American Water Works Company, Inc.AWK
American Water Works Company, Inc. Fair Value Disclosure
Note 18: 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—The carrying amount reported on the Consolidated Balance Sheets for the secured seller promissory note, included as part of the consideration from the sale of HOS was $795 million as of December 31, 2025 and 2024. 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. The accounting fair value measurement of the secured seller promissory note approximated $798 million and $793 million as of December 31, 2025 and 2024, respectively. The accounting fair value measurement is an estimate that is reflective of changes in benchmark interest rates. 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 December 31, 2025 | |||||||||||||||||||||||||||||
| Carrying Amount | At Fair Value | ||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| Preferred stock with mandatory redemption requirements | $ | 3 | $ | — | $ | — | $ | 3 | $ | 3 | |||||||||||||||||||
| Long-term debt | 14,256 | 11,653 | 1,065 | 616 | 13,334 | ||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||
| Carrying Amount | At Fair Value | ||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||
| Preferred stock with mandatory redemption requirements | $ | 3 | $ | — | $ | — | $ | 3 | $ | 3 | |||||||||||||||||||
| Long-term debt | 13,155 | 10,165 | 1,050 | 658 | 11,873 | ||||||||||||||||||||||||
Fair Value Measurements
To increase consistency and comparability in fair value measurements, GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded equity securities, exchange-based derivatives, mutual funds and money market funds.
Level 2—Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, commingled investment funds not subject to purchase and sale restrictions and fair-value hedges.
Level 3—Unobservable inputs, such as internally-developed pricing models for the asset or liability due to little or no market activity for the asset or liability. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based derivatives and commingled investment funds subject to purchase and sale restrictions.
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 December 31, 2025 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Restricted funds | $ | 41 | $ | — | $ | — | $ | 41 | |||||||||||||||
| Rabbi trust investments | 32 | — | — | 32 | |||||||||||||||||||
| Deposits | 124 | — | — | 124 | |||||||||||||||||||
| Other investments: | |||||||||||||||||||||||
| Money market and other | 20 | — | — | 20 | |||||||||||||||||||
| Fixed-income securities | 28 | 7 | — | 35 | |||||||||||||||||||
| Mark-to-market derivative asset | — | 2 | — | 2 | |||||||||||||||||||
| Total assets | 245 | 9 | — | 254 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation obligations | 38 | — | — | 38 | |||||||||||||||||||
| Total liabilities | 38 | — | — | 38 | |||||||||||||||||||
| Total assets | $ | 207 | $ | 9 | $ | — | $ | 216 | |||||||||||||||
As of December 31, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Restricted funds | $ | 44 | $ | — | $ | — | $ | 44 | |||||||||||||||
| Rabbi trust investments | 29 | — | — | 29 | |||||||||||||||||||
| Deposits | 6 | — | — | 6 | |||||||||||||||||||
| Other investments: | |||||||||||||||||||||||
| Money market and other | 21 | — | — | 21 | |||||||||||||||||||
| Fixed-income securities | 88 | 6 | — | 94 | |||||||||||||||||||
| Mark-to-market derivative asset | — | 24 | — | 24 | |||||||||||||||||||
| Total assets | 188 | 30 | — | 218 | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Deferred compensation obligations | 34 | — | — | 34 | |||||||||||||||||||
| Total liabilities | 34 | — | — | 34 | |||||||||||||||||||
| Total assets | $ | 154 | $ | 30 | $ | — | $ | 184 | |||||||||||||||
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 $20 million and $15 million were included in other long-term assets on the Consolidated Balance Sheets as of December 31, 2025 and 2024, 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.
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 derivative assets and liabilities—The Company employs derivative financial instruments in the form of treasury lock agreements, classified as cash flow hedges, in order to fix the interest cost on existing or forecasted debt. The Company uses a calculation of future cash inflows and estimated future outflows, which are discounted, to determine the current fair value. Additional inputs to the present value calculation include the contract terms, counterparty credit risk, interest rates and market volatility. The Company includes mark-to-market derivative assets in other current assets and mark-to-market derivative liabilities in other current liabilities on the Consolidated Balance Sheets.
Other investments—The Company maintains the Active VEBA trust for purposes of paying active union employee medical benefits. The investments in the Active VEBA trust primarily consist of money market funds and available-for-sale fixed-income securities.
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 available-for-sale 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.
As of December 31, 2025, the Company had current assets of $55 million included in Other and had no long-term assets on the Consolidated Balance Sheets for other investments measured and recorded at fair value. As of December 31, 2024, the Company had current assets of $71 million included in Other and $44 million of other long-term assets included in Other on the Consolidated Balance Sheets for other investments measured and recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income until realized.
The following tables summarize the unrealized positions for available-for-sale fixed income securities:
| As of December 31, 2025 | |||||||||||||||||||||||
| Amortized Cost Basis | Gross unrealized gains | Gross unrealized losses | Fair Value | ||||||||||||||||||||
| Available-for-sale fixed-income securities | $ | 36 | $ | — | $ | 1 | $ | 35 | |||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||
| Amortized Cost Basis | Gross unrealized gains | Gross unrealized losses | Fair Value | ||||||||||||||||||||
| Available-for-sale fixed-income securities | $ | 94 | $ | 2 | $ | 2 | $ | 94 | |||||||||||||||
The fair value of the Company’s available-for-sale fixed income securities, summarized by contractual maturities, as of December 31, 2025, is as follows:
| Amount | |||||
| Other investments - Available-for-sale fixed-income securities | |||||
| Less than one year | $ | 6 | |||
| 1 year - 5 years | 18 | ||||
| 5 years - 10 years | 4 | ||||
| Greater than 10 years | 7 | ||||
| Total | $ | 35 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 14, 2024 | |
| 2022 | Feb 15, 2023 | |
| 2021 | Feb 16, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 18, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 20, 2018 | |
| 2016 | Feb 21, 2017 | |
| 2015 | Feb 25, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.