American Water Works Co AWK · USD

Note 20: Segment InformationThe Company’s operating segments are comprised of its businesses which generate revenue, incur expense and have separate financial information which is regularly used by the chief operating decision maker to make operating decisions, assess performance and allocate resources. The Company operates its businesses primarily through one reportable segment, the Regulated Businesses segment. The Regulated Businesses segment is the largest component of the Company’s business and includes subsidiaries that provide water and wastewater services to customers in 14 states. The Company also operates other businesses, primarily MSG, which provide water and wastewater services to the U.S. government on military installations, as well as municipalities. These other businesses do not meet the criteria of a reportable segment in accordance with GAAP, and are collectively presented throughout this Annual Report on Form 10-K within “Other,” which is consistent with how management assesses the results of these businesses.The accounting policies of the segments are the same as those described in Note 2—Significant Accounting Policies. The Regulated Businesses segment includes intercompany costs that are allocated by Service Company and intercompany interest that is charged by AWCC, both of which are eliminated to reconcile to the Consolidated Statements of Operations. Inter-segment revenues include the sale of water from a regulated subsidiary to subsidiaries within Other, leased office space, and furniture and equipment provided by subsidiaries within Other to regulated subsidiaries. Other also includes corporate costs that are not allocated to the Company’s Regulated Businesses, interest income related to the secured seller promissory note from the sale of HOS, income from assets not associated with the Regulated Businesses, eliminations of inter-segment transactions and fair value adjustments related to acquisitions that have not been allocated to the Regulated Businesses segment. The adjustments related to the acquisitions are reported in Other as they are excluded from segment performance measures evaluated by management.The Company’s chief operating decision maker is the Chief Executive Officer. The chief operating decision maker uses segment net income or loss to evaluate profit generated from segment assets when making decisions about allocating resources.

Note 4: Revenue RecognitionDisaggregated RevenuesPresented in the table below are operating revenues disaggregated for the year ended December 31, 2025:Revenues from Contracts with CustomersOther Revenues Not from Contracts with Customers (a)Total Operating RevenuesRegulated Businesses:Water services: Residential$2,557 $— $2,557 Commercial981 — 981 Fire service189 — 189 Industrial195 — 195 Public and other311 — 311 Total water services4,233 — 4,233 Wastewater services: Residential287 — 287 Commercial86 — 86 Industrial10 — 10 Public and other39 — 39 Total wastewater services422 — 422 Miscellaneous utility charges49 — 49 Alternative revenue programs— 12 12 Lease contract revenue— 7 7 Total Regulated Businesses4,704 19 4,723 Other417 — 417 Total operating revenues$5,121 $19 $5,140 (a)Includes revenues associated with alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of ASC 606, and accounted for under other existing GAAP.Presented in the table below are operating revenues disaggregated for the year ended December 31, 2024:Revenues from Contracts with CustomersOther Revenues Not from Contracts with Customers (a)Total Operating RevenuesRegulated Businesses:Water services: Residential$2,344 $5 $2,349 Commercial881 4 885 Fire service164 — 164 Industrial182 2 184 Public and other291 — 291 Total water services3,862 11 3,873 Wastewater services:Residential243 2 245 Commercial70 — 70 Industrial12 — 12 Public and other36 — 36 Total wastewater services361 2 363 Miscellaneous utility charges42 — 42 Alternative revenue programs— 10 10 Lease contract revenue— 8 8 Total Regulated Businesses4,265 31 4,296 Other388 — 388 Total operating revenues$4,653 $31 $4,684 (a)Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of ASC 606, and accounted for under other existing GAAP.

Note 16: Commitments and ContingenciesCommitments have been made in connection with certain construction programs. The estimated capital expenditures required under legal and binding contractual obligations amounted to $1.5 billion as of December 31, 2025.The Company’s regulated subsidiaries maintain agreements with other water purveyors for the purchase of water to supplement their water supply. The Company purchased $138 million, $129 million and $125 million of water under these agreements during 2025, 2024 and 2023, respectively. Presented in the table below are the future annual commitments related to minimum quantities of purchased water having non-cancelable contracts:Amount2026$83 202777 202878 202979 203055 Thereafter968 The Company enters into agreements for the provision of services to water and wastewater facilities for the U.S. military, municipalities and other customers. See Note 4—Revenue Recognition for additional information regarding the Company’s performance obligations.ContingenciesThe Company is routinely involved in legal actions incident to the normal conduct of its business. As of December 31, 2025, the Company has accrued approximately $8 million of probable loss contingencies and has estimated that the maximum amount of loss associated with reasonably possible loss contingencies arising out of such legal actions, which can be reasonably estimated, is $4 million. For certain legal actions, the Company is unable to estimate possible losses. The Company believes that damages or settlements, if any, recovered by plaintiffs in such legal actions, other than as described in this Note 16—Commitments and Contingencies, will not have a material adverse effect on the Company.Dunbar, West Virginia Class Action Litigation SettlementOn the evening of June 23, 2015, a 36-inch pre-stressed concrete transmission water main, installed in the early 1970s, failed. The water main is part of the West Relay pumping station located in the City of Dunbar, West Virginia and owned by the Company’s West Virginia subsidiary (“WVAWC”). Water service was fully restored by July 1, 2015, to all customers affected by this event.On June 2, 2017, a complaint captioned Jeffries, et al. v. West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of residents and business owners who lost water service or pressure as a result of the Dunbar main break.

Note 11: Long-Term DebtThe Company obtains long-term debt through AWCC primarily to fund capital expenditures of the Regulated Businesses, to repay or refinance existing long-term and short-term debt, and to lend funds to parent company to refinance debt and for other purposes. Presented in the table below are the components of long-term debt as of December 31:RateWeighted Average RateMaturity20252024Long-term debt of AWCC: (a) Senior notes—fixed rate2.30%-8.27%4.24%2026-2055$12,961 $11,786 Private activity bonds and government funded debt—fixed rate0.00%-3.88%3.07%2028-2045187 187 Long-term debt of other American Water subsidiaries: Private activity bonds and government funded debt—fixed rate0.00%-5.00%2.41%2026-2061717 761 Mortgage bonds—fixed rate6.35%-9.19%7.37%2026-2039435 456 Mandatorily redeemable preferred stock8.47%-9.75%8.64%20363 3 Long-term debt 4.23% 14,303 13,193 Unamortized debt discount, net (b)(27)(20)Unamortized debt issuance costs (17)(15)Less current portion of long-term debt (1,479)(637)Total long-term debt $12,780 $12,521 (a)This indebtedness is considered “debt” for purposes of a support agreement between parent company and AWCC, which serves as a functional equivalent of a full and unconditional guarantee by parent company of AWCC’s payment obligations under such indebtedness.(b)Includes debt discount, net of fair value adjustments previously recognized in acquisition purchase accounting.All mortgage bonds and $709 million of the private activity bonds and government funded debt held by the Company’s subsidiaries were collateralized as of December 31, 2025.Long-term debt agreements contain a number of covenants that, among other things, limit, subject to certain exceptions, AWCC from issuing debt secured by the Company’s consolidated assets. Certain long-term note covenants require the Company to maintain a ratio of consolidated total indebtedness to consolidated total capitalization (each as defined in the relevant documents) of not more than 0.70 to 1.00. The ratio as of December 31, 2025, was 0.59 to 1.00. In addition, the Company has $773 million of notes which include the right to redeem the notes at par value, in whole or in part, from time to time, subject to certain restrictions, with a weighted average interest rate of 2.61%.

Note 12: Short-Term DebtLiquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, issuances of commercial paper and equity, and, if and to the extent necessary, borrowings under the AWCC revolving credit facility. AWCC maintains an unsecured revolving credit facility which provides $2.75 billion in aggregate total commitments from a diversified group of financial institutions. The termination date of the credit agreement with respect to AWCC’s revolving credit facility is October 26, 2029. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support and to provide a sub-limit for the issuance of up to $150 million in letters of credit. Letters of credit are non-debt instruments maintained to provide credit support for certain transactions as requested by third parties. Subject to satisfying certain conditions, the credit agreement permits AWCC to increase the maximum commitment under the facility by up to an aggregate of $500 million. The Company regularly evaluates the capital markets and closely monitors the financial condition of the financial institutions with contractual commitments in its revolving credit facility. Interest rates on advances under the facility are based on a credit spread to the Secured Overnight Financing Rate (or applicable market replacement rate) or base rate, each determined in accordance with Moody’s Ratings and S&P Global Ratings’ then applicable credit rating on AWCC’s senior unsecured, non-credit enhanced debt.Short-term debt consists of commercial paper borrowings totaling $1,590 million and $880 million as of December 31, 2025 and 2024, respectively, or net of discount $1,588 million and $879 million as of December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, AWCC had no outstanding borrowings under the revolving credit facility and there were no commercial paper borrowings outstanding with maturities greater than three months.

Note 14: Income TaxesPresented in the table below are the components of income tax expense for the years ended December 31:202520242023Current income taxes: State$25 $16 $16 Federal151 136 28 Total current income taxes$176 $152 $44 Deferred income taxes: State$36 $53 $44 Federal100 104 165 Amortization of deferred investment tax credits(1)(1)(1)Total deferred income taxes135 156 208 Provision for income taxes$311 $308 $252 Presented in the table below is a reconciliation between the statutory federal tax rate and the Company’s effective tax rate for the years ended December 31: 202520242023AmountPercentAmountPercentAmountPercentU.S. federal statutory tax rate$299 21.0 %$285 21.0 %$251 21.0 %State and local income taxes, net of federal income tax effect (a)48 3.4 %54 4.0 %48 4.0 %Nontaxable or nondeductible items5 0.4 %5 0.3 %4 0.3 %Change in unrecognized tax benefits(8)(0.6)%2 0.2 %3 0.2 %Other adjustments:Excess accumulated deferred income taxes(39)(2.8)%(37)(2.7)%(51)(4.2)%Other6 0.5 %(1)(0.1)%(3)(0.2)%Effective tax rate$311 21.9 %$308 22.7 %$252 21.1 %(a)The states that made up the majority (greater than 50 percent) of the tax effect in this category were: (i) for 2025, Pennsylvania and Illinois, (ii) for 2024, Pennsylvania and California, and (iii) for 2023, Pennsylvania and Illinois.Presented in the table below is the disaggregation of income taxes paid (refunds received), net of refunds received of $29 million, $5 million and $30 million in 2025, 2024 and 2023, respectively, for the years ended December 31:202520242023Federal$185 $— $12 State5 (5)(12)Total$190 $(5)$— Income taxes paid (net of refunds received) exceeded 5% of total income taxes paid (net of refunds received) in the following states for the years ended December 31:202520242023State:Iowa*$(1)*Kentucky*$(2)*Massachusetts**$(2)New Jersey**$(23)Pennsylvania*$(1)$13 Tennessee**$1 (*)Jurisdiction below the threshold for the period presented.

Note 19: LeasesThe Company has operating and finance leases involving real property, including facilities, utility assets, vehicles, and equipment. Certain operating leases have renewal options ranging from one year to 60 years. The exercise of lease renewal options is at the Company’s sole discretion. Renewal options that the Company was reasonably certain to exercise are included in the Company’s ROU assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 39 years, four years, and five years, respectively.The Company participates in a number of arrangements with various public entities (“Partners”) in West Virginia. Under these arrangements, the Company transferred a portion of its utility plant to the Partners in exchange for an equal principal amount of Industrial Development Bonds (“IDBs”) issued by the Partners under the Industrial Development and Commercial Development Bond Act. The Company leased back the utility plant under agreements for a period of 30 to 40 years. The Company has recorded these agreements as finance leases in property, plant and equipment, as ownership of the assets will revert back to the Company at the end of the lease term. The carrying value of the finance lease assets was $142 million and $143 million as of December 31, 2025 and 2024, respectively. The Company determined that the finance lease obligations and the investments in IDBs meet the conditions for offsetting, and as such, are reported net on the Consolidated Balance Sheets and excluded from the lease disclosure presented below.The Company also enters into O&M agreements with the Partners. The Company pays an annual fee for use of the Partners’ assets in performing under the O&M agreements. The O&M agreements are recorded as operating leases, and future annual use fees of $4 million in 2026 through 2030, and $33 million thereafter, are included in operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets.Rental expenses under operating leases were $13 million, $12 million and $11 million for the years ended December 31, 2025, 2024 and 2023, respectively.For the years ended December 31, 2025, 2024 and 2023, cash paid for amounts in lease liabilities, which includes operating cash flows from operating leases, were $12 million, $11 million, $11 million.

Note 5: Mergers, Acquisitions and DivestituresAgreement and Plan of Merger with Essential Utilities, Inc.On October 26, 2025, parent company entered into an Agreement and Plan of Merger (the “Essential Merger Agreement”) with Essential Utilities, Inc. (“Essential”) to combine the two companies in a stock-for-stock transaction. The Essential Merger Agreement provides that, upon the completion of the proposed merger, Essential’s shareholders will receive 0.305 shares of parent company common stock in exchange for each share of Essential common stock eligible for exchange in the merger. Upon completion of the proposed merger, Essential will be a wholly owned subsidiary of parent company, and parent company will retain its existing name and remain headquartered in Camden, New Jersey. The Company will continue to maintain substantial operations in Pennsylvania, including Essential’s offices in Bryn Mawr, Pennsylvania, and Pittsburgh, Pennsylvania. Completion of the proposed merger is subject to certain customary conditions, including, among others, the receipt of required approvals from all applicable public utility commissions on such terms and conditions that would not, individually or in the aggregate, result in a Burdensome Effect (as defined in the Essential Merger Agreement), and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. There can be no guarantee that all of the closing conditions and approvals will be satisfied, and the failure to complete the proposed merger on a timely basis or at all may adversely affect the Company’s financial condition and results of operations. The Company currently estimates that the closing of the proposed merger will occur by the end of the first quarter of 2027. For the year ended December 31, 2025, $13 million of merger related costs were included in Operation and maintenance expense in the Consolidated Statements of Operations.Acquisitions - Regulated BusinessesDuring 2025, the Company closed on 18 acquisitions of various regulated water and wastewater systems for a total aggregate purchase price of $83 million, of which $81 million was funded in 2025, and which acquisitions added approximately 20,900 water and wastewater customers.