UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2010~~March 31, 2011

¨	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 001-34028

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)


Delaware		51-0063696
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1025 Laurel Oak Road, Voorhees, NJ		08043
(Address of principal executive offices)		(Zip Code)

(856) 346-8200

(Registrant’s telephone number, including area code)

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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at ~~October 29, 2010~~April 28, 2011
Common Stock, $0.01 par value per share		~~174,873,174~~175,356,140 shares

TABLE OF CONTENTS

AMERICAN WATER WORKS COMPANY, INC.

REPORT ON FORM 10-Q

FOR THE QUARTER ENDED ~~September 30, 2010~~MARCH 31, 2011

INDEX


PART I. FINANCIAL INFORMATION			1

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS			~~1-19~~1-17
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			~~20 - 41~~18 -28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			4228
ITEM 4. CONTROLS AND PROCEDURES			4228

PART II. OTHER INFORMATION			4229

ITEM 1. LEGAL PROCEEDINGS			4229
ITEM 1A. RISK FACTORS			4229
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			4229
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			4229
ITEM 4. ~~[RESERVED]~~[REMOVED AND RESERVED]			4229
ITEM 5. OTHER INFORMATION			4229
ITEM 6. EXHIBITS			4330

SIGNATURES			4431
EXHIBITS INDEX			44

EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT ~~31.1~~10.3
EXHIBIT ~~31.2~~10.4
EXHIBIT ~~32.1~~31.1
EXHIBIT ~~32.2~~31.2
EXHIBIT ~~101~~32.1
EXHIBIT 32.2

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In thousands, except per share data)


	September 30, 2010			December 31, 2009			March 31, 2011			December 31, 2010
ASSETS
Property, plant and equipment
Utility plant—at original cost, net of accumulated depreciation of $3,349,819 at September 30 and $3,168,078 at December 31	$	10,872,916		$	10,523,844
Nonutility property, net of accumulated depreciation of $133,694 at September 30 and $117,245 at December 31		140,431			153,549
Utility plant—at original cost, net of accumulated depreciation of $3,229,600 at March 31 and $3,182,944 at December 31							$	10,421,125		$	10,353,478
Nonutility property, net of accumulated depreciation of $153,032 at March 31 and $143,051 at December 31								134,573			143,046

Total property, plant and equipment		11,013,347			10,677,393			10,555,698			10,496,524

Current assets
Cash and cash equivalents		23,501			22,256			13,528			13,112
Restricted funds		99,974			41,020			80,443			94,066
Utility customer accounts receivable		201,354			149,417			138,317			148,110
Allowance for uncollectible accounts		(21,182	)		(19,035	)		(14,902	)		(17,801	)
Unbilled utility revenues		150,927			130,262			128,526			135,963
Non-Regulated trade and other receivables, net		81,671			75,086
Other receivables, net								60,251			74,078
Income taxes receivable		6,394			17,920			5,680			0
Materials and supplies		31,345			29,521			30,606			28,203
Assets of discontinued operations								801,184			796,713
Other		53,415			52,680			61,906			46,929

Total current assets		627,399			499,127			1,305,539			1,319,373

Regulatory and other long-term assets
Regulatory assets		1,011,554			952,020			991,797			984,577
Restricted funds		26,330			20,212			20,234			26,718
Goodwill		1,250,692			1,250,381			1,204,227			1,204,227
Other		54,353			53,518			51,312			48,354

Total regulatory and other long-term assets		2,342,929			2,276,131			2,267,570			2,263,876

TOTAL ASSETS	$	13,983,675		$	13,452,651		$	14,128,807		$	14,079,773

The accompanying notes are an integral part of these consolidated financial statements.

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In thousands, except per share data)


	September 30, 2010			December 31, 2009			March 31, 2011			December 31, 2010
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock ($.01 par value, 500,000 shares authorized, 174,860 and 174,630 shares outstanding at September 30 and December 31, respectively)	$	1,749		$	1,746
Common stock ($.01 par value, 500,000 shares authorized, 175,347 and 174,996 shares outstanding at March 31 and December 31, respectively)							$	1,753		$	1,750
Paid-in-capital		6,151,349			6,140,077			6,164,883			6,156,675
Accumulated deficit		(1,960,806	)		(2,076,287	)		(1,950,571	)		(1,959,235	)
Accumulated other comprehensive loss		(61,086	)		(64,677	)		(69,958	)		(71,446	)
Treasury stock								0			(19	)

Common stockholders’ equity		4,131,206			4,000,859			4,146,107			4,127,725
Preferred stock without mandatory redemption requirements		4,547			4,557			4,547			4,547

Total stockholders’ equity		4,135,753			4,005,416			4,150,654			4,132,272

Long-term debt
Long-term debt		5,371,548			5,288,180			5,362,325			5,409,405
Redeemable preferred stock at redemption value		23,802			23,946			23,267			23,271

Total capitalization		9,531,103			9,317,542			9,536,246			9,564,948

Current liabilities
Short-term debt		181,841			119,497			323,484			229,018
Current portion of long-term debt		43,984			54,068			12,168			36,146
Accounts payable		166,388			138,609			132,725			195,479
Taxes accrued, including income taxes of $0 at September 30 and $1,777 at December 31		57,002			45,552
Taxes accrued, including income taxes of $0 at March 31 and December 31								65,291			43,852
Interest accrued		103,119			60,128			103,622			60,865
Liabilities of discontinued operations								330,840			335,232
Other		189,090			189,538			166,750			183,302

Total current liabilities		741,424			607,392			1,134,880			1,083,894

Regulatory and other long-term liabilities
Advances for construction		617,147			633,509			408,701			403,163
Deferred income taxes		1,050,293			851,677			1,136,432			1,088,989
Deferred investment tax credits		31,415			32,590			30,588			30,974
Regulatory liabilities		337,296			322,281			299,544			299,213
Accrued pension expense		388,876			431,010			392,944			421,937
Accrued postretirement benefit expense		230,214			236,045			214,816			215,612
Other		45,575			47,325			42,301			42,185

Total regulatory and other long-term liabilities		2,700,816			2,554,437			2,525,326			2,502,073

Contributions in aid of construction		1,010,332			973,280			932,355			928,858
Commitments and contingencies (See Note 9)		—			—			—			—

TOTAL CAPITALIZATION AND LIABILITIES	$	13,983,675		$	13,452,651		$	14,128,807		$	14,079,773

The accompanying notes are an integral part of these consolidated financial statements.

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(In thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2010			2009			2011			2010
Operating revenues	$	786,946		$	679,956		$	2,046,222		$	1,842,866		$	610,936		$	566,762

Operating expenses
Operation and maintenance		378,034			340,862			1,053,320			985,861			320,571			305,642
Depreciation and amortization		79,431			74,854			232,156			216,939			88,019			82,056
General taxes		55,316			50,618			164,610			154,814			57,205			54,486
(Gain) loss on sale of assets		210			(784	)		133			(976	)
Impairment charge		0			0			0			450,000
Loss (gain) on sale of assets														268			(71	)

Total operating expenses, net		512,991			465,550			1,450,219			1,806,638			466,063			442,113

Operating income		273,955			214,406			596,003			36,228			144,873			124,649

Other income (expenses)
Interest, net		(74,858	)		(74,124	)		(232,307	)		(219,791	)		(76,482	)		(78,696	)
Allowance for other funds used during construction		2,586			2,290			7,144			9,208			2,916			2,146
Allowance for borrowed funds used during construction		1,814			1,674			4,465			5,537			1,242			1,382
Amortization of debt expense		(1,285	)		(2,135	)		(3,233	)		(5,158	)		(1,295	)		(1,201	)
Other, net		511			(310	)		2,508			(605	)		(1,141	)		69

Total other income (expenses)		(71,232	)		(72,605	)		(221,423	)		(210,809	)		(74,760	)		(76,300	)

Income (loss) before income taxes		202,723			141,801			374,580			(174,581	)
Income from continuing operations before income taxes														70,113			48,349
Provision for income taxes		78,609			50,165			146,907			94,873			28,649			18,669

Net income (loss)	$	124,114		$	91,636		$	227,673		$	(269,454	)
Income from continuing operations														41,464			29,680
Income from discontinued operations, net of tax														5,868			1,128

Net income													$	47,332		$	30,808

Other comprehensive income, net of tax:
Pension plan amortized to periodic benefit cost:
Prior service cost, net of tax of $13 and $7 for the three months ended and $38 and $22 for the nine months ended, respectively		20			11			59			34
Actuarial loss, net of tax of $698 and $958 for the three months ended and $2,094 and $2,874 for the nine months ended, respectively		1,092			1,499			3,276			4,496
Prior service cost, net of tax of $28 and $12, respectively														44			20
Actuarial loss, net of tax of $720 and $698, respectively														1,126			1,092
Foreign currency translation adjustment		348			503			256			1,377			318			362

Other comprehensive income		1,460			2,013			3,591			5,907			1,488			1,474

Comprehensive income (loss)	$	125,574		$	93,649		$	231,264		$	(263,547	)
Comprehensive income													$	48,820		$	32,282

Income (loss) per common share:
Basic	$	0.71		$	0.52		$	1.30		$	(1.62	)

Diluted	$	0.71		$	0.52		$	1.30		$	(1.62	)
Basic earnings per common share:
Income from continuing operations													$	0.24		$	0.17

Income from discontinued operations, net of tax													$	0.03		$	0.01

Net income													$	0.27		$	0.18

Diluted earnings per common share:
Income from continuing operations													$	0.24		$	0.17

Income from discontinued operations, net of tax													$	0.03		$	0.01

Net income													$	0.27		$	0.18

Average common shares outstanding during the period:
Basic		174,859			174,595			174,785			165,992			175,259			174,720

Diluted		175,062			174,691			174,919			165,992			176,048			174,796

Dividends per common share	$	0.22		$	0.21		$	0.64		$	0.61		$	0.22		$	0.21

The accompanying notes are an integral part of these consolidated financial statements.

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

(In thousands, except per share data)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	227,673		$	(269,454	)
Net income							$	47,332		$	30,808
Adjustments
Depreciation and amortization		232,156			216,939			88,019			82,056
Impairment charge		0			450,000
Amortization of removal costs net of salvage		32,225			30,417
Provision for deferred income taxes		175,090			104,373			40,657			42,177
Amortization of deferred investment tax credits		(1,175	)		(1,204	)		(386	)		(391	)
Provision for losses on utility accounts receivable		16,218			17,791			1,589			3,357
Allowance for other funds used during construction		(7,144	)		(9,208	)		(2,916	)		(2,146	)
Loss (gain) on sale of assets		133			(976	)		268			(71	)
Pension and non-pension post retirement benefits		67,007			82,246			17,860			22,336
Other, net		(15,601	)		(18,025	)		(12,064	)		1,014
Changes in assets and liabilities
Receivables and unbilled utility revenues		(93,258	)		(52,798	)		26,070			14,036
Income taxes receivable		11,526			0			(5,680	)		(14,644	)
Other current assets		(2,559	)		(25,771	)		(18,099	)		(11,052	)
Pension and non-pension post retirement benefit contributions		(110,739	)		(90,427	)		(48,803	)		(37,780	)
Accounts payable		(6,548	)		(9,123	)		(26,244	)		(18,268	)
Taxes accrued, including income taxes		5,716			13,652			21,621			20,827
Interest accrued		42,991			44,451			42,758			43,807
Other current liabilities		13,316			(11,332	)		(10,456	)		(76	)

Net cash provided by operating activities		587,027			471,551			161,526			175,990

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(522,090	)		(592,894	)		(176,411	)		(142,682	)
Acquisitions		(1,670	)		(650	)		(1,445	)		(528	)
Proceeds from sale of assets and securities		150			1,127			158			87
Removal costs from property, plant and equipment retirements, net		(28,270	)		(20,167	)		(8,597	)		(5,910	)
Net restricted funds released		45,928			87,623
Other		0			(1,250	)
Net funds released								20,107			11,251

Net cash used in investing activities		(505,952	)		(526,211	)		(166,188	)		(137,782	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt		162,541			336,994			298			1,101
Repayment of long-term debt		(196,449	)		(176,032	)		(62,637	)		(38,001	)
Net borrowings (repayments) under short-term debt agreements		78,998			(223,375	)
Proceeds from issuance of common stock (net of 2009 expenses of $7,824)		0			242,301
Proceeds from employee stock plan issuances and DRIP		3,823			1,583
Advances and contributions for construction, net of refunds of $28,775 and $20,041 at September 30, 2010 and 2009		4,975			13,349
Change in cash overdraft position		(16,654	)		(34,354	)
Net borrowings under short-term debt agreements								135,217			53,592
Proceeds from employee stock plan issuances								6,694			801
Advances and contributions for construction, net of refunds of $4,072 and $11,941 at March 31, 2011 and 2010								5,111			(3,170	)
Change in bank overdraft position								(40,528	)		(25,196	)
Debt issuance costs		(5,089	)		(6,713	)		(552	)		(269	)
Redemption of preferred stock		(150	)		(140	)
Redemption of preferred stocks								0			(10	)
Dividends paid		(111,825	)		(100,664	)		(38,525	)		(36,679	)

Net cash (used in) provided by financing activities		(79,830	)		52,949
Net cash provided by (used in) financing activities								5,078			(47,831	)

Net increase (decrease) in cash and cash equivalents		1,245			(1,711	)		416			(9,623	)
Cash and cash equivalents at beginning of period		22,256			9,542			13,112			22,256

Cash and cash equivalents at end of period	$	23,501		$	7,831		$	13,528		$	12,633

Non-cash investing activity:
Capital expenditures acquired on account but unpaid at quarter-end	$	96,383		$	51,267		$	66,306		$	55,699
Non-cash financing activity:
Long-term debt	$	111,000		$	151,431
Advances and contributions	$	21,474		$	64,383		$	5,822		$	7,554

The accompanying notes are an integral part of these consolidated financial statements.

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

(In thousands, except per share data)

   Common Stock    Paid-in
Capital    Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Treasury Stock
Preferred
Stock
of
Subsidiary
Companies
Without
Mandatory
Total
Stockholders’
Equity
   Shares    Par
Value       Shares    At Cost Redemption
Requirements
Balance at December 31, 2009
   174,630       $ 1,746       $ 6,140,077       $ (2,076,287 ) $ (64,677 ) 0       $ 0    $ 4,557    $ 4,005,416
Net income
   —         —         —         227,673    —      —         —      —      227,673
Stock-based compensation and DRIP activity, net of expenses of $69
   230       3       11,272       (367 ) —      0       0    —      10,908
Preferred stock redemption
   —         —         —         —      —      —         —      (10 ) (10 )
Other comprehensive income, net of tax of $2,132
   —         —         —         —      3,591    —         —      —      3,591
Dividends
   —         —         —         (111,825 ) —      —         —      —      (111,825 )

Balance at September 30, 2010
   174,860       $ 1,749       $ 6,151,349       $ (1,960,806 ) $ (61,086 ) 0       $ 0    $ 4,547    $ 4,135,753

Balance at December 31, 2008
   160,000       $ 1,600       $ 5,888,253       $ (1,705,594 ) $ (82,251 ) 0       $ (7 ) $ 4,557    $ 4,106,558
Net loss
   —         —         —         (269,454 ) —      —         —      —      (269,454 )
Common stock offering, net of expenses of $7,824
   14,500       145       242,156       —      —      —         —      —      242,301
Stock-based compensation activity
   100       1       7,362       (208 ) —      0       6    —      7,161
Other comprehensive income, net of tax of $2,896
   —         —         —         —      5,907    —         —      —      5,907
Dividends
   —         —         —         (100,664 ) —      —         —      —      (100,664 )

Balance at September 30, 2009
   174,600       $ 1,746       $ 6,137,771       $ (2,075,920 ) $ (76,344 ) 0       $ (1 ) $ 4,557    $ 3,991,809


	Common Stock				Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock						Preferred Stock of Subsidiary Companies Without Mandatory Redemption Requirements		Total Stockholders’ Equity







	Shares		Par Value										Shares			At Cost
Balance at December 31, 2010		174,996	$	1,750	$	6,156,675	$	(1,959,235	)	$	(71,446	)		(1	)	$	(19	)	$	4,547	$	4,132,272
Net income		—		—		—		47,332			—			—			—			—		47,332
Direct stock reinvestment and purchase plan (DRIP), net of expense of $5		18		0		485		—			—			—			—			—		485
Employee stock purchase plan (ESPP)		29		0		751		—			—			—			—			—		751
Stock-based compensation activity		304		3		6,972		(143	)		—			1			19			—		6,851
Other comprehensive income, net of tax of $748		—		—		—		—			1,488			—			—			—		1,488
Dividends		—		—		—		(38,525	)		—			—			—			—		(38,525	)

Balance at March 31, 2011		175,347	$	1,753	$	6,164,883	$	(1,950,571	)	$	(69,958	)		0		$	0		$	4,547	$	4,150,654



	Common Stock				Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock						Preferred Stock of Subsidiary Companies Without Mandatory Redemption Requirements			Total Stockholders’ Equity







	Shares		Par Value											Shares			At Cost
Balance at December 31, 2009		174,630	$	1,746	$	6,140,077		$	(2,076,287	)	$	(64,677	)		0		$	0		$	4,557		$	4,005,416
Net income		—		—		—			30,808			—			—			—			—			30,808
Direct stock reinvestment and purchase plan (DRIP), net of expense of $56		0		0		(53	)		—			—			—			—			—			(53	)
Employee stock purchase plan (ESPP)		23		0		558			—			—			7			127			—			685
Stock-based compensation activity		40		1		2,081			(105	)		—			(7	)		(127	)		—			1,850
Preferred stock redemption		—		—		—			—			—			—			—			(10	)		(10	)
Other comprehensive income, net of tax of $710		—		—		—			—			1,474			—			—			—			1,474
Dividends		—		—		—			(36,679	)		—			—			—			—			(36,679	)

Balance at March 31, 2010		174,693	$	1,747	$	6,142,663		$	(2,082,263	)	$	(63,203	)		0		$	0		$	4,547		$	4,003,491

The accompanying notes are an integral part of these consolidated financial statements.

American Water Works Company, Inc. and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except per share data)

Note 1: Basis of Presentation

The accompanying Consolidated Balance Sheet of American Water Works Company, Inc. and Subsidiary Companies (the “Company”) at ~~September 30, 2010,~~March 31, 2011, the Consolidated Statements of Operations and Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ the Consolidated Statements of Cash ~~Flows~~flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ and the Consolidated Statement of Changes in Stockholders’ Equity for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ are unaudited, but reflect all adjustments, which are, in the opinion of management, necessary to present fairly the consolidated financial position, the consolidated changes in stockholders’ equity, the consolidated results of operations and comprehensive income, and the consolidated cash flows for the periods presented. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Because they cover interim periods, the unaudited consolidated financial statements and related notes to the consolidated financial statements do not include all disclosures and notes normally provided in annual financial statements and, therefore, should be read in conjunction with the Company’s Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2009.~~2010. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year, due primarily to the seasonality of the Company’s operations.

Certain reclassifications for discontinued operations (see Note 13) and to present amortization associated with removal costs as depreciation and amortization have been made to conform previously reported data to the current presentation.

Note 2: New Accounting Pronouncements

The following recently announced accounting standards have been adopted by the Company and have been included in the consolidated results of operations, financial position or footnotes of the accompanying Consolidated Financial Statements:

~~Fair Value Measurements~~Revenue arrangements with Multiple Deliverables

In ~~January 2010,~~October 2009, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued authoritative guidance that ~~requires new disclosures of (i) the amounts of significant transfers into~~amends existing guidance for identifying separate deliverables in a revenue-generating transaction where multiple deliverables exist, and ~~out of Level 1~~provides guidance for allocating and ~~Level 2 of the fair value hierarchy and the reasons for~~recognizing revenue based on those ~~transfers and (ii) information~~separate deliverables. The guidance is expected to result in the reconciliation of recurring Level 3 measurements (those using significant unobservable inputs) about purchases, sales, issuances, and settlements on a gross basis. This update also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.more multiple-deliverable arrangements being separable than under current guidance. This guidance is effective for ~~interim~~the Company beginning on January 1, 2011 and is required to be applied prospectively to new or significantly modified revenue arrangements. The adoption of this guidance did not have a significant impact on the Company’s results of operations, financial position or cash flows.

Business Combinations

In December 2010, the FASB clarified the requirements for reporting of pro forma revenue and earnings disclosures for business combinations. The accounting update specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual ~~periods beginning after December 15, 2009, except~~reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective for the requirement to disclose information about purchases, sales, issuances and settlements in the reconciliation of Level 3 measurements, which does not become effective until interim and annual periods beginningCompany for business combinations finalized after ~~December 15, 2010.~~January 1, 2011. As this guidance clarifies and provides for additional disclosure requirements only, the adoption of this guidance ~~does~~has not ~~have~~had an impact on the Company’s results of operations, financial position or cash flows.

~~Consolidation of Variable Interest Entities~~Intangibles – Goodwill

In ~~June 2009,~~December 2010, the FASB issued authoritative guidance that ~~replaces~~modifies step 1 of the ~~quantitative-based risk and rewards calculation~~goodwill impairment test for reporting units with zero or negative carrying amounts. The update requires that for those reporting units, an entity is required to perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with existing authoritative guidance, which ~~reporting entity has a controlling financial interest in a variable interest entity with a qualitative approach. This revised guidance also~~ requires ~~additional disclosures about~~that goodwill of a reporting ~~entity’s involvement in variable interest entities.~~unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This guidance is effective for the Company beginning on January 1, ~~2010. These changes~~2011. The adoption of this update did not have ana significant impact on the Company’s results of operations, financial position or cash ~~flows; however, these changes could impact the accounting for the Company’s interests in a variable interest entity in the future.~~flows.

Note 3: Goodwill

At ~~September 30,~~December 31, 2010, the Company’s goodwill totaled $1,250,692. During the first quarter of 2011, with the pending sale of the Company’s regulated businesses in Arizona, New Mexico and Texas, the Company allocated $46,465 of goodwill to discontinued

operations, and reclassified all prior periods for that effect. At March 31, 2011, the Company’s goodwill of continuing operations totaled $1,204,227.

The Company’s annual goodwill impairment test is conducted at November 30 of each calendar year and interim reviews are performed when the Company determines that a triggering event that would more likely than not reduce the fair value of a reporting unit below its carrying value has occurred. ~~The Company concluded no such triggering event occurred during the nine months ended September 30, 2010. Accordingly, no interim review was performed for this period.~~

~~During~~In the first quarter of ~~2009,~~2011, the Company’s stock price experienced a high degree of volatility and, as of March 31, 2009, had a sustained period for which it was below historical averages and 10% below the market price employed in the Company’s 2008 annual goodwill impairment test. Having considered both qualitative and quantitative factors, management concluded that this sustained decline in market value below the market value that existed at the 2008 annual impairment test was an interim triggering event and performed an interim impairment test. The Company’s calculated market capitalization at March 31, 2009 was $1,186,000 below its aggregated carrying value of its reporting units.

~~Management concluded the~~Company assessed fair value, including allocated goodwill, and recorded an impairment of certain of the Company’s reporting units were below their carrying values as of March 31, 2009. Upon completing the impairment calculation, the Company recognized $450,000 as a goodwill impairment charge$561 for the ~~three months ended March 31, 2009.~~

Texas assets in operating results of discontinued operations. (see Note 13)

The following table summarizes the ~~nine-month~~three-month changes in goodwill of the Company’s ~~goodwill~~continuing operations by reporting unit:

   Regulated Unit Non-Regulated Units Consolidated
   Cost    Accumulated
Impairment Cost    Accumulated
Impairment Cost    Accumulated
Impairment Total Net
Balance at January 1, 2010
   $ 3,565,913       $ (2,443,628 ) $ 235,715       $ (107,619 ) $ 3,801,628       $ (2,551,247 ) $ 1,250,381
Reclassifications and other activity
   36       0    275       0    311       0    311

Balance at September 30, 2010
   $ 3,565,949       $ (2,443,628 ) $ 235,990       $ (107,619 ) $ 3,801,939       $ (2,551,247 ) $ 1,250,692

Balance at January 1, 2009
   $ 3,565,215       $ (1,995,380 ) $ 235,549       $ (105,867 ) $ 3,800,764       $ (2,101,247 ) $ 1,699,517
Impairment losses
   0       (448,248 ) 0       (1,752 ) 0       (450,000 ) (450,000 )
Reclassifications and other activity
   550       0    0       0    550       0    550

Balance at September 30, 2009
   $ 3,565,765       $ (2,443,628 ) $ 235,549       $ (107,619 ) $ 3,801,314       $ (2,551,247 ) $ 1,250,067


	Regulated Unit					Market-Based Operations					Consolidated
	Cost		Accumulated Impairment			Cost		Accumulated Impairment			Cost		Accumulated Impairment			Total Net
Balance at January 1, 2011	$	3,519,484	$	(2,443,628	)	$	235,990	$	(107,619	)	$	3,755,474	$	(2,551,247	)	$	1,204,227
Reclassifications and other activity		0		—			—		—			0		—			0

Balance at March 31, 2011	$	3,519,484	$	(2,443,628	)	$	235,990	$	(107,619	)	$	3,755,474	$	(2,551,247	)	$	1,204,227

Balance at January 1, 2010	$	3,425,700	$	(2,349,880	)	$	235,715	$	(107,619	)	$	3,661,415	$	(2,457,499	)	$	1,203,916
Reclassifications and other activity		36		—			—		—			36		—			36

Balance at March 31, 2010	$	3,425,736	$	(2,349,880	)	$	235,715	$	(107,619	)	$	3,661,451	$	(2,457,499	)	$	1,203,952

The Company may be required to recognize an impairment of goodwill in the future due to market conditions or other factors related to the Company’s performance. These market events could include a decline over a period of time of the Company’s stock price, a decline over a period of time in valuation multiples of comparable water utilities, the lack of an increase in the Company’s market price consistent with its peer companies, or decreases in control premiums. A decline in the forecasted results in our business plan, such as changes in rate case results or capital investment budgets or changes in our interest rates, could also result in an impairment charge. Recognition of impairments of a significant portion of goodwill would negatively affect the Company’s reported results of operations and total capitalization, the effect of which could be material and could make it more difficult for the Company to maintain its credit ratings, secure financing on attractive terms, maintain compliance with debt covenants and meet expectations of our regulators.

The Company uses a two-step impairment test to identify potential goodwill impairment and measure the amount of a goodwill impairment loss to be recognized (if any). The step 1 calculation used to identify potential impairment compares the calculated fair value for each of the Company’s reporting units to their respective net carrying values (book values), including goodwill, on the measurement date. If the fair value of any reporting unit is less than such reporting unit’s carrying value, then step 2 is performed to measure the amount of the impairment loss (if any) for such reporting unit.

The step 2 calculation of the impairment test compares, by reporting unit, the implied fair value of the goodwill to the carrying value of goodwill. The implied fair value of goodwill is equal to the excess of the fair value of each reporting unit above the fair value of such reporting unit’s identified assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill for any reporting unit, an impairment loss is recognized in an amount equal to the excess (not to exceed the carrying value of goodwill) for that reporting unit.

The determination of the fair value of each reporting unit and the fair value of each reporting unit’s assets and liabilities is performed as of the measurement date using observable market data before and after the measurement date (if that subsequent information is relevant to the fair value on the measurement date).

~~The estimated fair value of the Regulated reporting unit for step 1 is based on a combination of the following valuation techniques:~~

~~observable trading prices of comparable equity securities of publicly-traded water utilities considered by us to be the Company’s peers; and~~

~~discounted cash flow models developed from the Company’s internal forecasts.~~

~~The estimated fair values of the Non-Regulated reporting units are determined entirely on the basis of discounted cash flow models.~~

The first valuation technique applies average peer multiples to the Regulated reporting unit’s historic and forecasted cash flows. The peer multiples are calculated using the average trading prices of comparable equity securities of publicly-traded water utilities, their published cash flows and forecasts of market price and cash flows for those peers.

The second valuation technique forecasts each reporting unit’s five-year cash flows using an estimated long-term growth rate and discounts these cash flows at their respective estimated weighted average cost of capital.

In conjunction with step 1, the Company also reconciles the difference between the calculated market capitalization and the aggregate carrying value of the reporting units to ensure that any excess is supportable by relevant market information. The Company makes certain assumptions, which it believes to be appropriate, that support this reconciliation. The Company considers, in addition to the listed trading price of the Company’s shares, the applicability of a control premium to the Company’s shares and certain other factors the Company deems appropriate. As a result, the Company may conclude that the Company’s fair value exceeds what the Company might otherwise have concluded had it relied on market price alone.

In addition, given recent market conditions, management determined that it is appropriate for the Company to consider the average of the Company’s closing market price over a thirty day period rather than using a particular date to calculate its market capitalization.

If step 2 of the impairment test is required, the Company determines the fair value of the applicable reporting unit’s assets and liabilities. The fair values of the applicable debt are highly dependent upon market conditions surrounding the measurement date. For the step 2 calculations of the fair value of debt, the Company uses observable prices of instruments and indices that have risks similar to those instruments being valued, adjusted to compensate for differences in credit profile, collateral, tax treatment and call features, to calculate the fair value of each reporting unit’s debt.

Note 4: Stockholders’ Equity

Common Stock

OnIn March ~~23,~~ 2010, the Company ~~filed a Form S-3 Registration Statement with the SEC to register~~registered 5,000 shares of the Company’s common stock issuable under American Water Stock Direct, a dividend reinvestment and direct stock purchase plan (the “DRIP”). Under the DRIP, stockholders may reinvest cash dividends and purchase additional Company common stock, up to certain limits, through a transfer agent without commission fees. The Company’s transfer agent may buy newly issued shares directly from the Company or shares held in the Company’s treasury. The transfer agent may also buy shares in the public markets or in privately negotiated transactions. Purchases generally will be made and credited to DRIP accounts once each week. As of March 31, 2011, there were 4,919 shares available for future issuance under the DRIP. The ~~Company issued 40 shares of common stock with proceeds of $869~~following table summarizes information regarding issuances under the DRIP during the ~~first nine~~three months ofended March 31, 2011 and 2010:


	2011		2010
Shares of common stock issued		18		0
Cash proceeds received	$	490	$	3

Cash dividend payments made during the three months ended March 31, 2011 and 2010 ~~under the DRIP.~~were as follows:

In March and June 2010, the Company made a cash dividend payment of $0.21 per share to all common shareholders of record as of February 18, 2010 and May 18, 2010, amounting to $36,679 and $36,689, respectively. In September 2010, the Company made a cash dividend payment of $0.22 per share to all common shareholders of record as of August 18, 2010, amounting to $38,457.

In March 2009 and June 2009, the Company made a cash dividend payment of $0.20 per share to all common shareholders of record as of February 18, 2009 and May 18, 2009, amounting to $32,000 and $32,006, respectively. In September 2009, the Company made a cash dividend payment of $0.21 per share to all common shareholders of record as of August 18, 2009, amounting to $36,658.


	2011		2010
Dividend per share	$	0.22	$	0.21
Total dividends paid		38,525		36,679

On ~~October~~April 29, ~~2010,~~2011, the Company declared a quarterly cash dividend payment of $0.22 per share payable on ~~December~~June 1, ~~2010~~2011 to all shareholders of record as of ~~November~~May 18, ~~2010.~~2011.

Stock Based Compensation

The Company has granted stock option and restricted stock unit awards to non-employee directors, officers and other key employees of the Company pursuant to the terms of its 2007 Omnibus Equity Compensation Plan (the “Plan”). As of ~~September 30, 2010,~~March 31, 2011, a total of ~~11,723~~10,896 shares are available for grant under the Plan. Shares issued under the Plan may be authorized but unissued shares of Company stock or reacquired shares of Company stock, including shares purchased by the Company on the open market for purposes of the Plan.

The Company recognizes compensation expense for stock awards over the vesting period of the award. The following table presents stock-based compensation expense recorded in ~~operations~~operation and maintenance expense in the accompanying Consolidated Statements of Operations and Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2010~~March 31, 2011 and ~~2009:~~2010:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009			2011			2010
Stock options	$	1,323		$	705		$	3,177		$	2,536		$	826		$	905
Restricted stock units		1,551			746			4,437			2,942			1,205			1,203
Employee stock purchase plan		94			97			265			307			97			86

Stock-based compensation in operation and maintenance expense		2,968			1,548			7,879			5,785			2,128			2,194
Income tax benefit		(1,157	)		(604	)		(3,073	)		(2,257	)		(830	)		(856	)

After-tax stock-based compensation expense	$	1,811		$	944		$	4,806		$	3,528		$	1,298		$	1,338

There were no significant stock-based compensation costs capitalized during the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ respectively.

Stock Options

Stock options granted in 2008 included 1,470 stock options that were subject to performance-based vesting requirements. In February 2009, the Company cancelled 311 of these stock options related to the first performance vesting period because the performance goals were not fully met at December 31, 2008. In February 2010, the Company cancelled 459 of these stock options related to the second performance vesting period because the second performance goals were not fully met at December 31, 2009. The Company continues to recognize expense on the remaining stock options during the service period, which ends December 31, 2010.

In the first quarter of ~~2010,~~2011, the Company granted ~~867~~ non-qualified stock options to certain employees under the Plan. The stock options vest ratably over athe three-year service period ~~from~~beginning January 1, ~~2010.~~2011. These awards have no performance vesting conditions and the grant date fair value is amortized through expense over the requisite service period using the straight-line method.

On August 15, 2010, the Company’s Board of Directors elected a new President and Chief Executive Officer (“CEO”) of the Company. In connection with his election to these offices, the Company’s new CEO was granted 25 non-qualified stock options that cliff vest two years from the date of grant. Additionally, he was granted 53 non-qualified stock options that vest ratably over a three-year period beginning January 1, 2010. These awards have no performance vesting conditions and the grant date fair value is amortized through expense over the requisite service period using the straight-line method.

Also on August 15, 2010, the Company’s former President and Chief Executive Officer resigned as an officer and director of the Company. Pursuant to his resignation, the Company cancelled options to purchase 33 shares of Company stock, accelerated the vesting of 247 options, extended the termination dates of vested options and recognized additional expense related to the modifications that is recorded in operations and maintenance expense in the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2010.

The following table presents the weighted average assumptions used in the pricing model for ~~2010~~2011 grants and the resulting weighted average grant date fair value per share of stock options granted:


Dividend yield		3.83	%		3.25	%
Expected volatility		31.77	%		29.32	%
Risk-free interest rate		2.14	%		1.93	%
Expected life (years)		4.29			4.35
Exercise price	$	22.01		$	27.08
Grant date fair value	$	4.33
Grant date fair value per share				$	5.14

Stock options granted under the Plan have maximum terms of seven years, vest over periods ranging from one to three years, and are granted with exercise prices equal to the market value of the Company’s common stock on the date of grant. As of ~~September 30, 2010, $4,166~~March 31, 2011, $5,796 of total unrecognized compensation cost related to the non-vested stock options is expected to be recognized over the weighted-average period of ~~1.4~~2.1 years.

The ~~following~~ table below summarizes stock option activity for the ~~nine~~three months ended ~~September 30, 2010:~~March 31, 2011:

   Shares Weighted
Average
Exercise Price
(per share)    Weighted
Average
Remaining
Life (years)    Aggregate
Intrinsic
Value
Options outstanding at January 1, 2010
   2,724    $ 21.19
Granted
   945    22.01
Cancelled
   (459 ) 21.50
Forfeited or expired
   (135 ) 21.48
Exercised
   (64 ) 21.33

Options outstanding at September 30, 2010
   3,011    $ 21.39       5.00       $ 5,675

Exercisable at September 30, 2010 (a)
   1,048    $ 21.23       4.27       $ 2,135


	Shares			Weighted Average Exercise Price (per share)		Weighted Average Remaining Life (years)		Aggregate Intrinsic Value
Options outstanding at January 1, 2011		2,870		$	21.38
Granted		736			27.08
Forfeited or expired		(17	)		21.13
Exercised		(261	)		21.28

Options outstanding at March 31, 2011		3,328		$	22.65		5.07	$	17,960

Exercisable at March 31, 2011		1,848		$	21.33		4.25	$	12,416

~~(a)~~

~~Includes stock options issued to retired employees~~

~~Cash received for~~The following table summarizes additional information regarding stock options exercised during the ~~nine~~three months ended ~~September 30, 2010 was $1,230~~March 31, 2011 and ~~the intrinsic value of the options was $52.~~2010.


	2011		2010
Intrinsic value	$	1,523	$	13
Exercise proceeds		5,549		185

Restricted Stock Units

Restricted stock units granted in 2008 included 190 restricted stock units that were subject to performance-based vesting requirements. In February 2009, the Company cancelled 39 of these restricted stock units related to the first performance vesting period because the performance goals were not fully met at December 31, 2008. In February 2010, the Company cancelled 60 of these restricted stock units related to the second performance vesting period because the second performance goals were not fully met at December 31, 2009. The Company continues to recognize expense on the remaining restricted stock units during the service period, which ends December 31, 2010.

In the first quarter of ~~2010,~~2011, the Company granted ~~243~~ restricted stock units to certain employees under the Plan. The restricted stock units vest ratably over the ~~three year~~three-year performance period beginning January 1, ~~2010~~2011 (the “Performance Period”); however, distribution of the shares is contingent upon the achievement of internal performance measures and, separately, certain market thresholds over the Performance Period. The restricted stock units granted with performance and service conditions are valued at the market value of the Company’s common stock on the date of grant. The restricted stock units granted with market and service conditions are valued using a Monte Carlo model.

~~On May 7, 2010,~~ Weighted average assumptions used in the Company granted 19 restricted stock units to non-employee directors under the Plan. The restricted stock units vested on the date of grant; however, distribution of the shares will be made within 30 days of the earlier of August 11, 2011 or the participant’s separation from service. The grant date fair value of these restricted stock units was $20.71.

On August 27, 2010, the Company’s new CEO was granted 12 restricted stock units that vest over the period beginning August 27, 2010 and ending December 31, 2010; however, distribution of the shares is contingent upon the achievement of internal performance measures and, separately, certain market thresholds over the vesting period. The restricted stock units granted with performance and service conditions are valued at the market value of the Company’s common stock on the date of grant. The restricted stock units granted with market and service conditions are valued using a Monte Carlo ~~model.~~

Also in August 2010, the Company accelerated the vesting of 12 restricted stock units granted in 2008 to the Company’s former CEO. Additionally the Company cancelled 9 restricted stock units granted in 2009 and 2010, the remaining outstanding awards will be subject to the Company’s achievement of internal performance measures and certain market thresholds over the applicable three-year performance periodssimulation are as if he had remained in the employ of the Company during the entire performance periods. The Company recognized additional expense related to the modifications that is recorded in operations and maintenance expense in the accompanying Consolidated Statements of Operationsfollows for the ~~three and nine months ended September 30, 2010.~~2011 grants.

On September 24, 2010, the Company granted 6 restricted stock units to non-employee directors under the Plan. The restricted stock units vested on the date of grant; however, distribution of the shares will be made within 30 days of the earlier of October 15, 2011 or the participant’s separation from service. The grant date fair value of these restricted stock units was $23.49.


Expected volatility	29.50	%
Risk-free interest rate	1.24	%
Expected life (years)	3

The value of restricted stock awards at the date of the grant is amortized through expense over the requisite service period using the straight-line method for the restricted stock units with service and/or performance vesting.

The grant date fair value of the restricted stock awards that have (a) market and/or performance and service conditions and (b) vest ratably is amortized through expense over the requisite service period using the graded-vesting method. As of ~~September 30, 2010, $3,474~~March 31, 2011, $6,335 of total unrecognized compensation cost related to the non-vested restricted stock units is expected to be recognized over the weighted-average remaining life of ~~0.8~~1.6 years.

The ~~following~~ table below summarizes restricted stock unit activity for the ~~nine~~three months ended ~~September 30, 2010:~~March 31, 2011.


	Shares			Weighted Average Grant Date Fair Value (per share)		Shares			Weighted Average Grant Date Fair Value (per share)
Nonvested total at January 1, 2010		402		$	21.77
Non-vested total at January 1, 2011							479		$	22.60
Granted		280			23.23		189			30.01
Distributed		(55	)		20.68		(67	)		21.49
Cancelled		(60	)		21.50
Forfeited		(26	)		23.03		(4	)		22.22
Undistributed vested awards		(46	)		22.45		(6	)		21.50

Nonvested total at September 30, 2010		495		$	22.62
Non-vested total at March 31, 2011							591		$	25.11

The ~~aggregate intrinsic value of~~following table summarizes additional information regarding restricted stock units distributed during the ~~nine~~three months ended ~~September 30, 2010 was $1,179, on which the Company recognized an income tax benefit of $14 which has been recorded in the accompanying Consolidated Balance Sheets.~~March 31, 2011 and 2010.


	2011		2010
Intrinsic value	$	1,695	$	894
Income tax benefit		99		14

If dividends are declared with respect to shares of the Company’s common stock before the restricted stock units are distributed, the Company credits a liability for the value of the dividends that would have been paid if the restricted stock units were shares of Company common stock. When the restricted stock units are distributed, the Company pays the ~~employee~~participant a lump sum cash payment equal to the value of the dividend equivalents accrued. The Company accrued dividend equivalents totaling ~~$367~~$143 and ~~$208~~$105 to retained earnings during the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ respectively.

Employee Stock Purchase Plan

Under the Nonqualified Employee Stock Purchase Plan (the “ESPP”), employees can use payroll deductions to acquire Company stock at the lesser of 90% of the fair market value of (a) the beginning or (b) the end of each three-month purchase period. As of ~~September 30, 2010~~March 31, 2011 there were ~~1,740~~1,684 shares of common stock reserved for issuance under the ESPP. During the ~~nine~~three months ended ~~September 30, 2010,~~March 31, 2011, the Company issued 9229 shares under the ESPP.

Note 5: Long-Term Debt

The Company primarily issues long-term debt to fund capital expenditures at the regulated subsidiaries. The components of long-term debt are as follows:


	Rate			Weighted Average Rate			Maturity Date		September 30, 2010		December 31, 2009		Rate	Weighted Average Rate			Maturity Date		March 31, 2011			December 31, 2010
Long-term debt of American Water Capital Corp. (“AWCC”)(a)
Private activity bonds and government funded debt(a)
Private activity bonds and government funded debt
Fixed rate		4.85%-6.75	%		5.72	%		2018-2040	$	322,610	$	200,975	4.85%-6.75%		5.72	%		2018-2040	$	322,610		$	322,610
Senior notes
Fixed rate		5.39%-10.00	%		6.26	%		2011-2039		3,087,701		3,115,853	5.39%-10.00%		6.26	%		2011-2040		3,089,655			3,117,696
Long-term debt of other subsidiaries
Private activity bonds and government funded debt
Fixed rate		0.00%-6.20	%		4.53	%		2011-2039		1,192,003		1,197,611	0.00%-6.20%		5.10	%		2011-2039		1,201,907			1,202,994
Floating rate(b)		0.85%-1.05	%		0.91	%		2015		8,560		8,560
Mortgage bonds
Fixed rate		5.48%-9.71	%		7.48	%		2011-2039		744,736		754,966	5.48%-9.71%		7.40	%		2011-2039		711,645			744,691
Mandatory redeemable preferred stock		4.60%-9.75	%		8.39	%		2013-2036		24,067		24,207	4.60%-9.75%		8.40	%		2013-2036		23,989			23,989
Notes payable and other(c)		4.90%-14.57	%		7.50	%		2011-2026		6,008		6,561
Notes payable and other(b)													8.82%-14.57%		12.02	%		2011-2026		2,045			5,689

Long-term debt										5,385,685		5,308,733								5,351,851			5,417,669
Unamortized debt discount, net(d)										50,114		57,461
Unamortized debt discount, net(c)																				47,241			51,498
Fair value adjustment to interest rate hedge										3,535		0								(1,332	)		(345	)

Total long-term debt									$	5,439,334	$	5,366,194							$	5,397,760		$	5,468,822

(a)

AsAWCC, a wholly-owned subsidiary of ~~December 31, 2009,~~ the Company, ~~held $10,635~~has a strong support agreement with its parent, which under certain circumstances, is the functional equivalent of floating rate debt in its treasury, as it had not been able to re-issue the debt to investors at acceptable interest rates. On July 27, 2010, the Company re-issued this debt as fixed rate of 5.25% due 2028.a guarantee.

(b)

Represents variable rate tax-exempt bonds remarketed for periods up to 270 days. The $8,560 balance is classified as current portion of long-term debt in the accompanying Consolidated Balance Sheets because it was repurchased by the Company during the first quarter of 2009 when no investor was willing to purchase it at market rates. This debt was subsequently remarketed as floating rate debt in the second quarter of 2009.

~~(c)~~

Includes capital lease obligations of ~~$5,230~~$1,432 and ~~$5,679~~$5,076 at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, respectively.

~~(d)~~(c)

Includes fair value adjustments previously recognized in acquisition purchase accounting.

The following long-term debt was issued in ~~2010:~~2011:


Company	Type	Interest Rate			Maturity		Amount			Type	Interest Rate		Maturity		Amount
American Water Capital Corp. (1)	Private activity bonds and government funded debt – fixed rate		4.85%-5.38	%		2028-2040	$	121,635
Other subsidiaries	Private activity bonds and government funded debt – fixed rate		0.00%-5.60	%		2021-2034		151,906		Private activity bonds and government funded debt – fixed rate		0.00%		2021	$	298

Total issuances							$	273,541							$	298


The following long-term debt was retired through optional redemption or payment at maturity during 2011:									The following long-term debt was retired through optional redemption or payment at maturity during 2011:

Company										Type	Interest Rate		Maturity		Amount
American Water Capital Corp.										Senior notes – fixed rate		6.00%-6.87%		2011-2039	$	28,041
Other subsidiaries										Mortgage bonds – fixed rate		8.21%-9.71%		2011-2022		33,046
Other subsidiaries										Private activity bonds and government funded debt		0.00%-5.90%		2011-2030		1,393
Other										Capital leases						3,644

Total retirements & redemptions															$	66,124

~~(1)~~

Includes $111,000 of proceeds from issuances which are initially kept in Trust, pending the Company’s certification that it has incurred qualifying capital expenditures. These issuances have been presented asIncluded in the capital lease redemptions above is a non-cash financing activity on the accompanying Consolidated Statements of Cash Flows. Subsequent release of all or a lesser portion of these funds by the applicable Trust are reflected as the release of restricted funds, and are included in investing activities in the accompanying Consolidated Statement of Cash Flows.

~~The following long-term debt was retired through optional~~ redemption ~~or payment at maturity during 2010:~~

Company

Type
   Interest Rate Maturity    Amount
American Water Capital Corp.
   Senior notes-fixed rate    6.00%-6.87 % 2011-2039       $ 28,152
Other subsidiaries
   Private activity bonds and government funded debt-fixed rate    0.00%-6.88 % 2010-2036       157,514
Other subsidiaries
   Mortgage bond    7.86%-8.98 % 2010-2011       10,230
Other subsidiaries
   Mandatory redeemable preferred stock    4.60%-6.00 % 2013-2019       140
Other
   Capital leases & other       553

Total retirements & redemptions
         $ 196,589

of $3,487 associated with a cancelled sublease and a capital lease arrangement.

Interest, net includes interest income of approximately ~~$2,531~~$2,676 and ~~$7,450~~$2,305 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2011 and 2010, ~~respectively, and $2,404 and $7,366 for the three and nine months ended September 30, 2009,~~ respectively.

On July 12, 2010, the Company entered into an ~~interest rate~~interest-rate swap to hedge $100,000 of its 6.085% ~~fixed rate~~fixed-rate debt maturing 2017. The Company will pay variable interest of six-month LIBOR plus 3.422%. This fixed rate and pay variable rate interest swap is accounted for as a fair-value hedge. The swap matures with the fixed-rate debt in 2017. The Company uses a combination of fixed-rate and variable-rate debt to manage interest rate exposure.

At ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, the Company had a $100,000 ~~and $0~~ notional amount variable interest rate swap fair value hedge ~~outstanding, respectively.~~outstanding. The following table provides a summary of the derivative fair value balance recorded by the Company ~~as of September 30, 2010~~ and the line item in the Consolidated Balance Sheet in which such amount is recorded:


	September 30, 2010		December 31, 2009
Balance sheet classification					March 31, 2011			December 31, 2010
Regulatory and other long-term assets
Regulatory and other long-term liabilities
Other	$	3,228	$	0	$	2,051		$	898
Long-term debt
Long-term debt	$	3,535	$	0		(1,332	)		(345	)

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the hedge instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current net ~~income (loss).~~income. The Company includes the gain or loss on the derivative instrument and the offsetting loss or gain on the hedged item in interest expense as follows:


									Gain (Loss) on Swap	Gain (Loss) on Borrowings	Hedge Ineffectiveness
	Gain (Loss) on Swap		Gain (Loss) on Borrowings			Hedge Ineffectiveness			March 31, 2011	March 31, 2011	March 31, 2011
Income Statement Classification	Three Months Ended September 30, 2010		Three Months Ended September 30, 2010			Three Months Ended September 30, 2010
Interest, net	$	3,228	$	(3,535	)	$	(307	)	$(1,153)	$987	$(166)

	Gain (Loss) on Swap		Gain (Loss) on Borrowings			Hedge Ineffectiveness			March 31, 2010	March 31, 2010	March 31, 2010
Income Statement Classification	Nine Months Ended September 30, 2010		Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2010
Interest, net	$	3,228	$	(3,535	)	$	(307	)	$0	$0	$0

On November 1, 2010, a regulated subsidiary of the Company closed on a refinancing of two bond issues of $35,000 and $40,000 with maturity dates in 2029 and 2025 and interest rates of 4.88% and 4.70%, respectively.

Note 6: Short-Term Debt

The components of short-term debt are as follows:

   September 30,
2010    December 31,
2009
Commercial paper, net of $7 and $5 discount, respectively
   $ 163,993       $ 84,995
Bank overdraft
   17,848       34,502

Total short-term debt
   $ 181,841       $ 119,497

~~The Company had no outstanding borrowings on its revolving credit line as of September 30, 2010 and December 31, 2009, respectively.~~


	March 31, 2011		December 31, 2010
Revolving credit lines	$	160	$	2,734
Commercial paper, net of $19 and $10 discount at March 31 and December 31, respectively		313,081		175,290
Bank overdraft		10,243		50,994

Total short-term debt	$	323,484	$	229,018

Note 7: Income Taxes

The Company’s estimated annual effective tax rate for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 was ~~39.7%~~40.6% compared to ~~39.6%~~40.5% for the ~~nine~~three months ended ~~September 30, 2009,~~March 31, 2010, excluding various discrete ~~items including goodwill impairment.~~items. The Company’s actual effective tax rates on continuing operations for the three months ended ~~September 30,~~March 31, 2011 and 2010 were 40.9% and ~~2009 were 38.8% and 35.4%, respectively. The Company’s actual effective rates for the nine months ended September 30, 2010 and 2009 were 39.2% and (54.3%)~~38.6%, respectively.

~~The 2009 nine month rate reflects the tax effects of goodwill impairments as discrete items as the Company considers these charges as infrequently occurring or unusual.~~

The Patient Protection and Affordable Care Act (the “PPACA”) became law on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 became law on March 30, 2010, which makes various amendments to certain aspects of the PPACA (together, the “Acts”). The PPACA effectively changes the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide a benefit that is at least actuarially equivalent to the benefits under Medicare Part D. As a result of the Acts, these subsidy payments will effectively become taxable in tax years beginning after December 31, 2012.

Although this change does not take effect immediately, companies are required to recognize the full accounting impact in their financial statements in the period in which the legislation was enacted. As a result, in the first quarter of 2010, the Company followed its original accounting for the underfunded status of other postretirement benefits for the Medicare Part D adjustment and recorded a reduction in its deferred tax assets and an increase in its regulatory assets amounting to $27,128.

Note 8: Pension and Other Postretirement Benefits

The following table provides the components of net periodic benefit costs:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2010			2009			2010			2009			2011			2010
Components of net periodic pension benefit cost
Service cost	$	7,669		$	7,107		$	23,006		$	21,320		$	8,410		$	7,669
Interest cost		16,901			15,730			50,702			47,189			17,262			16,900
Expected return on plan assets		(14,189	)		(10,556	)		(42,564	)		(31,668	)		(18,027	)		(14,188	)
Amortization of:
Prior service cost		81			45			242			136			180			81
Actuarial loss		4,476			5,992			13,427			17,976			4,638			4,476

Net periodic pension benefit cost	$	14,938		$	18,318		$	44,813		$	54,953		$	12,463		$	14,938


Components of net periodic other postretirement benefit cost
Service cost	$	3,665		$	3,293		$	10,997		$	9,879
Interest cost		8,037			7,295			24,112			21,885
Expected return on plan assets		(6,093	)		(4,659	)		(18,279	)		(13,978	)
Amortization of:
Transition obligation		43			43			130			130
Prior service (credit) cost		(295	)		(296	)		(885	)		(886	)
Actuarial loss		2,040			2,289			6,119			6,866

Net periodic other postretirement benefit cost	$	7,397		$	7,965		$	22,194		$	23,896


	Three Months Ended March 31,
	2011			2010
Components of net periodic other postretirement benefit cost
Service cost	$	3,485		$	3,666
Interest cost		7,805			8,037
Expected return on plan assets		(7,195	)		(6,093	)
Amortization of:
Transition obligation		0			43
Prior service credit		(481	)		(295	)
Actuarial loss		1,783			2,040

Net periodic other postretirement benefit cost	$	5,397		$	7,398

The Company contributed ~~$81,700~~$42,000 to its defined benefit pension plan in the first ~~nine~~three months of ~~2010. In October,~~2011 and expects to contribute $97,600 during the ~~Company contributed $14,900 completing 2010 contributions.~~balance of 2011. In addition, the Company contributed ~~$29,039~~$6,803 for the funding of its other postretirement plans in the first ~~nine~~three months of ~~2010~~2011, and expects to contribute ~~$9,680~~$20,409 during the balance of ~~2010.~~2011.

Note 9: Commitments and Contingencies

The Company is also routinely involved in legal actions incident to the normal conduct of its business. At ~~September 30, 2010,~~March 31, 2011, the Company has accrued approximately ~~$4,300~~$2,400 as probable costs and it is reasonably possible that additional losses could range up to ~~$12,900~~$10,700 for these matters. For certain matters, the Company is unable to estimate possible losses. The Company believes that damages or settlements, if any, recovered by plaintiffs in such claims or actions will not have a material adverse effect on the Company’s results of operations, financial position or cash flows.

The Company enters into agreements for the provision of services to water and wastewater facilities for the United States military, municipalities and other customers. The Company’s military services agreements expire between 2051 and 2060 and have remaining performance commitments as measured by estimated remaining contract revenue of ~~$2,104,000~~$2,065,000 at ~~September 30, 2010.~~March 31, 2011. The military contracts are subject to customary termination provisions held by the U.S. Federal Government prior to the agreed upon contract expiration. The Company’s Operations and Maintenance agreements with municipalities and other customers expire between ~~2010~~2011 and 2048 and have remaining performance commitments as measured by estimated remaining contract revenue of ~~$1,243,000~~$1,160,000 at ~~September 30, 2010.~~March 31, 2011. Some of the Company’s long-term contracts to operate and maintain a municipality’s, federal government’s or other party’s water or wastewater treatment and delivery facilities include responsibility for certain ~~major~~ maintenance for some of those facilities, in exchange for an annual fee. Unless specifically required to perform certain maintenance activities, the maintenance costs are recognized when the maintenance is performed.

Note 10: Environmental Matters

The Company’s water and wastewater operations are subject to federal, state, local and foreign requirements relating to environmental protection, and as such, the Company periodically becomes subject to environmental claims in the normal course of business. 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, on an undiscounted basis, when it is probable that these costs will be incurred and can be reasonably estimated. Remediation costs accrued amounted to ~~$6,730~~$6,600 and ~~$7,947~~$6,630 at ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, respectively. ~~Included in~~At March 31, 2011, the balance of the accrual ~~was $6,600 at September 30, 2010 and $7,700 at December 31, 2009 related~~relates to a conservation agreement entered into by a subsidiary of the Company with the National Oceanic and Atmospheric Administration (“NOAA”) requiring the Company to, among other provisions, implement certain measures to protect the steelhead trout and its habitat in the Carmel River watershed in the state of California. The Company has agreed to pay $1,100 annually from 2010 ~~through 2016;~~to 2016, or until the ~~2010 payment was made in June. The payments will be used to improve habitat conditions for the steelhead trout in the Carmel River Watershed and will end upon a~~ regional ~~desalinization plant becoming operational and the subsidiary’s diversions from the Carmel River coming within permitted limits.~~desalination project comes on line, whichever is earlier. The Company pursues recovery of incurred costs through all appropriate means, including regulatory recovery through customer rates. The Company’s ~~Regulatory~~regulatory assets at ~~September 30,~~March 31, 2011 and December 31, 2010 include ~~$11,026~~$10,384 and $10,642, respectively, related to the NOAA ~~agreement, including an additional $3,500 granted for recovery during the three months ended September 30, 2010.~~agreement.

Note 11: ~~Net Income (Loss)~~Earnings per Common Share

Earnings per share is calculated using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security. The Company has participating securities related to restricted stock units, granted under the Company’s 2007 Omnibus Equity Compensation Plan, that earn dividend equivalents on an equal basis with common shares. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities. The following is a reconciliation of the Company’s income from continuing operations, income from discontinued operations and net income ~~(loss)~~ and weighted average common shares outstanding for calculating basic ~~net income (loss)~~earnings per share:

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2010    2009    2010    2009
Basic

Net income (loss)
   $ 124,114       $ 91,636       $ 227,673       $ (269,454 )
Less: Distributed earnings to common shareholders (a)
   38,580       36,719       112,155       100,865
Less: Distributed earnings to participating securities
   13       4       36       0

Undistributed earnings
   85,521       54,913       115,482       (370,319 )
Undistributed earnings allocated to common shareholders (b)
   85,491       54,907       115,444       (370,319 )
Undistributed earnings allocated to participating securities
   30       6       38       0

Total income (loss) available to common shareholders, basic (a) + (b)
   $ 124,071       $ 91,626       $ 227,599       $ (269,454 )

Weighted average common shares outstanding, basic
   174,859       174,595       174,785       165,992

Basic net income (loss) per common share
   $ 0.71       $ 0.52       $ 1.30       $ (1.62 )


	Three Months Ended March 31,
	2011		2010
Basic:
Income from continuing operations	$	41,464	$	29,680
Income from discontinued operations		5,868		1,128
Net income		47,332		30,808
Less: Distributed earnings to common shareholders		38,651		36,779
Less: Distributed earnings to participating securities		16		9

Undistributed earnings		8,665		(5,980	)
Undistributed earnings allocated to common shareholders		8,661		(5,979	)
Undistributed earnings allocated to participating securities		4		(1	)

Total income from continuing operations available to common shareholders, basic	$	41,444	$	29,672

Total income available to common shareholders, basic	$	47,312	$	30,800

Weighted average common shares outstanding, basic		175,259		174,720

Basic earnings per share:
Income from continuing operations	$	0.24	$	0.17

Income from discontinued operations, net of tax	$	0.03	$	0.01

Net income	$	0.27	$	0.18

Diluted ~~net income (loss)~~earnings per common share is based on the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock equivalents related to the restricted stock units, stock options, and employee stock purchase plan. The

dilutive effect of ~~restricted~~the common stock ~~units, stock options, and the employee stock purchase plan~~equivalents is calculated using the treasury stock method and expected proceeds on vesting of the restricted stock units, exercise of the stock options and purchases under the employee stock purchase plan. The following is a reconciliation of the Company’s income from continuing operations, income from discontinued operations and net income ~~(loss)~~ and weighted average common shares outstanding for calculating diluted ~~net income (loss)~~earnings per share:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
	2010		2009		2010		2009			2011		2010
Diluted
Total income (loss) available to common shareholders, basic	$	124,071	$	91,626	$	227,599	$	(269,454	)
Diluted:
Total income from continuing operations available to common shareholders, basic										$	41,444	$	29,672
Income from discontinued operations											5,868		1,128
Total income available to common shareholders, basic											47,312		30,800
Undistributed earnings allocated to participating securities		30		6		38		0			4		(1	)
Total income from continuing operations available to common shareholders, diluted										$	41,448	$	29,671

Total income (loss) available to common shareholders, diluted	$	124,101	$	91,632	$	227,637	$	(269,454	)
Total income available to common shareholders, diluted										$	47,316	$	30,799

Weighted average common shares outstanding, basic		174,859		174,595		174,785		165,992			175,259		174,720
Stock-based compensation:
Restricted stock units		183		92		128		0			398		65
Stock options		18		0		5		0			389		10
Employee stock purchase plan		2		4		1		0			2		1

Weighted average common shares outstanding, diluted		175,062		174,691		174,919		165,992			176,048		174,796

Diluted net income (loss) per commons share	$	0.71	$	0.52	$	1.30	$	(1.62	)
Diluted earnings per share:
Income from continuing operations										$	0.24	$	0.17

Income from discontinued operations, net of tax										$	0.03	$	0.01

Net income										$	0.27	$	0.18

Options to purchase ~~1,873~~736 and ~~2,122~~2,568 shares of the Company’s common stock were excluded from the calculation of diluted common shares outstanding because they were anti-dilutive for the three-month periods ended ~~September 30,~~March 31, 2011 and March 31, 2010, ~~and 2009,~~ respectively. There were ~~144~~also 134 and 83423 restricted stock units excluded from the calculation of diluted common shares outstanding for the three months ended September 30, 2010 and 2009, respectively, because certain performance conditions were not satisfied. Additionally 633 stock options were excluded from the three months ended September 30, 2009 diluted common shares outstanding calculation because certain performance conditions were not met. Options to purchase 1,873 shares of the Company’s common stock and 147 restricted stock unitsthat were excluded from the calculation of diluted common shares outstanding ~~for the nine months ended September 30,~~because certain performance conditions were not satisfied as of March 31, 2011 and March 31, 2010, ~~because they were anti-dilutive. All of the potentially dilutive securities were excluded from the nine months ended September 30, 2009 because they were anti-dilutive.~~respectively.

Note 12: Fair Value of Assets and Liabilities

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments.

Current assets and current liabilities: The carrying ~~amount~~amounts reported in the accompanying Consolidated Balance Sheets for current assets and current liabilities, including revolving credit debt due to the short-term maturities and variable interest rates, ~~approximates~~approximate their fair values.

Preferred stock with mandatory redemption requirements and long-term debt: The fair values of preferred stock with mandatory redemption requirements and long-term debt are determined by a valuation model which is based on a conventional discounted cash flow methodology and utilizes assumptions of current market rates. As a majority of the Company’s debts do not trade in active markets, the ~~fair values are highly dependent upon market conditions surrounding the measurement date. The~~ Company calculated a base yield curve using a risk-free rate (a USU.S. Treasury securities yield curve) plus a credit spread that is based on the following two factors: an average of the Company’s own publicly-traded debt securities and the current market rates for USU.S. Utility BBB+ debt securities. The Company used these yield curve assumptions to derive a base yield and then adjusted the base yield for specific features of the debt securities ~~for differences in credit profile, collateral,~~including call features, coupon tax treatment and ~~call features.~~collateral.

The carrying amounts (including fair value adjustments previously recognized in acquisition purchase accounting) and fair values of the financial instruments are as follows:

As of March 31, 2011
   Carrying
Amount    Fair Value
Preferred stocks with mandatory redemption requirements
   $ 23,934       $ 26,763
Long-term debt (excluding capital lease obligations)
   5,372,394       5,733,587

As of September 30, 2010
   Carrying
Amount    Fair Value
Preferred stocks with mandatory redemption requirements
   $ 24,020       $ 28,503
Long-term debt (excluding capital lease obligations)
   5,410,084       6,263,710
As of December 31, 2009
   Carrying
Amount    Fair Value
Preferred stocks with mandatory redemption requirements
   $ 24,164       $ 26,257
Long-term debt (excluding capital lease obligations)
   5,336,351       5,633,384


As of December 31, 2010	Carrying Amount		Fair Value
Preferred stocks with mandatory redemption requirements	$	23,939	$	26,759
Long-term debt (excluding capital lease obligations)		5,439,807		5,858,660

Recurring Fair Value Measurements

The following table presents assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy as of ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, respectively:


	At Fair Value as of September 30, 2010									At Fair Value as of March 31, 2011
Recurring Fair Value Measures	Level 1		Level 2			Level 3		Total		Level 1		Level 2			Level 3		Total
Assets:
Restricted funds	$	126,304		—			—	$	126,304	$	100,677		—			—	$	100,677
Rabbi trust investments		—	$	1,808			—		1,808		—	$	1,276			—		1,276
Deposits		1,513		—			—		1,513		1,568		—			—		1,568
Mark-to-market derivative asset		—		3,228			—		3,228

Total assets		127,817		5,036			—		132,853	$	102,245	$	1,276			—	$	103,521

Liabilities:
Deferred compensation obligation		—		8,560			—		8,560		—	$	9,034			—	$	9,034
Mark-to-market derivative liability											—		2,051			—		2,051

Total liabilities		—		8,560			—		8,560		—	$	11,085			—	$	11,085

Total net assets (liabilities)	$	127,817	$	(3,524	)		—	$	124,293	$	102,245	$	(9,809	)		—	$	92,436


	At Fair Value as of December 31, 2009									At Fair Value as of December 31, 2010
Recurring Fair Value Measures	Level 1		Level 2			Level 3		Total		Level 1		Level 2			Level 3		Total
Assets:
Restricted funds	$	61,232		—			—	$	61,232	$	120,784		—			—	$	120,784
Rabbi trust investments		—	$	2,551			—		2,551		—	$	1,552			—		1,552
Deposits		11,612		—			—		11,612		1,384		—			—		1,384

Total assets		72,844		2,551			—		75,395	$	122,168	$	1,552			—	$	123,720

Liabilities:
Deferred compensation obligation		—		8,881			—		8,881		—	$	9,180			—	$	9,180
Mark-to-market derivative liability											—		898			—		898

Total liabilities		—		8,881			—		8,881		—	$	10,078			—	$	10,078

Total net assets (liabilities)	$	72,844	$	(6,330	)		—	$	66,514	$	122,168	$	(8,526	)		—	$	113,642

Restricted funds – The Company’s restricted funds primarily represent proceeds received from financings for the construction and capital improvement of facilities and from customers for future services under operations and maintenance projects. The proceeds of these financings are held in escrow until the designated expenditures are incurred. Restricted funds expected to be released within twelve months subsequent to ~~year-end~~the balance sheet date are classified as current.

Rabbi trust investments – The Company’s rabbi trust investments consist primarily of fixed income investments from which supplemental executive retirement plan benefits are paid. The Company includes these assets in other long-term assets.

Deposits – Deposits ~~includes~~include escrow funds and certain other deposits held in trust. The Company includes cash deposits in other current assets.

Deferred compensation obligations – The ~~December 31, 2009 balance included $10,170 for an escrow account related~~Company’s deferred compensation plans allow participants to ~~an agreement~~defer certain cash compensation into notional investment accounts. The Company includes such plans in other long-term liabilities. The value of the Company’s ~~New Jersey regulated subsidiary had entered into with~~deferred compensation obligations is based on the City of Trenton, New Jersey to purchase certain assets of Trenton’s water system located in four surrounding townships. The purchase agreement was contested in litigation with a group of Trenton residents, and ultimately put to a voter referendum. The resultmarket value of the ~~referendum was unfavorable to the Company, and as a result, the agreement to purchase the assets has been terminated.~~participants’ notional investment accounts. The ~~escrow deposit, plus accrued interest, was returned to the Company~~notional investments are comprised primarily of mutual funds, which are based on ~~June 30, 2010.~~observable market prices.

Mark-to-market derivative ~~asset —~~liability – The Company utilizes fixed-to-floating interest-rate swaps, typically designated as fair-value hedges, to achieve a targeted level of variable-rate debt as a percentage of total debt. The Company uses a calculation of future cash inflows and estimated future outflows, which are discounted, to determine the current fair value. Additional inputs to the present value calculation include the contract terms, counterparty credit risk, interest rates and market volatility.

Deferred compensation obligations – The Company’s deferred compensation plans allow participants to defer certain cash compensation into notional investment accounts. The Company includes such plans in other long-term liabilities. The value of the Company’s deferred compensation obligations is based on the market value of the participants’ notional investment accounts. The notional investments are comprised primarily of mutual funds, which are based on observable market prices.

Non-recurring Fair Value Measurements

As discussed in Note 3, ~~the Company recognized a~~no goodwill impairment ~~charge of $450,000~~was recognized by the Company’s continuing operations for the ~~nine~~three months ended ~~September 30, 2009.~~March 31, 2011 and March 31, 2010. The Company’s goodwill valuation model includes significant unobservable inputs and falls within level 3 of the fair value hierarchy.

Note 13: Discontinued Operations

As part of the Company’s strategic review of its business investments, it has entered into agreements to sell assets or stock of certain entities.

One agreement entered into is to sell the assets of its Texas subsidiary. The sale price is approximately $6,100, and is subject to certain closing adjustments, as well as regulatory approval by the Texas Commission on Environmental Quality. In the first quarter of 2011, the Company recorded a pretax impairment charge of $561 for all of the goodwill allocated to the Texas subsidiary. It also recorded an estimated after tax loss of $52 for the sale of the subsidiary, based on the Company’s assessment of the subsidiary’s estimated fair value at March 31, 2011.

The Company also entered into an agreement to sell all the stock of the Company’s Arizona and New Mexico subsidiaries. The sale price of $470,000 for both subsidiaries is subject to certain closing adjustments and approval by the Arizona and New Mexico public utility commissions. The Company plans to use the proceeds from sale to reduce equity and debt financing.

Charges recorded in connection with the discontinued operations include estimates that are subject to subsequent adjustment.

A summary of discontinued operations presented in the Consolidated Statements of Operations and Comprehensive Income follows:


	Three Months Ended March 31,
	2011			2010
Operating revenues	$	23,906		$	21,291

Operating expenses
Operation and maintenance		13,954			14,106
Depreciation and amortization		(164	)		4,851
General taxes		1,108			918
Gain on sale of assets		(1,405	)		0
Impairment charge		561			0

Total operating expenses, net		14,054			19,875

Operating income		9,852			1,416

Other income (expenses)
Interest, net		(25	)		(19	)
Other, net		471			539

Total other income (expenses)		446			520

Income from discontinued operations before income taxes		10,298			1,936
Provision for income taxes		4,378			808

Income from discontinued operations		5,920			1,128

Estimated loss on sale, net of tax		(52	)		0

Income from discontinued operations	$	5,868		$	1,128

Assets and liabilities of discontinued operations in the accompanying Consolidated Balance Sheets include the following:


	March 31, 2011		December 31, 2010
ASSETS
Total property, plant and equipment	$	708,468	$	705,093
Current assets		12,370		11,647
Regulatory assets		32,369		31,430
Goodwill		45,904		46,465
Other		2,073		2,078

Total assets of discontinued operations	$	801,184	$	796,713

   March 31,
2011    December 31,
2010
LIABILITIES
Long-term debt
   $ 858       $ 866
Current portion of long-term debt
   8,614       8,614
Other current liabilities
   15,846       17,230
Advances for construction
   207,448       208,046
Regulatory liabilities
   2,897       4,530
Other
   7,222       8,342
Contributions in aid of construction
   87,955       87,604

Total liabilities of discontinued operations
   $ 330,840       $ 335,232

Note ~~13:~~14: Segment Information

The Company has two operating segments which are also the Company’s two reportable segments referred to as ~~the~~ Regulated Businesses and ~~Non-Regulated Businesses segments.~~

Market-Based Operations.

The following table includes the Company’s summarized segment information:


	As of or for the Three Months Ended September 30, 2010									As of or for the Three Months Ended March 31, 2011
	Regulated		Non-Regulated		Other			Consolidated		Regulated Businesses		Market-Based Operations		Other			Consolidated
Net operating revenues	$	713,080	$	80,310	$	(6,444	)	$	786,946	$	537,395	$	80,489	$	(6,948	)	$	610,936
Depreciation and amortization		72,373		1,854		5,204			79,431		79,729		1,840		6,450			88,019
Total operating expenses, net		448,694		71,499		(7,202	)		512,991		402,186		73,112		(9,235	)		466,063
Adjusted EBIT (1)		264,935		9,157
Total assets		12,186,238		244,394		1,553,043			13,983,675
Income (loss) from continuing operations before income taxes											77,642		7,915		(15,444	)		70,113
Total assets(1)											12,367,929		236,279		1,524,599			14,128,807
Capital expenditures		193,540		1,271		0			194,811		175,972		439		0			176,411

	As of or for the Three Months Ended September 30, 2009									As of or for the Three Months Ended March 31, 2010
	Regulated		Non-Regulated		Other			Consolidated		Regulated Businesses		Market-Based Operations		Other			Consolidated
Net operating revenues	$	620,999	$	65,233	$	(6,276	)	$	679,956	$	498,197	$	74,526	$	(5,961	)	$	566,762
Depreciation and amortization		69,382		1,522		3,950			74,854		74,661		1,901		5,494			82,056
Total operating expenses, net		417,568		59,086		(11,104	)		465,550		381,131		70,781		(9,799	)		442,113
Adjusted EBIT (1)		203,898		6,563
Total assets		11,490,753		242,709		1,612,247			13,345,709
Income (loss) from continuing operations before income taxes											61,124		4,732		(17,507	)		48,349
Total assets(1)											11,733,102		244,753		1,562,707			13,540,562
Capital expenditures		191,921		799		0			192,720		140,284		2,398		0			142,682

	As of or for the Nine Months Ended September 30, 2010
	Regulated		Non-Regulated		Other			Consolidated
Net operating revenues	$	1,834,883	$	230,153	$	(18,814	)	$	2,046,222
Depreciation and amortization		211,709		5,562		14,885			232,156
Total operating expenses, net		1,263,191		214,285		(27,257	)		1,450,219
Adjusted EBIT (1)		573,381		18,504
Total assets		12,186,238		244,394		1,553,043			13,983,675
Capital expenditures		516,598		5,492		0			522,090

	As of or for the Nine Months Ended September 30, 2009
	Regulated		Non-Regulated		Other			Consolidated
Net operating revenues	$	1,673,346	$	187,029	$	(17,509	)	$	1,842,866
Depreciation and amortization		203,231		4,296		9,412			216,939
Impairment charge		0		0		450,000			450,000
Total operating expenses, net		1,215,511		171,587		419,540			1,806,638
Adjusted EBIT (1)		459,355		16,665
Total assets		11,490,753		242,709		1,612,247			13,345,709
Capital expenditures		589,371		3,523		0			592,894

(1)

~~Management evaluates the performance~~Regulated segment includes $801,184 and $792,969 of ~~its segments~~assets of discontinued operations as of March 31, 2011 and allocates resources based on several factors, of which the primary measure is Adjusted EBIT. Adjusted EBIT does not represent cash flow for periods presented and should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flows as a source of liquidity. Adjusted EBIT as defined by the Company may not be comparable with Adjusted EBIT as defined by other companies.2010, respectively.

~~The following table reconciles Adjusted EBIT, as defined by the Company, to income (loss) before income taxes:~~

   For the Three Months Ended
September 30, 2010
   Regulated Non-Regulated    Total
Segments
Adjusted EBIT
   $ 264,935    $ 9,157       $ 274,092
Add:

Allowance for other funds used during construction
   2,586    —         2,586
Allowance for borrowed funds used during construction
   1,814    —         1,814
Less:

Interest, net
   (61,548 ) 274       (61,274 )
Amortization of debt expense
   (1,145 ) 0       (1,145 )

Segments’ income before income taxes
   $ 206,642    $ 9,431       216,073
Interest, net
      (13,584 )
Other
      234

Income before income taxes
      $ 202,723

   For the Three Months Ended
September 30, 2009
   Regulated Non-Regulated    Total
Segments
Adjusted EBIT
   $ 203,898    $ 6,563       $ 210,461
Add:

Allowance for other funds used during construction
   2,290    —         2,290
Allowance for borrowed funds used during construction
   1,674    —         1,674
Less:

Interest, net
   (57,710 ) 690       (57,020 )
Amortization of debt expense
   (1,995 ) 0       (1,995 )

Segments’ income before income taxes
   $ 148,157    $ 7,253       155,410
Interest, net
      (17,104 )
Other
      3,495

Income before income taxes
      $ 141,801

   For the Nine Months Ended
September 30, 2010
   Regulated Non-Regulated    Total
Segments
Adjusted EBIT
   $ 573,381    $ 18,504       $ 591,885
Add:

Allowance for other funds used during construction
   7,144    —         7,144
Allowance for borrowed funds used during construction
   4,465    —         4,465
Less:

Interest, net
   (185,437 ) 1,175       (184,262 )
Amortization of debt expense
   (2,816 ) 0       (2,816 )

Segments’ income before income taxes
   $ 396,737    $ 19,679       416,416
Interest, net
      (48,045 )
Other
      6,209

Income before income taxes
      $ 374,580

   For the Nine Months Ended
September 30, 2009
   Regulated Non-Regulated    Total
Segments
Adjusted EBIT
   $ 459,355    $ 16,665       $ 476,020
Add:

Allowance for other funds used during construction
   9,208    —         9,208
Allowance for borrowed funds used during construction
   5,537    —         5,537
Less:

Interest, net
   (171,527 ) 2,389       (169,138 )
Amortization of debt expense
   (4,739 ) 0       (4,739 )

Segments’ income before income taxes
   $ 297,834    $ 19,054       316,888

   For the Nine Months Ended
September 30, 2009
   Regulated    Non-Regulated    Total
Segments
Impairment charge
         (450,000 )
Interest, net
         (50,653 )
Other
         9,184

Loss before income taxes
         $ (174,581 )

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain matters within this Quarterly Report on Form 10-Q include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included in this Form 10-Q, other than statements of historical fact, may constitute forward-looking statements. Forward-looking statements can be identified by the use of words such as “may,” “should,” “will,” “could,” “estimates,” “predicts,” “potential,” “continue,” “anticipates,” “believes,” “plans,” “expects,” “future” and “intends” and similar expressions. Forward-looking statements may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Factors that could cause or contribute to differences in results and outcomes from those in our forward-looking statements include, without limitation, those items discussed in the “Risk Factors” section or other sections in the Company’s Form 10-K for the year ended December 31, ~~2009~~2010 filed with the Securities and Exchange Commission (“SEC”), ~~and subsequent periodic reports, including~~as well as in Item IA of Part II of this ~~report. All forward-looking statements are expressly qualified in their entirety by such risk factors.~~Quarterly Report. We undertake no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

~~GENERAL~~General

American Water Works Company, Inc. (herein referred to as “American Water” or the “Company”) is the largest investor-owned United States water and wastewater utility company, as measured both by operating revenue and population served. Our primary business involves the ownership of water and wastewater utilities that provide water and wastewater services to residential, commercial and industrial customers. Our Regulated Businesses that provide these services are generally subject to economic regulation by state regulatory agencies (“PUCs”) in the states in which they operate. We report the results of these businesses in our Regulated Businesses segment. We also provide services that are not subject to economic regulation by state regulatory agencies. We report the results of these businesses in our ~~Non-Regulated Businesses~~Market-Based Operations segment. For further description of our businesses see the “Business” section found in our Form 10-K for the year ended December 31, ~~2009~~2010 filed with the SEC.

You should read the following discussion in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and in our Form 10-K for the year ended December 31, ~~2009 as updated or amended in subsequent~~2010 filed ~~reports~~ with the SEC.

~~OVERVIEW~~Overview

All financial information in the below Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), reflects only continuing operations. As previously disclosed in our Form 10-K for the year ended December 31, 2010, as part of our portfolio optimization initiative, we have entered into agreements to sell the regulated water and wastewater systems in Arizona, New Mexico and Texas. Therefore, the financial results of these entities have been presented as discontinued operations for all periods presented, unless otherwise noted.

Financial Results. American Water’s net income was ~~$124.1~~$47.3 million for the first quarter of 2011 compared to $30.8 million for the comparable quarter in 2010. Net income for 2011 is higher by $4.7 million as a result of the cessation of depreciation on assets held by our discontinued operations in accordance with generally accepted accounting principles (“GAAP”). Net income from continuing operations was $41.5 million for the first quarter of 2011 compared to net income from continuing operations of $29.7 million for the first quarter of 2010. Diluted income from continuing operations per average common share was $0.24 for the first quarter of 2011 as compared to $0.17 for the first quarter of 2010.

The primary driver contributing to the increase in net income from continuing operations was increased revenues resulting from rate increases as well as slightly higher revenues in our Market-Based Operations. Partially offsetting these increases were higher operating expenses and depreciation and amortization expense. For further details, see “Consolidated Results of Operations and Variances” and “Segment Results” below.

In 2011, our goals are to start the execution of the portfolio optimization, resolve outstanding rate cases, initiate state specific efforts to address the decline in water usage, continue improvement in our operating efficiency ratio, increase our earned rate of return to be closer to that which is authorized by the PUCs, selectively expand our Market-Based businesses, as well as, optimize our municipal contract operations’ business model. The progress that we have made in the first quarter of 2011 with respect to these objectives is described below.

Execution of Portfolio Optimization Initiative.We continue to execute our plan for optimizing our Regulated Businesses’ portfolio. The Missouri-American Water Company acquisition of 11 regulated water systems and 59 wastewater systems in Missouri, which was announced in December 2010, continues to move forward. We expect to close on this transaction in the second quarter of 2011.

We also continue to move forward with the sale of our Texas subsidiary’s assets and the divestiture of our regulated water and wastewater operating companies located in Arizona and New Mexico. To date, filings have been made with the respective PUCs in these states. At the present time, we expect the closing of the Texas sale to occur in the second or third quarter of 2011 and the divestiture of our Arizona and New Mexico subsidiaries to occur in late 2011 or early 2012.

Resolving Rate Cases.During the three months ended March 31, 2011, we were granted $10.9 million in additional annualized revenues, assuming constant sales volumes, from infrastructure charges. The table below provides further details of these charges by state:


	Annualized Rate Increases Granted
	(In millions)
State
Infrastructure Charges:
Pennsylvania	$	5.5
Missouri		3.6
Illinois		1.7
Other		0.1

Total	$	10.9

In April 2011, our Tennessee rate case and our West Virginia rate case, both of which were filed in 2010, were approved, authorizing additional annualized revenues of $5.6 million effective April 5, 2011 and $5.1 million effective April 19, 2011, respectively. Also during April 2011, additional annualized revenues of $2.2 million resulting from infrastructure charges in our Pennsylvania subsidiary became effective.

During April and May of 2011, we filed general rate cases in Pennsylvania, Iowa, New York and Indiana requesting additional annualized revenues of $105.8 million. As of May 4, 2011, including the aforementioned cases, we are awaiting final orders in eight states, including Virginia and Hawaii where interim rate increases have been put into effect, requesting additional annualized revenues of $173.9 million. The interim rates will continue to be in effect until the final order is issued. In addition to the general rate cases, we also have filed requests for annualized revenue increases for infrastructure surcharges and purchased water and sewer treatment surcharges amounting to approximately $1.9 million. There is no assurance that the requested amount of any increase, or any portion of the requested increases, will be granted.

Continue Improvement in Operating Efficiency Ratio for our Regulated Businesses.Our operating efficiency ratio (a non-GAAP measure) is defined as operation and maintenance expense divided by operating revenues where both operation and maintenance expense and operating revenues are adjusted for purchased water expense. Our operating efficiency ratio was 48.2% for the three months ended ~~September 30, 2010 as~~March 31, 2011 compared to ~~net income~~49.4% for the same period in 2010. We evaluate our operating performance using this measure because management believes it is one measure of ~~$91.6 million~~the efficiency of our regulated operations. This information is intended to enhance an investor’s overall understanding of our operating performance. Operating efficiency ratio is not a measure defined under GAAP and may not be comparable to other companies’ operating measures or deemed more useful than the GAAP information provided elsewhere in this report. The following table provides a reconciliation between operation and maintenance expense as a percentage of operating revenues as determined in accordance with GAAP and our operating efficiency ratio for the three months ended ~~September 30, 2009. Diluted earnings per average common share were $0.71~~March 31, 2011 as compared to March 31, 2010.

Regulated Operation and Maintenance Efficiency Ratio (a Non-GAAP Measure)


	For the three months ended March 31,
	2011			2010
	(In thousands)
Total regulated operation and maintenance expense	$	270,157		$	256,312
Less: Regulated purchased water		21,100			20,633

Adjusted regulated operation and maintenance expense(a)	$	249,057		$	235,679


Total regulated operating revenues	$	537,395		$	498,197
Less: Regulated purchased water revenues		21,100			20,633

Adjusted regulated operating revenues(b)	$	516,295		$	477,564


Regulated operation and maintenance efficiency ratio(a)/(b)		48.2	%		49.4	%

Consolidated Results of Operations and Variances

Three Months Ended March 31, 2011 Compared To Three Months Ended March 31, 2010


	For the three months ended March 31,						Favorable (Unfavorable) Change
(In thousands)	2011			2010			Favorable (Unfavorable) Change
Operating revenues	$	610,936		$	566,762		$	44,174

Operating expenses
Operation and maintenance		320,571			305,642			(14,929	)
Depreciation and amortization		88,019			82,056			(5,963	)
General taxes		57,205			54,486			(2,719	)
Loss (gain) on sale of assets		268			(71	)		(339	)

Total operating expenses, net		466,063			442,113			(23,950	)

Operating income		144,873			124,649			20,224

Other income (expenses)
Interest, net		(76,482	)		(78,696	)		2,214
Allowance for other funds used during construction		2,916			2,146			770
Allowance for borrowed funds used during construction		1,242			1,382			(140	)
Amortization of debt expense		(1,295	)		(1,201	)		(94	)
Other, net		(1,141	)		69			(1,210	)

Total other income (expenses)		(74,760	)		(76,300	)		1,540

Income from continuing operations before income taxes		70,113			48,349			21,764
Provision for income taxes		28,649			18,669			(9,980	)

Income from continuing operations		41,464			29,680			11,784
Income from discontinued operations, net of tax		5,868			1,128			4,740

Net income	$	47,332		$	30,808		$	16,524

Basic earnings per common share:
Income from continuing operations	$	0.24		$	0.17
Income from discontinued operations, net of tax	$	0.03		$	0.01

Net income	$	0.27		$	0.18

Diluted earnings per common share
Income from continuing operations	$	0.24		$	0.17
Income from discontinued operations, net of tax	$	0.03		$	0.01

Net income	$	0.27		$	0.18


Average common shares outstanding during the period:
Basic		175,259			174,720
Diluted		176,048			174,796

The following is a summary discussion of the consolidated results of operations for the three months ended ~~September 30, 2010~~March 31, 2011 compared to ~~$0.52~~the three months ended March 31, 2010 followed by a discussion of the segment operating results for the three months ended ~~September 30, 2009.~~

~~American Water’s net income was $227.7 million for the nine months ended September 30, 2010~~March 31, 2011 compared to ~~a net loss of $269.5 million for~~ the ~~nine months ended September 30, 2009. The Company recognized goodwill impairment charges, net of tax, of $443.0 million for~~same period in the nine months ended September 30, 2009. Diluted earnings per average common share was $1.30 for the nine months ended September 30, 2010 compared to a diluted loss of ($1.62) for the nine months ended September 30, 2009.prior year.

~~Revenues~~Operating revenues. Consolidated operating revenues for the three months ended ~~September 30, 2010~~March 31, 2011 increased $44.2 million, or 7.8%, compared to the same period in 2010. This change reflects a $39.2 million increase in our Regulated Businesses segment which was mainly attributable to rate increases and a $6.0 million increase in our Market-Based Operations segment, which was primarily attributable to a $3.5 million increase in the Contract Operations Group revenues. For further information see the respective “Operating Revenues” discussions within the “Segment Results.”

Operation and maintenance.Consolidated operation and maintenance expense for the three months ended March 31, 2011 increased $14.9 million, or 4.9%, compared to the same period in 2010. This change was driven by a $13.8 million increase in our Regulated Businesses segment and a $1.7 million increase in our Market-Based Operations segment. For further information see the respective “Operation and Maintenance” discussions within the “Segment Results.”

Depreciation and amortization.Depreciation and amortization expense increased by ~~$107.0~~$6.0 million, or 7.3%, for the three months ended March 31, 2011 compared to the same period in the prior year as a result of additional utility plant placed in service.

General taxes. General taxes expense, which includes taxes for property, payroll, gross receipts, and other miscellaneous items, increased by $2.7 million, or 5.0%, for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. This increase was principally due to higher gross receipts taxes of $1.4 million, primarily in our New Jersey regulated subsidiary, as well as higher payroll taxes of $1.0 million.

Other income (expenses). Interest expense, net of interest income, which is the primary component of our other income (expenses), decreased by $2.2 million, or 2.8% for the three months ended March 31, 2011 compared to the same period in the prior year. This decrease reflects the recognition of $3.1 million in unamortized debt discounts associated with debt that was ~~primarily due~~called and retired during the first quarter of 2011.

Provision for income taxes.Our consolidated provision for income taxes increased $10.0 million, or 53.5%, to increased revenues in our Regulated Businesses of $92.1 million, which was mainly attributable to rate increases and increased consumption, and an increase in our Non-Regulated Businesses’ revenues of $15.1 million, which was primarily attributable to higher revenues in the Contract Operations Group of $13.2 million. The increase in Contract Operations Group revenues was primarily due to revenues of $9.3 million attributable to our entry into the industrial Operations and Maintenance (“O&M”) market through an acquisition in December of 2009, hereafter referred to as the “ Contract Operations’ Acquisition,” and increased military contract revenues of $8.1 million due to incremental contract work at two military bases as well as new contracts at two additional bases.

~~Operating expenses for the three months ended September 30, 2010 were $513.0 million compared to $465.6~~$28.6 million for the three months ended September 30, 2009. This $47.4 million increase was primarily driven by increased operating expenses in our Regulated Businesses’ operation and maintenance costs of $23.8 million due to an increase in production and employee costs, increased operating and maintenance expenses in our Non-Regulated Businesses of $10.9 million corresponding to an increase in revenue, higher depreciation expense of $4.6 million and increased general taxes of $4.7 millionMarch 31, 2011. The effective tax rates for the three months ended ~~September 30,~~March 31, 2011 and 2010 ~~compared to the same period~~were 40.9% and 38.6%, respectively. The change in the ~~prior year.~~

~~Income~~effective tax ~~expense increased by $28.4 million, which~~rate was ~~mainly~~ the result of ~~higher taxable~~the 2010 amount including a discrete item.

Income from discontinued operations, net of tax.As noted above, the financial results of our regulated water and wastewater systems in Arizona, New Mexico and Texas have been classified as discontinued operations for all periods presented. The increase in income from discontinued operations, net of tax is primarily related to the cessation of depreciation in accordance with GAAP for the three months ended ~~September 30, 2010.~~

~~Revenues~~March 31, 2011. Under GAAP, operations that are considered discontinued operations cease to depreciate their assets. Had these assets been depreciated in 2011, net income and earnings per share for the nine months ended September 30, 2010 increased by $203.4 million compared to the same period in the prior year. This was primarily due to increased revenues in our Regulated Businesses of $161.5 million, which was largely attributable to rate increases and increased consumption, and an increase in our Non-Regulated Businesses revenues of $43.1 million, which was primarily attributable to higher revenues in the Contract Operations Group of $38.6 million. The increase in Contract Operations Group revenues was primarily due to revenues of $30.1 million attributable to the Contract Operations’ Acquisition as well as increased military contract revenues of $15.8 million partially offset by lower O&M and design and build contract revenues. The increase in the military contract revenues was mainly attributable to incremental contract work at two military bases as well as new contracts at two additional bases.

Operating expenses for the nine months ended September 30, 2010 were $1,450.2 million compared to $1,806.6 million for the nine months ended September 30, 2009. Excluding the impairment charge of $450.0 million, all other operating expenses totaled $1,356.6 million for the nine months ended September 30, 2009. The $93.6 million increase from 2009 to 2010 was primarily driven by an increase in our Non-Regulated Businesses of $42.7 million and increased operating expenses in our Regulated Businesses of $47.7 million for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. The increase in the Non-Regulated Businesses’ operating expenses was primarily the result of higher operating and maintenance expenses of $39.4 million, corresponding with the increased revenue. The Regulated Businesses’ increase in operating expenses was mainly driven by higher operations and maintenance expenses of $30.7 million primarily as a result of increased production and employee related costs, higher depreciation expense of $8.5 million and increased general taxes of $7.8 million.

Other items affecting income (loss) before income taxes for the nine months ended September 30, 2010 as compared to the same period in the prior year include increased interest expense of $12.5 million attributable to the 2009 issuances of long-term debt and decreased allowance for funds used during construction (“AFUDC”) of $3.1 million attributable to construction projects being placed in service in certain of our subsidiaries. Other income was higher compared to 2009 by $3.1 million which was attributable to the release of the remaining balance of a loss reserve of $1.3 million as well as changes in the market value of Company-held deferred compensation. In addition, income tax expense increased by $52.0 million, which was mainly the result of higher taxable income for the nine months ended September 30, 2010. Additionally, the income tax expense included tax benefits of $7.0 million associated with the impairment charge recorded in the nine months ended September 30, 2009

~~Rate Case Development~~~~During~~ the three months ended ~~September 30, 2010, we received authorization for additional annualized revenues from a general rate case in a Virginia subsidiary of $0.6~~March 31, 2011 would have been reduced by $4.7 million and ~~additional annualized revenue of $0.2 million from a general rate increase in Michigan. In addition, new rates~~$0.03, respectively.

Segment Results

We have two operating segments, which ~~would provide for an additional $25.8 million~~are also our reportable segments: the Regulated Businesses and ~~$6.9 million of annualized revenues were put into effect under bond subject to refund for our Kentucky~~the Market-Based Operations. These segments are determined based on how we assess performance and ~~Virginia subsidiaries, respectively. There is no assurance that the bonded amount, or any portion thereof, will be approved. In addition~~allocate resources. Prior to the ~~above general rate case increases, additional annualized revenues~~first quarter of ~~$3.1 million~~2011, management evaluated the performance of its segments and ~~$0.2 million resulting from infrastructure charges in our Pennsylvania and New York subsidiaries, respectively, became effective. On February 25, 2010, our New Jersey subsidiary filed a petition~~allocated resources based on several factors, with the ~~Board of Public Utilities (“Board”) for approval to recover rates through a surcharge of approximately $3.3 million~~primary measure being Adjusted EBIT. Beginning in 2011, as management has become increasingly more focused on ~~an annual basis for an increase in purchased water and sewer treatment cost. On August 4, 2010,~~ the ~~Board authorized the Company to recover in rates a surcharge of approximately $3.1 million on an annual basis for purchased water and sewer treatment costs.~~

~~During the three months ended September 30, 2010, we filed one general rate case for our operating subsidiary in Tennessee requesting additional annualized revenues of $10.0 million.~~

~~In October 2010, additional annualized revenue of $3.6 million and $5.4 million resulting from infrastructure charges in our Pennsylvania and Indiana subsidiaries, respectively, became effective.~~

As of October 29, 2010, including the three states for which interim rates are in effect, we were awaiting final orders in nine states requesting additional annualized revenues of $216.7 million. There is no assurance that the filed amount, or any portion thereof, of any requested increases will be granted.

~~Financing Activities~~During the nine months ended September 30, 2010, we met our capital resource requirements with internally generated cash as well as funds from external sources primarily through commercial paper borrowings under our credit facilities.

On July 9, 2010, our New Jersey regulated subsidiary closed on a refunding of four outstanding bond issues totaling $150.0 million. In order to accomplish the refunding, the New Jersey Economic Development Authority issued three new series of bonds on behalf of our New Jersey regulated subsidiary. The new bonds have coupon rates of 5.60%, 5.10% and 4.45% and mature in 2034, 2023 and 2023, respectively. Also, in July 2010, we entered into an interest rate swap agreement with a notional amount of $100.0 million, the purpose of which was to mitigate interest cost at the parent company relating to debt that was incurred by our prior owners and was not used in any manner to finance the cash needs of our subsidiaries. On July 27, 2010, we remarketed the $10.6 million of variable rate debt that was held in the Company’s treasury as fixed rate bonds with a coupon rate of 5.25% and a maturity date of 2028.

Also during the three months ended September 30, 2010, American Water Capital Corp. (“AWCC”) closed on two offerings totaling $60 million. The first offering of $35 million in tax-exempt bonds issued through the State of California Pollution Control Financing Authority was closed on August 18, 2010 and has a coupon rate of 5.25% with a 30-year maturity and a 10-year call option. The proceeds from this bond offering are required to be used to fund specific California-American Water Company projects. The second offering of $25 million in tax-exempt water facility revenue bonds issued through the Indiana Finance Authority was closed on September 16, 2010 and has a coupon rate 4.85% with a 30-year maturity and a 10-year call option. The proceeds from this bond offering are required to be used to fund water facility projects in Indiana-American Water Company’s service territory.

On November 1, 2010, our New Jersey regulated subsidiary closed on a refinancing of two bond issues of $35.0 million and $40.0 million, with original coupon rates of 5.95% and 5.60% and maturity dates of 2029 and 2025, respectively. The two new bond issues of $35.0 million and $40.0 million have interest rates of 4.88% and 4.70% and maturity dates of 2029 and 2025, respectively.

~~Other Matters~~

~~Dividend~~On March 1, 2010 and June 2, 2010, the Company made cash dividend payments of $0.21 per share to all common shareholders of record as of February 18, 2010 and May 18, 2010, respectively. On September 1, 2010, the Company made a cash dividend payment of $0.22 per share to all common shareholders of record as of August 18, 2010, amounting to $38.5 million.

In March and June of 2009, the Company made cash dividend payments of $0.20 per share to all common shareholders of record as of February 18, 2009 and May 18, 2009, respectively. In September 2009, the Company made a cash dividend payment of $0.21 per share to all common shareholders of record as of August 18, 2009, amounting to $36.7 million.

~~On October 29, 2010, the Company declared a quarterly cash dividend payment of $0.22 per share payable on December 1, 2010 to all shareholders of record as of November 18, 2010.~~

On October 19, 2010, the California Public Utilities Commission issued new rules governing affiliate transactions and the use of regulated utility assets for non tariffed utility services. Potential impactsoverall contribution of the ~~new rules on~~segment to the ~~Company and California–American Water Company’s~~consolidated results, the Adjusted EBIT measure has been replaced by income from continuing operations ~~and relationships with its affiliates are currently under review.~~before income taxes.

~~Results of Operations~~Regulated Segment

~~Three Months Ended September 30, 2010 Compared To Three Months Ended September 30, 2009~~

   For the three months ended
September 30, Favorable
(Unfavorable)
Change
(In thousands, except per share data)    2010 2009
Operating revenues
   $ 786,946    $ 679,956    $ 106,990

Operating expenses

Operation and maintenance
   378,034    340,862    (37,172 )
Depreciation and amortization
   79,431    74,854    (4,577 )
General taxes
   55,316    50,618    (4,698 )
(Gain) loss on sale of assets
   210    (784 ) (994 )

Total operating expenses, net
   512,991    465,550    (47,441 )

Operating income
   273,955    214,406    59,549

Other income (expenses)

Interest, net
   (74,858 ) (74,124 ) (734 )
Allowance for other funds used during construction
   2,586    2,290    296
Allowance for borrowed funds used during construction
   1,814    1,674    140
Amortization of debt expense
   (1,285 ) (2,135 ) 850
Other, net
   511    (310 ) 821

Total other income (expenses)
   (71,232 ) (72,605 ) 1,373

Income before income taxes
   202,723    141,801    60,922
Provision for income taxes
   78,609    50,165    (28,444 )

Net income
   $ 124,114    $ 91,636    $ 32,478

Income per common share:

Basic
   $ 0.71    $ 0.52
Diluted
   $ 0.71    $ 0.52
Average common shares outstanding during the period:

Basic
   174,859    174,595
Diluted
   175,062    174,691

The following table summarizes certain financial information for our Regulated ~~and Non-Regulated~~ Businesses for the periods ~~indicated (without giving effect to inter-segment eliminations):~~indicated:

   For the three months ended September 30,
   2010    2009
   Regulated
Businesses    Non-Regulated
Businesses    Regulated
Businesses    Non-Regulated
Businesses
   (In thousands)
Operating revenues
   $ 713,080       $ 80,310       $ 620,999       $ 65,233
Adjusted EBIT(1)
   $ 264,935       $ 9,157       $ 203,898       $ 6,563

~~(1)~~

Adjusted EBIT, a non-GAAP measure, is defined as earnings before interest and income taxes from continuing operations. Management evaluates the performance of its segments and allocates resources based on several factors, of which the primary measure is Adjusted EBIT. Adjusted EBIT does not represent cash flow for the periods presented and should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flows as a source of liquidity. Adjusted EBIT as defined by the Company may not be comparable with Adjusted EBIT as defined by other companies. For the reconciliation of Adjusted EBIT, as defined by the Company, to income before income taxes, see Financial Statement Note 13.


	For the three months ended March 31,
	2011		2010		Increase
	(In thousands)
Operating revenues	$	537,395	$	498,197	$	39,198
Operation and maintenance expense		270,157		256,312		13,845
Operating expenses, net		402,186		381,131		21,055
Income from continuing operations before income taxes		77,642		61,124		16,518

Operating revenues. Our primary business involves the ownership of water and wastewater utilities that provide ~~water and wastewater~~ services to residential, commercial and industrial ~~customers as well as sales~~customers. This business is subject to ~~public authorities. The table below details~~state regulation and our results of operations are impacted significantly by rates authorized by the ~~additional annualized revenues resulting from rate authorizations, including infrastructure charges, which were granted~~state regulatory commissions in the ~~third quarter of 2010.~~states in which we operate.

   Annualized Rate
Increases Granted
   (In millions)
State

General rate case:

Kentucky*
   $ 25.8
Virginia*
   7.5
Michigan
   0.2

Subtotal- General Rate Cases
   33.5

Infrastructure Charges:

Pennsylvania
   3.1

Subtotal- Infrastructure Charges
   3.1

Total
   $ 36.6

*	Rate case not yet finalized; however, new rates were put into effect under bond subject to refund for the total Kentucky amount of $25.8 million and $6.9 million of the Virginia amount. There is no assurance that the bonded amount, or any portion thereof, will be approved.

Operating revenues increased by ~~$107.0~~$39.2 million, or ~~15.7%~~7.9%, for the three months ended ~~September 30, 2010~~March 31, 2011 compared to the three months ended ~~September 30, 2009. Regulated Businesses’ revenues increased by $92.1 million, or 14.8%, for the three months ended September 30, 2010 compared to the same period~~March 31, 2010. The increase in ~~the prior year. The Non-Regulated Businesses’~~ revenues for the three months ended ~~September 30, 2010 increased by $15.1 million, or 23.1%,~~March 31, 2011 compared to the three months ended ~~September 30, 2009.~~

~~The increase in the Regulated Businesses for the three months ended September 30,~~March 31, 2010 ~~compared to the three months ended September 30, 2009~~ was primarily due to rate increases obtained through rate authorizations for a number of our operating companies (most of which were granted and became effective during periods throughout 2010) of which the ~~third quarter 2010~~year-to-date 2011 impact was approximately ~~$52.8~~$44.1 million. ~~Revenues for~~These increases were offset by decreased revenues of approximately $7.6 million attributable to lower demand in the ~~three months ended September 30, 2010 increased by approximately $37.6 million due to higher demand as~~first quarter of 2011 compared to the ~~same period in the prior year. Most~~first quarter of this consumption increase occurred in our regulated subsidiaries in the Mid-Atlantic region of the United States as a result of the warmer/drier weather. Offsetting these increases was a decrease in surcharge and balancing account revenues of $1.6 million.

The increase in revenues from the Non-Regulated Businesses was primarily attributable to higher revenues in our Contract Operations Group totaling $13.2 million as a result of the Contract Operations’ Acquisition which contributed $9.3 million to the increase as well as incremental revenues associated with military construction and O&M projects of $8.1 million partially offset by lower revenues associated with our O&M and design and build contracts.2010.

The following table sets forth the percentage of Regulated Businesses’ revenues and billed water sales volume by customer class:


	For the three months ended September 30,																For the three months ended March 31,
	2010				2009 *				2010				2009 *				2011				2010*				2011				2010*
	Operating Revenues								Water Sales Volume								Operating Revenues								Billed Water Sales Volume
	(Dollars in thousands, gallons in millions)																(Dollars in thousands, gallons in millions)
Customer Class
Water service:
Residential	$	414,505	58.1	%	$	353,397	56.9	%		65,010	53.4	%		60,714	53.6	%	$	302,678	56.3	%	$	281,128	56.4	%		39,642	50.4	%		39,898	50.3	%
Commercial		143,305	20.1	%		126,515	20.4	%		27,983	23.0	%		26,265	23.2	%		102,480	19.1	%		96,118	19.3	%		17,540	22.3	%		17,833	22.5	%
Industrial		31,431	4.4	%		27,955	4.5	%		11,876	9.8	%		10,149	9.0	%		27,240	5.1	%		25,108	5.0	%		9,419	12.0	%		9,214	11.6	%
Public and other		84,249	11.8	%		74,779	12.0	%		16,742	13.8	%		16,114	14.2	%		70,928	13.2	%		64,515	13.0	%		12,066	15.3	%		12,374	15.6	%
Other water revenues		4,972	0.7	%		6,820	1.1	%		—	—			—	—			5,302	1.0	%		6,061	1.2	%		—	—			—	—

Total water revenues		678,462	95.1	%		589,466	94.9	%		121,611	100.0	%		113,242	100.0	%		508,628	94.7	%		472,930	94.9	%		78,667	100.0	%		79,319	100.0	%

Wastewater service		23,900	3.4	%		22,655	3.7	%										19,451	3.6	%		17,545	3.5	%
Other revenues		10,718	1.5	%		8,878	1.4	%										9,316	1.7	%		7,722	1.6	%

	$	713,080	100.0	%	$	620,999	100.0	%									$	537,395	100.0	%	$	498,197	100.0	%

Certain reclassifications have been made between customer classes to conform with ~~2010~~the 2011 presentation.

The following discussion related to water services indicates the increase or decrease in the Regulated Businesses’ revenues and associated billed water sales volumes in gallons by customer class.

Water Services – Water service operating revenues from residential customers for the three months ended ~~September 30, 2010~~March 31, 2011 totaled ~~$414.5~~$302.7 million, a ~~$61.1~~$21.6 million increase, or ~~17.3%~~7.7%, over the same period of ~~2009,~~2010, mainly due to rate increases ~~and an increase~~partially offset by a slight decrease in sales volume. The volume of water sold to residential customers ~~increased~~decreased by ~~7.1%~~0.6% for the three months ended ~~September 30, 2010~~March 31, 2011 to ~~65.0~~39.6 billion gallons, from ~~60.7~~39.9 billion gallons for the same period in ~~2009.~~2010. We believe ~~this increase is attributable to warmer and drier weather during the quarter primarily in the Mid-Atlantic region of the United States compared~~that factors contributing to the ~~three months ended September 30, 2009.~~decline could include the current economic climate, weather and an increased customer focus on conservation. The extent to which these items individually contribute to the overall decline is difficult to measure.

Water service operating revenues from commercial water customers for the three months ended ~~September 30, 2010~~March 31, 2011 increased by ~~$16.8~~$6.4 million, or ~~13.3%~~6.6%, to ~~$143.3~~$102.5 million mainly due to rate increases ~~in addition to an increase~~partially offset by a decrease in sales volume compared to the same period in ~~2009.~~2010. The volume of water sold to commercial customers ~~increased~~decreased by ~~6.5%~~1.6% for the three months ended ~~September 30, 2010~~March 31, 2011, to ~~28.0~~17.5 billion gallons, from ~~26.3~~17.8 billion gallons for the three months ended ~~September 30, 2009.~~March 31, 2010.

Water service operating revenues from industrial customers totaled ~~$31.4~~$27.2 million for the three months ended ~~September 30, 2010,~~March 31, 2011, an increase of ~~$3.5~~$2.1 million, or ~~12.4%~~8.5%, from those recorded for the same period of ~~2009~~2010, mainly due to rate increases in addition to ana slight increase in sales volume. The volume of water sold to industrial customers totaled ~~11.9~~9.4 billion gallons for the three months ended ~~September 30, 2010,~~March 31, 2011, an increase of ~~17.0%~~2.2% from the ~~10.1~~9.2 billion gallons for the three months ended ~~September 30, 2009. We believe this increase to be associated with slight improvements in the economic environment in communities that we serve.~~March 31, 2010.

Water service operating revenues from public and other customers, including municipal governments, other governmental entities and resale customers increased ~~$9.5~~$6.4 million, or ~~12.7%,~~9.9% to $70.9 million, for the three months ended ~~September 30, 2010 to $84.2~~March 31, 2011 from $64.5 million ~~compared to~~during the same period in ~~the prior year~~2010, mainly due to rate increases. Revenues from municipal governments for fire protection services and customers requiring special private fire service facilities totaled ~~$31.2~~$31.9 million for the three months ended ~~September 30, 2010,~~March 31, 2011, an increase of ~~$2.2~~$3.6 million over the same period of ~~2009.~~2010. Revenues generated by sales to governmental entities and resale customers for the three months ended ~~September 30, 2010~~March 31, 2011 totaled ~~$53.0~~$39.0 million, an increase of ~~$7.2~~$2.8 million from the three months ended ~~September 30, 2009.~~

March 31, 2010.

Wastewater services – Our subsidiaries provide wastewater services in 12 states. Revenues from these services increased by ~~$1.2~~$1.9 million, or ~~5.5%~~10.9%, to ~~$23.9~~$19.5 million for the three months ended ~~September 30,~~March 31, 2011, from the same period of 2010. The increase was primarily attributable to rate increases ~~in rates charged to customers~~ in a number of our operating companies.

Other revenues – Other revenues include such items as reconnection charges, initial application service fees, rental revenues, revenue collection services for others and similar items. ~~For~~The increase in revenues was mainly due to increased rental revenues.

Operation and maintenance.Operation and maintenance expense increased $13.8 million, or 5.4%, for the three months ended ~~September 30, 2010, other revenues increased by $1.8 million mainly due to an increase in work for a managed contract as well as rental revenue~~March 31, 2011, compared to the same period in the prior year.

~~Operation and maintenance~~~~Operation~~ The following table provides information regarding operation and maintenance expense ~~increased $37.2 million, or 10.9%,~~ for the three months ended ~~September 30,~~March 31, 2011 and 2010, ~~compared to the same period in the prior year.~~

~~Operation and maintenance expenses for the three months ended September 30, 2010 and 2009,~~ by major expense ~~category, were as follows:~~category:


	For the three months ended September 30,									For the three months ended March 31,
	2010		2009		Increase (Decrease)		Percentage			2011		2010		Increase (Decrease)			Percentage
	(In thousands)									(In thousands)
Production costs	$	95,746	$	86,673	$	9,073		10.5	%	$	59,682	$	58,665	$	1,017			1.7	%
Employee-related costs		157,085		139,633		17,452		12.5	%		124,956		120,312		4,644			3.9	%
Operating supplies and services		62,937		60,227		2,710		4.5	%		49,860		44,077		5,783			13.1	%
Maintenance materials and services		37,270		31,723		5,547		17.5	%		17,795		16,016		1,779			11.1	%
Customer billing and accounting		12,909		12,690		219		1.7	%		8,252		9,810		(1,558	)		(15.9	%)
Other		12,087		9,916		2,171		21.9	%		9,612		7,432		2,180			29.3	%

Total	$	378,034	$	340,862	$	37,172		10.9	%	$	270,157	$	256,312	$	13,845			5.4	%

~~As is noted in the various expense category commentaries below, a driver~~Production costs and employee-related costs, which account for approximately 70% of the ~~increase in operations~~total Regulated Businesses operation and maintenance expense, ~~is higher expenses~~are discussed in ~~our Non-Regulated Businesses associated with the combined effects of our Contract Operations’ Acquisition and its related reorganization and transitional costs totaling $8.5 million.~~more detail below.

Production costs, including fuel and power, purchased water, chemicals and waste disposal increased by $9.1 million, or 10.5%, for the three months ended September 30, 2010 compared to the same period in the prior year. Production costs, by major expense type were as follows:


	For the three months ended September 30,									For the three months ended March 31,
	2010		2009		Increase (Decrease)		Percentage			2011		2010		Increase (Decrease)			Percentage
	(In thousands)									(In thousands)
Fuel and power	$	33,166	$	30,804	$	2,362		7.7	%	$	20,430	$	21,032	$	(602	)		(2.9	%)
Purchased water		34,618		29,367		5,251		17.9	%		21,100		20,633		467			2.3	%
Chemicals		19,061		18,130		931		5.1	%		10,642		10,663		(21	)		(0.2	%)
Waste disposal		8,901		8,372		529		6.3	%		7,510		6,337		1,173			18.5	%

Total	$	95,746	$	86,673	$	9,073		10.5	%	$	59,682	$	58,665	$	1,017			1.7	%

~~Fuel and power~~Overall production costs ~~increased~~remained relatively unchanged for the three months ended March 31, 2011 compared to the same period in ~~our Regulated Businesses by $2.1 million primarily~~the prior year, with the largest increase attributable to waste disposal costs. This increase was due to ~~higher electricity and fuel prices as well as increased production volumes. The increase~~the recognition of previously deferred costs allowed by a cost recovery mechanism in ~~purchased water is primarily associated with~~one of our Regulated Businesses and is attributable to rate increases resulting from higher costs incurred by our suppliers. The majority of this purchased water increase is in states which permit us to pass-through this increase to our customers outside of a full rate proceeding. The increase in chemical costs is primarily attributable to increased consumption slightly offset by lower chemical costs in our Regulated Businesses as a result of favorable contract pricing.operating companies.

Employee-related costs, including wage and salary, group insurance, and pension expense, increased ~~$17.5~~$4.6 million or ~~12.5%~~3.9%, for the three months ended ~~September 30, 2010,~~March 31, 2011 compared to the same period in the prior year. These employee-related costs represented ~~41.6%~~46.3% and ~~41.0%~~46.9% of operation and maintenance ~~expenses~~expense for the three months ended ~~September 30,~~March 31, 2011 and 2010, ~~and 2009,~~ respectively.

   For the three months ended September 30,
   2010    2009    Increase
(Decrease) Percentage
   (In thousands)
Salaries and wages
   $ 114,991       $ 99,778       $ 15,213    15.2 %
Pensions
   15,849       13,573       2,276    16.8 %
Group insurance
   20,647       20,575       72    0.3 %
Other benefits
   5,598       5,707       (109 ) (1.9 )%

Total
   $ 157,085       $ 139,633       $ 17,452    12.5 %

The ~~increase in salaries and wages can be attributed~~following table provides information with respect to ~~additional employees as a result~~components of ~~the Contract Operations’ Acquisition, totaling approximately $3.9 million, as well as wage increases, higher incentive compensation, increased severance expenses and increased overtime~~employee-related costs ~~in certain of our regulated operating companies. Pension expense increased~~ for the three months ended ~~September 30, 2010~~March 31, 2011 and 2010:


	For the three months ended March 31,
	2011		2010		Increase (Decrease)		Percentage
	(In thousands)
Salaries and wages	$	82,290	$	81,951	$	339		0.4	%
Pensions		17,373		13,818		3,555		25.7	%
Group insurance		20,599		20,280		319		1.6	%
Other benefits		4,694		4,263		431		10.1	%

Total	$	124,956	$	120,312	$	4,644		3.9	%

The overall increase in employee-related costs was primarily driven by increased pension expense. The increase in pension expense for the three months ended March 31, 2011 was primarily due to increased ~~pension~~ contributions byin certain of our regulated operating companies whose costs are recovered based on our funding policy, which is to fund at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (“ERISA”) minimum funding requirements. This increase was partially offset by a decrease in the amortization of actuarial losses attributable to higher than expected returns on plan assets in 2009.1974.

Operating supplies and services include the day-to-day expenses of office operation, legal and other professional services, ~~as well as~~transportation expenses, information systems rental charges and other office equipment rental charges. ~~For the three months ended September 30, 2010, these~~These costs increased ~~by $2.7~~$5.8 million, or ~~4.5%~~13.1%, ~~compared to the same period in 2009.~~

   For the three months ended September 30,
   2010    2009*    Increase
(Decrease) Percentage
   (In thousands)
Contracted services
   $ 23,869       $ 20,578       $ 3,291    16.0 %
Office supplies and services
   16,652       15,855       797    5.0 %
Transportation
   8,611       8,763       (152 ) (1.7 )%
Rents
   6,149       5,793       356    6.1 %
Other
   7,656       9,238       (1,582 ) (17.1 )%

Total
   $ 62,937       $ 60,227       $ 2,710    4.5 %

* Certain reclassifications have been made between categories in order for 2009 to conform with 2010 presentation.

~~Contracted services increased~~ for the three months ended ~~September 30, 2010 compared to the same period in 2009~~March 31, 2011, primarily due to higher contracted services of $2.5 million, increased ~~construction related activity in the Contract Operations Group~~transportation costs, primarily related to ~~military contracts which corresponds with~~ the ~~increased revenues. Office supplies~~higher cost of gasoline, and ~~services increased primarily due to the Contract Operations’ Acquisition. The decrease~~increases in the “Other” category is mainly attributable to the establishment of a regulatory asset for a $3.5 million payment previously made by our California operating company to the California Department of Fishtravel and Game (“CDFG”) on behalf of the National Oceanographic and Atmospheric Administration (“NOAA”) as a result of an advice letter issued by the California Public Utility Commission which now allows for rate recovery of such payment. This reduction was offset by reserves of $1.4 million for costs deemed not recoverable at this time in one of our operating companies as well as increased costs associated with the Contract Operations’ Acquisition.general office related expenses.

Maintenance materials and services, which include emergency repairs, as well as costs for preventive maintenance, increased ~~$5.5~~$1.8 million, or ~~by 17.5%~~11.1%, for the three months ended ~~September 30, 2010~~March 31, 2011. This increase was attributable to higher costs related to tank painting and paving.

Customer billing and accounting expenses, which include uncollectible accounts expense, postage, and other customer related expenses, decreased by $1.6 million, or 15.9%, for the three months ended March 31, 2011 compared to the same period in the prior year.

   For the three months ended September 30,
   2010    2009    Increase
(Decrease)    Percentage
   (In thousands)
Maintenance services and supplies
   $ 26,543       $ 21,450       $ 5,093       23.7 %
Removal costs, net
   10,727       10,273       454       4.4 %

Total
   $ 37,270       $ 31,723       $ 5,547       17.5 %

~~The Regulated Businesses’ maintenance materials and service costs increased by $3.7~~ This decrease was mainly the result of a $1.8 million ~~for the three months ended September 30, 2010. In addition to higher removal costs, maintenance services and supplies increased~~reduction in uncollectible accounts expense due to higher levels of meter testing, pump, tank and well maintenance, and paving costs throughout our regulated subsidiaries. The Non-Regulated Businesses’ expense increased $1.8 million primarily due to increased costsimproved collections in our ~~Homeowner Services Group, associated with an increase~~receivables in ~~its customer base.~~excess of 120 days.

~~Customer billing and accounting expenses increased by $0.2 million, or 1.7% for the three months ended September 30, 2010 compared to the same period in the prior year.~~

   For the three months ended September 30,
   2010    2009    Increase
(Decrease) Percentage
   (In thousands)
Uncollectible accounts expense
   $ 5,884       $ 5,924       $ (40 ) (0.7 )%
Postage
   3,327       3,261       66    2.0 %
Other
   3,698       3,505       193    5.5 %

Total
   $ 12,909       $ 12,690       $ 219    1.7 %

Other operation and maintenance expenses include casualty and liability insurance premiums and regulatory costs. ~~These costs decreased by $2.2 million, or 21.9%, in 2010.~~

   For the three months ended September 30,
   2010    2009    Increase
(Decrease) Percentage
   (In thousands)
Insurance
   $ 9,084       $ 6,904       $ 2,180    31.6 %
Regulatory expenses
   3,003       3,012       (9 ) (0.3 )%

Total
   $ 12,087       $ 9,916       $ 2,171    21.9 %

The increase in these costs was driven by higher insurance ~~expense is primarily due to favorable claims experience in 2009.~~

~~Depreciation and amortization~~~~Depreciation and amortization expense increased by $4.6 million, or 6.1%,~~costs for the three months ended ~~September 30,~~Mach 31, 2011, as 2010 insurance costs reflected incremental credits resulting from positive resolution of prior years’ claims.

Operating expenses. The increase in operating expenses is primarily due to the increase in operation and maintenance expense, as explained above, higher depreciation expense of $5.1 million resulting from additional utility plant placed in service, and increased general taxes of $2.2 million, principally attributable to higher gross receipts taxes in our New Jersey regulated subsidiary.

Income from continuing operations before income taxes. The $16.5 million increase for the three months ended March 31, 2011 compared to the same period in the prior year ~~as a result of additional utility plant being placed in service.~~

~~General taxes~~General taxes expense, which includes taxes for property, payroll, gross receipts, and other miscellaneous items, increased by $4.7 million, or 9.3%, in the three months ended September 30, 2010 compared to the three months ended September 30, 2009. This increase was mainly due to higher gross receipts taxes of $1.9 million, primarily in our New Jersey regulated subsidiary. Also contributing to the increase were higher payroll taxes resulting from the increase in salaries and wages as well as increased capital stock and property tax expenses.

~~Other income (expenses)~~Interest expense, net of interest income, which is the primary component of our other income (expenses), increased by $0.7 million, or 1.0%, for the three months ended September 30, 2010 compared to the same period in the prior year. The increase is primarily due to the refinancing of short-term debt with long-term debt during 2009 as well as increased borrowing associated with capital expenditures. During 2009 a significant portion of this debt was refinanced to long-term fixed rate debt whose rates are higher than the short-term rates that existed for the three months ended September 30, 2009. This increase was offset by the recognition of $3.6 million of the fair value uplift for a debt issuance that was called for early redemption in July 2010.

~~Provision for income taxes~~The effective tax rates for the three months ended September 30, 2010 and 2009 were 38.8% and 35.4% respectively. Our consolidated provision for income taxes increased $28.4 million, or 56.7%, to $78.6 million for the three months ended September 30, 2010. The increase is primarily due to the fact that the 2009 effective tax rate included an impact of tax law changes in one of our subsidiaries as well as other discrete items.

~~Net income~~~~Net income for the three months ended September 30, 2010 was $124.1 million compared to a net income of $91.6 million for the three months ended September 30, 2009. The variation between the periods~~ is the result of the aforementioned ~~changes.~~

~~Results of Operations~~operating revenue and operating expenses variations.

~~Nine Months Ended September 30, 2010 Compared To Nine Months Ended September 30, 2009~~Market-Based Operations

   For the nine months ended
September 30, Favorable
(Unfavorable)
Change
(In thousands, except per share data)    2010 2009
Operating revenues
   $ 2,046,222    $ 1,842,866    $ 203,356

Operating expenses

Operation and maintenance
   1,053,320    985,861    (67,459 )
Depreciation and amortization
   232,156    216,939    (15,217 )
General taxes
   164,610    154,814    (9,796 )
Gain (loss) on sale of assets
   133    (976 ) (1,109 )
Impairment charge
   0    450,000    450,000

Total operating expenses, net
   1,450,219    1,806,638    356,419

Operating income
   596,003    36,228    559,775

Other income (expenses)

Interest, net
   (232,307 ) (219,791 ) (12,516 )
Allowance for other funds used during construction
   7,144    9,208    (2,064 )
Allowance for borrowed funds used during construction
   4,465    5,537    (1,072 )
Amortization of debt expense
   (3,233 ) (5,158 ) 1,925
Other, net
   2,508    (605 ) 3,113

Total other income (expenses)
   (221,423 ) (210,809 ) (10,614 )

Income (loss) before income taxes
   374,580    (174,581 ) 549,161
Provision for income taxes
   146,907    94,873    (52,034 )

Net income (loss)
   $ 227,673    $ (269,454 ) $ 497,127

Income (loss) per common share:

Basic
   $ 1.30    $ (1.62 )
Diluted
   $ 1.30    $ (1.62 )
Average common shares outstanding during the period:

Basic
   174,785    165.992
Diluted
   174,919    165,992

The following table ~~summarizes~~provides certain financial information for our ~~Regulated and Non-Regulated Businesses~~Market-Based Operations segment for the periods ~~indicated (without giving effect to inter-segment eliminations):~~indicated:

   For the nine months ended September 30,
   2010    2009
   Regulated
Businesses    Non-Regulated
Businesses    Regulated
Businesses    Non-Regulated
Businesses
   (In thousands)
Operating revenues
   $ 1,834,883       $ 230,153       $ 1,673,346       $ 187,029
Adjusted EBIT(1)
   $ 573,381       $ 18,504       $ 459,355       $ 16,665

~~(1)~~

Adjusted EBIT, a non-GAAP measure, is defined as earnings before interest and income taxes from continuing operations. Management evaluates the performance of its segments and allocates resources based on several factors, of which the primary measure is Adjusted EBIT. Adjusted EBIT does not represent cash flow for the periods presented and should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flows as a source of liquidity. Adjusted EBIT as defined by the Company may not be comparable with Adjusted EBIT as defined by other companies. For the reconciliation of Adjusted EBIT, as defined by the Company, to income (loss) before income taxes, see Financial Statement Note 13.


	For the three months ended March 31,
	2011		2010		Increase
	(In thousands)
Operating revenues	$	80,489	$	74,526	$	5,963
Operation and maintenance expense		69,081		67,332		1,749
Operating expenses, net		73,112		70,781		2,331
Income from continuing operations before income taxes		7,915		4,732		3,183

Operating ~~revenues~~revenues. Our primary business involves the ownership of water and wastewater utilities that provide water and wastewater services to residential, commercial and industrial customers as well as sales to public authorities. The table below details the annualized revenues resulting from rate authorizations, including infrastructure charges, which were granted during the first nine months of 2010.

   Annualized Rate
Increases Granted
   (In millions)
State

General rate case:

Illinois
   $ 40.7
Indiana
   31.5
Missouri
   24.8
Kentucky*
   25.8
California
   14.6
Virginia*
   7.5
Ohio
   2.6
New Mexico
   0.5
Michigan
   0.2

Subtotal- General Rate Cases
   148.2

Infrastructure Charges:

Pennsylvania
   4.9
Missouri
   3.2
Illinois
   0.7
New York
   0.4

Subtotal- Infrastructure Charges
   9.2

Total
   $ 157.4

*	Rate case not yet finalized; however, new rates were put into effect under bond subject to refund for the total Kentucky amount of $25.8 million and $6.9 million of the Virginia amount. There is no assurance that the bonded amount, or any portion thereof, will be approved.

Our results of operations are significantly impacted by rates authorized by the state regulatory commissions in the states in which we operate. Operating revenues increased by $203.4 million, or 11.0%, for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. Regulated Businesses’ revenues increased by $161.5 million, or 9.7%, for the nine months ended September 30, 2010 compared to the same period in the prior year. The Non-Regulated Businesses’ revenues for the nine months ended September 30, 2010 increased by $43.1 million, or 23.1%, compared to the nine months ended September 30, 2009.

The increase in revenues from the Regulated Businesses for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 was primarily due to rate increases obtained through rate authorizations for a number of our operating companies of which the year-to-date 2010 impact was approximately $107.7 million. In addition, for the nine months ended September 30, 2010, surcharge and balancing account revenues increased by $3.8 million and sewer and fire service revenues increased by $2.0 million compared to the same period in the prior year. Revenues for the nine months ended September 30, 2010 increased by approximately $41.1 million due to higher demand as compared to the same period in the prior year, mainly due to increased volumes in our subsidiaries in the Mid-Atlantic region of the United States.

The net increase in revenues ~~from the Non-Regulated Businesses was~~is primarily attributable to an increase in the Contract Operations Group revenues ~~primarily~~of $3.5 million, mainly due to ~~higher revenues totaling $30.1 million resulting from the Contract Operations’ Acquisition as well as~~ incremental revenues associated with military construction and ~~O&M~~operations & maintenance projects of ~~$15.8~~$10.6 million, ~~as a result of being fully operational at Fort Hood and Fort Polk and the addition of Fort Meade and Fort Belvoir contracts. These increases were~~ partially offset by lower revenues associated with ~~our O&M~~expired and ~~design and build~~terminated contracts. In addition, our Homeowner Services Group revenues increased by ~~$4.2~~$1.6 million, mainly as a result of increased product penetration within its existing customer base.

~~The following table sets forth the percentage of Regulated Businesses’ revenues and water sales volume by customer class:~~

   For the nine months ended September 30,
   2010 2009 * 2010 2009*
   Operating Revenues Water Sales Volume
   (Dollars in thousands, gallons in millions)
Customer Class

Water service:

Residential
   $ 1,050,833       57.3 % $ 958,263       57.3 % 156,493       52.6 % 154,150       53.3 %
Commercial
   356,619       19.4 % 326,242       19.5 % 67,046       22.6 % 65,149       22.5 %
Industrial
   85,451       4.7 % 76,402       4.5 % 30,822       10.4 % 27,404       9.5 %
Public and other
   223,417       12.2 % 205,651       12.3 % 42,960       14.4 % 42,430       14.7 %
Other water revenues
   19,741       1.1 % 16,805       1.0 % —         —      —         —

Total water revenues
   1,736,061       94.7 % 1,583,363       94.6 % 297,321       100.0 % 289,133       100.0 %

Wastewater service
   70,372       3.8 % 66,397       4.0 %
Other revenues
   28,450       1.5 % 23,586       1.4 %

   $ 1,834,883       100.0 % $ 1,673,346       100.0 %

~~Certain reclassifications have been made between customer classes to conform with 2010 presentation.~~

~~The following discussion related to water services indicates the increase in the Regulated Businesses’ revenues and associated water sales volumes in gallons by customer class.~~

~~Water Services~~Operation and maintenance. ~~– Water service operating revenues from residential customers~~Operation and maintenance expense increased $1.7 million, or 2.6%, for the ~~nine~~three months ended September 30, 2010 totaled $1,050.8 million, a $92.6 million increase, or 9.7%, over the same period of 2009, mainly due to rate increases and an increase in sales volume. The volume of water sold to residential customers increased by 1.5% for the nine months ended September 30, 2010 to 156.5 billion gallons, from 154.2 billion gallons for the same period in 2009. We believe this increase is attributable to warmer and drier weather in the Mid-Atlantic region of the United States primarily in the third quarter of 2010March 31, 2011 compared to the same period in the prior year.

Water service operating revenues from commercial water customers for the nine months ended September 30, 2010 increased by $30.4 million, or 9.3%, to $356.6 million, mainly due to rate increases in addition to an increase in sales volume compared to the same period in 2009. The volume of water sold to commercial customers increased by 2.9% for the nine months ended September 30, 2010, to 67.0 billion gallons, from 65.1 billion gallons for the nine months ended September 30, 2009.

Water service operating revenues from industrial customers totaled $85.5 million for the nine months ended September 30, 2010, an increase of $9.0 million, or 11.8%, from those recorded for the same period of 2009 mainly due to rate increases in addition to an increase in sales volume. The volume of water sold to industrial customers totaled 30.8 billion gallons for the nine months ended September 30, 2010, an increase of 12.5% from the 27.4 billion gallons for the nine months ended September 30, 2009.

Water service operating revenues from public and other customers, including municipal governments, other governmental entities and resale customers increased $17.8 million, or 8.6%, for the nine months ended September 30, 2010 to $223.4 million from $205.7 million in the same period in 2009 mainly due to rate increases. Revenues from municipal governments for fire protection services and customers requiring special private fire service facilities totaled $90.0 million for the nine months ended September 30, 2010, an increase of $5.3 million over the same period of 2009. Revenues generated by sales to governmental entities and resale customers for the nine months ended September 30, 2010 totaled $133.4 million, an increase of $12.5 million from the nine months ended September 30, 2009.

~~Wastewater services~~ – Our subsidiaries provide wastewater services in 12 states. Revenues from these services increased by $4.0 million, or 6.0%, to $70.4 million for the nine months ended September 30, 2010, from $66.4 million for the same period of 2009. The increase was attributable to increases in rates charged to customers in a number of our operating companies.

~~Other revenues~~ – Other revenues include such items as reconnection charges, initial application service fees, rental revenues, revenue collection services for others and similar items. For the nine months ended September 30, 2010, these revenues increased by $4.9 million mainly due to an increase in work for a managed contract as well as rental revenue compared to the same period in the prior year.

~~Operation and maintenance~~~~Operation~~following table provides information regarding operation and maintenance expense ~~increased $67.5 million, or 6.8%,~~ for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010, ~~compared to the same period in the prior year.~~

~~Operation and maintenance expenses for the nine months ended September 30, 2010 and 2009,~~ by major expense ~~category, were as follows:~~category:

   For the nine months ended September 30,
   2010    2009    Increase
(Decrease) Percentage
   (In thousands)
Production costs
   $ 250,122       $ 232,861       $ 17,261    7.4 %
Employee-related costs
   445,675       405,404       40,271    9.9 %
Operating supplies and services
   178,159       175,687       2,472    1.4 %
Maintenance materials and services
   112,157       95,728       16,429    17.2 %
Customer billing and accounting
   37,029       36,689       340    0.9 %
Other
   30,178       39,492       (9,314 ) (23.6 )%

Total
   $ 1,053,320       $ 985,861       $ 67,459    6.8 %

As is noted in the various expense category commentaries below, a major driver of the increase in operations and maintenance expense is higher expenses in our Non-Regulated Businesses associated with the combined effects of our Contracts Operations’ Acquisition and its related reorganization and transitional costs of $29.3 million.


	For the three months ended March 31,
	2011		2010		Increase (Decrease)			Percentage
	(In thousands)
Production costs	$	12,507	$	15,554	$	(3,047	)		(19.6	%)
Employee-related costs		19,691		21,435		(1,744	)		(8.1	%)
Operating supplies and services		25,484		20,687		4,797			23.2	%
Maintenance materials and services		9,420		9,053		367			4.1	%
Other		1,979		603		1,376			228.2	%

Total	$	69,081	$	67,332	$	1,749			2.6	%

Production costs ~~including~~are comprised of fuel and power, purchased water, chemicals and waste disposal ~~increased by $17.3 million, or 7.4%, for the nine months ended September 30, 2010 compared to the same period~~costs. The overall decrease in ~~the prior year. Production costs, by major expense type were as follows:~~

   For the nine months ended September 30,
   2010    2009    Increase
(Decrease) Percentage
   (In thousands)
Fuel and power
   $ 88,574       $ 84,196       $ 4,378    5.2 %
Purchased water
   85,636       74,568       11,068    14.8 %
Chemicals
   47,597       49,519       (1,922 ) (3.9 )%
Waste disposal
   28,315       24,578       3,737    15.2 %

Total
   $ 250,122       $ 232,861       $ 17,261    7.4 %

~~The increase in our fuel and power~~these costs was primarily driven by higher costs in our Non-Regulated Business of $3.0 million, most of which is attributable to our Contract Operations’ Acquisition. Fuel and power costs increased in the Regulated Business by $1.4 million primarily corresponding with the increase in usage. The increase in purchased water, which is primarily associated with our Regulated Businesses, is due to rate increases resulting from higher costs incurred by our suppliers. The majority of this purchased water increase is in states which permit us to pass-through this increase to our customers outside of a full rate proceeding. The decrease in chemical costs is primarily attributable to lower chemical costs in our Regulated Businesses as a result of favorable contract pricing. Waste disposal costs increased primarily due to increased rates in one of our Regulated operating companies as well as higher disposal costs attributable to the ~~Contract Operations’ Acquisition, which accounted for $1.6 million~~cessation of ~~the increase.~~

~~Employee-related~~ costs ~~including wage~~related to contracts that terminated and salary, group insurance, and pension expense increased $40.3 million, or 9.9%, for the nine months ended September 30, 2010, compared to the same period in the prior year. These employee-related costs represented 42.3% and 41.1% of operation and maintenance expenses for the nine months ended September 30, 2010 and 2009, respectively.

   For the nine months ended September 30,
   2010    2009    Increase
(Decrease) Percentage
   (In thousands)
Salaries and wages
   $ 326,622       $ 288,550       $ 38,072    13.2 %
Pensions
   40,609       41,873       (1,264 ) (3.0 )%
Group insurance
   60,267       59,285       982    1.7 %
Other benefits
   18,177       15,696       2,481    15.8 %

Total
   $ 445,675       $ 405,404       $ 40,271    9.9 %

The increase in salaries and wages and other benefits was primarily due to the addition of employees as a result of the Contract Operations’ Acquisition totaling approximately $12.3 million and $2.2 million, respectively. The remainder of the increase in salaries and wages was due to wage increases, higher incentive compensation and severance expense as well as increased overtime costs of $3.9 million in certain of our regulated operating companies. Pension expense decreased for the nine months ended September 30, 2010 due to a decrease in the amortization of actuarial losses attributable to higher than expected returns on plan assets in 2009. This increase was partially offset by increased pension contributions by certain of our regulated operating companies whose costs are recovered based on Employee Retirement Income Security Act of 1974 (“ERISA”) minimum funding requirements.

expired during 2010.

Operating supplies and services ~~include~~consist primarily of contracted services and the day-to-day expenses of office operation, legal and other professional services, transportation expenses, as well as information systems rental charges and other office equipment rental charges. ~~For~~The increase in these expenses for the ~~nine~~three months ended ~~September 30, 2010, these costs increased by $2.5 million, or 1.4%, compared~~March 31, 2011 was primarily attributable to the ~~same period in 2009.~~

   For the nine months ended September 30,
   2010    2009*    Increase
(Decrease) Percentage
   (In thousands)
Contracted services
   $ 59,744       $ 59,442       $ 302    0.5 %
Office supplies and services
   50,998       47,565       3,433    7.2 %
Transportation
   25,005       22,497       2,508    11.1 %
Rents
   18,681       16,473       2,208    13.4 %
Other
   23,731       29,710       (5,979 ) (20.1 )%

Total
   $ 178,159       $ 175,687       $ 2,472    1.4 %

~~Certain reclassifications have been made between categories in order for 2009 to conform with 2010 presentation.~~

~~Contracted services increased slightly for the nine months ended September 30, 2010 compared to the same period in 2009 due to increased construction activity in the~~higher expenses associated with our Contract Operations Group, which are related to the increased activity with our military ~~contracts. Offsetting this~~construction projects corresponding with the increase ~~was~~in revenues, partially offset by lower ~~temporary labor~~ expenses due to the ~~filling~~termination and expiration of ~~vacant positions and a reduction in our legal and accounting expenses. Office supplies and services increased primarily due~~contracts prior to ~~costs related to marketing programs for our Homeowner Services Group in addition to our Contract Operations’ Acquisition.~~the three months ended March 31, 2011.

Operating expense. The increase in ~~transportation costs was due to higher gasoline prices during~~operating expenses is driven by the nine months ended September 30, 2010 compared to the same period in 2009. The decrease in the “Other” category is primarily due to the aforementioned advice letter approval for rate recovery of a $3.5 million payment to the CDFG on behalf of NOAA in the third quarter of 2010.

Maintenance materials and services, which include emergency repairs as well as costs for preventive maintenance, increased $16.4 million, or by 17.2%, for the nine months ended September 30, 2010 compared to the same period in the prior year.

   For the nine months ended September 30,
   2010    2009    Increase
(Decrease)    Percentage
   (In thousands)
Maintenance services and supplies
   $ 79,932       $ 65,311       $ 14,621       22.4 %
Removal costs, net
   32,225       30,417       1,808       5.9 %

Total
   $ 112,157       $ 95,728       $ 16,429       17.2 %

The Regulated Businesses’ maintenance materials and service costs increased by $8.2 million for the nine months ended September 30, 2010. In addition to higher removal costs, tank painting expenses for our New Jersey subsidiary were higher by $1.5 million. The remaining increase for the Regulated Business was due to higher levels of meter testing, pump, tank and well maintenance, and paving costs throughout our regulated subsidiaries. The Non-Regulated Businesses’ expense increased $8.2 million primarily due to an increased cost for Homeowner Services Group of $2.6 million associated with an increase in its customer base, higher maintenance expenses in the Contract Operations Group including increased cost associated with the Contract Operations’ Acquisition of $2.4 million and our military contracts resulting from incremental construction projects and growth mainly related to the Fort Meade and Fort Belvoir locations.

~~Customer billing and accounting expenses increased by $0.3 million, or 0.9%, for the nine months ended September 30, 2010 compared to the same period in the prior year.~~

   For the nine months ended September 30,
   2010    2009    Increase
(Decrease) Percentage
   (In thousands)
Uncollectible accounts expense
   $ 16,356       $ 17,337       $ (981 ) (5.7 )%
Postage
   9,834       9,304       530    5.7 %
Other
   10,839       10,048       791    7.9 %

Total
   $ 37,029       $ 36,689       $ 340    0.9 %

The decrease in the uncollectible accounts expense was the result of lower uncollectible accounts expense in our Regulated Businesses of $1.0 million due to improved collections in our receivables in excess of 120 days partially offset by increased reserves due to higher revenues.

~~Other~~ operation and maintenance ~~expenses include casualty~~expense, which is explained above, higher general taxes and ~~liability insurance premiums and regulatory costs. These costs decreased by $9.3 million, or 23.6%, in 2010.~~

   For the nine months ended September 30,
   2010    2009    Increase
(Decrease) Percentage
   (In thousands)
Insurance
   $ 21,351       $ 27,496       $ (6,145 ) (22.3 )%
Regulatory expenses
   8,827       11,996       (3,169 ) (26.4 )%

Total
   $ 30,178       $ 39,492       $ (9,314 ) (23.6 )%

~~The decrease in insurance expense is primarily due to the positive resolution~~a loss on sale of prior years’ claims in 2010 compared to 2009. Regulatory expenses decreased due to the inclusion of $3.5 million of expense for the nine months ended September 30, 2009 which related to rate case expenses associated with our California subsidiary.

~~Depreciation and amortization~~Depreciation and amortization expense increased by $15.2 million, or 7.0%, for the nine months ended September 30, 2010 compared to the same period in the prior year as a result of additional utility plant being placed in service.fixed assets.

~~General taxes~~General taxes expense, which includes taxes for property, payroll, gross receipts, and other miscellaneous items, increased by 9.8 million, or 6.3%, in the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. This increase was due to higher gross receipts taxes of $5.6 million, primarily in our New Jersey regulated subsidiary and higher payroll taxes of $2.6 million resultingIncome from ~~increased wages and salaries for the nine months ended September 30, 2009 compared to the same period in the prior year.~~

~~Impairment charge~~ No impairment charge was recorded for the nine months ended September 30, 2010. For the nine months ended September 30, 2009, we recorded an impairment charge to goodwill of our Regulated Businesses in the amount of $448.2 million and our Non-regulated Business of $1.8 million. The impairment charge, which was recorded in the first quarter of 2009, was primarily related to the high degree of stock market volatility experienced and the sustained period for which the Company’s market price was below its carrying value.

~~Other income (expenses)~~Interest expense, net of interest income, which is the primary component of our other income (expenses), increased by $12.5 million, or 5.7%, for the nine months ended September 30, 2010 compared to the same period in 2009. The increase is primarily due to the refinancing of short-term debt with long-term debt during 2009 as well as increased borrowing associated with capital expenditures. As a result of the 2008 market disruptions, the Company’s short-term debt borrowings during the first half of 2009 were higher than usual. During 2009, a significant portion of this debt was refinanced to long-term fixed rate debt whose rates are higher than the short-term rates that existed for the nine months ended September 30, 2009. Partially offsetting this increase was the recognition of $3.6 million of fair value uplift for a debt issuance that was called for early redemption in September 2010. Also, in addition to the increase in interest expense, AFUDC decreased by $3.1 million for the nine months ended September 30, 2010 compared to the same period in 2009 as a result of plant being placed into service, primarily in our Arizona and Indiana regulated subsidiaries. Furthermore, other income increased due to increased joint venture income and changes in the market value of Company-held deferred compensation. Other income (expense) also reflects the release of the remaining balance of a loss reserve of $1.3 million as a result of the resolution of outstanding issues and uncertainties that occurred during the nine months ended September 30, 2010.

~~Provision for~~continuing operations before income taxes~~Our consolidated provision for income taxes increased $52.0~~. The $3.2 million or 54.8%, to $146.9 million for the nine months ended September 30, 2010. The effective tax rates for the nine months ended September 30, 2010 and 2009 were 39.2% and (54.3%) respectively. Included in the 2010 and 2009 income tax expense were tax benefits of $1.6 million and $14.2 million, respectively, attributable to certain discrete items, including the tax effects of the 2009 goodwill impairment charge. The Company’s estimated annual effective tax rate for the nine months ended September 30, 2010 was 39.7% compared to 39.6% for 2009, excluding the impact of the various discrete items.

~~Net income (loss)~~~~Net income for the nine months ended September 30, 2010 was $227.7 million compared to a net loss of $269.5 million for the nine months ended September 30, 2009. The~~ variation between ~~the~~ periods is the result of the aforementioned operating revenues and operating expenses changes.

Liquidity and Capital Resources

~~We regularly evaluate cash requirements for current operations, commitments, development activities~~For a general overview of our sources and ~~capital expenditures. Our business is very capital intensive and requires significant capital resources. A portion~~uses of ~~these~~ capital resources, ~~are provided by internally generated cash flows from operations. When necessary, we obtain additional funds from external sources~~see the introductory discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources,” contained in part II, Item 7 of our Annual Report on Form 10-K for the ~~debt and equity capital markets and through bank borrowings. Our~~year ended December 31, 2010.

We believe that our ability to access to external financing on reasonable terms depends on our credit ratings and current business conditions, including that of the water utility industry in general as well as conditions in the debt or equity capital markets. If these business and market conditions deteriorate to the extent that we no longer have access to the capital markets, ~~at reasonable terms, we have access to revolving credit facilities with aggregate bank commitments of $850.0 million. We rely on these~~our revolving credit facilities and ~~the capital markets~~our cash flows from operations will generate sufficient cash to ~~fulfill~~fund our short-term capital requirements. The Company funds liquidity needs ~~to issue letters of credit~~for capital investment, working capital and ~~to back our~~other financial commitments through cash flows from operations, public and private debt offerings, commercial paper ~~program. Disruptions~~markets and credit facilities with $850.0 million in aggregate total commitments from a diversified group of banks. The Company closely monitors the financial condition of the financial institutions associated with its credit ~~markets may discourage lenders from meeting their existing lending~~

commitments, extending the terms of such commitments or agreeing to new commitments. Market disruptions may also limit our ability to issue debt securities in the capital markets. See the “Credit Facilities and Short-Term Debt” section below for further discussion.facilities.

In order to meet our short-term liquidity needs, we primarily issue commercial ~~paper which is backed by AWCC’s~~paper. We also have $850 million in revolving credit ~~facilities.~~facilities, which management views primarily as an alternative source of short-term capital in the event we are unable to fulfill our cash needs through the commercial paper markets. The revolving credit facilities are also used, to a limited extent, to support our issuance of letters of credit. AWCC had ~~$814.0~~$0.2 million ~~available~~of outstanding borrowings and $36.2 million of outstanding letters of credit under its credit facilities as of ~~October 29, 2010,~~March 31, 2011. As of March 31, 2011, AWCC had $813.6 million under our credit facilities that we can use to fulfill our short-term liquidity needs, to issue letters of credit and back our ~~$135.6~~$313.1 million outstanding commercial paper. ~~As of October 29, 2010, the Company can issue additional commercial paper of $564.4 million.~~ We can provide no assurances that our lenders will meet their existing commitments or that we will be able to access the commercial paper or loan markets in the future on terms acceptable to us or at all.

In addition, our regulated utility subsidiaries receive advances and contributions from customers, home builders and real estate developers to fund construction necessary to extend service to new areas. Advances for construction are refundable for limited periods, which vary according to state regulations, as new customers begin to receive service or other contractual obligations are fulfilled. Amounts which are no longer refundable are reclassified to contributions in aid of construction. Utility plant funded by advances and contributions is excluded from the rate base. Generally, we depreciate contributed property and amortize contributions in aid of construction at the composite rate of the related property. Some of our subsidiaries do not depreciate contributed property, based on regulatory guidelines.

We use our capital resources, including cash, to (i) fund capital requirements, including construction expenditures, (ii) pay off maturing debt, (iii) pay dividends, (iv) fund pension and postretirement welfare obligations and (v) invest in new and existing ventures. We spend a significant amount of cash on construction projects that have a long-term return on investment. Additionally, we operate in rate-regulated environments in which the amount of new investment recovery may be limited, and where such recovery takes place over an extended period of time, as our recovery is subject to regulatory lag. As a result of these factors, our working capital, defined as current assets less current liabilities, was in a net deficit position of $114.0 million as of September 30, 2010. We expect to fund future maturities of long-term debt through cash flow from operations, issuance of debt and issuance of equity. Since we continue to make investments equal to or greater than our cash flows from operating activities, we have no plans to reduce debt significantly.

On February 17, 2009, the American Recovery and Reinvestment Tax Act of 2009, which we refer to as the Act, became law. As a result of the Act, we have applied and will continue, as long as available, to apply for subsidized financing under the Act or other governmental subsidized funds in many of the states where we operate. During the nine months ended September 30, 2010, we received $5.5 million in grants and loans of $3.5 million and $2.0 million, respectively, related to applications filed in 2009. To date we have drawn down $6.5 million in grants and loans, leaving $2.3 million to be drawn in the future. In addition, we were awarded approximately $11.4 million in low-interest financing from the Pennsylvania Infrastructure Investment Authority (“PENNVEST”). These PENNVEST awards will be used to fund a portion of the Rock Run water treatment plant upgrade as well as other specified projects. Also during the three months ended September 30, 2010, we had draws of $0.3 million from a low interest loan through the Ohio State Revolving Loan Authority, bringing the total draws on that loan to date to $1.3 million. Lastly, in 2010, NJAWC applied for $21.0 million of funds through the New Jersey Environmental Infrastructure Trust. As of October 29, 2010, $1.5 million has been awarded, but no funds have been received.

Cash Flows from Operating Activities

Cash flows from operating activities primarily result from the sale of water and wastewater services and, due to the seasonality of ~~operations,~~demand, are ~~weighted toward~~greatest during the third quarter of each fiscal year. Our future cash flows from operating activities will be affected by economic utility regulation; infrastructure investment; inflation; compliance with environmental, health and safety standards; production costs; customer growth; declining per customer usage of water; and weather and seasonality.

Cash flows from operating activities have been a reliable, steady source of cash funding, sufficient to meet operating requirements, our dividend payments and a portion of our capital expenditures requirements. We will seek access to debt and equity capital markets to meet the balance of our capital expenditure requirements as needed. There can be no assurance that we will be able to access such markets successfully on favorable terms or at all. Operating cash flows can be negatively affected by changes in our rate regulated environments or changes in our customers’ economic outlook and ability to pay for service in a timely manner. We can provide no assurance that our customers’ historical payment pattern will continue in the future. Cash flows from operating activities for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 were ~~$587.0~~$161.5 million compared to ~~$471.6~~$176.0 million for the ~~nine~~three months ended ~~September 30, 2009.~~

March 31, 2010.

The following table provides a summary of the major items affecting our cash flows from operating activities for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 and ~~2009:~~2010:


	For the nine months ended September 30,						For the three months ended March 31,
	2010			2009			2011			2010
	(In thousands)						(In thousands)
Net income (loss)	$	227,673		$	(269,454	)	$	47,332		$	30,808
Add (subtract):
Non-cash operating activities (1)		498,909			872,353
Changes in working capital (2)		(28,816	)		(40,921	)
Non-cash operating activities(1)								133,027			148,332
Changes in working capital(2)								29,970			34,630
Pension and postretirement healthcare contributions		(110,739	)		(90,427	)		(48,803	)		(37,780	)

Net cash flows provided by operations	$	587,027		$	471,551		$	161,526		$	175,990

(1)

Includes, ~~(gain) loss on sale of businesses,~~ depreciation and amortization, ~~impairment charges, removal costs net of salvage,~~ provision for deferred income taxes, amortization of deferred investment tax credits, provision for losses on utility accounts receivable, allowance for other funds used during construction, (gain) loss on sale of assets, ~~deferred regulatory costs, amortization of deferred charges~~and pension and non-pension post retirement benefits expense and other non-cash ~~items, net, less pension and postretirement healthcare contributions.~~items. Details of each component can be found in the Consolidated Statements of Cash Flows.

(2)

Changes in working capital include changes to accounts receivable and unbilled utility revenue, income taxes, taxes receivable, ~~(including federal income),~~ other current assets, accounts payable, taxes accrued (including ~~federal income)~~income taxes), interest accrued and other current liabilities.

The ~~increase~~decrease in cash flows from operations for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 compared to the same period in ~~2009~~2010 is primarily ~~due to an increase in revenues.~~

~~For~~driven by additional pension contributions and the nine months ended September 30, 2010 and 2009, we made pension and postretirement benefit contributions to the plan trusts amounting to $81.7 million and $29.0 million, respectively. In October 2010, we made our final pension contribution for 2010receipt of a tax refund in the ~~amount~~first quarter of ~~$14.9 million. We currently expect to make additional postretirement benefit contributions of $9.7 million for the remainder of 2010.~~2010 that did not occur in 2011.

Currently, we are at an impasse in negotiations of our national benefits agreement with most of the labor unions representing employees in our Regulated Businesses. The current agreement expired on July 31, 2010, however negotiations have not produced a new agreement. The Company has begun to implement our “last best and final offer in order not to disrupt health care coverage for our employees. At this time, we don’t believe that this circumstance will result in a system wide work stoppage. However, management has developed contingency plans that will be implemented as necessary if a work stoppage or strike does occur. Management does not expect that such a work stoppage or strike would have a material adverse impact on our results of operations, financial position or cash flows of the Company.

Cash Flows from Investing Activities

~~Cash~~The following table provides information regarding cash flows used in investing activities ~~were as follows~~ for the periods indicated:


	For the nine months ended September 30,						For the three months ended March 31,
	2010			2009			2011			2010
	(In thousands)						(In thousands)
Net capital expenditures	$	(522,090	)	$	(592,894	)	$	(176,411	)	$	(142,682	)
Other investing activities, net (1)		16,138			66,683
Other investing activities, net(1)								10,223			4,900

Net cash flows used in investing activities	$	(505,952	)	$	(526,211	)	$	(166,188	)	$	(137,782	)

(1)

Includes ~~allowances for other funds used during construction,~~ acquisitions, proceeds from the sale of assets and securities, ~~proceeds from the sale of discontinued operations,~~ removal costs from property, plant and equipment retirements, ~~receivables from affiliates, restricted~~net and net funds ~~and investment in equity investee.~~released.

Cash flows used in investing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ were ~~$506.0~~$166.2 million and ~~$526.2~~$137.8 million, respectively. Capital expenditures ~~decreased $70.8~~increased $33.7 million to ~~$522.1~~$176.4 million for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 from ~~$592.9~~$142.7 million for the ~~nine~~three months ended September 30, 2009. This decrease was the result of delayed construction in 2010, due to the severe weather conditions in certain states in which we operate in the first quarter of 2010 as well as a decrease in water treatment plant expenditures, as a number of facilities were under construction in 2009 and had significant expenditures. We estimate that Company-funded capital investment will be approximately $800 million to $1 billion inMarch 31, 2010. Based on current projections for the remainder of 2010, we believe we will be at the lower end of this range. We intend to invest capital prudently to provide essential services to our regulated customer base, while working with regulators in the various states in which we operate to have the opportunity to earn an appropriate rate of return on our investment and a return of our investment.

The change in “Other investing activities” in 2010 is the result of the change in the net restricted funds released attributable primarily to the drawdown of the restricted funds by our Kentucky and Pennsylvania operating companies.

Our infrastructure investment plan consists of both infrastructure renewal programs, where we replace infrastructure as needed, and major capital investment projects, where we construct new water and wastewater treatment and delivery facilities to meet new customer growth and water quality regulations. An integral aspect of our strategy is to seek growth through tuck-ins and other acquisitions which are complementary to our existing business and support the continued geographical diversification and growth of our operations. Generally, acquisitions are funded initially with short-term debt and later refinanced with the proceeds from long-term debt or equity offerings.

~~Our projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors.~~

In 2008, the Kentucky Public Service Commission approved Kentucky American Water’s application for a certificate of convenience and necessity to construct a 20.0 million gallon per day treatment plant on the Kentucky River and a 30.6 mile pipeline to meet Central Kentucky’s water supply deficit with total estimated construction costs of $164 million. Projects costs amounting to $162 million were placed in service during September 2010.

In regards to our business transformation initiative to enhance existing processes and upgrade supporting outdated systems, in the second quarter of 2010, we completed our evaluation of appropriate software solutions and selected SAP AG for our enterprise-wide system. Additionally, in October 2010, we selected a nationally recognized system integrator with experience in both SAP and large system implementations. For the remainder of 2010, we expect to work with the system integrator to analyze our business requirements and align them with the SAP supporting applications.

Current estimates indicate that costs for the program could total up to $280 million. The current goal is to have all applications implemented by the end of 2014. Any capital expenditures associated with this initiative are included in the $800 million to $1 billion capital investment spending outlined above.

Our investing activities could require considerable capital resources which we have generated through operations and attained through financing activities. We can provide no assurance that the resources will be sufficient to meet our expected investment needs and may be required to delay or reevaluate our investment plans.

Cash Flows from Financing Activities

Our financing activities, ~~whose primary purpose is to fund~~primarily focused on funding capital expenditures, include the issuance of long-term and short-term debt, primarily through ~~our wholly-owned financing subsidiary,~~ AWCC. We intend to access the capital markets on a regular basis, subject to market conditions. In addition, new infrastructure may be financed with customer advances and contributions for construction (net of refunds).

The following long-term debt was ~~issued in the first nine months of 2010:~~

Company

Type
   Interest
Rate Maturity    Use
of Proceeds    Amount
(In thousands)
American Water Capital Corp.
   Private activity bonds and government funded debt – fixed rate    5.38 % 2040       a       $ 26,000
American Water Capital Corp.
   Private activity bonds and government funded debt – fixed rate    5.25 % 2040       b       25,000
American Water Capital Corp.
   Private activity bonds and government funded debt – fixed rate    5.25 % 2040       c       35,000
American Water Capital Corp.
   Private activity bonds and government funded debt – fixed rate    4.85 % 2040       d       25,000
American Water Capital Corp.
   Private activity bonds and government funded debt – fixed rate    5.25 % 2028       e       10,635
Other subsidiaries
   Private activity – fixed rate    4.45% - 5.60 % 2023-2034       f       150,000
Other subsidiaries
   Private activity – fixed rate    0.00% - 2.31 % 2021-2030       g       1,906

Total issuances
            $ 273,541

~~Note: Private activity type defined as private activity bonds and government funded debt.~~

~~(a)~~ On June 24, 2010, AWCC closed an offering of $26 million in tax-exempt water facility revenue bonds issued by Owen County, Kentucky. The bonds have a coupon rate of 5.38% with a maturity of 2040 and a 10-year call option. The proceeds from the bond offering will be used to repay short-term debt related to the construction of the water treatment and transmission facility located in Owen County, Kentucky, as well as to pay remaining costs of acquisition, construction, installation and equipping of the water treatment and transmission facility.
~~(b)~~ On May 27, 2010, AWCC closed an offering of $25 million in tax-exempt water facility revenue bonds issued by the Illinois Finance Authority. The bonds have a coupon rate of 5.25% with a maturity of 2040 and a 10-year call option. The proceeds from the bond offering will be used to fund water facility projects in Champaign, Livingston, Logan, Madison, Peoria, and St. Clair counties in Illinois.
~~(c)~~ On August 18, 2010, AWCC closed an offering of $35 million in tax-exempt bonds issued through the State of California Pollution Control Financing Authority. The bonds have a coupon rate of 5.25% with a 30-year maturity and a 10-year call option. The proceeds from bond offering will be used to fund specific California-American Water Company projects.
~~(d)~~ On September 16, 2010, AWCC closed an offering of $25 million in tax-exempt water facility revenue bonds issued through the Indiana Finance Authority. The bonds have a coupon rate of 4.85% with a 30-year maturity and a 10-year call option. The proceeds from the bonds will be used to fund a water facility project in Indiana-American Water Company’s service territory.
~~(e)~~ Represents $10.6 million of variable rate debt that was held in the Company’s treasury at June 30, 2010 because no investors were willing to purchase the bonds. On July 27, 2010, this variable rate debt was remarketed as fixed rate bonds with a coupon rate of 5.25% and a maturity date of 2028.
~~(f)~~ On July 9, 2010, our operating subsidiary, New Jersey American-Water Company, Inc. (NJAWC), closed on a refunding of four outstanding bonds issuances. To accomplish this refunding, the New Jersey Economic Development Authority issued three new services of bonds on behalf of NJAWC. The new bonds have coupon rates of 5.60%, 5.10% and 4.45% and maturities of 2034, 2023 and 2023, respectively.
~~(g)~~ ~~Proceeds received from various financing/development authorities. The proceeds will be used to fund certain projects~~

~~The following long-term debt was~~ retired through optional redemption, sinking fund provisions or payment at maturity during the first ~~nine~~three months of ~~2010:~~2011:

Company

Type
   Interest
Rate Maturity    Amount
(In thousands)
American Water Capital Corp.
   Senior notes-fixed rate    6.00% - 6.87 % 2011-2039       $ 28,152
Other subsidiaries
   Mortgage bonds-fixed rate    7.86% - 8.98 % 2010-2011       10,230
Other subsidiaries
   Private activity-fixed rate and government funded debt    0.00% - 6.88 % 2010-2036       157,514
Other subsidiaries
   Mandatory redeemable preferred stock    4.60% - 6.00 % 2013-2019       140
Other
   Capital leases & other       553

Total retirements & redemptions
         $ 196,589

Company

Type

Interest Rate

Maturity
   Amount
(In thousands)
American Water Capital Corp.
   Senior notes – fixed rate    6.00%-6.87%    2011-2039    $ 28,041
Other subsidiaries
   Mortgage bonds – fixed rate    8.21%-9.71%    2011-2022    33,046
Other subsidiaries
   Private activity bonds and government
funded debt    0.00%-5.90%    2011-2030    1,393
Other(a)
   Capital leases          3,644

Total retirements & redemptions
            $ 66,124

As previously noted, on July 9, 2010, our New Jersey regulated subsidiary closed on a refunding of four outstanding bond issues totaling $150 million. The new bonds have coupon rates of 5.60%, 5.10% and 4.45% and mature in 2034, 2023 and 2023, respectively. Estimated annual interest expense savings of $1.2 million are expected as a result of this refunding and has been taken into consideration during the on-going negotiations in connection with the current outstanding rate case.

In July 2010, we entered into an interest rate swap agreement with a notional amount of $100.0 million. This interest rate swap agreement effectively converted the interest on $100.0 million of outstanding 6.085% fixed rate debt maturing 2017 to a variable rate of six-month LIBOR plus 3.422%. This interest rate swap agreement was designated as a fair value hedge in accordance with authoritative accounting guidance. Subject to market conditions at the time, we would consider entering into additional agreements of this nature in the foreseeable future. For the three and nine months ended September 30, 2010, the net impact of the interest rate swap, including the hedge ineffectiveness portion, reduced interest expense by $0.2 million.

As previously noted, on November 1, 2010, our New Jersey regulated subsidiary closed on refinancing of two outstanding bond issues totaling $75.0 million. The new bonds have interest rates of 4.88% and 4.70% and mature in 2029 and 2025. Estimated annual interest expense savings of $0.7 million have been taken into consideration during the on-going negotiations in connection with the current outstanding rate case.

(a)	Includes a non-cash redemption of $3,487 associated with a cancelled sublease and a capital lease arrangement.

From time to time, and as market conditions warrant, we may engage in long-term debt retirements via tender offers, open market repurchases or other viable ~~alternatives to strengthen our balance sheets.~~alternatives.

Credit Facilities and Short-Term Debt

The components of short-term debt at March 31, 2011 were as follows:


	September 30, 2010		Amount
	(In thousands)		(In thousands)
Revolving credit lines			$	160
Commercial paper, net	$	163,993		313,081
Bank overdraft		17,848		10,243

Total short-term debt	$	181,841	$	323,484

~~At September 30, 2010, AWCC had the~~The following ~~sub-limits~~table provides information as of March 31, 2011, regarding letters of credit sub-limit and available ~~capacity~~capacities under the revolving credit facility, ~~and indicated~~as well as outstanding amounts of ~~outstanding~~ commercial ~~paper.~~paper and borrowings under the revolving credit facilities.

   Credit Facility
Commitment    Available
Credit Facility
Capacity    Letter of Credit
Sublimit    Available
Letter of Credit
Capacity    Outstanding
Commercial
Paper
(Net of Discount)    Credit Line
Borrowings
   (In thousands)    (In thousands)    (In thousands)    (In thousands)    (In thousands)    (In thousands)
September 30, 2010
   $ 850,000       $ 814,038       $ 150,000       $ 114,038       $ 163,993       —


	Credit Facility Commitment		Available Credit Facility Capacity		Letter of Credit Sub-limit		Available Letter of Credit Capacity		Outstanding Commercial Paper (Net of Discount)		Credit Line Borrowings
	(In thousands)
March 31, 2011	$	850,000	$	813,614	$	150,000	$	113,774	$	313,081	$	160

Interest rates on advances under the revolving credit facility are based on either the prime rate or LIBOR, plus an applicable margin based upon our credit ratings, as well as total outstanding amounts under the ~~agreement~~facility at the time of the borrowing. The current spread over LIBOR is ~~22.5~~2.5 basis points and the maximum spread over LIBOR is 55 basis points.

The weighted average interest rate on short-term borrowings for the ~~nine~~three months ended ~~September 30, 2010~~March 31, 2011 was approximately ~~0.42%~~0.40% compared to ~~0.85%~~0.34% for the ~~nine~~three months ended ~~September 30, 2009.~~March 31, 2010.

AWCC has entered into a $10.0 million committed revolving line of credit with PNC Bank, N.A which expires on December 31, ~~2010,~~2011 unless extended. ~~Currently, we expect to renew this line of credit at similar interest rates prior to the termination date.~~ This line is used primarily for short-term working capital needs. Interest rates on advances under this line of credit are based on one month LIBOR plus 175 basis points. In addition, there is a fee of 25 basis points charged quarterly on the portion of the commitment that is undrawn. As of October 29, 2010, we had no outstanding borrowings under this revolving line of credit. If this line of credit were not extended beyond its current maturity date of December 31, 2010, AWCC would continue to have access to its $840.0 million unsecured revolving credit facility described below.

AWCC, our finance subsidiary, entered into an $840.0 million senior unsecured revolving credit facility syndicated among a group of 11 banks with JPMorgan Chase Bank, N.A. acting as administrative agent.

Bank
   Commitment Amount
Through
September 15, 2012    Commitment Amount
Through
September 15, 2013
   (In thousands)
JPMorgan Chase Bank, N.A.
   $ 115,000       $ —
Citibank, N.A.
   115,000       115,000
Citizens Bank of Pennsylvania
   80,000       80,000
Credit Suisse
   80,000       80,000
William Street Commitment Corporation
   80,000       80,000
Bank of America, N.A.
   80,000       80,000
Morgan Stanley Bank
   80,000       80,000
UBS Loan Finance LLC
   80,000       80,000
National City Bank
   50,000       50,000
PNC Bank, National Association
   40,000       40,000
The Bank of New York Mellon
   40,000       —

   $ 840,000       $ 685,000

~~If any lender defaults in its obligation~~We intend to ~~fund advances, the Company may request the other lenders to assume the defaulting lender’s commitment~~renegotiate or replace our credit facilities prior to their expiration in order to provide sufficient liquidity to finance operations and construction expenditures. The availability and terms of such ~~defaulting lender by designating an assignee willing to assume~~credit facilities will depend on the ~~commitment, however the remaining lenders have no obligation to assume a defaulting lender’s commitment~~credit markets at that time, as well as our credit ratings and we can provide no assurances that we will replace a defaulting lender. As of October 29, 2010, AWCC had no outstanding borrowings under its lines of credit, $36.0 million of outstanding letters of credit under this credit facility and $135.6 million of commercial paper outstanding.operating results.

Capital Structure

~~Our~~The following table provides information regarding our capital structure ~~was as follows:~~for the periods presented:


	At September 30, 2010			At December 31, 2009			At March 31, 2011			At December 31, 2010
Common stockholders’ equity and preferred stock without mandatory redemption rights		42	%		42	%
Common stockholder equity and preferred stock without mandatory redemption rights								42	%		42	%
Long-term debt and redeemable preferred stock at redemption value		56	%		56	%		55	%		55	%
Short-term debt and current portion of long-term debt		2	%		2	%		3	%		3	%

		100	%		100	%		100	%		100	%

Debt Covenants

Our debt agreements contain financial and non-financial covenants. To the extent that we are not in compliance, we or our subsidiaries may be restricted in our ability to pay dividends, issue debt or access our revolving credit ~~lines.~~facility. We were in compliance with our covenants as of September 30, 2010. However our California and Ohio subsidiaries did not meet the interest coverage test of at least 1.5x for the twelve months ended September 30, 2010 under the mortgage indenture and therefore they would be unable to issue new secured debt.March 31, 2011. Our failure to comply with restrictive covenants under our credit facilities could ~~trigger~~accelerate repayment obligations. ~~Long-term~~Our long-term debt indentures contain a number of covenants that, among other things, limit ~~subject to certain exceptions,~~ the Company from issuing debt secured by the Company’s ~~assets.~~assets, subject to certain exceptions.

The revolving credit facility requires us to maintain a ratio of consolidated debt to consolidated capitalization of not more than 0.70 to 1.00. As of ~~September 30, 2010,~~March 31, 2011, our ratio was 0.58 and therefore we were in compliance with the ~~ratio.~~covenant.

Security Ratings

Our access to the capital markets, including the commercial paper market, and respective financing costs in those markets, ~~depend on the~~is directly affected by securities ratings of the entity that is accessing the capital markets. We primarily access the capital markets, including the commercial paper market, through AWCC. However, ~~we do issue debt at~~ our regulated subsidiaries also issue debt primarily in the form of tax exempt securities, to lower our overall cost of debt. On January 28, 2011, Standard & Poor’s Ratings Service, which we refer to as S&P, reaffirmed its ratings. Both S&P and Moody’s rating outlook for both American Water and AWCC is stable.

The following table shows the Company’s securities ratings as of ~~September 30, 2010:~~March 31, 2011:


Securities	Moody’s Investors Service		Standard & Poor’s Ratings Service
Senior unsecured debt		Baa2		BBB+
Commercial paper		P2		A2

~~Moody’s rating outlook for both American Water and AWCC is stable.~~

~~On July 28, 2010, Standard & Poor’s reaffirmed its ratings.~~

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently of any other rating. Security ratings are highly dependent upon our ability to generate cash flows in an amount sufficient enough to service our debt and meet our investment plans. We can provide no assurances

that our ability to generate cash ~~flow~~flows is sufficient to maintain our existing ratings. None of our borrowings are subject to default or prepayment as a result of the downgrading of these security ratings, although such a downgrading could increase fees and interest charges under our credit facilities.

As part of the normal course of business, we routinely enter into contracts for the purchase and sale of water, energy, fuels and other services. These contracts either contain express provisions or otherwise permit us and our counterparties to demand adequate assurance of future performance when there are reasonable grounds for doing so. In accordance with the contracts and applicable contract law, if we are downgraded by a credit rating agency, especially if such downgrade is to a level below investment grade, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of future performance. Depending on ~~the Company’s~~our net position with a counterparty, the demand could be for the posting of collateral. In the absence of expressly agreed provisions that specify the collateral that must be provided, the obligation to supply the collateral requested will ~~be a function of~~depend upon the facts and circumstances of ~~the Company’s~~our situation at the time of the demand. If we can reasonably claim that we are willing and financially able to perform our obligations, it may be possible to argue successfully that no collateral should be posted or that ~~only~~ an amount equal only to two or three months of future payments should be sufficient. We do not expect ~~to post any~~that our posting of collateral ~~which~~ will have a material adverse impact on ~~the Company’s~~our results of ~~operation,~~operations, financial position or cash flows.

Dividends

Our board of directors has adopted a dividend policy to distribute to our stockholders a portion of our net cash provided by operating activities as regular quarterly dividends, rather than retaining that cash for other purposes. Generally, our ~~policy~~board’s practice is to distribute 50% to 70% of our net income annually. We expect that dividends will be paid ~~every March, June, September and December of each fiscal year~~quarterly to holders of record approximately 15 days prior to the distribution date. Since the dividends on our common stock will not be cumulative, only declared dividends will be paid.

OnIn March 1,2011, the Company made a cash dividend payment of $0.22 per share to all shareholders of record as of February 18, 2011. In March 2010, the Company made a cash dividend payment of $0.21 per share to all ~~common~~ shareholders of record as of February 18, 2010, amounting to $36.7 million. On June 1, 2010, the Company made a cash dividend payment of $0.21 per share to all common shareholders of record as of May 18, 2010, amounting to $36.7 million. On September 1, 2010, the Company made a cash dividend payment of $0.22 per share to all common shareholders of record as of August 18, 2010, amounting to $38.5 million.

In March 2009 and June 2009, the Company made a cash dividend payment of $0.20 per share to all common shareholders of record as of February 18, 2009 and May 18, 2009, respectively. In September 2009, the Company made a cash dividend payment of $0.21 per share to all common shareholders of record as of August 18, 2009, amounting to $36.7 million.2010.

On ~~October~~April 29, ~~2010, the Company~~2011, our board of directors declared a quarterly cash dividend payment of $0.22 per share payable on ~~December~~June 1, ~~2010~~2011 to all shareholders of record as of ~~November~~May 18, ~~2010.~~

On March 23, 2010, we announced a dividend reinvestment and direct stock purchase plan which enables stockholders to reinvest cash dividends and purchase additional Company common shares without any brokerage commissions or service charges.

~~Current Credit Market Position~~

The Company believes it has sufficient liquidity should there be a disruption of the capital and credit markets. The Company funds liquidity needs for capital investment, working capital and other financial commitments through cash flows from operations, public and private debt offerings, commercial paper markets and credit facilities with $850.0 million in aggregate total commitments from a diversified group of banks. As of October 29, 2010, we had $814.0 million available to fulfill our short-term liquidity needs, to issue letters of credit and back our outstanding commercial paper. As of October 29, 2010, the Company can issue additional commercial paper of $564.4 million which is backed by the credit facilities. The Company closely monitors the financial condition of the financial institutions associated with its credit facilities.

The Company expects to have access to liquidity in the capital markets on favorable terms before the maturity dates of its current credit facilities and the Company does not expect a significant number of its lenders to default on their commitments thereunder. In addition, the Company can delay major capital investments or pursue financing from other sources to preserve liquidity, if necessary. The Company believes it can rely upon cash flows from operations to meet its obligations and fund its minimum required capital investments for an extended period of time.2011.

Market Risk

~~We are exposed~~There have been no significant changes to our market risk since December 31, 2010. For a discussion of our exposure to market risk, ~~associated with changes in commodity prices, equity prices~~refer to Part II, Item 7A. “Quantitative and interest rates. We are exposed to risks from changes in interest rates as a result of our issuance of variable and fixed rate debt and commercial paper. We manage our interest rate exposure by limiting our variable rate exposure and by monitoring the effects of market changes in interest rates. We

also have the ability to enter into financial derivative instruments, which could include instruments such as, but not limited to, interest rate swaps, swaptions, and U.S. Treasury lock agreements to manage and mitigate interest rate risk exposure. As of September 30, 2010, a hypothetical increase of interest rates by 1% associated with variable-rate debt and commercial paper would result in a $0.4 million decreaseQualitative Disclosures about Market Risk,” contained in our ~~pre-tax earnings~~Annual Report on Form 10-K for the year ended December 31, 2010.

As previously noted above, in July 2010, we entered into an interest rate swap agreement with a notional amount of $100.0 million. This agreement effectively converted the interest on $100.0 million of outstanding 6.085% fixed rate debt maturing 2017 to a variable rate of six-month LIBOR plus 3.422%. We entered into this interest rate swap to mitigate interest cost at the parent company relating to debt that was incurred by our prior owners and was not used in any manner to finance the cash needs of our subsidiaries. As the swap interest rates are fixed through April 2011, a hypothetical 1% increase in the interest rates associated with the interest swap agreement would result in no impact on our pre-tax earnings for the year December 31, 2010. This calculation holds all other variables constant and assumes only the discussed changes in interest rates.

Our risks associated with price increases for chemicals, electricity and other commodities are reduced through contractual arrangements and the ability to recover price increases through rates. Non-performance by these commodity suppliers could have a material adverse impact on our results of operations, cash flows and financial position.

The market price of our common stock may experience fluctuations, many of which are unrelated to our operating performance. In particular, our stock price may be affected by general market movements as well as developments specifically related to the water and wastewater industry. These could include, among other things, interest rate movements, quarterly variations or changes in financial estimates by securities analysts and governmental or regulatory actions. This volatility may make it difficult for us to access the capital markets in the future through additional offerings of our common stock, regardless of our financial performance, and such difficulty may preclude us from being able to take advantage of certain business opportunities or meet business obligations.

We are exposed to credit risk through our water, wastewater and other water-related activities for both our Regulated and Non-Regulated Businesses. Our Regulated Businesses serve residential, commercial, industrial and municipal customers while our Non-Regulated Businesses engage in business activities with developers, government entities and other customers. Our primary credit risk is exposure to customer default on contractual obligations and the associated loss that may be incurred due to the nonpayment of customer accounts receivable balances. Our credit risk is managed through established credit and collection policies which are in compliance with applicable regulatory requirements and involve monitoring of customer exposure and the use of credit risk mitigation measures, such as letters of credit or prepayment arrangements. Our credit portfolio is diversified with no significant customer or industry concentrations. In addition, our Regulated Businesses are generally able to recover all prudently incurred costs including uncollectible customer accounts receivable expenses and collection costs through rates.

The Company’s retirement trust assets are exposed to the market prices of fixed income and equity securities. Changes to the retirement trust asset value can impact the Company’s pension and other benefits expense, funded status and future minimum funding requirements. Our risk is reduced through our ability to recover pension and other benefit costs through rates. In addition, pension and other benefits liabilities decrease as fixed income asset values decrease (fixed income yields rise) since the rate at which we discount pension and other retirement trust asset future obligations is highly correlated to fixed income yields.

We are also exposed to a potential national economic recession or further deterioration in local economic conditions in the markets in which we operate. The credit quality of our customer accounts receivable is dependent on the economy and the ability of our customers to manage through unfavorable economic cycles and other market changes. In addition, as a result of the downturn in the economy and heightened sensitivity of the impact of additional rate increases on certain customers, there can be no assurances that regulators will grant sufficient rate authorizations. Therefore our ability to fully recover operating expenses, recover our investment and provide an appropriate return on invested capital made in our Regulated Businesses may be adversely impacted.

Application of Critical Accounting Policies and Estimates

Our financial condition, results of operations and cash flows are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. See “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations—~~Operations – Critical Accounting Policies and Estimates,” in our Form 10-K for the year ended December 31, ~~2009~~2010 filed with the SEC for a discussion of ~~the~~our critical accounting policies.

Recent Accounting Pronouncements

See Part I, Item 1—1 – Financial Statements (Unaudited)— – Note 2—2 – New Accounting Pronouncements in this Quarterly Report on Form 10-Q for a discussion of new accounting standards recently adopted or pending adoption.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to market risks in the normal course of business, including changes in interest rates and equity prices. For further discussion of market risks see “Market Risk” in Part I, Item 2—2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

American Water Works Company, Inc. maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Securities Exchange Act of 1934 (“the Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any

controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act) as of ~~September 30, 2010~~March 31, 2011 pursuant to 15d-15(e) under the Exchange Act.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2010,~~March 31, 2011, our disclosure controls and procedures were effective at a reasonable level of assurance. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the ~~nine~~three months ended ~~September 30, 2010,~~March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Previously reported under Part I, Item 3 “Legal Proceedings” in the Company’s Form 10-K for the year ended December 31, ~~2009.~~

In addition, in October, 2010 a proceeding was commenced against American Water Canada Corporation, our Canadian subsidiary, and its client alleging the violation of the Ontario Safe Drinking Water Act, in connection with the temporary failure of an alum pump used for disinfection of the Elgin Area drinking water system. The Company believes it has valid defenses to these allegations and intends to vigorously defend them. While it is possible the consequence of the proceeding could result in penalties, the Company does not anticipate they will be material.2010.

ITEM 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” in the Company’s Form 10-K for the year ended December 31, ~~2009,~~2010, and our other public filings, which could materially affect our business, financial condition or future results. There have been no material changes from risk factors previously disclosed in “Risk Factors” in the Company’s Form 10-K for the year ended December 31, ~~2009 and our quarterly report for the period ended June 30, 2010 filed on August 4,~~ 2010.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.

[REMOVED AND RESERVED]

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS


Exhibit Number		Exhibit Description

*10.1		~~American Water Works Company, Inc. Executive Severance Policy, dated as of December 16, 2008~~2011 Annual Incentive Plan Highlights Brochure

*10.2		Employment Agreement between Kellye L. Walker and American Water Works Company, Inc., dated December 21, 2009

*10.3		American Water Works Company, Inc. 2007 Omnibus Equity Compensation Plan ~~September 2010 Form of~~2011 Nonqualified Stock Option Grant for ML1 – L5

*10.4		American Water Works Company, Inc. 2007 Omnibus Equity Compensation Plan 2011 Performance Stock Unit Grant ~~Agreement~~Form A for ~~Non-Employee Directors~~ML1 – L5

*10.5		American Water Works Company, Inc. 2007 Omnibus Equity Compensation Plan 2011 Performance Stock Unit Grant Form B for ML1 – L5

*31.1		Certification of Jeffry Sterba, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act

*31.2		Certification of Ellen C. Wolf, Senior Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act

*32.1		Certification of Jeffry Sterba, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act

*32.2		Certification of Ellen C. Wolf, Senior Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act

101		The following financial statements from American Water Works Company, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2010,~~March 31, 2011, filed with the Securities and Exchange Commission on ~~November 3, 2010,~~May 4, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations and Comprehensive ~~Income:~~Income; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated ~~Statement~~Statements of Changes in Stockholders’ Equity; and ~~(vi)~~(v) the Notes to Consolidated Financial Statements.

*	filed herewith.

Signatures

Pursuant to the requirements 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.~~authorized, on the 4th day of May, 2011.


		American Water Works Company, Inc. (Registrant)

	~~(Registrant)~~	/s/ Jeffry Sterba

~~November 3, 2010~~	~~/s/ Jeffry Sterba~~
~~(Date)~~	Jeffry Sterba
		President and Chief Executive Officer (Principal Executive Officer)
	~~(Principal Executive Officer)~~

~~November 3, 2010~~		/s/ Ellen C. Wolf
~~(Date)~~		Ellen C. Wolf
		Senior Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit Number		Exhibit Description

*10.1		~~American Water Works Company, Inc. Executive Severance Policy, dated as of December 16, 2008~~ 2011 Annual Incentive Plan Highlights Brochure

*10.2		Employment Agreement between Kellye L. Walker and American Water Works Company, Inc., dated December 21, 2009

*10.3		American Water Works Company, Inc. 2007 Omnibus Equity Compensation Plan ~~September 2010 Form of~~2011 Nonqualified Stock Option Grant for ML1 – L5

*10.4		American Water Works Company, Inc. 2007 Omnibus Equity Compensation Plan 2011 Performance Stock Unit Grant ~~Agreement~~Form A for ~~Non-Employee Directors~~ ML1 – L5

*10.5		American Water Works Company, Inc. 2007 Omnibus Equity Compensation Plan 2011 Performance Stock Unit Grant Form B for ML1 – L5

*31.1		Certification of Jeffry Sterba, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act

*31.2		Certification of Ellen C. Wolf, Senior Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act

*32.1		Certification of Jeffry Sterba, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act

*32.2		Certification of Ellen C. Wolf, Senior Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act

101		The following financial statements from American Water Works Company, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~September 30, 2010,~~March 31, 2011, filed with the Securities and Exchange Commission on ~~November 3, 2010,~~May 4, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of ~~Operations:~~Operations and Comprehensive Income; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated ~~Statement~~Statements of Changes in Stockholders’ Equity; ~~(v) the Consolidated Statements of Comprehensive Income~~ and ~~(vi)~~(v) the Notes to Consolidated Financial Statements.

*	filed herewith.


	Regulated Unit					Non-Regulated Units					Consolidated
	Cost		Accumulated Impairment			Cost		Accumulated Impairment			Cost		Accumulated Impairment			Total Net
Balance at January 1, 2010	$	3,565,913	$	(2,443,628	)	$	235,715	$	(107,619	)	$	3,801,628	$	(2,551,247	)	$	1,250,381
Reclassifications and other activity		36		0			275		0			311		0			311

Balance at September 30, 2010	$	3,565,949	$	(2,443,628	)	$	235,990	$	(107,619	)	$	3,801,939	$	(2,551,247	)	$	1,250,692


Balance at January 1, 2009	$	3,565,215	$	(1,995,380	)	$	235,549	$	(105,867	)	$	3,800,764	$	(2,101,247	)	$	1,699,517
Impairment losses		0		(448,248	)		0		(1,752	)		0		(450,000	)		(450,000	)
Reclassifications and other activity		550		0			0		0			550		0			550

Balance at September 30, 2009	$	3,565,765	$	(2,443,628	)	$	235,549	$	(107,619	)	$	3,801,314	$	(2,551,247	)	$	1,250,067


	September 30, 2010		December 31, 2009
Commercial paper, net of $7 and $5 discount, respectively	$	163,993	$	84,995
Bank overdraft		17,848		34,502

Total short-term debt	$	181,841	$	119,497


As of March 31, 2011	Carrying Amount		Fair Value
Preferred stocks with mandatory redemption requirements	$	23,934	$	26,763
Long-term debt (excluding capital lease obligations)		5,372,394		5,733,587


As of September 30, 2010	Carrying Amount		Fair Value
Preferred stocks with mandatory redemption requirements	$	24,020	$	28,503
Long-term debt (excluding capital lease obligations)		5,410,084		6,263,710

As of December 31, 2009	Carrying Amount		Fair Value
Preferred stocks with mandatory redemption requirements	$	24,164	$	26,257
Long-term debt (excluding capital lease obligations)		5,336,351		5,633,384


	March 31, 2011		December 31, 2010
LIABILITIES
Long-term debt	$	858	$	866
Current portion of long-term debt		8,614		8,614
Other current liabilities		15,846		17,230
Advances for construction		207,448		208,046
Regulatory liabilities		2,897		4,530
Other		7,222		8,342
Contributions in aid of construction		87,955		87,604

Total liabilities of discontinued operations	$	330,840	$	335,232


	For the three months ended September 30,
	2010		2009*		Increase (Decrease)			Percentage
	(In thousands)
Contracted services	$	23,869	$	20,578	$	3,291			16.0	%
Office supplies and services		16,652		15,855		797			5.0	%
Transportation		8,611		8,763		(152	)		(1.7	)%
Rents		6,149		5,793		356			6.1	%
Other		7,656		9,238		(1,582	)		(17.1	)%

Total	$	62,937	$	60,227	$	2,710			4.5	%


	For the nine months ended September 30,
	2010				2009
	Regulated Businesses		Non-Regulated Businesses		Regulated Businesses		Non-Regulated Businesses
	(In thousands)
Operating revenues	$	1,834,883	$	230,153	$	1,673,346	$	187,029
Adjusted EBIT(1)	$	573,381	$	18,504	$	459,355	$	16,665


Company	Type	Interest Rate			Maturity		Use of Proceeds		Amount (In thousands)
American Water Capital Corp.	Private activity bonds and government funded debt – fixed rate		5.38	%		2040		a	$	26,000
American Water Capital Corp.	Private activity bonds and government funded debt – fixed rate		5.25	%		2040		b		25,000
American Water Capital Corp.	Private activity bonds and government funded debt – fixed rate		5.25	%		2040		c		35,000
American Water Capital Corp.	Private activity bonds and government funded debt – fixed rate		4.85	%		2040		d		25,000
American Water Capital Corp.	Private activity bonds and government funded debt – fixed rate		5.25	%		2028		e		10,635
Other subsidiaries	Private activity – fixed rate		4.45% - 5.60	%		2023-2034		f		150,000
Other subsidiaries	Private activity – fixed rate		0.00% - 2.31	%		2021-2030		g		1,906

Total issuances									$	273,541


	Credit Facility Commitment		Available Credit Facility Capacity		Letter of Credit Sublimit		Available Letter of Credit Capacity		Outstanding Commercial Paper (Net of Discount)		Credit Line Borrowings
	(In thousands)		(In thousands)		(In thousands)		(In thousands)		(In thousands)		(In thousands)
September 30, 2010	$	850,000	$	814,038	$	150,000	$	114,038	$	163,993		—


Bank	Commitment Amount Through September 15, 2012		Commitment Amount Through September 15, 2013
Bank	(In thousands)
JPMorgan Chase Bank, N.A.	$	115,000	$	—
Citibank, N.A.		115,000		115,000
Citizens Bank of Pennsylvania		80,000		80,000
Credit Suisse		80,000		80,000
William Street Commitment Corporation		80,000		80,000
Bank of America, N.A.		80,000		80,000
Morgan Stanley Bank		80,000		80,000
UBS Loan Finance LLC		80,000		80,000
National City Bank		50,000		50,000
PNC Bank, National Association		40,000		40,000
The Bank of New York Mellon		40,000		—

	$	840,000	$	685,000

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company