EXHIBIT INDEX ON PAGES 14-17
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
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 4, 1997 was $1,321,224,243.
As of March 3, 1997, there were a total of 78,639,254 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 1996 are incorporated by reference into Part I, Item 1 and
Part II of this Form 10-K: pages 22 through 53 with the exception of the
section entitled "Management's Responsibility for Financial Reporting" on
page 35, 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 1,
1997 are incorporated by reference into Part III of this Form 10-K: Page 2
(beginning with the fourth full paragraph thereon) through page 4, the
section entitled "Director Remuneration" on page 6, pages 7 and 8, and
pages 13 and 14.
<PAGE>
Page 1
PART I
Item 1. Business
The "Description of the Business" is set forth on page 23 of the
Annual Report to Stockholders for 1996, 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 regulated subsidiaries consist of surface
supplies, wells, and in a limited number of cases, water purchased under
contract. Such supplies are considered adequate to meet present require-
ments. In general, all surface supplies are filtered and substantially all
of the water is treated with chlorine, and, in some cases, special
treatment is provided to correct specific conditions of the water.
In general, the regulated 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 regulated
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 regulated 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 1996, filed as Exhibit
13 to this Report on Form 10-K; such information is hereby specifically
incorporated herein by reference thereto.
The number of persons employed by the Registrant and subsidiary
companies totaled 4,065 at December 31, 1996.
<PAGE>
Page 2
Item 1A. Executive Officers of the Registrant
The following sets forth the names, ages and business experience
during the past five years of the executive officers of the Registrant. No
family relationships exist among any of such executive officers, nor do any
arrangements or understandings exist between any such executive officer and
any other person pursuant to which he was selected as an officer.
Name Age Business Experience During Past Five Years
George W. Johnstone 58 President and Chief Executive Officer of the
Registrant since January 1992 and Vice President
of the Registrant prior thereto.
J. James Barr 55 Vice President and Treasurer of the Registrant.
Gerald C. Smith 62 Vice President of the Registrant.
W. Timothy Pohl 42 General Counsel and Secretary of the Registrant.
Robert D. Sievers 43 Comptroller of the Registrant since February
1992 and Assistant Comptroller of the Registrant
prior thereto.
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.
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 regulated subsidiaries 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 regulated
subsidiaries to be in good operating condition.
<PAGE>
Page 3
A substantial acreage of land is owned by the regulated subsidiaries,
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 1996, 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 1996, 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 34 of the Annual Report to Stockholders for 1996, 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 February 3, 1997, appearing on pages 35 through 53 of
the 1996 Annual Report to Stockholders, filed as Exhibit 13 to this Report
on Form 10-K, are hereby specifically incorporated herein by reference
thereto.
<PAGE>
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
page 4 of the definitive Proxy Statement relating to the Registrant's
Annual Meeting of Stockholders on May 1, 1997, 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 section
entitled "Director Remuneration" which is located on page 6, and in the
sections entitled "Report of the Compensation and Management Development
Committee of the Board of Directors on Executive Compensation,"
"Performance Graph," "Management Remuneration," and "Pension Plan" which
are located on pages 9 through 14 of the definitive Proxy Statement
relating to the Registrant's Annual Meeting of Stockholders on May 1, 1997,
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 7 and 8 of
the definitive Proxy Statement relating to the Registrant's Annual Meeting
of Stockholders on May 1, 1997, 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>
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 17 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>
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 6, 1997
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 6, 1997
Chief Executive Officer
Principal Financial Officer:
J. James Barr Vice President and March 6, 1997
Treasurer
Principal Accounting Officer:
Robert D. Sievers Comptroller March 6, 1997
<PAGE>
Page 7
SIGNATURES (Cont'd.)
Directors:
William O. Albertini March 6, 1997
William R. Cobb March 6, 1997
Elizabeth H. Gemmill March 6, 1997
Henry G. Hager March 6, 1997
Nelson G. Harris March 6, 1997
George W. Johnstone March 6, 1997
Marilyn Ware Lewis March 6, 1997
Nancy Ware Wainwright March 6, 1997
Paul W. Ware March 6, 1997
Ross A. Webber March 6, 1997
Horace Wilkins, Jr. March 6, 1997
<PAGE>
Page 8
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1996
AMERICAN WATER WORKS COMPANY, INC.
FINANCIAL STATEMENTS
<PAGE>
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,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . .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, 1996 . . . . . . . . . 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, 1996 . . . . . . . . . . . . . . . . . . . . . . 39
Consolidated Statement of Capitalization of American
Water Works Company, Inc. and Subsidiary Companies
at December 31, 1996 and 1995 . . . . . . . . . . . . . . .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, 1996 . . . . . . . . . . . . . . . . . . . 42
Balance Sheet of American Water Works Company, Inc.
at December 31, 1996 and 1995 . . . . . . . . . . . . . . . . 43
Statement of Income and Retained Earnings of
American Water Works Company, Inc. for each of the
three years in the period ended December 31, 1996 . . . . . . 44
Statement of Cash Flows of American Water Works
Company, Inc. for each of the three years in the
period ended December 31, 1996. . . . . . . . . . . . . . . . 45
Notes to Financial Statements . . . . . . . . . . . . . .46 through 53
*Incorporated by reference from the indicated pages of the 1996 Annual
Report to Stockholders, which is Exhibit 13 to this Report on Form 10-K.
<PAGE>
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>
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 February 3, 1997 appearing on page 35 of the 1996 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
February 3, 1997
<PAGE>
Page 12
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-59059)
and in the Registration Statements on Form S-8 (No. 33-62438, No. 33-52923,
and No. 333-14451) of American Water Works Company, Inc. of our report
dated February 3, 1997 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, 1997
<PAGE>
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
- ---- --------- ----------- --------- -------------- -------
1996 $ 1,030 $ 5,479 $ 370 $ 5,764 $ 1,115
1995 999 4,288 4,257 1,030
1994 1,107 3,762 3,870 999
(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>
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 filed herewith.
(b) Certificate of Amendment of the Restated Certificate
of Incorporation of the Registrant, effective May 9, 1989,
is filed herewith.
(c) Certificate of Amendment of the Restated Certificate
of Incorporation of the Registrant, effective May 3, 1990,
is filed herewith.
(d) Certificate of Designations of the Registrant,
effective February 6, 1991, relating to its Cumulative
Preferred Stock, 8.50% Series, is filed herewith.
(e) Certificate of Amendment of the Restated
Certificate of Incorporation of the Registrant, effective
May 2, 1996, is filed herewith.
(f) 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>
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 incorporated herein by reference to
Exhibit 10(b) to Form 10-K report of the Registrant for
1995.
(c) Amendment No. 2 to Employees' Stock Ownership Plan
of the Registrant is filed herewith.
(d) 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.
(e) 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.
<PAGE>
Page 16
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
10 (cont'd.) (f) 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.
(g) Amendment No. 3 to Supplemental Executive Retirement
Plan of the Registrant is incorporated herein by reference
to Exhibit 10(f) to Form 10-K report of the Registrant for
1995.
(h) Supplemental Retirement Plan of the Registrant,
effective as of April 1, 1989, is incorporated herein by
reference to Exhibit 10(f) to Form 10-K report of the
Registrant for 1989.
(i) Amendment No. 1 to Supplemental Retirement Plan of
the Registrant is incorporated herein by reference to
Exhibit 10(h) to Form 10-K report of the registrant for
1995.
(j) 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.
(k) Annual Incentive Plan of the Registrant, effective
as of January 1, 1996, is incorporated herein by reference
to Exhibit 10(j) to Form 10-K report of the Registrant for
1995.
(l) Deferred Compensation Plan of the Registrant,
effective as of January 1, 1996, is incorporated herein by
reference to Exhibit 10(k) to Form 10-K report of the
Registrant for 1995.
13 Annual Report to Security Holders
The Registrant's Annual Report to Stockholders for 1996
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, 1996.
<PAGE>
Page 17
AMERICAN WATER WORKS COMPANY, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
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, 1996.
EXHIBIT 3(a)
RESTATED CERTIFICATE OF INCORPORATION
OF AMERICAN WATER WORKS COMPANY, INC.
American Water Works Company, Inc., a Corporation organized and
existing under the laws of the State of Delaware, hereby certifies as
follows:
A. The name of the Corporation is American Water Works Company, Inc. The
Corporation was originally incorporated under the name American Communities
Company, and the original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on August
28, 1936.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation.
C. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and further amended to read in
its entirety as follows:
First. The name of the Corporation is
AMERICAN WATER WORKS COMPANY, INC.
Second. The registered office the Corporation in the State of Delaware
is to be located at No. 1209 Orange Street, in the City of Wilmington,
County of New Castle; and the name and address of its registered agent is
The Corporation Trust Company, No. 1209 Orange Street, Wilmington, Delaware
19801.
Third. The nature of the business, or objects or purposes to be
transacted, promoted or carried on by the Corporation are as follows:
1. To invest in, purchase, acquire, hold, pledge, hypothecate,
exchange, sell, deal in, and dispose of, alone or in conjunction with
others, stocks, bonds and other evidences of indebtedness and
obligations, and evidences of any interest in respect thereof, of any
other corporation or corporations, including particularly (without
limitation of the generality of the foregoing) any corporation or
corporations engaged in the collection, purification, supply and sale
of water or controlling corporations so engaged, and while the owner
or holder of any such, to exercise all the rights, powers and
privileges of ownership in respect thereof; to issue in exchange for
any such stocks, bonds and other evidences of indebtedness and
obligations, and evidences of any interest in respect thereof, the
Corporation's own stocks, bonds or other obligations; to aid by loan,
subsidy, guaranty, or otherwise and to cause to be formed, merged or
reorganized or liquidated, those issuing or creating any such stocks,
bonds or other evidences of indebtedness or obligations, or evidences
of any interest in respect thereof, to the extent now or hereafter
permitted by law; to do and perform all such acts and things, to the
extent now or hereafter permitted by law, as may be necessary or
proper to protect, preserve, aid, enhance or improve the investment of
the Corporation in any such stocks, bonds or other evidences of
indebtedness or obligations, or evidences of any interest in respect
thereof, or those issuing or creating the same; and generally to do
all things incidental to such business.
1
<PAGE>
2. To purchase, acquire, hold, operate, mortgage, pledge,
hypothecate, exchange, sell, deal in and dispose of commodities and
other personal property and real property, plants, buildings and
equipment of every kind, character and description whatsoever and
wheresoever situated, and any interest therein, and to render
services to, or act as agent for, any other person or corporation.
3. To engage in any industrial, manufacturing, mercantile or
trading business of any kind or character.
4. To enter into, make, perform and carry out or cancel and
rescind contracts or arrangements of any kind or character for any
lawful purposes pertaining to its business with any person, entity,
partnership, association, corporation or governmental, municipal or
public authority, domestic or foreign.
5. To acquire all or any part of the good will, rights, property
and business of any person, entity, partnership, association or
corporation heretofore or hereafter engaged in any business similar
to any business which the Corporation is authorized to conduct, to
pay for the same in cash or in stock, bonds, or other obligations of
the Corporation or otherwise, to hold, utilize and in any manner
dispose of the whole or any part of the rights and property so
acquired, and to assume in connection therewith any liabilities of
any such person, entity, partnership, association or corporation and
conduct in any lawful manner the whole or any part of the business
thus acquired.
6. To make any guaranty respecting stocks, dividends, securities,
indebtedness, interest, contracts or other obligations for any lawful
purposes pertaining to its business, to the extent permitted to be
done by a corporation organized under the laws of the State of
Delaware.
7. To borrow or raise moneys for any of the purposes of the
Corporation and from time to time without limit as to amount, to
draw, make, accept, endorse, execute and issue promissory notes,
drafts, bills of exchange, warrants, bonds, debentures and other
negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment thereof and of the interest
thereon by mortgage on, or pledge, conveyance or assignment in trust
of, the whole or any part of the assets of the Corporation, real,
personal or mixed, including contract rights, whether at the time
owned or thereafter acquired, and to sell, pledge or otherwise dispose
of such securities or other obligations of the Corporation for its
corporate purposes.
8. To purchase, hold, sell, transfer, reissue or cancel the
shares of its own capital stock and/or any securities or other
obligations of the Corporation, in the manner and to the extent now or
hereafter permitted by the laws of the State of Delaware; provided
that shares of its own capital stock belonging to the Corporation
shall not be voted upon directly or indirectly.
2
<PAGE>
9. In general for any lawful purposes pertaining to its business,
to have and exercise all the powers conferred by the laws of the State
of Delaware upon corporations formed thereunder; and to do any and all
of the acts and things herein set forth to the same extent as natural
persons could do, and in any part of the world, as principal, factor,
agent, contractor, trustee or otherwise, either alone or in company
with others; to establish and maintain offices and agencies within,
and anywhere outside of, the State of Delaware; and to exercise all or
any of its corporate powers and rights in the State of Delaware and in
any and all other states, territories, districts, colonies,
possessions or dependencies of the United States of America and in any
foreign countries.
10. To do everything necessary, proper, advisable or convenient
for the accomplishment of any of the purposes or the attainment of any
of the objects or the furtherance of any of the powers herein set
forth and to do every other act and thing incidental thereto or
connected therewith, provided the same be not forbidden by the laws of
the State of Delaware.
The foregoing clauses shall be construed as powers as well as objects
and purposes, and the matters expressed in each clause shall, except as
otherwise expressly provided, be in no wise limited by reference to or
inference from the terms of any other clause; and the expression of one
thing shall not be deemed to exclude another not expressed, although it be
of like nature.
The Corporation shall be authorized to exercise and enjoy all other
powers, rights and privileges granted by an Act of the General Assembly of
the State of Delaware entitled "An Act providing a General Corporation
Law," approved March 10, 1899, to corporations of this character and all
the powers conferred upon such corporations by the laws of the State of
Delaware, as in force from time to time, so far as not in conflict
herewith, or which may be conferred by all acts heretofore or hereafter
amendatory of or supplemental to said Act or said laws; provided, however,
that the Corporation shall not in any state, territory, district,
possession or country carry on any business, or exercise any powers, which
a corporation organized under the laws thereof could not carry on or
exercise.
Fourth. The total number of shares of all classes of stock which the
Corporation shall have authority to issue shall be 80,704,400, of which (a)
1,954,400 shares shall be Cumulative Preferred Stock, of the par value of
$25 per share, issuable in series, (b) 750,000 shares shall be Cumulative
Preference Stock, of the par value of $25 per share, issuable in series,
(c) 3,000,000 shares shall be Cumulative Preferential Stock, of the par
value of $35 per share, issuable in series, and (d) 75,000,000 shares shall
be Common Stock, of the par value of $1.25 per share.
The minimum amount of capital with which the Corporation will commence
business is $1,000.
The designations and the voting powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, of the Cumulative Preferred Stock, the
Cumulative Preference Stock and the Cumulative Preferential Stock, and of
certain series thereof, and of the Common Stock, which are fixed by this
Certificate of Incorporation, and the express grant of authority to the
Board of Directors of
3
<PAGE>
the Corporation (hereinafter referred to as the Board of Directors) to fix
by resolution or resolutions providing for the issue of other series of the
Cumulative Preferred Stock, the Cumulative Preference Stock and the
Cumulative Preferential Stock the designations and the voting powers,
preferences and relative, participating, optional or other special rights,
and qualifications, limitations or restrictions thereof, of such other
series which are not fixed by this Certificate of Incorporation, shall be
as follows:
DIVISION A - CUMULATIVE PREFERRED STOCK
1. Issue in Series.
The Cumulative Preferred Stock may be issued at any time or from time
to time in any amount, not exceeding in the aggregate (including all shares
of any and all series thereof theretofore issued) the total number of
shares of Cumulative Preferred Stock hereinabove authorized, as Cumulative
Preferred Stock of one or more series, as hereinafter provided. All shares
of any one series of Cumulative Preferred Stock shall be alike in every
particular, each series thereof shall be distinctly designated by letter or
descriptive words, and all series of Cumulative Preferred Stock shall rank
equally and be identical in all respects except as permitted by the
provisions of Section 2 of this Division A.
2. Creation of Series.
Authority is hereby expressly granted to and vested in the Board of
Directors at any time or from time to time to issue the Cumulative
Preferred Stock as Cumulative Preferred Stock of any series, and in
connection with the creation of each such series to fix by the resolution
or resolutions providing for the issue of shares thereof the voting powers,
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
such series, to the full extent now or hereafter permitted by the laws of
the State of Delaware, in respect of the matters set forth in the following
paragraphs (a) to (i), inclusive:
(a) The distinctive designation of such series and the number of
shares which shall constitute such series, which number may be
increased or decreased (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of
Directors;
(b) The dividend rate per annum of such series, and the date
from which dividends on shares of such series shall be cumulative
(hereinafter sometimes called the date of cumulation), which date of
cumulation shall be identical for all shares of such series;
(c) The price or prices at which, and the terms, times and
conditions on which, the shares of such series may be redeemed at
the option of the Corporation (hereinafter called the optional
redemption price);
(d) The amount or amounts payable upon the shares of such series
in the event of voluntary liquidation, dissolution or winding up of
the Corporation;
4
<PAGE>
(e) Whether or not the shares of such series shall be entitled
to the benefit of a sinking fund or a purchase fund to be applied to
the purchase or redemption of shares of such series, and if so
entitled, the amount of such fund and the manner of its application,
including the price or prices at which the shares of such series may
be redeemed or purchased through the application of such fund;
(f) Whether or not the shares of such series shall be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes of stock of the Corporation, and if made so convertible or
exchangeable, the conversion price or prices, or the rates of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(g) Whether or not the issue of any additional shares of such
series, or any future series in addition to such series, shall be
subject to restrictions in addition to the restrictions on the issue
of future series imposed by paragraph (c) of Section 7 of this
Division A or in the resolution or resolutions fixing the terms of
any series of Cumulative Preferred Stock theretofore issued pursuant
to this Article Fourth, and the terms of any such additional
restrictions;
(h) Whether or not the shares of such series shall be entitled
to the benefit of limitations restricting the purchase of, the payment
of dividends on, or the making of other distributions in respect of
stock of any class of the Corporation ranking junior to the Cumulative
Preferred Stock as to dividends or assets, and the terms of any such
restrictions; and
(i) With respect to any series of Cumulative Preferred Stock
created after October 1, 1961, whether or not the shares of such
series shall have the general power to vote in the election of
directors and for all other purposes, and if such power shall be
given, the qualifications, limitations and restrictions thereof, but
in no event shall the vote per share of such series be greater than
the vote per share of the Common Stock.
The three series of Cumulative Preferred Stock of the Corporation,
respectively designated as Cumulative Preferred Stock, 5 1/2% Series of
1961; Cumulative Preferred Stock, 5% Series; and Cumulative Preferred
Stock, 4.90% Series, heretofore created by resolutions of the Board of
Directors, shall have the voting powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof, which are applicable to the
Cumulative Preferred Stock of all series as set forth in this Article
Fourth, and shall also have the terms and provisions set forth in Sections
1 through 3, inclusive, of Division F of this Article Fourth which are
applicable to the respective series of such stock referred to therein,
being the same terms and provisions as were fixed in each case by
resolutions of the Board of Directors creating each of said series.
The voting powers, preferences and relative, participating, optional
or other special rights, and the qualifications, limitations and
restrictions thereof, applicable to the Cumulative Preferred Stock of all
series shall be as set forth in the following Sections 3 through 8,
inclusive, of this Division A and in Division D of this Article Fourth.
5
<PAGE>
3. Dividends.
(a) Out of the net profits or net assets of the Corporation legally
available therefor the holders of Cumulative Preferred Stock of each series
shall be entitled to receive, when and as declared by the Board of
Directors, dividends in cash at the rate per annum for such series fixed in
accordance with this Article Fourth, and no more, payable on the first days
of March, June, September and December in each year (the quarterly periods
ending on the first days of such months, respectively, being herein
designated as dividend periods), in each case from the date of cumulation
of such series, provided, that the initial dividend with respect to any
particular series shall be payable on such of said dates as shall be fixed
by the Board of Directors; and such dividends shall be cumulative (whether
or not in any dividend period or periods there shall be net profits or net
assets of the Corporation legally available for the payment of such
dividends), so that if at any time full cumulative dividends upon the
outstanding Cumulative Preferred Stock of all series to the end of the then
current dividend period shall not have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment, the amount
of the deficiency shall be fully paid, but without interest, or dividends
in such amount declared on each such series and a sum sufficient for the
payment thereof set apart for such payment, before any sum or sums shall be
set aside for or applied to the purchase, redemption or other acquisition
of Cumulative Preferred Stock of any series and before any dividend shall
be declared or paid upon or set apart for, or any other distribution shall
be ordered or made in respect of, the Junior Stock and before any shares of
Junior Stock shall be purchased, redeemed, or otherwise acquired by the
Corporation.
(b) No dividends shall be declared or paid on any particular series of
the Cumulative Preferred Stock to the exclusion of any other series thereof
and all dividends declared on the Cumulative Preferred Stock of the
respective series outstanding shall be declared pro rata, so that the
amount of the dividend declared on any particular series of the Cumulative
Preferred Stock shall be in the proportion that the annual dividend
requirements of the shares of such series bear to the total annual dividend
requirements of the Cumulative Preferred Stock of all series at the time
outstanding.
(c) The holders of the Junior Stock shall not be entitled to receive
any dividends until full cumulative dividends to the end of the then
current dividend period upon the Cumulative Preferred Stock of all series
then outstanding shall have been paid or declared and a sum sufficient for
the payment thereof set apart for such payment and until the Corporation
shall have complied with the provisions of Section 5 of this Division A in
respect of any and all amounts then or theretofore required to be set aside
or applied in respect of any sinking fund or purchase fund referred to in
said Section 5.
(d) In the event of the issue of additional shares of Cumulative
Preferred Stock of any then existing series, all dividends paid on the
shares of Cumulative Preferred Stock of such series prior to the date of
issue of such additional shares thereof, and all dividends declared and
payable to holders of record of shares of Cumulative Preferred Stock of
such series on any date prior to the date of issue of such additional
shares thereof, shall be deemed to have been paid on the additional shares
of Cumulative Preferred Stock of such series so issued.
6
<PAGE>
4. Preference on Liquidation, etc.
In the event of any liquidation or dissolution or winding up of the
Corporation the holders of the Cumulative Preferred Stock of each series
shall be entitled to receive, out of the assets of the Corporation
available for distribution to its stockholders, before any distribution of
assets shall be made to the holders of the Junior Stock, (i) if such
liquidation, dissolution or winding up shall be involuntary, the sum of $25
per share plus full cumulative dividends thereon to the date of final
distribution to the holders of the Cumulative Preferred Stock, and (ii)
if such liquidation, dissolution or winding up shall be voluntary, the
amount per share fixed in accordance with Divisions A and F of this
Article Fourth plus full cumulative dividends thereon to the date of final
distribution to the holders of the Cumulative Preferred Stock; and the
holders of the Junior Stock shall be entitled, to the exclusion of the
holders of the Cumulative Preferred Stock of any and all series, to share
in all the assets of the Corporation then remaining as hereinafter
provided. If upon any liquidation or dissolution or winding up of the
Corporation the net assets of the Corporation shall be insufficient to pay
the holders of all outstanding shares of the Cumulative Preferred Stock the
full amounts to which they respectively shall be entitled, the holders of
shares of Cumulative Preferred Stock of all series shall share ratably in
any distribution of assets according to the respective amounts which would
be payable in respect of the shares held by them upon such distribution if
all amounts payable on or with respect to the Cumulative Preferred Stock of
all series were paid in full. Neither the merger nor consolidation of the
Corporation into or with any other corporation, nor the merger or
consolidation of any other corporation into or with the Corporation, nor a
sale, transfer or lease of all or any part of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation.
5. Sinking and Purchase Fund.
Out of any net profits or net assets of the Corporation legally
available therefor remaining after full cumulative dividends to the end of
the then current dividend period upon the Cumulative Preferred Stock of all
series then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment, and before
any dividends shall be declared or paid upon or set apart for, or any other
distribution shall be ordered or made in respect of, the Junior Stock and
before any shares of Junior Stock shall be purchased, redeemed, or
otherwise acquired by the Corporation, the Corporation shall set aside, in
respect of each series of Cumulative Preferred Stock any shares of which
shall at the time be outstanding and in respect of which a sinking fund or
purchase fund for the purchase or redemption thereof has been provided in
accordance with Divisions A and F of this Article Fourth, the sum or sums
then or theretofore required to be set aside by the terms of such
resolution or resolutions as a sinking fund or purchase fund, to be applied
in the manner specified in the provisions creating such fund. All shares of
Cumulative Preferred Stock redeemed or purchased through the application of
any such sinking fund or purchase fund shall be cancelled and shall not be
reissued.
7
<PAGE>
6. Redemption and Retirement.
(a) The Cumulative Preferred Stock of all or any series, or any part
thereof, at any time outstanding may be redeemed by the Corporation, at its
election expressed by resolution of the Board of Directors, at any time or
from time to time (which time, when fixed in each case and specified in the
notice of redemption, is hereinafter called the redemption date), upon not
less than thirty days previous notice to the holders of record of the
Cumulative Preferred Stock to be redeemed, given by mail in such manner as
may be prescribed by resolution of the Board of Directors, at the optional
redemption price or prices fixed in accordance with Divisions A and F of
this Article Fourth then applicable to the Cumulative Preferred Stock to be
redeemed, plus an amount equal to full cumulative dividends thereon to the
redemption date (the aggregate of which amounts is hereinafter in this
Section 6 called the redemption price); provided, however, that less than
all the Cumulative Preferred Stock of all series then outstanding may be
redeemed only after full cumulative dividends to the end of the then
current dividend period upon the Cumulative Preferred Stock of all series
then outstanding (other than the shares to be redeemed) shall have been
paid or declared and a sum sufficient for the payment thereof set apart for
such payment. If less than all the outstanding Cumulative Preferred Stock
of any series is to be redeemed, the selection of shares for redemption may
be made either by lot or pro rata in such manner as may be prescribed by
resolution of the Board of Directors. The Corporation may, if it shall so
elect, deposit the amount of the redemption price for the account of the
holders of Cumulative Preferred Stock entitled thereto with a bank or trust
company doing business in the State of New York, or in the Commonwealth of
Pennsylvania, and having capital and surplus of at least $5,000,000, at any
time prior to the redemption date (the date of such deposit being
hereinafter in this Section 6 referred to as the date of deposit).
(b) Notice of the Corporation's election to make such deposit,
including the date of deposit and the name and address of the bank or trust
company with which the deposit has been or will be made, shall be included
in the notice of redemption. On and after the redemption date (unless
default shall be made by the Corporation in providing moneys for the
payment of the redemption price pursuant to the notice of redemption), or,
if the Corporation shall make such deposit on or before the date specified
therefor in the notice of redemption, then on and after the date of
deposit, all dividends on the Cumulative Preferred Stock so called for
redemption shall cease to accrue, and, notwithstanding that any certificate
for shares of Cumulative Preferred Stock so called for redemption shall not
have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding and all rights of the holders thereof
as stockholders of the Corporation shall cease and terminate, except the
right to receive the redemption price as hereinafter provided and except
any conversion or exchange rights not theretofore expired. Such conversion
or exchange rights, however, in any event shall cease and terminate upon
the redemption date or upon any earlier date fixed in accordance with this
Article Fourth for the termination of such rights. At any time on or after
the redemption date, or, if the Corporation shall elect to deposit the
moneys for such redemption as herein provided, then at any time on or after
the date of deposit, which time shall be specified by the Corporation in
the notice of redemption but shall not be later than the redemption date,
the respective holders of record of the Cumulative Preferred Stock to be
redeemed shall be entitled to receive the redemption price upon actual
delivery to the Corporation
8
<PAGE>
or, in the event of such deposit, to the bank or trust company with which
such deposit shall be made, of certificates for the shares to be redeemed,
such certificates, if required, to be properly stamped for transfer and
duly endorsed in blank or accompanied by proper instruments of assignment
and transfer thereof duly endorsed in blank. Any moneys so deposited which
shall remain unclaimed by the holders of such Cumulative Preferred Stock at
the end of five years after the redemption date shall be paid by such bank
or trust company to the Corporation; provided, however, that all moneys so
deposited which shall not be required for such redemption because of the
exercise of any right of conversion or exchange shall be returned to the
Corporation forthwith. Any interest accrued on moneys so deposited shall be
paid to the Corporation from time to time.
(c) All shares of Cumulative Preferred Stock redeemed pursuant to the
provisions of this Section 6 shall be cancelled and shall not be reissued.
7. Restrictions on Certain Corporate Action.
(a) So long as any shares of the Cumulative Preferred Stock of any
series shall be outstanding, the Corporation shall not, without the
consent, given in writing or by resolution adopted at a meeting duly called
for that purpose, of the holders of record of at least two-thirds of the
number of shares of the Cumulative Preferred Stock of all series then
outstanding, considered as a class without regard to series,
(1) alter or change the designations or the voting powers,
preferences or rights, or the qualifications, limitations or
restrictions thereof, of the Cumulative Preferred Stock or of any
series thereof in any material respect prejudicial to the holders
thereof; provided, however, that any such alteration or change of
the designations or of the voting powers, preferences or rights, or
the qualifications, limitations or restrictions thereof, of any
particular series of the Cumulative Preferred Stock which is not in
any material respect prejudicial to the holders of the Cumulative
Preferred Stock of any other series may be effected with the consent,
given as aforesaid, of the holders of record of at least two-thirds of
the number of shares of the particular series of Cumulative Preferred
Stock affected by such alteration or change; and provided, further,
that nothing in this subparagraph (1) shall require the vote or
consent of the holders of the Cumulative Preferred Stock for or in
respect of any increase in the authorized number of shares of Common
Stock or the creation or increase in the authorized number of shares
of any other class of stock which shall rank junior to the Cumulative
Preferred Stock as to both dividends and assets;
(2) create any new class of stock having preference over the
Cumulative Preferred Stock as to dividends or assets, or create any
obligation or security of the Corporation convertible into or
exchangeable for shares of stock of any class having such preference
over the Cumulative Preferred Stock;
9
<PAGE>
(3) sell, transfer or lease all, or substantially all, the assets
of the Corporation, unless as a part of such transaction or prior
thereto the Cumulative Preferred Stock of all series shall be retired
or called for redemption and the necessary funds therefor deposited as
provided in Section 6 of this Division A; provided, however, that
nothing in this subparagraph (3) shall require the vote or consent of
the holders of the Cumulative Preferred Stock for or in respect of the
creation of any mortgage or pledge of or other lien upon all or any
part of the assets of the Corporation; or
(4) effect a statutory merger or consolidation of or with any
other corporation or corporations; provided, however, that such
consent shall not be necessary if as a result of such merger or
consolidation: (i) the Corporation shall be the surviving corporation
and the Cumulative Preferred Stock then outstanding shall continue to
be outstanding; there shall be no alteration or change in the
designations or the voting powers, preferences or rights, or the
qualifications, limitations or restrictions thereof, of the Cumulative
Preferred Stock or any series thereof, in any material respect
prejudicial to the holders thereof and the number of authorized shares
of Cumulative Preferred Stock or shares being on a parity therewith as
to dividends or assets shall not exceed the number of such shares
which the Corporation shall have been authorized to issue immediately
preceding the date of such merger or consolidation (except with the
consent, given in writing or by resolution adopted at a meeting duly
called for that purpose, of the holders of record of at least a
majority of the number of shares of the Cumulative Preferred Stock of
all series then outstanding, considered as a class without regard to
series) and there shall not be created any new class of stock having
preference over the Cumulative Preferred Stock as to dividends or
assets; or (ii) if the Corporation shall not be the surviving
corporation, the shares of the Cumulative Preferred Stock of each
series then outstanding shall be converted into, or be exchangeable
for, a like number of shares of preferred stock of the surviving or
resulting corporation which preferred stock shall have substantially
the same designations, voting powers, preferences and rights, and
qualifications, limitations or restrictions thereof, as the Cumulative
Preferred Stock of such series, the number of authorized shares of
such preferred stock shall not exceed the number or shares of the
Cumulative Preferred Stock of all series which the Corporation shall
have been authorized to issue immediately preceding the date of such
merger or consolidation (except with the consent, given in writing
or by resolution adopted at a meeting duly called for that purpose,
of the holders of record of at least a majority of the number of
shares of the Cumulative Preferred Stock of all series then
outstanding, considered as a class without regard to series) and
there shall not be outstanding or created any class of stock of the
surviving or resulting corporation having preference over or being
on a parity with such preferred stock as to dividends or assets.
(b) So long as any shares of the Cumulative Preferred Stock of any
series shall be outstanding, the Corporation shall not, without the
consent, given in writing or by resolution adopted at a meeting duly called
for that purpose, of the holders of record of at least a majority of the
number of shares of the Cumulative Preferred Stock of all series then
outstanding, considered as a class
10
<PAGE>
without regard to series, increase the authorized number of shares of the
Cumulative Preferred Stock, or create any new class of stock which shall be
on a parity with the Cumulative Preferred Stock as to dividends or assets.
(c) (1) So long as any shares of Cumulative Preferred Stock of any
series shall be outstanding, the Corporation shall not, without the
consent, given in writing or by resolution adopted at a meeting duly called
for that purpose, of the holders of record of at least a majority of the
number of shares of the Cumulative Preferred Stock of all series then
outstanding, considered as a class without regard to series, issue any
shares of Cumulative Preferred Stock, in addition to the shares of the
first series thereof initially issued by the Corporation, or issue any
shares of any new class of stock which shall be on a parity with the
Cumulative Preferred Stock as to dividends or assets, unless the
consolidated net income of the Corporation and its subsidiaries (as
hereinafter defined) for any period of twelve consecutive calendar months
during the preceding 18 calendar months preceding a date not more than 60
days prior to the issue of such additional shares of Cumulative Preferred
Stock or of such other stock shall have been at least 1.35 times the sum of
(i) the annual interest charges on all indebtedness of the Corporation and
its subsidiaries to be outstanding immediately after the proposed issue of
such additional shares, (ii) the annual dividend requirements on all shares
of stock of any class ranking prior to or on a parity with the Cumulative
Preferred Stock as to dividends or assets to be outstanding immediately
after the proposed issue of such additional shares, (iii) the annual
dividend requirements on all shares of preferred stock of subsidiaries to
be outstanding immediately after the proposed issuance of such additional
shares, and (iv) the annual dividend requirements on all shares of
Cumulative Preferred Stock of all series to be outstanding immediately
after the proposed issue of such additional shares, provided, however, that
any interest and dividends payable to the Corporation or any subsidiary
shall be excluded from the foregoing calculation. If all or any part of the
proceeds of the additional shares of Cumulative Preferred Stock or such
other stock so proposed to be issued are to be coincidentally applied by
the Corporation, through subsidiaries, to the acquisition of plants or
other properties with a previous record of earnings, or to the acquisition
of subsidiaries with a previous record of earnings, there may be added to
such consolidated net income of the Corporation and its subsidiaries for
such period of twelve months, at the option of the Corporation, an amount
equal to the net income of such plants or properties or subsidiaries, for
the same twelve months' period, determined by the Board of Directors in a
manner consistent with the determination of consolidated net income of the
Corporation and its subsidiaries.
(2) Before issuing any shares of Cumulative Preferred Stock other than
the initial series or before issuing such other stock, there shall be
prepared and filed among the permanent records of the Corporation a
certificate of an independent public accountant of recognized standing,
selected in good faith by the Board of Directors, setting forth the
consolidated net income of the Corporation and its subsidiaries, as
hereinafter defined, for the twelve months' period selected by the
Corporation as the basis for compliance with the requirements of this
paragraph (c), setting forth such other financial information as may be
necessary to show compliance with the requirements of this paragraph (c),
and stating whether, in the opinion of such accountant, such requirements
are being complied with.
11
<PAGE>
(3) For the purposes of this paragraph (c) the following shall be
applicable:
(i) The term "consolidated net income of the Corporation and
its subsidiaries" shall be deemed to mean the total income (except
amortization of premium on debt), whether credited to surplus or
otherwise, of the Corporation and its subsidiaries and/or predecessor
company or companies from all sources for the period in question,
after deducting therefrom all operating and non-operating expenses and
charges, including maintenance expenses, such provisions for reserves
for retirements, renewals and replacements and for depreciation,
obsolescence and depletion as determined by the Board of Directors in
accordance with established practice of the Corporation and its
subsidiaries, taxes and rentals paid or accrued in respect of the
properties, license fees and franchise taxes paid or accrued, and
Federal and State taxes based on income paid or accrued, but excluding
interest charges on indebtedness of the Corporation and its
subsidiaries, dividends on preferred stocks of subsidiaries,
amortization of debt discount and expense, and profits or losses on
sales of capital assets, amortization of intangibles or property
adjustments, write-downs of property, or other adjustments, and
similar items.
(ii) The term "predecessor company or companies" shall be deemed
to mean any company substantially all the property of which shall have
been acquired by the Corporation or any subsidiary by purchase, merger
or otherwise during the period for which the consolidated net income
of the Corporation and its subsidiaries is to be determined and for
the purposes hereof shall be deemed to have been owned for the full
period considered.
(iii) The term "subsidiary" shall mean (A) any corporation of
which at least a majority of the voting stock is at the time directly
or indirectly owned or controlled by the Corporation, and (B) any
corporation of which at least a majority of the voting stock shall at
the time be owned or controlled, directly or indirectly, by the
Corporation and any subsidiary or subsidiaries as defined in the
foregoing clause (A) or by one or more such subsidiaries; provided,
however, that in no event shall there be included within the term
"subsidiary" any corporation substantially all of the physical
properties of which are located outside of the United States of
America.
(iv) The term "voting stock" shall mean stock entitled under
ordinary circumstances to vote for the election of directors and
does not mean or include stock so entitled to vote only upon failure
to pay dividends thereon or upon some other contingency or for some
special purpose or purposes.
8. Definitions.
(a) The term "Junior Stock" as used in this Article Fourth shall be
deemed to mean all stock of any class of the Corporation ranking junior to
the Cumulative Preferred Stock as to dividends or assets.
12
<PAGE>
(b) The term "full cumulative dividends" whenever used in this Article
Fourth with reference to any share of any series of the Cumulative
Preferred Stock shall be deemed to mean (whether or not in any dividend
period or any part thereof in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally
available for the payment of such dividends) that amount which shall be
equal to dividends at the rate per share fixed for such series in
accordance with Divisions A and F of this Article Fourth, for the period of
time elapsed from the date of cumulation of such series to the date as of
which full cumulative dividends are to be computed (including the elapsed
portion of the current dividend period), less the amount of all dividends
paid or deemed paid upon such share.
DIVISION B - CUMULATIVE PREFERENCE STOCK
1. Series and Limitations of Variations between Series.
The shares of Cumulative Preference Stock may be divided into and
issued in series from time to time, as herein provided. All shares of
Cumulative Preference Stock of all series shall be of equal rank and all
shares of any particular series of Cumulative Preference Stock shall be
identical except as to the date or dates from which dividends on such
shares shall be cumulative, as permitted by Section 2 of this Division B.
The shares of Cumulative Preference Stock of different series, subject to
any applicable provisions of law, may vary as to the following terms and
provisions, which shall be determined and fixed in the case of each such
series at any time prior to the issuance of any shares thereof, in the
manner hereinafter in this Section 1 provided:
(a) The distinctive designation of such series and the number
of shares which shall constitute such series, which number may be
increased or decreased (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of
Directors;
(b) The dividend rate per annum of such series, and the date
from which dividends on shares of such series shall be cumulative
(hereinafter sometimes called the date of cumulation);
(c) The price or prices at which, and the terms, times and
conditions on which, the shares of such series may be redeemed at
the option of the Corporation;
(d) The amount or amounts payable upon the shares of such series
in the event of voluntary liquidation, dissolution or winding up of
the Corporation (hereinafter sometimes called the voluntary
liquidation price);
(e) Whether or not the shares of such series shall be entitled
to the benefit of a sinking fund or a purchase fund to be applied to
the purchase or redemption of shares of such series, and if so
entitled, the amount of such fund and the manner of its application,
including the price or prices at which the shares of such series may
be redeemed or purchased through the application of such fund;
13
<PAGE>
(f) Whether or not the shares of such series shall be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes of stock of the Corporation, and if made so convertible or
exchangeable, the conversion price or prices, or the rates of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions
of such conversion or exchange;
(g) Whether or not the shares of such series shall be entitled
to (1) any rights to vote or consent in connection with any particular
corporate acts (including, without limiting the generality of the
foregoing, the issuance of any additional shares of such series, or
any future series in addition to such series) in addition to the
rights set forth in Section 6 of this Division B or in any certificate
fixing the terms of any series of Cumulative Preference Stock
theretofore issued pursuant to this Article Fourth, and the terms of
any such rights, or (2) the right to elect directors in the event of
"six quarters' default in preference stock dividends" as provided in
Section 1 of Division D of this Article Fourth;
(h) Whether or not the shares of such series shall be entitled
to the benefit of limitations restricting the purchase of, the payment
of dividends on, or the making of other distributions in respect of
stock of any class of the Corporation ranking junior to the Cumulative
Preference Stock as to dividends or assets, and the terms of any such
restrictions; and
(i) Whether or not the shares of such series shall have the
general power to vote in the election of directors and for all other
purposes, and if such power shall be given, the qualifications,
limitations and restrictions thereof, but in no event shall the vote
per share of such series be greater than the vote per share of the
Common Stock.
The series of Cumulative Preference Stock of the Corporation
designated as 5% Cumulative Preference Stock shall have the terms and
provisions set forth in this Certificate of Incorporation which are
applicable generally to all series of Cumulative Preference Stock, and
shall also have the terms and provisions hereinafter set forth in Section 4
of Division F of this Article Fourth. In addition, authority is hereby
expressly granted to and vested in the Board of Directors at any time or
from time to time, within the then authorized number of shares of
Cumulative Preference Stock of all series, to establish or re-establish any
unissued shares of Cumulative Preference Stock as shares of Cumulative
Preference Stock of any series, to create one or more additional series of
Cumulative Preference Stock and to fix the terms and provisions of any such
series of Cumulative Preference Stock in the respects in which the shares
of any series may vary from the shares of other series of Cumulative
Preference Stock as hereinbefore in this Section 1 provided.
2. Dividends.
(a) Out of any net profits or net assets of the Corporation legally
available therefor remaining after full cumulative dividends to the end of
the then current dividend period upon the Cumulative Preferred Stock of all
series then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment, and after
the Corporation shall have complied with the provisions of the foregoing
Section 5 of Division A of this
14
<PAGE>
Article Fourth in respect of any and all amounts then or theretofore
required to be set aside or applied in respect of any sinking fund or
purchase fund referred to in said Section 5, then and not otherwise the
holders of Cumulative Preference Stock of each series shall, subject to the
provisions of this Article Fourth and of any certificate fixing the terms
of any series of the Cumulative Preferred Stock, be entitled to receive,
when and as declared by the Board of Directors, dividends in cash at the
rate per annum for such series fixed in accordance with this Article
Fourth, and no more, payable on the first days of March, June, September
and December in each year (the quarterly periods ending on the first days
of such months, respectively, being herein designated as dividend periods),
in each case from the date of cumulation of such series; provided that the
initial dividend with respect to any particular series shall be payable on
such of such dates as next succeeds the date of issue of the first shares
of such series to be issued, unless otherwise determined by the Board of
Directors; and such dividends shall be cumulative (whether or not in any
dividend period or periods there shall be net profits or net assets of the
Corporation legally available for the payment of such dividends), so that
if at any time full cumulative dividends upon the outstanding Cumulative
Preference Stock of all series to the end of the then current dividend
period shall not have been paid or declared and a sum sufficient for the
payment thereof set apart for such payment, the amount of the deficiency
shall be fully paid, but without interest, or dividends in such amount
declared on each such series and a sum sufficient for the payment thereof
set apart for such payment, before any sum or sums shall be set aside for
or applied to the purchase, redemption or other acquisition of Cumulative
Preference Stock of any series and before any dividend shall be declared or
paid upon or set apart for, or any other distribution shall be ordered or
made in respect of, Subordinate Stock and before any shares of Subordinate
Stock shall be purchased, redeemed, or otherwise acquired by the
Corporation.
(b) No dividends shall be declared or paid on any particular series of
the Cumulative Preference Stock to the exclusion of any other series
thereof and all dividends declared on the Cumulative Preference Stock of
the respective series outstanding shall be declared pro rata, so that the
amount of the dividend declared on any particular series of the Cumulative
Preference Stock shall be in the proportion that the annual dividend
requirements of the shares of such series bear to the total annual dividend
requirements of the Cumulative Preference Stock of all series at the time
outstanding.
(c) The holders of the Subordinate Stock shall not be entitled to
receive any dividends until full cumulative dividends to the end of the
then current dividend period upon the Cumulative Preference Stock of all
series then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment and until the
Corporation shall have complied with the provisions of Section 4 of this
Division B in respect of any and all amounts then or theretofore required
to be set aside or applied in respect of any sinking fund or purchase fund
referred to in said Section 4.
(d) Except as otherwise provided in Section 4 of Division F of this
Article Fourth with respect to the 5% Cumulative Preference Stock, the date
of cumulation of dividends on all shares of all series of Cumulative
Preference Stock shall be the quarterly dividend payment date next
preceding the date of their issue or, if issued on a quarterly dividend
payment date, then such date; provided that the certificate creating any
such series may specify that the date of cumulation of dividends on shares
of such series shall be the aforesaid date
15
<PAGE>
unless the Board of Directors shall determine when authorizing the issuance
of particular shares of such series that the date of cumulation of
dividends on such shares shall be the date of issue of each share thereof,
said date of issue for this purpose to be such date as the Board of
Directors shall authorize or fix; and provided further that if shares of
any such series, irrespective of the date of cumulation of dividends
thereon under the foregoing provisions, be issued after the record date for
the payment of a dividend on such Stock in respect of the then current
dividend period and prior to the payment date for such dividend, then said
Board, when declaring such dividend, may determine that said shares shall
not be entitled to participate in said dividend and the date of cumulation
of dividends thereon shall be such payment date, anything hereinabove to
the contrary notwithstanding; otherwise said dividend or the applicable
portion thereof shall be payable on said shares to the registered holder
thereof on said payment date from the commencement of said current dividend
period or, as the case may be, from the date of issue of said shares, as if
such shares had been registered in said holder's name on the record date
for said dividend.
3. Preference on Liquidation, etc.
In the event of any liquidation or dissolution or winding up of the
Corporation, after there shall have been paid or set aside in cash for the
holders of the Cumulative Preferred Stock of all series then outstanding
the full preferential amounts to which they are entitled under the
provisions of this Article Fourth, the holders of the Cumulative Preference
Stock of each series shall be entitled to receive, out of the assets of the
Corporation available for distribution to its stockholders, before any
distribution of assets shall be made to the holders of Subordinate Stock,
(i) if such liquidation, dissolution or winding up shall be involuntary,
the sum of $25 per share plus full cumulative dividends thereon to the date
of final distribution to the holders of the Cumulative Preference Stock,
and (ii) if such liquidation, dissolution or winding up shall be voluntary,
the voluntary liquidation price plus full cumulative dividends thereon to
the date of final distribution to the holders of the Cumulative Preference
Stock; and the holders of the Subordinate Stock shall be entitled, to the
exclusion of the holders of the Cumulative Preference Stock of any and all
series, to share in all the assets of the Corporation then remaining as
hereinafter provided. If upon any liquidation or dissolution or winding up
of the Corporation the net assets of the Corporation shall be insufficient
to pay the holders of all outstanding shares of the Cumulative Preference
Stock the full amounts to which they respectively shall be entitled, the
holders of shares of Cumulative Preference Stock of all series shall share
ratably in any distribution of assets according to the respective amounts
which would be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to the Cumulative
Preference Stock of all series were paid in full. Neither the merger nor
consolidation of the Corporation into or with any other corporation, nor
the merger or consolidation of any other corporation into or with the
Corporation, nor a sale, transfer or lease of all or any part of the assets
of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation.
16
<PAGE>
4. Sinking and Purchase Funds.
Out of any net profits or net assets of the Corporation legally
available therefor remaining after full cumulative dividends to the end of
the then current dividend period upon the Cumulative Preference Stock of
all series then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment, and before
any dividends shall be declared or paid upon or set apart for, or any other
distribution shall be ordered or made in respect of, Subordinate Stock and
before any shares of Subordinate Stock shall be purchased, redeemed, or
otherwise acquired by the Corporation, the Corporation shall set aside, in
respect of each series of Cumulative Preference Stock any shares of which
shall at the time be outstanding and in respect of which a sinking fund or
purchase fund for the purchase or redemption thereof has been provided in
accordance with this Article Fourth, the sum or sums then or theretofore
required to be set aside as a sinking fund or purchase fund, to be applied
in the manner specified in the provisions creating such fund.
5. Redemption and Retirement.
(a) The Cumulative Preference Stock of all or any series, or any part
thereof, at any time outstanding may, subject to any applicable
restrictions with respect to the redemption of shares ranking junior to the
Cumulative Preferred Stock as to dividends or assets, be redeemed by the
Corporation, at its election expressed by resolution of the Board of
Directors, at any time or from time to time (which time, when fixed in each
case and specified in the notice of redemption, is hereinafter called the
redemption date), upon not less than 30 days previous notice to the holders
of record of the Cumulative Preference Stock to be redeemed, given by mail
in such manner as may be prescribed by resolution of the Board of
Directors, at the optional redemption price or prices then applicable to
the Cumulative Preference Stock to be redeemed, plus an amount equal to
full cumulative dividends thereon to the redemption date (the aggregate of
which amounts is hereinafter in this Section 5 called the redemption
price); provided, however, that less than all the Cumulative Preference
Stock of all series then outstanding may be redeemed only after full
cumulative dividends to the end of the then current dividend period upon
the Cumulative Preference Stock of all series then outstanding (other than
the shares to be redeemed) shall have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment. If less than
all the outstanding Cumulative Preference Stock of any series is to be
redeemed, the selection of shares for redemption may be made either by lot
or pro rata in such manner as may be prescribed by resolution of the Board
of Directors. The Corporation may, if it shall so elect, deposit the amount
of the redemption price for the account of the holders of Cumulative
Preference Stock entitled thereto with a bank or trust company doing
business in the State of New York, or in the Commonwealth of Pennsylvania,
and having capital and surplus of at least $5,000,000, at any time prior to
the redemption date (the date of such deposit being hereinafter in this
Section 5 referred to as the date of deposit).
17
<PAGE>
(b) Notice of the Corporation's election to make such deposit,
including the date of deposit and the name and address of the bank or trust
company with which the deposit has been or will be made, shall be included
in the notice of redemption. On and after the redemption date (unless
default shall be made by the Corporation in providing moneys for the
payment of the redemption price pursuant to the notice of redemption), or,
if the Corporation shall make such deposit on or before the date specified
therefor in the notice of redemption, then on and after the date of
deposit, all dividends on the Cumulative Preference Stock so called for
redemption shall cease to accrue, and, notwithstanding that any certificate
for shares of Cumulative Preference Stock so called for redemption shall
not have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding and all rights of the holders thereof
as stockholders of the Corporation shall cease and terminate, except the
right to receive the redemption price as hereinafter provided and except
any conversion or exchange rights not theretofore expired. Such conversion
or exchange rights, however, in any event shall cease and terminate upon
the redemption date or upon any earlier date duly fixed for the termination
of such rights. At any time on or after the redemption date, or, if the
Corporation shall elect to deposit the moneys for such redemption as herein
provided, then at any time on or after the date of deposit, which time
shall be specified by the Corporation in the notice of redemption but shall
not be later than the redemption date, the respective holders of record of
the Cumulative Preference Stock to be redeemed shall be entitled to receive
the redemption price upon actual delivery to the Corporation or, in the
event of such deposit, to the bank or trust company with which such deposit
shall be made, of certificates for the shares to be redeemed, such
certificates, if required, to be properly stamped for transfer and duly
endorsed in blank or accompanied by proper instruments of assignment and
transfer thereof duly endorsed in blank. Any moneys so deposited which
shall remain unclaimed by the holders of such Cumulative Preference Stock
at the end of five years after the redemption date shall be paid by such
bank or trust company to the Corporation; provided, however, that all
moneys so deposited which shall not be required for such redemption because
of the exercise of any right of conversion or exchange shall be returned to
the Corporation forthwith. Any interest accrued on moneys so deposited
shall be paid to the Corporation from time to time.
6. Restrictions on Certain Corporate Action.
(a) So long as any shares of the Cumulative Preference Stock of any
series shall be outstanding, the Corporation shall not, without the
consent, given in writing or by resolution adopted at a meeting duly called
for that purpose, of the holders of record of at least two-thirds of the
number of shares of the Cumulative Preference Stock of all series then
outstanding, considered as a class without regard to series,
(1) alter or change the designations or the voting powers,
preferences or rights, or the qualifications, limitations or
restrictions thereof, of the Cumulative Preference Stock or of any
series thereof in any material respect prejudicial to the holders
thereof; provided, however, that any such alteration or change of the
designations or of the voting powers, preferences or rights, or the
qualifications, limitations or restrictions thereof, of any particular
series of the Cumulative Preference Stock which is not in any material
respect prejudicial to the holders of the Cumulative Preference Stock
of any other series may be effected with
18
<PAGE>
the consent, given as aforesaid, of the holders of record of at least
two-thirds of the number of shares of the particular series of
Cumulative Preference Stock affected by such alteration or change; and
provided, further, that nothing in this subparagraph (1) shall require
the vote or consent of the holders of the Cumulative Preference Stock
for or in respect of any increase in the authorized number of shares
of Common Stock or the creation or increase in the authorized number
of shares of any other class of stock which shall rank junior to the
Cumulative Preference Stock as to both dividends and assets;
(2) create any new class of stock having preference over the
Cumulative Preference Stock as to dividends or assets, or create
any obligation or security of the Corporation convertible into or
exchangeable for shares of stock of any class having such preference
over the Cumulative Preference Stock;
(3) sell, transfer or lease all, or substantially all, the assets
of the Corporation, unless as a part of such transaction or prior
thereto the Cumulative Preference Stock of all series shall be retired
or called for redemption and the necessary funds therefor deposited as
provided in Section 5 of this Division B; provided, however, that
nothing in this subparagraph (3) shall require the vote or consent of
the holders of the Cumulative Preference Stock for or in respect of
the creation of any mortgage or pledge of or other lien upon all or
any part of the assets of the Corporation; or
(4) effect a statutory merger or consolidation of or with any
other corporation or corporations; provided, however, that such
consent shall not be necessary if as a result of such merger or
consolidation: (i) the Corporation shall be the surviving corporation
and the Cumulative Preference Stock then outstanding shall continue to
be outstanding; there shall be no alteration or change in the
designations or the voting powers, preferences or rights, or the
qualifications, limitations or restrictions thereof, of the Cumulative
Preference Stock or any series thereof, in any material respect
prejudicial to the holders thereof and the number of authorized shares
of Cumulative Preference Stock or shares being on a parity therewith
as to dividends or assets shall not exceed the number of such shares
which the Corporation shall have been authorized to issue immediately
preceding the date of such merger or consolidation (except with the
consent, given in writing or by resolution adopted at a meeting duly
called for that purpose, of the holders of record of at least a
majority of the number of shares of the Cumulative Preference Stock of
all series then outstanding, considered as a class without regard to
series) and there shall not be created any new class of stock having
preference over the Cumulative Preference Stock as to dividends or
assets; or (ii) if the Corporation shall not be the surviving
corporation, the shares of the Cumulative Preference Stock of each
series then outstanding shall be converted into, or be exchangeable
for, a like number of shares of preference stock of the surviving or
resulting corporation which preference stock shall have substantially
the same designations, voting powers, preferences and rights, and
qualifications, limitations or restrictions thereof, as the Cumulative
Preference Stock of such series, the number of authorized shares of
such preference stock shall not exceed the number of shares of the
Cumulative Preference Stock of all series which the Corporation shall
have been
19
<PAGE>
authorized to issue immediately preceding the date of such
merger or consolidation (except with the consent, given in writing or
by resolution adopted at a meeting duly called for that purpose, of
the holders of record of at least a majority of the number of shares
of the Cumulative Preference Stock of all series then outstanding,
considered as a class without regard to series) and there shall not be
outstanding or created any class of stock of the surviving or
resulting corporation having preference over or being on a parity with
such preference stock as to dividends or assets.
(b) So long as any shares of Cumulative Preference Stock of any series
shall be outstanding, the Corporation shall not, without the consent, given
in writing or by resolution adopted at a meeting duly called for that
purpose, of the holders of record of at least a majority of the number of
shares of Cumulative Preference Stock of all series then outstanding,
considered as a class without regard to series,
(1) increase the authorized number of shares of Cumulative
Preferred Stock or increase the authorized number of shares of
Cumulative Preference Stock;
(2) create any new class of stock ranking on a parity with the
Cumulative Preference Stock as to dividends or assets; or
(3) issue any shares of Cumulative Preference Stock, in addition
to the shares of 5% Cumulative Preference Stock issued by the
Corporation upon the merger of Northeastern Water Company into
the Corporation, or issue any shares of any new class of stock which
shall be on a parity with the Cumulative Preference Stock as to
dividends or assets, unless the consolidated net income of the
Corporation and its subsidiaries (as hereinafter defined) for any
period of twelve consecutive calendar months during the preceding 18
calendar months preceding a date not more than 60 days prior to the
issue of such additional shares of Cumulative Preference Stock or of
such other stock shall have been at least 1.25 times the sum of (w)
the annual interest charges on all indebtedness of the Corporation
and its subsidiaries to be outstanding immediately after the proposed
issue of such additional shares, (x) the annual dividend requirements
on all shares of stock of any class ranking prior to or on a parity
with the Cumulative Preference Stock as to dividends or assets to be
outstanding immediately after the proposed issue of such additional
shares, (y) the annual dividend requirements on all shares of
preferred stock of subsidiaries to be outstanding immediately after
the proposed issuance of such additional shares, and (z) the annual
dividend requirements on all shares of Cumulative Preference Stock of
all series to be outstanding immediately after the proposed issuance
of such additional shares; provided, however, that any interest and
dividends payable to the Corporation or any subsidiary shall be
excluded from the foregoing calculation. Before issuing any shares of
Cumulative Preference Stock other than the shares thereof issued upon
such merger or before issuing such other stock, there shall be
prepared and filed among the permanent records of the Corporation a
certificate of an independent public accountant of recognized
standing, selected in good faith by the Board of Directors, setting
forth such information as may be necessary to show compliance with
the requirements of this subparagraph (3), and stating whether, in
the opinion of such accountant,
20
<PAGE>
such requirements are being complied with. For purposes of this
subparagraph (3) the following shall be applicable:
(i) The term "consolidated net income of the Corporation and
its subsidiaries" shall be deemed to mean the total income
(except amortization of premium on debt), whether credited to
surplus or otherwise, of the Corporation and its subsidiaries
from all sources for the period in question, after deducting
therefrom all operating and non-operating expenses and charges,
including maintenance expenses, such provisions for reserves for
retirements, renewals and replacements and for depreciation,
obsolescence and depletion as is determined by the Board of
Directors in accordance with established practice of the
Corporation and its subsidiaries, taxes and rentals paid or
accrued in respect of the properties, license fees and franchise
taxes paid or accrued, and Federal and State taxes based on
income paid or accrued, but excluding interest charges on
indebtedness of the Corporation and its subsidiaries, dividends
on preferred stocks of subsidiaries, amortization of debt
discount and expense, and profits or losses on sales of capital
assets, amortization of intangibles or property adjustments,
write-downs of property, or other adjustments, and similar items.
In case, within or after the period for which the computation of
consolidated net income of the Corporation and its subsidiaries
is made pursuant to this subparagraph (3), the Corporation or any
subsidiary shall have acquired any property (either directly or
through the acquisition of a subsidiary or by merger of any
entity into or with the Corporation), such acquired property may
be treated as having been owned by the Corporation for the whole
of such period of computation and the net income thereof for such
period may, at the option of the Corporation, be included in the
consolidated net income of the Corporation and its subsidiaries,
and there shall be excluded, in computing such consolidated net
income, an amount equal to the net income estimated to be
applicable to any property sold or disposed of by the Corporation
or any of its subsidiaries after the beginning of such period of
computation.
(ii) The term "subsidiary" shall mean (A) any corporation of
which at least a majority of the voting stock is at the time
directly or indirectly owned or controlled by the Corporation,
and (B) any corporation of which at least a majority of the
voting stock shall at the time be owned or controlled, directly
or indirectly, by the Corporation and any subsidiary or
subsidiaries as defined in the foregoing clause (A) or by one or
more such subsidiaries; provided, however, that in no event shall
there be included within the term "subsidiary" any corporation
substantially all of the physical properties of which are located
outside of the United States of America.
(iii) The term "voting stock" shall mean stock entitled
under ordinary circumstances to vote for the election of
directors and does not mean or include stock so entitled to vote
only upon failure to pay dividends thereon or upon some other
contingency or for some special purpose or purposes.
21
<PAGE>
7. Definitions.
(a) The term "Subordinate Stock" as used in this Article Fourth shall
be deemed to mean all stock of any class of the Corporation ranking junior
to the Cumulative Preference Stock as to dividends or assets.
(b) The term "full cumulative dividends" whenever used in this Article
Fourth with reference to any share of any series of the Cumulative
Preference Stock shall be deemed to mean (whether or not in any dividend
period or any part thereof in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally
available for the payment of such dividends) that amount which shall be
equal to dividends at the rate per share fixed for such series in
accordance with this Article Fourth for the period of time elapsed from the
date of cumulation of such series to the date as of which full cumulative
dividends are to be computed (including the elapsed portion of the current
dividend period), less the amount of all dividends paid upon such share
DIVISION B-1 - CUMULATIVE PREFERENTIAL STOCK
1. Series and Limitations of Variations between Series.
The shares of Cumulative Preferential Stock may be divided into and
issued in series from time to time, as herein provided. All shares of
Cumulative Preferential Stock of all series shall be of equal rank and all
shares of any particular series of Cumulative Preferential Stock shall be
identical except as to the date or dates from which dividends on such
shares shall be cumulative, as permitted by Section 2 of this Division B-1.
The shares of Cumulative Preferential Stock of different series, subject to
any applicable provisions of law, may vary as to the following terms and
provisions, which shall be determined and fixed in the case of each such
series at any time prior to the issuance of any shares thereof, in the
manner hereinafter in this Section 1 provided:
(a) The distinctive designation of such series and the number
of shares which shall constitute such series, which number may be
increased or decreased (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of
Directors;
(b) The dividend rate per annum of such series, and the date
from which dividends on shares of such series shall be cumulative
(hereinafter sometimes called the date of cumulation);
(c) The price or prices at which, and the terms, times and
conditions on which, the shares of such series may be redeemed at
the option of the Corporation;
(d) The amount or amounts payable upon the shares of such series
in the event of involuntary liquidation, dissolution or winding up of
the Corporation (hereinafter sometimes called the involuntary
liquidation price), and the amount or amounts payable upon the shares
of such series in the event of voluntary liquidation, dissolution or
winding up of the Corporation (hereinafter sometimes called the
voluntary liquidation price);
22
<PAGE>
(e) Whether or not the shares of such series shall be entitled
to the benefit of a sinking fund or a purchase fund to be applied
to the purchase or redemption of shares of such series, and if so
entitled, the amount of such fund and the manner of its application,
including the price or prices at which the shares of such series may
be redeemed or purchased through the application of such fund;
(f) Whether or not the shares of such series shall be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes of stock of the Corporation, and if made so convertible or
exchangeable, the conversion price or prices, or the rates of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions
of such conversion or exchange;
(g) Whether or not the shares of such series shall be entitled
to (1) any rights not theretofore granted to shares of Cumulative
Preferential Stock to vote or consent in connection with any
particular corporate acts and the terms of any such rights, or
(2) the right to elect directors in the event of "six quarters'
default in preferential stock dividends" as provided in Section 1 of
Division D of this Article Fourth;
(h) Whether or not the shares of such series shall be entitled
to the benefit of limitations restricting the purchase of, the payment
of dividends on, or the making of other distributions in respect of
stock of any class of the Corporation ranking junior to the Cumulative
Preferential Stock as to dividends or assets, and the terms of any
such restrictions;
(i) Whether or not the shares of such series shall have the
general power to vote in the election of directors and for all other
purposes, and if such power shall be given, the qualifications,
limitations and restrictions thereof, but in no event shall the vote
per share of such series be greater than the vote per share of the
Common Stock; and
(j) Whether or not the shares of such series shall have any
rights to subscribe to shares of any class of stock of the
Corporation, and the terms of any such rights.
Authority is hereby expressly granted to and vested in the Board of
Directors at any time or from time to time, within the then authorized
number of shares of Cumulative Preferential Stock of all series, to
establish or re-establish any unissued shares of Cumulative Preferential
Stock as shares of Cumulative Preferential Stock of any series, to create
one or more additional series of Cumulative Preferential Stock and to fix
the terms and provisions of any such series of Cumulative Preferential
Stock in the respects in which the shares of any series may vary from the
shares of other series of Cumulative Preferential Stock as hereinbefore in
this Section 1 provided.
2. Dividends.
(a) Out of any net profits or net assets of the Corporation legally
available therefor remaining after full cumulative dividends to the end of
the then current dividend period upon the Cumulative Preferred Stock and
the Cumulative Preference Stock of all series then outstanding shall have
been paid
23
<PAGE>
or declared and a sum sufficient for the payment thereof set apart for such
payment, and after the Corporation shall have complied with the provisions
of the foregoing Section 5 of Division A and Section 4 of Division B of
this Article Fourth in respect of any and all amounts then or theretofore
required to be set aside or applied in respect of any sinking fund or
purchase fund referred to in said Section 5 and said Section 4, then and
not otherwise the holders of Cumulative Preferential Stock of each series
shall, subject to the provisions of this Article Fourth and of any
certificate fixing the terms of any series of the Cumulative Preferred
Stock or the Cumulative Preference Stock, be entitled to receive, when and
as declared by the Board of Directors, dividends in cash at the rate per
annum for such series fixed in accordance with this Article Fourth, and no
more, payable on the first days of March, June, September and December in
each year (the quarterly periods ending on the first days of such months,
respectively, being herein designated as dividend periods), in each case
from the date of cumulation of such series; provided that the initial
dividend with respect to any particular series shall be payable on such of
such dates as next succeeds the date of issue of the first shares of such
series to be issued, unless otherwise determined by the Board of Directors;
and such dividends shall be cumulative (whether or not in any dividend
period or periods there shall be net profits or net assets of the
Corporation legally available for the payment of such dividends), so that
if at any time full cumulative dividends upon the outstanding Cumulative
Preferential Stock of all series to the end of the then current dividend
period shall not have been paid or declared and a sum sufficient for the
payment thereof set apart for such payment, the amount of the deficiency
shall be fully paid, but without interest, or dividends in such amount
declared on each such series and a sum sufficient for the payment thereof
set apart for such payment, before any sum or sums shall be set aside for
or applied to the purchase, redemption or other acquisition of Cumulative
Preferential Stock of any series and before any dividend shall be declared
or paid upon or set apart for, or any other distribution shall be ordered
or made in respect of, Sub-Preferential Stock and before any shares of
Sub-Preferential Stock shall be purchased, redeemed, or otherwise acquired
by the Corporation.
(b) No dividends shall be declared or paid on any particular series of
the Cumulative Preferential Stock to the exclusion of any other series
thereof and all dividends declared on the Cumulative Preferential Stock of
the respective series outstanding shall be declared pro rata, so that the
amount of the dividend declared on any particular series of the Cumulative
Preferential Stock shall be in the proportion that the annual dividend
requirements of the shares of such series bear to the total annual dividend
requirements of the Cumulative Preferential Stock of all series at the time
outstanding.
(c) The holders of the Sub-Preferential Stock shall not be entitled to
receive any dividends until full cumulative dividends to the end of the
then current dividend period upon the Cumulative Preferential Stock of all
series then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment and until the
Corporation shall have complied with the provisions of Section 4 of this
Division B-1 in respect of any and all amounts then or theretofore required
to be set aside or applied in respect of any sinking fund or purchase fund
referred to in said Section 4.
24
<PAGE>
(d) The date of cumulation of dividends on all shares of all series of
Cumulative Preferential Stock shall be the quarterly dividend payment date
next preceding the date of their issue or, if issued on a quarterly
dividend payment date, then such date; provided that the certificate
creating any such series may specify that the date of cumulation of
dividends on shares of such series shall be the aforesaid date unless the
Board of Directors when authorizing the issuance of particular shares of
such series shall provide for a different date of cumulation of dividends;
and provided further that if shares of any such series, irrespective of the
date of cumulation of dividends thereon under the foregoing provisions, be
issued after the record date for the payment of a dividend on such Stock in
respect of the then current dividend period and prior to the payment date
for such dividend, then said Board, when declaring such dividend, may
determine that said shares shall not be entitled to participate in said
dividend and the date of cumulation of dividends thereon shall be such
payment date, anything hereinabove to the contrary notwithstanding;
otherwise said dividend or the applicable portion thereof shall be payable
on said shares to the registered holder thereof on said payment from the
commencement of said current dividend period or, as the case may be, from
the date of issue of said shares, as if such shares had been registered in
said holder's name on the record date for said dividend.
3. Preference on Liquidation, etc.
In the event of any liquidation or dissolution or winding up of the
Corporation, after there shall have been paid or set aside in cash for the
holders of the Cumulative Preferred Stock and the Cumulative Preference
Stock of all series then outstanding the full preferential amounts to which
they are entitled under the provisions of this Article Fourth, the holders
of the Cumulative Preferential Stock of each series shall be entitled to
receive, out of the assets of the Corporation available for distribution to
its stockholders, before any distribution of assets shall be made to the
holders of Sub-Preferential Stock, (i) if such liquidation, dissolution or
winding up shall be involuntary, the applicable involuntary liquidation
price plus full cumulative dividends thereon to the date of final
distribution to the holders of the Cumulative Preferential Stock, and (ii)
if such liquidation, dissolution or winding up shall be voluntary, the
applicable voluntary liquidation price plus full cumulative dividends
thereon to the date of final distribution to the holders of the Cumulative
Preferential Stock; and the holders of the Sub-Preferential Stock shall be
entitled, to the exclusion of the holders of the Cumulative Preferential
Stock of any and all series, to share in all the assets of the Corporation
then remaining as hereinafter provided. If upon any liquidation or
dissolution or winding up of the Corporation the net assets of the
Corporation shall be insufficient to pay the holders of all outstanding
shares of the Cumulative Preferential Stock the full amounts to which they
respectively shall be entitled, the holders of shares of Cumulative
Preferential Stock of all series shall share ratably in any distribution of
assets according to the respective amounts which would be payable in
respect of the shares held by them upon such distribution if all amounts
payable on or with respect to the Cumulative Preferential Stock of all
series were paid in full. Neither the merger nor consolidation of the
Corporation into or with any other corporation, nor the merger or
consolidation of any other corporation into or with the Corporation, nor a
sale, transfer or lease of all or any part of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation.
25
<PAGE>
4. Sinking and Purchase Funds.
Out of any net profits or net assets of the Corporation legally
available therefor remaining after full cumulative dividends to the end of
the then current dividend period upon the Cumulative Preferential Stock of
all series then outstanding shall have been paid or declared and a sum
sufficient for the payment thereof set apart for such payment, and before
any dividends shall be declared or paid upon or set apart for, or any other
distribution shall be ordered or made in respect of, Sub-Preferential Stock
and before any shares of Sub-Preferential Stock shall be purchased,
redeemed, or otherwise acquired by the Corporation, the Corporation shall
set aside, in respect of each series of Cumulative Preferential Stock any
shares of which shall at the time be outstanding and in respect of which a
sinking fund or purchase fund for the purchase or redemption thereof has
been provided in accordance with this Article Fourth, the sum or sums then
or theretofore required to be set aside as a sinking fund or purchase fund,
to be applied in the manner specified in the provisions creating such fund.
5. Redemption.
(a) The Cumulative Preferential Stock of all or any series, or any
part thereof, at any time outstanding may, subject to any applicable
restrictions with respect to the redemption of shares ranking junior to the
Cumulative Preferred Stock or the Cumulative Preference Stock as to
dividends or assets, be redeemed by the Corporation, at its election
expressed by resolution of the Board of Directors, at any time or from time
to time (which time, when fixed in each case and specified in the notice of
redemption, is hereinafter called the redemption date), upon not less than
30 days previous notice to the holders of record of the Cumulative
Preferential Stock to be redeemed, given by mail in such manner as may be
prescribed by resolution of the Board of Directors, at the optional
redemption price or prices then applicable to the Cumulative Preferential
Stock to be redeemed, plus an amount equal to full cumulative dividends
thereon to the redemption date (the aggregate of which amounts is
hereinafter in this Section 5 called the redemption price); provided,
however, that less than all the Cumulative Preferential Stock of all series
then outstanding may be redeemed only after full cumulative dividends to
the end of the then current dividend period upon the Cumulative
Preferential Stock of all series then outstanding (other than the shares to
be redeemed) shall have been paid or declared and a sum sufficient for the
payment thereof set apart for such payment. If less than all the
outstanding Cumulative Preferential Stock of any series is to be redeemed,
the selection of shares for redemption may be made either by lot or pro
rata in such manner as may be prescribed by resolution of the Board of
Directors. The Corporation may, if it shall so elect, deposit the amount of
the redemption price for the account of the holders of Cumulative
Preferential Stock entitled thereto with a bank or trust company doing
business in the State of New York, or in the Commonwealth of Pennsylvania,
and having capital and surplus of at least $5,000,000, at any time prior to
the redemption date (the date of such deposit being hereinafter in this
Section 5 referred to as the date of deposit).
26
<PAGE>
(b) Notice of the Corporation's election to make such deposit,
including the date of deposit and the name and address of the bank or trust
company with which the deposit has been or will be made, shall be included
in the notice of redemption. On and after the redemption date (unless
default shall be made by the Corporation in providing moneys for the
payment of the redemption price pursuant to the notice of redemption), or,
if the Corporation shall make such deposit on or before the date specified
therefor in the notice of redemption, then on and after the date of
deposit, all dividends on the Cumulative Preferential Stock so called for
redemption shall cease to accrue, and, notwithstanding that any certificate
for shares of Cumulative Preferential Stock so called for redemption shall
not have been surrendered for cancellation, the shares represented thereby
shall no longer be deemed outstanding and all rights of the holders thereof
as stockholders of the Corporation shall cease and terminate, except the
right to receive the redemption price as hereinafter provided and except
any conversion, exchange or subscription rights not theretofore expired.
Such conversion or exchange rights, however, in any event shall cease and
terminate upon the redemption date or upon any earlier date duly fixed for
the termination of such rights. At any time on or after the redemption
date, or, if the Corporation shall elect to deposit the moneys for such
redemption as herein provided, then at any time on or after the date of
deposit, which time shall be specified by the Corporation in the notice of
redemption but shall not be later than the redemption date, the respective
holders of record of the Cumulative Preferential Stock to be redeemed shall
be entitled to receive the redemption price upon actual delivery to the
Corporation or, in the event of such deposit, to the bank or trust company
with which such deposit shall be made, of certificates for the shares to be
redeemed, such certificates, if required, to be properly stamped for
transfer and duly endorsed in blank or accompanied by proper instruments of
assignment and transfer thereof duly endorsed in blank. Any moneys so
deposited which shall remain unclaimed by the holders of such Cumulative
Preferential Stock at the end of five years after the redemption date shall
be paid by such bank or trust company to the Corporation; provided,
however, that all moneys so deposited which shall not be required for such
redemption because of the exercise of any right of conversion or exchange
shall be returned to the Corporation forthwith. Any interest accrued on
moneys so deposited shall be paid to the Corporation from time to time.
6. Definitions.
(a) The term "Sub-Preferential Stock" as used in this Article Fourth
shall be deemed to mean all stock of any class of the Corporation ranking
junior to the Cumulative Preferential Stock as to dividends or assets.
(b) The term "full cumulative dividends" whenever used in this Article
Fourth with reference to any share of any series of the Cumulative
Preferential Stock shall be deemed to mean (whether or not in any dividend
period or any part thereof in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally
available for the payment of such dividends) that amount which shall be
equal to dividends at the rate per share fixed for such series in
accordance with this Article Fourth for the period of time elapsed from the
date or dates of cumulation of shares of such series to the date as of
which full cumulative dividends are to be computed (including the elapsed
portion of the current dividend period), less the amount of all dividends
paid upon such share.
27
<PAGE>
DIVISION C - COMMON STOCK
1. Dividends.
Out of any net profits or net assets of the Corporation legally
available therefor remaining after full cumulative dividends to the end of
the then current dividend period upon the Cumulative Preferred Stock, the
Cumulative Preference Stock and the Cumulative Preferential Stock of all
series of each class of stock then outstanding shall have been paid or
declared and a sum sufficient for the payment thereof set apart for such
payment, and after setting aside the sum or sums then or theretofore
required to be set aside as a sinking fund or purchase fund provided for
any one or more series of the Cumulative Preferred Stock, the Cumulative
Preference Stock and the Cumulative Preferential Stock, then and not
otherwise the holders of the Common Stock shall, subject to the provisions
of this Article Fourth and of any certificate fixing the terms of any
series of the Cumulative Preferred Stock, the Cumulative Preference Stock
or the Cumulative Preferential Stock, be entitled to receive such dividends
as may from time to time be declared by the Board of Directors.
2. Distribution of Assets.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid or set aside in cash for the
holders of the Cumulative Preferred Stock, the holders of the Cumulative
Preference Stock and the holders of the Cumulative Preferential Stock the
full preferential amounts to which they are entitled under the provisions
of this Article Fourth, the holders of the Common Stock shall be entitled
to receive pro rata all of the remaining assets of the Corporation
available for distribution to its stockholders.
DIVISION D - VOTING RIGHTS
1. (a) Except as otherwise required by the laws of the State of
Delaware and as otherwise provided in this Division D or elsewhere in this
Article Fourth or in any certificate creating any series of any class of
stock of the Corporation, and subject to the provisions of the by-laws of
the Corporation, as from time to time amended, with respect to the closing
of the transfer books and the fixing of a record date for the determination
of stockholders entitled to vote, the holders of the Common Stock and the
holders of such of the series of Cumulative Preferred Stock, Cumulative
Preference Stock and Cumulative Preferential Stock, if any, as shall have
been granted such power pursuant to this Article Fourth or to any
certificate creating any series of any class of stock of the Corporation
shall exclusively possess voting power in the election of directors and for
all other purposes, and the holders of the other series of Cumulative
Preferred Stock, Cumulative Preference Stock and Cumulative Preferential
Stock shall have no voting power and shall not be entitled to any notice of
any meeting of stockholders.
(b) If at the time of any annual meeting of stockholders for the
election of directors a "year's default in preferred dividends", as
hereinafter defined, shall exist, the holders of the Cumulative Preferred
Stock, voting separately as a class and without regard to series, shall
have the right to elect two members of the Board of Directors; provided
that if at the time of any annual meeting of
28
<PAGE>
stockholders for the election of directors a "two years' default in
preferred dividends", as hereinafter defined, shall exist, the holders of
the Cumulative Preferred Stock, voting separately as a class and without
regard to series, shall have the right to elect the smallest number of
directors necessary to constitute a majority of the Board of Directors. In
either such event the holders of the Cumulative Preferred Stock, as such,
voting separately as a class, shall not be entitled to vote in the election
of any of the other directors of the Corporation, and the holders of the
other classes of stock shall be entitled to elect the remaining members of
the Board of Directors as provided in this Division D, but the holders of
such other classes of stock shall not, as such, be entitled to vote in the
election of the directors of the Corporation to be elected by the holders
of the Cumulative Preferred Stock; and any other provision of this
Certificate of Incorporation or of any certificate creating any series of
Cumulative Preferred Stock to the contrary notwithstanding, if and so long
as a "default in preferred dividends", as hereinafter defined, shall exist,
the holders of such series of the Cumulative Preferred Stock, if any, as
shall have been granted the general power to vote in the election of
directors pursuant to this Article Fourth shall be entitled to vote as
holders of the Cumulative Preferred Stock and shall not be entitled to vote
with the holders of the Common Stock in the election of directors or for
any other purposes pertinent to the provisions of this Division D.
(c) If at the time of any annual meeting of stockholders for the
election of directors a "six quarters' default in preference stock
dividends," as hereinafter defined, shall exist, the holders, if any, of
the "special voting series", as hereinafter defined, of Cumulative
Preference Stock shall have the right, voting separately as a class and
without regard to series, to elect two members of the Board of Directors.
In such event the holders of the "special voting series" of Cumulative
Preference Stock shall not be entitled to vote, as such, in the election of
any other directors of the Corporation, and the holders of the other
classes of stock shall be entitled to elect the remaining members of the
Board of Directors as provided in this Division D; but the holders of such
other classes of stock shall not, as such, be entitled to vote in the
election of directors of the Corporation to be elected by the holders of
the "special voting series" of Cumulative Preference Stock; and any other
provision of this Certificate of Incorporation or of any certificate
creating any series of Cumulative Preference Stock to the contrary
notwithstanding, if and so long as a "default in preference stock
dividends," as hereinafter defined, shall exist, the holders of such
"special voting series" of Cumulative Preference Stock, if any, as shall
have been granted the general power to vote in the election of directors
pursuant to this Article Fourth shall be entitled to vote as the holders of
the Cumulative Preference Stock and shall not be entitled to vote with the
holders of the Common Stock in the election of directors or for any other
purposes pertinent to the provisions of this Division D.
(d) If at the time of any annual meeting of stockholders for the
election of directors a "six quarters' default in preferential stock
dividends," as hereinafter defined, shall exist, the holders, if any, of
the "special voting series", as hereinafter defined, of Cumulative
Preferential Stock shall have the right, voting separately as a class and
without regard to series, to elect two members of the Board of Directors.
In such event the holders of the "special voting series" of Cumulative
Preferential Stock shall not be entitled to vote, as such, in the election
of any other directors of the Corporation, and the holders of the other
classes of stock shall be entitled to elect the remaining
29
<PAGE>
members of the Board of Directors as provided in this Division D; but the
holders of such other classes of stock shall not, as such, be entitled to
vote in the election of directors of the Corporation to be elected by the
holders of the "special voting series" of Cumulative Preferential Stock;
and any other provision of this Certificate of Incorporation or of any
certificate creating any series of Cumulative Preferential Stock to the
contrary notwithstanding, if and so long as a "default in preferential
stock dividends," as hereinafter defined, shall exist, the holders of such
"special voting series" of Cumulative Preferential Stock, if any, as shall
have been granted the general power to vote in the election of directors
pursuant to this Article Fourth shall be entitled to vote as the holders of
the Cumulative Preferential Stock and shall not be entitled to vote with
the holders of the Common Stock in the election of directors or for any
other purposes pertinent to the provisions of this Division D.
(e) Any Preferred Director shall continue to serve as such director
until the next annual meeting of stockholders and until his successor shall
be elected and qualified, unless prior to the end of such term a default in
preferred dividends shall cease to exist, in which event the term of all
Preferred Directors shall terminate and the resulting vacancies, if any, in
the Board of Directors shall be filled by the Common Directors. So long as
a default in preferred dividends shall exist, any vacancy in the office of
a Preferred Director shall be filled for the unexpired term by a majority
of the remaining Preferred Directors (or, if there is only one remaining
Preferred Director, by that Director) or, if there shall at the time be no
Preferred Director in office, by the remaining members of the Board of
Directors. Any Preference Stock Director shall continue to serve as such
director until the next annual meeting of stockholders and until his
successor shall be elected and qualified, unless prior to the end of such
term a default in preference stock dividends shall cease to exist, in which
event the term of all Preference Stock Directors shall terminate, and the
resulting vacancies, if any, in the Board of Directors shall be filled by
the Common Directors. So long as a default in preference stock dividends
shall exist, any vacancy in the office of a Preference Stock Director shall
be filled for the unexpired term by the remaining Preference Stock Director
or, if there shall at the time be no Preference Stock Director in office,
by the remaining members of the Board of Directors. Any Preferential Stock
Director shall continue to serve as such director until the next annual
meeting of stockholders and until his successor shall be elected and
qualified, unless prior to the end of such term a default in preferential
stock dividends shall cease to exist, in which event the term of all
Preferential Stock Directors shall terminate, and the resulting vacancies,
if any, in the Board of Directors shall be filled by the Common Directors.
So long as a default in preferential stock dividends shall exist, any
vacancy in the office of a Preferential Stock Director shall be filled for
the unexpired term by the remaining Preferential Stock Director or, if
there shall at the time be no Preferential Stock Director in office, by the
remaining members of the Board of Directors. Any vacancy in the office of a
Common Director shall be filled for the unexpired term by a majority of the
remaining Common Directors or, if at the time there shall be no Common
Director in office or if there are an even number of Common Directors in
office and it is not possible within 30 days after the vacancy occurred to
fill the vacancy by a majority vote of the remaining Common Directors, then
any such vacancy or vacancies shall be filled at a special meeting of the
holders of the Common Stock which shall promptly be called by the
Secretary.
30
<PAGE>
(f) For the purposes of this Section 1, a "year's default in preferred
dividends" shall be deemed to exist whenever at the time of any annual
meeting of stockholders for the election of directors the amount of full
cumulative dividends upon the shares of any series of the Cumulative
Preferred Stock shall be equivalent to four quarterly dividends or more, up
to and including seven quarterly dividends, and a "two-years' default in
preferred dividends" shall be deemed to exist whenever at the time of any
annual meeting for the election of directors the amount of full cumulative
dividends upon the shares of any series of the Cumulative Preferred Stock
shall be equivalent to eight quarterly dividends or more. If a "year's
default in preferred dividends" shall exist, such default in preferred
dividends shall be deemed to exist thereafter until, but only until, full
cumulative dividends on all shares of Cumulative Preferred Stock of all
series then outstanding shall have been paid to the end of the last
preceding quarterly dividend period. If a "two years' default in preferred
dividends" shall exist, such default shall be deemed to exist thereafter
until either (i) full cumulative dividends on all shares of Cumulative
Preferred Stock of all series then outstanding shall have been paid to the
end of the last preceding dividend period, or (ii) until the date when the
aggregate of the "available dividend income of the Corporation", as
hereinafter defined (calculated from the first date when the amount of full
cumulative dividends on all shares of Cumulative Preferred Stock of all
series then outstanding was equivalent to eight quarterly dividends)
exceeds the amount of full cumulative dividends on all shares of Cumulative
Preferred Stock of all series then outstanding (calculated to the end of
the last preceding quarterly dividend period), whichever shall first occur.
For the purposes of this Section 1, the term "available dividend
income" of the Corporation for the period under consideration shall be
deemed to mean the sum of:
(i) the lesser of (A) 75% of the net income (but not losses) for
such period which would be available for dividends on the common stock
of each operating subsidiary owned by the Corporation or any
subsidiary, or (B) the amount which would be available under
applicable state law, indenture, charter or other dividend
restrictions for payment to the Corporation or any subsidiary during
such period in the form of dividends on the common stock of each
operating subsidiary owned by the Corporation or any subsidiary,
excluding, in each case, any cash dividends received by the
Corporation or a subsidiary on common stock of an operating
subsidiary; plus
(ii) all income of the Corporation during such period from all
sources other than dividends on common stock of subsidiaries; plus
(iii) all income of each non-operating subsidiary of the
Corporation during such period from all sources other than dividends
on common stock of operating subsidiaries;
after deducting from such sum the total of:
31
<PAGE>
(x) all expenses and charges of the Corporation and all expenses
and charges of its non-operating subsidiaries (but only to the extent
of the income available to each such non-operating subsidiary for the
payment of such expenses and charges) for such period, including fixed
charges and income and franchise taxes paid or accrued; plus
(y) all dividends paid on the Cumulative Preferred Stock during
such period;
all as determined in accordance with generally accepted accounting
practices followed by the Corporation in reports required to be filed by
the Corporation with the Securities and Exchange Commission or other
similar governmental body with which the Corporation is required to file
periodic reports, or, if there is no such governmental body, with the New
York Stock Exchange; provided, that in making such determination, there
shall be included all items of income whether credited to surplus or
otherwise, but there shall be excluded any profits or losses on sales of
investments (after reflecting applicable expenses and taxes), any charges
arising in connection with or resulting from amortization of intangibles or
property adjustments, any write-downs of property or similar adjustments,
and any write-downs or other adjustments of the carrying value of
investments in subsidiaries.
For the purposes of this Section 1, the term "common stock" of any
subsidiary (including an operating subsidiary) shall mean stock (including
capital stock if only one class of stock be outstanding), whether or not
voting stock, not limited as to the amount payable thereon upon any
liquidation, dissolution or winding up of the issuing corporation, and the
term "operating subsidiary" shall mean any subsidiary, as defined in
Section 7 of Division A of this Article Fourth, principally engaged in the
ownership and operation of water supply and distribution systems.
(g) For the purposes of this Article Fourth, the following terms shall
have the following meanings:
(i) "special voting series" as applied to the Cumulative
Preference Stock shall mean all series of the Cumulative Preference
Stock which have been granted in Division F of this Article Fourth
or in any certificate creating any series of Cumulative Preference
Stock the right to vote for directors in the event of a "six quarters'
default in preference stock dividends" as provided in this Section 1;
(ii) "special voting series" as applied to the Cumulative
Preferential Stock shall mean all series of the Cumulative Preference
Stock which have been granted in Division F of this Article Fourth or
in any certificate creating any series of Cumulative Preferential
Stock the right to vote for directors in the event of a "six quarters'
default in preferential stock dividends" as provided in this Section
1;
(iii) "Common Director" shall mean a director elected by the
holders of the Common Stock and the holders of any series of
Cumulative Preferred Stock, Cumulative Preference Stock or Cumulative
Preferential Stock which shall have been granted and then possess the
general power to vote in the election of directors pursuant to this
Article Fourth or to any certificate creating any series of such
Stocks, all voting together as a class;
32
<PAGE>
(iv) "Preferred Director" shall mean a director elected by the
holders of the Cumulative Preferred Stock, voting separately as a
class;
(v) "Preference Stock Director" shall mean a director elected
by the holders of the "special voting series" of Cumulative Preference
Stock, voting separately as a class;
(vi) "Preferential Stock Director" shall mean a director elected
by the holders of the "special voting series" of Cumulative
Preferential Stock, voting separately as a class;
(vii) "default in preferred dividends," otherwise unqualified,
shall mean the failure to pay full cumulative dividends on all shares
of all Cumulative Preferred Stock then outstanding to the end of the
last preceding quarterly dividend period;
(viii) "default in preference stock dividends," otherwise
unqualified, shall mean the failure to pay full cumulative dividends
on all shares of all "special voting series" of Cumulative Preference
Stock then outstanding to the end of the last preceding quarterly
dividend period;
(ix) "default in preferential stock dividends," otherwise
unqualified, shall mean the failure to pay full cumulative dividends
on all shares of all "special voting series" of Cumulative
Preferential Stock then outstanding to the end of the last preceding
quarterly dividend period;
(x) "six quarters' default in preference stock dividends" shall
be deemed to exist whenever at the time of any annual meeting of
stockholders for the election of directors the amount of full
cumulative dividends upon the shares of any "special voting series"
of Cumulative Preference Stock shall be equivalent to six quarterly
dividends or more. If a "six quarters' default in preference stock
dividends" shall exist, such default shall be deemed to exist
thereafter until, but only until, full cumulative dividends on all
shares of Cumulative Preference Stock of all series then outstanding
shall have been paid to the end of the last preceding quarterly
dividend period; and
(xi) "six quarters' default in preferential stock dividends"
shall be deemed to exist whenever at the time of any annual meeting
of stockholders for the election of directors the amount of full
cumulative dividends upon the shares of any "special voting series"
of Cumulative Preferential Stock shall be equivalent to six quarterly
dividends or more. If a "six quarters' default in preferential stock
dividends" shall exist, such default shall be deemed to exist
thereafter until, but only until, full cumulative dividends on all
shares of Cumulative Preferential Stock of all series then outstanding
shall have been paid to the end of the last preceding quarterly
dividend period.
(h) If and so long as a "two years' default in preferred dividends",
as defined in this Section 1, shall exist, (i) a majority of the Board of
Directors of the Corporation shall constitute a quorum for all purposes,
unless the by-laws shall specify a lesser number, and (ii) no amendment of
the by-laws of the Corporation shall be effected by the Board of Directors
which would (x) change the number of directors necessary to constitute a
quorum of the Board of
33
<PAGE>
Directors without the consent, given in writing or by resolution adopted at
a meeting of stockholders (of which at least ten days' written notice of
the proposed amendment of the by-laws was given), of the holders of at
least a majority of the shares of Common Stock then outstanding, or (y)
change the date of the annual meeting for the election of directors.
(i) Nothing in this Section 1 shall be deemed to prevent an amendment
of the by-laws of the Corporation, in the manner therein provided, which
shall increase the number of directors of the Corporation so as to provide
additional places on the Board of Directors for either one or both of the
two directors so to be elected by the holders of the Cumulative Preferred
Stock or either one or both of the two directors to be elected by the
holders of the "special voting series" of Cumulative Preference Stock or
either one or both of the two directors to be elected by the holders of the
"special voting series" of Cumulative Preferential Stock, or so as to
increase the number of directors to be elected by the holders of the Common
Stock, nor shall anything in this Section 1 be deemed to prevent any other
change in the number of the directors of the Corporation, in case a "year's
default in preferred dividends," or a "two years' default in preferred
dividends", or a "six quarters' default in preference stock dividends", or
a "six quarters' default in preferential stock dividends", shall occur.
(j) So long as a default in preferred dividends shall exist, the
presence in person or by proxy of the holders of 25% of the outstanding
shares of the Cumulative Preferred Stock, considered as a class without
regard to series, shall be required to constitute a quorum of such class at
any meeting of stockholders or at any meeting of the holders of shares of
Cumulative Preferred Stock called for the purpose of electing a Preferred
Director; provided, however, that a majority of the holders of the
Cumulative Preferred Stock who are present in person or represented by
proxy at any such meeting at which there shall be no quorum of such class
shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, solely for the purpose of electing
a Preferred Director at an adjourned session of such meeting at which there
shall be a quorum of such class.
So long as a default in preference stock dividends shall exist, the
presence in person or by proxy of the holders of 25% of the outstanding
shares of the "special voting series" of Cumulative Preference Stock,
considered as a class and without regard to series, shall be required to
constitute a quorum of such "special voting series" at any meeting of
stockholders or at any meeting of the holders of the shares of such
"special voting series" called for the purpose of electing a Preference
Stock Director; provided, however, that a majority of the holders of such
"special voting series" who are present in person or represented by proxy
at any such meeting at which there shall be no quorum of such "special
voting series" shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, solely for the
purpose of electing a Preference Stock Director at an adjourned session of
such meeting at which there shall be a quorum of such "special voting
series".
So long as a default in preferential stock dividends shall exist, the
presence in person or by proxy of the holders of 25% of the outstanding
shares of the "special voting series" of Cumulative Preferential Stock,
considered as a class and without regard to series, shall be required to
constitute a quorum of such "special voting series" at any meeting of
stockholders or at any meeting of
34
<PAGE>
the holders of the shares of such "special voting series" called for the
purpose of electing a Preferential Stock Director; provided, however, that
a majority of the holders of such "special voting series" who are present
in person or represented by proxy at any such meeting at which there shall
be no quorum of such "special voting series" shall have the power to
adjourn the meeting from time to time, without notice other than
announcement at the meeting, solely for the purpose of electing a
Preferential Stock Director at an adjourned session of such meeting at
which there shall be a quorum of such "special voting series".
So long as a default in preferred dividends or a default in preference
stock dividends or a default in preferential stock dividends shall exist,
the presence in person or by proxy of the holders of shares entitled to
cast a majority of the votes in the election of a Common Director shall be
required to constitute a quorum of such shares at any meeting of
stockholders at which the holders of such shares shall be entitled to vote
for the election of directors of the Corporation.
No delay or failure by the holders of any class of stock to elect one
or more of the directors they shall be entitled as a class to elect shall
invalidate the election of the members of the Board of Directors elected by
the holders of any other class of stock of the Corporation. Holders of
Cumulative Preferred Stock shall be entitled to notice of each meeting of
stockholders at which they shall have the right to elect a Preferred
Director. The holders of the "special voting series" of Cumulative
Preference Stock shall be entitled to notice of each meeting of
stockholders at which they shall have the right to elect a Preference Stock
Director. The holders of the "special voting series" of Cumulative
Preferential Stock shall be entitled to notice of each meeting of
stockholders at which they shall have the right to elect a Preferential
Stock Director.
(k) So long as a default in preferred dividends shall exist, the
provisions of this Section 1 with respect to the election of directors by
the holders of the Cumulative Preferred Stock, voting as a class as
aforesaid, shall be controlling, notwithstanding any other provisions of
this Certificate of Incorporation inconsistent with such provisions of this
Section 1. So long as a default in preference stock dividends shall exist,
except as otherwise required by reason of the preceding sentence, the
provisions of this Section l with respect to the election of directors by
the holders of the "special voting series" of the Cumulative Preference
Stock, voting as a class as aforesaid, shall be controlling at all times,
notwithstanding any other provision of this Certificate of Incorporation
(except the preceding sentence) inconsistent with such provisions of this
Section 1. So long as a default in preferential stock dividends shall
exist, except as otherwise required by reason of the two preceding
sentences, the provisions of this Section l with respect to the election of
directors by the holders of the "special voting series" of the Cumulative
Preferential Stock, voting as a class as aforesaid, shall be controlling at
all times, notwithstanding any other provision of this Certificate of
Incorporation (except the two preceding sentences) inconsistent with such
provisions of this Section 1.
35
<PAGE>
2. At all elections of directors by the stockholders of the
Corporation, each holder of any class of stock of the Corporation, as such,
shall be entitled to as many votes as shall equal the number of his shares
of such class entitled to vote for directors multiplied by the number of
directors to be elected by the holders of such class, as such, and he may
cast all of such votes for a single director or may distribute them among
the number of directors to be elected as aforesaid, or any two or more of
them as he may see fit; provided that if in Division F of this Article
Fourth or in any certificate creating any series of the Cumulative
Preferred Stock or Cumulative Preference Stock or Cumulative Preferential
Stock, the shares of any such series are given less than one vote per share
in the election of directors, each holder of the stock of any such series
of Cumulative Preferred Stock when voting with the Common Stock in any
election of directors during the absence of a "default in preferred
dividends" and each holder of the stock of any such series of Cumulative
Preference Stock when voting with the Common Stock in any election of
directors during the absence of a "default in preference stock dividends"
and each holder of the stock of any such series of Cumulative Preferential
Stock when voting with the Common Stock in any election of directors during
the absence of a "default in preferential stock dividends" shall, in each
case, be entitled to as many votes as the number of his shares of any such
series shall entitle him to vote in the election of directors multiplied by
the number of directors to be elected by the holders of the Common Stock
and the holders of such series, and he may cast all of such votes for a
single director of may distribute them among the number of directors to be
elected as aforesaid, or any two or more of them as he may see fit; and
provided further, that any provision of this Section 2 to the contrary
notwithstanding, the rights of the holders of any series of Cumulative
Preferred Stock in respect of any election of directors at a time when the
holders of such series vote with the Common Stock in the election of
directors during the absence of such a "default in preferred dividends",
and the rights of the holders of any series of Cumulative Preference Stock
in respect of any election of directors at a time when the holders of such
series vote with the Common Stock in the election of directors during the
absence of a "default in preference stock dividends", and the rights of the
holders of any series of Cumulative Preferential Stock in respect of any
election of directors at a time when the holders of such series vote with
the Common Stock in the election of directors during the absence of a
"default in preferential stock dividends", shall always be subject to such
qualifications, limitations and restrictions as are prescribed in the
certificate creating such series.
3. Unless otherwise mandatorily required by law, or by this
Certificate of Incorporation, or by a certificate creating any series of
Cumulative Preferred Stock or Cumulative Preference Stock or Cumulative
Preferential Stock, the vote or consent of the holders of shares
constituting a majority of the total vote of all shares having voting power
for the election of directors and for all other purposes at the time issued
and outstanding shall be sufficient in all respects to authorize, effect,
or validate any action required to be authorized, effected or validated by
vote or consent of the stockholders of the Corporation. The authorized
number of shares of Cumulative Preferential Stock may be increased or
decreased by the affirmative vote of the holders of record of not less than
a majority of the shares of stock of the Corporation having the general
power to vote for the election of directors and for all other purposes.
Except to the extent that any series of the Cumulative Preferential Stock
shall have been granted the general power to vote in the election of
directors and for all other purposes, no holders of shares of any series of
the Cumulative Preferential
36
<PAGE>
Stock shall have any right to vote or consent for or in respect of any
increase or decrease in the authorized number of shares of any class of
stock (whether ranking senior to, on a parity with, or junior to the
Cumulative Preferential Stock as to dividends or assets or whether now
existing or hereafter created) or for or in respect of the creation of any
new class of stock ranking junior to the Cumulative Preferential Stock as
to dividends or assets.
DIVISION E - GENERAL
1. Anything contained herein or in any certificate creating any series
of Cumulative Preferred Stock, Cumulative Preference Stock or Cumulative
Preferential Stock to the contrary notwithstanding, the rights of the
holders of all classes of stock of the Corporation in respect of dividends
shall at all times be subject to the power of the Board of Directors from
time to time to set aside such reserves and to make such other provisions,
if any, as said Board shall deem to be necessary or advisable for working
capital, for advances to and investments in subsidiaries, for expansion of
the Corporation's business (including the acquisition of real and personal
property for that purpose) and for any other purpose of the Corporation.
2. The net consideration received by the Corporation upon the issuance
of shares of its capital stock in excess of the par value of said shares
shall be credited to a capital surplus account. Capital surplus so created
shall not be available for the payment of cash dividends on the Common
Stock of the Corporation.
3. (a) Except as otherwise provided in Division F of this Article
Fourth or in any certificate creating any series of Cumulative Preferential
Stock, no holder of Cumulative Preferred Stock, Cumulative Preference Stock
or Cumulative Preferential Stock of the Corporation shall, as such holder,
have any right to purchase or subscribe for (i) any stock of any class, or
any warrant or warrants, option or options or other instrument or
instruments that shall confer upon the holder or holders thereof the right
to subscribe for or purchase or receive from the Corporation any stock of
any class or classes which the Corporation may issue or sell, whether or
not such stock shall be convertible into or exchangeable for any other
stock of the Corporation of any class or classes and whether or not such
stock shall be unissued shares authorized by the Certificate of
Incorporation or by any amendment thereto or shares of stock of the
Corporation acquired by it after the issue thereof, or (ii) any obligation
which the Corporation may issue or sell that shall be convertible into or
exchangeable for any shares of stock of the Corporation of any class or
classes, or to which shall be attached or appurtenant any warrant or
warrants, option or options or other instrument or instruments that shall
confer upon the holder or holders of such obligation the right to subscribe
for or purchase or receive from the Corporation any shares of its stock of
any class or classes.
(b) Upon any issue for money or other consideration of any stock of
the Corporation that may be authorized from time to time, no holder of
stock, irrespective of the kind of such stock, shall (except as otherwise
provided in Division F of this Article Fourth or in any certificate
creating any series of Cumulative Preferential Stock) have any preemptive
or other right to subscribe for, purchase or receive any proportionate or
other share of the stock so issued, but the Board of Directors may dispose
of all or any portion of such stock as and when it may determine free of
any such rights, whether by offering
37
<PAGE>
the same to stockholders or by sale or other disposition as said Board may
deem advisable; provided, however, that if the Board of Directors shall
determine to offer any new or additional shares of Common Stock, or any
security convertible into Common Stock, for money, other than by a public
offering of all of such shares or an offering of all of such shares to or
through underwriters or investment bankers who shall have agreed promptly
to make a public offering of such shares, the same shall first be offered
pro rata to the holders of the then outstanding shares of Common Stock, and
to the holders of the then outstanding shares of any other class (or series
thereof) of capital stock that has expressly been granted subscription
rights, upon terms not less favorable to the purchaser (without deduction
of such reasonable compensation, allowance or discount for the sale,
underwriting or purchase as may be fixed by the Board of Directors) than
those on which the Board of Directors issues and disposes of such stock or
securities to other than such holders of Common Stock and such holders of
any such other class (or series); and provided further, that the time
within which such preemptive rights shall be exercised may be limited by
the Board of Directors to such time as to said Board may seem proper, not
less, however, than twenty days after mailing of notice that such stock
rights are available and may be exercised.
DIVISION F - TERMS AND PROVISIONS OF OUTSTANDING SERIES OF CUMULATIVE
PREFERRED STOCK, 5% CUMULATIVE PREFERENCE STOCK AND
4.10% CONVERTIBLE CUMULATIVE PREFERENTIAL STOCK
1. Cumulative Preferred Stock, 5 1/2% Series of 1961.
In addition to the terms and provisions set forth in this Certificate
of Incorporation which are applicable to all series of Cumulative Preferred
Stock, the Cumulative Preferred Stock, 5 1/2% Series of 1961 shall have the
following terms and provisions:
(a) The designation of such series of Cumulative Preferred Stock
of the par value of $25 per share shall be Cumulative Preferred Stock,
5 1/2% Series of 1961 (hereinafter called the 1961 Series Stock), and
the number of shares which shall constitute such series shall be
50,000 shares.
(b) The dividend rate of the 1961 Series Stock shall be 5 1/2%
per annum upon the par value thereof, the date from which dividends on
shares of the 1961 Series Stock shall be cumulative shall be the date
of issue of said 250,000 shares, and the initial dividend shall be
payable December 1, 1961.
(c) (1) The shares of the 1961 Series Stock shall be subject to
redemption at the option of the Corporation, on the terms and
conditions specified in Section 6 of Division A of this Article
Fourth, at any time or from time to time, at the applicable redemption
prices set forth below plus, as provided in said Section 6, an amount
equal to full cumulative dividends thereon to the redemption date,
except that shares of the 1961 Series Stock shall not be redeemable at
the option of the Corporation prior to September 1, 1966 by the use of
the proceeds from, or in anticipation of the receipt of the proceeds
from, borrowings or the sale of securities by the Corporation at a
cost of less than 5 1/2% per annum.
38
<PAGE>
(2) The prices at which the shares of the 1961 Series Stock may
be redeemed at the option of the Corporation except as hereinbelow
provided, shall be as follows:
Period Redemption Price
(both dates inclusive) Per Share
----------------------------------------- ----------------
Date of issue to August 31, 1964 ........ $26.375
September 1, 1964 to August 31, 1967..... 26.00
September 1, 1967 to August 31, 1970..... 25.625
September 1, 1970 to August 31, 1980..... 25.25
September 1, 1980 and thereafter ........ 25.00
(3) If shares of the 1961 Series Stock shall be redeemed at the
option of the Corporation by the use of the proceeds from, or in
anticipation of the receipt of the proceeds from, (A) the sale or
other disposition by the Corporation of any of its fixed assets or of
securities of any of its subsidiaries [as defined in subparagraph
(3)(iii) of paragraph (c) of Section 7 of Division A of this Article
Fourth], or (B) a distribution paid or payable to the Corporation by a
subsidiary upon its dissolution or partial or total liquidation or in
connection with a reduction of its capital following a sale of assets
of such subsidiary, the redemption price shall be as follows:
Period Redemption Price
(both dates inclusive) Per Share
----------------------------------------- ----------------
Date of issue to August 31, 1964 ........ $25.6875
September 1, 1964 to August 31, 1967 .... 25.50
September l, 1967 to August 31, 1970 .... 25.3125
September 1, 1970 to August 31, 1980 .... 25.125
September 1, 1980 and thereafter ........ 25.00
(d) The amounts payable upon the shares of the 1961 Series Stock
in the event of any voluntary liquidation or dissolution or winding up
of the Corporation shall be an amount equal to the redemption price
(exclusive of dividends) specified in subparagraph (2) of paragraph
(c) of this Section 1 then in effect, plus, as provided in Section 4
of Division A of this Article Fourth, an amount equal to full
cumulative dividends thereon to the date of final distribution to the
holders of the Cumulative Preferred Stock.
(e) As a sinking fund for the 1961 Series Stock, the Corporation
shall, so long as any shares of the 1961 Series Stock shall be
outstanding, set aside, out of any funds legally available therefor,
on or before July 25 of each of the years beginning with the year 1966
to and including the year 1991, sums sufficient to redeem on the next
September 1 at the par value thereof, plus full cumulative dividends
thereon to the redemption date, shares of the 1961 Series Stock having
the following aggregate par values:
39
<PAGE>
1966..................... $208,300
1967..................... 208,300
1968..................... 208,400
1969..................... 208,300
1970..................... 208,300
1971..................... 208,400
1972 and thereafter...... 250,000
In the event the number of shares constituting the 1961 Series
Stock shall be increased at any time by action of the Board of
Directors pursuant to paragraph (a) of Section 2 of Division A of
this Article Fourth, the number of shares of the 1961 Series Stock
to be redeemed annually by operation of the sinking fund on each
September 1 after the July 25 next following the date of such increase
shall be equal to 3-1/3% of the increased number of shares to and
including September 1, 1971 and 4% of the increased number of shares
on each September 1 thereafter (subject to adjustment in each case to
the nearest whole share).
The Corporation shall be entitled to receive a credit against
the foregoing obligation to redeem on any date when such redemption
is required to be made, for the aggregate par value of the number of
shares of the 1961 Series Stock which shall have theretofore been
purchased by it at a cost not exceeding the redemption price for
sinking fund purposes and which shall not have been previously so
credited.
Sums so set aside for the sinking fund for the 1961 Series Stock
shall be applied to the redemption of shares of 1961 Series Stock on
the applicable September 1 in the same manner and with the same effect
as set forth in Section 6 of Division A of this Article Fourth.
All shares of the 1961 Series Stock so redeemed or purchased and
credited against the foregoing obligation to redeem shall be cancelled
by the Corporation and shall not be reissued.
(f) So long as any shares of the 1961 Series Stock shall be
outstanding, the Corporation shall not declare or pay or set apart any
dividend (other than dividends payable in Junior Stock) on its Junior
Stock, nor order or make any other distribution in respect of its
Junior Stock, nor purchase, redeem or otherwise acquire any shares of
its Junior Stock, unless, after giving effect thereto, the aggregate
of (1) the total net income of the Corporation earned after December
31, 1960, computed as hereinafter stated (provided that, if such
computation shall result in an accumulated net loss for any particular
period, such net loss shall be deducted from the amounts referred to
in clauses (2) and (3) following), plus (2) $4,250,000, plus (3) the
net amount received by the Corporation after December 31, 1960 on the
issue or sale of any shares of its Junior Stock, shall exceed the
aggregate of (i) all dividends (other than dividends payable in Junior
Stock) and other distributions declared, paid or made by the
Corporation after December 31, 1960 on its shares of Junior Stock of
all classes, and (ii) an amount equal to the cost to the Corporation
of any shares of its Junior Stock purchased, redeemed or otherwise
acquired by it after December 31, 1960. As used in this paragraph (f),
the term "net income of the Corporation" shall be deemed to mean the
total income of the Corporation from all sources for the period in
40
<PAGE>
question, whether recorded in the accounts as income or surplus
transactions, including all gains on the sale or other disposition
of assets, after deducting therefrom all expenses and charges,
including all losses on the sale or other disposition of assets, all
franchise taxes paid or accrued and all Federal and State taxes based
on income paid or accrued, but excluding any dividends declared or
paid on the stock of the Corporation of any class, any amortization of
capital stock expense, any write-downs, write-ups, or other
adjustments of the carrying value of its investments in subsidiaries,
and similar items, all as determined by the Board of Directors in
accordance with generally accepted accounting principles consistently
applied.
(g) The 1961 Series Stock shall not be convertible into any other
shares of the Corporation.
2. Cumulative Preferred Stock, 5% Series.
In addition to the terms and provisions set forth in this Certificate
of Incorporation which are applicable to all series of Cumulative Preferred
Stock, the Cumulative Preferred Stock, 5% Series shall have the following
terms and provisions:
(a) The designation of such series of Cumulative Preferred Stock
of the par value of $25 per share shall be Cumulative Preferred Stock,
5% Series (hereinafter called the 5% Series Stock), and the number of
shares which shall constitute such series shall be 101,777 shares.
(b) The dividend rate of the 5% Series Stock shall be 5% per
annum upon the par value thereof, the date from which dividends on
each share of the 5% Series Stock shall be cumulative shall be
January 1, 1962, and the initial dividend on each of said shares
shall be payable on the first day of March, June, September or
December next following the date of its issue.
(c) (1) The shares of the 5% Series Stock shall be subject to
redemption at the option of the Corporation, on the terms and
conditions specified in Section 6 of Division A of this Article
Fourth, at any time or from time to time, at the applicable redemption
prices set forth below plus, as provided in said Section 6, an amount
equal to full cumulative dividends thereon to the redemption date,
except that shares of the 5% Series Stock shall not be redeemable at
the option of the Corporation prior to January 1, 1967.
(2) The prices at which the shares of the 5% Series Stock may be
redeemed at the option of the Corporation shall be as follows:
Period Redemption Price
(both dates inclusive) Per Share
----------------------------------------- ----------------
January 1, 1967 to December 31, 1969..... $25.75
January 1, 1970 to December 31, 1972..... 25.50
January 1, 1973 and thereafter........... 25.25
41
<PAGE>
(d) The amounts payable upon the shares of the 5% Series Stock in
the event of any voluntary liquidation or dissolution or winding up of
the Corporation shall be:
(1) $26 per share if the date of final distribution to the
holders of Cumulative Preferred Stock pursuant to such
liquidation, dissolution or winding up is prior to January 1,
1967, and
(2) if the date of final distribution to the holders of
Cumulative Preferred Stock pursuant to such liquidation,
dissolution or winding up is after December 31, 1966, an amount
equal to the redemption price specified in subparagraph (2) of
paragraph (c) of this Section 2 in effect on such date,
plus, in each case, as provided in Section 4 of Division A of this
Article Fourth, an amount equal to full cumulative dividends thereon
to the date of such final distribution.
(e) In addition to the voting rights to which the shares of
Cumulative Preferred Stock are entitled as otherwise provided in this
Article Fourth and subject to the qualifications, limitations and
restrictions thereof as therein set forth, the shares of 5% Series
Stock shall 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.
(f) The 5% Series Stock shall not be convertible into any other
shares of the Corporation. No sinking fund shall be established for
the purchase or redemption of shares of the 5% Series Stock.
3. Cumulative Preferred Stock, 4.90% Series.
In addition to the terms and provisions set forth in this Certificate
of Incorporation which are applicable to all series of Cumulative Preferred
Stock, the Cumulative Preferred Stock, 4.90% Series shall have the
following terms and provisions:
(a) The designation of such series of Cumulative Preferred Stock
of the par value of $25 per share shall be Cumulative Preferred Stock,
4.90% Series (hereinafter called the 4.90% Series Stock), and the
number of shares which shall constitute such series shall be 134,400
shares.
(b) The dividend rate of the 4.90% Series Stock shall be 4.90%
per annum upon the par value thereof, the date from which dividends on
shares of the 4.90% Series Stock shall be cumulative shall be the date
of issue of the first of said shares to be issued, and the initial
dividend shall be payable on September l, 1963.
(c) (l) The shares of the 4.90% Series Stock shall be subject to
redemption at the option of the Corporation, on the terms and
conditions specified in Section 6 of Division A of this Article Fourth
at any time or from time to time, at the applicable redemption prices
set forth below plus, as provided in said Section 6, an amount equal
to full cumulative dividends thereon to the redemption date, except
that shares of the 4.90%
42
<PAGE>
Series Stock shall not be redeemable at the option of the Corporation
prior to June 1, 1968 by the use of the proceeds from, or in
anticipation of the receipt of the proceeds from, borrowings or the
sale of securities by the Corporation at a cost of less than 4.90% per
annum.
(2) The prices at which the shares of the 4.90% Series Stock may
be redeemed at the option of the Corporation, except as hereinbelow
provided, shall be as follows:
Period Redemption Price
(both dates inclusive) Per Share
----------------------------------------- ----------------
Date of issue to May 31, 1966............ $26.225
June 1, 1966 to May 31, 1969............. 25.90
June 1, 1969 to May 31, 1972............. 25.40
June 1, 1972 to May 31, 1975............. 25.25
June 1, 1975 to May 31, 1978............. 25.15
June 1, 1978 and thereafter.............. 25.00
(3) If shares of the 4.90% Series Stock shall be redeemed at the
option of the Corporation by the use of the proceeds from, or in
anticipation of the receipt of the proceeds from (A) the sale or other
disposition by the Corporation of any of its fixed assets or of
securities of any of its subsidiaries [as defined in subparagraph (3)
(iii) of paragraph (c) of Section 7 of Division A of this Article
Fourth] or (B) a distribution paid or payable to the Corporation by a
subsidiary upon its dissolution or partial or total liquidation or in
connection with a reduction of its capital following a sale of assets
with a reduction of its capital following a sale of assets of such
subsidiary, the redemption price shall be as follows:
Period Redemption Price
(both dates inclusive) Per Share
----------------------------------------- ----------------
Date of issue to May 31, 1966............ $25.6125
June 1, 1966 to May 31, 1969............. 25.45
June 1, 1969 to May 31, 1972............. 25.20
June 1, 1972 to May 31, 1975............. 25.125
June 1, 1975 to May 31, 1978............. 25.075
June 1, 1978 and thereafter.............. 25.00
(d) The amounts payable upon the shares of the 4.90% Series Stock
in the event of any voluntary liquidation or dissolution or winding up
of the Corporation shall be an amount equal to the redemption price
(exclusive of dividends) specified in subparagraph (c)(2) hereof then
in effect, plus, as provided in Section 4 of Division A of this
Article Fourth, an amount equal to full cumulative dividends thereon
to the date of final distribution to the holders of the Cumulative
Preferred Stock.
43
<PAGE>
(e) As a sinking fund for the 4.90% Series Stock, the Corporation
shall, so long as any shares of the 4.90% Series Stock shall be
outstanding, set aside, out of any funds legally available therefor,
on or before April 25 of each of the years beginning with the year
1968 to and including the year 1993, sums sufficient to redeem on the
next June 1 at the par value thereof, plus full cumulative dividends
thereon to the redemption date, the following numbers of such shares:
commencing on June 1, 1968 and continuing thereafter to and including
June 1, 1973, 3-1/3% of the largest number of such shares at any one
time theretofore outstanding; and on each June 1 thereafter, 4% of the
largest number of such shares at any one time theretofore outstanding
(subject to adjustment in each case to the nearest whole share).
The Corporation shall be entitled to receive a credit against the
foregoing obligation to redeem on any date when such redemption is
required to be made, for the aggregate par value of the number of
shares of the 4.90% Series Stock which shall have theretofore been
purchased by it at a cost not exceeding the redemption price for
sinking fund purposes and which shall not have been previously so
credited.
Sums so set aside for the sinking fund for the 4.90% Series Stock
shall be applied to the redemption of shares of 4.90% Series Stock on
the applicable June 1 in the same manner and with the same effect as
set forth in Section 6 of Division A of this Article Fourth.
All shares of the 4.90% Series Stock so redeemed or purchased and
credited against the foregoing obligation to redeem shall be cancelled
by the Corporation and shall not be reissued.
(f) So long as any shares of the 4.90% Series Stock shall be
outstanding, the Corporation shall not declare or pay or set apart any
dividend (other than dividends payable in stock) on its Common Stock,
nor order or make any other distribution in respect of its Common
Stock, nor purchase, redeem or otherwise acquire any shares of its
Common Stock, if, after giving effect thereto, the sum of the Common
Stock and surplus of the Company shall be less than $27,000,000. As
used in this paragraph (f), the term "Common Stock and surplus of the
Company" shall mean the sum of the par or stated value of all
outstanding Common Stock of the Company, all paid-in premiums on stock
and all paid-in surplus, capital surplus, earned surplus and other
surplus accounts of the Company, all as would be shown in a balance
sheet of the Company prepared in accordance with generally accepted
accounting practice consistently maintained; provided that in
determining surplus for this purpose, no additions or deductions shall
be made for any charges or credits to surplus made after December 31,
1962 and representing any write up, write down or other adjustment of
the carrying value of the Company's assets including investment in
subsidiaries, and all such surplus shall be calculated as of the end
of a monthly period ended not more than 120 days prior to the date of
the transaction in respect of which such determination is made.
(g) The 4.90% Series Stock shall not be convertible into any
other shares of the Corporation.
44
<PAGE>
4. 5% Cumulative Preference Stock.
In addition to the terms and provisions set forth in this Certificate
of Incorporation which are applicable to all series of Cumulative
Preference Stock, the 5% Cumulative Preference Stock shall have the
following terms and provisions:
(a) The designation of such series of Cumulative Preference Stock
of the par value of $25 per share shall be 5% Cumulative Preference
Stock (hereinafter referred to as this Series) and the number of
shares which shall constitute this Series shall be 365,158 shares.
(b) The dividend rate of this Series shall be 5% per annum upon
the par value thereof; and the date from which dividends shall be
cumulative shall be the effective date of the merger of Northeastern
Water Company into the Corporation; provided that dividends on any
shares of this Series issued in addition to the shares thereof issued
upon the effectiveness of said merger shall commence to accrue from
the date of issue of said additional shares, said date of issue for
this purpose to be such date as the Board of Directors shall authorize
or fix.
(c) (i) The shares of this Series shall be subject to redemption
at the option of the Corporation, on the terms and conditions
specified in Section 5 of Division B of Article Fourth of this
Certificate of Incorporation, at any time or from time to time, at the
applicable redemption prices set forth below plus, as provided in said
Section 4, an amount equal to full cumulative dividends thereon to the
redemption date.
(ii) The prices at which the shares of this Series may be
redeemed at the option of the Corporation shall be as follows:
Period Redemption Price
(both dates inclusive) Per Share
----------------------------------------- ----------------
Date of issue to December 31, 1962....... $26.25
January 1, 1963 to December 31, 1963..... 26.00
January 1, 1964 to December 31, 1964..... 25.75
January 1, 1965 to December 31, 1965..... 25.50
January 1, 1966 to December 31, 1966..... 25.25
January 1, 1967 and thereafter........... 25.00
(d) The amounts payable upon the shares of this Series in the
event of any voluntary liquidation or dissolution or winding up of
the Corporation shall be an amount equal to the redemption price
(exclusive of dividends) specified in paragraph (c)(ii) of this
Section 4 then in effect, plus, as provided in Section 3 of Division
B of Article Fourth of this Certificate of Incorporation, an amount
equal to full cumulative dividends thereon to date of final
distribution to the holders of the Cumulative Preference Stock.
(e) Holders of the shares of this Series shall have the right to
vote for directors in the event of "six quarters' default in
preference stock dividends" as provided in Section 1 of Division D of
this Article Fourth.
45
<PAGE>
(f) Shares of this Series shall not be convertible into any other
shares of the Corporation. No sinking fund or purchase fund shall be
established for the redemption or purchase of shares of this Series.
5. 4.10% Convertible Cumulative Preferential Stock.
In addition to the terms and provisions set forth in this Certificate
of Incorporation which are applicable to all series of Cumulative
Preferential Stock, the 4.10% Convertible Cumulative Preferential Stock
shall have the following terms and provisions:
(a) The designation of such series of Cumulative Preferential
Stock of the par value of $35 per share shall prior to March 1, 1970
be 4.10% Cumulative Preferential Stock and on and after March 1, 1970
be 4.10% Convertible Cumulative Preferential Stock. Such series is
hereinafter called the 4.10% Preferential Stock and the number of
shares which shall constitute such series shall be 656,218 shares.
(b) The dividend rate of the 4.10% Preferential Stock shall be
4.10% per annum upon the par value thereof, and no more; and the date
from which dividends shall be cumulative on shares of such series
shall be the quarterly dividend payment date next preceding the date
of issue of such shares or, if issued on a quarterly dividend payment
date, then such date; provided that the Board of Directors may
determine when authorizing the issuance of particular shares of such
series that the date of cumulation of dividends on such shares shall
be the date of issue of each of such shares, said date of issue for
this purpose to be such date as the Board of Directors shall authorize
and fix; and provided further that January 15, 1965 shall be the date
of cumulation of dividends on all shares of such series which are
issued prior to the record date for the determination of stockholders
entitled to the first dividend on shares of such series.
(c) No shares of the 4.10% Preferential Stock shall be subject to
redemption prior to March 1, 1975. On and after March 1, 1975, the
shares of 4.10% Preferential Stock may be redeemed at the option of
the Corporation, at any time or from time to time, on the terms and
conditions specified in Section 5 of Division B-1 of this Article
Fourth. If redeemed on or after March 1, 1975 and before March 1, 1980
the redemption price shall be $40.00 per share, and if redeemed on or
after March 1, 1980 the redemption price shall be $37.50 per share,
plus in each case, as provided in said Section 5, an amount equal to
full cumulative dividends thereon to the redemption date.
(d) The amounts payable upon the shares of 4.10% Preferential
Stock in the event of any voluntary or involuntary liquidation or
dissolution or winding up of the Corporation shall be $30 per share
plus, as provided in Section 3 of Division B-1 of this Article Fourth,
an amount equal to full cumulative dividends thereon to the date of
final distribution to the holders of the Cumulative Preferential
Stock, and no more.
(e) The 4.10% Preferential Stock shall not be entitled to the
benefit of any sinking fund or purchase fund.
46
<PAGE>
(f) (1) On and after March 1, 1970, the shares of 4.10%
Preferential Stock shall be convertible, at the option of the
respective holders thereof, into fully paid and nonassessable shares
of the Common Stock of the Corporation, in accordance with the
provisions of this paragraph (f). The rate of such conversion shall
be one and three-tenths shares of Common Stock for each one share of
4.10% Preferential Stock, subject to the further provisions of this
paragraph(f).
(2) Any holder of shares of 4.10% Preferential Stock
electing to exercise the conversion privilege with respect to any of
such shares shall surrender the certificate therefor at the principal
office of any Transfer Agent for said Stock, with the form of written
notice to the Corporation endorsed on such certificate of his election
to convert such shares of 4.10% Preferential Stock into Common Stock
duly filled out and executed, and, if necessary under the
circumstances of such conversion, with such certificate properly
endorsed for, or accompanied by duly executed instruments of, transfer
(and such other transfer papers as said Transfer Agent may reasonably
require). The Corporation or such Transfer Agent may require, as a
condition to the exercise of such conversion privilege, the payment of
a sum equal to any transfer tax or other governmental charge (but not
including any tax payable upon the issue of stock deliverable upon
such conversion) that may be imposed or required by law upon any
transfer incidental or prior thereto, or the submission of proper
proof that the same has been paid. The conversion privilege shall be
deemed to have been exercised, and the shares of Common Stock issuable
upon such conversion shall, subject to the provisions of subparagraph
4 of this paragraph (f), be deemed to have been issued, upon the date
of receipt by such Transfer Agent for conversion of the certificate
representing such shares of 4.10% Preferential Stock with the
requirements for conversion satisfied, except that if the conversion
privilege may not be exercised at the time of such receipt, it shall
be deemed to have been exercised on the first date thereafter on which
such privilege may be exercised; and the person entitled to receive
the Common Stock issuable upon such conversion shall on the date such
conversion privilege is deemed to have been exercised and thereafter
be treated for all purposes as the record holder of such Common Stock
and shall on the same date cease to be treated for any purpose as the
record holder of such 4.10% Preferential Stock so converted. The
conversion privilege shall also be subject to the following terms and
conditions:
(i) if any shares of 4.10% Preferential Stock shall be
called for redemption, the conversion privilege in respect of
such shares shall terminate at the close of business on the last
business day next preceding the date fixed for the redemption of
such shares;
(ii) if the Corporation shall at any time be liquidated,
dissolved or wound up, the conversion privilege shall terminate
at the close of business on the last business day next preceding
the effective date of such liquidation, dissolution or winding
up;
(iii) if a certificate for 4.10% Preferential Stock is
surrendered for conversion on a date which is less than five
business days preceding the date fixed for the determination of
holders of Common Stock entitled to receive rights to subscribe
for or purchase shares of Common Stock or other securities of
the Corporation
47
<PAGE>
convertible into its Common Stock, then the effective date of
conversion shall be the business day next succeeding the date
fixed for such determination; and
(iv) no adjustment or payment will be made upon conversion
of 4.10% Preferential Stock for dividends accrued thereon or for
dividends upon the Common Stock issuable upon such conversion.
(3) The Corporation shall not be required, in connection with any
conversion of 4.10% Preferential Stock, to issue a fraction of a share
of its Common Stock nor to deliver any stock certificate representing
a fraction thereof, but in lieu thereof the Corporation may make a
cash payment equal to such fraction multiplied by the market price of
the Common Stock determined as hereinafter set forth, or the
Corporation may issue non-dividend bearing, non-voting Common Stock
scrip (exchangeable for Common Stock, during the life of such scrip as
hereinbelow specified, when surrendered in amounts aggregating a full
share) in such form, bearer or registered, in such denominations, and
containing such other terms and provisions as the Board of Directors
of the Corporation may from time to time determine prior to the issue
thereof. The market price of the Common Stock for the purpose of
computing payments to be made for fractional shares shall be the
closing sales price (or if there were no sales, the closing bid price)
on the principal stock exchange on which the Common Stock is listed
or, if the Common Stock is not so listed, the closing bid price on the
New York over-the-counter market; such price shall be determined as of
the close of business on the last business day of each week and such
price as so determined shall continue in effect during the next
succeeding week. Common Stock scrip issued as aforesaid shall not
entitle the holder thereof to any dividends or to any voting rights or
other rights as a stockholder of the Corporation, and all rights
represented by such scrip shall terminate six years after the date of
the conversion of shares of 4.10% Preferential Stock in connection
with which such scrip was issued.
(4) As soon as practicable after the effective date of conversion
of any 4.10% Preferential Stock into Common Stock, the Corporation
shall deliver to the person entitled thereto, at the principal office
of the Transfer Agent for the 4.10% Preferential Stock at which such
Stock was surrendered for conversion as aforesaid, certificates
representing the shares of Common Stock and the cash or Common Stock
scrip, if any, to which such person shall be entitled on such
conversion. Nothing herein shall be construed to give any holder of
4.10% Preferential Stock surrendering the same for conversion the
right to receive any additional shares of Common Stock or other
property which results from an adjustment in conversion rights under
the provisions of subparagraphs 5 or 6 of this paragraph (f) until
holders of Common Stock are entitled to receive the shares or other
property giving rise to the adjustment. The Corporation shall not be
required to deliver certificates for shares of its Common Stock or new
certificates for unconverted shares of its 4.10% Preferential Stock
while the stock transfer books for such respective classes of stock
are duly closed for any purpose; but the right of surrendering shares
of 4.10% Preferential Stock for conversion shall not be suspended
during any period that the stock transfer books of either of such
classes of stock are closed.
48
<PAGE>
(5) The conversion rate set forth hereinabove shall be subject to
adjustment from time to time in certain instances, as follows:
(i) if the Corporation shall at any time effect a
subdivision of its Common Stock, by reclassification or
otherwise, then in each such case the conversion rate then in
effect shall be increased proportionately, and in like manner if
the Corporation shall effect any combination of Common Stock, by
reclassification or otherwise, then in each such case the
conversion rate then in effect shall be decreased
proportionately; in each such case the adjustment in the
conversion rate shall be effective at the time that such
subdivision or combination shall become effective; and
(ii) if the Corporation shall at any time pay a dividend, or
make a distribution, upon its Common Stock in Common Stock, then
in each such case, from and after the record date for determining
the stockholders entitled to receive such dividend, the
conversion rate then in effect shall be increased in proportion
to the increase in the number of outstanding shares of Common
Stock through such dividend. For purposes of the preceding
sentence, if the Corporation issues as a dividend a security
which is convertible into Common Stock without the payment to the
Corporation of any consideration other than the surrender of such
convertible security, then the issuance of Common Stock upon the
conversion of such convertible security shall be considered the
payment of a dividend in Common Stock, but no adjustment in the
conversion rate of the 4.10% Preferential Stock shall be made by
reason of the issuance of Common Stock under the circumstances
just referred to until the amount of such adjustment, cumulated
since the last adjustment in the conversion rate made by reason
of the issuance of Common Stock under such circumstances, shall
be at least .01 of a share of Common Stock, and any such
adjustment shall become effective at the close of business on the
date of issuance of the Common Stock that gives rise to such
adjustment.
(6) In case of any reclassification or change of the Common Stock
of the Corporation (other than a change in par value thereof, or a
change from par value to no par value, or a case provided for in
clauses (i) or (ii) of subparagraph (5) of this paragraph (f)), or in
case of a merger or consolidation in which the Corporation is not the
continuing corporation, provision shall be made so that holders of
4.10% Preferential Stock shall thereafter have the right to convert
each share of such Stock into the kind and amount of shares of stock
and/or other securities or property receivable upon such
reclassification, change, merger or consolidation by a holder of the
number and kind of shares of capital stock of the Corporation into
which such share of 4.10% Preferential Stock might have been converted
immediately prior to such reclassification, change, merger or
consolidation. In any such case, provision shall be made as and to the
extent the Board of Directors may determine for the application of the
adjustments provided for in subparagraphs (5) and (6) of this
paragraph (f) after such reclassification, change, merger or
consolidation.
(7) Whenever the conversion rate is required to be adjusted as
provided in this paragraph (f):
49
<PAGE>
(i) the Corporation shall forthwith prepare a certificate
setting forth such adjusted conversion rate and the facts upon
which such adjustment is based, and such certificate shall
forthwith be filed with the Transfer Agents for the 4.10%
Preferential Stock and the Transfer Agents for the Common Stock
and thereafter (until further adjusted) the adjusted conversion
rate shall be as set forth in said certificate; and
(ii) the Corporation shall mail to each holder of record of
4.10% Preferential Stock notice of such adjusted conversion rate.
(8) So long as any shares of the 4.10% Preferential Stock shall
remain outstanding and the holders thereof shall have the right to
convert said shares in accordance with the provisions of this
paragraph (f), the Corporation shall at all times reserve from the
authorized and unissued shares of its Common Stock a sufficient number
of shares to provide for such conversions.
(9) As a condition precedent to the taking of any action that
would cause an adjustment requiring the issuance upon the conversion
of 4.10% Preferential Stock of shares of capital stock with an
aggregate par value in excess of the 4.10% Preferential Stock so
converted, the Corporation will take any corporate action which the
Board of Directors may, with the advice of counsel, determine to be
necessary in order that the Corporation may validly and legally issue
fully paid and nonassessable shares of such capital stock at such
adjusted conversion price.
(10) Whenever reference is made in this paragraph (f) to the
Common Stock of the Corporation, such reference is to the Common Stock
of the Corporation as such stock exists on the date of filing and
recording pursuant to Section 151 of the Delaware General Corporation
Law of the certificate creating the 4.10% Preferential Stock, or to
stock into which such Common Stock may be changed from time to time.
(g) (1) So long as any shares of the 4.10% Preferential Stock
shall be outstanding, the Corporation shall not, without the consent,
given in writing or by resolution adopted at a meeting duly called for
that purpose, of the holders of record of at least two-thirds of the
number of shares of the 4.10% Preferential Stock and of any other
series of the Cumulative Preferential Stock then outstanding which
have similar voting rights, voting separately as a class and without
regard to series,
(i) alter or change the preferences, special rights or
powers given to the 4.10% Preferential Stock and such other
series so as to affect the 4.10% Preferential Stock and such
other series adversely; provided, however, that any such change
of the preferences, special rights or powers of the 4.10%
Preferential Stock which does not affect adversely any other
series of the Cumulative Preferential Stock may be effected with
the consent, given as aforesaid, of the holders of record of at
least two-thirds of the number of shares of 4.10% Preferential
Stock then outstanding;
(ii) increase or decrease the par value of the 4.10%
Preferential Stock; or
50
<PAGE>
(iii) create any new class of stock having preference over
the Cumulative Preferential Stock as to dividends or assets;
provided, however, that no such consent by holders of 4.10%
Preferential Stock shall be required in order for the Corporation to
take any corporate action with respect to which such holders of 4.10%
Preferential Stock have the right to object and, upon complying with
procedures prescribed by the Delaware General Corporation Law, to
become entitled to payment of the appraised value of such shares (it
not being the intent of this provision, however, to limit in any
manner the voting rights expressly granted to holders of shares of
4.10% Preferential Stock by the Delaware General Corporation Law); and
provided further, however, that, except for the general power to vote
in the election of directors and for all other purposes granted to the
4.10% Preferential Stock in paragraph (i) below, no holders of 4.10%
Preferential Stock shall have any right to vote or consent for or in
respect of any increase or decrease in the authorized number of shares
of any class of stock (whether ranking senior to, on a parity with, or
junior to the Cumulative Preferential Stock as to dividends or assets
or whether now existing or hereafter created) or for or in respect of
the creation of any new class of stock ranking on a parity with or
junior to the Cumulative Preferential Stock as to dividends or assets.
(2) Holders of 4.10% Preferential Stock shall have the right to
vote for directors in the event of a "six quarters' default in
Preferential Stock dividends" as provided in Section 1 of Division D
of Article Fourth of this Certificate of Incorporation.
(h) Holders of the shares of 4.10% Preferential Stock shall not
be entitled to the benefit of any additional limitations restricting
the purchase of, the payment of dividends on, or the making of other
distributions in respect of stock of any class of the Corporation
ranking junior to the Cumulative Preferential Stock as to dividends
or assets.
(i) In addition to the voting rights to which the holders of
shares of 4.10% Preferential Stock are entitled as otherwise provided
in Article Fourth of this Certificate of Incorporation and in
paragraph (g) above, and subject to the qualifications, limitations
and restrictions thereof as therein set forth, the holders of shares
of 4.10% Preferential Stock shall 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.
(j) If the Corporation shall at any time offer shares of its
Common Stock to holders of its then outstanding Common Stock at a
price less than $27 per share, the Corporation shall grant each holder
of the then outstanding shares of 4.10% Preferential Stock
proportionate subscription rights (i) based on the number of full
shares of Common Stock of the Corporation into which such holder's
shares of 4.10% Preferential Stock are convertible at the time fixed
for determination of holders of Common Stock to whom such offer
shall be made, and (ii) in the manner and upon the conditions that the
Board of Directors shall deem appropriate in order to afford all
holders of 4.10% Preferential Stock a similar subscription privilege
to that granted the holders of the Common Stock. For purposes only of
determining the number of shares of Common Stock to which the holders
of 4.10% Preferential Stock may subscribe, the 4.10% Preferential
Stock will be deemed convertible immediately upon its issuance.
51
<PAGE>
Fifth: The names and places of residence of the incorporators are
as follows:
Names Places of Residence
---------------------- -------------------
Oliver B. Merrill, Jr. 17 East 97th Street,
New York, N. Y.
J. Edward Mount 308 East 79th Street,
New York, N. Y.
Robert T. Kimberlin 1 University Place,
New York, N. Y.
Sixth: The Corporation is to have perpetual existence.
Seventh: The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever.
Eighth: 1. All corporate powers of the Corporation shall be exercised
by the Board of Directors, except as otherwise provided by law. The Board
of Directors may, by resolution or resolutions passed by a majority of the
whole Board, designate one or more committees, each committee to consist of
two or more of the directors of the Corporation, which, to the extent
provided in said resolution or resolutions or in the by-laws of the
Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
and may have power to authorize the seal of the Corporation to be affixed
to all papers which may require it, provided that no such committee shall
have or exercise any such power or powers if and so long as a "two years'
default in preferred dividends", as defined in Section 1 of Division D of
Article Fourth hereof, shall exist.
2. In furtherance of and not in limitation of the powers conferred
upon the Board of Directors by law, the Board of Directors is expressly
authorized, without action by the stockholders:
(a) To issue, from time to time, and to sell or otherwise dispose
of any and all bonds, debentures, notes and other obligations of the
Corporation and, subject to the provisions of Divisions A and B of
Article Fourth hereof, to issue, from time to time, and to sell or
otherwise dispose of any and all shares of its stock of any class, in
such amounts, for such consideration (not less than the par value
thereof in the case of stock having a par value) and upon such terms
as the Board of Directors shall determine, and to mortgage or pledge
any and all property and assets of the Corporation, then owned or
thereafter acquired, as security for the payment of any such bonds,
debentures, notes or other obligations.
(b) Subject to the provisions of paragraph (a) of Section 7 of
Division A and paragraph (a) of Section 6 of Division B of Article
Fourth hereof, to sell, assign, convey or otherwise dispose of any
part of the property, assets and business of the Corporation if less
than substantially the whole thereof, on such terms and conditions
as the Board of Directors shall determine.
52
<PAGE>
(c) Subject to the provisions of Section 2 of Division E of
Article Fourth hereof, to fix the amount to be reserved by the
Corporation over and above its capital stock paid in and to fix and
determine and vary the amount of the working capital of the
Corporation, and to direct and determine the use and disposition of
the working capital and any surplus or net profits over and above the
capital stock paid in.
(d) To determine to what extent and at what times and places and
under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be opened to the inspection of the
stockholders, and no stockholder shall have any right to inspect any
account, book, or document of the Corporation except as conferred by
statute or as authorized by resolution of the Board of Directors.
(e) To establish, amend, alter or repeal and put into effect and
carry out such plan or plans, of general application, as the Board may
determine from time to time with respect to pensions, retirement
allowances, life, accident and other insurance and similar matters for
officers and employees of the Corporation and its subsidiaries in
consideration for or in recognition of the services rendered or to be
rendered by such officers and employees.
3. The number of directors of the Corporation shall be fixed from time
to time by, or in the manner provided in, the by-laws but shall never be
less than nine. Subject to the provisions of Division D of Article Fourth
hereof, in case of any increase in the number of directors, the additional
directors shall be elected as may be provided in the by-laws.
4. Any director of the Corporation may be removed for cause in such
manner as may be provided in the by-laws.
5. The directors and stockholders may hold their meetings and have an
office or offices outside the State of Delaware if the by-laws so provide.
6. None of the directors need be a stockholder of the Corporation,
except as otherwise provided in the by-laws, or a resident of the State of
Delaware. Elections of directors need not be by ballot if the by-laws so
provide.
7. In addition to reimbursement of his reasonable expenses incurred in
attending meetings or otherwise in connection with his attention to the
affairs of the Corporation, each director as such, and as a member of the
Executive Committee or of any other committee of the Board of Directors,
shall be entitled to receive such remuneration as may be fixed from time to
time by the Board of Directors.
8. Subject to (i) any limitations that may be imposed by the
stockholders and (ii) the provisions of Division D of Article Fourth
hereof, the Board of Directors may make by-laws and from time to time may
alter, amend or repeal any by-laws, but any by-laws made by the Board of
Directors or the stockholders may be altered, amended or repealed by the
stockholders at any annual meeting or at any special meeting, provided that
notice of such proposed alteration, amendment or repeal is included in the
notice of such special meeting.
53
<PAGE>
9. A director of the Corporation shall not, in the absence of fraud,
be disqualified by his office from dealing or contracting with the
Corporation either as vendor, purchaser or otherwise, nor in the absence of
fraud, shall any contract or other transaction of the Corporation be
affected or invalidated in any way by the fact that any of the directors of
the Corporation are in anywise interested in or connected with any other
party to such contract or transaction or are themselves parties to such
contract or transaction; provided, however, that such interest and
connection either shall be fully disclosed to a meeting of the Board of
Directors, or of a committee thereof having authority in the premises, at
which such contract or transaction is authorized, confirmed or approved, or
shall at the time be otherwise known to the directors present at such
meeting, and provided further that there shall be present at the meeting of
the Board of Directors, or such committee, authorizing, confirming or
approving such contract or transaction, and such contract or transaction
shall be authorized, confirmed or approved by the vote of, directors not so
interested or connected constituting a majority of the directors then in
office. No director of the Corporation shall be liable to the Corporation
or to any stockholder or creditor thereof or to any other person, for any
loss incurred under or by reason of any contract or transaction of the
Corporation, and no such director shall be accountable for any gains or
profits realized therefrom, provided, however, that any such contract or
transaction shall, at the time it was entered into, have been a reasonable
one to have been entered into and shall have been upon terms that at the
time were fair, and provided further that, if such director shall have been
so interested or connected as to such contract or transaction, such
contract or transaction shall have been authorized, confirmed or approved
as aforesaid after the disclosure or knowledge of such interest or
connection as aforesaid. A director of the Corporation shall not be deemed
interested in or connected with a party to a contact or transaction between
the Corporation and a parent, subsidiary or affiliated corporation by
reason of the fact that he is also a director, officer or stockholder of
such parent, subsidiary or affiliated corporation.
10. Nothing in this Certificate of Incorporation contained shall be
deemed to restrict any power which, as a matter of law, the Board of
Directors or any committee thereof would otherwise have to act by written
consent signed by all members of the Board or of such committee, as the
case may be.
11. No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. Any repeal or modification of this
Section 11 of Article Eighth by the stockholders of the Corporation shall
be prospective only, and shall not affect, to the detriment of any
director, any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
54
<PAGE>
Ninth: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or stockholder
thereof, or on the application of any receiver or receivers appointed for
this Corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions
of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
Tenth: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate in the manner now or
hereafter prescribed by statute, and all rights herein conferred upon the
stockholders, except as otherwise herein expressly provided, are granted
subject to this reservation.
D. The effective date of this Restated Certificate of Incorporation is
May 15, 1987. Upon the effective date, each of the issued shares of Common
Stock of the Company, par value $2.50 per share (including any shares
thereof held in the treasury of the Company), shall be changed and
reclassified into two shares of Common Stock of the Company, par value
$1.25 per share, and the aggregate amount of capital of the Company
represented by said shares of Common Stock, par value $2.50 per share,
shall be and become the capital represented by said shares of Common Stock,
par value $1.25 per share.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed under the seal of the Company this 6th day of May, 1987.
AMERICAN WATER WORKS COMPANY, INC.
By James V. LaFrankie
President
(Seal)
Attest:
George H. Roberts
Secretary
55
<PAGE>
EXHIBIT 3(b)
AMERICAN WATER WORKS COMPANY, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
American Water Works Company, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), does
hereby certify:
FIRST: That the Board of Directors of the Company, at a meeting
thereof held on March 2, 1989, adopted a resolution declaring it advisable
that the Restated Certificate of Incorporation, as amended, of the Company
be further amended as follows:
1. Article Tenth of the Restated Certificate of Incorporation, as
amended, shall be amended to read in its entirety as follows:
"TENTH: The Board of Directors of the Corporation, when
evaluating any proposal from another party involving:
(i) a tender offer for any securities of the Corporation,
(ii) a merger or consolidation of the Corporation with or
into any other person,
(iii) a sale, lease, exchange or other disposition by the
Corporation, or any subsidiary of the Corporation,
whether or not in partial or complete liquidation, of
all or any substantial part of the assets of the
Corporation to or with any other person,
<PAGE>
(iv) any issuance or transfer by the Corporation or any
subsidiary of the Corporation of any securities of the
Corporation having voting power (whether generally or
upon the happening of any contingency), or any
securities or instruments convertible into or
exchangeable for securities having voting power, to any
other person in exchange for securities, cash or other
property or a combination thereof, or
(v) any other transaction having an effect similar to any of
the foregoing upon the properties, operations or control
of the Corporation,
shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and
its stockholders, give due consideration to the following:
(1) the character, integrity, business philosophy and
financial status of the other party or parties to the
transaction;
(2) the consideration to be received by the Corporation or
its stockholders in connection with such transaction, as
compared to:
(a) the current market price or value of the
Corporation's properties or securities;
(b) the estimated future value of the Corporation, its
properties or securities;
- 2 -
<PAGE>
(c) such other measures of the value of the Corporation,
its properties or securities as the Board of
Directors may deem appropriate;
(3) the projected social, legal and economic effects of the
proposed action or transaction upon the Corporation, its
employees, suppliers, regulatory agencies and customers
and the communities in which the Corporation and its
subsidiaries do business;
(4) the general desirability of the continuance of the
Corporation as an independent entity; and
(5) such other factors as the Board of Directors may deem
relevant.
In giving such consideration to the foregoing factors, the Board of
Directors and each individual director shall be deemed to be
performing their duly authorized duties and acting in good faith and
in the best interests of the Corporation."
2. Article Eighth, Paragraph 4, of the Restated Certificate of
Incorporation, as amended, shall be amended to read in its entirety as
follows:
"4. No director of the Corporation may be removed except for
cause, and the vote of the holders of a majority of the outstanding
shares of all classes of capital stock of the Corporation entitled
to vote generally in the election of directors, considered for this
purpose as one class, shall be required to remove a director for
cause. Cause for removal shall be deemed to exist only if the
director whose removal is proposed 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
Corporation, and such conviction or adjudication has become final
and non-appealable."
- 3 -
<PAGE>
3. A new Article Eleventh shall be added to the restated
Certificate of Incorporation, as amended, to read in its entirety as
follows:
"ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by statute,
and all rights herein conferred upon the stockholders, except as
otherwise herein expressly provided, are granted subject to this
reservation. Any provision in this Certificate of Incorporation or
in the By-laws of the Corporation to the contrary notwithstanding,
no provisions of Article Eighth, Paragraph 4, or of Articles Tenth
or Eleventh of this Certificate of Incorporation, or Article II,
Section l(a) or Article X of the By-laws of the Corporation, shall
be altered, amended, supplemented or repealed by the stockholders
of the Corporation, and no provision of this Certificate of
Incorporation or of the By-laws of the Corporation inconsistent
with such provisions shall be adopted by the stockholders of the
Corporation, except by the affirmative vote of the holders of at
least 80% of the voting power of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election
of directors, considered for this purpose as one class. This
Article Eleventh shall not limit the right of the Board of
Directors to amend the By-laws of the Corporation."
SECOND: That thereafter, an annual meeting of stockholders of the
Company was duly called and held on May 4, 1989, upon notice in accordance
with Section 222 of the General Corporation law of the State of Delaware,
at which meeting the necessary number of votes as required by statute were
voted in favor of each of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused its corporate seal to be
hereunto affixed and this Certificate to be executed by James V. LaFrankie,
its President and by W. Timothy Pohl, its Secretary, this 4th day of May,
1989.
American Water Works Company, Inc.
By: James V. LaFrankie
President
[Corporate Seal]
Attest:
W. Timothy Pohl
Secretary
- 5 -
<PAGE>
EXHIBIT 3(c)
AMERICAN WATER WORKS COMPANY, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
American Water Works Company, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), does
hereby certify:
FIRST: That the Board of Directors of the Company, at a meeting
thereof held on January 4, 1990, adopted resolutions declaring it advisable
that the Restated Certificate of Incorporation, as amended, of the Company
be further amended as follows:
1. The first paragraph of Article Fourth of the Restated Certificate
of Incorporation, as amended, shall be amended to read in its entirety as
follows:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue shall be
105,616,800, of which (a) 1,866,800 shares shall be Cumulative
Preferred Stock, of the par value of $25 per share, issuable in
series, (b) 750,000 shares shall be Cumulative Preference Stock,
of the par value of $25 per share, issuable in series,
(c) 3,000,000 shares shall be Cumulative Preferential Stock, of
the par value of $35 per share, issuable in series, and
(d) 100,000,000 shares shall be Common Stock, of the par value
of $1.25 per share."
2. Section 3 of Division E of Article Fourth of the Restated
Certificate of Incorporation, as amended, shall be amended to read in its
entirety as follows:
"3.(a) No holder of Cumulative Preferred Stock, Cumulative
Preference Stock or Cumulative Preferential Stock of the
Corporation shall, as such holder, have any right to purchase or
subscribe for (i) any stock of any class, or any warrant or warrants,
option or options, or other instrument or instruments that shall
confer upon the holder or holders thereof the right to subscribe
for or purchase or receive from the Corporation any stock of any
class or classes which the Corporation may issue or sell, whether
or not such stock shall be convertible into or exchangeable for
any other stock of the Corporation of any class or classes and
whether or not such stock shall be unissued shares authorized by
the Certificate of Incorporation or by any amendment thereto or
<PAGE>
shares of stock of the Corporation acquired by it after
the issue thereof, or (ii) any obligation which the Corporation
may issue or sell that shall be convertible into or exchangeable
for any shares of stock of the Corporation of any class or classes,
or to which shall be attached or appurtenant any warrant or warrants,
option or options, or other instrument or instruments that shall
confer upon the holder or holders of such obligation the right to
subscribe for or purchase or receive from the Corporation any
shares of its stock of any class or classes.
(b) Upon any issue for money or other consideration of
any stock of the Corporation that may be authorized from time to
time, no holder of stock, irrespective of the kind of such stock,
shall have any preemptive or other right to subscribe for, purchase
or receive any proportionate or other share of the stock so issued,
and the Board of Directors may dispose of all or any portion of
such stock as and when it may determine free of any such rights,
whether by offering the same to stockholders or by sale or other
disposition as said Board may deem advisable."
3. Subparagraph (j) of the first paragraph of Section 1 of Division
B-1 of Article Fourth of the Restated Certificate of Incorporation, as
amended, shall be deleted in its entirety.
4. Subparagraph (h) of the first paragraph of Section 1 of Division
B-1 of Article Fourth of the Restated Certificate of Incorporation, as
amended, shall be amended by inserting the word "and" following the semi-
colon at the end of the subparagraph.
5. Subparagraph (i) of the first paragraph of Section 1 of Division
B-1 of Article Fourth of the Restated Certificate of Incorporation, as
amended, shall be amended by deleting the semi-colon and the following word
"and" at the end of the subparagraph and inserting a period in lieu
thereof.
SECOND: That thereafter, an annual meeting of stockholders of the
Company was duly called and held on May 3, 1990, upon notice in accordance
with Section 222 of the General Corporation Law of the State of Delaware,
at which meeting the necessary number of votes as required by statute were
voted in favor of each of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company has caused its corporate seal to be
hereunto affixed and this Certificate to be executed by James V. LaFrankie,
its President, and by W. Timothy Pohl, its Secretary, this 3rd day of May,
1990.
American Water Works Company, Inc.
By: James V. LaFrankie
President
(Corporate Seal)
Attest:
W. Timothy Pohl
Secretary
<PAGE>
EXHIBIT 3(d)
AMERICAN WATER WORKS COMPANY, INC.
CERTIFICATE OF DESIGNATIONS
American Water Works Company, Inc., a corporation organized under the
laws of the State of Delaware (the "Company"), does hereby certify:
THAT the Board of Directors of the Company, at a meeting thereof held
on January 3, 1991, duly adopted the following resolution:
RESOLVED, that pursuant to the authority expressly
granted to and vested in the Board of Directors of the
Corporation by the provisions of the Restated Certificate of
Incorporation, as amended, of the Company, the Board of
Directors hereby creates a series of Cumulative Preferred
Stock of the par value of $25 per share of the Corporation
from the authorized but unissued Cumulative Preferred Stock
and hereby fixes the number of shares which shall constitute
such series and the voting powers, designations, preferences
and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof,
of the shares of such series as follows:
In addition to the terms and provisions set forth in
the Restated Certificate of Incorporation, as amended, which
are applicable to all series of Cumulative Preferred Stock,
the Cumulative Preferred Stock, 8.50% Series shall have the
following terms and provisions:
(a) The designation of such series of
Cumulative Preferred Stock of the par value of
$25 per share shall be Cumulative Preferred Stock,
8.50% Series(hereinafter called the 8.50% Preferred
Stock), and the number of shares which shall
constitute such series shall be 1,600,000 shares.
(b) The dividend rate of the 8.50% Preferred
Stock shall be 8.50% per annum upon the par value
thereof, the date from which dividends on shares
of the 8.50% Preferred Stock shall be cumulative
shall be the date of issue of the first of said
shares to be issued, and the initial dividend shall
be payable on June 1, 1991.
(c) The shares of the 8.50% Preferred Stock
shall be redeemed by the Corporation on December 1,
2000 at the par value thereof plus, as provided in
Section 6 of Division A of Article Fourth an amount
equal to full cumulative dividends thereon to the
redemption date; provided, however, the shares of
the 8.50% Preferred Stock shall not be otherwise
subject to redemption at the option of the Corporation.
<PAGE>
(d) The amounts payable upon the shares of the
8.50% Preferred Stock in the event of any voluntary
liquidation or dissolution or winding up of the
Corporation shall be an amount equal to the par value
per share (exclusive of dividends) plus, as provided
in Section 4 of Division A of Article Fourth, an amount
equal to full cumulative dividends thereon to the date
of final distribution to the holders of the Cumulative
Preferred Stock.
(e) No sinking fund or purchase fund shall be
established for the purchase or redemption of shares
of the 8.50% Preferred Stock.
(f) The shares of the 8.50% Preferred Stock shall
not be convertible into any other shares of the
Corporation.
(g) The shares of the 8.50% Preferred Stock shall
not be entitled to the benefit of any limitations
restricting the purchase of, the payment of dividends
on, or the making of other distributions in respect of
stock of any class of the Corporation ranking junior
to the Cumulative Preferred Stock as to dividends or
assets in addition to those set forth in Division A of
Article Fourth.
(h) Except as otherwise provided in Division D of
Article Fourth, the shares of the 8.50% Preferred Stock
shall not have the general power to vote in the
election of directors and for other purposes.
IN WITNESS WHEREOF, the Company has caused its corporate seal to be
hereunto affixed and this Certificate of Designations to be executed by
James V. LaFrankie, its President, and by W. Timothy Pohl, its Secretary,
this 4th day of February, 1991.
AMERICAN WATER WORKS COMPANY, INC.
By: James V. LaFrankie,President
ATTEST:
W. Timothy Pohl, Secretary
2
<PAGE>
EXHIBIT 3(e)
AMERICAN WATER WORKS COMPANY, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
American Water Works Company, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Company"), does
hereby certify:
FIRST: That the Board of Directors of the Company, at a meeting
thereof held on March 7, 1996, adopted a resolution declaring it advisable
that the Restated Certificate of Incorporation, as amended, of the Company
be further amended as follows:
The first paragraph of Article Fourth of the Restated Certificate of
Incorporation, as amended, shall be amended to read in its entirety as
follows:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue shall be
305,520,000 of which (a) 1,770,000 shares shall be Cumulative
Preferred Stock, of the par value of $25 per share, issuable
in series, (b) 750,000 shares shall be Cumulative Preference
Stock, of the par value of $25 per share, issuable in series,
(c) 3,000,000 shares shall be Cumulative Preferential Stock,
of the par value of $35 per share, issuable in series, and
(d) 300,000,000 shares shall be Common Stock, of the par value
of $1.25 per share."
SECOND: That thereafter, an annual meeting of stockholders of the
Company was duly called and held on May 2, 1996, upon notice in accordance
with Section 222 of the General Corporation Law of the State of Delaware,
at which meeting the necessary number of votes as required by statute were
voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company has caused its corporate seal to be
hereunto affixed and this Certificate to be executed by George W.
Johnstone, its President and Chief Executive Officer, and by W. Timothy
Pohl, its General Counsel and Secretary, this 2nd day of May, 1996.
AMERICAN WATER WORKS COMPANY, INC.
By: George W. Johnstone
President and Chief Executive Officer
(Corporate Seal)
Attest:
W. Timothy Pohl
General Counsel and Secretary
2
EXHIBIT 10(c)
AMENDMENT NO. 2
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, ("Plan"),
American Water Works Company, Inc. hereby amends the Plan, effective
January 1, 1995, as follows:
1. SECTION 1.40 is hereby deleted in its entirety and the following
is inserted in lieu thereof:
Section 1.40 "Subsidiary" means any corporation, association or
business trust, 50% or more of whose voting stock (not including
shares having voting power only upon the happening of an event of
default) is or was owned, directly or indirectly, by American
Water Works Company, Inc., or by any corporation which was a
constituent in a merger, consolidation, liquidation, transfer of
substantially all of its assets in exchange for stock, or similar
combination of corporations with or into the Company.
2. SECTION 2.1 is hereby deleted in its entirety and the following is
inserted in lieu thereof:
2.1 Eligibility Rule. Except as provided in Section 2.2, an
Employee shall be eligible to participate in the Plan beginning on
the January 1 following his date of hire.
3. SECTION 10.11 is hereby added as follows:
10.11 Distributions Pursuant to a Qualified Domestic Relations
Order ("QDRO"). Unless otherwise provided by the QDRO, an
Alternate Payee shall be entitled to elect any of the distribution
options available under Section 10 to a "Terminated Participant".
<PAGE>
To record the adoption of this Amendment No. 2 to the Plan, American
Water Works Company has affixed its corporate name and seal this 3rd day of
July, 1996.
AMERICAN WATER WORKS COMPANY, INC.
By: George W. Johnstone
President and Chief Executive Officer
(Corporate Seal)
Attest: W. Timothy Pohl
General Counsel and Secretary
2
EXHIBIT 13
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Consolidated Summary of Selected Financial Data
(Dollars in thousands, except per share amounts; adjusted for 1996 stock
split)
<TABLE>
<CAPTION>
For the years ended
December 31, 1996 1995 1994 1993 1992
===============================================================================================
<S> <C> <C> <C> <C> <C>
Revenues
Water service
Residential $ 510,050 $ 451,143 $ 431,225 $ 399,916 $ 360,800
Commercial 197,314 175,792 169,532 159,335 147,983
Industrial 62,153 54,423 53,049 50,490 47,492
Public and other 101,816 92,565 90,436 84,861 79,196
Other water revenues 7,935 5,902 6,502 5,579 5,372
- -----------------------------------------------------------------------------------------------
879,268 779,825 750,744 700,181 640,843
Wastewater service 15,378 14,953 13,933 12,143 11,391
Management fees -- 8,042 5,564 5,213 5,126
- -----------------------------------------------------------------------------------------------
$ 894,646 802,820 $ 770,241 $ 717,537 $ 657,360
======================================================================
Water sales (million gallons)
Residential 119,900 117,128 113,950 104,721 97,992
Commercial 63,491 61,726 60,901 57,880 55,587
Industrial 36,129 34,171 34,735 33,040 32,681
Public and other 27,764 26,968 26,953 25,172 24,349
- -----------------------------------------------------------------------------------------------
247,284 239,993 236,539 220,813 210,609
======================================================================
Net income $ 101,674 92,061 $ 78,652 $ 75,387 $ 68,160
Earnings per common
share on average
shares outstanding $1.31 $1.32 $1.17 $1.15 $1.04
Common dividends
paid per share $ .70 $ .64 $ .54 $ .50 $ .46
AT YEAR-END
Customers
(thousands) 1,884 1,720 1,706 1,685 1,548
Total assets $4,032,156 $3,403,141 $3,172,237 $2,948,069 $2,415,805
Preferred stocks
with mandatory
redemption
requirements
American Water
Works Company,
Inc. $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,480
Subsidiaries 41,060 42,326 43,737 46,515 50,895
Long-term debt
American Water
Works Company,
Inc. $ 116,000 $ 116,000 $ 131,000 $ 131,000 $ 73,200
Subsidiaries 1,600,394 1,268,649 1,177,043 1,056,404 870,940
Market price per
share of common
stock at year-end $20.63 $19.44 $13.50 $15.00 $13.69
</TABLE>
22
<PAGE>
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 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 draw on these services than do larger companies.
THE REGULATED COMPANIES
The 22 regulated subsidiary companies provide water service to
approximately 7 million people in more than 800 communities in 21
states.
As public utilities, 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. In addition, with
the exception of Michigan-American Water Company, which is not
rate-regulated, the regulated companies function under economic
regulations prescribed by state regulatory commissions.
THE FINANCIAL COMPANIES
American International Water Services Company owns a 50% interest in
AmericanAnglian Environmental Technologies, a joint venture with Anglian
Water Plc., a British water and wastewater utility. AmericanAnglian
provides both technical expertise and financing resources to communities
in Pennsylvania, North and South Carolina and Virginia 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 facilities 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 formed for the specific purpose of financing the construction of
a water treatment plant in Hingham, Massachusetts. In 1996,
Massachusetts Capital Resources leased this facility 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, 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 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>
- ---------------------------------------------------------------------------
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 15%]
COMPOUND ANNUAL GROWTH RATES 1991 -- 1996
Investment in subsidiaries ... 12.7%
Operating revenue ............ 7.1%
Earnings per share ........... 2.8%
Dividends per share .......... 10.2%
Book value per share ......... 7.9%
The Company's investment in its subsidiaries has increased from $693
million at year-end 1991 to $1.3 billion at year-end 1996. 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 $69.9 million in
1991 to $97.7 million in 1996.
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 1991 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 $5.3 million over this five-year period.
SYSTEM GROWTH AND DEVELOPMENT
CAPITAL SPENDING PROGRAM
The investment in new facilities in 1996 totaled $274 million, which
was 17% below 1995 construction expenditures of $331 million.
Construction activity planned for 1997 totals $383 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 $1.7 billion
will be invested in new facilities between now and the end of the year
2001. These expenditures will support ongoing programs to comply with
regulations promulgated to ensure water quality and protect the
environment, to keep pace with the development of our service
territories and to replace plants as necessary. We expect the
investment in this construction program to be recognized in regulatory
decisions.
Source of supply improvements in 1996 accounted for approximately 4%
of the year's construction expenditures. Projects included groundwater
development in several locations in Indiana to meet growing customer
demands. New wells in Clovis, New Mexico and several replacement wells
in California were constructed to
24
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Analysis of Growth in Investment Subsidiaries
<TABLE>
<CAPTION>
(000) 1996 1995 1994 1993 1992
========================================================================================================
<S> <C> <C> <C> <C> <C>
Investment in subsidiaries at December 31 $1,261,532 $1,003,088 $898,219 $810,372 $749,513
Investment in subsidiaries at January 1 1,003,088 898,219 810,372 749,513 693,312
- --------------------------------------------------------------------------------------------------------
Change during the year $ 258,444 $ 104,869 $ 87,847 $ 60,859 $ 56,201
========================================================
Sources of additional investment
Undistributed earnings of subsidiaries $ 31,605 $ 26,315 $ 24,532 $ 18,984 $ 19,401
Investment by the Company in
subsidiary securities 226,839 78,554 63,315 41,875 36,800
- --------------------------------------------------------------------------------------------------------
Change during the year $ 258,444 $ 104,869 $ 87,847 $ 60,859 $ 56,201
========================================================
Net income of subsidiaries $ 113,760 $ 103,497 $ 89,449 $ 84,248 $ 75,260
Return on January 1 investment in
subsidiaries 11.3% 11.5% 11.0% 11.2% 10.9%
Subsidiaries' common stock dividend
payout ratio 72% 75% 73% 77% 74%
- --------------------------------------------------------------------------------------------------------
Dividends to the Company from
subsidiaries 82,155 77,182 64,917 65,264 55,859
- --------------------------------------------------------------------------------------------------------
Company's use of cash
Preferred dividends 3,984 3,984 3,984 3,996 4,019
Other cash requirements 9,518 9,765 10,744 7,556 6,630
- --------------------------------------------------------------------------------------------------------
13,502 13,749 14,728 11,552 10,649
- --------------------------------------------------------------------------------------------------------
Available for common dividends 68,653 63,433 50,189 53,712 45,210
Common dividends declared 51,299 42,500 34,386 31,130 28,609
Cash payout ratio 75% 67% 69% 58% 63%
Available after dividends 17,354 20,933 15,803 22,582 16,601
Cash at January 1 119 17,647 23,302 78 15
- --------------------------------------------------------------------------------------------------------
17,473 38,580 39,105 22,660 16,616
Investment in securities of subsidiaries (226,839) (78,554) (63,315) (41,875) (36,800)
Notes and advances to subsidiaries 10 10 4,510 1,010 5,210
- --------------------------------------------------------------------------------------------------------
(209,356) (39,964) (19,700) (18,205) (14,974)
- --------------------------------------------------------------------------------------------------------
Net bank borrowings 34,400 3,700 -- (21,255) 11,425
Proceeds from long-term debt -- -- -- 81,000 --
Proceeds from common stock 189,999 36,383 37,347 5,442 5,307
Redemption of securities (15,000) -- -- (23,680) (1,680)
- --------------------------------------------------------------------------------------------------------
209,399 40,083 37,347 41,507 15,052
- --------------------------------------------------------------------------------------------------------
Cash at December 31 $ 43 $ 119 $ 17,647 $ 23,302 $ 78
========================================================
</TABLE>
Analysis of Change in Income
<TABLE>
<CAPTION>
(000) 1996 1995 1994 1993 1992
========================================================================================================
<S> <C> <C> <C> <C> <C>
Net income to common stock-current year $ 97,690 $ 88,077 $ 74,668 $ 71,391 $ 64,141
Net income to common stock-prior year 88,077 74,668 71,391 64,141 69,890
- --------------------------------------------------------------------------------------------------------
Change in income 9,613 13,409 3,277 7,250 (5,749)
Change in Company operating cost 650 639 1,924 1,738 317
- --------------------------------------------------------------------------------------------------------
Change in investment income $ 10,263 $ 14,048 $ 5,201 $ 8,988 $ (5,432)
========================================================
Sources of change in investment income
Additional investment in subsidiaries $ 11,893 $ 10,122 $ 6,718 $ 6,317 $ 6,154
Change in rate of return on investment (1,630) 3,926 (1,517) 2,671 (11,586)
- --------------------------------------------------------------------------------------------------------
Total change in investment income $ 10,263 $ 14,048 $ 5,201 $ 8,988 $ (5,432)
========================================================
</TABLE>
25
<PAGE>
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
maintain supply capabilities. In 1996, upgrades to the Bargh Dam in
Greenwich, Connecticut were initiated to meet more stringent regulatory
requirements. Projects are also being undertaken to interconnect both
the St. Charles, Missouri and Bel Air, Maryland systems with adjacent
water systems to provide a cost-effective supplement to existing sources
of supply.
Investment in treatment and pumping facilities comprised
approximately 28% of 1996 construction expenditures. Construction was
completed on the 30 million gallons-per-day Delaware River Regional
Water Treatment Plant in New Jersey that will supplement community water
supplies in three counties in southern New Jersey. Additionally,
construction was completed on a new 7 million gallons-per-day facility
which will treat existing surface and groundwater supplies in Hingham,
Massachusetts. A regional 5 million gallons-per-day treatment plant,
which serves Mercer and Summers counties in West Virginia, was completed
in 1996. Significant production improvements were completed in East St.
Louis and Granite City, Illinois; Brownsville, Pennsylvania; and
Chattanooga, Tennessee. During 1996, the Crawfordsville, Franklin and
Noblesville, Indiana systems and Peoria, Illinois system began an
aggressive program of treatment improvements and expansion at their
facilities. The improvement of the Yardley and Norristown, Pennsylvania
treatment plants are two additional major projects initiated in 1996.
Transmission and distribution facilities accounted for approximately
39% of the 1996 construction expenditures. The most prominent
individual projects included major pipeline reinforcement in the
Paradise Valley, Arizona and Monterey, California systems. Significant
main extensions were also undertaken in Charleston, West Virginia, to
expand West Virginia-American's role as a regional water supplier, and
in Pennsylvania, to add new customers throughout the state. Pipeline
installations continued throughout the American Water System to maintain
adequate pressures, fire flows and reliability. Also, booster stations
and storage tanks were completed at a number of operating systems during
the year including tanks in Monterey, California; Chattanooga,
Tennessee; and Franklin, Indiana.
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 Greenwich, Connecticut; Jeffersonville/New
Albany, Noblesville, Shelbyville, and Crawfordsville, Indiana;
Lexington, Kentucky; Short Hills, New Jersey; Frackville, Pennsylvania;
the Harrisburg West Shore area of Pennsylvania; St. Charles County,
Missouri; as well as regional programs underway for Boone, Fayette and
Putnam County, West Virginia.
In addition, the Company's formal Comprehensive Planning Study
program completed reports for Illinois-American Water Company, which
encompasses seven service areas, and for Iowa-American Water Company.
Studies are underway for the regulated companies in California, Indiana,
Missouri, and Pennsylvania, in total encompassing 58 separate service
areas. Also, a Comprehensive Planning Study has been initiated for the
recently acquired Scranton-Wilkes Barre system in Pennsylvania.
<TABLE>
<CAPTION>
CONSTRUCTION EXPENDITURES BY CATEGORY
(000) 1996 1995 1994 1993 1992
=======================================================================================
<S> <C> <C> <C> <C> <C>
Water plant
Sources of supply $ 10,798 $ 18,156 $ 11,511 $ 8,054 $ 9,110
Treatment and pumping 77,071 125,350 82,700 51,332 53,303
Transmission and distribution 107,145 110,600 108,929 77,998 80,357
Services, meters and fire hydrants 47,946 45,835 40,506 34,401 33,989
General structures and equipment 29,029 29,602 20,703 19,585 17,935
Wastewater plant 1,805 1,219 1,390 1,746 2,885
- ---------------------------------------------------------------------------------------
$273,794 $330,762 $265,739 $193,116 $197,579
================================================
</TABLE>
26
<PAGE>
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, the Company
continues to search for opportunities to acquire water systems that
represent the prospect for enhanced shareholder value. In that regard,
on February 16, 1996, Pennsylvania-American Water Company, a subsidiary
of the Company, acquired the water utility operations of Pennsylvania
Gas and Water Company (now known as PG Energy Inc.) for $409.4 million.
The acquired operations, which include 10 water treatment plants and 36
reservoirs, serve 400,000 people in Wilkes-Barre, Scranton and
surrounding communities in northeastern Pennsylvania. With
Pennsylvania-American's other service territories, primarily in the
western and central-southeastern parts of the commonwealth, the Company
believes that the addition of this large northeastern operation has
increased this subsidiary's geographical diversity, will allow greater
operational synergy and offers opportunities for further growth in this
region.
Pennsylvania-American also paid $.7 million for water systems in
eastern and western Pennsylvania, increasing the population it serves by
another 1,300 during 1996.
On December 23, 1996, New Jersey-American Water Company completed
its acquisition of the Howell Township Municipal Water System for $35.4
million. The system, which serves 18,000 people, is located between the
Company's existing Monmouth County and Lakewood operations and will
allow those two systems to be connected. The acquired assets will be
used to serve all of the Company's Monmouth and Ocean County customers,
thereby avoiding construction costs that would otherwise be required to
meet regulatory requirements for a reliable water supply.
In addition, New Jersey-American paid $0.1 million for a water
system in Pemberton, Burlington County, serving a population of 1,400
people in 1996.
In 1996, Illinois-American Water Company paid $1.0 million for six
water systems. Nearly 4,000 people are served by the systems acquired
in various parts of the state.
West Virginia-American Water Company paid $0.8 million for three
water systems in 1996. These systems, including the Pinch Public
Service District in Kanawha County, will serve nearly 8,000 people.
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 1994 through 1996, and it is not expected to materially
affect 1997 results.
The results of operations for the Company for the year ended
December 31, 1996 reflect the results of operations of the acquired
business in northeastern Pennsylvania subsequent to the purchase date of
February 16, 1996.
<TABLE>
<CAPTION>
OPERATING REVENUES
(000) 1996 1995 1994
===============================================================
<S> <C> <C> <C>
Water service $879,268 $779,825 $750,744
Wastewater service 15,378 14,953 13,933
Authority management fees -- 8,042 5,564
- ---------------------------------------------------------------
$894,646 $802,820 $770,241
==================================
</TABLE>
CONSOLIDATED OPERATING REVENUES
Revenues in 1996 totaled $894.6 million and were 11% above those for
1995, reflecting the Company's acquisition in February of the water
utility operations in northeastern Pennsylvania, which increased
operating revenues by $56.6 million in 1996. Revenues in 1996 also were
helped by strong water sales in the West and Midwest, which partially
offset weather-related weakness in the East. The volume of water sold
increased 3% to 247 billion gallons in 1996 compared with 240 billion
gallons in 1995. The acquisition added 10.9 billion gallons of water
sales volume in 1996.
Rate authorizations adjusted the water service rates in effect for
11 regulated companies during 1996. These authorizations are expected
to increase annual revenues by $62.9 million. Operating revenues for
1996 included approximately $43.7 million which resulted from these rate
orders.
Three rate adjustments have been authorized for regulated
subsidiaries so far in 1997 which will generate approximately $3.3
million of additional annual revenues. Five applications are awaiting
regulatory decisions. If granted in full, they would produce additional
annual revenues of $26.7 million. Later in 1997, Pennsylvania-American
Water Company will file its first rate increase application following
its 1996 acquisition of water utility operations in the northeastern
part of the commonwealth.
27
<PAGE>
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
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, including $13.4 million in annual revenues anticipated from
potential wholesale customers. The increase reflects the completion of
the Delaware River Water Treatment Plant that delivers water 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
municipal water systems that 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. A subsequent appeal has been filed with the Superior Court of New
Jersey, Appellate Division, within the time provided in the applicable
court rules. The appeal has challenged the design of the tariff, but
not the level of revenues established by the New Jersey Board of Public
Utilities order. 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, management believes the result
would not have a material adverse effect on the operating results or
financial position of the Company.
Revenues of $802.8 million in 1995 were 4% above those for 1994.
Eleven regulated companies received rate orders in 1995, authorizing
increases in annual revenues aggregating $17.3 million. Operating
revenues for 1995 included approximately $5.9 million which resulted
from these rate orders. The 240 billion gallons of water sold in 1995
was a 1% increase compared to 1994.
<TABLE>
<CAPTION>
PERCENTAGE OF WATER REVENUES BY CUSTOMER CLASS
1996 1995 1994
==============================================================
<S> <C> <C> <C>
Residential 58.0% 57.9% 57.4%
Commercial 22.4% 22.5% 22.6%
Industrial 7.1% 7.0% 7.1%
Public and other 11.6% 11.9% 12.0%
Other water revenues .9% .7% .9%
- --------------------------------------------------------------
100.0% 100.0% 100.0%
===============================
</TABLE>
RESIDENTIAL
Residential water service revenues in 1996 amounted to $510.1
million, an increase of 13% over those for 1995. This 1996 revenue
improvement followed an increase of 5% in 1995. The volume of water
sold to residential customers increased by 2% in 1996 to 119.9 billion
gallons. The average unit price of residential water increased by 10%
in 1996 and by 2% in 1995.
COMMERCIAL
Revenues from commercial customers in 1996 rose by 12% to $197.3
million, following an increase of 4% in 1995. Commercial customers
purchased 63.5 billion gallons of water in 1996, 3% more than in 1995.
The average unit price of water increased by 9% in 1996, up from a 3%
increase in 1995.
INDUSTRIAL
Industrial water use of 36.1 billion gallons in 1996 was 6% higher
than in 1995. Revenues from industrial sales in the amount of $62.2
million were 14% above those recorded in 1995 due to an 8% increase in
the average unit price of water. In 1995, revenues from industrial
sales were 3% above those for 1994 due to a 4% increase in the average
unit price of water.
PUBLIC AND OTHER
Public and other revenues in 1996 increased by 10% to $101.8 million
following an increase of 2% in 1995. Revenues derived from municipal
governments for fire protection services and customers requiring special
private fire service facilities totaled $41.3 million in 1996, exceeding
1995 revenue from these customers by 13%. The 27.8 billion gallons of
water sold to governmental entities and resale customers was 3% greater
than the quantities sold in 1995. Revenues generated by these sales
totaled $60.5 million and exceeded 1995 revenues by 8%.
<TABLE>
<CAPTION>
PERCENTAGE OF WATER SALES (GALLONS) BY CUSTOMER CLASS
1996 1995 1994
===============================================================
<S> <C> <C> <C>
Residential 48.5% 48.8% 48.2%
Commercial 25.7% 25.7% 25.7%
Industrial 14.6% 14.3% 14.7%
Public and other 11.2% 11.2% 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, Pennsylvania,
Missouri and Indiana. Revenues from these services amounted to $15.4
million in 1996, compared with $15.0 million in 1995 and $13.9 million
in 1994.
MANAGEMENT FEES
These fees represent charges for management services provided to
public water and wastewater systems by American Commonwealth Management
Services Company. 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.
28
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Management fees of $8.0 million were received for these services in
1995 compared with fees of $5.6 million in 1994. In 1996 a comparable
level of management fees were received by AmericanAnglian.
<TABLE>
<CAPTION>
OPERATING EXPENSES
(000) 1996 1995 1994
====================================================================
<S> <C> <C> <C>
Operation and maintenance
expenses $425,170 $402,362 $391,539
Depreciation and amortization 93,413 79,977 72,892
General taxes 82,017 76,208 73,085
- --------------------------------------------------------------------
$600,600 $558,547 $537,516
==================================
</TABLE>
CONSOLIDATED OPERATING EXPENSES
Operating expenses in 1996 increased by 8% to $600.6 million,
following a 4% increase in 1995. The acquisition of the water utility
operations in northeastern Pennsylvania increased operating expenses by
$30.8 million in 1996.
Operation and maintenance expenses totaled $425.2 million in 1996,
6% higher than in 1995. These expenses had increased by 3% in 1995.
The northeastern Pennsylvania acquisition increased operation and
maintenance expenses by $19.8 million in 1996.
Employee-related costs, representing 46% of operation and
maintenance expenses, increased by 1% in 1996 and 2% in 1995.
The primary components of employee-related costs are wage and salary
expenses, which were up 3% to $153.3 million in 1996 following a 3%
increase in 1995. The number of employees at year-end totaled 4,065,
which was 8% above the employment level of 3,777 at the close of 1995
and 2% above the 3,992 employees at the end of 1994. The Company added
294 new employees due to the northeastern Pennsylvania acquisition in
1996. 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 212 employees or 5% since year-end
1993, as the result of continued efforts to improve operating
efficiencies.
Group insurance expenses, which include the cost of providing
current health care and life insurance benefits as well as the expected
cost of providing postretirement benefits, increased by 3% to $34.8
million in 1996 after a 12% decrease in 1995.
The fluctuation in group insurance expense is attributable to the
timing of the rate recovery permitted by regulatory authorities of the
additional cost 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.
Postretirement benefit expense in excess of the amount recovered in
rates is deferred when it is probable that recovery of such costs will
be included in future revenues. In 1996, this expense increased as the
portion of postretirement costs that were deferred pending future
recovery decreased in comparison to 1995. These costs had declined in
1995 because of rate decisions allowing an increased portion of these
expenses to be deferred and recovered in rates in future periods.
Health care expenses have been moderated by certain cost containment
measures, including required contributions from employees and early
retirees toward the cost of health care benefits. In 1996, the Company
implemented plan revisions that encourage plan participants to take
advantage of a managed care plan option. Employees and early retirees
not selecting the managed care plan option are required to make
additional contributions.
Pension expense decreased by 39% in 1996 to $5.7 million following a
54% increase in 1995. 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 $4.3
in 1996, $10 million in 1995 and $4.8 million in 1994 were made to the
pension plan. Pension expense declined in 1996 reflecting the decrease
in contributions resulting from the plan reaching full funded status.
In 1995 the plan experienced a large gain in connection with the
demutualization of an insurance company. Pension expense had increased
in 1995 in conjunction with the resumption of contributions in mid-1994,
after a period of several years during which no contributions were made
due to the funded status of the plan.
<TABLE>
<CAPTION>
OPERATION AND MAINTENANCE EXPENSES
(000) 1996 1995 1994
====================================================================
<S> <C> <C> <C>
Employee-related costs $193,798 $191,151 $187,735
Fuel and power 34,654 33,282 33,216
Purchased water 45,069 44,114 40,375
Chemicals 17,693 14,974 13,089
Waste disposal 14,145 12,234 11,994
Maintenance materials
and services 24,559 22,258 22,115
Operating supplies and services 60,626 54,416 53,399
Customer billing and accounting 19,998 16,917 14,809
Other 14,628 13,016 14,807
- --------------------------------------------------------------------
$425,170 $402,362 $391,539
==================================
</TABLE>
Expenses associated with the collection, treatment, and pumping of
water include the cost of fuel and power, water purchased from other
suppliers, chemicals for water treatment and purification, and waste
disposal. These costs increased by 7% in 1996 after a 6% rise in 1995.
29
<PAGE>
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
The unit cost of water produced increased 4% in both 1996 and 1995.
The 1996 increase in the unit cost of production reflects increased
volume and associated increases in fuel and power, chemicals and waste
disposal. 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 1995 unit
cost of production.
Maintenance materials and services, which include emergency repairs
as well as costs for preventive maintenance, increased by 10% in 1996
following a 1% increase in 1995.
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 11% in 1996 after a 2% increase in 1995. Customer
billing and accounting charges increased by 18% in 1996 and by 14% in
1995. These costs increased in 1996 and 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 increased by 12% in 1996 after decreasing by 12% in 1995.
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 17% in 1996 and 10% in
1995. The higher depreciation expense in both years was primarily due
to growth in utility plant in service, including the 1996 acquisition in
northeastern Pennsylvania.
General taxes, which include gross receipts, franchise, property,
capital stock, payroll and other taxes, increased by 8% in 1996 after a
4% rise in 1995.
Gross receipts and franchise taxes, which are a function of
revenues, increased by 7% in 1996. Property and capital stock taxes are
assessed on the basis of tax values assigned to assets and
capitalization. These taxes in 1996 were 11% above those in 1995 due to
higher property values and tax rate increases. Payroll taxes increased
by 5% in 1996 due to the increase in the number of employees.
CONSOLIDATED OTHER INCOME AND INCOME DEDUCTIONS
The total allowance for funds used during construction recorded in
1996 was $11.7 million, which was 45% lower than in 1995. This decrease
was due to the completion of New Jersey-American Water Company's
Delaware River Regional Water Treatment Plant which began operation in
early 1996.
Interest expense rose 17% to $136.8 million in 1996 compared to
1995, primarily due to an increase in total debt to fund construction of
new water service assets and the acquisition of the acquired business in
northeastern Pennsylvania. This expense had increased by 6% in 1995.
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.
Other income in 1996 includes a $1.8 million gain on the disposition
of a condemned parcel of property.
CONSOLIDATED INCOME TAXES
Income taxes increased by 11% in 1996, following a 15% increase in
1995. The 1996 and 1995 increases in income taxes are 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 income tax expense are included in Note 12 to the financial
statements.
<TABLE>
<CAPTION>
SUMMARY OF TAXES
(000) 1996 1995 1994
========================================================================
<S> <C> <C> <C>
Gross receipts and franchise taxes $ 35,684 $ 33,272 $ 32,168
Property and capital stock taxes 31,971 28,868 27,245
Payroll taxes 12,060 11,524 11,521
Other general taxes 2,302 2,544 2,151
State income taxes 9,227 8,079 7,718
Federal income taxes 54,601 49,567 42,194
- ------------------------------------------------------------------------
$145,845 $133,854 $122,997
==================================
</TABLE>
CONSOLIDATED NET INCOME
Consolidated net income in 1996 totaled $101.7 million, a 10%
increase over net income in 1995, which included an after-tax gain of
$3.9 million related to the settlement of litigation in Massachusetts.
Consolidated net income in 1995 was 17% above that recorded in 1994.
Consolidated net income to common stock totaled $97.7 million in
1996 and was 11% above that reported for 1995. Without the gain from
the settlement of litigation in 1995, consolidated net income to common
stock in 1996 increased by 16% above that in 1995. Consolidated net
income to common stock reported in 1995 had increased by 13%.
30
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITALIZATION
COMMON PREFERRED LONG-TERM
(000) EQUITY STOCK DEBT
=======================================================================
<S> <C> <C> <C>
Company
1996 $1,057,874 $ 51,673 $ 116,136
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
- -----------------------------------------------------------------------
Regulated Subsidiaries
1996 $1,212,238 $ 49,048 $1,619,948
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
- -----------------------------------------------------------------------
Consolidated
1996 $1,057,874 $ 99,012 $1,773,538
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
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CAPITALIZATION RATIOS
COMMON PREFERRED LONG-TERM
(000) EQUITY STOCK DEBT
=======================================================================
<S> <C> <C> <C>
Company
1996 86% 4% 10%
1995 82% 5% 13%
1994 80% 6% 14%
1993 78% 6% 16%
1992 83% 7% 10%
- -----------------------------------------------------------------------
Regulated Subsidiaries
1996 42% 2% 56%
1995 42% 2% 56%
1994 40% 2% 58%
1993 41% 3% 56%
1992 41% 3% 56%
- -----------------------------------------------------------------------
Note: Long-term debt includes amounts due within one year.
</TABLE>
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. The
availability and cost of external cash reflect the consistency and
reliability of earnings. External 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,
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 cash flow with
short-term bank loans. These loans are repaid as internal sources of
cash allow and with proceeds from the issuance of new securities.
In May 1996, the Company sold 3,643,100 shares of common stock at
$37.625 per share in a public offering. Concurrently with the public
offering, certain members of the Ware family, who were already
substantial shareholders, agreed to purchase 556,900 shares of common
stock at the price available to the public, less underwriting discounts
and commissions, in a private offering. Including the effect of the
July 1996 stock split, these offerings increased by 8,400,000 shares the
number of the Company's shares of common stock outstanding. The Company
used the net proceeds of $152.7 million from the sale of the common
stock to invest in the equity of Pennsylvania-American Water Company,
which in turn reduced short-term indebtedness incurred to finance its
acquisition of water utility operations in northeastern Pennsylvania.
31
<PAGE>
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
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. Common dividends in the amount of $5.5
million were reinvested during 1996, which resulted in the issuance of
283,332 new shares of common stock. Proceeds received from optional
cash purchases of 1,277,765 new shares of common stock totaled $24.2
million in 1996. Another 132,458 shares of common stock were issued in
connection with the Employees' Stock Ownership Plan, 241,572 shares were
issued in connection with the Long-Term Performance-Based Incentive
Plan, and 259,505 shares of common stock were issued in connection with
a 401(k) Savings Plan for Employees in return for cash contributions
from employees totaling $3.0 million and Company contributions with a
value of $2.1 million.
The Company invested a total of $226.8 million, including the $152.7
million invested in Pennsylvania-American in connection with its
acquisition, in common stock of subsidiaries during 1996. It also
increased its equity investment in subsidiaries by $31.6 million from
the earnings retained by them. Also, the Company repaid a $15 million
bond that matured in 1996.
The Company plans to continue to use short-term bank borrowings, as
cash requirements warrant it, to finance additional investment in
subsidiaries. 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, the Savings Plan for
Employees and the Long-Term Performance-Based Incentive Plan.
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 1997 construction requirements and to maintain bank
borrowings not yet refinanced on a long-term basis. Bank borrowings are
repaid with 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.
During 1996, seven subsidiaries issued $197.4 million of taxable
mortgage bonds at interest rates between 6.81% and 7.84%. Two
subsidiaries issued tax-exempt debt totaling $51 million at interest
rates of 6.00% and 5.85%. Proceeds from the sale of the bonds were used
to repay bank loans, fund construction programs, and to refinance
existing debt. Pennsylvania-American also assumed $141 million of
long-term debt in connection with its acquisition of water utility
assets in northeastern Pennsylvania.
Aggregate bank borrowings of subsidiaries at year-end 1996 amounted
to $109.3 million compared to $144.9 million at year-end 1995. During
1996, subsidiaries made mandatory payments to sinking funds in amounts
adequate to retire $44.9 million of debt and redeem $1.3 million of
preferred stocks.
The subsidiary companies plan to fund construction programs,
acquisitions and repay bank borrowings and maturing bonds with the
issuance of approximately $187 million of long-term debt and $80 million
of common stock to the Company in 1997. The combined amount of
subsidiary bank borrowings and bonds maturing within one year during
1997 is expected to remain at approximately the current level. A
discussion of the subsidiary companies' capital spending programs begins
on page 24.
REGULATION
ECONOMIC
Nineteen 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. Since December 1995, water utilities in the state of
Michigan are no longer subject to economic regulation.
The commissioners in Arizona are elected by the voting public. The
three directors of the Tennessee Regulatory Authority are appointed by
the Governor, the Speaker of the Senate, and the Speaker of the House of
Representatives. 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.
32
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
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 and maintenance costs associated with providing that
service
o The capital costs for the funds used to provide 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. Certain
subsidiaries have 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. Several subsidiaries also now
recover in rates a return on plant before it is in service instead of
capitalizing an allowance for funds during construction.
During the past year, 11 subsidiaries were authorized by regulatory
agencies to increase rates for service. In each of these decisions, the
principal issue addressed was rate base additions that result from
continued investment in essential water service facilities. Some of the
specific regulatory decisions reached in 1996 were as follows:
o The New Jersey Board of Public Utilities, after extensive
deliberation, concluded that the New Jersey-American Water Company
acted reasonably and prudently in designing the largest water supply
project ever constructed in the state. The project was initiated at
the direction of the New Jersey Department of Environmental Protection
as part of a statewide water supply management program. Recognizing
the benefits of New Jersey-American's role as a regional water
supplier, the decision permits the Company to defer for future recovery
an amount equal to one-half of any anticipated revenue from
non-franchise customers not actually received.
o In Indiana, the Utility Regulatory Commission concluded that the
purchase price paid by the Indiana-American Water Company in 1993 to
acquire Indiana Cities Water Company, which recognized the market value
of the acquired company, was properly includable in fair value rate
base.
o The West Virginia Public Service Commission authorized the West
Virginia-American Water Company to increase rates in 1996, and
pre-approved future rate increases to be effective in 1997 and 1998.
In addition, West Virginia-American may seek further rate increases to
reflect major construction projects in rate base. The Public Utility
Commission of Ohio authorized a similar periodic rate increase approach
for the Ohio-American Water Company.
o In Pennsylvania, legislation was enacted which authorized the
Public Utility Commission to establish tariff procedures for
implementing surcharges between general rate decisions that reflect the
cost of replacing aging distribution system infrastructure as incurred
by regulated water utilities.
American Water Works System personnel participate in regulatory
conferences and meetings, including those conducted by regional
regulatory associations. Our goal in this effort is to increase
understanding of the industry and its unique regulatory requirements.
The Company appreciates the thoughtful work of the Water Committee
of the National Association of Regulatory Utility Commissioners. Its
initiatives and the growing public awareness of the importance of
adequate water supply have led to progressive regulation which has
allowed utility subsidiaries to address, on a timely basis, water supply
issues which otherwise would still be unresolved.
33
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Management's Discussion and Analysis
ENVIRONMENTAL
Two areas of environmental regulation impact the water utility
industry. The regulation of drinking water quality is legislated under
the Safe Drinking Water Act, which most recently was amended in August
of 1996. The regulation of wastes generated during the drinking water
treatment process is legislated under the Clean Water Act, Resource
Conservation and Recovery Act, and Toxic Substances Control Act. The
Clean Water Act, which is expected to be amended by Congress in 1997,
deals with discharges of waste to the nation's waters. The two other
acts deal with disposal of waste products. Water utilities,
individually and through industry associations, follow the development
of these legislative mandates closely, and provide technical guidance to
Congress on areas of improvement. By far, the Safe Drinking Water Act
has the most potential for impact on water utilities, and has as its
objective the improvement of public health. The regulated subsidiaries
are, as a matter of policy, committed to compliance with all applicable
environmental mandates and routinely support environmental protection
initiatives.
All environmental regulations promulgated under these acts are done
so by the United States Environmental Protection Agency (EPA). As part
of the regulatory development process, EPA solicits comments, and the
American Water Works System regularly provides technical advice
regarding proposed regulations. Its broad operating experience and
current research effort afford the American Water Works System the
unique opportunity to assist EPA in developing the most practical
regulation possible. EPA has been working on several regulations, such
as more stringent microbial control, more extensive limits for
disinfection by-products, a limit for radon, and disinfection of ground
waters. When Congress amended the Safe Drinking Water Act in 1996, it
required EPA to proceed with all these regulations and more. For the
first time, the Safe Drinking Water Act provides funding for
improvements to water quality, forces EPA to better protect drinking
water sources of supply from contamination, requires development of a
national water plant operator certification program, requires water
quality reports to consumers, and prohibits non-viable water systems
from going into business. The American Water Works System supported
these provisions and welcomes changes that improve service to customers
and public health protection.
As these new regulations go into effect, it is expected that the use
of chlorine in water treatment will be modified. EPA is promoting less
use of chlorine because of the potential for chlorinated by-products to
be toxic. However, in most cases, EPA also desires greater disinfection
to better protect against a waterborne disease outbreak due to microbes
that are not easily disinfected. For many utilities, both objectives
will only be reached by using a different disinfectant, such as ozone.
However, ozone also creates some toxic by-products. So all water
utilities will be faced with balancing microbial risk with chemical risk
while holding down treatment costs, both capital and operating. Clearly
the future is for less chlorine, but for many utilities, by-product
limits can be reached without the need for ozone or some other very
capital-intensive technology.
The responsibility for monitoring compliance with the regulations
promulgated by EPA rests with the individual states. In some instances,
state regulations have established standards that are more demanding
than the federal standards.
All waste from the regulated subsidiaries' water treatment processes
are either recycled or discharged. Solid wastes are disposed in
accordance with current best practices, and with the proper permits from
the authorities. Most solid wastes are disposed of in landfills, and
some are taken to local sewage plants for treatment. In several
instances, water treatment wastes are discharged to a river in
accordance with state permits.
34
<PAGE>
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, 1996 and 1995, 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, 1996, 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, 1996, 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
February 3, 1997
35
<PAGE>
- ---------------------------------------------------------------------------
Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
At December 31, 1996 1995
==============================================================================
<S> <C> <C>
ASSETS
Property, plant and equipment
Utility plant -- at original cost less
accumulated depreciation $3,453,950 $2,884,681
Utility plant acquisition adjustments 52,156 35,121
Nonutility property, net of accumulated
depreciation 31,302 20,144
Excess of cost of investments in
subsidiaries over book equity at
acquisition 22,690 22,638
- ------------------------------------------------------------------------------
3,560,098 2,962,584
- ------------------------------------------------------------------------------
Current assets
Cash and cash equivalents 12,974 23,717
Customer accounts receivable 67,293 61,786
Allowance for uncollectible accounts (1,115) (1,030)
Unbilled revenues 53,868 47,790
Miscellaneous receivables 4,787 4,571
Materials and supplies 11,063 9,599
Deferred vacation pay 10,400 9,374
Other 7,994 8,563
- ------------------------------------------------------------------------------
167,264 164,370
- ------------------------------------------------------------------------------
Regulatory and other long-term assets
Regulatory asset -- income taxes
recoverable through rates 177,064 172,265
Debt and preferred stock expense 28,736 20,753
Deferred pension expense 18,340 16,468
Deferred postretirement benefit expense 11,852 11,418
Deferred treatment plant costs 8,388 --
Deferred water utility billings 6,808 --
Tank painting costs 10,224 8,901
Funds restricted for construction 5,791 13,927
Other 37,591 32,455
- ------------------------------------------------------------------------------
304,794 276,187
- ------------------------------------------------------------------------------
$4,032,156 $3,403,141
=================================
</TABLE>
36
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
==============================================================================
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $1,057,874 $ 818,939
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 41,060 42,326
Preferred stocks of subsidiaries without
mandatory redemption requirements 6,279 6,288
Long-term debt
American Water Works Company, Inc. 116,000 116,000
Subsidiaries 1,600,394 1,268,649
- ------------------------------------------------------------------------------
2,873,280 2,303,875
- ------------------------------------------------------------------------------
Current liabilities
Bank debt 147,390 148,639
Current portion of long-term debt 57,144 44,321
Accounts payable 36,786 43,300
Taxes accrued, including federal income 10,803 13,098
Interest accrued 32,128 26,263
Accrued vacation pay 10,564 9,512
Other 40,155 35,940
- ------------------------------------------------------------------------------
334,970 321,073
- ------------------------------------------------------------------------------
Regulatory and other long-term liabilities
Advances for construction 129,466 131,141
Deferred income taxes 382,592 356,608
Deferred investment tax credits 37,345 38,515
Accrued pension expense 35,702 30,834
Accrued postretirement benefit expense 10,034 9,100
Other 4,081 3,658
- ------------------------------------------------------------------------------
599,220 569,856
- ------------------------------------------------------------------------------
Contributions in aid of construction 224,686 208,337
- ------------------------------------------------------------------------------
Commitments and contingencies -- --
- ------------------------------------------------------------------------------
$4,032,156 $3,403,141
=================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
37
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Consolidated Statement of Income and Retained Earnings
(Dollars in thousands, except per share amounts; adjusted for 1996 stock
split)
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
==============================================================================
<S> <C> <C> <C>
CONSOLIDATED INCOME
Operating revenues $894,646 $802,820 $770,241
- ------------------------------------------------------------------------------
Operating expenses
Operation and maintenance 425,170 402,362 391,539
Depreciation and amortization 93,413 79,977 72,892
General taxes 82,017 76,208 73,085
- ------------------------------------------------------------------------------
600,600 558,547 537,516
- ------------------------------------------------------------------------------
Operating income 294,046 244,273 232,725
Allowance for other funds used during
construction 6,540 11,771 5,890
Gain from eminent domain litigation -- 6,600 --
Other income 3,301 1,844 2,383
- ------------------------------------------------------------------------------
303,887 264,488 240,998
- ------------------------------------------------------------------------------
Income deductions
Interest 136,760 117,042 110,088
Allowance for borrowed funds used during
construction (5,202) (9,573) (4,570)
Amortization of debt expense 1,497 1,273 1,229
Preferred dividends of subsidiaries 3,616 3,698 3,814
Other deductions 1,714 2,341 1,873
- ------------------------------------------------------------------------------
138,385 114,781 112,434
- ------------------------------------------------------------------------------
Income before income taxes 165,502 149,707 128,564
Provision for income taxes 63,828 57,646 49,912
- ------------------------------------------------------------------------------
Net income 101,674 92,061 78,652
Dividends on preferred stocks 3,984 3,984 3,984
- ------------------------------------------------------------------------------
Net income to common stock $ 97,690 $ 88,077 $ 74,668
==============================
Average shares of common stock
outstanding (thousands) 74,609 66,764 63,836
Earnings per common share on average
shares outstanding $ 1.31 $ 1.32 $ 1.17
==============================
CONSOLIDATED RETAINED EARNINGS
Balance at beginning of year $622,061 $578,051 $539,539
Add: net income 101,674 92,061 78,652
Deduct: adjustment for 1996 stock split
on shares issued during the year 6,269 1,567 1,770
- ------------------------------------------------------------------------------
717,466 668,545 616,421
- ------------------------------------------------------------------------------
Deduct: dividends
Preferred stock 3,528 3,528 3,528
Preference stock 456 456 456
Common stock -- $.70 per share in 1996,
$.64 per share in 1995,
$.54 per share in 1994 51,299 42,500 34,386
- ------------------------------------------------------------------------------
55,283 46,484 38,370
- ------------------------------------------------------------------------------
Balance at end of year $662,183 $622,061 $578,051
==============================
The accompanying notes are an integral part of these financial statements.
</TABLE>
38
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
==============================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 101,674 $ 92,061 $ 78,652
Adjustments
Depreciation and amortization 93,413 79,977 72,892
Provision for deferred income taxes 22,288 15,344 17,482
Provision for losses on accounts receivable 5,479 4,288 3,762
Allowance for other funds used during
construction (6,540) (11,771) (5,890)
Employee benefit expenses less
than funding (849) (6,643) (1,999)
Deferred revenues, net (1,125) (17) 138
Deferred tank painting costs (2,544) (1,675) (2,308)
Deferred rate case expense (1,897) (3,032) (2,171)
Amortization of deferred charges 8,533 6,995 7,726
Other, net (2,347) 1,617 (1,500)
Changes in assets and liabilities, net of
effects from acquisitions
Accounts receivable (5,175) (14,897) (5,759)
Unbilled revenues (1,543) 9,897 (389)
Other current assets 612 (785) 364
Accounts payable (6,514) (329) 11,985
Taxes accrued, including federal income (2,591) (254) 1,554
Interest accrued 3,465 (33) 3,070
Other current liabilities 4,178 8,353 (265)
- ------------------------------------------------------------------------------
Net cash from operating activities 208,517 179,096 177,344
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (273,732) (330,762) (265,673)
Allowance for other funds used during
construction 6,540 11,771 5,890
Water system acquisitions (302,447) (5,738) (6,011)
Proceeds from the disposition of property,
plant and equipment 4,649 16,307 3,013
Removal costs from property, plant and
equipment retirements (8,264) (7,204) (6,375)
Funds restricted for construction activity 8,136 12,286 (20,314)
- ------------------------------------------------------------------------------
Net cash used in investing activities (565,118) (303,340) (289,470)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 248,459 132,450 196,400
Proceeds from common stock, net of
issuance costs 186,451 33,544 35,037
Net borrowings (repayments) under
line-of-credit agreements (1,249) 66,214 (111,195)
Advances and contributions for construction,
net of refunds 17,829 19,296 22,586
Debt issuance costs (4,187) (1,735) (4,076)
Repayment of long-term debt (44,887) (85,452) (7,303)
Redemption of preferred stocks (1,275) (1,411) (2,792)
Dividends paid (55,283) (46,484) (38,370)
- ------------------------------------------------------------------------------
Net cash from financing activities 345,858 116,422 90,287
- ------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (10,743) (7,822) (21,839)
Cash and cash equivalents at beginning of year 23,717 31,539 53,378
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,974 $ 23,717 $ 31,539
===============================
Cash paid during the year for:
Interest, net of capitalized amount $ 134,084 $ 119,676 $ 108,653
===============================
Income taxes $ 49,197 $ 44,191 $ 34,429
===============================
The accompanying notes are an integral part of these financial statements.
</TABLE>
39
<PAGE>
- ---------------------------------------------------------------------------
Consolidated Statement of Capitalization
(Dollars in thousands, except per share amounts; adjusted for 1996 stock
split)
<TABLE>
<CAPTION>
At December 31, 1996 1995
==============================================================================
<S> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
Common stock -- $1.25 par value, authorized
300,000,000 shares, outstanding 78,421,302
shares in 1996 and 67,826,670 shares in 1995 $ 98,027 $ 84,783
Paid-in capital 298,448 114,161
Retained earnings 662,183 622,061
Unearned compensation (784) (2,066)
- ------------------------------------------------------------------------------
1,057,874 818,939
- ------------------------------------------------------------------------------
At December 31, 1996, common shares reserved for
issuance in connection with the Company's stock
plans were 60,923,162 shares for the Stockholder
Rights Plan, 7,041,231 shares for the Dividend
Reinvestment and Stock Purchase Plan, 937,240 shares
for the Employees' Stock Ownership Plan, 314,961
shares for the Savings Plan for Employees and
458,428 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% 7,029 7,523
5% to less than 6% 5,573 5,719
6% to less than 7% 2,091 2,285
7% to less than 8% 2,320 2,370
8% to less than 9% 24,874 24,907
9% to less than 10% 4,752 4,970
10% to less than 11% 700 840
- ------------------------------------------------------------------------------
47,339 48,614
- ------------------------------------------------------------------------------
</TABLE>
Preferred stock agreements of certain subsidiaries
require annual sinking fund payments in varying amounts
and permit redemption at various prices at the option
of the subsidiaries on thirty days' notice, or, in the
event of involuntary liquidation, at par value plus
accrued dividends. Sinking fund payments for the next
five years will amount to $1,321 in 1997, $1,315 in 1998,
$1,247 in 1999, $1,149 in 2000, and $1,074 in 2001.
Redemptions of preferred stock amounted to
$1,275 in 1996 and $1,411 in 1995.
40
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
CURRENT
MATURITIES 1996 1995
==============================================================================
<S> <C> <C> <C>
LONG-TERM DEBT OF AMERICAN WATER
WORKS COMPANY, INC.:
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
- ------------------------------------------------------------------------------
-- 116,000 116,000
- ------------------------------------------------------------------------------
Capital lease obligations to a subsidiary
were $95 in 1996 and $40 in 1995.
LONG-TERM DEBT OF SUBSIDIARIES:
Interest Rate
1% to less than 2% 131 2,258 --
4% to less than 5% 374 5,217 326
5% to less than 6% 46 118,599 112,646
6% to less than 7% 234 356,070 276,304
7% to less than 8% 282 592,218 297,323
8% to less than 9% 31,600 172,200 203,800
9% to less than 10% 23,004 288,017 311,021
10% to less than 11% 455 64,770 65,225
14% to less than 15% 700 -- 700
- ------------------------------------------------------------------------------
58,826 1,599,349 1,267,345
Capital leases 318 1,045 1,304
- ------------------------------------------------------------------------------
$ 57,144 1,600,394 1,268,649
- ------------------------------------------------------------------------------
$2,873,280 $2,303,875
========================
</TABLE>
Maturities of long-term debt of subsidiaries,
including sinking fund requirements, during the
next five years will amount to $57,144 in 1997,
$25,138 in 1998, $18,026 in 1999, $37,057 in 2000
and $107,531 in 2001.
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.
41
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Consolidated Statement of Common Shareholders' Equity
(Dollars in thousands, except per share amounts; adjusted for 1996 stock split)
<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, 1993 62,487,486 $78,109 $ 37,627 $539,539 $ -- $ 655,275
Net income -- -- -- 78,652 -- 78,652
Dividend reinvestment 302,508 378 3,910 (189) -- 4,099
Stock purchase 2,185,072 2,732 26,993 (1,367) -- 28,358
Employees' stock ownership plan 164,708 206 2,283 (103) -- 2,386
Savings plan for employees 178,600 223 2,392 (111) -- 2,504
Incentive plan -- -- 2,798 -- (2,262) 536
Dividends:
Preferred stocks -- -- -- (3,984) -- (3,984)
Common stock, $.54 per share -- -- -- (34,386) -- (34,386)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 65,318,374 81,648 76,003 578,051 (2,262) 733,440
Net income -- -- -- 92,061 -- 92,061
Dividend reinvestment 339,086 424 4,576 (212) -- 4,788
Stock purchase 1,809,872 2,262 24,936 (1,131) -- 26,067
Employees' stock ownership plan 154,730 193 2,363 (96) -- 2,460
Savings plan for employees 204,608 256 2,940 (128) -- 3,068
Incentive plan -- -- 3,343 -- 196 3,539
Dividends:
Preferred stocks -- -- -- (3,984) -- (3,984)
Common stock, $.64 per share -- -- -- (42,500) -- (42,500)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 67,826,670 84,783 114,161 622,061 (2,066) 818,939
Net income -- -- -- 101,674 -- 101,674
Common stock offering 8,400,000 10,500 147,436 (5,250) -- 152,686
Dividend reinvestment 283,332 354 5,222 (90) -- 5,486
Stock purchase 1,277,765 1,597 23,211 (596) -- 24,212
Employees' stock ownership plan 132,458 166 2,428 (83) -- 2,511
Savings plan for employees 259,505 325 4,878 (99) -- 5,104
Incentive plan 241,572 302 1,112 (151) 1,282 2,545
Dividends:
Preferred stocks -- -- -- (3,984) -- (3,984)
Common stock, $.70 per share -- -- -- (51,299) -- (51,299)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 78,421,302 $98,027 $298,448 $662,183 $ (784) $1,057,874
==========================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
42
<PAGE>
AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
At December 31, 1996 1995
===========================================================================
<S> <C> <C>
ASSETS
Investments in subsidiaries
Securities $1,261,532 $1,003,088
Notes and advances 100 110
- ---------------------------------------------------------------------------
1,261,532 1,003,198
- ---------------------------------------------------------------------------
Current assets
Cash and cash equivalents 43 119
Other receivable from subsidiaries 907 2,673
Other 190 157
- ---------------------------------------------------------------------------
1,140 2,949
- ---------------------------------------------------------------------------
Deferred debits
Deferred income taxes 3,377 2,922
Debt expense 236 291
Preferred stock expense 184 231
Other 6 11
- ---------------------------------------------------------------------------
3,803 3,455
- ---------------------------------------------------------------------------
Other long-term assets 9,788 8,982
- ---------------------------------------------------------------------------
$1,276,363 $1,018,584
============================
CAPITALIZATION AND LIABILITIES
Capitalization
Common stockholders' equity $1,057,874 $ 818,939
Preferred stocks with mandatory redemption
requirements 40,000 40,000
Preferred stocks without mandatory
redemption requirements 11,673 11,673
Long-term debt 116,095 116,040
- ---------------------------------------------------------------------------
1,225,642 986,652
- ---------------------------------------------------------------------------
Current liabilities
Bank debt 38,100 3,700
Current portion of long-term debt 41 15,024
Interest accrued 1,569 1,502
Taxes accrued, including federal income 31 --
Other 915 1,345
- ---------------------------------------------------------------------------
40,656 21,571
- ---------------------------------------------------------------------------
Other long-term liabilities 10,065 10,361
- ---------------------------------------------------------------------------
Commitments and contingencies -- --
- ---------------------------------------------------------------------------
$1,276,363 $1,018,584
============================
The accompanying notes are an integral part of these financial statements.
</TABLE>
43
<PAGE>
AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
Statement of Income and Retained Earnings
(Dollars in thousands, except per share amounts; adjusted for 1996 stock
split)
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
==============================================================================
<S> <C> <C> <C>
INCOME
Income from subsidiaries
Equity in earnings of subsidiaries
Dividends $ 82,155 $ 77,182 $ 64,917
Undistributed earnings 31,605 26,315 24,532
- ------------------------------------------------------------------------------
113,760 103,497 89,449
Interest 6 7 154
Other income 503 1,147 510
- ------------------------------------------------------------------------------
114,269 104,651 90,113
- ------------------------------------------------------------------------------
Expenses
Operating and administrative expenses 8,003 8,086 6,897
General taxes 252 239 232
Interest 11,639 11,027 10,642
Amortization of debt expense 55 56 56
- ------------------------------------------------------------------------------
19,949 19,408 17,827
- ------------------------------------------------------------------------------
Income before income taxes 94,320 85,243 72,286
Provision for income taxes (7,354) (6,818) (6,366)
- ------------------------------------------------------------------------------
Net income 101,674 92,061 78,652
Dividends on preferred stocks 3,984 3,984 3,984
- ------------------------------------------------------------------------------
Net income to common stock $ 97,690 $ 88,077 $ 74,668
==============================
Average shares of common stock
outstanding (thousands) 74,609 66,764 63,836
Earnings per common share on average
shares outstanding $ 1.31 $ 1.32 $ 1.17
==============================
RETAINED EARNINGS
Balance at beginning of year $622,061 $578,051 $539,539
Add: net income 101,674 92,061 78,652
Deduct: adjustment for 1996 stock split
on shares issued during the year 6,269 1,567 1,770
- ------------------------------------------------------------------------------
717,466 668,545 616,421
- ------------------------------------------------------------------------------
Deduct: dividends
Preferred stock 3,528 3,528 3,528
Preference stock 456 456 456
Common stock -- $.70 per share in 1996,
$.64 per share in 1995,
$.54 per share in 1994 51,299 42,500 34,386
- ------------------------------------------------------------------------------
55,283 46,484 38,370
- ------------------------------------------------------------------------------
Balance at end of year $662,183 $622,061 $578,051
==============================
The accompanying notes are an integral part of these financial statements.
</TABLE>
44
<PAGE>
AMERICAN WATER WORKS COMPANY, INC.
- ---------------------------------------------------------------------------
Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
==============================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 101,674 $ 92,061 $ 78,652
Adjustments
Undistributed earnings of subsidiaries (31,605) (26,315) (24,532)
Other, net 1,210 1,620 1,558
Changes in assets and liabilities
Receivables from subsidiaries 2,979 4 49
Other current assets (82) (28) (272)
Taxes accrued, including federal income 50 (71) (495)
Interest accrued 67 88 36
Other current liabilities (400) 595 (106)
- ------------------------------------------------------------------------------
Net cash from operating activities 73,893 67,954 54,890
- ------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries' common stock (226,839) (78,554) (63,315)
Repayment of promissory notes by subsidiaries 10 10 4,510
Other (1,209) (501) (684)
- ------------------------------------------------------------------------------
Net cash used in investing activities (228,038) (79,045) (59,489)
- ------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock, net of
issuance costs 189,999 36,383 37,347
Dividends paid (55,283) (46,484) (38,370)
Net borrowings under line-of-credit
agreements 34,400 3,700 --
Repayment of long-term debt (15,033) (23) (15)
Other (14) (13) (18)
- ------------------------------------------------------------------------------
Net cash from (used in) financing activities 154,069 (6,437) (1,056)
- ------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (76) (17,528) (5,655)
Cash and cash equivalents at beginning of year 119 17,647 23,302
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 43 $ 119 $ 17,647
===============================
Cash paid (received) during the year for:
Interest $ 11,572 $ 10,939 $ 10,606
===============================
Income taxes $ (6,905) $ (5,844) $ (5,848)
===============================
The accompanying notes are an integral part of these financial statements.
</TABLE>
45
<PAGE>
- ---------------------------------------------------------------------------
Notes to Financial Statements
(Dollars in thousands, except per share amounts)
NOTE 1: ORGANIZATION AND OPERATION
American Water Works Company, Inc. through its regulated
subsidiaries provides water and wastewater service 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. 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 sheet. Accounting for
such costs and credits as regulatory assets and liabilities is in
accordance with Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS No.
71). 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 recognized in the rate-making
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 reflected in the income
statement in the period in which the same amounts are reflected in the
rates charged for service.
PROPERTY, PLANT AND EQUIPMENT
Additions to utility plant and replacements of retirement units of
property are capitalized. Costs 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 generally depreciated using the straight-line method over
the estimated service lives of the assets.
Utility plant acquisition adjustments include the difference between
the purchase price of utility plant and its original cost (less
accumulated depreciation) and are being amortized over a period of 40
years. Utility plant acquisition adjustments and the excess of cost of
investments in subsidiaries over book equity at acquisition, prior to
October 31, 1970, are not being amortized because in the opinion of
management there has been no diminution in value.
CASH AND CASH EQUIVALENTS
Substantially all of the Company's cash is invested in interest
bearing accounts. The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents consist primarily of investment grade
commercial paper, bank certificates of deposit and United States
Government securities. Cash equivalents are stated at cost plus accrued
interest which approximates market value.
MATERIALS AND SUPPLIES
Materials and supplies are stated at average cost.
REGULATORY AND OTHER LONG-TERM ASSETS
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 difference between
book and tax depreciation on property placed in service before the
adoption by the regulatory authorities of full normalization for rate
making purposes.
The regulatory asset for income taxes recoverable through rates 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.
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 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.
46
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
Pension expense in excess of the amount contributed to the pension
plan is deferred by certain subsidiaries. These costs will be recovered
in future service rates as contributions are made to the pension plan.
Postretirement benefit expense in excess of the amount recovered in
rates is deferred by certain subsidiaries. These costs will be
reflected in future service rates within approximately five years from
the January 1, 1993 adoption of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," and the combined deferral recovery period will not
exceed approximately 20 years.
Deferred treatment plant costs consist of operating expenses,
including depreciation and property taxes, and the carrying charges
associated with several water treatment plants and related facilities
acquired in 1996 (see Pennsylvania Acquisition in note 4) from the time
the assets were placed in service until recovery of such costs is
allowed in future service rates. A portion of these costs has been
recognized in the rates charged for water service and is being amortized
over a 10-year period ending in 2003 as authorized by the regulatory
authorities. Recovery of the remaining costs is expected to be allowed
by the regulatory authorities in future service rates.
Deferred water utility billings represent revenue which will be
recovered from customers in future years under the terms of qualified
phase-in plans pursuant to the provisions of Statement of Financial
Accounting Standards No. 92, "Regulated Enterprises--Accounting for
Phase-In Plans." These regulatory assets have been recorded in
accordance with the terms of rate orders received by the previous owners
of water utility assets that were acquired in 1996 (see Pennsylvania
Acquisition in note 4). The deferred billings are scheduled to conclude
in 1998.
Tank painting costs are generally deferred and amortized to current
operations on a straight-line basis over periods ranging from 4 to 20
years, as authorized by the regulatory authorities in their
determination of rates charged for service.
OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1996 and 1995 include
payables to banks of $10,468 and $9,818, respectively, which represent
checks issued but not presented to the banks for payment, net of the
related bank balance.
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 the 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 during the period of
January 1, 1987 through June 12, 1996 have been included in taxable
income and the related property is depreciable for tax purposes. As a
result of a tax law change advances and contributions received
subsequent to June 12, 1996 are excluded from taxable income.
RECOGNITION OF REVENUES
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. 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 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 also
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 devoted to plant under construction. The regulated
subsidiaries record AFUDC to the extent permitted by the regulatory
authorities.
47
<PAGE>
- ---------------------------------------------------------------------------
Notes to Financial Statements
(Dollars in thousands, except per share amounts)
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.
ASSET IMPAIRMENT
Long-lived assets and certain identifiable intangible assets held
and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the
assets, or a separate entity basis, may not be recoverable. If the sum
of the future cash flows expected to result from the use of the assets
and their eventual disposition is less than the carrying amount of the
assets, an impairment loss is recognized. Measurement of an impairment
loss is based on the fair value of the assets. A regulatory asset is
charged to earnings if and when future recovery in rates of that asset
is no longer probable.
RECLASSIFICATION
Certain reclassifications have been made to conform previously
reported data to the current presentation.
NOTE 3: STOCK SPLIT
On July 3, 1996, the Board of Directors declared a two-for-one
common stock split, in conjunction with an increase in the number of
shares of common stock the Company is authorized to issue from
100,000,000 shares to 300,000,000 shares approved at the Company's
Annual Meeting of Stockholders held May 2, 1996. The stock split was
paid in the form of a 100% stock dividend whereby each holder of shares
of common stock received one additional share of common stock for each
share owned. The stock dividend was paid on July 25, 1996 to
shareholders of record on July 15, 1996. The transaction had no effect
on total stockholders' equity. The number of shares and the amounts for
common stock, retained earnings, net income per share, and dividends
paid per share of common stock have been restated to reflect the effect
of the stock split.
NOTE 4: ACQUISITIONS AND DISPOSITIONS
PENNSYLVANIA ACQUISITION
On February 16, 1996, the Company's subsidiary,
Pennsylvania-American Water Company, acquired the water utility
operations of Pennsylvania Gas and Water Company (now known as PG Energy
Inc.) for $409,400. The acquired operations, which include 10 water
treatment plants and 36 reservoirs, serve 132,000 customers in
northeastern Pennsylvania. The acquisition was accounted for as a
purchase, and the accompanying financial statements reflect the results
of operations of the acquired business subsequent to the purchase date.
The purchase price consisted of $262,500 in cash and the assumption of
$146,900 of PG Energy Inc.'s liabilities, including $141,000 of its
long-term debt. The cash payment was funded with short-term debt that
was subsequently repaid with the proceeds from the Company's common
stock offering (see note 7) and a portion of the proceeds from
Pennsylvania- American's offering of $150,000 of 30-year, 7.8% General
Mortgage Bonds.
The unaudited pro forma results listed below were prepared as if the
acquisition and related offerings had occurred on January 1, 1995, and
include the historical results of the company and of the acquired
operations. The unaudited pro forma information is not necessarily
indicative of the results of operations that might have occurred had the
acquisition actually taken place on the date indicated, or of future
results of operations of the combined entities:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995
===========================================================
<S> <C> <C>
Revenues $902,190 $869,126
Net income 102,176 99,153
Earnings per common share $ 1.26 $ 1.27
</TABLE>
HOWELL TOWNSHIP, NEW JERSEY ACQUISITION
On December 23, 1996, the Company's subsidiary, New Jersey-American
Water Company, acquired the water utility assets of Howell Township, New
Jersey, at a total cost of $35,400. The system which serves 6,000
customers is located between New Jersey-American's existing Monmouth
County and Lakewood 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 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 paid by the District in
1988, the Company received $6,600 which includes the remainder of the
jury award and $2,100 in interest. This produced a gain in 1995 of
$3,900, or $.06 per share, after applicable income taxes.
48
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
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. Ohio Suburban, which had served 14,600
customers, was acquired by the Company's subsidiary in Ohio as part of
an acquisition of Midwestern water utilities in 1993. 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 before, did
not have an adverse financial effect on the Company.
NOTE 5: JOINT VENTURE
A subsidiary of the Company owns a 50 percent interest in
AmericanAnglian Environmental Technologies, a joint venture with Anglian
Water Plc., a British water and wastewater utility. AmericanAnglian
provides both technical expertise and financing resources to communities
to operate and 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 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 facilities to
regenerate carbon used for water filtration and those capabilities are
being marketed to affiliated and non-affiliated water utilities.
NOTE 6: UTILITY PLANT
The components of utility plant by category at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
==================================================================
<S> <C> <C>
Water plant
Sources of supply $ 187,358 $ 147,159
Treatment and pumping 956,858 669,161
Transmission and distribution 1,890,080 1,550,687
Services, meters and fire hydrants 702,906 595,156
General structures and equipment 266,440 213,070
Wastewater plant 31,267 29,451
Construction work in progress 101,874 270,824
- ------------------------------------------------------------------
4,136,783 3,475,508
Less-accumulated depreciation 682,833 590,827
- ------------------------------------------------------------------
$3,453,950 $2,884,681
========================
</TABLE>
NOTE 7: COMMON STOCK OFFERING
On May 9, 1996, the Company sold 3,643,100 shares of common stock at
$37.625 per share in a public common stock offering. 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") agreed to purchase from the Company and the Company
agreed to sell to the Ware Family Buyers 556,900 shares of common stock
at the price available to the public, less underwriting discounts and
commissions, in a private offering. Including the effect of the July
1996 stock split (see note 3), these offerings increased by 8,400,000
shares the number of the Company's shares of common stock outstanding.
The net proceeds from the offerings were $152,700, after deducting the
underwriting discounts and commissions and offering expenses payable by
the Company. The Ware Family Buyers include William R. Cobb, Marilyn
Ware Lewis and Paul W. Ware, who are directors of the Company.
NOTE 8: COMMON STOCKHOLDERS' EQUITY
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Company's Dividend Reinvestment and Stock Purchase Plan provides
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 five
thousand dollars of common stock each month directly from the Company.
In 1994, initial costs of $507 associated with a plan amendment
providing for optional cash purchase of stock 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.
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 twenty dollars.
Thereafter, if the Company is acquired in a merger or business
combination in which the Company does not
49
<PAGE>
- ---------------------------------------------------------------------------
Notes to Financial Statements
(Dollars in thousands, except per share amounts)
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 have 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 $.00025 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 9: EMPLOYEE STOCK PLANS
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. Each
participating employee can elect to contribute an amount that does not
exceed 2% of their wages for the preceding year. In addition to the
employee's participation, the Company makes a contribution equivalent to
1/2% of each participant's qualified compensation for the preceding
year, and matches 100% of the contribution by each participant. The
Company expensed contributions of $1,427 for 1996, $1,408 for 1995 and
$1,366 for 1994 that it made to the plan. The trustee of the plan may
purchase shares of the Company's common stock from the Company, in the
open market, or in a private transaction.
SAVINGS PLAN FOR EMPLOYEES
The Company and its subsidiaries have a 401(k) Savings Plan for
Employees 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 currently matches 45% of the first 4% of
each employee's wages contributed to the plan. The Company expensed
matching contributions to the plan totaling $2,198 for 1996, $1,429 for
1995 and $999 for 1994. All of the Company's matching contributions are
invested in the fund of Company common stock. The trustee of the plan
may purchase shares of the Company's common stock at the prevailing
market price, from the Company in the open market, or in a private
transaction.
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 cost of the plan is
being charged to expense over the three-year performance cycle. Such
expense was $1,950 in 1996, $5,386 in 1995 and $914 in 1994. 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.
NOTE 10: POSTRETIREMENT 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:
<TABLE>
<CAPTION>
1996 1995 1994
================================================================
<S> <C> <C> <C>
Service cost-benefits
earned during the year $ 12,820 $ 8,332 $ 10,240
Interest cost on projected
benefit obligation 28,189 25,560 24,360
Actual return on plan assets (35,343) (94,167) (9,383)
Net amortization and deferral 1,311 67,768 (15,472)
- ----------------------------------------------------------------
Net pension cost $ 6,977 $ 7,493 $ 9,745
==============================
Assumed asset earnings rate 8.50% 8.50% 8.50%
</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 $4,307 in 1996, $9,993 in
1995 and $4,750 in 1994. Pension plan assets are invested in a number
of investments including a guaranteed interest
50
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
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. The shares of
Allmerica Financial received by the plan were subsequently sold,
resulting in a net gain of approximately $47,000 to the plan. The
actual return on plan assets also reflects the higher than expected
returns in the general capital markets in 1996 and 1995. The following
table reconciles plan assets and liabilities to the funded status of the
plan at December 31:
<TABLE>
<CAPTION>
1996 1995
=============================================================
<S> <C> <C>
Plan assets at fair value $404,321 $376,508
===================
Actuarial present value
of benefit obligations:
Vested benefits $304,800 $300,475
Non-vested benefits 6,895 7,873
- -------------------------------------------------------------
Accumulated benefit obligation 311,695 308,348
Effect of projected
future salary increases 82,870 89,036
- -------------------------------------------------------------
Total projected benefit obligation $394,565 $397,384
===================
Projected benefit obligation less than
(in excess) of plan assets $ 9,756 $(20,876)
Unrecognized net transition asset (14,116) (16,468)
Unrecognized prior service cost 2,180 919
Unrecognized net (gain) loss (21,012) 15,904
- -------------------------------------------------------------
Accrued pension cost $(23,192) $(20,521)
===================
Discount rate assumption 7.50% 7.00%
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 $1,299 for 1996, $1,163 for 1995 and $1,344 for 1994. At
December 31, 1996, the projected benefit obligation for these plans
totaled $12,510. Accrued as a pension liability on the balance sheet is
$9,020 representing $6,994 of accrued pension cost and an unfunded
accumulated benefit obligation in excess of accrued pension cost of
$2,026.
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 these 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% after an annual deductible has been satisfied
or a managed care plan that requires copayments. Employees who elect to
retire prior to attaining age 65 are generally required to make
contributions towards their medical coverage until attaining age 65.
Retirees and their dependents age 65 and over are covered by a Medicare
supplement plan.
The following table provides postretirement benefit cost components
and the expected long-term rate of return used in determining net
postretirement benefit cost:
<TABLE>
<CAPTION>
1996 1995 1994
===================================================================
<S> <C> <C> <C>
Service cost-benefits
earned during the year $ 5,848 $ 4,641 $ 5,759
Interest cost on accumulated
postretirement benefit obligation 11,545 11,637 10,374
Actual return on plan assets (3,545) (2,450) (975)
Net amortization and deferral 5,325 5,196 5,648
- -------------------------------------------------------------------
Net postretirement benefit cost $19,173 $19,024 $20,806
===========================
Assumed asset earnings rate 7.9% 7.70% 7.70%
</TABLE>
The transition obligation of $122,115 at January 1, 1993 is being
amortized over 20 years.
The Company made contributions to trust funds established for its
postretirement benefit plans of $17,892 in 1996, $19,024 in 1995 and
$20,806 in 1994. The Company's policy is to fund postretirement benefit
costs accrued. Plan assets are invested in a mutual fund comprised of
high quality debt securities, equity mutual funds and a 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:
<TABLE>
<CAPTION>
1996 1995
======================================================================
<S> <C> <C>
Plan assets at fair value $ 63,664 $ 47,446
======================
Actuarial present value of
postretirement benefit obligations:
Retirees and dependents $ 64,718 $ 60,248
Fully eligible active plan participants 4,633 4,363
Other active plan participants 80,584 88,080
- ----------------------------------------------------------------------
Total accumulated postretirement
benefit obligation $ 149,935 $ 152,691
======================
Accumulated postretirement benefit
obligation in excess of plan assets $ (86,271) $(105,245)
Unrecognized transition obligation 91,631 97,357
Unrecognized prior service costs 11,585 --
Unrecognized net gain (26,979) (1,212)
- ----------------------------------------------------------------------
Accrued postretirement benefit cost $ (10,034) $ (9,100)
======================
Discount rate assumption 7.50% 7.00%
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 7.0% annual rate in
1997 that is assumed to decrease
51
<PAGE>
- ---------------------------------------------------------------------------
Notes to Financial Statements
(Dollars in thousands, except per share amounts)
gradually to a 5.5% annual rate for 2000 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 $20,300 at January 1, 1997 and the
aggregate of the service and interest cost components of postretirement
benefit costs for 1996 by $3,200.
NOTE 11: GENERAL TAXES
Components of general tax expense for the years presented in the
consolidated statement of income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
===========================================================
<S> <C> <C> <C>
Gross receipts and franchise $35,684 $33,272 $32,168
Property and capital stock 31,971 28,868 27,245
Payroll 12,060 11,524 11,521
Other general 2,302 2,544 2,151
=============================
$82,017 $76,208 $73,085
=============================
</TABLE>
NOTE 12: INCOME TAXES
Components of income tax expense for the years presented in the
consolidated statement of income are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
============================================================
<S> <C> <C> <C>
STATE INCOME TAXES:
Current $ 8,291 $ 7,938 $ 7,399
Deferred
Current 99 59 97
Non-current 837 82 222
- ------------------------------------------------------------
$ 9,227 $ 8,079 $ 7,718
==============================
FEDERAL INCOME TAXES:
Current $ 33,219 $ 34,485 $ 24,930
Deferred
Current (69) (180) 4
Non-current 22,694 16,505 18,511
Amortization of deferred
investment tax credits (1,243) (1,243) (1,251)
- ------------------------------------------------------------
$ 54,601 $ 49,567 $ 42,194
==============================
</TABLE>
A reconciliation of income tax expense at the statutory federal
income tax rate to actual income tax expense is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
==========================================================================
<S> <C> <C> <C>
Income tax at statutory rate $57,926 $52,397 $44,997
Increases (decreases)
resulting from --
State taxes, net of
federal taxes 5,998 5,252 5,017
Flow through differences 742 556 874
Amortization of investment
tax credits (1,243) (1,243) (1,251)
Subsidiary preferred dividends 1,230 1,258 1,297
Other, net (825) (574) (1,022)
- --------------------------------------------------------------------------
Actual income tax expense $63,828 $57,646 $49,912
==============================
</TABLE>
The following table provides the components of the net deferred tax
liability at December 31:
<TABLE>
<CAPTION>
1996 1995
===================================================================
<S> <C> <C>
DEFERRED TAX ASSETS:
Advances and contributions $137,904 $132,613
Deferred investment tax credits 14,355 14,811
Other 19,001 16,066
- -------------------------------------------------------------------
171,260 163,490
- -------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Utility plant, principally due
to depreciation differences 452,824 427,938
Income taxes recoverable
through rates 70,410 66,429
Other 30,618 25,731
- -------------------------------------------------------------------
553,852 520,098
- -------------------------------------------------------------------
$382,592 $356,608
===================
</TABLE>
As of December 31, 1996 and 1995, the parent company had no material
temporary differences. No valuation allowances were required on
deferred tax assets at December 31, 1996 and 1995.
NOTE 13: LEASES
The Company has entered into operating leases involving certain
facilities and equipment. Rental expenses under operating leases were
$8,973 for 1996, $8,985 for 1995 and $8,264 for 1994. Capital leases
currently in effect are not significant.
At December 31, 1996, the minimum annual future rental commitment
under operating leases that have initial or remaining noncancellable
lease terms in excess of one year are $4,677 in 1997, $3,438 in 1998,
$2,441 in 1999, $1,683 in 2000 and $902 in 2001.
52
<PAGE>
AMERICAN WATER WORKS COMPANY, INC., AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------------------------
NOTE 14: COMMITMENTS AND CONTINGENCIES
Construction programs of subsidiaries for 1997 are estimated to cost
approximately $383,000. Commitments have been made in connection with
certain construction programs.
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 15: COMPENSATING BALANCES AND BANK DEBT
During 1996 the Company and its subsidiaries maintained lines of
credit with various banks. The total of the unused lines of credit at
December 31, 1996 was $34,400 for the Company and $179,484 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.
The maximum amount of short-term bank borrowings outstanding during
1996 was $438,836, and the average amount outstanding during the year
was $234,706. The weighted average annual interest rate on these
borrowings during 1996 was 6.04%, and the interest rate at December 31,
1996 was 5.76%.
NOTE 16: 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 are as follows:
<TABLE>
<CAPTION>
CARRYING
1996 AMOUNT FAIR VALUE
===========================================================================
<S> <C> <C>
Preferred stocks of the Company with
mandatory redemption requirements $ 40,000 $ 43,197
Preferred stocks of subsidiaries with
mandatory redemption requirements 41,060 44,977
Long-term debt of the Company 116,000 120,783
Long-term debt of subsidiaries 1,656,175 1,772,384
</TABLE>
<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>
NOTE 17: QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 stock split, are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
===========================================================================
<S> <C> <C> <C> <C>
Operating revenues $198,189 $228,621 $247,616 $220,220
Operating income 55,425 76,797 91,545 70,279
Net income 17,031 26,505 36,306 21,832
Net income to common stock 16,035 25,509 35,310 20,836
Net income per common share $.23 $.35 $.45 $.27
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
===========================================================================
<S> <C> <C> <C> <C>
Operating revenues $180,844 $200,662 $222,961 $198,353
Operating income 48,010 63,791 78,139 54,333
Net income 13,547 27,425 32,599 18,490
Net income to common stock 12,551 26,429 31,603 17,494
Net income per common share $.19 $.40 $.47 $.26
</TABLE>
53
<PAGE>
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.
Common Stock 5% Preferred Stock 5% Preference Stock
- ---------------------------------------------------------------------------
Newspaper listing AmWtr A Wat pr A Wat pf
- ---------------------------------------------------------------------------
1996 High Low High Low High Low
===========================================================================
1st quarter $20-1/4 $18-1/4 $20 $18-1/2 $21-1/2 $18-1/2
2nd quarter 20-1/8 17-3/4 19-3/4 17 21-5/8 18
3rd quarter 22 19-1/2 19-1/2 17-3/4 20-1/2 17-1/2
4th quarter 21-3/4 18-7/8 18-1/4 18 22-1/2 18
Quarterly dividend
paid per share 17-1/2 cents 31-1/4 cents 31-1/4 cents
Number of
shareholders at
December 31, 1996 39,002 251 840
- ---------------------------------------------------------------------------
1995
===========================================================================
1st quarter $14-3/4 $13-3/8 $19 $17 $19 $17
2nd quarter 16 14-1/4 19 17-1/8 19 17-3/4
3rd quarter 16-3/8 14-5/8 19-1/2 18 19-5/8 18
4th quarter 19-5/8 15-1/4 20-1/2 17-3/4 19-1/2 18
Quarterly dividend
paid per share 16 cents 31-1/4 cents 31-1/4 cents
Number of
shareholders at
December 31, 1995 32,653 275 936
- ---------------------------------------------------------------------------
The common and 5% preferred stocks have voting rights. The common stock
amounts have been adjusted for the 1996 stock split.
[RECYCLE LOGO]
This Annual Report is printed on recycled paper.
57
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, 1996. 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 99.75
Indiana-American Water Company, Inc. Indiana 100
Iowa-American Water Company Delaware 94.92
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
Paradise Valley Water Company Arizona 100
Pennsylvania-American Water Company Pennsylvania 95.86**
Tennessee-American Water Company Tennessee 99.87
Virginia-American Water Company Virginia 100
West Virginia-American Water Company West Virginia 99.94
Bluefield Valley Water Works Company Virginia 100
- ---------------------------------------------------------------------------
* Includes 7.82% 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
<CIK> 0000318819
<NAME> W. TIMOTHY POHL
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,453,950
<OTHER-PROPERTY-AND-INVEST> 106,148
<TOTAL-CURRENT-ASSETS> 167,264
<TOTAL-DEFERRED-CHARGES> 267,203
<OTHER-ASSETS> 37,591
<TOTAL-ASSETS> 4,032,156
<COMMON> 98,027
<CAPITAL-SURPLUS-PAID-IN> 297,664
<RETAINED-EARNINGS> 662,183
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,057,874
81,060
17,952
<LONG-TERM-DEBT-NET> 1,716,394
<SHORT-TERM-NOTES> 147,390
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 57,144
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 954,342
<TOT-CAPITALIZATION-AND-LIAB> 4,032,156
<GROSS-OPERATING-REVENUE> 894,646
<INCOME-TAX-EXPENSE> 63,828
<OTHER-OPERATING-EXPENSES> 600,600
<TOTAL-OPERATING-EXPENSES> 664,428
<OPERATING-INCOME-LOSS> 230,218
<OTHER-INCOME-NET> 8,216
<INCOME-BEFORE-INTEREST-EXPEN> 238,434
<TOTAL-INTEREST-EXPENSE> 136,760
<NET-INCOME> 101,674
3,984
<EARNINGS-AVAILABLE-FOR-COMM> 97,690
<COMMON-STOCK-DIVIDENDS> 51,299
<TOTAL-INTEREST-ON-BONDS> 125,498
<CASH-FLOW-OPERATIONS> 208,517
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 0
</TABLE>
