American Water–Essential Utilities (WTRG) merger advances with detailed Q1 2026 results
Filing Impact
Filing Sentiment
Form Type
8-K
Essential Utilities furnished American Water Works’ latest unaudited financial statements to support their pending merger and to incorporate this information into Essential’s shelf registration statement on Form S-3. The merger would make Essential a wholly owned subsidiary of American Water after customary regulatory approvals and other conditions are met.
American Water reported first-quarter 2026 operating revenues of $1,207 million and net income attributable to common shareholders of $196 million, or $1.00 per diluted share. Net cash provided by operating activities was $305 million, and total assets were $35,264 million with long-term debt of $12,769 million. American Water’s finance subsidiary issued $700 million of 5.200% senior notes due 2036 and received full repayment of a $795 million seller promissory note from a prior Homeowner Services Group divestiture. The company also highlighted ongoing general rate cases, infrastructure surcharge mechanisms and large long-term service contracts, and recorded $5 million of merger-related costs tied to the Essential combination, which is currently targeted to close by the end of the first quarter of 2027.
Positive
- None.
Negative
- None.
Insights
Furnishing American Water’s results adds merger context but doesn’t change the thesis.
The disclosure mainly provides detail on American Water’s Q1 2026 performance and capital structure as background for the planned stock-for-stock merger with Essential Utilities. The merger terms and basic structure were already known, so this is incremental transparency rather than a new event.
American Water generated operating revenues of $1,207 million and net income of $196 million with $305 million of operating cash flow, while carrying long-term debt of $12,769 million. It also issued $700 million of 5.200% notes due 2036 and collected a $795 million seller note, reshaping its funding mix.
The filing reiterates that the merger remains subject to multiple public utility commission and antitrust clearances and has not yet closed. It also outlines extensive regulatory rate activity and multi-decade service contracts, which frame the combined entity’s regulated revenue visibility. Overall, the information is useful context but not a thesis-changing catalyst.
8-K Event Classification
2 items: 7.01, 9.01
2 items
Item 7.01
Regulation FD Disclosure
Disclosure
Material non-public information disclosed under Regulation Fair Disclosure, often investor presentations or guidance.
Item 9.01
Financial Statements and Exhibits
Exhibits
Financial statements, pro forma financial information, and exhibit attachments filed with this report.
Key Figures
Operating revenues: $1,207 million
Net income attributable to common shareholders: $196 million
Diluted earnings per share: $1.00 per share
+5 more
8 metrics
Operating revenues
$1,207 million
American Water, three months ended March 31, 2026
Net income attributable to common shareholders
$196 million
American Water, three months ended March 31, 2026
Diluted earnings per share
$1.00 per share
American Water, three months ended March 31, 2026
Net cash provided by operating activities
$305 million
American Water, three months ended March 31, 2026
Total assets
$35,264 million
American Water, as of March 31, 2026
Total long-term debt
$12,769 million
American Water, as of March 31, 2026
Senior Notes issuance
$700 million at 5.200%
AWCC Senior Notes due 2036 issued April 1, 2026
Remaining performance obligations – U.S. military
$7.4 billion
Estimated remaining contract revenue as of March 31, 2026
Key Terms
Agreement and Plan of Merger, general rate case, infrastructure surcharge, remaining performance obligations, +2 more
6 terms
Agreement and Plan of Merger financial
"the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) on October 26, 2025"
An Agreement and Plan of Merger is a formal document where two companies agree to combine into one, outlining how the process will happen. It’s like a step-by-step plan for merging, and it matters because it shows both sides have agreed on the details before the official transition takes place.
general rate case financial
"The table below summarizes the annualized incremental revenues... resulting from general rate case authorizations"
A general rate case is a formal regulatory proceeding where a public utility asks a government agency for permission to change the prices charged to customers. It matters to investors because the outcome determines the company’s allowed revenue and profit margin—similar to a landlord getting approval to raise rent—which directly affects future cash flow, dividend capacity and the valuation of the utility’s stock or bonds.
infrastructure surcharge financial
"regulatory mechanisms that permit rates to be adjusted outside of a general rate case for certain costs and investments, such as infrastructure surcharge mechanisms"
remaining performance obligations financial
"Remaining performance obligations (“RPOs”) represent revenues the Company expects to recognize in the future"
Remaining performance obligations are the work a company still needs to complete for its customers, like finishing a service or delivering a product. It’s important because it shows how much future income the company has coming in from current agreements, giving a clearer picture of its ongoing business.
Corporate Alternative Minimum Tax financial
"removal of the impacts of the Corporate Alternative Minimum Tax (“CAMT”) from rate base"
A corporate alternative minimum tax is a rule that sets a floor on the amount of tax a company must pay by calculating taxes on a broader measure of income so large deductions or credits can’t reduce a firm’s tax bill below that minimum. Investors care because it can increase a company’s tax payments, lower reported profits and free cash flow, and therefore affect valuations, dividend capacity and forecasts—like a safety net that reduces gains from aggressive tax planning.
forward-looking statements financial
"Certain statements included in this on are forward-looking statements within the meaning of Section 27A of the Securities Act"
Forward-looking statements are predictions or plans that companies share about what they expect to happen in the future, like estimating sales or profits. They matter because they help investors understand a company's outlook, but since they are based on guesses and assumptions, they can sometimes be wrong.
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 8, 2026
(Exact Name of Registrant Specified in Charter)
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | ||
(Address of Principal Executive Offices) |
(Zip Code) | |||
Registrant’s
telephone number, including area code: (Check the appropriate box below if the Form
8-K
filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule
12b-2
of the Securities Exchange Act of 1934 (§240.12b-2
of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Table of Contents
Explanatory Note
Essential Utilities, Inc. (the “Company”) is electing to furnish this Current Report on Form
8-K
as a voluntary disclosure solely to provide certain information related to the pending merger transaction involving the Company and American Water Works Company, Inc. (“American Water”), which information is to be incorporated by reference into the Company’s Registration Statement on Form S-3
(File No. 333-277563).
Item 7.01 |
Regulation FD Disclosure. |
As previously disclosed in its Current Report on Form
8-K
filed on October 27, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) on October 26, 2025 with American Water and Alpha Merger Sub, Inc., a direct wholly owned subsidiary of American Water (“Merger Sub”), pursuant to which and upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of American Water. With the consent of American Water, the Company has elected to furnish as an exhibit to this Form 8-K
the unaudited consolidated financial statements of American Water as of March 31, 2026 and for the three months ended March 31, 2026 and March 31, 2025, as included in American Water’s Quarterly Report on Form 10-Q
filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 29, 2026. The foregoing historical unaudited consolidated financial statements of American Water are furnished as Exhibit 99.1 hereto and are incorporated herein by reference. The Company is not incorporating by reference any other information herein set forth in American Water’s SEC filings. These historical unaudited consolidated financial statements of American Water were independently prepared by American Water; they have not been independently validated by the Company.
This report does not modify or update the consolidated financial statements of the Company included in the Company’s SEC filings.
The Merger has not yet occurred and is subject to customary closing conditions set forth in the Merger Agreement, including, among others, receipt of certain required regulatory approvals. For further information regarding the Merger, please refer to the Company’s Annual Report on Form
10-K
filed on February 26, 2026, its Quarterly Report on Form 10-Q
filed on May 7, 2026 and its definitive joint proxy statement/prospectus on Schedule 14A filed on December 31, 2025, in each case, as updated and supplemented by the Company’s other filings with the SEC made from time to time. This Form
8-K,
including the unaudited consolidated financial statements of American Water furnished as Exhibit 99.1 hereto, is expressly incorporated by reference into the Company’s registration statement on Form S-3
(File No. 333-277563).
Except as expressly set forth in the foregoing sentence, the Company is furnishing to the SEC the information included or incorporated by reference in this Item 7.01, including Exhibit 99.1, and such information shall not be deemed to be “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference into any other Company filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference
in such Company filing. Item 9.01 |
Financial Statements and Exhibits. |
(d) Exhibits.
| 99.1 | Historical unaudited consolidated financial statements of American Water Works Company, Inc. as of March 31, 2026 and for the three months ended March 31, 2026 and March 31, 2025 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRES | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in Inline XBRL) (included in Exhibit 101) | |
Table of Contents
The exhibits in this Item 9.01 are expressly incorporated by reference into the Company’s registration statement on Form
S-3
(File No. 333-277563).
Except as expressly set forth in the foregoing sentence, the Company is furnishing to the SEC the information included in this Item 9.01, including Exhibit 99.1, and such information shall not be deemed to be “filed” by the Company for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference into any other Company filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such Company filing. * * *
Cautionary Statement Regarding Forward-Looking Statements
Certain statements included in this Current Report on Form
8-K
are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. These forward-looking statements address, among other things: the expected timing of closing of the Company’s acquisitions; the projected impact of various legal proceedings; the projected effects of recent accounting pronouncements; the proposed merger with American Water; prospects, plans, objectives, expectations and beliefs of management, as well as information contained in this report where statements are preceded by, followed by or include the words “believes,” “expects,” “estimates,” “anticipates,” “plans,” “future,” “potential,” “probably,” “predictions,” “intends,” “will,” “continue,” “in the event” or the negative of such terms or similar expressions. Forward-looking statements are based on a number of assumptions concerning future events, and are subject to a number of risks, uncertainties and other factors, many of which are outside the Company’s control, which could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, among others, the effects of regulation, abnormal weather, geopolitical forces, the impact of inflation and supply chain pressures, including those resulting from changes in government fiscal policies and regulations, the imposition of tariffs, the threat of cyber-attacks and data breaches, changes in capital requirements and funding, the success of growth initiatives, including pending acquisitions, changes to the capital markets, impact of public health threats, and the Company’s ability to assimilate acquired operations, as well as those risks, uncertainties and other factors discussed in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2025 under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in such reports. In addition to the foregoing, there are various risks and other uncertainties associated with the Company’s proposed merger with American Water, including a fixed exchange ratio that will not adjust or account for fluctuations in American Water’s or the Company’s stock price; limitations on the parties’ ability to pursue alternatives to the proposed merger; financial impacts of the proposed merger on the Company and the combined company’s earnings, earnings per share, financial condition, results of operations, cash flows and share price, and any related accounting impacts; any impact of the proposed merger on the Company’s ability to declare and pay quarterly dividends on its common stock; the amount and nature of incurred transaction costs associated with the proposed merger; as well as other risks, uncertainties and other factors. As a result, readers are cautioned not to place undue reliance on any forward-looking statements. The Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. Table of Contents
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 hereunto duly authorized. ESSENTIAL UTILITIES, INC. | ||||||
| Date: May 8, 2026 | By: | /s/ Christopher P. Luning | ||||
| Name: | Christopher P. Luning | |||||
| Title: | Executive Vice President, General Counsel | |||||
Exhibit 99.1
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
March 31, 2026 |
December 31, 2025 |
|||||||
ASSETS |
||||||||
Property, plant and equipment |
$ | $ | ||||||
Accumulated depreciation |
( |
) | ( |
) | ||||
Property, plant and equipment, net |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
||||||||
Restricted funds |
||||||||
Accounts receivable, net of allowance for uncollectible accounts of $ |
||||||||
Income tax receivable |
||||||||
Unbilled revenues |
||||||||
Materials and supplies |
||||||||
Secured seller promissory note from the sale of the Homeowner Services Group |
||||||||
Other |
||||||||
Total current assets |
||||||||
Regulatory and other long-term assets: |
||||||||
Regulatory assets |
||||||||
Operating lease right-of-use |
||||||||
Goodwill |
||||||||
Other |
||||||||
Total regulatory and other long-term assets |
||||||||
Total assets |
$ | $ | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
1
Table of Contents
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
March 31, 2026 |
December 31, 2025 |
|||||||
CAPITALIZATION AND LIABILITIES |
||||||||
Capitalization: |
||||||||
Common stock ($ |
$ | $ | ||||||
Paid-in-capital |
||||||||
Retained earnings |
||||||||
Accumulated other comprehensive income |
||||||||
Treasury stock, at cost ( |
( |
) | ( |
) | ||||
Total common shareholders’ equity |
||||||||
Long-term debt |
||||||||
Redeemable preferred stock at redemption value |
||||||||
Total long-term debt |
||||||||
Total capitalization |
||||||||
Current liabilities: |
||||||||
Short-term debt |
||||||||
Current portion of long-term debt |
||||||||
Accounts payable |
||||||||
Accrued liabilities |
||||||||
Accrued taxes |
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Accrued interest |
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Other |
||||||||
Total current liabilities |
||||||||
Regulatory and other long-term liabilities: |
||||||||
Advances for construction |
||||||||
Deferred income taxes and investment tax credits |
||||||||
Regulatory liabilities |
||||||||
Operating lease liabilities |
||||||||
Accrued pension expense |
||||||||
Other |
||||||||
Total regulatory and other long-term liabilities |
||||||||
Contributions in aid of construction |
||||||||
Commitments and contingencies (See Note 11) |
||||||||
Total capitalization and liabilities |
$ | $ | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
2
Table of Contents
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)
For the Three Months Ended March 31, |
||||||||
2026 |
2025 |
|||||||
Operating revenues |
$ | $ | ||||||
Operating expenses: |
||||||||
Operation and maintenance |
||||||||
Depreciation and amortization |
||||||||
General taxes |
||||||||
Total operating expenses, net |
||||||||
Operating income |
||||||||
Other (expense) income: |
||||||||
Interest expense |
( |
) | ( |
) | ||||
Interest income |
||||||||
Non-operating benefit costs, net |
||||||||
Other, net |
||||||||
Total other (expense) income |
( |
) | ( |
) | ||||
Income before income taxes |
||||||||
Provision for income taxes |
||||||||
Net income attributable to common shareholders |
$ | $ | ||||||
Basic earnings per share: (a) |
||||||||
Net income attributable to common shareholders |
$ | $ | ||||||
Diluted earnings per share: (a) |
||||||||
Net income attributable to common shareholders |
$ | $ | ||||||
Weighted-average common shares outstanding: |
||||||||
Basic |
||||||||
Diluted |
||||||||
| (a) | Amounts may not calculate due to rounding. |
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
For the Three Months Ended March 31, |
||||||||
2026 |
2025 |
|||||||
Net income attributable to common shareholders |
$ | $ | ||||||
Other comprehensive income (loss), net of tax: |
||||||||
Unrealized gain (loss) on cash flow hedges, net of tax of $ |
( |
) | ||||||
Unrealized loss on available-for-sale |
( |
) | ||||||
Net other comprehensive income (loss) |
( |
) | ||||||
Comprehensive income attributable to common shareholders |
$ | $ | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
Table of Contents
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
For the Three Months Ended March 31, |
||||||||
2026 |
2025 |
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile to net cash flows provided by operating activities: |
||||||||
Depreciation and amortization |
||||||||
Deferred income taxes and amortization of investment tax credits |
||||||||
Provision for losses on accounts receivable |
||||||||
Pension and non-pension postretirement benefits |
( |
) | ( |
) | ||||
Other non-cash, net |
( |
) | ( |
) | ||||
Changes in assets and liabilities: |
||||||||
Receivables and unbilled revenues |
( |
) | ||||||
Income tax receivable |
( |
) | ||||||
Pension contributions |
( |
) | ( |
) | ||||
Accounts payable and accrued liabilities |
( |
) | ( |
) | ||||
Accrued taxes |
( |
) | ||||||
Other assets and liabilities, net |
( |
) | ( |
) | ||||
Net cash provided by operating activities |
||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Capital expenditures |
( |
) | ( |
) | ||||
Acquisitions, net of cash acquired |
( |
) | ( |
) | ||||
Proceeds from secured seller promissory note from the sale of the Homeowner Services Group |
||||||||
Removal costs from property, plant and equipment retirements, net |
( |
) | ( |
) | ||||
Purchases of available-for-sale |
( |
) | ||||||
Proceeds from sales and maturities of available-for-sale |
||||||||
Net cash provided by (used in) investing activities |
( |
) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Proceeds from long-term debt, net of discount |
||||||||
Repayments of long-term debt |
( |
) | ( |
) | ||||
Net short-term (repayments) borrowings with original maturities less than three months |
( |
) | ||||||
Advances and contributions in aid of construction, net of refunds of $ |
||||||||
Debt issuance costs |
( |
) | ||||||
Dividends paid |
( |
) | ( |
) | ||||
Other, net |
( |
) | ( |
) | ||||
Net cash (used in) provided by financing activities |
( |
) | ||||||
Net increase in cash, cash equivalents and restricted funds |
||||||||
Cash, cash equivalents and restricted funds at beginning of period |
||||||||
Cash, cash equivalents and restricted funds at end of period |
$ | $ | ||||||
Non-cash investing activity: |
||||||||
Capital expenditures acquired on account but unpaid as of the end of period |
$ | $ | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
Table of Contents
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(In millions)
Common Stock |
Paid-in- Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Treasury Stock |
Total Shareholders’ Equity |
|||||||||||||||||||||||||||
Shares |
Par Value |
Shares |
At Cost |
|||||||||||||||||||||||||||||
| Balance as of December 31, 2025 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net income attributable to common shareholders |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Common stock issuances (a) |
— | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||
| Net other comprehensive income |
— | — | — | — | — | |||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance as of March 31, 2026 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (a) | Includes stock-based compensation, employee stock purchase plan and dividend reinvestment and direct stock purchase plan activity. |
Common Stock |
Paid-in- Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Treasury Stock |
Total Shareholders’ Equity |
|||||||||||||||||||||||||||
Shares |
Par Value |
Shares |
At Cost |
|||||||||||||||||||||||||||||
| Balance as of December 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net income attributable to common shareholders |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Common stock issuances (a) |
— | — | — | — | ( |
) | ||||||||||||||||||||||||||
| Net other comprehensive loss |
— | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance as of March 31, 2025 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (a) | Includes stock-based compensation, employee stock purchase plan and dividend reinvestment and direct stock purchase plan activity. |
The accompanying notes are an integral part of these Consolidated Financial Statements.
6
Table of Contents
American Water Works Company, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
(Unless otherwise noted, in millions, except per share data)
Note 1: Basis of Presentation
The unaudited Consolidated Financial Statements included in this report include the accounts of American Water Works Company, Inc. and all of its subsidiaries (the “Company” or “American Water”), in which a controlling interest is maintained after the elimination of intercompany balances and transactions. References to “parent company” mean American Water Works Company, Inc., without its subsidiaries. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting, and the rules and regulations for reporting on Quarterly Reports on
Form 10-Q
(“Form 10-Q”).
Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. In the opinion of management, all adjustments necessary for a fair statement of the financial position as of March 31, 2026, and the results of operations and cash flows for all periods presented, have been made. All adjustments are of a normal, recurring nature, except as otherwise disclosed. The unaudited Consolidated Financial Statements and Notes included in this report should be read in conjunction with the Company’s Annual Report on Form
10-K
for the year ended December 31, 2025 (“Form 10-K”),
which provides a more complete discussion of the Company’s accounting policies, financial position, operating results and other matters. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year, primarily due to the seasonality of the Company’s operations. Note 2: Significant Accounting Policies
New Accounting Standards
Presented in the table below is the new accounting standard that was adopted by the Company in 2026:
Standard |
Description |
Date of Adoption |
Application |
Effect on the Consolidated Financial Statements | ||||
| Induced Conversions of Convertible Debt Instruments | The guidance in this standard clarifies the requirements for determining whether to account for certain settlements of convertible debt instruments as induced conversions or extinguishments. The guidance requires an entity to account for a settlement as an induced conversion if the inducement offer includes the issuance of all of the consideration issuable under the conversion privileges provided in the terms of the existing convertible debt instrument. | January 1, 2026 | Prospective | The standard did not have a material impact on the Consolidated Financial Statements. |
Table of Contents
Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of March 31, 2026; recently issued accounting standards not presented below were determined to be not applicable, or not material, to the Company:
Standard |
Description |
Date of Adoption |
Application |
Effect on the Consolidated Financial Statements | ||||
| Income Statement Disaggregation | The guidance in this standard enhances disclosures related to income statement expenses to further disaggregate expenses in the footnotes to the financial statements. The standard requires disaggregation of any relevant expense caption presented on the face of the income statement that contains the following expense categories: purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion. Further, the standard requires disclosure of the total amount and the entity’s definition of selling expenses. | Annual periods beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027 | Prospective, with retrospective application also permitted | The Company is evaluating the impact on its Consolidated Financial Statements and the timing of adoption. | ||||
| Accounting for Internal-Use Software |
The guidance in this standard removes all reference to prescriptive and sequential software development stages, requiring an entity to start capitalizing software costs when the following criteria are both met: (i) management has authorized and committed to funding the software project and (ii) it is probable that the project will be completed and the software will be used to perform the function intended. Further, the standard requires disclosure for all capitalized internal-use software costs and removes the requirement for intangibles disclosures for capitalized internal-use software. |
Annual periods beginning after December 15, 2027 and interim reporting periods within those annual reporting periods | Prospective, with a modified transition or retrospective application also permitted | The Company is evaluating the impact on its Consolidated Financial Statements and the timing of adoption. | ||||
| Accounting for Government Grants Received by Business Entities | Introduces authoritative GAAP guidance for accounting and disclosure of government grants received by business entities, addressing the previous lack of specific guidance and reducing diversity in practice. The standard requires grants to be recognized when compliance with conditions is probable and receipt is likely, and allows presentation either as deferred income or as a reduction of related costs. | Annual periods beginning after December 15, 2028 and interim reporting periods within those annual reporting periods | Modified prospective, modified retrospective, or retrospective applications are permitted | The Company is evaluating the impact on its Consolidated Financial Statements and the timing of adoption. | ||||
Property, Plant and Equipment
The New Jersey Economic Development Authority (“NJEDA”) determined that the Company was qualified to receive $161 million in tax credits in connection with its capital investment in its corporate headquarters in Camden, New Jersey. The Company was qualified to receive the tax credits over a 10 -year period commencing in 2019.
As of March 31, 2026, and December 31, 2025, the Company had current assets of $15 64
Cash, Cash Equivalents and Restricted Funds
Presented in the table below is a reconciliation of the cash and cash equivalents and restricted funds amounts as presented on the Consolidated Balance Sheets to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the periods ended March 31:
2026 |
2025 |
|||||||
Cash and cash equivalents |
$ | $ | ||||||
Restricted funds |
||||||||
Restricted funds included in other long-term assets |
||||||||
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows |
$ | $ | ||||||
Allowance for Uncollectible Accounts
An allowance for uncollectible accounts is maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the allowance for uncollectible accounts, including the length of time receivables are past due, previous loss history, current economic and societal conditions and reasonable and supportable forecasts that affect the collectability of receivables from customers. The Company generally writes off accounts when they become uncollectible or are over a certain number of days outstanding.
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Presented in the table below are the changes in the allowance for uncollectible accounts for the three months ended March 31:
2026 |
2025 |
|||||||
Balance as of January 1 |
$ | ( |
) | $ | ( |
) | ||
Amounts charged to expense |
( |
) | ( |
) | ||||
Amounts written off |
||||||||
Balance as of March 31 |
$ | ( |
) | $ | ( |
) | ||
Note 3: Regulatory Matters
General Rate Cases
The table below summarizes the annualized incremental revenues, assuming a constant sales volume and customer count, resulting from general rate case authorizations that became effective during 2026. The amounts include reductions for the amortization of the excess accumulated deferred income taxes (“EADIT”) that are generally offset in income tax expense.
Effective Date |
Amount |
|||||||
General rate cases by state: |
||||||||
West Virginia |
March 1, 2026 | $ | ||||||
Maryland |
February 26, 2026 | |||||||
California, Attrition Increase (a) |
January 1, 2026 | |||||||
Total general rate case authorizations |
$ | |||||||
| (a) | The effective annualized incremental revenue increase for the 2026 attrition year was finalized through the standard Advice Letter process with the California Public Utilities Commission in January 2026. |
On March 5, 2026, the Public Service Commission of West Virginia issued an amended order that approves the adjustment of the Company’s West Virginia subsidiary’s base rates requested in a general rate case filed on May 5, 2025. The general rate case order approved an annualized increase of approximately $20 million in water and wastewater system revenues, which excludes previously recovered infrastructure surcharges of approximately $13 million, based on an authorized return on equity of 9.80 %, a common equity ratio of 51.00 % and a debt ratio of 49.00 %. As of March 5, 2026, the West Virginia subsidiary’s view of its authorized rate base, which was not stated in the general rate case order, is approximately $1.1 billion. The increased water and wastewater revenues related to this base rate adjustment are being driven primarily by approximately $239 million of related water and wastewater system capital investments made since the completion of the West Virginia subsidiary’s previous rate case and through February 2026. The new water and wastewater rates became effective as of March 1, 2026.
On February 26, 2026, the Public Service Commission of Maryland (the “MDPSC”) issued an order approving the joint settlement of the general rate case filed on August 1, 2025, by the Company’s Maryland subsidiary. A joint stipulation and settlement agreement by and among the Maryland subsidiary, the Office of People’s Counsel, and the Staff of the MDPSC was filed with the MDPSC on January 22, 2026. The general rate case order approves a consolidated annualized increase in water revenues of approximately $2 million, with approximately $1 million of the increase to be included in rates effective concurrently with the date of the general rate case order, and the remainder effective January 1, 2027. The Maryland subsidiary’s view of its return on equity, common equity ratio and debt ratio (each of which is based on the information included in the general rate case order and the joint stipulation and settlement agreement, but was not disclosed therein), is 9.75 %, 52.32 % and 47.68 %, respectively. The annualized incremental revenue is driven primarily by approximately $22 million of capital investments completed by the Maryland subsidiary since its last general rate case approval in 2019.
On December 5, 2024, the California Public Utilities Commission (the “CPUC”) approved a final decision adopting the terms of a partial settlement agreement filed on November 17, 2023, in the Company’s California subsidiary’s general rate case originally filed on July 1, 2022. Incorporating the then currently effective return on equity of 10.20 %, the decision provides incremental annualized water and wastewater revenues of $21 million in the 2024 test year, and an estimated $16 million in the 2025 escalation year and $16 million in the 2026 attrition year. On September 19, 2025, the California subsidiary filed a petition to modify the CPUC order, seeking clarification from the CPUC on the method used to calculate the Conservation Adjustment for Rate Tier Designs (“CART”), specifically for the California subsidiary’s Monterey service area. The CART is a ratemaking mechanism that allows the Company to recover, in subsequent periods, a portion of the impact on operating revenues as a result of implementing customer rates structured to promote conservation usage. On October 20, 2025, the California Public Advocate submitted a response opposing the California subsidiary’s request and stating the request should instead be addressed in the California subsidiary’s pending base rate case. On October 30, 2025, the California subsidiary filed a reply to the California Public Advocate’s response, which underscored the need for clarity on the CART calculation. The California subsidiary expects resolution of the petition to modify later in 2026.
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Pending General Rate Case Filings
On January 27, 2026, the Company’s Illinois subsidiary filed a request with the Illinois Commerce Commission (the “ICC”) to adjust its water and wastewater rates. The filing seeks a 10.75 %, of (i) approximately $119 million effective January 1, 2027, based on a future test year through December 31, 2027 and a capital structure with an equity component of 52.42 % and a debt component of 47.58 %, and (ii) approximately $15 million effective January 1, 2028, based on a future test year to include rate base and a capital structure with an equity component of 52.74 % and a debt component of 47.26 %, in each case, exclusive of infrastructure surcharges. The request is driven primarily by approximately $577 million in capital investments made and to be made by the Illinois subsidiary from January 2026 through December 2027. The request must be approved by the ICC.
two-step
rate increase in aggregate annualized incremental revenue, based on a proposed return on equity of end-of-period
On January 16, 2026, the Company’s New Jersey subsidiary filed a request with the New Jersey Board of Public Utilities (the “NJBPU”) to adjust its water and wastewater rates. The request seeks aggregate annualized incremental revenues of approximately $146 million and is based on a proposed return on equity of 10.75 % and a capital structure with an equity component of 55.18 % and a debt component of 44.82 %. On April 24, 2026, as part of the standard process to update the filing for actual costs incurred, the New Jersey subsidiary filed an update with the NJBPU to its request originally filed on January 16, 2026. The updated request seeks aggregate annualized incremental revenue of approximately $139 million, with the reduction primarily driven by the removal of the impacts of the Corporate Alternative Minimum Tax (“CAMT”) from rate base as a result of Internal Revenue Service Notice 1.4 billion of capital investments completed and planned by the New Jersey subsidiary through December 2026. The filing is subject to the approval of the NJBPU.
2026-7
issued in February 2026. The requested annualized incremental revenue is driven primarily by an estimated $On November 14, 2025, the Company’s Pennsylvania subsidiary filed a request with the Pennsylvania Public Utility Commission (the “PaPUC”) to adjust its water and wastewater rates. The request seeks aggregate annualized incremental revenue of approximately $169 million, excluding projected infrastructure surcharges of approximately $19 million. The request is based on a proposed return on equity of 10.95 % and a capital structure with an equity component of 55.33 %. The requested annualized incremental revenue is driven primarily by an estimated $1.2 billion of capital investments completed or planned to be completed from June 2025 through
mid-2027.
The rate request is subject to approval by the PaPUC, and new rates would be expected to take effect in August 2026. On November 3, 2025, the Company’s Virginia subsidiary filed a request with the Virginia State Corporation Commission (the “SCC”) to adjust its water and wastewater rates. The request seeks aggregate annualized incremental revenues of approximately $22 million and is based on a proposed return on equity of 10.75 % and a capital structure with an equity component of 51.79 %. The requested annualized incremental revenue is driven primarily by an estimated $115 million of capital investments completed and planned by the Virginia subsidiary from May 2025 through April 2027. The filing is subject to the approval of the SCC. Interim rates will be effective May 2, 2026, with the difference between interim and final approved rates subject to refund to customers.
On July 1, 2025, the Company’s California subsidiary filed an application with the CPUC to set new water and wastewater rates in each of its service areas for 2027 through 2029. On October 13, 2025, the California subsidiary filed its 62 million compared to authorized 2025 revenue, and a total increase in revenue over the 2027 to 2029 period of $110 million. Subsequent to the filing of the update, the California subsidiary adjusted its authorized rates effective January 1, 2026, which revised its net increase proposed for the test year 2027 to $51 million above 2026 expected revenues. The requested annualized incremental revenue is driven primarily by approximately $750 million of capital investments completed and planned by the California subsidiary through 2025 to 2028. If approved by the CPUC, the new rates would take effect on January 1, 2027. The application also requests approval of a Fixed Cost Recovery Account, which is intended to be a full decoupling mechanism that would allow the California subsidiary to recover authorized fixed costs, regardless of sales volume, while also providing incentives, via progressive conservation-oriented rate design, for customers to use water more efficiently.
100-day
update for the same proceeding and updated the request to $Table of Contents
Infrastructure Surcharges
A number of states have authorized the use of regulatory mechanisms that permit rates to be adjusted outside of a general rate case for certain costs and investments, such as infrastructure surcharge mechanisms that permit recovery of capital investments to replace aging infrastructure. Presented in the table below are annualized incremental revenues, assuming a constant sales volume and customer count, resulting from infrastructure surcharge authorizations that became effective during 2026:
Effective Date |
Amount |
|||||||
Infrastructure surcharges by state: |
||||||||
Pennsylvania |
(a | ) | $ | |||||
Indiana |
March 18, 2026 | |||||||
West Virginia |
March 1, 2026 | |||||||
Missouri |
March 1, 2026 | |||||||
Illinois |
January 1, 2026 | |||||||
Total infrastructure surcharge authorizations |
$ | |||||||
| (a) | In 2026, $ |
Pending Infrastructure Surcharge Filings
On March 3, 2026, the Company’s Missouri subsidiary filed an infrastructure surcharge proceeding requesting $18 million in additional annualized revenues.
Note 4: Revenue Recognition
Disaggregated Revenues
The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the “Regulated Businesses.” The Company also operates other businesses that provide water and wastewater services to the U.S. government on military installations, as well as municipalities, collectively presented throughout this Form
10-Q
within “Other.” Presented in the table below are operating revenues disaggregated for the three months ended March 31, 2026:
Revenues from Contracts with Customers |
Other Revenues Not from Contracts with Customers (a) |
Total Operating Revenues |
||||||||||
Regulated Businesses: |
||||||||||||
Water services: |
||||||||||||
Residential |
$ | $ | $ | |||||||||
Commercial |
||||||||||||
Fire service |
||||||||||||
Industrial |
||||||||||||
Public and other |
||||||||||||
Total water services |
||||||||||||
Wastewater services: |
||||||||||||
Residential |
||||||||||||
Commercial |
||||||||||||
Industrial |
||||||||||||
Public and other |
||||||||||||
Total wastewater services |
||||||||||||
Miscellaneous utility charges |
||||||||||||
Alternative revenue programs |
— | |||||||||||
Lease contract revenue |
— | |||||||||||
Total Regulated Businesses |
||||||||||||
Other |
||||||||||||
Total operating revenues |
$ | $ | $ | |||||||||
| (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. |
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Presented in the table below are operating revenues disaggregated for the three months ended March 31, 2025:
Revenues from Contracts with Customers |
Other Revenues Not from Contracts with Customers (a) |
Total Operating Revenues |
||||||||||
Regulated Businesses: |
||||||||||||
Water services: |
||||||||||||
Residential |
$ | $ | $ | |||||||||
Commercial |
||||||||||||
Fire service |
||||||||||||
Industrial |
||||||||||||
Public and other |
||||||||||||
Total water services |
||||||||||||
Wastewater services: |
||||||||||||
Residential |
||||||||||||
Commercial |
||||||||||||
Industrial |
||||||||||||
Public and other |
||||||||||||
Total wastewater services |
||||||||||||
Miscellaneous utility charges |
||||||||||||
Alternative revenue programs |
— | |||||||||||
Lease contract revenue |
— | |||||||||||
Total Regulated Businesses |
||||||||||||
Other |
||||||||||||
Total operating revenues |
$ | $ | $ | |||||||||
| (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. |
Contract Balances
Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings, and cash collections. In the Company’s Military Services Group (“MSG”), certain contracts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Contract assets are recorded when billing occurs subsequent to revenue recognition and are reclassified to accounts receivable when billed and the right to consideration becomes unconditional. Contract liabilities are recorded when the Company receives advances from customers prior to satisfying contractual performance obligations, particularly for construction contracts, and are recognized as revenue when the associated performance obligations are satisfied.
Contract assets of $190 million and $171 million are included in Unbilled revenues on the Consolidated Balance Sheets as of March 31, 2026, and December 31, 2025, respectively. Also, no contract assets are included in other long-term assets on the Consolidated Balance Sheets as of March 31, 2026, and contract assets of $5 million are included in other long-term assets on the Consolidated Balance Sheets as of December 31, 2025. Contract liabilities of $26 million and $19 million are included in other current liabilities on the Consolidated Balance Sheets as of March 31, 2026, and December 31, 2025, respectively. Also, contract liabilities of $13 million and $19 million are included in other long-term liabilities on the Consolidated Balance Sheets as of March 31, 2026, and December 31, 2025, respectively. Revenues recognized for the three months ended March 31, 2026 and 2025, from amounts included in contract liabilities were $20 million and $22 million, respectively.
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Remaining Performance Obligations
Remaining performance obligations (“RPOs”) represent revenues the Company expects to recognize in the future from contracts that are in progress. The Company enters into agreements for the provision of services to water and wastewater facilities for the U.S. military, municipalities and other customers. As of March 31, 2026, the Company’s operation and maintenance (“O&M”) and capital improvement contracts have RPOs. Contracts with the U.S. government for work on various military installations expire between 2051 and 2073 and have RPOs of $7.4 billion as of March 31, 2026, as measured by estimated remaining contract revenue. Such contracts are subject to customary termination provisions held by the U.S. government, prior to the agreed-upon contract expiration. Contracts with municipalities and commercial customers expire between 2031 and 2038 and have RPOs of $496 million as of March 31, 2026, as measured by estimated remaining contract revenue.
Note 5: Mergers, Acquisitions and Divestitures
Agreement 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 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.
stock-for-stock
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 (“PUCs”) 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. During the three months ended March 31, 2026, $5 million of merger-related costs were included in Operation and maintenance expense in the Consolidated Statements of Operations.
Acquisitions - Regulated Businesses
During the three months ended March 31, 2026, the Company closed on one regulated wastewater system acquisition for a purchase price of $20 million, which added approximately 4,600 wastewater customers. Assets acquired from the acquisition, principally utility plant, totaled $28 million and liabilities assumed totaled $8 million. The acquisition was accounted for as a business combination and the purchase price allocation will be finalized once the valuation of assets acquired has been completed, no later than one year after the acquisition date.
The pro forma impact of the Company’s business combinations, as well as the revenues and earnings generated during the period since the acquisition date, was not material to the Consolidated Statements of Operations for the periods ended March 31, 2026 and 2025.
Secured Seller Promissory Note from the Sale of Homeowner Services Group
On December 9, 2021, the Company sold all of the equity interests in subsidiaries that comprised the Homeowner Services Group (“HOS”) to a wholly owned subsidiary (the “Buyer”) of funds advised by Apax Partners LLP, a global private equity advisory firm, for total consideration of approximately $1.275 billion. The outstanding consideration as of December 31, 2025, was a secured seller note payable in cash and issued by the Buyer in the principal amount of $795 million, with an interest rate of 10.00 % per year. On February 13, 2026, the Company received payment of all amounts payable under the secured seller promissory note in full satisfaction of the Buyer’s obligations thereunder. The Company recognized $9 million and $20 million of interest income during the three months ended March 31, 2026 and 2025, respectively, from this note.
13
Table of Contents
Note 6: Shareholders’ Equity
Equity Forward Sale Agreements
In August 2025, the Company entered into separate forward sale agreements (the “Forward Sale Agreements”) with several forward purchasers relating to an aggregate of 8,098,592 shares of the Company’s common stock at an initial forward price of $139.657 per share, which is equal to the price to public per share less an underwriting discount. Each Forward Sale Agreement will be physically settled unless the Company elects to settle such Forward Sale Agreement in cash or to net share settle such Forward Sale Agreement (which the Company has the right to do, subject to certain conditions, other than in the limited circumstances set forth in the Forward Sale Agreements). The Forward Sale Agreements provide for settlement on a settlement date or dates to be specified at the Company’s discretion on or prior to December 31, 2026. To the extent the Forward Sale Agreements are physically settled, the Company will issue common stock to the forward purchasers and receive cash proceeds based on the applicable forward sale price on the settlement date as defined in the Forward Sale Agreements.
As of March 31, 2026, the Company did no t receive any proceeds from the sale of its common stock connected to the Forward Sale Agreements. The Company estimates that it will receive total net proceeds of approximately $1,131 million, before deducting estimated offering expenses, subject to the price adjustment and other provisions of the Forward Sale Agreements, in the event of full physical settlement of all of the Forward Sale Agreements. The Company intends to use any net cash proceeds that it may receive upon a settlement of the Forward Sale Agreements for general corporate purposes. The Forward Sale Agreements were classified as equity transactions because they are indexed to the Company’s common stock and physical settlement is within the Company’s control.
Accumulated Other Comprehensive Loss
Presented in the table below are the changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2026 and 2025, respectively:
Defined Benefit Pension Plans |
Gain (Loss) on Cash Flow Hedges |
Gain (Loss) on Fixed-Income Securities |
Accumulated Other Comprehensive Income (Loss) |
|||||||||||||||||||||
Employee Benefit Plan Funded Status |
Amortization of Prior Service Cost |
Amortization of Actuarial Loss |
||||||||||||||||||||||
| Balance as of December 31, 2025 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Other comprehensive income before reclassifications |
||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net other comprehensive income |
||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance as of March 31, 2026 |
$ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance as of December 31, 2024 |
$ | ( |
) | $ | $ | $ | $ | $ | ||||||||||||||||
| Other comprehensive (loss) income before reclassifications |
( |
) | ( |
) | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss |
( |
) | ( |
) | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net other comprehensive loss |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Balance as of March 31, 2025 |
$ | ( |
) | $ | $ | $ | $ | $ | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The Company does not reclassify the amortization of defined benefit pension cost components from accumulated other comprehensive income (loss) directly to net income in its entirety, as a portion of these costs have been deferred as a regulatory asset. These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension cost.
The amortization of the gain (loss) on cash flow hedges is reclassified to net income during the period incurred and is included in Interest expense in the accompanying Consolidated Statements of Operations.
An unrealized gain (loss) on fixed-income securities is reclassified to net income upon sale of the securities as a realized gain or loss and is included in Other, net in the accompanying Consolidated Statements of Operations.
available-for-sale
Dividends
On March 3, 2026, the Company paid a quarterly cash dividend of $0.8275 per share to shareholders of record as of February 10, 2026.
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On April 29, 2026, the Company’s Board of Directors declared a quarterly cash dividend payment of $0.8950 per share, payable on June 2, 2026, to shareholders of record as of May 12, 2026. Future dividends, when and as declared at the discretion of the Board of Directors, will be dependent upon future earnings and cash flows, compliance with various regulatory, financial and legal requirements, and other factors. See Note 9—Shareholders’ Equity in the
Notes
to Consolidated Financial Statements in the Company’s Form 10-K
for additional information regarding the payment of dividends on the Company’s common stock. Note 7: Long-Term Debt
On April 1, 2026, American Water Capital Corp. (“AWCC”), the Company’s wholly owned finance subsidiary, completed the sale of $700 million aggregate principal amount of its 5.200 % Senior Notes due 2036. At the closing of this offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of approximately $695 million. AWCC intends to use the net proceeds of the offering (i) to lend funds to American Water and the Regulated Businesses; (ii) to repay commercial paper obligations of AWCC; and (iii) for general corporate purposes.
During the three months ended March 31, 2026, the Company’s regulated subsidiaries issued in the aggregate $7 million of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.00 % to 1.74 %, a weighted average interest rate of 0.47 % and maturity dates ranging from 2031 through 2048 . The private activity bonds and government funded debt issued by the Company’s regulated subsidiaries during the three months ended March 31, 2026, were collateralized. During the three months ended March 31, 2026, AWCC and the Company’s regulated subsidiaries made sinking fund payments for, repaid at maturity, or settled $3 million in aggregate principal amount of outstanding long-term debt, with annual interest rates ranging from 0.00 % to 3.12 %, a weighted average interest rate of 0.81 % and maturity dates ranging from 2029 to 2061.
As of March 31, 2026, the Company had entered into five treasury lock agreements, with a term of 30 years and an aggregate notional amount totaling $175 million, to reduce interest rate exposure on expected future debt issuances. These treasury lock agreements terminate in September 2026 and have an average fixed interest rate of 4.86 %. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss.
In March 2026, the Company terminated 10 treasury lock agreements, designated as cash flow hedges, with a term of 10 years and an aggregate notional amount totaling $600 million, realizing a 3 million recorded in accumulated other comprehensive income. The gain will be amortized through Interest expense over a 10 -year period, in accordance with the tenor of the notes issued on April 1, 2026.
pre-tax
net gain of $On June 29, 2023, AWCC issued $1,035 million aggregate principal amount of 3.625 % Exchangeable Senior Notes due 2026 (the “Exchangeable Notes”). AWCC received net proceeds of approximately $1,022 million, after deduction of underwriting discounts and commissions but before deduction of offering expenses payable by AWCC. The Exchangeable Notes will mature on June 15, 2026 (the “Maturity Date”), unless earlier exchanged or repurchased, and are included in Current portion of long-term debt on the Consolidated Balance Sheets.
The Exchangeable Notes are exchangeable at an initial exchange rate of 5.8213 shares of parent company’s common stock per $1,000 principal amount of Exchangeable Notes (equivalent to an initial exchange price of approximately $171.78 per share of common stock). The initial exchange rate of the Exchangeable Notes is subject to adjustment as provided in the indenture pursuant to which the Exchangeable Notes were issued (the “Exchangeable Note Indenture”). Upon any exchange of the Exchangeable Notes, AWCC will (i) pay cash up to the aggregate principal amount of such Exchangeable Notes and (ii) pay or deliver (or cause to be delivered), as the case may be, cash, shares of parent company’s common stock, or a combination of cash and shares of such common stock, at AWCC’s election, in respect of the remainder, if any, of AWCC’s exchange obligation in excess of the aggregate principal amount of such Exchangeable Notes. As of March 31, 2026, the exchange rate for the Exchangeable Notes was 5.8270.
AWCC may not redeem the Exchangeable Notes prior to the Maturity Date, and no sinking fund is provided for the Exchangeable Notes. Subject to certain conditions, holders of the Exchangeable Notes will have the right to require AWCC to repurchase all or a portion of their Exchangeable Notes upon the occurrence of a fundamental change, as defined in the Exchangeable Note Indenture, at a repurchase price of 100 % of their principal amount plus any accrued and unpaid interest.
15
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Note 8: Short-Term Debt
Liquidity 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 150 million in letters of credit. 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.
sub-limit
for the issuance of up to $Short-term debt consists of commercial paper borrowings totaling $1,367 million and $1,590 million as of March 31, 2026, and December 31, 2025, respectively, or net of discount $1,366 million and $1,588 million as of March 31, 2026, and December 31, 2025, respectively. The weighted-average interest rate on AWCC’s outstanding short-term borrowings was approximately 4.07 % and 3.89 % as of March 31, 2026, and December 31, 2025, respectively. As of March 31, 2026, and December 31, 2025, AWCC had no no
Presented in the tables below are the aggregate credit facility commitment, commercial paper limit and letter of credit availability under the revolving credit facility, as well as the available capacity for each:
As of March 31, 2026 |
||||||||||||
Commercial Paper Limit |
Letters of Credit |
Total (a) |
||||||||||
Total availability |
$ | $ | $ | |||||||||
Outstanding debt |
( |
) | ( |
) | ( |
) | ||||||
Remaining availability as of March 31, 2026 |
$ | $ | $ | |||||||||
| (a) | Total remaining availability of $ |
As of December 31, 2025 |
||||||||||||
Commercial Paper Limit |
Letters of Credit |
Total (a) |
||||||||||
Total availability |
$ | $ | $ | |||||||||
Outstanding debt |
( |
) | ( |
) | ( |
) | ||||||
Remaining availability as of December 31, 2025 |
$ | $ | $ | |||||||||
| (a) | Total remaining availability of $ |
Presented in the table below is the Company’s total available liquidity as of March 31, 2026, and December 31, 2025, respectively:
Cash and Cash Equivalents |
Availability on Revolving Credit Facility |
Total Available Liquidity |
||||||||||
Available liquidity as of March 31, 2026 |
$ | $ | $ | |||||||||
Available liquidity as of December 31, 2025 |
$ | $ | $ | |||||||||
Note 9: Income Taxes
The Company’s effective income tax rate was 24.3 % and 24.1 % for the three months ended March 31, 2026 and 2025, respectively.
On February 18, 2026, the Internal Revenue Service issued Notice 200 million CAMT credit carryforward outstanding as of December 31, 2025. Also, as of March 31, 2026, the Company recognized additional uncertain tax liabilities of $50 million and interest of $2 million, as the CAMT credit carryforward is no longer available for offset. The Company will continue to evaluate CAMT applicability on a prospective basis.
2026-7,
providing additional CAMT guidance that, among other changes, allows tax repairs to be deducted when calculating the CAMT liability and allows retroactive reliance for companies to file amended returns and recover CAMT already paid. As a result of this guidance, the Company does not expect to be in a CAMT liability position. As of March 31, 2026, previously recorded current and deferred tax amounts relating to CAMT have been adjusted in the Company’s Consolidated Financial Statements to reflect the revised calculation and refund claim status including the reversal of the $16
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Note 10: Pension and Other Postretirement Benefits
Presented in the table below are the components of net periodic benefit costs:
For the Three Months Ended March 31, |
||||||||
2026 |
2025 |
|||||||
Components of net periodic pension benefit cost: |
||||||||
Service cost |
$ | $ | ||||||
Interest cost |
||||||||
Expected return on plan assets |
( |
) | ( |
) | ||||
Amortization of prior service credit |
( |
) | ||||||
Amortization of actuarial loss |
||||||||
Net periodic pension benefit cost |
$ | $ | ||||||
Components of net periodic other postretirement benefit credit: |
||||||||
Interest cost |
$ | $ | ||||||
Expected return on plan assets |
( |
) | ( |
) | ||||
Amortization of prior service credit |
( |
) | ( |
) | ||||
Net periodic other postretirement benefit credit |
$ | ( |
) | $ | ( |
) | ||
The Company contributed $11 33 million during the remainder of 2026.
Note 11: Commitments and Contingencies
Contingencies
The Company is routinely involved in legal actions incident to the normal conduct of its business. As of March 31, 2026, the Company has accrued approximately $6 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 $7 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 11—Commitments and Contingencies, will not have a material adverse effect on the Company.
Dunbar, West Virginia Class Action Litigation Settlement
On 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 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. The complaint alleged breach of contract by WVAWC for failure to supply water, violation of West Virginia law regarding the sufficiency of WVAWC’s facilities and negligence by WVAWC in the design, maintenance and operation of the water system. In July 2020, the Circuit Court entered an order granting the plaintiffs’ motion for certification of a class regarding certain liability issues but denying certification of a class to determine a punitive damages multiplier.
Jeffries, et al. v. West Virginia-American Water Company
Jeffries
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Trial in this matter had been scheduled, but before trial commenced, the parties notified the Circuit Court that an agreement in principle to settle this litigation was reached among the parties. On May 2, 2025, the parties jointly filed with the Circuit Court a proposed class action settlement agreement (the “Dunbar Settlement”) with respect to the certified liability claims. On September 12, 2025, the Circuit Court issued an order granting final approval of the Dunbar Settlement. Under the terms of the approved Dunbar Settlement, WVAWC has not admitted, and will not admit, any fault or liability for any of the allegations made by the plaintiffs. The maximum 18 million, of which the final amount of the Company’s and WVAWC’s contributions to the Dunbar Settlement is approximately $5 million (which have been funded through existing sources of liquidity), and the remainder has been contributed by certain of the Company’s general liability insurance carriers. The Company previously recorded in the fourth quarter of 2024 a charge to earnings, net of expected insurance receivables, of $5 million ($4 million 5 million. The deadline for claims submissions was August 25, 2025, and on October 10, 2025, WVAWC made its payments for attorney fees, costs and other expenses under the order granting final approval of the class settlement.
Jeffries
pre-tax
amount of the Dunbar Settlement is approximately $after-tax),
with respect to the Dunbar Settlement. The actual total amount to be paid to claimants through the Dunbar Settlement will depend upon the claims approved through the claims process but the Company does not currently anticipate that its maximum liability will materially exceed $Chattanooga, Tennessee Class Action Litigation
On September 12, 2019, the Company’s Tennessee subsidiary (“TAWC”), experienced a leak in a
36-inch
water transmission main, which caused service fluctuations or interruptions to TAWC customers and the issuance of a boil water notice. TAWC repaired the main by early morning on September 14, 2019, and restored full water service by the afternoon of September 15, 2019, with the boil water notice lifted for all customers on September 16, 2019. On September 17, 2019, a complaint captioned was filed in the Circuit Court of Hamilton County, Tennessee against TAWC, the Company and American Water Works Service Company, Inc. (“Service Company” and, together with TAWC and the Company, collectively, the “Tennessee-American Water Defendants”), on behalf of a proposed class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga incident (the “Tennessee Plaintiffs”). The complaint alleged breach of contract and negligence against the Tennessee-American Water Defendants, as well as an equitable remedy of piercing the corporate veil. In the complaint as originally filed, the Tennessee Plaintiffs were seeking an award of unspecified alleged damages for wage losses, business and economic losses, expenses, loss of use and enjoyment of property and annoyance and inconvenience, as well as punitive damages, attorneys’ fees and
Bruce, et al. v. American Water Works Company, Inc., et al.
out-of-pocket
pre-
and post-judgment interest. In September 2020, the court dismissed all of the Tennessee Plaintiffs’ claims in their complaint, except for the breach of contract claims against TAWC. In January 2023, after hearing oral argument, the court issued an oral ruling denying the Tennessee Plaintiffs’ motion for class certification. In February 2023, the Tennessee Plaintiffs sought reconsideration of the ruling by the court, and any final ruling is appealable to the Tennessee Court of Appeals, as allowed under Tennessee law. In September 2023, the court upheld its prior ruling but gave the Tennessee Plaintiffs the option to file an amended class definition. In October 2023, the Tennessee Plaintiffs filed an amended class definition seeking certification of a business customer-only class. On June 14, 2024, the court issued its written order denying the Tennessee Plaintiffs’ amended class and incorporating its denial of certification of the original residential class. On June 21, 2024, the Tennessee Plaintiffs appealed both of the court’s orders denying class certification. On December 4, 2025, the Court of Appeals of Tennessee denied the Tennessee Plaintiffs’ appeal, and on January 30, 2026, the Tennessee Plaintiffs filed an appeal with the Supreme Court of Tennessee. This matter remains pending.
The Company and TAWC believe that TAWC has valid, meritorious defenses to the claims raised in this class action complaint. TAWC will continue to vigorously defend itself against these allegations. Given the current stage of this proceeding, the Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of loss related to this proceeding.
Mountaineer Gas Company Main Break
During the afternoon of November 10, 2023, WVAWC was informed that an 300 WVAWC customers and ultimately lifted on November 12, 2023.
8-inch
ductile iron water main owned by WVAWC, located on the West Side of Charleston, West Virginia and originally installed in approximately 1989, experienced a leak. In the early morning hours of November 11, 2023, WVAWC crews successfully completed a repair to the water main. A precautionary boil water advisory was issued the same day to approximately Table of Contents
On November 10, 2023, a break was reported in a 220,000 customers in West Virginia (“Mountaineer Gas”). The resulting inflow of water into the natural gas main and related pipelines resulted in a loss of natural gas service to approximately 1,500 Mountaineer Gas customers, as well as water entering customer service lines and certain natural gas appliances owned or used by some of the affected Mountaineer Gas customers. Mountaineer Gas reported that restoration of natural gas service to all affected gas mains occurred on November 24, 2023. The timing, order and causation of both the WVAWC water main break and Mountaineer Gas’s main break are currently unknown and under investigation.
low-pressure
natural gas main located near the affected WVAWC water main, and an inflow of water into the natural gas main and associated delivery pipelines occurred. The natural gas main and pipelines are owned by Mountaineer Gas Company, a regulated natural gas distribution company serving over To date, a total of four pending lawsuits have been filed against Mountaineer Gas and WVAWC purportedly on behalf of customers in Charleston, West Virginia related to these incidents. On November 14, 2023, a complaint captioned was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of Mountaineer Gas residential and business customers and other households and businesses supplied with natural gas in Kanawha County, which lost natural gas service on November 10, 2023, as a result of these events. The complaint alleges, among other things, breach of contract by Mountaineer Gas, trespass by WVAWC, nuisance by WVAWC, violation of statutory obligations by Mountaineer Gas and WVAWC, and negligence by Mountaineer Gas and WVAWC. The complaint seeks class-wide damages against Mountaineer Gas and WVAWC for loss of use of natural gas, annoyance, inconvenience and lost profits, as well as punitive damages.
Ruffin et al. v. Mountaineer Gas Company and West Virginia-American Water Company
On November 15, 2023, a complaint captioned was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of all natural persons or entities who are citizens of the State of West Virginia and who are customers of WVAWC and/or Mountaineer Gas in the affected areas. The complaint alleges against Mountaineer Gas and WVAWC, among other things, negligence, nuisance, trespass and strict liability, as well as breach of contract against Mountaineer Gas. The complaint seeks class-wide damages against Mountaineer Gas and WVAWC for property damage, loss of use and enjoyment of property, annoyance and inconvenience and business losses, as well as punitive damages.
Toliver et al. v. West Virginia-American Water Company and Mountaineer Gas Company
On November 16, 2023, a complaint captioned was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of all West Virginia citizens living between Pennsylvania Avenue south of Washington Street, and Iowa Street, who are customers of Mountaineer Gas. The complaint alleges against Mountaineer Gas and WVAWC, among other things, negligence, nuisance, trespass, statutory code violations and unfair or deceptive business practices. The complaint seeks class-wide damages against Mountaineer Gas and WVAWC for property loss and damage, loss of use and enjoyment of property, mental and emotional distress, and aggravation and inconvenience, as well as punitive damages.
Dodson et al. v. West Virginia American Water and Mountaineer Gas Company
On January 4, 2024, a fourth complaint, captioned , was filed in West Virginia Circuit Court in Kanawha County asserting similar allegations as those included in the , and lawsuits, with the addition of counts alleging unjust enrichment and violations of the West Virginia Human Rights Act and the West Virginia Consumer Credit and Protection Act.
Thomas v. West Virginia-American Water Company and Mountaineer Gas Company
Ruffin
Toliver
Dodson
On November 17, 2023, the plaintiff filed a motion to consolidate the class action lawsuits before a single judge in Kanawha County Circuit Court. On June 14, 2024, the judge in the case partially granted the motion by transferring all of the four class action lawsuits to her court but deferring as premature consolidation of the cases.
Ruffin
Ruffin
On December 5, 2023, a complaint captioned was filed in West Virginia Circuit Court in Kanawha County seeking damages under theories of trespass, negligence and implied indemnity. The damages being sought related to the incident include, among other things, repair and response costs incurred by Mountaineer Gas and attorneys’ fees and expenses incurred by Mountaineer Gas. On March 6, 2024, the motion to transfer this complaint to the West Virginia Business Court was granted and trial and resolution judges were assigned. The Business Court has set a trial date of August 10, 2026, for this matter.
Mountaineer Gas Company v. West Virginia-American Water Company
On December 20, 2023, Mountaineer Gas filed answers to each of the first three class action lawsuits, which included cross-claims against WVAWC alleging that Mountaineer Gas is without fault for the claims and damages alleged in the lawsuits and WVAWC should be required to indemnify Mountaineer Gas for any damages and for attorneys’ fees and expenses incurred by Mountaineer Gas in the lawsuits. WVAWC has filed a partial motion to dismiss certain claims in the and lawsuits and a motion to dismiss the cross-claims asserted against WVAWC therein by Mountaineer Gas. Mountaineer Gas subsequently voluntarily dismissed its cross-claims. On November 14, 2025, the plaintiffs jointly filed for class certification, and a hearing on that motion was held on April 17, 2026. The court also ordered mediation, which took place in March 2026 and was unsuccessful. There is currently no trial date set for these class action lawsuits.
Ruffin, Toliver,
Dodson
Thomas
Ruffin and Toliver
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On December 6, 2023, WVAWC initiated a process whereby Mountaineer Gas customers could file claims with WVAWC and seek payment from WVAWC of up to $2,000 in damages per affected household for the inconvenience arising from a loss of use of their appliances and documented expenses as a result of the natural gas outage. In light of the diminishing number of new claims that had been filed, the claims process was concluded on March 8, 2024. As of December 31, 2024, a total of 594 Mountaineer Gas customers completed this claims process, and each of those customers has been paid by WVAWC an average of approximately $1,500 . In return, these customers were required to execute a partial release of liability in favor of WVAWC.
out-of-pocket
On November 16, 2023, the Public Service Commission of West Virginia (the “WVPSC”) issued an order initiating a general investigation into both the water main break and natural gas outages occurring in this incident to determine the cause or causes thereof, as well as breaks and outages generally throughout the systems of WVAWC and Mountaineer Gas and the utility practices of both utilities. Following a series of disagreements among the parties regarding the scope of discovery, the WVPSC closed the general investigation into both utilities and ordered a separate general investigation for each utility. The WVPSC focused the two general investigations away from the cause of the events and instead on the maintenance practices of each utility during and after the main breaks. On January 29, 2024, the Consumer Advocate Division of the WVPSC filed a motion to intervene in the WVAWC general investigation.
On April 24, 2024, the staff issued a final joint memorandum in the Mountaineer Gas general investigation stating its view that Mountaineer Gas responded appropriately, reasonably and according to Mountaineer Gas’s written procedures. The staff is making no recommendations for improvements to Mountaineer Gas and is recommending that the Mountaineer Gas general investigation be closed. On July 24, 2024, the staff issued a final joint memorandum in the WVAWC general investigation finding no indication of systematic failure by WVAWC and concluding WVAWC’s maintenance and operating procedures were adequate to ensure safe and reliable service, subject to the implementation by WVAWC of three recommended operational improvements. Both general investigations remain pending.
The Company and WVAWC believe that the causes of action and other claims asserted against WVAWC in the class action complaints and the lawsuit filed by Mountaineer Gas are without merit and that WVAWC has valid, meritorious defenses to such claims. WVAWC continues to defend itself vigorously in these litigation proceedings. Given the current stage of these proceedings and the general investigation, the Company and WVAWC are currently unable to predict the outcome of any of the proceedings described above, and the Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of loss related to this proceeding.
Alternative Water Supply in Lieu of Carmel River Diversions
Compliance with Orders to Reduce Carmel River Diversions—Monterey Peninsula Water Supply Project
Under a 2009 order (the “2009 Order”) of the State Water Resources Control Board (the “SWRCB”), the Company’s California subsidiary (“Cal Am”) is required to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule. In 2016, the SWRCB issued an order (the “2016 Order,” and, together with the 2009 Order, the “Orders”) approving a deadline of December 31, 2021, for Cal Am’s compliance with these prior orders.
Cal Am is currently involved in developing the Monterey Peninsula Water Supply Project (the “Water Supply Project”), which includes the construction of a desalination plant, to be owned by Cal Am, and the construction of wells that would supply water to the desalination plant. In addition, the Water Supply Project also includes Cal Am’s purchase of water from a groundwater replenishment project (the “GWR Project”) between Monterey One Water and the Monterey Peninsula Water Management District (the “MPWMD”), as well as an expanded aquifer storage and recovery program. The Water Supply Project is intended, among other things, to fulfill Cal Am’s obligations under the Orders.
Cal Am’s ability to move forward on the Water Supply Project is and has been subject to administrative review by the CPUC and other government agencies, obtaining necessary permits, and intervention from other parties. In 2016, the CPUC unanimously approved a final decision to authorize Cal Am to enter into a water purchase agreement for the GWR Project and to construct a pipeline and pump station facilities and recover up to $50 million in associated incurred costs, plus an allowance for funds used during construction (“AFUDC”), subject to meeting certain criteria.
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In 2018, the CPUC unanimously approved another final decision finding that the Water Supply Project meets the CPUC’s requirements for a certificate of public convenience and necessity and an additional procedural phase was not necessary to consider alternative projects. The CPUC’s 2018 decision concludes that the Water Supply Project is the best project to address estimated future water demands in Monterey, and, in addition to the cost recovery approved in its 2016 decision, adopts Cal Am’s cost estimates for the Water Supply Project, which amounted to an aggregate of $279 million plus AFUDC at a rate representative of Cal Am’s actual financing costs. The 2018 final decision specifies the procedures for recovery of all of Cal Am’s prudently incurred costs associated with the Water Supply Project upon its completion, subject to the frameworks included in the final decision related to cost caps, operation and maintenance costs, financing, ratemaking and contingency matters. The reasonableness of the Water Supply Project costs will be reviewed by the CPUC when Cal Am seeks cost recovery for the Water Supply Project. Cal Am is also required to implement mitigation measures to avoid, minimize or offset significant environmental impacts from the construction and operation of the Water Supply Project and comply with a mitigation monitoring and reporting program, a reimbursement agreement for CPUC costs associated with that program, and reporting requirements on plant operations following placement of the Water Supply Project in service. Cal Am has incurred $336 million in aggregate costs as of March 31, 2026, related to the Water Supply Project, which includes $112 million in AFUDC.
In September 2021, Cal Am, Monterey One Water and the MPWMD reached an agreement on Cal Am’s purchase of additional water from an expansion to the GWR Project. On December 5, 2022, the CPUC issued a final decision that authorized Cal Am to enter into the amended water purchase agreement, and specifically to increase pumping capacity and reliability of groundwater extraction from the Seaside Groundwater Basin. The final decision sets the cost cap for the proposed facilities at approximately $62 million. Cal Am may seek recovery of amounts above the cost cap in a subsequent rate filing or general rate case. Additionally, the final decision authorizes AFUDC at Cal Am’s actual weighted average cost of debt for most of the facilities. On December 30, 2022, Cal Am filed with the CPUC an application for rehearing of the CPUC’s December 5, 2022, final decision, and on March 30, 2023, the CPUC issued a decision denying Cal Am’s application for rehearing, but adopting its proposed AFUDC for already incurred and future costs. The decision also provided Cal Am the opportunity to serve supplemental testimony to increase its cost cap for certain of the Water Supply Project’s extraction wells. On May 21, 2025, the CPUC issued a decision authorizing an increase to the cost cap of $11 million for the specified extraction wells.
The amended water purchase agreement and a memorandum of understanding to negotiate certain milestones related to the expansion of the GWR Project have been signed by the relevant parties. Further hearings were scheduled in a Phase 2 to this CPUC proceeding to focus on updated supply and demand estimates for the Water Supply Project, and Phase 2 testimony was completed in September 2022. On October 23, 2023, a status conference was held to determine procedural steps to conclude the proceeding. Further evidentiary hearings were held in March 2024. On May 9, 2025, the CPUC issued a proposed decision in Phase 2, finding that without the Water Supply Project, projected demand will outstrip supply by approximately 2,500 acre-feet per year for 2050. On August 14, 2025, the CPUC approved a final decision updating the supply and demand estimates for the Water Supply Project, finding that the projected demand will outstrip supply by approximately 2,600 acre-feet per year for 2050. On September 17, 2025, the City of Marina (the “City”), the Marina Coast Water District (“MCWD”) and the MPWMD filed applications for rehearing of the final decision. On September 22, 2025, these parties also filed a motion to stay the final decision. On October 9, 2025, the CPUC issued a factual correction to the final decision to find that the projected demand will outstrip supply by approximately 2,500 acre-feet per year for 2050 and did not rule on the other motions.
While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the Orders, as well as relevant final decisions of the CPUC related thereto, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $123 million in previously approved aggregate construction costs, plus applicable AFUDC, previously approved by the CPUC in its September 2016 decision, its December 2022 decision (as amended by its March 2023 rehearing decision), and its May 2025 decision.
Coastal Development Permit Application
In 2018, Cal Am submitted a coastal development permit application (the “Marina Application”) to the City for those project components of the Water Supply Project located within the City’s coastal zone. Members of the City’s Planning Commission, as well as City councilpersons, publicly expressed opposition to the Water Supply Project. In May 2019, the City issued a notice of final local action based upon the denial by the Planning Commission of the Marina Application. Thereafter, Cal Am appealed this decision to the Coastal Commission, as permitted under the City’s code and the California Coastal Act. At the same time, Cal Am submitted an application (the “Original Jurisdiction Application”) to the Coastal Commission for a coastal development permit for those project components located within the Coastal Commission’s original jurisdiction. After Coastal Commission staff issued reports recommending denial of the Original Jurisdiction Application, noting potential impacts on environmentally sensitive habitat areas and wetlands and possible disproportionate impacts to communities of concern, in September 2020, Cal Am withdrew the Original Jurisdiction Application in order to address the staff’s environmental justice concerns. In November 2020, Cal Am refiled the Original Jurisdiction Application.
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In October 2022, Cal Am announced a phasing plan for the proposed desalination plant component of the Water Supply Project. The desalination plant and slant wells originally approved by the CPUC would produce up to 6.4 million gallons of desalinated water per day. Under the phased approach, the facilities would initially be constructed to produce up to 4.8 million gallons per day of desalinated water, enough to meet anticipated demand through about 2030, and would limit the number of slant wells initially constructed. As demand increases in the future, desalination facilities would be expanded to meet the additional demand. The phased approach seeks to meet near-term demand by allowing for additional supply as it becomes needed, while also providing an opportunity for regional future public participation and was developed by Cal Am based on feedback received from the community.
In November 2022, the Coastal Commission approved the Marina Application and the Original Jurisdiction Application with respect to the phased development of the proposed desalination plant, subject to compliance with a number of conditions, all of which Cal Am expects to satisfy. In December 2022, the City, MCWD, MCWD’s groundwater sustainability agency, and the MPWMD jointly filed a petition for writ of mandate in Monterey County Superior Court against the Coastal Commission, alleging that the Coastal Commission violated the California Coastal Act and the California Environmental Quality Act in issuing a coastal development permit to Cal Am for construction of slant wells for the Water Supply Project. Cal Am is named as a real party in interest. On April 24, 2024, the court granted defendants’ motion for judgment on the pleadings and dismissed one of MCWD’s causes of action in the petition. A trial commenced on December 9, 2024, and further proceedings continued in January 2025. On May 12, 2025, the court entered its final decision denying the petition in full. On July 24, 2025, a notice of appeal was filed in this matter.
Following the issuance of the coastal development permit, Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining the remaining required permits for the Water Supply Project. However, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. For the year ended December 31, 2025, Cal Am has complied with the diversion limitations contained in the 2016 Order. Continued compliance with the diversion limitations in 2026 and future years may be impacted by a number of factors, including without limitation potential recurrence of drought conditions in California and the exhaustion of water supply reserves, and will require successful development of alternate water supply sources sufficient to meet customer demand. The Orders remain in effect until Cal Am certifies to the SWRCB, and the SWRCB concurs, that Cal Am has obtained a permanent supply of water to substitute for past unauthorized Carmel River diversions. While the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the Orders may result in material additional costs and obligations to Cal Am, including fines and penalties against Cal Am in the event of noncompliance with the Orders.
Cal Am’s Action for Damages Following Termination of Regional Desalination Project (“RDP”)
In 2010, the CPUC had approved the RDP, which was a precursor to the current Water Supply Project and called for the construction of a desalination facility in the City. The RDP was to be implemented through a Water Purchase Agreement and ancillary agreements (collectively, the “Agreements”) among MCWD, Cal Am and the Monterey County Water Resources Agency (“MCWRA”). In 2011, due to a conflict of interest concerning a former member of MCWRA’s Board of Directors, MCWRA stated that the Agreements were void, and, as a result, Cal Am terminated the Agreements. In ensuing litigation filed by Cal Am in 2012 to resolve the termination of the RDP, the court in 2015 entered a final judgment agreeing with Cal Am’s position that four of the five Agreements are void, and one , the credit line agreement, is not void. As a result of this litigation, Cal Am was permitted to institute further proceedings, discussed below, to determine the amount of damages that may be awarded to Cal Am as a result of the failure of the RDP.
In 2015, Cal Am and MCWRA filed a complaint in San Francisco County Superior Court against MCWD and RMC Water and Environment, a private engineering consulting firm (“RMC”), seeking to recover compensatory, consequential and incidental damages associated with the failure of the RDP, as well as punitive and treble damages, statutory penalties and attorneys’ fees. In 2019, MCWD was granted a motion for summary judgment related to the tort claims in the complaint. A settlement as to the
non-tort
claims was finalized and entered into in March 2020. As part of this settlement, Cal Am’s and MCWRA’s right to appeal the dismissal of their tort claims against MCWD were expressly reserved, and, in July 2020, Cal Am filed its appeal. In December 2022, the trial court’s decision was reversed on appeal with instructions to vacate its prior orders granting MCWD’s motions for summary judgment and to enter new orders denying the motions. In February 2023, MCWD filed a petition for review of the appellate decision with the California Supreme Court, which was denied in March 2023. On June 27, 2024, MCWD filed a motion for judgment on the pleadings. Following a hearing, on December 5, 2024, the court granted MCWD’s motion without leave to amend, dismissing all of Cal Am’s remaining tort claims. Final judgment was entered on January 7, 2025. On February 27, 2025, Cal Am and MCWRA each filed a Notice of Appeal of the trial court’s decision. This matter remains pending. Table of Contents
Proposed Acquisition of Monterey System Assets — Potential Condemnation
Local Agency Formation Commission Litigation
The water system assets of Cal Am located in Monterey, California (the “Monterey system assets”) are the subject of a condemnation action by the MPWMD stemming from a November 2018 public ballot initiative. In 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (i) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (ii) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (iii) the acquisition of the Monterey system assets by the MPWMD would be economically feasible. In 2020, the MPWMD certified a final environmental impact report, analyzing the environmental impacts of the MPWMD’s project to (i) acquire the Monterey system assets through the power of eminent domain, if necessary, and (ii) expand its geographic boundaries to include all parts of this system.
In February 2021, the MPWMD filed an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 58 parcels of land into the MPWMD’s boundaries. In June 2021, LAFCO’s commissioners voted to require a third-party independent financial study as to the feasibility of an acquisition by the MPWMD of the Monterey system assets. In December 2021, LAFCO’s commissioners denied the MPWMD’s application to become a retail water provider, determining that the MPWMD does not have the authority to proceed with a condemnation of the Monterey system assets. In April 2022, the MPWMD filed a lawsuit against LAFCO challenging its decision to deny the MPWMD’s application seeking approval to become a retail water provider. In June 2022, the court granted, with conditions, a motion by Cal Am to intervene in the MPWMD’s lawsuit against LAFCO. In December 2022, the court sustained in part, and denied in part, demurrers that had been filed by LAFCO seeking to dismiss the MPWMD’s lawsuit.
In December 2023, the Monterey County Superior Court issued a writ of mandate directing LAFCO to vacate and set aside its original denial of the MPWMD’s application to serve as a retail water provider (in conjunction with its effort to acquire the Monterey system assets) and, if requested, to two statutory standards and noted a lack of sufficient evidence to support certain of LAFCO’s factual findings. As a result, the LAFCO denial has been nullified and LAFCO will be required to hold another hearing on the MPWMD’s application upon request. On February 8, 2024, and February 9, 2024, respectively, Cal Am and LAFCO each filed a notice of appeal with the California Court of Appeal regarding the Monterey County Superior Court’s decision to issue the writ of mandate. The MPWMD filed a notice of cross-appeal on February 15, 2024. This matter remains pending.
re-hear
the application in compliance with all applicable law. The court held that LAFCO incorrectly applied MPWMD Condemnation Action
Separate from the proceedings related to the MPWMD’s application with LAFCO, by letter dated October 3, 2022, the MPWMD notified Cal Am of a decision to appraise the Monterey system assets and requested access to a number of Cal Am’s properties and documents to assist the MPWMD with such an appraisal. Cal Am responded by letter on October 24, 2022, denying the request for access, stating that the MPWMD does not have the right to appraise Cal Am’s system without LAFCO approval to become a retail water provider. In April 2023, Cal Am rejected an offer by the MPWMD to purchase the Monterey system assets for $448.8 million. Over the written and oral objections of Cal Am, at a hearing held in October 2023, the MPWMD adopted a resolution of necessity to authorize it to file an eminent domain lawsuit with respect to the Monterey system assets.
In December 2023, the MPWMD filed a lawsuit against Cal Am in Monterey County Superior Court seeking to condemn the Monterey system assets. On February 26, 2024, Cal Am filed a motion requesting the Monterey County Superior Court dismiss the MPWMD’s lawsuit. Cal Am’s motion asserted that the MPWMD lacks legal authorization from both the California legislature and LAFCO to become a retail water provider and the lawsuit improperly seeks to effect a taking of property outside the boundaries of the MPWMD’s territory. Hearings on the motion were held on May 3, 2024, and August 23, 2024. On November 14, 2024, the court issued a final ruling denying Cal Am’s motion to dismiss. Cal Am filed its answer to the complaint on December 13, 2024. On August 20, 2025, Cal Am filed a motion for summary judgment, alleging that without LAFCO approval, the MPWMD does not have legal authority to pursue eminent domain. On the same date, the MPWMD filed a motion for summary adjudication of the same issue, arguing that LAFCO approval is not required to proceed with this action. By orders dated December 29, 2025, the court denied both motions. This lawsuit remains pending.
While the Company cannot currently predict the outcome of the MPWMD’s eminent domain lawsuit, the Company believes that, given existing legal authorities and its other defenses, Cal Am should be able to defend itself successfully against this lawsuit.
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PFAS Multi-District Litigation
Several of the Company’s utility subsidiaries are parties to a multi-district litigation (the “MDL”) lawsuit, which commenced on December 7, 2018, in U.S. District Court for the District of South Carolina, against manufacturers of certain
per-
and polyfluoroalkyl substances (collectively, “PFAS”) for damages, contribution and reimbursement of costs incurred and continuing to be incurred to address the presence of such PFAS in public water supply systems owned and operated by these utility subsidiaries and throughout their service areas. Settlements with several defendants in the MDL proceeding have received final approval by the MDL court. As of March 31, 2026, the Company has received settlement payments from defendants 3M Company, DuPont de Nemours, Inc. and Tyco Fire Products LP totaling $185 million, net of legal fees and administrative costs. The Company is seeking regulatory approval from the respective PUCs to apply the net proceeds of the settlement payments for the benefit of customers, where permissible. As of March 31, 2026, regulatory approvals for such treatment have been obtained with respect to all of the Company’s utility subsidiaries that are parties to the MDL for which such treatment is sought, except three, two of which have been denied, and one of which remains pending. When and as received, funds are initially being held in a law firm escrow account prior to distribution to the Company’s utility subsidiaries that are parties to the MDL after approval or denial is received from the applicable PUCs. As of March 31, 2026, the funds held in a law firm escrow account totaled $105 million and have been recorded on the Company’s Consolidated Balance Sheet within other current assets. A similar amount has been recorded as a regulatory liability. As of March 31, 2026, approximately $79 million of the escrowed funds were transferred from the law firm escrow account for distribution to utility subsidiaries that have received approval. The Company anticipates that, during 2026, it may receive one or more additional settlement payments from the defendants in the MDL.
Note 12: Earnings per Common Share
Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted earnings per share (“EPS”) calculations:
For the Three Months Ended March 31, |
||||||||
2026 |
2025 |
|||||||
Numerator: |
||||||||
Net income attributable to common shareholders |
$ | $ | ||||||
Denominator: |
||||||||
Weighted-average common shares outstanding—Basic |
||||||||
Effect of dilutive common stock equivalents |
||||||||
Effect of dilutive forward sale agreements |
||||||||
Weighted-average common shares outstanding—Diluted |
||||||||
The effect of dilutive common stock equivalents is related to outstanding restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted under the Company’s 2007 Omnibus Equity Compensation Plan and outstanding RSUs and PSUs granted under the Company’s 2017 Omnibus Equity Compensation Plan, as well as estimated shares to be purchased under the Company’s 2017 Nonqualified Employee Stock Purchase Plan. Less than one million
Dilutive earnings per common share reflects the dilutive impact of potential issuances of shares of common stock associated with the outstanding equity Forward Sale Agreements entered in August 2025. The dilutive effect of equity forwards is determined under the treasury stock method. Share dilution occurs when the average market price of the Company’s common stock for the reporting period is higher than the adjusted forward sales price at the end of the reporting period. For the three months ended March 31, 2026, the Forward Sale Agreements had no dilutive effect on EPS.
The
if-converted
method is applied to the Notes issued in June 2023 for computing diluted EPS. For all periods presented, there was no dilution resulting from the Notes. See Note 7—Long-Term Debt for additional information relating to the Notes. 24
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Note 13: Fair Value of Financial Information
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 amounts reported on the Consolidated Balance Sheets for current assets and current liabilities, including revolving credit debt, due to the short-term maturities and variable interest rates, approximate their fair values.
Secured seller promissory note from the sale of the Homeowner Services Group—On February 13, 2026, the Company received payment of all amounts payable under the secured seller promissory note. See Note 5—Mergers, Acquisitions and Divestitures for additional information. As of December 31, 2025, the carrying amount reported on the Consolidated Balance Sheets for the secured seller promissory note was $795 million and the accounting fair value measurement approximated $798 million. The secured seller promissory note was classified as Level 3 within the fair value hierarchy.
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 categorized within the fair value hierarchy based on the inputs that are used to value each instrument. The fair value of long-term debt classified as Level 1 is calculated using quoted prices in active markets. Level 2 instruments are valued using observable inputs and Level 3 instruments are valued using observable and unobservable inputs.
Presented in the tables below are the carrying amounts, including fair value adjustments previously recognized in acquisition purchase accounting, and the fair values of the Company’s financial instruments:
As of March 31, 2026 |
||||||||||||||||||||
Carrying Amount |
At Fair Value |
|||||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||||||
Preferred stock with mandatory redemption requirements |
$ | $ | $ | $ | $ | |||||||||||||||
Long-term debt |
||||||||||||||||||||
As of December 31, 2025 |
||||||||||||||||||||
Carrying Amount |
At Fair Value |
|||||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||||||
Preferred stock with mandatory redemption requirements |
$ | $ | $ | $ | $ | |||||||||||||||
Long-term debt |
||||||||||||||||||||
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Recurring Fair Value Measurements
Presented in the tables below are assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy:
As of March 31, 2026 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Assets: |
||||||||||||||||
Restricted funds |
$ | $ | $ | $ | ||||||||||||
Rabbi trust investments |
||||||||||||||||
Deposits |
||||||||||||||||
Other investments: |
||||||||||||||||
Money market and other |
||||||||||||||||
Fixed-income securities |
||||||||||||||||
Mark-to-market |
||||||||||||||||
Total assets |
||||||||||||||||
Liabilities: |
||||||||||||||||
Deferred compensation obligations |
||||||||||||||||
Mark-to-market |
||||||||||||||||
Total liabilities |
||||||||||||||||
Total assets |
$ | $ | $ | $ | ||||||||||||
As of December 31, 2025 |
||||||||||||||||
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Assets: |
||||||||||||||||
Restricted funds |
$ | $ | $ | $ | ||||||||||||
Rabbi trust investments |
||||||||||||||||
Deposits |
||||||||||||||||
Other investments: |
||||||||||||||||
Money market and other |
||||||||||||||||
Fixed-income securities |
||||||||||||||||
Mark-to-market |
||||||||||||||||
Total assets |
||||||||||||||||
Liabilities: |
||||||||||||||||
Deferred compensation obligations |
||||||||||||||||
Total liabilities |
||||||||||||||||
Total assets |
$ | $ | $ | $ | ||||||||||||
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 operation, maintenance and repair projects. Long-term restricted funds of $15 million and $20 million were included in other long-term assets on the Consolidated Balance Sheets as of March 31, 2026, and December 31, 2025, respectively.
Rabbi trust investments—The Company’s rabbi trust investments consist of equity and index funds from which supplemental executive retirement plan benefits and deferred compensation obligations can be paid. The Company includes these assets in other long-term assets on the Consolidated Balance Sheets.
Deposits—Deposits include escrow funds and certain other deposits held in trust. The Company includes cash deposits in other current assets on the Consolidated Balance Sheets.
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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 on the Consolidated Balance Sheets. 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 quoted prices for identical assets in active markets.
Mark-to-market
mark-to-market
mark-to-market
Other investments—The Company maintains a Voluntary Employees’ Beneficiary Association trust for purposes of paying active union employee medical benefits (“Active VEBA”). The investments in the Active VEBA trust primarily consist of money market funds and fixed-income securities.
available-for-sale
The money market and other investments have original maturities of three months or less when purchased. The fair value measurement of the money market and other investments is based on quoted prices for identical assets in active markets and therefore included in the recurring fair value measurements hierarchy as Level 1.
The fixed-income securities are primarily investments in U.S. Treasury securities and government bonds. The majority of U.S. Treasury securities and government bonds have been categorized as Level 1 because they trade in highly-liquid and transparent markets. Certain U.S. Treasury securities are based on prices that reflect observable market information, such as actual trade information of similar securities, and are therefore categorized as Level 2, because the valuations are calculated using models which utilize actively traded market data that the Company can corroborate.
available-for-sale
As of March 31, 2026, and December 31, 2025, the Company had current assets of $46 million and $55 million, respectively, included in Other on the Consolidated Balance Sheets for other investments measured and recorded at fair value. Unrealized holding gains and losses on securities are excluded from earnings and reported in other comprehensive income until realized.
available-for-sale
The following tables summarize the unrealized positions for fixed-income securities:
available-for-sale
As of March 31, 2026 |
||||||||||||||||
Amortized Cost Basis |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
Available-for-sale |
$ | $ | $ | $ | ||||||||||||
As of December 31, 2025 |
||||||||||||||||
Amortized Cost Basis |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
Available-for-sale |
$ | $ | $ | $ | ||||||||||||
The fair value of the Company’s fixed-income securities, summarized by contractual maturities, as of March 31, 2026, is as follows:
available-for-sale
Amount |
||||
Other investments - Available-for-sale |
||||
1 year - 5 years |
$ | |||
5 years - 10 years |
||||
Greater than 10 years |
||||
Total |
$ | |||
27
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Note 14: Leases
The 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.
right-of-use
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 , 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 $141 million and $142 million as of March 31, 2026, and December 31, 2025, 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 are excluded from the lease disclosure presented below.
property, plant and equipment
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 $3 million in 2026, $4 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 $3
For the three months ended March 31, 2026 and 2025, cash paid for amounts in lease liabilities, which includes operating cash flows from operating leases, were $3 1 million and $3 million, respectively.
As of March 31, 2026, and December 31, 2025, the weighted-average remaining lease term of the operating leases were 18 5
The future maturities of lease liabilities as of March 31, 2026, were $8 million in 2026, $10 million in 2027, $8 million in 2028, $8 million in 2029, $7 million in 2030, and $84 million thereafter. As of March 31, 2026, imputed interest was $45 million.
Note 15: Segment Information
The 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 also includes inter-segment revenues, costs and interest which are eliminated to reconcile to the Consolidated Statements of Operations.
The Company also operates other businesses, primarily MSG, that do not meet the criteria of a reportable segment in accordance with GAAP and are collectively presented throughout this Form
10-Q
within “Other,” which is consistent with how management assesses the results of these businesses. 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 President and 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. The chief operating decision maker also uses segment net income to monitor budget versus actual results to assess the performance of the segment.
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Presented in the tables below is summarized segment information:
As of or for the Three Months Ended March 31, 2026 |
||||||||||||
Regulated Businesses |
Other |
Consolidated |
||||||||||
Operating revenues |
$ | $ | $ | |||||||||
Less: |
||||||||||||
Operation and maintenance (a) |
||||||||||||
Other segment items (b) |
||||||||||||
Depreciation and amortization |
||||||||||||
Interest expense |
||||||||||||
Interest income |
( |
) | ( |
) | ( |
) | ||||||
Provision for income taxes |
||||||||||||
Net income (loss) attributable to common shareholders |
$ | $ | ( |
) | $ | |||||||
Total assets |
$ | $ | $ | |||||||||
Cash paid for capital expenditures |
$ | $ | $ | |||||||||
| (a) | Significant segment expense. |
| (b) | Other segment items included in segment net income includes General taxes, Non-operating benefit costs, net, and Other income (expense), net, primarily Allowance for other funds used during construction. |
As of or for the Three Months Ended March 31, 2025 |
||||||||||||
Regulated Businesses |
Other |
Consolidated |
||||||||||
Operating revenues |
$ | $ | $ | |||||||||
Less: |
||||||||||||
Operation and maintenance (a) |
||||||||||||
Other segment items (b) |
( |
) | ||||||||||
Depreciation and amortization |
||||||||||||
Interest expense |
||||||||||||
Interest income |
( |
) | ( |
) | ( |
) | ||||||
Provision for income taxes |
||||||||||||
Net income attributable to common shareholders |
$ | $ | $ | |||||||||
Total assets |
$ | $ | $ | |||||||||
Cash paid for capital expenditures |
$ | $ | $ | |||||||||
| (a) | Significant segment expense. |
| (b) | Other segment items included in segment net income includes General taxes, Non-operating benefit costs, net, and Other income (expense), net, primarily Allowance for other funds used during construction. |
29
FAQ
What is the purpose of Essential Utilities (WTRG) furnishing American Water’s financial statements?
Essential Utilities furnished American Water’s unaudited Q1 2026 financial statements to support their pending merger and incorporate this data into Essential’s Form S-3 shelf registration. This voluntary disclosure gives investors detailed insight into American Water’s financial position, operations and capital structure ahead of closing.
What were American Water’s key financial results included in the WTRG merger-related filing?
American Water reported Q1 2026 operating revenues of $1,207 million and net income attributable to common shareholders of $196 million, or $1.00 per diluted share. Operating cash flow was $305 million, total assets were $35,264 million and total long-term debt stood at $12,769 million for the period.
How is the American Water–Essential Utilities (WTRG) merger structured according to the filing?
The filing notes a stock-for-stock merger where Essential Utilities shareholders would receive 0.305 shares of American Water common stock for each eligible Essential share. After closing, Essential would become a wholly owned subsidiary of American Water, with completion subject to regulatory approvals and customary conditions.
What major financing actions by American Water are highlighted in the WTRG-related disclosure?
American Water’s finance subsidiary issued $700 million of 5.200% Senior Notes due 2036, generating approximately $695 million in net proceeds before expenses. It also received full payment of a $795 million secured seller promissory note from the 2021 Homeowner Services Group sale, boosting available cash in early 2026.
What regulatory and rate case activity is described in the American Water data furnished by WTRG?
The statements detail several state general rate cases and infrastructure surcharge approvals, including a $36 million total annualized increase from 2026 rate decisions and $53 million from infrastructure surcharges. Additional pending filings in Illinois, New Jersey, Pennsylvania, Virginia and California seek further incremental regulated revenues tied to capital investment.
How do long-term contracts contribute to American Water’s revenue visibility in the WTRG filing?
American Water reports remaining performance obligations of $7.4 billion from U.S. military installation contracts and $496 million from municipal and commercial agreements. These contracts, many extending into the 2030s–2070s, represent expected future revenue under existing operation and maintenance and capital improvement arrangements.
Did American Water record any merger-related costs tied to Essential Utilities (WTRG)?
Yes. American Water recognized $5 million of merger-related costs within operation and maintenance expense during the three months ended March 31, 2026. These costs relate to the planned combination with Essential Utilities and are part of the ongoing process to complete the stock-for-stock transaction.