<PAGE>
P R O S P E C T U S
3,643,100 SHARES
[AMERICAN WATER WORKS LOGO]
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by American
Water Works Company, Inc. The Common Stock of the Company is traded on the New
York Stock Exchange under the symbol 'AWK'. The last reported sale price of the
Common Stock on the New York Stock Exchange on May 8, 1996 was $37.625 per
share. See 'Price Range of Common Stock and Dividends.'
Concurrently with and conditioned upon the completion of this offering,
certain members of families that are existing large holders of Common Stock (the
'Ware Family Buyers') have agreed to purchase from the Company and the Company
has agreed to sell to the Ware Family Buyers 556,900 shares of Common Stock at
the Price to Public less underwriting discounts and commissions in a private
offering. See 'Recent Developments--Ware Family Buyers.'
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------
Per Share $37.625 $1.17 $36.455
- -------------------------------------------------------------------------------
Total(3) $137,071,638 $4,262,427 $132,809,211
===============================================================================
(1) For information regarding indemnification of the Underwriters, see
'Underwriting.'
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 546,465 additional shares solely to cover over-allotments, if any.
See 'Underwriting.' If such option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $157,632,383, $4,901,791 and $152,730,592, respectively.
The number of additional shares of Common Stock available to cover
over-allotments is subject to adjustment should the Company authorize
the proposed two-for-one stock split. See 'Recent Developments--Proposed
Stock Split' and 'Underwriting.'
------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by them
and subject to certain conditions. It is expected that certificates for the
Common Stock offered hereby will be available for delivery on or about May 14,
1996 at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
------------------
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
EDWARD JONES
May 8, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act') and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common Stock of
the Company is listed on the New York Stock Exchange and such reports, proxy
statements and other information may be inspected at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all exhibits thereto, referred to as the 'Registration
Statement') filed by the Company with the Commission under the Securities Act of
1933, as amended (the 'Securities Act'), with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the securities offered hereby. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the Commission
described above. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are incorporated in this Prospectus by reference: (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1995; (ii) the Company's
Current Report on Form 8-K filed on March 1, 1996; (iii) the Company's Current
Report on Form 8-K/A filed on April 3, 1996; and (iv) the Company's Current
Report on Form 8-K filed on April 25, 1996.
In addition, all documents filed by the Company with the Commission after
the date of this Prospectus pursuant to Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act and prior to the termination of the offering made hereby shall
be deemed to be incorporated in this Prospectus by reference and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which is incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Certain information incorporated by reference herein contains forward-looking
statements as such term is defined in Section 27A of the Securities Act and
Section 21E of the Exchange Act. Certain factors as discussed therein could
cause actual results to differ materially from those in the forward-looking
statements.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF ANY SUCH
PERSON, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, INCLUDING EXHIBITS SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS BUT EXCLUDING ALL OTHER EXHIBITS TO SUCH DOCUMENTS. REQUESTS
SHOULD BE MADE TO THE COMPANY AT ITS GENERAL MAILING ADDRESS: OFFICE OF THE
SECRETARY, AMERICAN WATER WORKS COMPANY, INC., 1025 LAUREL OAK ROAD, P.O. BOX
1770, VOORHEES, NEW JERSEY 08043, TELEPHONE NUMBER (609) 346-8290.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and in the documents
incorporated herein by reference. Unless otherwise indicated, (i) all references
in this Prospectus to the Company shall mean American Water Works Company, Inc.
and its subsidiaries on a consolidated basis, (ii) references to 'American Water
Works' shall mean American Water Works Company, Inc., excluding its
subsidiaries, and (iii) the information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised.
THE COMPANY
American Water Works Company, Inc. is the largest investor-owned and most
geographically diverse water utility business in the United States. The Company,
through its 22 regulated subsidiaries, is primarily engaged in the collection,
treatment, distribution and sale of water. The Company currently serves more
than 800 communities with a total population of approximately 7 million in 21
states from Pennsylvania, New Jersey, Kentucky and Tennessee in the East and
Southeast to Indiana, Missouri, California and New Mexico in the Midwest and
West. American Water Works can trace its history back to 1886.
As the largest investor-owned water utility business in the nation, the
Company believes it is well positioned to benefit from the consolidation of
water utilities into larger, more financially capable operations. The Company
has the size, geographical diversity, technical capability and financial and
management resources to acquire large and small water systems, develop regional
water supplies and participate with the public sector in creating and improving
water systems.
On February 16, 1996, Pennsylvania-American Water Company
('Pennsylvania-American'), a subsidiary of American Water Works, purchased the
water utility operations of Pennsylvania Gas and Water Company (now known as PG
Energy, Inc.) for approximately $414 million (the 'Acquisition'). The acquired
operations, which include 10 water treatment plants and 36 reservoirs, serve
approximately 400,000 people in northeastern Pennsylvania and generated revenues
of approximately $66.3 million in calendar year 1995. See 'Recent
Developments--Acquisition,' 'Unaudited Pro Forma Condensed Consolidated
Statement of Income Data' and 'Capitalization.'
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.................................. 3,643,100 shares (1)
Common Stock to be outstanding
after the offering.................................. 38,734,832 shares (1)(2)
Price Range of Common Stock
(January 1, 1996 through May 8, 1996)............... $36 1/2 to $40 1/2
Closing price on May 8, 1996.......................... $37 5/8 per share
Indicated annual dividend............................. $1.40 per share (3)
Use of Proceeds....................................... To invest in the common equity of Pennsylvania-
American, which, in turn, will reduce certain
indebtedness incurred to finance the Acquisition. See
'Recent Developments--Acquisition' and 'Use of
Proceeds.'
New York Stock Exchange Symbol........................ AWK
</TABLE>
- ------------------
(1) Assuming Underwriters' over-allotment option is not exercised. See
'Underwriting.'
(2) Common Stock to be outstanding after the offering is based on 34,534,832
shares of Common Stock outstanding as of May 7, 1996, includes 556,900
shares of Common Stock to be sold to the Ware Family Buyers concurrently
with this offering and does not include shares issued pursuant to American
Water Works' Dividend Reinvestment and Stock Purchase Plan, Employee Stock
Ownership Plan, Long-Term Performance-Based Incentive Plan and 401(k)
Savings Plan since such date.
(3) Based upon the quarterly dividend of $.35 per share payable on May 15, 1996
to stockholders of record on April 26, 1996. The shares of Common Stock
offered hereby will not be entitled to the May 15, 1996 dividend.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA AND OPERATING INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues............................................ $ 717,537 $ 770,241 $ 802,820
Operating expenses............................................ 497,206 537,516 558,547
Operating income.............................................. 220,331 232,725 244,273
Net income.................................................... 75,387 78,652 92,061(1)
Net income to common stock.................................... 71,391 74,668 88,077(1)
PER SHARE DATA:
Earnings per common share..................................... $ 2.29 $ 2.34 $ 2.64(1)
Average number of common shares outstanding (thousands)....... 31,139 31,918 33,382
Dividends per common share.................................... $ 1.00 $ 1.08 $ 1.28
OTHER DATA:
Number of customers at year end (thousands)................... 1,685 1,706 1,720
Water sales (billions of gallons)............................. 221 237 240
Annual water revenues per customer............................ $ 416 $ 440 $ 453
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
--------------------------
ACTUAL PERCENTAGE
------------- -----------
<S> <C> <C>
CAPITALIZATION:
Long-term debt............................................................ $ 1,384,649 60.1%
Preferred stocks of subsidiaries.......................................... 48,614 2.1
Preferred stocks.......................................................... 51,673 2.2
Common stockholders' equity............................................... 818,939 35.6
------------- ------
Total capitalization................................................... $ 2,303,875 100.0%
============= ======
OTHER BALANCE SHEET DATA:
Net utility plant......................................................... $ 2,884,681
Total assets.............................................................. 3,403,141
</TABLE>
- ------------------
(1) Includes a net of tax gain of $3.9 million, or $.12 per share, as a result
of the conclusion of litigation concerning compensation for the sale of
certain water utility assets to the Grafton Massachusetts Water District.
4
<PAGE>
RECENT DEVELOPMENTS
ACQUISITION
On February 16, 1996, Pennsylvania-American, a subsidiary of American Water
Works, purchased the water utility operations of Pennsylvania Gas & Water
Company ('PG&W,' now known as PG Energy, Inc.) for approximately $414 million
(subject to certain adjustments) (the 'Acquisition'). The acquired operations
include 10 water treatment plants and 36 reservoirs and serve approximately
400,000 people in northeastern Pennsylvania. The operations acquired generated
revenues of $66.3 million in calendar year 1995. The Company is accounting for
the Acquisition as a purchase. The purchase price is subject to adjustment based
upon the actual value of the net assets of the acquired operations as of the
date of consummation of the Acquisition as compared to the estimated value of
the net assets as of December 31, 1995. See 'Unaudited Pro Forma Condensed
Consolidated Statement of Income Data' and 'Capitalization.'
The Acquisition is an important component of the Company's long-term
strategy of growth through selective acquisitions. See 'The Company--Corporate
Strategy.'
PROPOSED STOCK SPLIT
American Water Works' Board of Directors plans to authorize a two-for-one
Common Stock split following completion of this offering. Stockholders of
American Water Works approved an increase in the number of shares of Common
Stock American Water Works is authorized to issue from 100,000,000 shares to
300,000,000 shares at American Water Works' Annual Meeting of Stockholders held
on May 2, 1996. The stock split will be paid in the form of a 100% stock
dividend whereby each holder of shares of Common Stock will receive one
additional share of Common Stock for each share owned. Upon effecting the stock
dividend, American Water Works' dividend will be adjusted accordingly.
WARE FAMILY BUYERS
Concurrently with and conditioned upon the completion of this offering,
certain members of families that are existing large holders of Common Stock (the
'Ware Family Buyers') have agreed to purchase from the Company and the Company
has agreed to sell to the Ware Family Buyers 556,900 shares of Common Stock at
the Price to Public less underwriting discounts and commissions in a private
offering.
The Ware Family Buyers include a special purpose company of which Marilyn
Ware Lewis is Manager, which was established by three trusts for the benefit of
the children of John H. Ware, 3rd and his wife Marian S. Ware and which has
agreed to purchase 450,000 of the 556,900 shares to be sold to the Ware Family
Buyers. The Ware Family Buyers also include Rhoda C. Ware (through a limited
partnership controlled by her) and certain members of her family who have agreed
to purchase a total of 106,900 of the 556,900 shares to be sold to the Ware
Family Buyers (including 10,000 shares to be purchased by William R. Cobb).
Marilyn Ware Lewis, the Chairman of the Board of American Water Works, and
Paul W. Ware, a director of American Water Works, are the daughter and son of
John H. Ware, 3rd and Marian S. Ware. Nancy W. Wainwright and William R. Cobb
are directors of American Water Works and the daughter and son-in-law,
respectively, of Rhoda C. Ware.
As of March 27, 1996, members of the Ware Family, and charitable
foundations set up by such members, beneficially owned approximately 9.2 million
(or approximately 27%) of the outstanding shares of Common Stock.
5
<PAGE>
NEW JERSEY-AMERICAN REGULATORY DECISION
On March 13, 1996, the New Jersey Board of Public Utilities approved a
$39.5 million per annum rate increase for New Jersey-American Water Company
('New Jersey-American'), including an estimated $13.5 million in annual revenues
from potential wholesale customers. The increase reflects the completion of the
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 29 mile pipeline. This regional project was designed partly as a
supply source for certain water resellers who have been mandated by the state to
reduce their intake from an aquifer that is suffering from declining water
levels. The actual revenues that New Jersey-American receives will depend on
many factors, including the number of potential wholesale customers that
ultimately enter into contracts to use water
from the project as their alternative source of supply and the volume of water
sold. The applicable New Jersey statute provides for a 45 day appeal period from
the date of the order. Rates, however, may be placed in effect, subject to
refund, prior to the end of the appeal period. An appeal has been filed with the
New Jersey Board of Public Utilities. New Jersey-American is contesting this
appeal, and in the opinion of its management, such appeal is not likely to
succeed. However, should this appeal be upheld, the result would not have a
material adverse effect on the operating results or financial position of New
Jersey-American.
RECENT OPERATING RESULTS
Net income to Common Stock for the Company for the first quarter ending
March 31, 1996 was $16.0 million, a 28% increase over the $12.6 million reported
for the first quarter of 1995. Earnings per common share for the first quarter
was $0.47 per share, up from $0.38 per share for the same quarter in 1995, a 24%
increase. The Company's revenues for the first quarter of 1996 increased 10%, to
$198.2 million from $180.8 million in the same quarter in 1995. This year's
first quarter revenues reflect $9.1 million related to the Acquisition.
6
<PAGE>
THE COMPANY
American Water Works is the largest investor-owned and most geographically
diverse water utility business in the United States. The Company, through its 22
regulated subsidiaries, is primarily engaged in the collection, treatment,
distribution and sale of water. As of December 31, 1995, the Company's total
water system production capacity was approximately 1.3 billion gallons a day.
The Company currently serves more than 800 communities with a total population
of approximately 7 million in 21 states from Pennsylvania, New Jersey, Kentucky
and Tennessee in the East and Southeast to Indiana, Missouri, California and New
Mexico in the Midwest and West.
In fiscal year 1995, the Company had consolidated operating revenues of
$803 million, consolidated operating income of $244 million and net income to
common stock of $88 million (including a net of tax gain of $3.9 million as a
result of the conclusion of litigation concerning compensation for the sale of
certain water utility assets to the Grafton Massachusetts Water District). See
'Selected Historical Consolidated Statement of Income Data.' American Water
Works has experienced 5-year compound annual growth rates of 9.9% in dividends
per common share, 9.5% in investment in subsidiaries, 7.4% in earnings per
common share, 7.2% in book value per common share and 7.0% in consolidated
operating revenues.
Several important attributes contributed to the Company's growth and
profitability over the past five years and will continue to serve as a basis for
future growth, including: (i) its dedication to providing safe, reliable water
service at affordable cost; (ii) the size and geographic diversity of its
operations; (iii) its ability to grow through the continued investment in
existing operations and through complementary and strategic acquisitions; (iv)
its financial strength; (v) its operating experience and technical expertise;
and (vi) its understanding of the unique regulatory requirements of the
industry.
The Company conducts its operations through its regulated utility
subsidiaries and a service company.
SELECTED INFORMATION OF REGULATED COMPANIES BY STATE
(DOLLARS IN THOUSANDS)
<TABLE>
NET UTILITY
PLANT AT
CUSTOMERS AT DECEMBER 31, 1995 WATER AND
STATE DECEMBER 31, 1995 1995(1) PERCENT WASTEWATER REVENUES(1) PERCENT
- ----- ----------------- ------------------- ----------- ---------------------- -----------
<S> <C> <C> <C> <C> <C>
New Jersey 314,430 $ 769,731 26.7% $ 184,931 23.2%
Pennsylvania 392,147 707,531 24.5 180,948 22.7
Indiana 162,428 227,213 7.9 57,215 7.2
West Virginia 130,956 204,538 7.1 57,743 7.2
Illinois 144,440 177,150 6.1 59,480 7.5
Kentucky 85,180 147,111 5.1 32,087 4.0
California 101,928 135,388 4.7 57,687 7.2
Missouri 88,744 88,551 3.1 23,404 2.9
Virginia 46,075 81,942 2.8 27,697 3.5
Tennessee 67,715 81,934 2.8 28,287 3.6
Connecticut 26,213 63,569 2.2 18,232 2.3
Massachusetts 19,461 53,679 1.9 7,514 0.9
Iowa 54,353 50,953 1.8 17,662 2.2
Ohio 40,220 33,940 1.2 19,831 2.5
New York 11,455 18,055 0.6 9,140 1.2
New Mexico 13,775 16,060 0.6 5,876 0.7
New Hampshire 7,700 12,357 0.4 3,187 0.4
Arizona 4,407 6,808 0.2 2,915 0.4
Maryland 4,520 6,307 0.2 2,290 0.3
Michigan 3,752 1,321 0.1 818 0.1
--------- ------------- ----- ------------ -----
1,719,899 $ 2,884,138 100.0% $ 796,944 100.0%
========= ============= ===== ============ =====
</TABLE>
(1) Amounts do not reflect consolidating adjustments.
7
<PAGE>
The Regulated Companies. The 22 regulated subsidiary companies provide
water service to approximately 7 million people in over 800 communities in 21
states. From year-end 1990 to 1995, the number of customers served by the
Company has increased from 1.5 million to 1.7 million, representing an increase
of approximately 14%. As public utilities, the rates charged by the regulated
companies must be approved by state regulatory commissions. Further, each
regulated company is subject to the rules of both federal and state
environmental protection agencies, particularly with respect to the quality of
water distributed.
The Service Company. 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. In addition, the service company
operates a laboratory in Belleville, Illinois that is nationally recognized for
its work in water treatment and quality improvements. The laboratory provides
research and environmental testing for the regulated companies.
The Joint Venture. In addition to its water supply business, the Company
owns a 50% interest in a joint venture that provides management services to 11
water and sewer authorities in four states. The joint venture offers its
technical expertise and financing resources to communities throughout the United
States to operate and upgrade their water and wastewater systems. These services
produced revenues of approximately $8 million in 1995.
INDUSTRY
The Company believes that access to strong financial resources and
technical expertise will be necessary to continue to provide safe, reliable
water service at an affordable price and to meet increasingly stringent,
federally mandated water quality regulations. As such, continuous capital
investment will be necessary to address the industry's need to:
(i) invest in new technology to meet water quality standards;
(ii) expand to respond to growth and community development; and
(iii) replace aging water supply infrastructure.
As a result of the capital intensity of the industry, small water utilities
are under increasing pressure to consolidate, or in the case of some
municipally-owned water utilities, to privatize. The Company believes that, in a
consolidating industry, the larger and more financially viable operators of
water systems will have access to lower-cost capital, greater resources for the
efficient planning and development of water systems and the ability to spread
costs, including the cost of new technology required by the Safe Drinking Water
Act and other environmental laws, over a wider customer base. This is
particularly significant because it is estimated that approximately 75% of the
total cost of providing water service does not change with the amount of water
delivered to customers. As a result, the Company believes that water system
consolidation will provide economic efficiencies to acquiring companies and
customers.
As the largest investor-owned water utility business in the nation, the
Company believes it is well positioned to benefit from the consolidation of
water utilities into larger, more financially capable operations. The Company
has the size, geographic diversity, technical capability and financial and
management resources to acquire large and small water systems, develop regional
water supplies and participate with the public sector in creating and improving
water systems.
CORPORATE STRATEGY
American Water Works is committed to enhancing stockholder value through
the ownership of and investment in water utility operations. The Company employs
two complementary strategies to accomplish this goal:
(i) ongoing investment in subsidiary water companies; and
8
<PAGE>
(ii) acquisition of additional water systems which complement or expand the
existing business.
Ongoing Investment in Subsidiaries. American Water Works' investment in
its subsidiaries enables the Company to provide safe, reliable and affordable
water service. In addition, when recognized in regulatory decisions, such
investment provides a basis for revenue and income growth.
American Water Works' investment in its subsidiaries increased from $636.6
million at year-end 1990 to $1.0 billion at year-end 1995 and enabled its
subsidiaries to undertake construction programs totaling approximately $1.2
billion during the same five-year period. This investment growth was
accomplished by the retention of earnings by the subsidiaries for the five-year
period of $104.9 million in the aggregate and cumulative investment by American
Water Works in its subsidiaries during this period of $261.5 million.
Expenditures by the regulated companies for new facilities in 1995 totaled
$331 million, which was approximately 24% above 1994 construction expenditures
of $266 million. Investment in treatment and pumping facilities accounted for
approximately 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 Pennsylvania, Ohio,
Kentucky, Tennessee, West Virginia and New Jersey. Significant progress was made
toward completion of a new 7 million gallons-per-day facility to treat existing
surface and ground water supplies in Hingham, Massachusetts. Additionally,
construction was initiated on a 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
approximately 33% of 1995 construction expenditures. The most significant
project involved the completion of 29 miles of 24-inch through 54-inch
transmission mains which deliver water from New Jersey-American'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.
Supply improvements accounted for approximately 5% of 1995 construction
expenditures. Significant projects included the construction or re-drilling of
ground water sources in the systems serving California, Indiana, Maryland, New
Jersey, New Mexico and Ohio. In addition, substantial projects involving new
intake, pumping and/or piping facilities were completed in Pennsylvania and
Connecticut for the purpose of enhancing the source of supply capabilities in
those systems.
Expenditures recorded in any given year are influenced by many factors,
including the economy, regulation, material delivery and weather conditions. The
Company estimates that construction expenditures for 1996 will be $312 million.
In addition, the Company anticipates that approximately $1.0 billion of
additional funds will be invested in new facilities through the end of the year
2000. These expenditures will support ongoing programs to comply with
regulations promulgated to ensure water quality and protect the environment, to
keep pace with the development of service territories and to replace plant as
necessary.
Acquisition of Water Systems. The Company believes acquisitions will
continue to be an important element of growth and continually seeks
opportunities, large and small, municipally-owned and private, to acquire water
systems where it believes that its ownership and operations will enhance
stockholder value. The Company believes there are numerous potential acquisition
candidates because the water utility industry is highly fragmented. A
significant characteristic in determining the attractiveness of an acquisition
candidate is often the potential growth of the customer service area. The
Company's geographic diversity and position of leadership in the industry allow
it to pursue
9
<PAGE>
acquisitions both adjacent to existing customer service areas and in other
strategic customer service areas. There can be no assurance, however, that the
Company will identify attractive acquisition candidates in the future, that the
Company will be able to acquire such businesses on economically acceptable terms
or that any such acquisitions will not be dilutive to earnings.
On February 16, 1996, Pennsylvania-American purchased the water utility
operations of PG&W, a subsidiary of Pennsylvania Enterprises, Inc. ('PEI') for
approximately $414 million (subject to certain post-closing balance sheet
adjustments). Pennsylvania-American funded the purchase through short-term
borrowings and the assumption of $140 million of long-term debt and $7 million
of other liabilities. The short-term debt will be refunded through the issuance
of long-term debt and an equity infusion into Pennsylvania-American from the
proceeds of this offering and the proceeds of the sale of Common Stock to the
Ware Family Buyers. The acquired operations, which include 10 water treatment
plants and 36 reservoirs, serve approximately 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 addition
of this large northeastern operation will increase this subsidiary's geographic
diversity and provide opportunity for greater operational synergy. The
operations acquired generated revenues of $66.3 million in calendar year 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 New
Jersey-American, pending regulatory approval, for $35.1 million. The system,
which serves a population of approximately 16,000, is located between the
Shrewsbury and Lakewood operating centers of New Jersey-American, and a portion
of its supply and treatment capacity will be used to help serve those two
service territories.
In 1993, subsidiaries of the Company acquired four water utilities in
Indiana, Missouri, Ohio and Michigan for a purchase price of $62 million. These
midwestern utilities currently serve a population of approximately 355,000 in 17
communities. As part of the transaction, the Company's subsidiaries assumed
liabilities, deferred credits and preferred stock of approximately $109 million
and acquired assets with a value of approximately $171 million. 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 condemnation, the portion of these assets in Ohio which
serve a population of approximately 54,000 were sold to the City of Huber
Heights in accordance with a condemnation agreement which provided for the
Company's total recovery of the 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.
In addition, the Company has made in excess of 15 other smaller
acquisitions since January 1, 1994 which led to an aggregate increase in
customers in excess of 14,000. The Company presently has no commitments or
agreements and is not currently negotiating with respect to any material
acquisitions, with the exception of the Howell Township system, discussed above.
RATES AND REGULATORY MATTERS
Twenty state commissions regulate American Water Works' utility
subsidiaries. They have broad authority to establish rates for service,
prescribe service standards, review and approve rules and regulations and, in
most instances, 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.
American Water Works' regulated subsidiaries continually evaluate the rates
charged for service and seek appropriate rate adjustments to reflect the cost of
providing service.
The regulated subsidiaries aggressively pursue various methods of limiting
the adverse financial impact of the lag between the time costs are incurred and
the reflection of these costs in rates for service. Several subsidiaries now
recover in rates a return on plant before it is in service instead of
capitalizing an allowance for funds used during construction. Certain
subsidiaries have also received rate orders allowing recovery of interest and
depreciation expense related to the period of time from
10
<PAGE>
when a major construction project was placed in service until new rates went
into effect reflecting the cost of the project.
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. Four rate
adjustments have been authorized for regulated subsidiaries so far in 1996 which
may generate approximately $46.7 million of additional annual revenues. See
'Recent Developments--New Jersey-American Regulatory Decision.' Eight
applications are awaiting regulatory decisions. If granted in full, they could
produce additional annual revenues of $26.5 million. The amount of additional
revenues actually received under any rate increase is dependent upon the amount
of water actually sold, which, in turn, is dependent upon, among other things,
the weather.
11
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME DATA
The unaudited pro forma condensed consolidated statement of income data for
the year ended December 31, 1995 give effect to (i) the Acquisition and (ii)
this offering and the sale of shares of Common Stock to the Ware Family Buyers
(the 'Private Offering') and the application of the estimated net proceeds
therefrom. The Pro Forma for Acquisition data gives effect to the Acquisition by
combining the results of operations of the Company for the year ended December
31, 1995 with the results of operations of the acquired operations for the year
ended December 31, 1995 and the Pro Forma for Acquisition, Offering and Private
Offering data gives effect to each of the Acquisition, this offering and the
Private Offering as if each of such events occurred as of January 1, 1995. See
'Recent Developments--Acquisition,' 'Recent Developments--Ware Family Buyers'
and 'Use of Proceeds.' Such pro forma financial data do not give effect to the
contemplated two-for-one Common Stock split.
The unaudited pro forma condensed consolidated statement of income data do
not purport to represent what the Company's results of operations would actually
have been had the transactions described above taken place on January 1, 1995.
In addition, the unaudited pro forma condensed consolidated statement of income
data do not purport to project the Company's results of operations for any
future period. The unaudited pro forma condensed consolidated statement of
income data should be read in conjunction with the consolidated financial
statements of the Company and related notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, and Current
Report on Form 8-K/A filed on April 3, 1996, which are incorporated by reference
herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------
PRO FORMA
FOR
ADJUSTMENT ACQUISITION,
ADJUSTMENT PRO FORMA FOR OFFERING OFFERING
ACQUIRED FOR FOR AND PRIVATE AND PRIVATE
COMPANY OPERATIONS ACQUISITION ACQUISITION OFFERING OFFERING
--------- ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues................. $ 802,820 $ 66,306 $ -- $ 869,126 $ -- $ 869,126
Operating expenses
Operation and maintenance........ 402,362 25,230 (2,941)(a) 424,651 -- 424,651
Depreciation and amortization.... 79,977 8,439 163(b) 88,579 -- 88,579
General taxes.................... 76,208 5,368 -- 81,576 -- 81,576
--------- --------- --------- -------- ---------- ----------
558,547 39,037 (2,778) 594,806 -- 594,806
--------- --------- --------- -------- ---------- ----------
Operating income................... 244,273 27,269 2,778 274,320 -- 274,320
Other income, net.................. 22,476 312 -- 22,788 -- 22,788
Interest expense................... 117,042 12,946 11,562(c) 141,550 (8,516)(d) 133,034
--------- --------- --------- -------- --------- ----------
Income before income taxes......... 149,707 14,635 (8,784) 155,558 8,516 164,074
Provision for income taxes......... 57,646 5,889 (3,382)(e) 60,153 3,279(e) 63,432
--------- --------- --------- -------- --------- ----------
Net income......................... 92,061 8,746 (5,402) 95,405 5,237 100,642
Dividends on preferred stocks...... 3,984 -- -- 3,984 -- 3,984
--------- --------- --------- -------- --------- ----------
Net income to common stock......... $ 88,077 $ 8,746 $ (5,402) $ 91,421 $ 5,237 $ 96,658
--------- ---------- --------- -------- --------- ----------
PER SHARE DATA:
Earnings per common share.......... $ 2.64 $ 2.74 $ 2.57
Average number of common shares
outstanding (thousands).......... 33,382 33,382 4,200 37,582
</TABLE>
- ------------------
(a) Represents a reduction in operation and maintenance expenses as a result of
employee reductions pursuant to the terms of the Asset Purchase Agreement
filed as an exhibit to the Company's Current Report on Form 8-K filed on
March 1, 1996. In accordance with the Asset Purchase Agreement, the Company
hired 297 employees of the acquired business which it believes to be
adequate to operate the business. PG&W, prior to the Acquisition, was a gas
and water company. PG&W
12
<PAGE>
used allocations approved by the Pennsylvania Public Utility Commission in
preparing its statement of income. This adjustment reflects the difference
between the allocated labor costs of $12,050 and the labor costs of $9,109
for the 297 employees hired by the Company. The table below provides detail
regarding the headcount reductions achieved by the Company.
<TABLE>
<CAPTION>
ALLOCATED ACTUAL
------------- -----------
<S> <C> <C>
Employees
Administrative and general.................................. 91 11
Commercial.................................................. 91 73
Distribution................................................ 135 125
Production.................................................. 103 88
--- ---
420 297
=== ===
</TABLE>
(b) Represents the amortization, over a period of 40 years, of the utility plant
acquisition adjustment incurred in connection with the Acquisition.
(c) Represents the interest expense on the debt incurred to finance the
Acquisition and the elimination of interest expense previously allocated to
the acquired operations from PG&W related to debt not assumed in the
Acquisition.
<TABLE>
<S> <C>
Debt incurred......................................................... $ 266,670
Interest rate in effect at commencement of bank facility.............. 5.58%
---------
14,880
Interest allocated by PG&W............................................ (3,318)
---------
$ 11,562
=========
</TABLE>
(d) Represents the reduction of interest expense as a result of the application
of net proceeds from this offering and the Private Offering to reduce bank
debt.
<TABLE>
<S> <C>
Net proceeds.......................................................... $ 152,611
Interest rate in effect at commencement of bank facility.............. 5.58%
---------
$ 8,516
=========
</TABLE>
(e) Represents the state and federal income tax effect on the pro forma
adjustments at the Company's effective tax rate of 38.5%.
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company as of December 31, 1995 and as adjusted to give
effect to (i) the Acquisition and (ii) this offering and the Private Offering
and the application of the estimated net proceeds therefrom. The pro forma data
gives effect to each of the Acquisition, this offering and the Private Offering
as if each of such events occurred as of December 31, 1995. See 'Recent
Developments--Acquisition,' 'Recent Developments--Ware Family Buyers' and 'Use
of Proceeds.'
The data below does not purport to represent what the Company's
consolidated short-term debt and capitalization would actually have been had the
transactions described above taken place on December 31, 1995 and does not
purport to project the Company's financial condition for any future date. The
data below should be read in conjunction with the consolidated financial
statements of the Company and related notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, and Current
Report on Form 8-K/A filed on April 3, 1996, which are incorporated by reference
herein. See also 'Unaudited Pro Forma Condensed Consolidated Statement of Income
Data.'
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENT FOR
FOR ACQUISITION,
ADJUSTMENT PRO FORMA OFFERING OFFERING
ACQUIRED FOR FOR AND PRIVATE AND PRIVATE
COMPANY OPERATIONS ACQUISITION ACQUISITION OFFERING (B) OFFERING
----------- ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bank debt....................... $ 148,639 $ -- $ 266,670(a) $ 415,309 $ (152,611) $ 262,698
=========== ========= ========= ========== =========== ==========
Current portion of
long-term debt................ $ 44,321 $ 677 $ -- $ 44,998 $ -- $ 44,998
=========== ========= ========= ========== =========== ==========
Long-term debt.................. $ 1,384,649 $ 140,420 $ -- $1,525,069 $ -- $1,525,069
Preferred stocks of
subsidiaries.................. 48,614 -- -- 48,614 -- 48,614
Preferred stocks................ 51,673 -- -- 51,673 -- 51,673
Common stockholders' equity..... 818,939 -- -- 818,939 152,611 971,550
----------- --------- --------- ---------- ----------- ----------
Total capitalization.......... $ 2,303,875 $ 140,420 $ -- $2,444,295 $ 152,611 $2,596,906
=========== ========= ========= ========== =========== ==========
</TABLE>
(a) Represents bank debt incurred to finance the Acquisition.
(b) Represents the use of proceeds from this offering and the Private Offering,
net of issuance costs, to reduce bank debt and the recording of Common Stock
and paid-in-capital.
14
<PAGE>
SELECTED HISTORICAL CONSOLIDATED STATEMENT OF INCOME DATA
The table below sets forth selected historical consolidated statement of
income data for each of the three years in the period ended December 31, 1995,
which data have been derived from the consolidated statement of income that has
been audited by Price Waterhouse LLP, independent accountants. The following
data should be read in conjunction with the consolidated financial statements of
the Company and related notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, which is incorporated by
reference herein. A pro forma income statement of the Company is also presented
elsewhere in this Prospectus. See 'Unaudited Pro Forma Condensed Consolidated
Statement of Income Data.'
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues.............................................. $ 717,537 $ 770,241 $ 802,820
----------- ----------- -----------
Operating expenses
Operation and maintenance..................................... 362,451 391,539 402,362
Depreciation and amortization................................. 66,838 72,892 79,977
General taxes................................................. 67,917 73,085 76,208
----------- ----------- -----------
497,206 537,516 558,547
----------- ----------- -----------
Operating income................................................ 220,331 232,725 244,273
Allowance for other funds
used during construction...................................... 3,757 5,890 11,771
Gain from eminent domain litigation............................. -- -- 6,600(1)
Other income.................................................... 1,609 2,383 1,844
----------- ----------- -----------
225,697 240,998 264,488
----------- ----------- -----------
Income deductions
Interest expense.............................................. 97,235 110,088 117,042
Allowance for borrowed funds
used during construction................................... (3,087) (4,570) (9,573)
Amortization of debt expense.................................. 1,563 1,229 1,273
Preferred dividends of subsidiaries........................... 4,361 3,814 3,698
Other deductions.............................................. 2,374 1,873 2,341
----------- ----------- -----------
102,446 112,434 114,781
----------- ----------- -----------
Income before income taxes...................................... 123,251 128,564 149,707
Provision for income taxes...................................... 47,864 49,912 57,646
----------- ----------- -----------
Net income...................................................... 75,387 78,652 92,061(1)
Dividends on preferred stocks................................... 3,996 3,984 3,984
----------- ----------- -----------
Net income to common stock...................................... $ 71,391 $ 74,668 $ 88,077(1)
=========== =========== ===========
Average shares of common stock outstanding (thousands).......... 31,139 31,918 33,382
Earnings per common share on average shares outstanding......... $ 2.29 $ 2.34 $ 2.64(1)
=========== =========== ===========
</TABLE>
- ------------------
(1) Includes a gain of $6.6 million ($3.9 million net of tax, or $.12 per
share), as a result of the conclusion of litigation concerning compensation
for the sale of certain water utility assets to the Grafton Massachusetts
Water District.
15
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 3,643,100 shares of Common Stock
offered hereby and the 556,900 shares of Common Stock to be sold to the Ware
Family Buyers are estimated to be $152.6 million ($172.5 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. American Water Works intends to invest such proceeds in
Pennsylvania-American which will, in turn, reduce indebtedness incurred under a
$275.0 million credit facility (the 'Facility'). As of May 8, 1996, $275.0
million was outstanding under the Facility. Of such amount, approximately $266.7
million was used by Pennsylvania-American to finance the Acquisition and the
remainder was used for general corporate purposes. The Company expects to retire
the remainder of the Facility with proceeds to be obtained by
Pennsylvania-American in a debt offering. The Facility matures on February 14,
1997 and has an interest rate equal to 25 basis points (.25%) over the average
of the rates offered to major money center banks in the London interbank market
(LIBOR).
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the New York Stock Exchange under the symbol
'AWK.' The following table shows the high and low sale prices per share of
Common Stock, as published in The Wall Street Journal report of New York Stock
Exchange composite transactions, and dividends declared per share, for the
periods indicated:
<TABLE>
<CAPTION>
PRICE RANGE
----------------------
DIVIDENDS
YEAR HIGH LOW DECLARED
---- ----- ------- ---------
<S> <C> <C> <C> <C>
1994 First Quarter.................................... $32 1/4 $27 5/8 $.27
Second Quarter................................... 29 5/8 26 3/8 .27
Third Quarter.................................... 28 1/4 26 .27
Fourth Quarter................................... 27 1/2 25 1/4 .27
1995 First Quarter.................................... $29 1/2 $26 3/4 $.32
Second Quarter................................... 32 28 1/2 .32
Third Quarter.................................... 32 3/4 29 1/8 .32
Fourth Quarter................................... 39 1/4 30 1/2 .32
1996 First Quarter.................................... $40 1/2 $36 1/2 $.35
Second Quarter................................... 39 3/4 37 1/8 .35
(through May 8, 1996)
</TABLE>
As of May 7, 1996, the Company had approximately 35,000 Common Stock
holders of record. For a recent closing sale price of the Common Stock, see the
cover page of this Prospectus.
The Company has paid dividends annually on its Common Stock since 1948, and
has increased its dividend for 21 consecutive years. Compound annual Common
Stock dividend growth for the past five years has been 9.9%. Future cash
dividends will necessarily be dependent upon the policies of the Board of
Directors and the Company's earnings, financial condition, capital requirements
and other factors. There can be no assurance however that the dividend or the
dividend growth rate will continue.
Holders of record of the Common Stock (including participants in American
Water Works' Employee Stock Ownership Plan and 401(k) Savings Plan) and of
American Water Works' Cumulative Preferred Stock, par value $25 per share
('Preferred Stock') and Cumulative Preference Stock, par value $25 per share
('Preference Stock') are eligible to participate in the American Water Works
Dividend Reinvestment and Stock Purchase Plan (the 'DRP'). Customers of the
Company are also eligible to participate in the DRP. At the option of
participants, all or part of the dividends received by participants in the DRP
are automatically reinvested in Common Stock. Participants are
16
<PAGE>
also eligible to purchase up to an additional $5,000 of Common Stock per month.
Common Stock issued pursuant to reinvested dividends and optional purchases are
sold directly by the Company. The purchase price for Common Stock sold pursuant
to reinvested dividends is the average of the high and the low sales prices for
Common Stock for each of the last five days on which the Common Stock was traded
prior to the dividend payment date. The purchase price for Common Stock sold
pursuant to optional purchases is the average of the high and the low sales
prices for Common Stock for each of the last five days on which the Common Stock
was traded prior to the monthly investment date (the 15th of each month or the
next following business day if the 15th is not a business day). As of May 7,
1996, approximately 3,900,000 shares of Common Stock were reserved for issuance
pursuant to the DRP.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's Certificate of Incorporation ('Certificate') provides that
the Company may issue 1,789,200 shares of Cumulative Preferred Stock, 750,000
shares of Cumulative Preference Stock, 3,000,000 shares of Cumulative
Preferential Stock, par value $35 per share ('Preferential Stock') and
300,000,000 shares of Common Stock. The Preferred Stock, the Preference Stock
and the Preferential Stock (collectively, the 'Senior Stock' and individually, a
'Class' of Senior Stock) are each issuable in one or more series.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders and do not have
preemptive rights. Holders of Common Stock are entitled to cumulate their votes
in the election of directors. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Company's Board of Directors (the 'Board') out of legally available funds
therefore, subject to the prior payment of all cumulative dividends payable on
the Senior Stock. All outstanding shares of Common Stock are, and the shares
will be, when issued and paid for, fully-paid and nonassessable. In the event of
any liquidation, dissolution or winding up of the affairs of the Company,
holders of Common Stock will be entitled to share ratably in the assets of the
Company remaining after payment or provision for payment of all of the Company's
debts and obligations and liquidation payments to holders of any outstanding
shares of Senior Stock.
SENIOR STOCK
The Board, without further stockholder authorization, is authorized to
issue shares of Senior Stock in one or more series within each Class, and to
determine and fix the rights, preferences and privileges of each series,
including dividend rights and preferences over dividends on other series within
the same Class, conversion rights, voting rights (in addition to those provided
by law), redemption rights and the terms of any sinking fund therefore, and
rights upon liquidation, dissolution or winding up, including preferences over
other series within the same Class. All series of Preference Stock have
preference as to dividends and rights upon liquidation, dissolution or winding
up over all series of Preferential Stock. All series of Preferred Stock have
preference as to dividends and rights upon liquidation, dissolution or winding
up over all series of Preference Stock.
As of the date of this Prospectus, the outstanding series of Senior Stock
consist of 1,600,000 shares of 8.50% series Preferred Stock (redeemable at par
value on December 1, 2000), 101,777 shares of 5% series Preferred Stock and
365,158 shares of 5% series Preference Stock. Holders of 5% series Preferred
Stock have the general power to vote in the election of directors and for all
other purposes on the basis of one-tenth of a vote per share.
Although the Company has no present plans to issue any additional shares of
Senior Stock, the issuance of shares of Senior Stock, or the issuance of rights
to purchase Senior Stock, may have the
17
<PAGE>
effect of delaying, deferring or preventing a change in control of the Company
or an unsolicited acquisition proposal.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND DELAWARE LAW
Consideration by Board of Fundamental Transactions. The Company's
Certificate provides that when the Board shall evaluate any proposal from
another party relating to: (i) a tender offer for any securities of the Company;
(ii) a merger or consolidation of the Company with or into another person; (iii)
the sale of all or any substantial part of the assets of the Company to another
person; (iv) the issuance or transfer by the Company of voting securities or
securities convertible into or exchangeable for voting securities; or (v) any
other similar transaction, the Board, in the exercise of its judgment in
determining the best interests of the Company and its stockholders, must give
due consideration to the following: (a) the character, integrity, business
philosophy and financial status of the other parties to the transaction; (b) the
consideration to be received by the Company or its stockholders as compared to:
(1) the current market price or value of the Company's properties or securities,
(2) the estimated future value of the Company, its properties or securities and
(3) such other values of the Company, its properties or securities as the Board
may deem appropriate; (c) the projected social, legal and economic effects of
the proposed transaction upon the Company, its employees, suppliers, regulatory
agencies and customers and the communities in which the Company does business;
(d) the general desirability of the continuance of the Company as an independent
entity; and (e) such other factors as the Board deems relevant.
Removal of Directors. Under the Delaware General Corporate Law ('DGCL'),
absent a provision in a corporation's certificate of incorporation to the
contrary, a director of a corporation with cumulative voting may be removed as a
director without cause by a majority of the shares then entitled to vote at an
election of directors unless the votes cast against removal would be sufficient
to elect the director if such shares were cumulatively voted at an election of
the entire board of directors. However, the Company's Certificate provides that
no director of the Company may be removed except for cause, and a majority of
the outstanding shares of all classes of stock entitled to vote generally in the
election of directors, voting as a single class, shall be required to remove a
director for cause. Cause for removal is deemed to exist only if the director
proposed to be removed has been convicted in a court of competent jurisdiction
of a felony or has been adjudged by a court of competent jurisdiction to be
liable for gross negligence or misconduct in the performance of such director's
duty to the Company, and such conviction or adjudication has become final and
non-appealable.
Amendment of Certain Provisions. Under the DGCL, absent a provision in a
corporation's certificate of incorporation to the contrary, a corporation's
certificate of incorporation may be amended by the affirmative vote of a
majority of shares entitled to vote thereon and a corporation's bylaws may be
amended either by its board of directors or by the affirmative vote of a
majority of shares entitled to vote thereon. However, the Company's Certificate
provides that the provisions of Company's Certificate described in
'Consideration by Board of Fundamental Transactions' and 'Removal of Directors'
above and the provisions of the Certificate described in this paragraph, as well
as the provisions in the Company's bylaws relating to the number of directors
and the amendment of the bylaws may be amended by the stockholders of the
Company only by the affirmative vote of 80% or more of all classes of stock
entitled to vote generally in the election of directors, voting as a single
class. The ability of the Board to amend the bylaws is the same as under the
DGCL.
Delaware Takeover Statute. The Company is subject to Section 203 of the
DGCL, which provides, with certain exceptions, that a Delaware corporation may
not engage in certain business combinations with a person or affiliate or
associate of such person who is an 'interested stockholder' for a period of
three years from the date such person became an interested stockholder unless:
(i) the transaction resulting in the acquiring person's becoming an interested
stockholder, or the business combination, is approved by the board of directors
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquires at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (a)
by persons who are directors and also officers
18
<PAGE>
and (b) employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An 'interested
stockholder' is defined as any person that is (x) the owner of 15% or more of
the outstanding voting stock of the corporation or (y) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock at any time within the three year period immediately prior to the date on
which it sought to be determined whether such person is an interested
stockholder.
Effect of Provisions. Each of the above described provisions of the
Company's Certificate and of the DGCL may have the effect of delaying, deferring
or preventing a change in control of the Company or an unsolicited acquisition
proposal.
STOCKHOLDER RIGHTS PLAN
Each share of Common Stock, including the shares offered hereby, has one
Flip-Over Right and one Flip-In Right (collectively, the 'Rights') attached
thereto. The Rights are not exercisable until such time as a person or group,
other than certain significant stockholders (including the Ware Family Buyers
and their descendants) at the time the Rights were established (an 'Acquiring
Person'), acquires or announces an offer to acquire 25% or more of the Common
Stock. Thereafter, each Right will then entitle the holder thereof to buy from
the Company one-half share of Common Stock for $40. Rights will be attached to
all shares of Common Stock issued by the Company until the Rights become
exercisable. Rights expire upon the earlier of March 2, 1999 and the redemption
thereof, as provided below.
After the Rights become exercisable, 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
has a market value of four times the then current exercise right of the
Flip-Over Right. If, after the Rights become exercisable, an Acquiring Person
(i) acquires beneficial ownership of 35% or more of the 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 (a 'Flip-In Trigger Event'), then each Flip-In Right
not owned by the Acquiring Person will become the right to buy, at twice its
then current exercise price, that number of shares of the Common Stock which at
the time has a market value of four times the then current exercise price of the
Flip-In Right.
The Rights will be evidenced by the Common Stock certificates issued by the
Company until the Rights become exercisable, at which time the Company will
distribute Rights certificates. Thereafter, the Rights certificates alone shall
represent the Rights.
The Rights are redeemable, in whole but not in part, by the Company
pursuant to the affirmative vote of the Board at a price of $.0005 per Right (i)
in the case of Flip-Over Rights, until 10 days following the first public
announcement that an Acquiring Person has acquired beneficial ownership of 25%
or more of Common Stock and (ii) in the case of Flip-In Rights, until a Flip-In
Trigger Event. In certain circumstances, the Company's right to redeem Flip-Over
Rights can be reinstated.
The Rights do not have any voting or dividend rights and, until they become
exercisable, have no dilutive effect on the earnings per share of the Company.
19
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter, the
number of shares of Common Stock set forth opposite the name of such Underwriter
below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- -------------------------------------------- ---------
<S> <C>
Smith Barney Inc............................ 756,525
A.G. Edwards & Sons, Inc.................... 756,525
PaineWebber Incorporated.................... 756,525
Edward Jones................................ 417,525
Advest, Inc................................. 58,000
Robert W. Baird & Co. Incorporated.......... 58,000
Dean Witter Reynolds Inc.................... 82,000
Dominick & Dominick, Incorporated........... 58,000
EVEREN Securities, Inc...................... 58,000
J.J.B. Hilliard, W.L. Lyons, Inc............ 58,000
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- -------------------------------------------- ---------
<S> <C>
Janney Montgomery Scott Inc................. 58,000
Legg Mason Wood Walker, Incorporated........ 82,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................. 82,000
NatWest Securities Limited.................. 82,000
Oppenheimer & Co., Inc...................... 82,000
Piper Jaffray Inc........................... 58,000
Prudential Securities Incorporated.......... 82,000
The Robinson-Humphrey Company, Inc.......... 58,000
---------
Total................................... 3,643,100
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions,
including the consummation of the sale of shares of Common Stock to the Ware
Family Buyers. The Underwriters are obligated to take and pay for all shares of
Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., A.G. Edwards & Sons, Inc.,
PaineWebber Incorporated and Edward Jones are acting as the Representatives,
propose to offer part of the shares directly to the public at the public
offering price set forth on the cover page of this Prospectus and part of the
shares to certain dealers at a price which represents a concession not in excess
of $0.70 per share under the public offering price. The Underwriters may allow
and such dealers may reallow, a concession not in excess of $0.10 per share to
certain other dealers. After the initial offering of the Common Stock, the
public offering price and other terms may be changed by the Underwriters.
The Company, its executive officers and directors, and the Ware Family
Buyers have agreed that, for a period of ninety (90) days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock of the Company or any securities convertible into, or exercisable
or exchangeable for, Common Stock of the Company, except, in the case of the
Company, pursuant to any existing employee benefit plan.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 546,465
additional shares of Common Stock at the price to public set forth on the cover
page of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table. The number of additional shares of Common Stock
available to cover over-allotments is subject to adjustment should the Company
authorize the proposed two-for-one stock split. See 'Recent Developments--
Proposed Stock Split.'
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
20
<PAGE>
Smith Barney Inc. has provided and is currently retained to provide certain
investment banking services to the Company for which it has received and is
entitled to receive advisory or transaction fees, as applicable, plus
out-of-pocket expenses, of the nature and in amounts customary in the industry
for such services.
LEGAL MATTERS
Legal matters in connection with the authorization and issuance of the
shares of Common Stock offered hereby have been passed upon by Dechert Price &
Rhoads, Philadelphia, Pennsylvania. Certain legal matters in connection with the
offering will be passed upon for the Underwriters by Chapman and Cutler,
Chicago, Illinois.
EXPERTS
The financial statements of the Company incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of American Water Works for the year
ended December 31, 1995, have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of the water business of PG Energy, Inc. (formerly
known as 'Pennsylvania Gas & Water Company') included on pages 9-22 of American
Water Works Form 8-K/A filed on April 3, 1996 have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated by reference in reliance upon the report
of said firm as experts in auditing and accounting in giving said report.
21
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PAGE
----
Available Information.................................. 2
Incorporation of Certain Documents by Reference........ 2
Prospectus Summary..................................... 3
Recent Developments.................................... 5
The Company............................................ 7
Unaudited Pro Forma Condensed
Consolidated Statement of Income Data................ 12
Capitalization......................................... 14
Selected Historical Consolidated Statement of
Income Data.......................................... 15
Use of Proceeds........................................ 16
Price Range of Common Stock
and Dividends........................................ 16
Description of Capital Stock........................... 17
Underwriting........................................... 20
Legal Matters.......................................... 21
Experts................................................ 21
===============================================================================
===============================================================================
3,643,100 SHARES
[ AWW LOGO ]
COMMON STOCK
------------
PROSPECTUS
MAY 8, 1996
------------
SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
EDWARD JONES
===============================================================================
<PAGE>
APPENDIX A
In the printed document, a color map of the United States of America
appears, showing the 21 states in which American Water Works Company's 22
Water Utility Subsidiaries operate.
The map is entitled, "The American Water Works Company" and the
following text appears above the upper right portion of the map:
American Water's Regulated Water Business
- -----------------------------------------
22 water utilities
4,000 employees
Operations in 21 states
Approximately 800 communities provided water service
7.0 million population
312 water production
240 billion gallons of water produced and sold in 1995
