 1994 and 1993, the parent company had no material
temporary differences.
No valuation allowances were required on deferred tax assets at
December 31, 1994 and 1993.
Components of consolidated income tax expense for the years
presented in the consolidated statement of income are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
==============================================================================
<S> <C> <C> <C>
STATE INCOME TAXES:
Current $ 7,399 $ 8,681 $ 5,575
Deferred
Current 97 (57) --
Non-current 222 (1,249) 671
- ------------------------------------------------------------------------------
$ 7,718 $ 7,375 $ 6,246
==============================
FEDERAL INCOME TAXES:
Current $ 24,930 $ 31,162 $ 19,111
Deferred
Current 4 (92) (67)
Non-current 18,511 10,640 13,526
Amortization of deferred
investment tax credits (1,251) (1,221) (1,155)
- ------------------------------------------------------------------------------
$ 42,194 $ 40,489 $ 31,415
==============================
</TABLE>
Following is a reconciliation of federal income tax expense to income
tax at the statutory rate (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
==============================================================================
<S> <C> <C> <C>
Income before federal income tax $120,846 $115,876 $ 99,575
==============================
Income tax at federal statutory
rate -- 35% in 1994 and
1993; 34% in 1992 $ 42,296 $ 40,557 $ 33,856
Increases (decreases)
resulting from --
Flow through differences 874 1,494 (1,683)
Investment tax credits (1,251) (1,221) (1,155)
Subsidiary preferred
dividends 1,297 1,486 1,533
Other (1,022) (1,827) (1,136)
- ------------------------------------------------------------------------------
Federal income tax expense $ 42,194 $ 40,489 $ 31,415
==============================
</TABLE>
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, 1994 was
$11,000,000 for the company and $89,294,000 for the subsidiaries.
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> 85 (Page 49 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
Short-term bank borrowing information is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
==============================================================================
<S> <C> <C> <C>
Maximum amount outstanding $195,727 $220,150 $133,816
Average amount outstanding 123,545 171,340 84,210
Weighted average annual
interest rate 4.60% 3.82% 4.56%
Interest rate at December 31 4.84% 3.71% 3.26%
</TABLE>
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):
<TABLE>
<CAPTION>
1994 1993 1992
==============================================================================
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 10,240 $ 8,659 $ 9,071
Interest cost on projected
benefit obligation 24,360 21,989 21,455
Actual return on plan assets (9,383) (23,620) (18,484)
Net amortization and deferral (15,472) (1,595) (6,016)
- ------------------------------------------------------------------------------
Net pension cost $ 9,745 $ 5,433 $ 6,026
==============================
Assumed asset earnings rate 8.50% 8.75% 8.75%
</TABLE>
The company's funding policy is to contribute at least the minimum
amount required by the Employee Retirement Income Security Act of 1974.
The company contributed $4,750,000 to the plan in 1994. There were no
contributions made in 1993 or 1992 due to the funded status of the plan.
Pension plan assets are invested in a number of investments including a
guaranteed interest contract with a major insurance company, equity mutual
funds, United States Government securities and publicly traded bonds. The
following table reconciles plan assets and liabilities to the funded status
of the plan at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
==============================================================================
<S> <C> <C>
Plan assets at fair value $285,641 $283,772
===================
Actuarial present value of benefit obligations:
Vested benefits $226,293 $252,289
Non-vested benefits 5,930 6,259
- ------------------------------------------------------------------------------
Accumulated benefit obligation 232,223 258,548
Effect of projected future salary increases 58,059 73,427
- ------------------------------------------------------------------------------
Total projected benefit obligation $290,282 $331,975
===================
Projected benefit obligation in excess of
plan assets $ (4,641) $(48,203)
Unrecognized net transition asset (18,821) (21,173)
Unrecognized prior service cost 1,003 1,653
Unrecognized net (gain) loss (562) 49,696
- ------------------------------------------------------------------------------
Accrued pension cost $(23,021) $(18,027)
===================
Discount rate assumption 8.75% 7.25%
Compensation growth rate assumption 5.00% 5.00%
</TABLE>
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 $1,344,000 for 1994, $1,066,000 for 1993 and $1,017,000 for 1992. At
December 31, 1994, the projected benefit obligation for these plans totaled
$8,377,000. Accrued as a pension liability on the balance sheet is
$6,100,000 representing $5,375,000 of accrued pension cost and an unfunded
accumulated benefit obligation in excess of accrued pension cost of
$725,000.
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 who elect a
basic/major medical plan that covers 100% of hospital and surgical
expenses. 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 additional monthly contributions for early
retirements that took place after July 31, 1993.
<PAGE> 86 (Page 50 of the 1994 Annual Report)
NOTES TO FINANCIAL STATEMENTS
In the first quarter of 1993, the company adopted SFAS No. 106 which
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 regulated
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.
The company's regulated subsidiaries have been pursuing recovery, in
rates, the additional costs resulting from this change in accounting. As
of December 31, 1994, 17 regulatory authorities have permitted such
recovery currently or indicated that recovery of these costs will be
included in rates within approximately five years from the date of adoption
of SFAS No. 106 with the combined deferral recovery period not exceeding
approximately 20 years. Two 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 one state is presently uncertain. Where recovery is uncertain or has
been initially denied, regulated subsidiaries will continue to pursue
recovery of the increased costs in rates. Although the expense recognized
in 1994 for postretirement health care and life insurance benefits was
higher than 1993, net income was not adversely affected due to an
offsetting increase 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.
The following table provides postretirement benefit cost components (in
thousands):
<TABLE>
<CAPTION>
1994 1993
==============================================================================
<S> <C> <C>
Service cost-benefits earned during the year $ 5,759 $ 5,153
Interest cost on accumulated postretirement
benefit obligation 10,374 10,100
Actual return on plan assets (975) --
Net amortization and deferral 5,648 6,173
- ------------------------------------------------------------------------------
Net postretirement benefit cost $20,806 $21,426
==================
Assumed asset earnings rate 7.70% 7.70%
</TABLE>
The transition obligation of $122,115,000 at January 1, 1993 is being
amortized over twenty years.
The company made contributions to trust funds established for its
postretirement benefit plans of $20,806,000 in 1994 and $8,235,000 in 1993.
In subsequent years, the company intends to fund postretirement benefit
costs accrued. Plan assets are invested in both a mutual fund comprised of
high quality debt securities and a municipal bond money market fund. The
following table reconciles the funded status of the plan with the liability
included in the consolidated balance sheet at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
==============================================================================
<S> <C> <C>
Plan assets at fair value $ 32,142 $ 8,288
===================
Actuarial present value of postretirement
benefit obligations:
Retirees and dependents $ 53,300 $ 48,731
Fully eligible active plan participants 3,847 4,326
Other active plan participants 73,980 86,662
- ------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation $131,127 $ 139,719
===================
Accumulated postretirement benefit
obligation in excess of plan assets $(98,985) $(131,431)
Unrecognized transition obligation 109,903 116,009
Unrecognized prior service costs 3,537 3,751
Unrecognized net (gain) loss (23,555) 2,571
- ------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (9,100) $ (9,100)
===================
Discount rate assumption 8.75% 7.25%
Compensation growth rate assumption 5% 5%
</TABLE>
The health care cost trend rate, used to calculate the company's cost
for postretirement health care benefits, is an 11% annual rate in 1995 and
is assumed to decrease gradually to a 5.5% annual rate for 2004 and remain
at that level thereafter. A one-percentage-point increase in the health
care cost trend rate would have increased the accumulated postretirement
benefit obligation by $16,800,000 at January 1, 1995 and the aggregate of
the service and interest cost components of postretirement benefit costs
for 1994 by $2,900,000.
Postemployment Benefits
In the first quarter of 1994, the company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The Statement requires the company to accrue the
cost of providing benefits to former and inactive employees after
employment, but before retirement. The company's results of operations and
financial position were not materially impacted by the adoption of this
Statement.
<PAGE> 87 (Page 51 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
NOTE 5: LEASES
The company has entered into operating leases involving certain
facilities and equipment. Rental expenses under operating leases were
$8,264,000 for 1994, $8,706,000 for 1993 and $7,954,000 for 1992. Capital
leases currently in effect are not significant.
At December 31, 1994, 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):
=================================================
1995 $ 4,099
1996 3,175
1997 2,496
1998 1,775
1999 1,236
Later years 3,879
- -------------------------------------------------
$16,660
=======
NOTE 6: COMMON STOCKHOLDERS' EQUITY
Dividend Reinvestment and Stock Purchase Plan
The company's Dividend Reinvestment and Stock Purchase Plan was amended
on July 1, 1993, to provide for optional cash purchases of newly issued
common stock of the company. In addition to permitting record holders of
common stock to have all or part of their dividends automatically
reinvested in additional shares of common stock, the plan permits
stockholders to purchase up to $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. Costs associated with the plan of $507,000 in
1994 and $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. In addition, 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 $1,366,000 for 1994, $1,350,000
for 1993 and $1,316,000 for 1992 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.
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 40% of the first 3% of each employee's
pay contributed to any fund. Prior to August 1, 1994 the company was
making matching contributions equal to 30% of the first 2% of each
employee's pay contributed to the plan. 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.
The company expensed matching contributions to the plan totaling
$999,000 for 1994 and $291,000 for 1993.
Long-Term Performance-Based Incentive Plan
In 1994 the company implemented a Long-Term Performance-Based Incentive
Plan effective as of January 1, 1993. Under the plan, designated
executives and other key employees will be eligible to receive awards if
performance goals based on earnings-per-share growth and total return to
company stockholders, in comparison to a designated peer group of water
companies, are met. The plan is administered by the Compensation and
Management Development Committee of the Board of Directors. The Committee
will determine the value or range of values, including the maximum value,
of awards to each participant. Awards may be paid in the form of cash,
restricted shares of common stock, or a combination of both.
The market value of common stock expected to be awarded under the plan
has been recorded as unearned compensation and is shown as a separate
component of common stockholders' equity. The unearned compensation is
being charged to expense over the vesting period. Such expense was
$914,000 in 1994.
<PAGE> 88 (Page 52 of the 1994 Annual Report)
NOTES TO FINANCIAL STATEMENTS
Stockholder Rights Plan
Each share of the company's common stock has one Flip-Over Right and
one Flip-In Right ("The Rights") attached. The Rights will not be
exercisable until such time as 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 1995 are estimated to cost
approximately $314,000,000. 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 judgment. The
District's appeal has been denied and the subsidiary has filed suit to
appeal the constitutionality of the enacted legislation. The subsidiary
and the District are currently attempting to negotiate a settlement to
resolve this matter. 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 regulated 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 VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the company in
estimating its fair value disclosures for financial instruments:
Current assets and current liabilities: The carrying amount
reported in the balance sheet for current assets and current
liabilities, including bank debt, approximates their fair values.
Preferred stocks with mandatory redemption requirements and
long-term debt: The fair values of the company's preferred stocks with
mandatory redemption requirements and long-term debt are estimated
using discounted cash flow analyses based on the company's current
incremental financing rates for similar types of securities.
The carrying amounts and fair values of the company's financial
instruments at December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying
1994 Amount Fair Value
==============================================================================
<S> <C> <C>
Preferred stocks of the company with
mandatory redemption requirements $ 40,000 $ 40,356
Preferred stocks of subsidiaries with
mandatory redemption requirements 43,737 41,838
Long-term debt of the company 131,000 126,432
Long-term debt of subsidiaries 1,249,022 1,210,456
</TABLE>
<TABLE>
<CAPTION>
Carrying
1993 Amount Fair Value
==============================================================================
<S> <C> <C>
Preferred stocks of the company with
mandatory redemption requirements $ 40,000 $ 44,854
Preferred stocks of subsidiaries with
mandatory redemption requirements 46,515 51,198
Long-term debt of the company 131,000 143,799
Long-term debt of subsidiaries 1,059,508 1,199,330
</TABLE>
<PAGE> 89 (Page 53 of the 1994 Annual Report)
American Water Works Company, Inc., and Subsidiary Companies
NOTE 9: ACQUISITION
On August 31, 1993, American Water Works Company, Inc. and its
subsidiaries in Indiana, Missouri, and Ohio acquired four Midwestern water
utilities. 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 recorded 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 book/tax 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: UTILITY PLANT
Utility plant by category information at December 31 is as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
==============================================================================
<S> <C> <C>
Water plant
Sources of supply $ 140,743 $ 134,787
Treatment and pumping 634,792 598,236
Transmission and distribution 1,468,584 1,379,501
Services, meters and fire hydrants 553,262 520,019
General structures and equipment 200,609 184,517
Wastewater plant 32,351 30,974
Construction in progress 149,866 80,475
- ------------------------------------------------------------------------------
3,180,207 2,928,509
Less-accumulated depreciation 535,128 484,232
- ------------------------------------------------------------------------------
$2,645,079 $2,444,277
=====================
</TABLE>
NOTE 11: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 (in thousands,
except per share amounts) are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER TOTAL
===============================================================================
<S> <C> <C> <C> <C> <C>
Operating revenues $177,659 $195,136 $209,844 $187,602 $770,241
Operating income 36,815 48,700 54,528 42,770 182,813
Net income 10,430 22,729 27,815 17,678 78,652
Net income to common stock 9,434 21,733 26,820 16,681 74,668
Net income per common share $ .30 $ .68 $ .84 $ .51 $ 2.34
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER TOTAL
===============================================================================
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 90 (Page 57 of the 1994 Annual Report)
COMPANY INFORMATION
Dividend Reinvestment and Stock Purchase
Through the company's Dividend Reinvestment and Stock Purchase Plan,
shareholders of American Water Works Company, Inc. can automatically
reinvest all or part of their dividends in American Water common stock
and purchase additional shares of company stock at a 5 % discount.
Also, customers of American Water's regulated subsidiaries may buy
initial shares of common stock through the plan. For more information
or an application for participation contact The First National Bank of
Boston, Mail Stop 45-02-09, P.O. Box 644, Boston, MA 02102-0644 or
call (800) 736-3001 or (617) 575-3100.
Shareholder Information
Inquiries regarding shareholder stock ownership, dividends or the
transfer/reissuance of shares can be addressed to our Transfer Agent,
The First National Bank of Boston at Mail Stop 45-02-09, P.O. Box 644,
Boston, MA 02102-0644 or telephone (800) 736-3001 or (617) 575-3100.
Transfer requests sent by mail should provide the appropriate
instructions.
Other shareholder inquiries should be directed to W. Timothy Pohl,
Esq., General Counsel and Secretary, P.O. Box 1770, Voorhees, NJ 08043,
telephone (609) 346-8200.
Investor Relations
Investors desiring information about the company can contact Michael N.
Kilpatric, Vice President, Corporate Communications, P.O. Box 1770,
Voorhees, NJ 08043, telephone (609) 346-8200.
Annual Meeting
The 1995 Annual Meeting of American Water Works Company shareholders
will be held on Thursday, May 4, at 11:00 a.m. at the company's
Corporate Center, 1025 Laurel Oak Road, Voorhees, New Jersey.
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
- ---------------------------------------------------------------------------------------------------------------
1994 High Low High Low High Low
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1st quarter $32-1/4 $27-5/8 $22-1/2 $20-3/4 $22-1/2 $20
2nd quarter 29-5/8 26-3/8 21 18-1/8 20-3/4 18
3rd quarter 28-1/4 26 19-3/4 17-1/2 20-3/4 18
4th quarter 27-1/2 25-1/4 19 16-1/2 18-3/4 16-1/2
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarterly dividend paid per share 27 cents 31-1/4 cents 31-1/4 cents
Number of stockholders at December 31, 1994 28,761 293 1,007
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1993
===============================================================================================================
<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
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarterly dividend paid per share 25 cents 31-1/4 cents 31-1/4 cents
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The common and 5% preferred stocks have voting rights.
<PAGE> 91 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, 1994. 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
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 99.61
Indiana-American Water Company, Inc. Indiana 100
Iowa-American Water Company Delaware 94.77
Kentucky-American Water Company Kentucky 100
Maryland-American Water Company Maryland 100
Missouri-American 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 95.34**
Tennessee-American Water Company Tennessee 99.77
Virginia-American Water Company Virginia 100
West Virginia-American Water Company West Virginia 99.90
Bluefield Valley Water Works Company Virginia 100
- ----------------------------------------------------------------------------
* Includes 9.50% 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.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements set forth in Form 10-K report of the
Registrant for 1994.
</LEGEND>
<CIK> 0000318819
<NAME> ROBERT D. SIEVERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,645,079
<OTHER-PROPERTY-AND-INVEST> 81,040
<TOTAL-CURRENT-ASSETS> 170,577
<TOTAL-DEFERRED-CHARGES> 283,535
<OTHER-ASSETS> 26,423
<TOTAL-ASSETS> 3,206,654
<COMMON> 40,824
<CAPITAL-SURPLUS-PAID-IN> 73,741
<RETAINED-EARNINGS> 618,875
<TOTAL-COMMON-STOCKHOLDERS-EQ> 733,440
83,737
17,961
<LONG-TERM-DEBT-NET> 1,308,043
<SHORT-TERM-NOTES> 82,425
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 73,929
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 907,119
<TOT-CAPITALIZATION-AND-LIAB> 3,206,654
<GROSS-OPERATING-REVENUE> 770,241
<INCOME-TAX-EXPENSE> 49,912
<OTHER-OPERATING-EXPENSES> 537,516
<TOTAL-OPERATING-EXPENSES> 587,428
<OPERATING-INCOME-LOSS> 182,813
<OTHER-INCOME-NET> 5,927
<INCOME-BEFORE-INTEREST-EXPEN> 188,740
<TOTAL-INTEREST-EXPENSE> 110,088
<NET-INCOME> 78,652
3,984
<EARNINGS-AVAILABLE-FOR-COMM> 74,668
<COMMON-STOCK-DIVIDENDS> 34,386
<TOTAL-INTEREST-ON-BONDS> 105,730
<CASH-FLOW-OPERATIONS> 177,344
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 0
</TABLE>
