EXHIBIT INDEX ON PAGES 14-16
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, 1995
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 8, 1996 was $886,322,858.
As of March 4, 1996, there were a total of 34,260,095 shares of Common
Stock, $1.25 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained and incorporated by reference herein
contains forward-looking statements as such term is defined in Section 27A
of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Certain factors could cause actual results to differ
materially from those in the forward-looking statements. Those factors
include, but are not limited to, the unpredictability of weather, rate
regulations and timing of rate cases, and changes to existing and proposed
environmental regulations. See "Management's Discussion and Analysis"
beginning on page 23 of the Company's Annual Report to Shareholders
incorporated herein by reference.
(1) The following pages and section in Registrant's Annual Report to
Stockholders for 1995 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 2,
1996 are incorporated by reference into Part III of this Form 10-K: Page 2
(beginning with the fourth full paragraph thereon) through the second
paragraph on page 10 and the section entitled "Director Remuneration" on
page 14, with the exception of the second through the fourth paragraphs on
page 4 and the first three paragraphs on page 5.
<PAGE> 1 of 78
PART I
Item 1. Business
The "Description of the Business" is set forth on page 23 of the
Annual Report to Stockholders for 1995, 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 requirements.
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 1995, 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 3,777 at December 31, 1995.
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 57 President & Chief Executive
Officer January 2, 1992
J. James Barr 54 Vice President & Treasurer January 20, 1984
Edward W. Limbach 57 Vice President May 3, 1990
Gerald C. Smith 61 Vice President May 2, 1991
W. Timothy Pohl 41 General Counsel & Secretary January 16, 1988
Robert D. Sievers 42 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 1995, 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 1995, 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 1995, 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 30, 1996, except as to Note 13, which is as of
February 16, 1996, appearing on pages 35 through 53 of the 1995 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 7 of the definitive Proxy Statement relating to
the Registrant's Annual Meeting of Stockholders on May 2, 1996, 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 8 through 14 of the definitive Proxy Statement
relating to the Registrant's Annual Meeting of Stockholders on May 2, 1996,
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 5 through
7 of the definitive Proxy Statement relating to the Registrant's Annual
Meeting of Stockholders on May 2, 1996, 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 7, 1996
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 7, 1996
Chief Executive Officer
Principal Financial Officer:
J. James Barr Vice President and March 7, 1996
Treasurer
Principal Accounting Officer:
Robert D. Sievers Comptroller March 7, 1996
<PAGE> 7
SIGNATURES (Cont'd.)
Directors:
William O. Albertini March 7, 1996
William R. Cobb March 7, 1996
Elizabeth H. Gemmill March 7, 1996
Henry G. Hager March 7, 1996
Nelson G. Harris March 7, 1996
George W. Johnstone March 7, 1996
Marilyn W. Lewis March 7, 1996
Nancy W. Wainwright March 7, 1996
Paul W. Ware March 7, 1996
Ross A. Webber March 7, 1996
<PAGE> 8
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1995
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,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . .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, 1995 . . . . . . . . . 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, 1995 . . . . . . . . . . . . . . . . . . . . . . 39
Consolidated Statement of Capitalization of American
Water Works Company, Inc. and Subsidiary Companies
at December 31, 1995 and 1994 . . . . . . . . . . . . . . .40 and 41
Consolidated Statement of Common Stockholders' Equity
of American Water Works Company, Inc. and Subsidiary
Companies for each of the three years in the period
ended December 31, 1995 . . . . . . . . . . . . . . . . . . . 42
Balance Sheet of American Water Works Company, Inc.
at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . 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, 1995 . . . . . . 44
Statement of Cash Flows of American Water Works
Company, Inc. for each of the three years in the
period ended December 31, 1995. . . . . . . . . . . . . . . . 45
Notes to Financial Statements . . . . . . . . . . . . . .46 through 53
*Incorporated by reference from the indicated pages of the 1995 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 of
American Water Works Company, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 30, 1996, except as to Note 13, which is as of
February 16, 1996, appearing on page 35 of the 1995 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 30, 1996, except as to Note 13, which is as of February 16, 1996
<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 33-59059),
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 30, 1996,
except as to Note 13, which is as of February 16, 1996, 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 21, 1996
<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
- ---- --------- ----------- --------- -------------- -------
1995 $ 999 $ 4 288 $ $ 4 257 $ 1 030
1994 1 107 3 762 3 870 999
1993 925 3 377 102 3 297 1 107
(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 Union National Bank), 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 Union National
Bank), 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 Union
National Bank), 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 (name later
changed to PNC Bank), 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 (name later
changed to PNC Bank), 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 incorporated herein by
reference to Exhibit 10(a) to Form 10-K report of the
Registrant for 1994.
(b) Amendment No. 1 to Employees' Stock Ownership Plan
of the Registrant is filed herewith.
(c) 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.
(d) 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.
(e) 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.
<PAGE> 16
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
10 (cont'd.) (f) Amendment No. 3 to Supplemental Executive Retirement
Plan of the Registrant is filed herewith.
(g) 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.
(h) Amendment No. 1 to Supplemental Retirement Plan of
the Registrant is filed herewith.
(i) Long-Term Performance-Based Incentive Plan of the
Registrant, effective as of January 1, 1993, is
incorporated herein by reference to Exhibit 10(f) to Form
10-K report of the Registrant for 1994.
(j) Annual Incentive Plan of the Registrant, effective
as of January 1, 1996, is filed herewith.
(k) Deferred Compensation Plan of the Registrant,
effective as of January 1, 1996, is filed herewith.
13 Annual Report to Security Holders
The Registrant's Annual Report to Stockholders for 1995
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, 1995.
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, 1995.
<PAGE> 17
EXHIBIT 10(b)
AMENDMENT NO. 1
TO THE EMPLOYEES' STOCK OWNERSHIP PLAN OF
AMERICAN WATER WORKS COMPANY, INC. AND
ITS DESIGNATED SUBSIDIARIES
(As Amended Effective January 1, 1989)
Pursuant to the power reserved to it in Section 13.1 of the Employees'
Stock Ownership Plan of American Water Works Company, Inc. and Its
Designated Subsidiaries, as amended effective January 1, 1989, (the
"Plan"), American Water Works Company, Inc. hereby amends the Plan as
follows, effective immediately:
1. SECTIONS 10.2, 10.3 AND 10.4 are hereby deleted and the following
substituted therefor:
10.2 Distributions Upon Termination of Service. The balance
of a Participant's Account as of the December 31 coincident
with or immediately preceding his termination of service for
any reason, including disability or retirement, plus any
amounts subsequently allocated to his Account under Section
7.2 shall be distributed no later than the February 28 (the
"Annuity Starting Date") coincident with or immediately
following the end of the Plan Year in which occurs the last
allocation to the Participant's Account. Notwithstanding
the foregoing, if the value of a Participant's Account
exceeds $3,500 as of the end of the month preceding the
month in which he is notified of his election rights under
this Section 10.2, payment to such Participant shall not be
made unless the Participant consents in writing to the
distribution. Consent to such distribution shall not be
valid unless the Participant is informed of his right to
defer receipt of the distribution. The consent of the
Participant's spouse, if any, to such distribution shall not
be required. A Participant must have his Account
distributed as of the Annuity Starting Date 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.
<PAGE> 18
10.3 Distribution Upon Death. 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, not later than the Annuity Starting Date
following the end of the Plan Year in which occurs the last
allocation to the Participant's Account. To the extent
practicable, the Committee shall insure that any
distribution pursuant to this Section 10.3 is completed
within the recipient's taxable year in which it begins.
10.4 Death After Termination. 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 not later than the Annuity Starting Date following
the end of the Plan Year in which occurs the last allocation
to the Participant's Account. 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 Deferred Distribution. A Participant who elected to
defer distribution of his Account pursuant to Section 10.2
may subsequently elect a distribution of his Account as of
the Annuity Starting Date following the date he provides
notice of his election in accordance with procedures
established by the Committee. A Participant may not elect a
partial distribution of his Account pursuant to this Section
10.5.
2. SECTIONS 10.5, 10.6, 10.7, 10.8 AND 10.9 are hereby renumbered as
Sections 10.6, 10.7, 10.8, 10.9 and 10.10, respectively.
3. SECTION 10.9 is hereby amended by adding the following at the end
thereof:
All distributions under this Article X shall be made as soon
as administratively feasible after the applicable Annuity
Starting Date.
2
<PAGE> 19
4. SECTION 13.1 is hereby amended to read as follows:
13.1 This Plan may be amended at any time, and from
time to time, by the Company's Retirement Plan
Committee, provided that such amendment does not
materially increase the cost of the Plan. The Plan may
also be amended at any time and from time to time by
the Board of Directors. No amendment shall divest any
vested interest of any Participant or Beneficiary nor
be effective unless that Plan, as so amended, continues
to be maintained for the exclusive benefit of
Participants and their Beneficiaries.
* * * * *
To record the adoption of this Amendment No. 1 to the Plan, American
Water Works Company, Inc. has caused its authorized officers to affix its
corporate name and seal this 1st day of February, 1996.
AMERICAN WATER WORKS COMPANY, INC.
By: George W. Johnstone
Attest: W. Timothy Pohl
General Counsel and Secretary
3
<PAGE> 20
EXHIBIT 10(f)
AMENDMENT NO. 3
TO THE
AMERICAN WATER WORKS COMPANY, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
American Water Works Company, Inc. hereby amends the Supplemental
Executive Retirement Plan (the "Plan"), as follows:
The second sentence of Paragraph 4 of the Plan is amended to read in
its entirety as follows:
"Average Earnings" means the average of the participant's
salary paid and Annual Incentive Plan awards granted during
those 36 consecutive months preceding the earlier of his
attainment of age 65 or his actual retirement that produce
the highest average.
To record the adoption of this Amendment No. 3 to the Plan by its
Board of Directors on January 4, 1996, American Water Works Company, Inc.
has caused its President and Secretary to affix its corporate name and seal
hereto, this 4th day of January, 1996.
AMERICAN WATER WORKS COMPANY, INC.
By: George W. Johnstone
President and Chief Executive Officer
Attest:
W. Timothy Pohl
Secretary
<PAGE> 21
EXHIBIT 10(h)
AMENDMENT NO. 1
TO THE
AMERICAN WATER WORKS COMPANY, INC.
SUPPLEMENTAL RETIREMENT PLAN
----------------------------------
American Water Works Company, Inc. hereby amends the Supplemental
Retirement Plan (the "Plan"), as follows:
The second sentence of Paragraph 4 of the Plan is amended to read in
its entirety as follows:
"Average Earnings" means the average of the participant's
salary paid and Annual Incentive Plan awards granted during
those 60 months taken into account under Paragraph 2(s) of
the Pension Plan in computing the participant's benefit under
the Pension Plan or any applicable successor provision.
To record the adoption of this Amendment No. 1 to the Plan by its
Board of Directors on January 4, 1996, American Water Works Company, Inc.
has caused its President and Secretary to affix its corporate name and seal
hereto, this 4th day of January, 1996.
AMERICAN WATER WORKS COMPANY, INC.
By: George W. Johnstone
President and Chief Executive Officer
Attest:
W. Timothy Pohl
Secretary
<PAGE> 22
EXHIBIT 10(j)
AMERICAN WATER WORKS COMPANY, INC.
ANNUAL INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1996
1. OBJECTIVE
The objective of the Annual Incentive Plan (the "Plan") is to
support the business goals of American Water Works Company, Inc. and
certain of its subsidiaries by providing variable, performance-based
incentive compensation to attract, retain and motivate key members of
management who have a substantial impact on the performance and growth of
the American Water System.
2. DEFINITIONS
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of
American Water Works Company, Inc.
(b) "COMPANY" shall mean American Water Works Company, Inc. and
its Participating Subsidiaries.
(c) "COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE" shall
mean the committee of the Board of Directors of that name or its successor.
(d) "ELIGIBLE PARTICIPANT" shall mean the President and Chief
Executive Officer and any executive officer or manager recommended for
participation in the Plan by the President and Chief Executive Officer and
approved for participation in the Plan by the Compensation and Management
Development Committee.
(e) "INCENTIVE YEAR" shall mean any respective fiscal year of
American Water Works Company, Inc. beginning on or after January 1, 1996
during which the Plan shall be in effect.
(f) "PARTICIPATING SUBSIDIARY" shall mean American Water Works
Company, Inc. and any Subsidiary which has been admitted to participation
in the Plan with the approval of the Board of Directors of American Water
Works Company, Inc..
(g) "PRESIDENT AND CHIEF EXECUTIVE OFFICER" shall mean the
President and Chief Executive Officer of American Water Works Company, Inc.
(h) "SALARY GRADE MIDPOINT" shall mean the respective midpoint
of the salary grade or the equivalent thereof of the Eligible Participant
as of January 1 of the respective Incentive Year.
(i) "SUBSIDIARY" shall mean any company of which at least
50 percent of the outstanding voting stock is owned directly or indirectly
by American Water Works Company, Inc.
<PAGE> 23
(j) "TARGET AWARD" shall mean such amount expressed as a percent
of Salary Grade Midpoint of an Eligible Participant projected for award to
such Eligible Participant as of the commencement of and for such Incentive
Year on the assumption that the performance objectives of the Company for
the Incentive Year as determined by the Compensation and Management
Development Committee will in each case be achieved.
3. ADMINISTRATION AND GENERAL CONDITIONS
(a) The Plan shall be administered by the Compensation and
Management Development Committee.
(b) As soon as practicable after the commencement of each
Incentive Year, the Compensation and Management Development Committee shall
consult with the President and Chief Executive Officer and shall determine
the Eligible Participants and the Target Award for each Eligible
Participant. New Eligible Participants may be added during an Incentive
Year by the President and Chief Executive Officer and, if approved by the
Compensation and Management Development Committee, will receive a pro rata
award based on the number of full months in the Incentive Year that such an
employee was an Eligible Participant. The Compensation and Management
Development Committee may during an Incentive Year revise the Target Award
for an Eligible Participant based on changes in such person's salary grade,
responsibilities or other factors.
(c) Any Eligible Participant who ceases to be a full time
employee of the Company during an Incentive Year or is not employed by the
Company on the last day of the incentive year for any reason other than
death, disability or retirement will be deemed ineligible for an award
under the Plan for such Incentive Year.
(d) The Compensation and Management Development Committee shall
adopt such rules and procedures and shall make such determinations and
interpretations of the Plan thereunder as it shall deem desirable. All
such rules, procedures and determinations shall be conclusive and binding
upon all parties.
(e) Classification as an Eligible Participant or determination
of a Target Award shall not in themselves be deemed to create any rights or
interests under the Plan, and the interest of an Eligible Participant in
the Plan shall not be assignable either by voluntary or involuntary
assignment or by operation of the law.
(f) An award under the Plan shall not confer upon an Eligible
Participant any right to continue in the employ of the Company or limit in
any way the right of the Company to terminate employment of an Eligible
Participant at any time.
(g) The Plan shall be effective as of January 1, 1996, subject
to approval by the Board of Directors, and shall continue from year to year
until terminated by the Board of Directors.
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<PAGE> 24
(h) The Board of Directors may amend, suspend or terminate the
Plan at any time, but may in no way reduce amounts previously awarded under
the Plan and to which Eligible Participants are entitled.
4. DETERMINATION OF AWARDS
The selection of Eligible Participants and the amount of the
award for each such Eligible Participant shall be determined by the
Compensation and Management Development Committee after consultation with
the President and Chief Executive Officer. The Compensation and Management
Development Committee shall determine the award to the President and Chief
Executive Officer.
The Compensation and Management Development Committee no later
than 90 days after the commencement of the Incentive Year shall determine
the performance objectives for the Incentive Year.
The Compensation and Management Development Committee shall
determine the financial objectives (e.g., earnings per share, operating
income, return on equity, return on assets, total shareholder return,
etc.), the customer service objectives (e.g., water quality, reliability,
responsiveness, etc.) and the operational goals for the Incentive Year.
The weighting of the selected objectives shall also be determined by the
Compensation and Management Development Committee.
The Compensation and Management Development Committee may also
take into account the profitability or earnings of the Company in
comparison with a prior year or years, other companies or generally
prevailing economic conditions, the presence or absence of non-recurring or
extraordinary items or income, gain, expense, or loss (including security
gains and losses) and any and all other factors which, in its sole
discretion, it may deem relevant. Such factors may result in the
Compensation and Management Development Committee adjusting the actual
award received upward or downward from the Target Award.
5. PAYMENT OF AWARDS
Awards shall be payable in cash as soon as practicable after the
consolidated financial results, and other goals for the Incentive Year have
been determined and certified. Each Eligible Participant's annual award,
if any, will be included as earnings under all Company-sponsored retirement
plans, whether qualified or non-qualified, in accordance with the terms of
the relevant plan as in effect from time to time.
Twenty percent of the award will be mandatorily deferred and will
be distributed after a restriction period of three years or upon
termination of employment with the Company, if elected by the Eligible
Participant. The mandatory 20 percent deferred compensation amount will be
invested in stock units of equivalent value of American Water Works
Company, Inc. common stock. Dividends on such stock units will be assumed
during the deferral period, on the same basis as dividends are actually
paid on American Water Works Company, Inc. common stock, and will be
converted to additional stock units. The mandatory three year deferral
period shall consist of the
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<PAGE> 25
three calendar years following the Incentive Year. The value of the stock
units will be determined as of the first business day of the fourth
calendar year following the Incentive Year and shall be paid as soon as
practicable thereafter.
Eligible Participants will be permitted to elect an amount for
deferral larger than the mandatory 20 percent deferral, and to elect to
defer such amount for three years or to termination of employment with the
Company. Such request shall be in accordance with the provisions of the
American Water Works Company, Inc. Deferred Compensation Plan. Any such
deferred awards shall be retained as part of the general assets of the
Company and paid in cash at the end of the deferral period.
6. APPLICABLE TAXES
Payment of all awards hereunder shall be subject to withholding
of all federal, state or local taxes which, by law, must be withheld in
respect to such payment.
To record the adoption of this Plan, American Water Works
Company, Inc. has caused its authorized officers to affix its corporate
name and seal this 21st day of March, 1996.
AMERICAN WATER WORKS COMPANY, INC.
By: George W. Johnstone
President and Chief Executive Officer
Attest: W. Timothy Pohl
General Counsel and Secretary
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<PAGE> 26
EXHIBIT 10(k)
AMERICAN WATER WORKS COMPANY, INC.
DEFERRED COMPENSATION PLAN
(Effective January 1, 1996)
<PAGE> 27
Table of Contents
Page
ARTICLE I INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Name. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Effective Date. . . . . . . . . . . . . . . . . . . . . . 1
1.3. Employers . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. "Administrator" . . . . . . . . . . . . . . . . . . . . . 2
2.2. "Annual Incentive Plan" . . . . . . . . . . . . . . . . . 2
2.3. "Beneficiary" . . . . . . . . . . . . . . . . . . . . . . 2
2.4. "Board" . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5. "Change in Control" . . . . . . . . . . . . . . . . . . . 2
2.6. "Committee" . . . . . . . . . . . . . . . . . . . . . . . 2
2.7. "Compensation". . . . . . . . . . . . . . . . . . . . . . 3
2.8. "Elective Deferred Compensation". . . . . . . . . . . . . 3
2.9. "Deferred Compensation Account" . . . . . . . . . . . . . 3
2.10. "Deferred Compensation Agreement" . . . . . . . . . . . . 3
2.11. "Eligible Employee" . . . . . . . . . . . . . . . . . . . 3
2.12. "Participant" . . . . . . . . . . . . . . . . . . . . . . 3
2.13. "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III PARTICIPATION BY ELIGIBLE EMPLOYEES . . . . . . . . . . . 4
3.1. Participation . . . . . . . . . . . . . . . . . . . . . . 4
3.2. Failure to Designate. . . . . . . . . . . . . . . . . . . 4
3.3. Continuity of Participation . . . . . . . . . . . . . . . 4
3.4. Immediate Cash-Out of Ineligible Employee . . . . . . . . 4
ARTICLE IV ANNUAL INCENTIVE AWARD COMPENSATION DEFERRAL AND
ACCOUNT CREDITS . . . . . . . . . . . . . . . . . . . . . 5
4.1. Annual Incentive Award Deferral Election. . . . . . . . . 5
4.2. Deferral in Stock Equivalent Units. . . . . . . . . . . . 5
4.3. Mandatory Deferrals of Annual Incentive Plan Awards . . . 5
4.4. Period for Which Deferral Election is Effective . . . . . 6
ARTICLE V DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 6
5.1. Election of Distribution Date . . . . . . . . . . . . . . 6
5.2. Distribution of Mandatory Deferrals Not Elected To Be
Extended. . . . . . . . . . . . . . . . . . . . . . . . . 7
5.3. Method of Payment . . . . . . . . . . . . . . . . . . . . 7
5.4. Special Election for Early Distribution . . . . . . . . . 7
5.5. Distributions on Death. . . . . . . . . . . . . . . . . . 7
5.6. Valuation of Distributions. . . . . . . . . . . . . . . . 8
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<PAGE> 28
Table of Contents
Page
ARTICLE VI ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1. Deferred Compensation Account . . . . . . . . . . . . . . 8
6.2. Crediting of Dividends and Statement of Account . . . . . 9
ARTICLE VII FUNDING AND PARTICIPANT'S INTEREST. . . . . . . . . . . . 10
7.1. Deferred Compensation Plan Unfunded . . . . . . . . . . . 10
7.2. Participant's Interest in Plan. . . . . . . . . . . . . . 10
ARTICLE VIII ADMINISTRATION AND INTERPRETATION . . . . . . . . . . . . 11
8.1. Administration. . . . . . . . . . . . . . . . . . . . . . 11
8.2. Interpretation. . . . . . . . . . . . . . . . . . . . . . 11
8.3. Records and Reports . . . . . . . . . . . . . . . . . . . 12
8.4. Payment of Expenses . . . . . . . . . . . . . . . . . . . 12
8.5. Indemnification for Liability . . . . . . . . . . . . . . 13
8.6. Claims Procedure. . . . . . . . . . . . . . . . . . . . . 13
8.7. Review Procedure. . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IX AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . 14
9.1. Amendment and Termination . . . . . . . . . . . . . . . . 14
ARTICLE X MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . 15
10.1. Right of Employers to Take Employment Actions . . . . . . 15
10.2. Alienation or Assignment of Benefits. . . . . . . . . . . 15
10.3. Right to Withhold . . . . . . . . . . . . . . . . . . . . 16
10.4. Construction. . . . . . . . . . . . . . . . . . . . . . . 16
10.5. Headings. . . . . . . . . . . . . . . . . . . . . . . . . 16
10.6. Number and Gender . . . . . . . . . . . . . . . . . . . . 16
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<PAGE> 29
ARTICLE I
INTRODUCTION
1.1. Name. The name of this plan is the American Water Works
Company, Inc. Deferred Compensation Plan ("Deferred Compensation Plan").
1.2. Effective Date. The effective date of this Deferred
Compensation Plan is January 1, 1996.
1.3. Employers. American Water Works Company, Inc. ("American
Water Works") and each subsidiary or affiliate of American Water Works that
employs one or more Eligible Employees who have become Participants in
accordance with Article III, shall each be an "Employer" under this
Deferred Compensation Plan.
1.4. Purpose. This Deferred Compensation Plan is established
effective January 1, 1996 by American Water Works for the purpose of
providing deferred compensation benefits for a select group of management
or highly compensated employees of the Employers.
This Deferred Compensation Plan provides a means whereby Participants
may defer all or a portion of their annual incentive awards they otherwise
would receive under the Annual Incentive Plan for services performed for
their Employers. It will also be the means for maintaining Eligible
Employees' mandatory deferrals of a portion of the annual incentive awards
under the Annual Incentive Plan, whether or not those mandatory deferrals
are extended for further deferral periods under this Deferred Compensation
Plan.
All deferrals under this Deferred Compensation Plan shall be in the
form of stock equivalent units of American Water Works, the number of which
shall be increased whenever a dividend is declared on the common stock of
American Water Works.
<PAGE> 30
ARTICLE II
DEFINITIONS
Whenever the following initially capitalized words and phrases are
used in this Deferred Compensation Plan, they shall have the meanings
specified below unless the context clearly indicates to the contrary:
2.1. "Administrator" shall mean the Vice President-Human Resources
of American Water Works Service Company, Inc., or his delegate.
2.2. "Annual Incentive Plan" shall mean American Water Works
Company, Inc.'s Annual Incentive Plan, effective January 1, 1996.
2.3. "Beneficiary" shall mean such person or legal entity as may
be designated by a Participant under Section 5.5 to receive benefits
hereunder after such Participant's death.
2.4. "Board" shall mean the Board of Directors of American Water
Works Company, Inc.
2.5. "Change in Control" shall mean a change in the control of
American Water Works Company, Inc. which shall be deemed to have occurred
upon the earliest to occur of the following: (i) the purchase or
announcement of an offer to purchase by a person, or group of persons
acting in concert, of at least twenty-five percent of the voting securities
of American Water Works Company, Inc.; or (ii) during any twenty-four-month
period, individuals who at the beginning of such period constituted the
Board cease for any reason to constitute a majority thereof.
2.6. "Committee" shall mean the Compensation and Management
Development Committee of the Board.
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<PAGE> 31
2.7. "Compensation" shall mean the annual incentive award payable
to a Participant for a Plan Year under the Annual Incentive Plan before any
reduction to such incentive award is effected in accordance with the Annual
Incentive Plan and Deferred Compensation Agreement.
2.8. "Elective Deferred Compensation" shall mean that portion of
the Participant's Compensation which the Participant elects to defer
pursuant to Section 4.1 of this Deferred Compensation Plan in accordance
with the Deferred Compensation Agreement.
2.9. "Deferred Compensation Account" shall mean the record keeping
account established by the Administrator for each Participant to which the
portion of a Participant's annual incentive award that is voluntarily
deferred pursuant to Section 4.1 and mandatorily deferred under the terms
of the Annual Incentive Plan (and income thereon) is credited and from
which distributions to the Participant or to his Beneficiary are debited.
2.10. "Deferred Compensation Agreement" shall mean a document (or
documents) as made available from time to time by the Administrator,
whereby an Eligible Employee enrolls as a Participant and elects to defer
Compensation pursuant to Section 4.1 of this Deferred Compensation Plan.
2.11. "Eligible Employee" shall mean an individual employed by an
Employer who is a member of a select group of management or highly
compensated employees participating in the Annual Incentive Plan.
2.12. "Participant" shall mean an Eligible Employee who has amounts
standing to his credit under a Deferred Compensation Account.
2.13. "Plan Year" shall mean the calendar year.
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<PAGE> 32
ARTICLE III
PARTICIPATION BY ELIGIBLE EMPLOYEES
3.1. Participation. Participation in this Deferred Compensation
Plan is limited to Eligible Employees. An Eligible Employee shall
participate in this Deferred Compensation Plan as determined by the
Committee in its sole discretion.
3.2. Failure to Designate. In the event that the Committee fails
to designate the group of Eligible Employees who shall be eligible to
participate for any year, each Eligible Employee who was designated in the
prior year shall be deemed to have been designated for the next succeeding
Plan Year, provided that any such Eligible Employee shall participate for
purposes of the next succeeding Plan Year only if he is actively employed
by an Employer on the first day of such succeeding Plan Year.
3.3. Continuity of Participation. A Participant who separates
from service with all of the Employers will cease active participation
hereunder. However, the separation from service of an Eligible Employee
with one Employer will not interrupt the continuity of his active
participation if, concurrently with or immediately after such separation,
he is employed by one or more of the other Employers.
3.4. Immediate Cash-Out of Ineligible Employee. This Deferred
Compensation Plan is intended to be an unfunded "top-hat" plan, maintained
primarily for the purposes of providing deferred compensation for a select
group of management or highly compensated employees. Accordingly, if the
Committee determines that any Participant does not qualify as a member of
the select group, one hundred percent (100%) of such Participant's Deferred
Compensation Account shall be paid to the Participant immediately.
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<PAGE> 33
ARTICLE IV
ANNUAL INCENTIVE AWARD COMPENSATION DEFERRAL
AND ACCOUNT CREDITS
4.1. Annual Incentive Award Deferral Election. No later than June
30 of the Plan Year in which an annual incentive award under the Annual
Incentive Plan is earned, each Eligible Employee may irrevocably elect, by
completing and executing a Deferred Compensation Agreement and filing it
with the Administrator, to defer any portion of his annual incentive award
to be earned for that year that is not mandatorily deferred under the
Annual Incentive Plan. In addition, any mandatorily deferred portion of
the annual incentive award to be earned for the Plan Year may also be
deferred for a longer period as permitted under this Deferred Compensation
Plan provided such election is also made by June 30.
4.2. Deferral in Stock Equivalent Units. All deferred amounts
shall be credited to the Participant's Deferred Compensation Account in the
form of stock equivalent units. The number of stock equivalent units
(calculated to the nearest thousandth of a unit) to be credited shall be
calculated by dividing (i) the amount of deferred annual incentive award by
(ii) the closing market price of American Water Works common stock as
published in The Wall Street Journal report of New York Stock Exchange
Composite Transactions for the date the annual incentive award was payable
to the Participant. A Participant shall at all times be fully vested in
the balance of his Deferred Compensation Account.
4.3. Mandatory Deferrals of Annual Incentive Plan Awards. Any
portion of a Participant's annual incentive award that is mandatorily
deferred under the terms of the Annual Incentive Plan shall also be
credited to a Participant's Deferred Compensation Account in the form and
amount of stock equivalent units as calculated in Section 4.2.
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<PAGE> 34
4.4. Period for Which Deferral Election is Effective. A
Participant's deferral election under Section 4.1 shall be effective only
with respect to the annual incentive award for the Plan Year specified in
the Deferred Compensation Agreement. A Participant must file a separate
Deferred Compensation Agreement by June 30 of each subsequent Plan Year in
order to make annual incentive award deferrals or extend mandatory
deferrals for that Plan Year.
ARTICLE V
DISTRIBUTIONS
5.1. Election of Distribution Date. At the time a Participant
makes an election to defer Compensation under Article IV, such Participant
shall also specify in writing in the Deferred Compensation Agreement the
date or event on which the cash payment of the Participant's Deferred
Compensation Account shall be made. Such date may be any of the following:
(a) with respect to voluntarily deferred portions of the
annual incentive award:
(i) a period of time equal to the period of mandatory
deferral applicable to a portion of the Plan Year's annual incentive award
for which the voluntary deferral is being made, provided no election is
made to extend the period of deferral for that Plan Year's award subject to
mandatory deferral; or
(ii) the Participant's termination of employment for any
reason, including death or disability;
(b) with respect to the mandatorily deferred portion of a
Plan Year's annual incentive award, the Participant's termination of
employment for any reason, including death or disability.
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<PAGE> 35
5.2. Distribution of Mandatory Deferrals Not Elected To Be
Extended. If the Participant has not made an election to extend the
deferral period of any mandatory deferral of a portion of his annual
incentive award to be earned under the Annual Incentive Plan for any Plan
Year, a payment of the cash value of the stock equivalent units credited to
his Deferred Compensation Account attributable to such mandatory deferral,
including additional units credited as a result of dividends as provided
under Section 6.2, shall be made on the date the period of mandatory
deferral ends.
5.3. Method of Payment. All distributions under this Plan shall
be in the form of a cash lump sum payment.
5.4. Special Election for Early Distribution. A Participant may
apply to the Administrator for early distribution of all or any part of his
Deferred Compensation Account excluding any amounts attributable to
mandatory deferrals that have not been credited to his Deferred
Compensation Account for the minimum period of mandatory deferral. Such
early distribution shall be made in a single lump sum and in cash, provided
that 10% of the amount withdrawn in such early distribution shall be
forfeited to the Participant's Employer prior to payment of the remainder
to the Participant. In the event a Participant's early distribution
election is submitted within one year after a Change in Control the
forfeiture penalty shall be reduced to 5%.
5.5. Distributions on Death. In the event of a Participant's
death before his Deferred Compensation Account has been distributed,
distribution of his entire account, including mandatory deferrals shall be
made to the Beneficiary selected by the Participant, in a single lump sum
cash payment within 30 days after the date of death (or, if later, after
the proper Beneficiary has been identified). A Participant may from time
to time change his designated Beneficiary without the consent of such
Beneficiary by filing a new designation in writing with the Administrator.
If no
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<PAGE> 36
Beneficiary designation is in effect at the time of the Participant's
death, or if the designated Beneficiary is missing or has predeceased the
Participant, distribution shall be made to the Participant's surviving
spouse, or if none, to his surviving children per stirpes, and if none, to
his estate.
5.6. Valuation of Distributions. All distributions under this
Deferred Compensation Plan shall be based upon the cash value of the stock
equivalent units credited to a Participant's Deferred Compensation Account
as of the date immediately preceding the date of the distribution. The
cash value payable to a Participant or Beneficiary shall be determined by
multiplying the number of stock equivalent units credited to the Deferred
Compensation Account by the closing market price of American Water Works
common stock on the day immediately preceding the date of distribution (or
the last trading day preceding that date) as published in The Wall Street
Journal report of New York Stock Exchange Composite Transactions. It is
understood that administrative requirements may lead to a delay between
such valuation date and the date of distribution, not to exceed 30 days.
ARTICLE VI
ACCOUNTS
6.1. Deferred Compensation Account. The Administrator shall
establish and maintain, or cause to be established and maintained, a
separate Deferred Compensation Account for each Participant hereunder who
executes an election pursuant to Section 4.1 or has a portion of his annual
incentive award mandatorily deferred under the Annual Incentive Plan. Each
such Participant's Compensation deferred pursuant to a Deferred
Compensation Agreement under Section 4.1 or mandatorily deferred under the
Annual Incentive Plan shall be separately accounted for and credited with
stock equivalent units, for record keeping purposes only, to his Deferred
Compensation
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<PAGE> 37
Account. A Participant's Deferred Compensation Account shall be solely for
the purpose of measuring the amounts to be paid under this Deferred
Compensation Plan. The Employers shall not be required to fund or secure
the Deferred Compensation Account in any way, the Employers' obligation to
Participants hereunder being purely contractual.
6.2. Crediting of Dividends and Statement of Account. The
Participant's Deferred Compensation Account shall be deemed invested solely
in stock equivalent units of American Water Works common stock, shall be
denominated in numbers of stock equivalent units, and shall be valued each
time stock equivalent units are credited to such Deferred Compensation
Account by multiplying the units by the then-current market value of
American Water Works common stock. Whenever a dividend is declared and
payable on American Water Works common stock, the number of stock
equivalent units in the Participant's Deferred Compensation Account will be
increased by the following calculations:
(a) the number of units in the Participant's Deferred
Compensation Account multiplied by any cash dividend declared by the Board
on a share of American Water Works common stock, divided by the closing
market price of American Water Works common stock on the related dividend
payment date as published in The Wall Street Journal report of New York
Stock Exchange Composite Transactions; or
(b) the number of units in the Participant's Deferred
Compensation Account on the related dividend payment date multiplied by any
stock dividend declared by the Board on a share of American Water Works
common stock. In the event of any change in the number or kind of
outstanding shares of common stock of American Water Works including a
stock split or splits (other than a stock dividend as provided above) an
appropriate adjustment shall be made in the number of units credited to the
Participant's Deferred Compensation Account. As soon as practicable
-9-
<PAGE> 38
after the end of each Plan Year (and at such additional times as the
Administrator may determine), the Administrator shall furnish each
Participant with a statement of the balance credited to the Participant's
Deferred Compensation Account.
ARTICLE VII
FUNDING AND PARTICIPANT'S INTEREST
7.1. Deferred Compensation Plan Unfunded. This Deferred
Compensation Plan shall be unfunded and no trust shall be created by this
Deferred Compensation Plan. The crediting to each Participant's Deferred
Compensation Account shall be made through record keeping entries. No
actual funds shall be set aside; provided, however, that nothing herein
shall prevent the Employers from establishing one or more grantor trusts
from which benefits due under this Deferred Compensation Plan may be paid
in certain instances. All distributions shall be paid by the Employer from
its general assets and a Participant (or his Beneficiary) shall have the
rights of a general, unsecured creditor against the Employer for any
distributions due hereunder. This Deferred Compensation Plan constitutes a
mere promise by the Employers to make benefit payments in the future.
7.2. Participant's Interest in Plan. A Participant has an
interest in the cash value represented by the stock equivalent units
credited to his Deferred Compensation Account. A Participant has no rights
or interests in any American Water Works common stock or dividends and has
no right to elect delivery of shares of American Water Works common stock.
-10-
<PAGE> 39
ARTICLE VIII
ADMINISTRATION AND INTERPRETATION
8.1. Administration. Except where certain duties are delegated to
the Administrator, the Committee shall be in charge of the operation and
administration of this Deferred Compensation Plan. The Committee has, to
the extent appropriate and in addition to the powers described elsewhere in
this Deferred Compensation Plan, full discretionary authority to construe
and interpret the terms and provisions of this Deferred Compensation Plan;
to adopt, alter and repeal administrative rules, guidelines and practices
governing this Deferred Compensation Plan; to perform all acts, including
the delegation of its administrative responsibilities to advisors or other
persons who may or may not be employees of the Employers; and to rely upon
the information or opinions of legal counsel or experts selected to render
advice with respect to this Deferred Compensation Plan, as it shall deem
advisable, with respect to the administration of this Deferred Compensation
Plan.
8.2. Interpretation. The Committee may take any action, correct
any defect, supply any omission or reconcile any inconsistency in this
Deferred Compensation Plan, or in any election hereunder, in the manner and
to the extent it shall deem necessary to carry this Deferred Compensation
Plan into effect or to carry out the Board's purposes in adopting the Plan.
Any decision, interpretation or other action made or taken in good faith by
or at the direction of the Employers, the Board, the board of directors of
any Employer, the Committee, or the Administrator arising out of or in
connection with this Deferred Compensation Plan, shall be within the
absolute discretion of all and each of them, as the case may be, and shall
be final, binding and conclusive on the Employers and all Participants and
Beneficiaries and their respective heirs, executors, administrators,
successors and assigns. The Committee's determinations hereunder need not
be uniform, and may be made selectively among Eligible Employees, whether
or not they are similarly
-11-
<PAGE> 40
situated. Any actions to be taken by the Committee will require the
consent of a majority of the Committee members. If a member of the
Committee is a Participant in this Deferred Compensation Plan, such member
may not decide or determine any matter or question concerning his benefits
under this Deferred Compensation Plan that such member would not have the
right to decide or determine if he were not a member.
8.3. Records and Reports. The Administrator shall keep a record
of proceedings and actions and shall maintain or cause to be maintained all
such books of account, records, and other data as shall be necessary for
the proper administration of this Deferred Compensation Plan. Such records
shall contain all relevant data pertaining to Participants and their rights
under this Deferred Compensation Plan. The Administrator shall have the
duty to carry into effect all rights or benefits provided hereunder to the
extent assets of the Employers are properly available.
8.4. Payment of Expenses. The Employers, in such proportions as
the Committee determines, shall bear all expenses incurred by them and by
the Committee in administering this Deferred Compensation Plan. If a claim
or dispute arises concerning the rights of a Participant or Beneficiary to
amounts deferred under this Deferred Compensation Plan, regardless of the
party by whom such claim or dispute is initiated, the Employers shall (in
such proportions as between the Employers as the Committee determines), and
upon presentation of appropriate vouchers, pay all legal expenses,
including reasonable attorneys' fees, court costs, and ordinary and
necessary out-of-pocket costs of attorneys, billed to and payable by the
Participant or by anyone claiming under or through the Participant (such
person being hereinafter referred to as the "Participant's Claimant"), in
connection with the bringing, prosecuting, defending, litigating,
negotiating, or settling of such claim or dispute; provided, that:
-12-
<PAGE> 41
(a) The Participant or the Participant's Claimant shall
repay to his Employer any such expenses theretofore paid or advanced by his
Employer if and to the extent that the party disputing the Participant's
rights obtains a judgment in its favor from a court of competent
jurisdiction from which no appeal may be taken, whether because the time to
do so has expired or otherwise, and it is determined by the court that such
expenses were not incurred by the Participant or the Participant's Claimant
while acting in good faith; provided, further, that
(b) In the case of any claim or dispute initiated by a
Participant or the Participant's Claimant, such claim shall be made, or
notice of such dispute given, with specific reference to the provisions of
this Deferred Compensation Plan, to the Committee within two years (three
years, in the event of a Change in Control) after the occurrence of the
event giving rise to such claim or dispute.
8.5. Indemnification for Liability. The Employers shall indemnify
the Administrator, the members of the Committee, and the employees of any
Employer to whom the Administrator delegates duties under this Deferred
Compensation Plan, against any and all claims, losses, damages, expenses
and liabilities arising from their responsibilities in connection with this
Deferred Compensation Plan, unless the same is determined to be due to
gross negligence or willful misconduct.
8.6. Claims Procedure. If a claim for benefits or for
participation under this Deferred Compensation Plan is denied in whole or
in part, a Participant will receive written notification. The notification
will include specific reasons for the denial, specific reference to
pertinent provisions of this Deferred Compensation Plan, a description of
any additional material or information necessary to process the claim and
why such material or information is necessary, and
-13-
<PAGE> 42
an explanation of the claims review procedure. If the Committee fails to
respond within 90 days, the claim is treated as denied.
8.7. Review Procedure. Within 60 days after the claim is denied
or, if the claim is deemed denied, within 150 days after the claim is
filed, a Participant or his duly authorized representative) may file a
written request with the Committee for a review of his denied claim. The
Participant may review pertinent documents that were used in processing his
claim, submit pertinent documents, and address issues and comments in
writing to the Committee. The Committee will notify the Participant of its
final decision in writing. In its response, the Committee will explain the
reason for the decision, with specific references to pertinent Deferred
Compensation Plan provisions on which the decision was based. If the
Committee fails to respond to the request for review within 60 days, the
review is treated as denied.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1. Amendment and Termination. The Board shall have the right,
at any time, to amend or terminate this Deferred Compensation Plan, in
whole or in part, provided that such amendment or termination shall not
adversely affect the right of any Participant or Beneficiary to payment of
Participant's Deferred Compensation Account. The Administrator or
Committee, upon review of the effectiveness of this Deferred Compensation
Plan, may at any time recommend amendments to, or termination of, this
Deferred Compensation Plan to the Board. American Water Works reserves the
right, in its sole discretion, to discontinue deferrals under, or
completely terminate, this Deferred Compensation Plan at any time. If this
Deferred Compensation Plan is discontinued with respect to future
deferrals, Participants' Deferred Compensation Accounts shall be
distributed on the distribution dates elected in accordance with Section
5.1, unless the Committee
-14-
<PAGE> 43
designates that distributions shall be made on an earlier date. If the
Committee designates such earlier date, each Participant shall receive
distribution of his entire Deferred Compensation Account as specified by
the Committee. If this Deferred Compensation Plan is completely
terminated, each Participant shall receive distribution of his entire
Deferred Compensation Account in one lump sum cash payment as of the date
of this Deferred Compensation Plan terminates.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Right of Employers to Take Employment Actions. The adoption
and maintenance of this Deferred Compensation Plan shall not be deemed to
constitute a contract between an Employer and any Eligible Employee, or to
be a consideration for, or an inducement or condition of, the employment of
any individual. Nothing herein contained, or any action taken hereunder,
shall be deemed to give any Eligible Employee the right to be retained in
the employ of an Employer or to interfere with the right of an Employer to
discharge any Eligible Employees at any time, nor shall it be deemed to
give to an Employer the right to require the Eligible Employee to remain in
its employ, nor shall it interfere with the Eligible Employee's right to
terminate his employment at any time. Nothing in this Deferred
Compensation Plan shall prevent an Employer from amending, modifying, or
terminating any other benefit plan, including the Annual Incentive Plan.
10.2. Alienation or Assignment of Benefits. A Participant's rights
and interest under this Deferred Compensation Plan shall not be assigned or
transferred except as otherwise provided herein, and a Participant's rights
to benefit payments under this Deferred Compensation Plan shall not be
subject to alienation, pledge or garnishment by or on behalf of creditors
(including heirs, beneficiaries, or dependents) of the Participant or of a
Beneficiary.
-15-
<PAGE> 44
10.3. Right to Withhold. To the extent required by law in effect
at the time a distribution is made from this Deferred Compensation Plan,
the Employer or its agents shall have the right to withhold or deduct from
any distributions or payments any taxes required to be withheld by federal,
state or local governments.
10.4. Construction. All legal questions pertaining to this
Deferred Compensation Plan shall be determined in accordance with the laws
of the State of New Jersey, to the extent such laws are not superseded by
the Employee Retirement Income Security Act of 1974, as amended, or any
other federal law.
10.5. Headings. The headings of the Articles and Sections of this
Deferred Compensation Plan are for reference only. In the event of a
conflict between a heading and the contents of an Article or Section, the
contents of the Article or Section shall control.
10.6. Number and Gender. Whenever any words used herein are in the
singular form, they shall be construed as though they were also used in the
plural form in all cases where they would so apply, and references to the
male gender shall be construed as applicable to the female gender where
applicable, and vice versa.
AMERICAN WATER WORKS COMPANY, INC.
By: George W. Johnstone
President and Chief Executive Officer
Attest: W. Timothy Pohl
General Counsel and Secretary
-16-
<PAGE> 45 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, 1995 1994 1993 1992 1991
==============================================================================
<S> <C> <C> <C> <C> <C>
Revenues
Water service
Residential $ 451,143 $ 431,225 $ 399,916 $ 360,800 $ 347,241
Commercial 175,792 169,532 159,335 147,983 143,528
Industrial 54,423 53,049 50,490 47,492 47,071
Public and other 92,565 90,436 84,861 79,196 76,899
Other water revenues 5,849 6,502 5,579 5,372 4,899
- ------------------------------------------------------------------------------
779,772 750,744 700,181 640,843 619,638
Wastewater service 14,953 13,933 12,143 11,391 10,427
Authority management
fees 8,095 5,564 5,213 5,126 5,914
- ------------------------------------------------------------------------------
$ 802,820 $ 770,241 $ 717,537 $ 657,360 $ 635,979
==========================================================
Water sales
(million gallons)
Residential 117,128 113,950 104,721 97,992 99,855
Commercial 61,726 60,901 57,880 55,587 57,144
Industrial 34,171 34,735 33,040 32,681 33,702
Public and other 26,968 26,953 25,172 24,349 25,172
- ------------------------------------------------------------------------------
239,993 236,539 220,813 210,609 215,873
==========================================================
Net income $ 92,061 $ 78,652 $ 75,387 $ 68,160 $ 73,593
Earnings per common
share on average
shares outstanding $2.64 $2.34 $2.29 $2.07 $2.27
Common dividends
paid per share $1.28 $1.08 $1.00 $0.925 $0.86
AT YEAR-END
Customers
(thousands) 1,720 1,706 1,685 1,548 1,529
Total assets $3,403,141 $3,172,237 $2,948,069 $2,415,805 $2,240,503
Preferred stocks
with mandatory
redemption
requirements
American Water
Works Company,
Inc. $ 40,000 $ 40,000 $ 40,000 $ 40,480 $ 40,960
Subsidiaries 42,326 43,737 46,515 50,895 47,107
Long-term debt
American Water
Works Company,
Inc. $ 116,000 $ 131,000 $ 131,000 $ 73,200 $ 73,200
Subsidiaries 1,268,649 1,177,043 1,056,404 870,940 874,804
Market price per
share of common
stock at year-end $38.88 $27.00 $30.00 $27.38 $26.50
</TABLE>
22
<PAGE> 46
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 these 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 22 regulated subsidiary companies provide water service to
approximately 6.5 million people in 741 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.
THE FINANCIAL COMPANIES
American International Water Services Company owns a 50% interest in
AmericanAnglian Environmental Technologies, a joint venture with British
water and wastewater utility Anglian Water Plc. AmericanAnglian
provides both technical expertise and financing resources to
communities throughout the United States to operate and upgrade their
water and wastewater systems.
In December 1995, AmericanAnglian Environmental Technologies acquired
the Company's American Commonwealth Management Services Company subsidiary.
American Commonwealth Management Services 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. American Commonwealth Management Services also owns a facility to
regenerate carbon used for water filtration and those capabilities are
being marketed to water utilities throughout the country.
Massachusetts Capital Resources Company is a subsidiary of the Company
created during 1995 for the specific purpose of financing the construction
of a water treatment plant in Hingham, Massachusetts, that upon completion
will be leased to an affiliated regulated company for 40 years.
Occoquan Land Corporation owns land, buildings, and equipment, most of
which are leased to affiliated companies.
Greenwich Water System is a subsidiary of the Company that owns the
common stock of the regulated companies in Connecticut, Massachusetts, New
Hampshire, and New York and a portion of the common stock of the regulated
company in Pennsylvania.
American Commonwealth Company is a subsidiary of the Company that owns
a portion of the common stock of the regulated company in New Jersey.
THE PHILOSOPHY OF AMERICAN WATER WORKS COMPANY
American Water Works Company is dedicated to providing the best possible
water service at an affordable cost consistent with adequate
compensation for investors and reasonable wages and benefits for its
personnel.
We believe there is an unalterable link between quality service,
responsive regulation, and financial success.
Three basic principles are observed under this management philosophy:
1. The preservation and efficient utilization of capital assets are best
assured by a management approach that draws upon prudent planning,
builds consensus and acts decisively on a timely basis.
2. 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 attract needed capital is dependent upon consistently
achieving adequate earnings. This dictates an aggressive pursuit of
regulatory decisions acknowledging this principle.
In accordance with this philosophy, the Company seeks to enhance the
value of its shareholders' investment through consistent earnings growth.
The market value of the Company's common stock is subject to the
volatility always present in the stock market, as well as to the vagaries
of the national economy. The true worth of this stock should be measured
by the intrinsic value of the tangible assets of American Water Works and
the worth of the organization put in place by the management team. These
assets are used to provide a service which is essential for urban living.
There is no substitute for water.
23
<PAGE> 47
- ---------------------------------------------------------------------------
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 existing
shareholders' investment.
Viewed over the long term, we believe this strategy has and will
continue to maximize the total return to our shareholders.
The value of the investment in the Company has increased due to
earnings growth. Earnings growth has resulted from increased investment by
the Company in its subsidiaries funded by the sale of securities and
reinvestment of income. This reinvestment defers shareholder payment of
income taxes so earnings growth can be compounded on a larger investment
base. It also permits consistent and reliable dividend increases.
Investors preferring a greater current yield can supplement their cash flow
by occasionally selling a portion of their enhanced investment in the
Company.
The following chart reflects the results of this investment strategy:
[ID: GRAPHIC -- BAR CHART SHOWING THE FOLLOWING
VALUES ON A SCALE OF 0% TO 10%]
COMPOUND ANNUAL GROWTH RATES 1990 -- 1995
Investment in subsidiaries ... 9.5%
Operating revenue ............ 7.0%
Earnings per share ........... 7.4%
Dividends per share .......... 9.9%
Book value per share ......... 7.2%
The Company's investment in its subsidiaries has increased from $637
million at year-end 1990 to $1 billion at year-end 1995. The top schedule
on page 25 defines 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 $56.4 million in 1990
to $88.1 million in 1995.
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
1990 in income to common stock.
This analysis demonstrates 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 $7.4 million over
this five-year period.
SYSTEM GROWTH AND DEVELOPMENT
CAPITAL SPENDING PROGRAM
The investment in new facilities in 1995 totaled $331 million, which was
24% above 1994 construction expenditures of $266 million. Construction
activity planned for 1996 totals $312 million.
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 $1.3 billion will be
invested in new facilities between now and the year 2000. These expendi-
24
<PAGE> 48
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Analysis of Growth in Investment in Subsidiaries
(000) 1995 1994 1993 1992 1991
===============================================================================================
<S> <C> <C> <C> <C> <C>
Investment in subsidiaries at
December 31 $1,003,088 $898,219 $810,372 $749,513 $693,312
Investment in subsidiaries at
January 1 898,219 810,372 749,513 693,312 636,622
- -----------------------------------------------------------------------------------------------
Change during the year $ 104,869 $ 87,847 $ 60,859 $ 56,201 $ 56,690
======================================================
Sources of additional investment
Undistributed earnings of subsidiaries $ 26,315 $ 24,532 $ 18,984 $ 19,401 $ 15,690
Investment by the Company in
subsidiary securities 78,554 63,315 41,875 36,800 41,000
- -----------------------------------------------------------------------------------------------
Change during the year $ 104,869 $ 87,847 $ 60,859 $ 56,201 $ 56,690
======================================================
Net income of subsidiaries $ 103,497 $ 89,449 $ 84,248 $ 75,260 $ 80,692
Return on January 1 investment in
subsidiaries 11.5% 11.0% 11.2% 10.9% 12.7%
Subsidiaries' common stock dividend
payout ratio 75% 73% 77% 74% 81%
- -----------------------------------------------------------------------------------------------
Dividends to the Company from
subsidiaries $ 77,182 $ 64,917 $ 65,264 $ 55,859 $ 65,002
- -----------------------------------------------------------------------------------------------
Company's use of cash
Mandatory redemption of securities -- -- 480 1,680 16,930
Preferred dividends 3,984 3,984 3,996 4,019 3,420
Other cash requirements 9,765 10,744 7,556 6,630 8,471
- -----------------------------------------------------------------------------------------------
13,749 14,728 12,032 12,329 28,821
- -----------------------------------------------------------------------------------------------
Available for common dividends 63,433 50,189 53,232 43,530 36,181
Common dividends declared 42,500 34,386 31,130 28,609 26,423
Cash payout ratio 67% 69% 58% 66% 73%
Available after dividends 20,933 15,803 22,102 14,921 9,758
Cash at January 1 17,647 23,302 78 15 23
- -----------------------------------------------------------------------------------------------
38,580 39,105 22,180 14,936 9,781
Investment in securities of subsidiaries (78,554) (63,315) (41,875) (36,800) (41,000)
Notes and advances to subsidiaries 10 4,510 1,010 5,210 1,015
- -----------------------------------------------------------------------------------------------
(39,964) (19,700) (18,685) (16,654) (30,204)
- -----------------------------------------------------------------------------------------------
Net bank borrowings 3,700 -- (21,255) 11,425 (13,255)
Proceeds from long-term debt -- -- 81,000 -- --
Proceeds from preferred stock -- -- -- -- 40,000
Proceeds from common stock 36,383 37,347 5,442 5,307 3,474
Early redemption of securities -- -- (23,200) -- --
- -----------------------------------------------------------------------------------------------
40,083 37,347 41,987 16,732 30,219
- -----------------------------------------------------------------------------------------------
Cash at December 31 $ 119 $ 17,647 $ 23,302 $ 78 $ 15
======================================================
</TABLE>
<TABLE>
<CAPTION>
Analysis of Change in Income
(000) 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income to common stock-current year $ 88,077 $ 74,668 $ 71,391 $ 64,141 $ 69,890
Net income to common stock-prior year 74,668 71,391 64,141 69,890 56,398
- -----------------------------------------------------------------------------------------------
Change in income 13,409 3,277 7,250 (5,749) 13,492
Change in Company operating cost 639 1,924 1,738 317 2,792
- -----------------------------------------------------------------------------------------------
Change in investment income $ 14,048 $ 5,201 $ 8,988 $ (5,432) $ 16,284
======================================================
Sources of change in investment income
Additional investment in subsidiaries $ 10,122 $ 6,718 $ 6,317 $ 6,154 $ 8,059
Change in rate of return on investment 3,926 (1,517) 2,671 (11,586) 8,225
- -----------------------------------------------------------------------------------------------
Total change in investment income $ 14,048 $ 5,201 $ 8,988 $ (5,432) $ 16,284
======================================================
</TABLE>
25
<PAGE> 49
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
tures 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.
Supply improvements in 1995 accounted for approximately 5% of the
year's construction expenditures. Significant projects included the
construction or re-drilling of ground water sources in the systems serving
Baldwin Hills and San Marino, California; Greenwood and Franklin, Indiana;
Bel Air, Maryland; Atlantic County, Belvedere and Oxford, New Jersey;
Clovis, New Mexico; and Tiffin, Ohio. In addition, substantial projects
involving new intake, pumping and/or piping facilities were completed in
Butler, Pennsylvania and Greenwich, Connecticut for the purpose of
enhancing the source of supply capabilities in those systems.
Investment in treatment and pumping facilities comprised 38% of the
1995 construction expenditures. Construction was nearly completed on a 30
million gallons-per-day capacity treatment plant on the Delaware River in
New Jersey as part of the Tri-County Water Supply Project that will
supplement community water supplies in three counties of southern New
Jersey in the Philadelphia metropolitan area. During 1995, significant
production facility improvements were also completed in Kittanning,
Pittsburgh, Susquehanna and Yardley, Pennsylvania; Tiffin, Ohio; Lexington,
Kentucky; Chattanooga, Tennessee; Huntington, West Virginia; and Haddon
Heights, New Jersey. Significant progress was made toward completion of a
new 7 million gallons-per-day facility to treat the existing surface and
ground water supplies in Hingham, Massachusetts. Additionally,
construction was initiated on the 5 million gallons-per-day treatment plant
which will serve the Mercer and Summers County regions of West Virginia.
Investment in new transmission and distribution facilities accounted
for 33% of 1995 construction expenditures. The most prominent project
involved the completion of nearly 30 miles of 24-inch through 54-inch
transmission mains which deliver water from New Jersey-American Water
Company's new Tri-County Water Supply Project treatment plant to residents
in Burlington, Camden and Gloucester Counties. The project also included
construction of 13 interconnections to deliver supply to surrounding water
systems. Other significant projects in 1995 involving new transmission and
distribution facilities included major main extension programs in
Pennsylvania and New Jersey to provide service to residents that previously
had inadequate well supplies. Also, booster stations and storage tanks
were completed at a number of operating systems during the year.
Engineering planning 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 additional supply is needed due to existing source
limitations, projected growth, or regional opportunities. Detailed source
of supply and production planning was undertaken for the systems in
Jeffersonville and New Albany, Indiana; Alton, Illinois; Millbury,
Massachusetts; St. Charles County, Missouri; Monmouth and Ocean Counties,
New Jersey; and Norristown, Yardley and Brownsville, Pennsylvania.
In addition, the Company's formal Comprehensive Planning Study program
proceeded with reports completed for West Virginia-American Water Company,
which encompasses 13 service areas, and for five systems in Pennsylvania
and four systems in Indiana. Along with the continuation of the studies
for Indiana-American Water Company and Pennsylvania-American Water
Company, which in total will include 47 separate service areas, studies are
underway for the regulated companies in Illinois, Iowa, Missouri, New York,
Connecticut and California.
<TABLE>
<CAPTION>
CONSTRUCTION EXPENDITURES BY CATEGORY
(000) 1995 1994 1993 1992 1991
=======================================================================================
<S> <C> <C> <C> <C> <C>
Water plant
Sources of supply $ 18,156 $ 11,511 $ 8,054 $ 9,110 $ 10,498
Treatment and pumping 125,350 82,700 51,332 53,303 53,361
Transmission and distribution 110,600 108,929 77,998 80,357 63,232
Services, meters and fire hydrants 45,835 40,506 34,401 33,989 31,000
General structures and equipment 29,602 20,703 19,585 17,935 23,698
Wastewater plant 1,219 1,390 1,746 2,885 1,198
- ---------------------------------------------------------------------------------------
$330,762 $265,739 $193,116 $197,579 $182,987
================================================
</TABLE>
26
<PAGE> 50
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, in late April
of 1995, the Company announced that its subsidiary, Pennsylvania-
American Water Company, agreed to purchase the water utility operations
of Pennsylvania Gas and Water Company, a subsidiary of Pennsylvania
Enterprises, Inc. The asset sale was consummated on February 16, 1996
for approximately $409 million. Pennsylvania-American funded the
purchase through short-term borrowings and the assumption of $143
million of long-term debt. The short-term debt will be refunded through
the issuance of long-term debt and the sale of common stock to the
Company. The acquired operations, which include 10 water treatment
plants and 36 reservoirs, serve 400,000 people in northeastern
Pennsylvania. With Pennsylvania-American's current service territory
primarily in the western and central-southeastern parts of the
commonwealth, the Company anticipates that the addition of this large
northeastern operation will increase this subsidiary's geographical
diversity and provide opportunity for greater operational synergy.
Pennsylvania-American Water Company also paid $5.3 million for four
water systems in the northeastern part of the state, increasing the
population it serves by about 30,000 during 1995.
On November 7, 1995, voters in Howell Township, New Jersey, approved a
referendum providing for the sale of the community's water system to the
Company's subsidiary, New Jersey-American Water Company, for $35.1 million.
The system, which serves 16,000 people, is located between the Shrewsbury
and Lakewood operating centers of New Jersey-American. A portion of its
supply and treatment capacity will be used to serve those two service
territories.
In 1995, West Virginia-American Water Company paid $0.3 million for
three water systems. These systems, including the Town of Winfield in
Putnam County, will serve nearly 1,300 people.
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 million 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 the Company's existing subsidiaries in those
states effective January 1, 1995. On September 29, 1995, under the threat
of taking by eminent domain, the portion of these assets in Ohio which
serve a population of 54,000 were sold. The sale of these assets by Ohio
Suburban Water Company to the City of Huber Heights was in accordance with
a sales agreement providing for the Company to recover the entire
investment that it had made only two years earlier. Accordingly, there was
no gain or loss from the sale of these assets for $14.4 million.
During 1995, the Orange County Local Agency Formation Commission
decided not to approve a $300 million proposal from California-American
Water Company, a subsidiary, to acquire the water and wastewater systems of
the Santa Margarita Water District in Orange County, California. This
proposal, made in conjunction with a petition by customers of the District,
was filed in May 1994.
RESULTS OF OPERATIONS
The Company's experience in assessing the impact of inflation on its
business indicates that with timely rate increases authorized by
regulators, revenue will likely keep pace with inflation. Inflation did
not significantly impact the Company's financial position or results of
operations in 1993 through 1995, and it is not expected to materially
affect 1996 results.
The results of operations of the Company for the year ended December
31, 1993 included four months of results from the four acquired Midwestern
companies' operations.
<TABLE>
<CAPTION>
OPERATING REVENUES
(000) 1995 1994 1993
===============================================================
<S> <C> <C> <C>
Water service $779,772 $750,744 $700,181
Wastewater service 14,953 13,933 12,143
Authority management fees 8,095 5,564 5,213
- ---------------------------------------------------------------
$802,820 $770,241 $717,537
==================================
</TABLE>
27
<PAGE> 51
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
CONSOLIDATED OPERATING REVENUES
Revenues in 1995 totaled $802.8 million and were 4% above those for
1994. The volume of water sold increased 1% to 240 billion gallons
in 1995.
Rate authorizations adjusted the water service rates in effect for 11
regulated companies during 1995. These authorizations are expected to
increase annual revenues by $17.3 million. Operating revenues for 1995
included approximately $5.9 million which resulted from these rate orders.
Three rate adjustments have been authorized for regulated subsidiaries
so far in 1996 which will generate approximately $7.2 million of additional
annual revenues. Seven applications are awaiting regulatory decisions. If
granted in full, they would produce additional annual revenues of $77
million.
A rate increase application pending for New Jersey-American Water
Company accounts for $52.9 million of the $77 million in requested
additional annual revenues awaiting decision. That case addresses New
Jersey-American's $186 million Tri-County Water Supply Project that takes
water from the Delaware River to a new treatment plant and then delivers it
throughout the southern New Jersey area by way of a nearly 30-mile long
pipeline. On February 2, 1996 an Administrative Law Judge issued a
decision on the case finding that the Company had acted reasonably and
prudently in designing the project and recommending full rate base
recognition of the project that was found to be a reasonable approach to
the region's needs. The judge's decision, if approved by the commission,
would result in approximately $39.5 million in additional annual revenues.
The project was designed partly as a supply source for future wholesale
customers who have been mandated by the state to reduce their intake from
an aquifer that is suffering from declining water levels. The actual
revenues the Company would receive under the judge's decision would depend
on how many of these wholesale customers enter into contracts to use water
from the project as their alternative source of supply.
Revenues of $770.2 million in 1994 were 7% above those for 1993. Ten
regulated companies received rate orders in 1994, authorizing increases in
annual revenues aggregating $27.2 million. Operating revenues for 1994
included approximately $10.4 million which resulted from these rate orders.
The 236.5 billion gallons of water sold in 1994 was a 7% increase compared
to 1993, reflecting the impact of summer weather patterns and the Company's
August 1993 acquisition of the four Midwestern water utilities. The
acquisition of the Midwestern utilities increased operating revenues by
$22.7 million in 1994 and added 11.6 billion gallons in water sales volume
in comparison to 1993.
<TABLE>
<CAPTION>
PERCENTAGE OF WATER REVENUES BY CUSTOMER CLASS
1995 1994 1993
===============================================================
<S> <C> <C> <C>
Residential 57.9% 57.4% 57.1%
Commercial 22.5% 22.6% 22.8%
Industrial 7.0% 7.1% 7.2%
Public and other 11.9% 12.0% 12.1%
Other water revenues .7% .9% .8%
- ---------------------------------------------------------------
100.0% 100.0% 100.0%
================================
</TABLE>
Residential
Residential water service revenues in 1995 amounted to $451.1 million,
an increase of 5% over those for 1994. This 1995 revenue improvement
followed an increase of 8% in 1994. The volume of water sold to
residential customers increased by 3% in 1995 to 11 7.1 billion gallons.
The average unit price of residential water increased by 2% in 1995.
A 2% increase in unit price for water due to rate increases and the
comparatively low unit price of water sold by the acquired Midwestern
utilities resulted in the average unit price for water in 1994 for
residential customers decreasing by 1%.
Commercial
Revenues from commercial customers in 1995 rose by 4% to $175.8 million,
following an increase of 6% in 1994. Commercial customers purchased
61.7 billion gallons of water in 1995, 1% more than in 1994. The
average unit price of water increased by 3% in 1995, up from a 1%
increase in 1994.
Industrial
Industrial water use of 34.2 billion gallons in 1995 was 2% lower than
in 1994. Revenues from industrial sales in the amount of $54.4 million
were 3% above those recorded in 1994 due to a 4% increase in the average
unit price of water. There was no change in the average unit price of
water in 1994. Excluding the industrial sales of the four acquired
Midwestern utilities, the volume of water used by industrial customers
had increased in 1994 for the first time in six years.
Public and Other
Public and other revenues in 1995 rose by 2% to $92.6 million following
an increase of 7% in 1994. Revenues derived from municipal governments
for fire protection services and customers requiring special private
fire service facilities totaled $36.5 million in 1995, exceeding 1994
revenue from these customers by 3%. The 27 billion gallons of water
sold to governmental entities and resale customers was approximately
equal to the quantities sold in 1994. Revenues generated by these sales
totaled $56.1 million and exceeded 1994 revenues by 2%.
28
<PAGE> 52
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE OF WATER SALES (GALLONS) BY CUSTOMER CLASS
1995 1994 1993
===============================================================
<S> <C> <C> <C>
Residential 48.8% 48.2% 47.4%
Commercial 25.7% 25.7% 26.2%
Industrial 14.3% 14.7% 15.0%
Public and other 11.2% 11.4% 11.4%
- ---------------------------------------------------------------
100.0% 100.0% 100.0%
================================
</TABLE>
Wastewater Service Revenues
Regulated subsidiaries provided wastewater collection service to
portions of the Company's service area in New Jersey, Ohio,
Pennsylvania, Missouri and Indiana. Revenues from these services
amounted to $15.0 million in 1995, compared with $13.9 million in 1994
and $12.1 million in 1993.
Authority Management Fees
These fees represent charges for management services provided by
American Commonwealth Management Services Company to public water and
wastewater authorities in Pennsylvania, Massachusetts, Delaware and
Florida. In late December 1995, American Commonwealth Management
Services was acquired by AmericanAnglian Environmental Technologies, a
joint venture in which a subsidiary of the Company owns a 50% interest.
Management fees of $8.1 million were received for these services in 1995
compared with fees of $5.6 million in 1994 and $5.2 million in 1993.
<TABLE>
<CAPTION>
OPERATING EXPENSES
(000) 1995 1994 1993
====================================================================
<S> <C> <C> <C>
Operation and maintenance
expenses $402,362 $391,539 $362,451
Depreciation and amortization 79,977 72,892 66,838
General taxes 76,208 73,085 67,917
- --------------------------------------------------------------------
$558,547 $537,516 $497,206
==================================
</TABLE>
CONSOLIDATED OPERATING EXPENSES
Operating expenses in 1995 increased by 4% to $558.5 million, following
an 8% increase in 1994. The acquisition of the four Midwestern water
utilities increased operating expenses by $16.5 million in 1994 in
comparison to 1993.
Operation and maintenance expenses totaled $402.4 million in 1995, 3%
higher than in 1994. These expenses had increased by 8% in 1994. The
Midwestern acquisition increased operating and maintenance expenses by
$12.4 million in 1994 in comparison to 1993.
Employee-related costs, representing 48% of operation and maintenance
expenses, increased by 2% in 1995 and 9% in 1994.
The primary components of employee-related costs are wage and salary
expenses, which were up 3% to $148.1 million in 1995 following a 5%
increase in 1994. The number of employees at year-end totaled 3,777, which
was 5% below the employment level of 3,992 at the close of 1994 and 7%
below the 4,062 employees at the end of 1993. In 1993, the Company added
158 employees due to the acquisition of four Midwestern water utilities and
in 1995, because of the change in ownership of American Commonwealth
Management Services Company and the sale of the assets of the Ohio Suburban
Water Company, 79 employees left the Company. Excluding the effect of
these acquisitions and dispositions, the Company's workforce has decreased
by 284 employees or 7% since 1992, as the result of continued efforts to
improve operating efficiencies.
Health care expenses, which include the cost of providing current
benefits as well as the expected cost of providing postretirement health
care and life insurance benefits, decreased by 12% to $33.7 million in 1995
after a 19% increase in 1994.
The fluctuation in health care costs is attributable to the timing of
the rate recovery permitted by regulatory authorities of the additional
expense resulting from the adoption in 1993 of a new accounting standard
requiring the Company to accrue the cost of postretirement benefits in a
manner similar to that used to account for pensions. These costs declined
in 1995 because of rate decisions allowing an increased portion of these
expenses to be deferred and recovered in rates in future periods. In 1994
the portion of these postretirement costs that were deferred pending future
recovery had declined in comparison to the previous year.
The cost of providing current health care benefits has been increasing
due to the rising cost of medical treatment programs.
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. In 1996 the Company will implement further plan revisions that
will encourage employees to take advantage of the managed care plan option
and that will require additional contributions from employees and early
retirees.
29
<PAGE> 53
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
Pension expense increased by 54% in 1995 to $9.4 million following a
113% increase in 1994. 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 plan. Cash contributions of $10
million in 1995 and $4.8 million in 1994 were made to the pension plan
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
increases in pension expense in 1995 and 1994.
<TABLE>
<CAPTION>
OPERATION AND MAINTENANCE EXPENSES
(000) 1995 1994 1993
====================================================================
<S> <C> <C> <C>
Employee-related costs $191,151 $187,735 $171,989
Fuel and power 33,282 33,216 30,530
Purchased water 44,114 40,375 38,628
Chemicals 14,974 13,089 11,605
Waste disposal 12,234 11,994 11,235
Maintenance materials
and services 22,258 22,115 21,585
Operating supplies and services 54,416 53,399 48,573
Customer billing and accounting 16,917 14,809 14,442
Other 13,016 14,807 13,864
- --------------------------------------------------------------------
$402,362 $391,539 $362,451
==================================
</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 6% in 1995 after a 7% rise in 1994.
The unit cost of water produced increased 4% in 1995, after being unchanged
in 1994. Higher purchased water costs, reflecting increased volume and
rate increases authorized for other utilities supplying water to several
subsidiaries, were primarily responsible for the rise in the unit cost of
production.
Maintenance materials and services, which include emergency repairs as
well as costs for preventive maintenance, increased by 1% in 1995 following
a 2% increase in 1994.
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 2% in 1995 after a 10% increase in 1994. Customer billing and
accounting charges increased by 14% in 1995, and increased by 3% in 1994.
These costs increased in 1995 because of a change from quarterly to monthly
billing in several service areas.
Other operation and maintenance expenses include regulatory costs and
system-wide casualty and liability insurance premiums. These expenses
decreased by 12% in 1995 after increasing by 7% in 1994. Regulatory costs
vary from year-to-year because of changing levels of rate case activity and
different amortization periods for these costs. Casualty insurance
premiums fluctuate as a result of claims experience.
Depreciation and amortization increased by 10% in 1995 and 9% in 1994.
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 4% in 1995
after an 8% rise in 1994.
Gross receipts and franchise taxes, which are a function of revenues,
increased by 3% in 1995. Property and capital stock taxes are assessed on
the basis of tax values assigned to assets and capitalization. These taxes
in 1995 were 6% above those in 1994 due to higher property values and tax
rate increases. Payroll taxes in 1995 were approximately equal to 1994.
CONSOLIDATED OTHER INCOME AND INCOME DEDUCTIONS
During 1995 the Company resolved its litigation with the Grafton Water
District in Massachusetts to recover the fair market value of the water
utility taken through eminent domain by the District in 1988. In 1990,
a jury awarded the Company $5.6 million for these assets. Since that
time, the District pursued various appeals, all of which resulted in
reaffirmation of the jury award. In addition to the approximately $1.1
million paid by the District in 1988, the Company received $6.6 million
which included the remainder of the jury award and $2.1 million
in interest.
30
<PAGE> 54
The total allowance for funds used during construction recorded in 1995
was $21.3 million, which was 104% higher than in 1994. This large increase
was due to the New Jersey-American Water Company's $186 million Tri-County
Water Supply Project which will begin operation in early 1996.
Interest expense rose 6% to $117 million in 1995 compared to 1994.
This expense had increased by 10% in 1994 primarily due to an increase in
total debt to fund construction of new water service assets.
CONSOLIDATED INCOME TAXES
Income taxes increased by 15% in 1995, following a 4% increase in 1994.
The 1995 increase in income taxes is due to higher taxable income.
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 3 to the financial
statements.
<TABLE>
<CAPTION>
SUMMARY OF TAXES
(000) 1995 1994 1993
========================================================================
<S> <C> <C> <C>
Gross receipts and franchise taxes $ 33,272 $ 32,168 $ 30,174
Property and capital stock taxes 28,868 27,245 24,664
Payroll taxes 11,524 11,521 10,893
Miscellaneous taxes 2,544 2,151 2,186
State income taxes 8,079 7,718 7,375
Federal income taxes 49,567 42,194 40,489
- ------------------------------------------------------------------------
$133,854 $122,997 $115,781
==================================
</TABLE>
CONSOLIDATED NET INCOME
Consolidated net income in 1995 totaled $92.1 million and was 17% above
1994 net income. Without the one-time after-tax gain of $3.9 million in
1995 from the litigation relating to the taking through eminent domain
of water system assets, consolidated net income increased by 12% in
comparison to 1994. Consolidated net income in 1994 was 4% above that
recorded in 1993. Consolidated net income to common stock totaled $88.1
million in 1995 and was 18% above that reported for 1994. Without the
gain from the settlement of litigation, consolidated net income to
common stock increased by 13% above that reported in 1994. It had
increased by 5% in 1994.
<TABLE>
<CAPTION>
CAPITALIZATION
COMMON PREFERRED LONG-TERM
(000) EQUITY STOCK DEBT
=======================================================================
<S> <C> <C> <C>
Company
1995 $818,939 $ 51,673 $ 131,064
1994 733,440 51,673 131,071
1993 655,275 51,673 131,074
1992 609,572 52,153 73,275
1991 568,733 52,633 74,568
- -----------------------------------------------------------------------
Regulated Subsidiaries
1995 $953,718 $ 50,325 $1,260,389
1994 855,961 51,738 1,251,101
1993 768,921 54,532 1,060,776
1992 705,419 60,093 966,171
1991 650,307 56,812 919,074
- -----------------------------------------------------------------------
Consolidated
1995 $818,939 $100,287 $1,428,970
1994 733,440 101,698 1,381,972
1993 655,275 104,490 1,192,809
1992 609,572 109,529 1,036,604
1991 568,733 106,726 986,691
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CAPITALIZATION RATIOS
COMMON PREFERRED LONG-TERM
EQUITY STOCK DEBT
=======================================================================
<S> <C> <C> <C>
Company
1995 82% 5% 13%
1994 80% 6% 14%
1993 78% 6% 16%
1992 83% 7% 10%
1991 82% 7% 11%
- -----------------------------------------------------------------------
Regulated Subsidiaries
1995 42% 2% 56%
1994 40% 2% 58%
1993 41% 3% 56%
1992 41% 3% 56%
1991 40% 3% 57%
- -----------------------------------------------------------------------
Note: Long-term debt includes amounts due within one year.
</TABLE>
31
<PAGE> 55
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
LIQUIDITY AND CAPITAL RESOURCES
Internal sources of cash flow are provided by retention of a portion of
earnings, amortization of deferred charges, deferral of taxes and
depreciation. Internal cash generation is influenced by weather
patterns, economic conditions and the timing of rate relief. When
internal cash generation is not sufficient to meet corporate obligations
on a timely basis, external sources of funds are utilized. External
cash availability and its cost are dependent upon, among other things,
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, retires maturing bonds,
and pays dividends on all classes of stock from the dividends received
from investments in its subsidiary companies. Remaining funds are
retained for additional investment in subsidiaries. Investments are
made when prospective returns are expected to continue at an adequate
level or the potential for satisfactory earnings has been exhibited.
Periodically, it is necessary to supplement internal sources of cash
flow with short-term bank loans. These loans are repaid as internal
sources of cash allow or with proceeds from the periodic issuance of new
securities.
In addition to the reinvestment of common stock dividends, the
Company's Dividend Reinvestment and Stock Purchase Plan allows shareholders
and customers of the regulated subsidiaries to purchase up to $5,000 of
common stock each month directly from the Company at the then prevailing
market price. Prior to March 1, 1996, such purchases were offered at a 5%
discount from the prevailing market price. Common dividends in the amount
of $4.8 million were reinvested during 1995, which resulted in the issuance
of 169,543 new shares of common stock. Proceeds received from optional
cash purchases of 904,936 new shares of common stock totaled $26.1 million
in 1995. Another 77,365 shares of common stock were issued in connection
with the Employees' Stock Ownership Plan and 102,304 shares of common stock
were issued in connection with a 401(k) Savings Plan for Employees in
return for cash contributions from employees totaling $1.6 million and
Company contributions with a value of $1.4 million.
The Company invested $78.6 million in new common stock of subsidiaries
during 1995. It also increased its equity investment in subsidiaries by
$26.3 million from the earnings retained by them.
The Company plans to continue to use short-term bank borrowings, as
cash requirements warrant it, to finance additional investment in
subsidiaries. In addition, during 1996, the Company intends to publicly
offer common stock to finance the larger investment in subsidiaries related
to the acquisition of the water assets of the Pennsylvania Gas and Water
Company. Common stock also 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 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. Ample credit lines are available to provide funds
needed for 1996 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 1995 amounted to
$144.9 million compared to $82.4 million at year-end 1994.
During 1995, the Company created a subsidiary, Massachusetts Capital
Resources Company, for the specific purpose of financing the construction
of a water treatment plant. This new subsidiary issued $37.7 million of
tax-exempt mortgage bonds with an average maturity of 29 years and a
weighted average coupon rate of 6.77%. Upon completion of the plant in
1996, the facility will be leased for 40 years to a regulated subsidiary of
the Company.
Also in 1995, eight subsidiaries issued $94.6 million of taxable
mortgage bonds at interest rates between 6.76% and 8.58%. Proceeds from
the sale of the bonds were used to repay bank loans, fund construction
programs, and to refinance existing debt at lower rates.
32
<PAGE> 56
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
The subsidiary companies plan to fund acquisitions, construction
programs, and repay bank borrowings and maturing bonds with the issuance of
approximately $290 million of long-term debt and $230 million of common
stock to the Company in 1996. Excluding short-term borrowings incurred in
connection with the recent asset acquisition in Pennsylvania, the combined
amount of subsidiary bank borrowings and bonds maturing within one year is
expected to remain at approximately the current level during 1996.
During 1995, subsidiaries repaid $11.6 million of maturing bonds and
certain higher yielding bonds before maturity. In addition, subsidiaries
made mandatory payments to sinking funds in amounts adequate to retire
$73.9 million of debt and redeem $1.4 million 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 are elected by the voting public. During
1995, the Tennessee Legislature did not renew the authority of the
Tennessee Public Service Commission, but in its place created the Tennessee
Regulatory Authority. The new Authority will consist of three directors to
be appointed by the Governor, the Speaker of the Senate, and the Speaker of
the House of Representatives. Under prior regulation by the Tennessee
Public Service Commission, each of the commissioners was elected by the
electorate of Tennessee. Much of the authority of the Public Service
Commission, including the regulation of water companies, will be assumed by
the Tennessee Regulatory Authority. The Company does not anticipate any
material changes in regulation brought about by this change. In Virginia,
members of the State 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
ensuring 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 operating cost associated with providing that service
o The capital costs for the funds used to build the facilities which
serve the public
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 deal with single issue cost
increases as they occur have met with limited success. Recovery of such
costs is therefore normally delayed for the time required to move through
the full regulatory process.
The 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 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.
33
<PAGE> 57
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, 1995 and 1994, 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, 1995
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,
1995, 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.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania
January 30, 1996, except as to Note 13, which is as of
February 16, 1996
35
<PAGE> 58
- ---------------------------------------------------------------------------
Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
At December 31, 1995 1994
==============================================================================
<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant -- at original cost less
accumulated depreciation $2,884,681 $2,645,079
Utility plant acquisition adjustments 34,974 39,212
Other utility plant adjustments 147 196
Nonutility property, net of accumulated
depreciation 20,144 18,951
Excess of cost of investments in
subsidiaries over book equity at
acquisition 22,638 22,681
- ------------------------------------------------------------------------------
2,962,584 2,726,119
- ------------------------------------------------------------------------------
Current assets
Cash and cash equivalents 23,204 30,091
Temporary investments -- at cost plus
accrued interest 513 1,448
Customer accounts receivable 61,786 50,375
Allowance for uncollectible accounts (1,030) (999)
Unbilled revenues 47,790 57,687
Miscellaneous receivables 4,571 5,342
Materials and supplies 9,599 9,846
Deferred vacation pay 9,374 9,256
Other 8,563 7,531
- ------------------------------------------------------------------------------
164,370 170,577
- ------------------------------------------------------------------------------
Regulatory and other long-term assets
Regulatory asset -- income taxes
recoverable through rates 172,265 168,341
Funds restricted for construction 13,927 26,213
Debt and preferred stock expense 20,753 18,882
Deferred pension expense 16,468 17,931
Deferred postretirement benefit expense 11,418 8,545
Tank painting costs 8,901 8,997
Other 32,455 26,632
- ------------------------------------------------------------------------------
276,187 275,541
- ------------------------------------------------------------------------------
$3,403,141 $3,172,237
=================================
</TABLE>
36
<PAGE> 59
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
==============================================================================
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $ 818,939 $ 733,440
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 42,326 43,737
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,288 6,288
Long-term debt
American Water Works Company, Inc. 116,000 131,000
Subsidiaries 1,268,649 1,177,043
- ------------------------------------------------------------------------------
2,303,875 2,143,181
- ------------------------------------------------------------------------------
Current liabilities
Bank debt 148,639 82,425
Current portion of long-term debt 44,321 73,929
Accounts payable 43,300 43,629
Taxes accrued, including federal income 13,098 13,352
Interest accrued 26,263 26,296
Accrued vacation pay 9,512 9,575
Other 35,940 27,587
- ------------------------------------------------------------------------------
321,073 276,793
- ------------------------------------------------------------------------------
Regulatory and other long-term liabilities
Advances for construction 131,141 131,553
Deferred income taxes 356,608 339,444
Deferred investment tax credits 38,515 39,702
Accrued pension expense 30,652 29,121
Accrued postretirement benefit expense 9,100 9,100
Other 3,840 4,940
- ------------------------------------------------------------------------------
569,856 553,860
- ------------------------------------------------------------------------------
Contributions in aid of construction 208,337 198,403
- ------------------------------------------------------------------------------
Commitments and contingencies -- --
- ------------------------------------------------------------------------------
$3,403,141 $3,172,237
=================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
37
<PAGE> 60
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Consolidated Statement of Income and Retained Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31, 1995 1994 1993
==============================================================================
<S> <C> <C> <C>
CONSOLIDATED INCOME
Operating revenues $802,820 $770,241 $717,537
- ------------------------------------------------------------------------------
Operating expenses
Operation and maintenance 402,362 391,539 362,451
Depreciation and amortization 79,977 72,892 66,838
General taxes 76,208 73,085 67,917
- ------------------------------------------------------------------------------
558,547 537,516 497,206
- ------------------------------------------------------------------------------
Operating income 244,273 232,725 220,331
Allowance for other funds used during
construction 11,771 5,890 3,757
Gain from eminent domain litigation 6,600 -- --
Other income 1,844 2,383 1,609
- ------------------------------------------------------------------------------
264,488 240,998 225,697
- ------------------------------------------------------------------------------
Income deductions
Interest 117,042 110,088 97,235
Allowance for borrowed funds used during
construction (9,573) (4,570) (3,087)
Amortization of debt expense 1,273 1,229 1,563
Preferred dividends of subsidiaries 3,698 3,814 4,361
Other deductions 2,341 1,873 2,374
- ------------------------------------------------------------------------------
114,781 112,434 102,446
- ------------------------------------------------------------------------------
Income before income taxes 149,707 128,564 123,251
Provision for income taxes 57,646 49,912 47,864
- ------------------------------------------------------------------------------
Net income 92,061 78,652 75,387
Dividends on preferred stocks 3,984 3,984 3,996
- ------------------------------------------------------------------------------
Net income to common stock $ 88,077 $ 74,668 $ 71,391
==============================
Average shares of common stock
outstanding (thousands) 33,382 31,918 31,139
Earnings per common share on average
shares outstanding $ 2.64 $ 2.34 $ 2.29
==============================
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of year $618,875 $578,593 $538,332
Add: net income 92,061 78,652 75,387
- ------------------------------------------------------------------------------
710,936 657,245 613,719
- ------------------------------------------------------------------------------
Deduct: dividends
Preferred stock 3,528 3,528 3,540
Preference stock 456 456 456
Common stock -- $1.28 per share in 1995,
$1.08 per share in 1994,
$1.00 per share in 1993 42,500 34,386 31,130
- ------------------------------------------------------------------------------
46,484 38,370 35,126
- ------------------------------------------------------------------------------
Balance at end of year $664,452 $618,875 $578,593
==============================
The accompanying notes are an integral part of these financial statements.
</TABLE>
38
<PAGE> 61
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1995 1994 1993
==============================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 92,061 $ 78,652 $ 75,387
Adjustments
Depreciation and amortization 79,977 72,892 66,838
Provision for deferred income taxes 15,344 17,482 7,873
Provision for losses on accounts receivable 4,288 3,762 3,377
Allowance for other funds used during
construction (11,771) (5,890) (3,757)
Employee benefit expenses greater (less)
than funding (6,643) (1,999) 2,567
Common stock contributions to employee
benefit plans 2,839 2,310 1,581
Deferred revenues, net (17) 138 (398)
Deferred tank painting costs (1,675) (2,308) (1,653)
Deferred rate case expense (3,032) (2,171) (3,008)
Deferred extraordinary weather costs -- (1,248) --
Amortization of deferred charges 6,995 7,726 8,268
Other, net (1,222) (2,562) (1,873)
Changes in assets and liabilities, net of
effects from acquisitions
Accounts receivable (14,897) (5,759) (9,734)
Unbilled revenues 9,897 (389) (3,738)
Other current assets (785) 364 (352)
Accounts payable (329) 11,985 2,987
Taxes accrued, including federal income (254) 1,554 (664)
Interest accrued (33) 3,070 (674)
Other current liabilities 8,353 (265) (3,257)
- ------------------------------------------------------------------------------
Net cash from operating activities 179,096 177,344 139,770
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (330,762) (265,673) (193,116)
Allowance for other funds used during
construction 11,771 5,890 3,757
Water system acquisitions, net of
acquired cash (5,738) (6,011) (65,889)
Proceeds from the disposition of property,
plant and equipment 16,307 3,013 2,183
Removal costs from property, plant and
equipment retirements (7,204) (6,375) (6,201)
Funds restricted for construction activity 12,286 (20,314) (700)
Temporary investments 935 (1,049) (100)
- ------------------------------------------------------------------------------
Net cash used in investing activities (302,405) (290,519) (260,066)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 132,450 196,400 267,070
Proceeds from preferred stock -- -- 1,000
Proceeds from common stock 33,544 35,037 3,861
Net borrowings (repayments) under
line-of-credit agreements 66,214 (111,195) 50,535
Advances and contributions for construction,
net of refunds 19,296 22,586 20,661
Debt issuance costs (1,735) (4,076) (4,718)
Repayment of long-term debt (85,452) (7,303) (152,050)
Redemption of preferred stocks (1,411) (2,792) (7,071)
Dividends paid (46,484) (38,370) (35,126)
- ------------------------------------------------------------------------------
Net cash from financing activities 116,422 90,287 144,162
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (6,887) (22,888) 23,866
Cash and cash equivalents at beginning of year 30,091 52,979 29,113
-------------------------------
Cash and cash equivalents at end of year $ 23,204 $ 30,091 $ 52,979
===============================
Cash paid during the year for:
Interest, net of capitalized amount $ 119,676 $ 108,653 $ 99,433
===============================
Income taxes $ 44,191 $ 34,429 $ 41,880
===============================
Common stock issued in lieu of cash in connection with the Employees' Stock
Ownership Plan and the Savings Plan for Employees totaled $2,839 in 1995,
$2,310 in 1994 and $1,581 in 1993. Capital lease obligations of $66
were recorded in 1994.
The accompanying notes are an integral part of these financial statements.
</TABLE>
39
<PAGE> 62
- ---------------------------------------------------------------------------
Consolidated Statement of Capitalization
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
At December 31, 1995 1994
==============================================================================
<S> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
Common stock -- $1.25 par value, authorized
100,000,000 shares, outstanding 33,913,335
shares in 1995 and 32,659,187 shares in 1994 $ 42,392 $ 40,824
Paid-in capital 114,161 76,003
Retained earnings 664,452 618,875
Unearned compensation (2,066) (2,262)
- ------------------------------------------------------------------------------
818,939 733,440
- ------------------------------------------------------------------------------
At December 31, 1995, common shares reserved for
issuance in connection with the Company's stock
plans were 30,461,581 shares for the Stockholder
Rights Plan, 4,301,164 shares for the Dividend
Reinvestment and Stock Purchase Plan, 534,849 shares
for the Employees' Stock Ownership Plan, 287,233
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 at par value
on December 1, 2000 40,000 40,000
- ------------------------------------------------------------------------------
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
Cumulative preferential stock -- $35 par value,
authorized 3,000,000 shares, no outstanding shares -- --
- ------------------------------------------------------------------------------
11,673 11,673
- ------------------------------------------------------------------------------
PREFERRED STOCKS OF SUBSIDIARIES:
Dividend rate
3.9% to less than 5% 7,523 8,052
5% to less than 6% 5,719 5,866
6% to less than 7% 2,285 2,479
7% to less than 8% 2,370 2,420
8% to less than 9% 24,907 24,940
9% to less than 10% 4,970 5,188
10% to less than 11% 840 980
11% to less than 12% -- --
12% to less than 13% -- 100
- ------------------------------------------------------------------------------
48,614 50,025
- ------------------------------------------------------------------------------
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 $1,266 in 1996, $1,321 in
1997, $1,314 in 1998 and $1,247 in 1999, and $1,149
in 2000.
The subsidiaries issued preferred stock with a value of
$1,000 in 1993. Redemptions of preferred stock
amounted to $1,411 in 1995, $2,792 in 1994 and $6,591
in 1993.
</TABLE>
40
<PAGE> 63
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT
MATURITIES 1995 1994
==============================================================================
<S> <C> <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
- ------------------------------------------------------------------------------
15,000 116,000 131,000
- ------------------------------------------------------------------------------
Capital lease obligations to a subsidiary
were $40 in 1995 and $51 in 1994.
LONG-TERM DEBT OF SUBSIDIARIES:
Interest Rate
4% to less than 5% 37 326 363
5% to less than 6% 505 112,646 113,151
6% to less than 7% 4 276,304 229,140
7% to less than 8% 39 297,323 240,212
8% to less than 9% 12,900 203,800 196,589
9% to less than 10% 15,004 311,021 327,525
10% to less than 11% 455 65,225 65,680
11% to less than 12% -- -- --
12% to less than 13% -- -- --
13% to less than 14% -- -- 2,002
14% to less than 15% 50 700 750
- ------------------------------------------------------------------------------
28,994 1,267,345 1,175,412
Capital leases 327 1,304 1,631
- ------------------------------------------------------------------------------
$29,321 1,268,649 1,177,043
- ------------------------------------------------------------------------------
$2,303,875 $2,143,181
========================
Maturities of long-term debt of subsidiaries,
including sinking fund requirements, during the
next five years will amount to $29,321 in 1996,
$56,430 in 1997, $24,404 in 1998, $17,254 in 1999
and $36,243 in 2000.
Long-term debt of subsidiaries is substantially
secured by utility plant and by a pledge of
certain securities of subsidiaries and affiliates.
The accompanying notes are an integral part of
these financial statements.
</TABLE>
41
<PAGE> 64
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, 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
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
Net income -- -- -- 92,061 -- 92,061
Dividend reinvestment 169,543 212 4,576 -- -- 4,788
Stock purchase 904,936 1,131 24,936 -- -- 26,067
Employees' stock ownership plan 77,365 97 2,363 -- -- 2,460
Savings plan for employees 102,304 128 2,940 -- -- 3,068
Incentive plan -- -- 3,343 -- 196 3,539
Dividends:
Preferred stocks -- -- -- (3,984) -- (3,984)
Common stock, $1.28 per share -- -- -- (42,500) -- (42,500)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 33,913,335 $42,392 $114,161 $664,452 $(2,066) $818,939
==========================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
42
<PAGE> 65
AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
At December 31, 1995 1994
==============================================================================
<S> <C> <C>
ASSETS
Investments in subsidiaries
Securities $1,003,088 $898,219
Notes and advances 110 120
- ------------------------------------------------------------------------------
1,003,198 898,339
- ------------------------------------------------------------------------------
Current assets
Cash and cash equivalents 119 17,647
Other receivable from subsidiaries 2,673 10
Other 157 120
- ------------------------------------------------------------------------------
2,949 17,777
- ------------------------------------------------------------------------------
Deferred debits
Deferred income taxes 2,922 2,025
Debt expense 291 346
Preferred stock expense 231 255
Other 11 2
- ------------------------------------------------------------------------------
3,455 2,628
- ------------------------------------------------------------------------------
Other long-term assets 8,982 6,171
- ------------------------------------------------------------------------------
$1,018,584 $924,915
==========================
CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $ 818,939 $733,440
Preferred stocks with mandatory redemption
requirements 40,000 40,000
Preferred stocks without mandatory redemption
requirements 11,673 11,673
Long-term debt 116,040 131,051
- ------------------------------------------------------------------------------
986,652 916,164
- ------------------------------------------------------------------------------
Current liabilities
Bank debt 3,700 --
Current portion of long-term debt 15,024 20
Taxes accrued, including federal income -- 53
Interest accrued 1,502 1,414
Other 1,345 750
- ------------------------------------------------------------------------------
21,571 2,237
- ------------------------------------------------------------------------------
Other long-term liabilities 10,361 6,514
- ------------------------------------------------------------------------------
Commitments and contingencies -- --
- ------------------------------------------------------------------------------
$1,018,584 $924,915
==========================
The accompanying notes are an integral part of these financial statements.
</TABLE>
43
<PAGE> 66
AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
Statements of Income and Retained Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31, 1995 1994 1993
==============================================================================
<S> <C> <C> <C>
INCOME
Income from subsidiaries
Equity in earnings of subsidiaries
Dividends $ 77,182 $ 64,917 $ 65,264
Undistributed earnings 26,315 24,532 18,984
- ------------------------------------------------------------------------------
103,497 89,449 84,248
Interest 7 154 352
Other income 1,147 510 868
- ------------------------------------------------------------------------------
104,651 90,113 85,468
- ------------------------------------------------------------------------------
Expenses
Operating and administrative expenses 8,086 6,897 5,438
General taxes 239 232 200
Interest 11,027 10,642 9,618
Amortization of debt expense 56 56 53
- ------------------------------------------------------------------------------
19,408 17,827 15,309
- ------------------------------------------------------------------------------
Income before income taxes 85,243 72,286 70,159
Provision for income taxes (6,818) (6,366) (5,228)
- ------------------------------------------------------------------------------
Net income 92,061 78,652 75,387
Dividends on preferred stocks 3,984 3,984 3,996
- ------------------------------------------------------------------------------
Net income to common stock $ 88,077 $ 74,668 $ 71,391
==============================
Average shares of common stock
outstanding (thousands) 33,382 31,918 31,139
Earnings per common share on average
shares outstanding $ 2.64 $ 2.34 $ 2.29
==============================
RETAINED EARNINGS
Balance at beginning of year $618,875 $578,593 $538,332
Add: net income 92,061 78,652 75,387
- ------------------------------------------------------------------------------
710,936 657,245 613,719
- ------------------------------------------------------------------------------
Deduct: dividends
Preferred stock 3,528 3,528 3,540
Preference stock 456 456 456
Common stock -- $1.28 per share in 1995,
$1.08 per share in 1994,
$1.00 per share in 1993 42,500 34,386 31,130
- ------------------------------------------------------------------------------
46,484 38,370 35,126
------------------------------
Balance at end of year $664,452 $618,875 $578,593
==============================
The accompanying notes are an integral part of these financial statements.
</TABLE>
44
<PAGE> 67
AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1995 1994 1993
==============================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 92,061 $ 78,652 $ 75,387
Adjustments
Undistributed earnings of subsidiaries (26,315) (24,532) (18,984)
Other, net 1,620 1,558 739
Changes in assets and liabilities
Other current assets (24) (223) 184
Taxes accrued, including federal income (71) (495) 704
Interest accrued 88 36 493
Other current liabilities 595 (106) 117
- ------------------------------------------------------------------------------
Net cash from operating activities 67,954 54,890 58,640
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries' common stock (78,554) (63,315) (42,875)
Redemption of preferred stock by subsidiary -- -- 1,000
Repayment of promissory notes by subsidiaries 10 4,510 1,010
Other (501) (684) (594)
- ------------------------------------------------------------------------------
Net cash used in investing activities (79,045) (59,489) (41,459)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt -- -- 81,000
Proceeds from common stock 36,383 37,347 5,442
Net borrowings (repayments) under
line-of-credit agreements 3,700 -- (21,255)
Repayment of long-term debt (23) (15) (23,214)
Redemption of preferred stock -- -- (480)
Dividends paid (46,484) (38,370) (35,126)
Other (13) (18) (324)
- ------------------------------------------------------------------------------
Net cash from (used in) financing activities (6,437) (1,056) 6,043
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (17,528) (5,655) 23,224
Cash and cash equivalents at beginning of year 17,647 23,302 78
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 119 $ 17,647 $ 23,302
==============================
Cash paid (received) during the year for:
Interest $ 10,939 $ 10,606 $ 9,125
==============================
Income taxes $ (5,844) $ (5,848) $ (4,846)
==============================
The accompanying notes are an integral part of these financial statements.
</TABLE>
45
<PAGE> 68
- ---------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1: ORGANIZATION AND OPERATION
American Water Works Company, Inc. through its regulated subsidiaries
provides water service to 1,720,000 customers in 21 states. As public
utilities, the regulated companies function under rules and regulations
prescribed by state regulatory commissions.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
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).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
REGULATION
The regulated subsidiaries have incurred various costs and received
various credits which have been reflected as regulatory assets and
liabilities on the Company's consolidated balance sheets. Accounting for
such costs and credits as regulatory assets and liabilities is in
accordance with Statement of Financial Accounting Standards No. 71 (SFAS
No. 71), "Accounting for the Effects of Certain Types of Regulation." This
statement sets forth the application of generally accepted accounting
principles for those companies whose rates are established by or are
subject to approval by an independent third-party regulator. Under SFAS
No. 71, regulated companies defer costs and credits on the balance sheet as
regulatory assets and liabilities when it is probable that those costs and
credits will be allowed in the ratesetting process in a period different
from the period in which they would have been reflected in income by an
unregulated company. These deferred regulatory assets and liabilities are
then flowed through the income statement in the period in which the same
amounts are reflected in rates.
PROPERTY, PLANT AND EQUIPMENT
Additions to utility plant and replacements of retirement units of
property are capitalized. Costs capitalized include 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 include the difference between the purchase price of utility
plant and its original cost (less accumulated depreciation) and 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 an
original maturity of three months or less 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 placed in service before the adoption of full
normalization for rate making purposes by regulatory authorities. The
regulatory asset for income taxes recoverable through rates on the balance
sheet is net of the 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.
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.
46
<PAGE> 69
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
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.
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, 1995 and 1994 include
payables to banks of $9,818,000 and $7,009,000, respectively, which
represent checks issued but not presented to the banks for payment, net of
the related bank balance.
ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations or provide
a future benefit are expensed or capitalized as appropriate. Remediation
costs that relate to an existing condition caused by past operations are
accrued when it is probable that these costs will be incurred and can be
reasonably estimated.
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.
Generally, 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. 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 service 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.
NEW ACCOUNTING STANDARD
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," was issued by the Financial Accounting Standards
Board requiring implementation by no later than 1996. The statement
requires that long-lived assets and certain identifiable intangible assets,
including utility plant acquisition adjustments and the excess cost of
investments in subsidiaries over book equity at acquisition, be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of the
expected future cash
47
<PAGE> 70
- ---------------------------------------------------------------------------
Notes to Financial Statements
flows expected to result from the use of the asset and its eventual
disposition is less than the carrying amount of the asset, an impairment
loss is recognized. Measurement of an impairment loss would be based on
the fair value of the asset.
The Statement also requires that a rate-regulated enterprise should
charge a regulatory asset to earnings if and when future recovery in rates
of that asset is no longer probable.
Adoption of the Statement effective January 1, 1996, is not expected to
have a significant effect on the results of operations or the financial
position of the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to conform previously reported
data to the current presentation.
NOTE 3: INCOME TAXES
Components of consolidated income tax expense for the years presented
in the consolidated statement of income are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
==============================================================================
<S> <C> <C> <C>
STATE INCOME TAXES:
Current $ 7,938 $ 7,399 $ 8,681
Deferred
Current 59 97 (57)
Non-current 82 222 (1,249)
- ------------------------------------------------------------------------------
$ 8,079 $ 7,718 $ 7,375
==============================
FEDERAL INCOME TAXES:
Current $ 34,485 $ 24,930 $ 31,162
Deferred
Current (180) 4 (92)
Non-current 16,505 18,511 10,640
Amortization of deferred
investment tax credits (1,243) (1,251) (1,221)
- ------------------------------------------------------------------------------
$ 49,567 $ 42,194 $ 40,489
==============================
</TABLE>
Following is a reconciliation of federal income tax expense to income
tax at the statutory rate (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
==============================================================================
<S> <C> <C> <C>
Income before federal income tax $141,628 $120,846 $115,876
==============================
Income tax at federal statutory rate of 35% $ 49,570 $ 42,296 $ 40,557
Increases (decreases) resulting from --
Flow through differences 556 874 1,494
Amortization of investment tax credits (1,243) (1,251) (1,221)
Subsidiary preferred dividends 1,258 1,297 1,486
Other (574) (1,022) (1,827)
- ------------------------------------------------------------------------------
Federal income tax expense $ 49,567 $ 42,194 $ 40,489
==============================
</TABLE>
The following table provides the components of the net deferred tax
liability at December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
===================================================================
<S> <C> <C>
DEFERRED TAX ASSETS:
Advances and contributions $132,497 $127,914
Deferred investment tax credits 14,849 15,335
Other 9,566 6,633
- -------------------------------------------------------------------
156,912 149,882
- -------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Utility plant, principally due
to depreciation differences 428,215 405,688
Income taxes recoverable
through rates 66,259 67,637
Other 19,046 16,001
- -------------------------------------------------------------------
513,520 489,326
- -------------------------------------------------------------------
$356,608 $339,444
===================
</TABLE>
As of December 31, 1995 and 1994, the parent company had no material
temporary differences. No valuation allowances were required on deferred
tax assets at December 31, 1995 and 1994.
NOTE 4: 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, 1995 was
$38,200,000 for the Company and $123,130,000 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
have compensating balance requirements.
Short-term bank borrowing information is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
==============================================================================
<S> <C> <C> <C>
Maximum amount outstanding $148,639 $195,727 $220,150
Average amount outstanding 109,530 123,545 171,340
Weighted average annual
interest rate 6.66% 4.60% 3.82%
Interest rate at December 31 6.33% 4.84% 3.71%
</TABLE>
48
<PAGE> 71
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
NOTE 5: 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 for those 60 consecutive months of employment which yield the
highest average.
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>
1995 1994 1993
==============================================================================
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 8,332 $ 10,240 $ 8,659
Interest cost on projected benefit obligation 25,560 24,360 21,989
Actual return on plan assets (94,167) (9,383) (23,620)
Net amortization and deferral 67,768 (15,472) (1,595)
- ------------------------------------------------------------------------------
Net pension cost $ 7,493 $ 9,745 $ 5,433
==============================
Assumed asset earnings rate 8.50% 8.50% 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 made contributions to the plan of $9,993,000 in 1995 and
$4,750,000 in 1994. There was no contribution made in 1993 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. In November 1995, the plan received 2,000,000
shares of common stock from Allmerica Financial Corporation in connection
with the demutualization of its State Mutual Life Assurance Company
subsidiary. State Mutual, as a mutual insurance company, was owned by its
policyholders, and the plan has invested significant amounts with that
company. The shares of Allmerica Financial received by the plan were
subsequently sold, resulting in a net gain of approximately $47,000,000 to
the plan. The following table reconciles plan assets and liabilities to
the funded status of the plan at December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
==============================================================================
<S> <C> <C>
Plan assets at fair value $376,508 $285,641
===================
Actuarial present value of benefit obligations:
Vested benefits $300,475 $226,293
Non-vested benefits 7,873 5,930
- ------------------------------------------------------------------------------
Accumulated benefit obligation 308,348 232,223
Effect of projected future salary increases 89,036 58,059
- ------------------------------------------------------------------------------
Total projected benefit obligation $397,384 $290,282
===================
Projected benefit obligation in excess of
plan assets $(20,876) $ (4,641)
Unrecognized net transition asset (16,468) (18,821)
Unrecognized prior service cost 919 1,003
Unrecognized net (gain) loss 15,904 (562)
- ------------------------------------------------------------------------------
Accrued pension cost $(20,521) $(23,021)
===================
Discount rate assumption 7.00% 8.75%
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 $1,163,000 for 1995, $1,344,000 for 1994 and $1,066,000 for 1993. At
December 31, 1995, the projected benefit obligation for these plans totaled
$10,313,000. Accrued as a pension liability on the balance sheet is
$8,000,000 representing $6,119,000 of accrued pension cost and an unfunded
accumulated benefit obligation in excess of accrued pension cost of
$1,881,000.
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. Retirees and their dependents under age 65 can
elect either a comprehensive medical plan under which covered expenses are
paid at 80% (90% prior to August 1, 1993) after an annual deductible has
been satisfied or, effective January 1, 1996, a managed care plan that
requires copayments. Monthly contributions for early retirements that
began prior to age 62 have been required since August 1, 1993, and
additional contributions will be required until age 65 for retirements that
take place after 1995. A basic/major medical plan that covered 100% of
hospital and surgical expenses and required additional contributions will
not be available after 1995. Retirees and their dependents age 65 and over
are covered by a Medicare supplement plan.
49
<PAGE> 72
- ---------------------------------------------------------------------------
Notes to Financial Statements
The following table provides postretirement benefit cost components and
the expected long-term rate of return used in determining net
postretirement benefit cost (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
==============================================================================
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 4,641 $ 5,759 $ 5,153
Interest cost on accumulated postretirement
benefit obligation 11,637 10,374 10,100
Actual return on plan assets (2,450) (975) --
Net amortization and deferral 5,196 5,648 6,173
- ------------------------------------------------------------------------------
Net postretirement benefit cost $19,024 $20,806 $21,426
============================
Assumed asset earnings rate 7.70% 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 $19,024,000 in 1995, $20,806,000 in 1994
and $8,235,000 in 1993. The Company's policy is 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>
1995 1994
==============================================================================
<S> <C> <C>
Plan assets at fair value $ 47,446 $ 32,142
====================
Actuarial present value of postretirement
benefit obligations:
Retirees and dependents $ 60,248 $ 53,300
Fully eligible active plan participants 4,363 3,847
Other active plan participants 88,080 73,980
- ------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation $ 152,691 $ 131,127
====================
Accumulated postretirement benefit
obligation in excess of plan assets $(105,245) $ (98,985)
Unrecognized transition obligation 97,357 109,903
Unrecognized prior service costs -- 3,537
Unrecognized net gain (1,212) (23,555)
- ------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (9,100) $ (9,100)
====================
Discount rate assumption 7.00% 8.75%
Compensation growth rate assumption 5.00% 5.00%
</TABLE>
The health care cost trend rate, used to calculate the Company's cost
for postretirement health care benefits, is a 9% annual rate in 1996 that
is assumed to decrease gradually to a 5.5% annual rate for 2003 and remain
at that level thereafter for the comprehensive plan and a constant 5.5%
annual rate for the managed care plan. A one-percentage-point increase in
the health care cost trend rate would have increased the accumulated
postretirement benefit obligation by $22,200,000 at January 1, 1996 and the
aggregate of the service and interest cost components of postretirement
benefit costs for 1995 by $2,600,000.
NOTE 6: LEASES
The Company has entered into operating leases involving certain
facilities and equipment. Rental expenses under operating leases were
$8,985,000 for 1995, $8,264,000 for 1994 and $8,706,000 for 1993. Capital
leases currently in effect are not significant.
At December 31, 1995, 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):
=====================================
1996 $3,878
1997 2,937
1998 2,168
1999 1,411
2000 824
Later years 3,264
- -------------------------------------
NOTE 7: 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 initial costs associated with the plan amendment
providing for optional cash purchase of stock of $507,000 in 1994 and
$299,000 in 1993 were charged to paid-in capital.
The plan was amended, as of March 1, 1996, to provide for new shares
purchased under the plan to be priced at the applicable average market
price. Until March 1, 1996, shares purchased with reinvested dividends or
optional cash purchases were priced at 95% of the applicable average market
price.
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
50
<PAGE> 73
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
matching contributions in an amount equal to 100% of each participant's
contribution.
The Company expensed contributions of $1,408,000 for 1995, $1,366,000
for 1994 and $1,350,000 for 1993 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. 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 matches a portion of the
contributions of participating employees up to a designated level.
Effective January 1, 1996, the Company will match 45% of the first 4% 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
$1,429,000 for 1995, $999,000 for 1994 and $291,000 for 1993.
LONG-TERM PERFORMANCE-BASED INCENTIVE PLAN
In 1994 the Company and its subsidiaries 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 cycle 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 three-year performance cycle. Such
expense was $5,386,000 in 1995 and $914,000 in 1994.
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 8: COMMITMENTS AND CONTINGENCIES
Construction programs of subsidiaries for 1996 are estimated to cost
approximately $312,000,000. Commitments have been made in connection with
certain construction programs.
The Company's subsidiary, New Jersey-American Water Company, has a rate
increase application requesting $52.9 million in additional annual revenues
awaiting decision. That case addresses New Jersey-American's $186 million
Tri-County Water Supply Project that takes water from the Delaware River to
a new treatment plant and then delivers it throughout the southern New
Jersey area by way of a nearly 30-mile long pipeline. On February 2, 1996
an Administrative Law Judge issued a decision on the case finding that the
Company had acted reasonably and prudently in designing the project and
recommending full rate base recognition of the project that was found to be
a reasonable approach to the region's needs. The judge's decision, if
approved by the commission, would result in approximately $39.5 million in
additional annual revenues. The project was designed partly
51
<PAGE> 74
- ---------------------------------------------------------------------------
Notes to Financial Statements
as a supply source for future wholesale customers who have been
mandated by the state to reduce their intake from an aquifer that is
suffering from declining water levels. The actual revenues the Company
would receive under the judge's decision would depend on how many of these
wholesale customers enter into contracts to use water from the project as
their alternative source of supply.
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 9: 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, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING
1995 AMOUNT FAIR VALUE
==============================================================================
<S> <C> <C>
Preferred stocks of the Company with
mandatory redemption requirements $ 40,000 $ 42,496
Preferred stocks of subsidiaries with
mandatory redemption requirements 42,326 49,242
Long-term debt of the Company 131,000 140,632
Long-term debt of subsidiaries 1,296,339 1,455,561
</TABLE>
<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>
NOTE 10: ACQUISITIONS AND DISPOSITION
PENNSYLVANIA GAS AND WATER COMPANY WATER UTILITY OPERATIONS ACQUISITION
As discussed in Note 13, the Company's subsidiary in Pennsylvania
acquired the water utility operations of Pennsylvania Gas and Water
Company.
MIDWESTERN WATER UTILITIES 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.
GRAFTON, MASSACHUSETTS EMINENT DOMAIN PROCEEDING
During the second quarter of 1995, the Company resolved its litigation
with the Grafton Water District in Massachusetts to recover the fair market
value of the water utility taken through eminent domain by the District in
1988. In 1990, a jury awarded the Company $5,600,000 for these assets that
had served 2,300 customers. Since that time, the District pursued various
appeals, all of which resulted in reaffirmation of the jury award. In
addition to the $1,100,000 paid by the District in 1988, the Company
received $6,600,000 which includes the remainder of the jury award and
$2,100,000 in interest. This produced a gain in 1995 of $3,900,000, or
$.12 per share, after applicable income taxes.
OHIO SUBURBAN WATER COMPANY EMINENT DOMAIN PROCEEDING
On September 29, 1995, the City of Huber Heights acquired, under threat
of taking through eminent domain, the assets of the Ohio Suburban Water
Company for $14,400,000. Ohio Suburban, which had served 14,600 customers,
was acquired by the Company's subsidiary in Ohio as part of the Midwestern
water utilities acquisition described above. The sale of these assets, in
accordance with a sales agreement providing for the Company to recoup the
entire investment that it made only two years ago, did not have an adverse
financial effect on the Company.
HOWELL TOWNSHIP, NEW JERSEY ACQUISITION
On November 7, 1995, voters in Howell Township, New Jersey approved a
referendum providing for the sale of the community's water system to the
Company's subsid-
52
<PAGE> 75
AMERICAN WATER WORKS, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
iary, New Jersey-American Water Company, for approximately $35,100,000.
The system which serves 5,500 customers is located between New
Jersey-American's Shrewsbury and Lakewood operations, and a portion of its
supply and treatment capacity will be used to serve those two service
territories. New Jersey-American and Howell Township are currently
finalizing the terms of the acquisition which is expected to be
accomplished in 1996.
NOTE 11: JOINT VENTURE
A subsidiary of the Company owns a 50 percent interest in
AmericanAnglian Environmental Technologies, a joint venture with British
water and wastewater utility Anglian Water Plc. AmericanAnglian provides
both technical expertise and financing resources to help communities
throughout the United States to upgrade their water and wastewater systems.
The results of the joint venture are accounted for by the Company under the
equity method.
In December 1995, half of the common stock of the Company's American
Commonwealth Management Services Company subsidiary was sold to Anglian
Water Plc. for $1,174,000 in cash. The Company and Anglian then
transferred ownership of American Commonwealth Management Services to
their AmericanAnglian joint venture. American Commonwealth Management
Services provides management and operating services, at a profit, to
non-affiliated water and wastewater systems. It also owns a facility to
regenerate carbon used For water filtration and those capabilities are
being marketed to affiliated and non-affiliated water utilities throughout
the country.
NOTE 12: UTILITY PLANT
Information on utility plant by category at December 31 is as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
==============================================================================
<S> <C> <C>
Water plant
Sources of supply $ 147,159 $ 140,743
Treatment and pumping 669,161 634,792
Transmission and distribution 1,550,687 1,468,584
Services, meters and fire hydrants 595,156 553,262
General structures and equipment 213,070 200,609
Wastewater plant 29,451 32,351
Construction in progress 270,824 149,866
- ------------------------------------------------------------------------------
3,475,508 3,180,207
Less-accumulated depreciation 590,827 535,128
- ------------------------------------------------------------------------------
$2,884,681 $2,645,079
=====================
</TABLE>
NOTE 13: SUBSEQUENT EVENT
On February 16, 1996, the Company's subsidiary, Pennsylvania-American
Water Company, completed the acquisition of the water utility operations of
Pennsylvania Gas and Water Company for approximately $409,000,000. The
acquired operations, which include 10 water treatment plants and 36
reservoirs, serve 132,000 customers in northeastern Pennsylvania. With
Pennsylvania-American's current service territory primarily in the western
and central-southeastern parts of the commonwealth, the Company
anticipates that the addition of this large northeastern operation will
increase this subsidiary's geographical diversity and provide opportunity
for greater operational synergy.
The acquisition, which will be accounted for under the purchase method,
was financed with short-term borrowings and the assumption of $143,000,000
of long-term debt.
NOTE 14: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 (in thousands,
except per share amounts) are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER TOTAL
===============================================================================
<S> <C> <C> <C> <C> <C>
Operating revenues $180,844 $200,662 $222,961 $198,353 $802,820
Operating income 48,010 63,791 78,139 54,333 244,273
Net income 13,547 27,425 32,599 18,490 92,061
Net income to common stock 12,551 26,429 31,603 17,494 88,077
Net income per common share $.38 $.80 $.94 $.52 $2.64
</TABLE>
<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 43,886 63,044 71,587 54,208 232,725
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>
53
<PAGE> 76
- ---------------------------------------------------------------------------
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 the prevailing market
price. 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,
c/o Boston EquiServe, L.P., Mail Stop 45-02-64, 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, c/o Boston EquiServe, L.P., Mail Stop
45-02-64, 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 J. James
Barr, Vice President, Treasurer and Chief Financial Officer, P.O. Box
1770, Voorhees, NJ 08043, telephone (609) 346-8200.
ANNUAL MEETING
The 1996 Annual Meeting of American Water Works Company shareholders
will be held on Thursday, May 2, 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
- -----------------------------------------------------------------------------
1995 High Low High Low High Low
=============================================================================
<S> <C> <C> <C> <C> <C> <C>
1st quarter $29-1/2 $26-3/4 $19 $17 $19 $17
2nd quarter 32 28-1/2 19 17-1/8 19 17-3/4
3rd quarter 32-3/4 29-1/8 19-1/2 18 19-5/8 18
4th quarter 39-1/4 30-1/2 20-1/2 17-3/4 19-1/2 18
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarterly
dividend
paid per share 32 cents 31-1/4 cents 31-1/4 cents
Number of stock-
holders at De-
cember 31, 1995 32,653 275 936
- -----------------------------------------------------------------------------
</TABLE>
<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 stock-
holders at De-
cember 31, 1994 28,761 293 1,007
- -----------------------------------------------------------------------------
</TABLE>
The common and 5% preferred stocks have voting rights.
[RECYCLE LOGO]
This Annual Report is printed on recycled paper.
57
<PAGE> 77 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, 1995. 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 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 99.71
Indiana-American Water Company, Inc. Indiana 100
Iowa-American Water Company Delaware 94.84
Kentucky-American Water Company Kentucky 100
Maryland-American Water Company Maryland 100
Massachusetts Capital Resources Company Delaware 100
Missouri-American Water Company Missouri 100
New Jersey-American Resources Company New Jersey 100
New Jersey-American Water Company, Inc. New Jersey 100*
New Mexico-American Water Company, Inc. New Mexico 99.98
Michigan-American 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 95.80**
Tennessee-American Water Company Tennessee 99.78
Virginia-American Water Company Virginia 100
West Virginia-American Water Company West Virginia 99.91
Bluefield Valley Water Works Company Virginia 100
- ---------------------------------------------------------------------------
* Includes 8.56% which is owned by American Commonwealth Company, an
affiliate of the Registrant.
** Includes .17% and 2.26% which are owned by American Commonwealth Company
and Greenwich Water System, Inc., respectively, affiliates of the
Registrant.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements set forth in Form 10-K report of the
Registrant for 1995.
</LEGEND>
<CIK> 0000318819
<NAME> ROBERT D. SIEVERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,884,681
<OTHER-PROPERTY-AND-INVEST> 77,903
<TOTAL-CURRENT-ASSETS> 164,370
<TOTAL-DEFERRED-CHARGES> 243,732
<OTHER-ASSETS> 32,455
<TOTAL-ASSETS> 3,403,141
<COMMON> 42,392
<CAPITAL-SURPLUS-PAID-IN> 112,095
<RETAINED-EARNINGS> 664,452
<TOTAL-COMMON-STOCKHOLDERS-EQ> 818,939
82,326
17,961
<LONG-TERM-DEBT-NET> 1,384,649
<SHORT-TERM-NOTES> 148,639
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 44,321
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 906,306
<TOT-CAPITALIZATION-AND-LIAB> 3,403,141
<GROSS-OPERATING-REVENUE> 802,820
<INCOME-TAX-EXPENSE> 57,646
<OTHER-OPERATING-EXPENSES> 558,547
<TOTAL-OPERATING-EXPENSES> 616,193
<OPERATING-INCOME-LOSS> 186,627
<OTHER-INCOME-NET> 22,476
<INCOME-BEFORE-INTEREST-EXPEN> 209,103
<TOTAL-INTEREST-EXPENSE> 117,042
<NET-INCOME> 92,061
3,984
<EARNINGS-AVAILABLE-FOR-COMM> 88,077
<COMMON-STOCK-DIVIDENDS> 42,500
<TOTAL-INTEREST-ON-BONDS> 112,073
<CASH-FLOW-OPERATIONS> 179,096
<EPS-PRIMARY> 2.64
<EPS-DILUTED> 0
</TABLE>
