COMPANY PROFILE

American Water Works

Company, Inc.

REFERENCE CODE: F2E895F6-C70A-48F2-BB5C-BD7417CACB86

PUBLICATION DATE: 22 May 2015
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American Water Works Company, Inc.

TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3
Key Facts...............................................................................................................3
SWOT Analysis.....................................................................................................4

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American Water Works Company, Inc.

Company Overview

COMPANY OVERVIEW
American Water Works Company, Inc. (American Water or the company) is a water and wastewater
utility company. The company is engaged in providing water and wastewater utility services. The
company operates in the US and Canada. It is headquartered in Voorhees, New Jersey and employed
approximately 6,400 people as on December 31, 2014.
The company recorded revenues of $3,011.3 million during the financial year ended December 2014
(FY2014), an increase of 4.6% over FY2013. The operating profit of the company was $1,002.5
million during FY2014, an increase of 5.7% over FY2013.The net profit was $423.1 million in FY2014,
an increase of 14.6% over FY2013.

KEY FACTS
Head Office

American Water Works Company, Inc.

1025 Laurel Oak Road
Voorhees
New Jersey 08043
USA

Phone

1 856 346 8200

Fax

1 856 346 8360

Web Address

http://www.amwater.com

Revenue / turnover 3,011.3

(USD Mn)
Financial Year End

December

Employees

6,400

New York Stock

Exchange Ticker

AWK

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American Water Works Company, Inc.

SWOT Analysis

SWOT ANALYSIS
American Water Works Company, Inc. (American Water or the company) is a water and wastewater
utility company. The company is engaged in providing water and wastewater utility services in the
US and Canada. The company has significant regulated business assets, which provide it with a
competitive edge. However, environmental laws and regulations faced by the company could result
in substantial fines, penalties, or other sanctions against American Water.
Strengths

Weaknesses

Significant regulated business assets

Diversified customer base in the regulated
business
Robust research and development
capabilities

High debt
Reliance on third-party suppliers

Opportunities

Threats

Huge demand for replacing aging water and

wastewater infrastructure
Upgradation and expansion projects
Strategic acquisitions

Environmental laws and regulations

Severe weather conditions
Capital risks

Strengths

Significant regulated business assets

American Water has significant regulated business assets. Its primary operating assets include89
dams and 81 surface water treatment plants along with approximately 500 groundwater treatment
plants, 1,000 groundwater wells, 100 wastewater treatment facilities, 1,200 treated water storage
facilities, 1,300 pumping stations, and 48,000 miles of mains and collection pipes. The company
owns substantially all of the assets used by its regulated businesses segment. Additionally, the
company also owns the land and physical assets that are utilized to extract, store, purify and treat
the source water.
The companys significant regulated business assets provide it with a competitive edge.
Diversified customer base in the regulated business
The company has a diversified customer base in the regulated business. Its regulated business
segment, which provides water and wastewater services to residential, commercial, and industrial

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SWOT Analysis

customers, operates in approximately 1,600 communities in 16 states in the US. This segment had
3,219,192 customers in FY2014, of which 20.7% were in Pennsylvania, 20.2% in New Jersey, 14.4%
in Missouri, 9.7% in Illinois, 9.1% in Indiana, 5.4% in California, and 5.3% in West Virginia. The
remaining 15.2% of the companys regulated customers were in the states of Georgia, Hawaii, Iowa,
Kentucky, Maryland, Michigan, New York, Tennessee, and Virginia.
For FY2014, the regulated business segment provided water services to 3,095,071 customers in
total, which included 2,813,715 residential customers, 218,314 commercial, 3,793 industrial, and
59,249 public and others.The company provided waste water services to 124,121 customers including
117,602 residential customers, 6,221 commercial, 17 industrial, and 281 public and others.
The companys diversified customer base in the regulated business protects it from fall in demand
in any one region or segment, thereby reducing its business risk.
Robust research and development capabilities
American Water has robust research and development capabilities. The company established a
formal research and development program in 1981 with the goal of improving water quality and
operational effectiveness in all areas of its business. In addition, American Waters quality control
and testing laboratory in Belleville, Illinois supports research through testing and analysis.
Approximately one-quarter of the companys research budget is funded by competitively awarded
outside research grants. Such grants reduce the cost of research and allow collaboration with leading
national and international researchers. In FY2014, American Water spent $3.6 million, including
$0.8 million funded by research grants. Spending, net of research grant funding, amounted to $2.9
million and $2.8 million in FY2013 and FY2012, respectively.
The companys continued research and development activities are helping it by providing quality
and reliable service at reasonable rates, and maintaining its leadership position in the industry, which
provides the company with a competitive advantage as it seek additional business with new and
existing customers.

Weaknesses

High debt
The company has high debt. As on December 31, 2014, the companys indebtedness was $6 billion.
The companys indebtedness will impact its ability to obtain additional financing to fund future working
capital or capital expenditures. It may also limit American Waters ability to pay dividends on its
common stock or make payments in connection with its other obligations. It may also weaken the
companys access to the capital markets for debt and equity. Among other things, the companys
level of high debt place it at a competitive disadvantage compared to those of its competitors that
have less debt.

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SWOT Analysis

Reliance on third-party suppliers

The company contracts with third parties for goods and services that are essential to its operations.
These include maintenance services, pipes, chemicals, electricity, water, gasoline, diesel, and other
materials. The company faces substantial risks because of its reliance on these suppliers. For
instance, the companys suppliers may not provide raw materials that meet its specifications in
sufficient quantities. Its suppliers may provide it with water that does not meet applicable quality
standards or is contaminated. Some of the companys suppliers, such as small companies, may be
more likely to experience financial and operational difficulties than larger, well-established companies,
because of their limited financial and other resources.
As a result of any of these factors, American Water may be required to find alternative suppliers for
the raw materials and services on which it relies. Accordingly, the company may experience delays
in obtaining appropriate raw materials and services on a timely basis and in sufficient quantities from
such alternative suppliers at a reasonable price. This could, in turn, interrupt services to American
Waters customers and adversely affect its financial condition.

Opportunities

Huge demand for replacing aging water and wastewater infrastructure

According to the US Environmental Protection Agency (EPA), there is huge demand for replacing
aging water and wastewater infrastructure in the coming years. EPA estimated that more than $335
billion capital investment is required to upgrade the aging water infrastructure in the country by the
end of 2027. EPA also estimated that approximately $388 billion capital expenditure is needed to
replace aging wastewater infrastructure during the period 2000-2019.
The huge demand for the replacement of obsolete water and wastewater infrastructure will provide
an opportunity for the company to enhance its strategic investments in the future. This in turn will
help the company to further expand its top-line growth.
Upgradation and expansion projects
The company has various upgradation and expansion projects under development. For instance, in
April 2015, American Water subsidiary Pennsylvania American Water has announced the start of
the construction to install new water and sewer main in the City of Coatesville, South Coatesville,
Parkesburg and Caln Township. The company had also unveiled the start of construction to replace
more than five miles of aging water mains in Butler County. The combined cost involved in replacing
the water main systems for the above two projects was more than $11 million.
Moreover, in May 2015, Virginia American Water announced its decision to invest more than $4
million to upgrade Alexandrias aging water infrastructure. The company will invest more than $15
million in 2015 alone to upgrade water systems in all of its Virginia service areas. Another subsidiary,

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California American Water, has announced its plans to invest more than $126 million in the local
infrastructure replacement and improvements until 2017. Some of the major projects include replacing
20,000 feet of aging water mains in Monterey and refurbishment of the Potrero water storage reservoir.
Additionally, American Water has planned to expand the number of states in which its water line
and sewer line protection programs will be available to homeowners. The company has planned to
expand its services to homeowners in Alabama, Delaware, Mississippi, Montana, Nebraska, North
Dakota, and Rhode Island. Pennsylvania American Water has also planned to invest $16.5 million
for the construction schedule to build nine new water storage tanks, as well as rehabilitate 14 existing
tanks throughout the commonwealth. Addition to this, the company has planned to invest $5.2 billion
during the period 2015-2019 to upgrade its infrastructure and systems.
American Waters upgradation and restoration of old and ageing infrastructure will not only ensure
that it secures future operation but will also give an opportunity to the company to expand its customer
base. Expansion of pipelines and storage facilities will help the company to serve to a larger base
of customers in varied regions.
Strategic acquisitions
As part of its business expansion, American Water has carried out certain acquisitions in the recent
past. For instance, in April 2015, Illinois American Water acquired the Hardin County Water Company
in southern Illinois. This acquisition added 500 customers to the companys customer base providing
the services to population of more than 1,000 residents. Similarly, in February 2015, Illinois American
Water signed an agreement to purchase Mt. Vernons water and wastewater systems. This results
in addition of 6,600 customers to the existing customer base.
In addition, in 2014, American Waters regulated businesses completed the acquisition of five
regulated water systems, five wastewater systems and three regulated water and wastewater
systems. As a result of these purchases, 2,100 water customers and 2,400 wastewater customers
were added to its regulated business segment. In November 2014, the residents in Haddonfield,
New Jersey, Arnold, Missouri and Russiaville, and Indiana were voted in favor of the companys
referendum to acquire their water and/or wastewater assets. Post regulatory approvals and financial
closure, these acquisitions will add 19,000 customers to the companys regulated footprint.
Also in August 2014, Kentucky American Water bought the water and wastewater assets of the City
of Millersburg, in Bourbon County. This transaction adds 500 water customers, 300 wastewater
customers and two wholesale customers, including Harrison County Water Association and Nicholas
County Water District. The companys operations further expanded to more than 11 counties due
to this acquisition.
These acquisitions will help American Water to better manage water supply and reliability in the long
run. Moreover, these acquisitions have resulted in more number of customers being added to the
existing customer base of American Water, thus expanding its foothold.

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SWOT Analysis

Threats

Environmental laws and regulations

American Waters water and wastewater operations face several laws and regulations. These laws
and regulations govern the protection of the environment, health and safety, the quality of the water
the company delivers to its customers, water allocation rights, and the manner in which it collects,
treats, discharges, and disposes of wastewater. These requirements include the Clean Water Act
and the Safe Drinking Water Act in the US, and similar Canadian laws and regulations. The company
is also required to obtain various environmental permits from regulatory agencies for its operations.
State public utility commissions (PUCs) also set conditions and standards for the water and
wastewater services the company delivers.
If American Water delivers water or wastewater services to its customers that do not comply with
regulatory standards, or otherwise violate environmental laws, regulations or permits, or other health
and safety and water quality regulations, it could incur substantial fines, penalties, or other sanctions.
In the most serious cases, regulators could force American Water to discontinue operations and sell
its operating assets to another utility or municipality.
Severe weather conditions
Service interruptions due to severe weather events are possible across all of the companys service
areas. These include winter storms and freezing conditions, high wind conditions, tornados,
earthquakes, coastal and inter coastal floods or high water conditions, including those in or near
designated flood plains, hurricanes, and severe electrical storms. These weather events may affect
the condition or operability of American Waters facilities, limiting or preventing it from delivering
water or wastewater services to its customers, or requiring the company to make substantial capital
expenditures to repair any damage. In January 2014, due to reduced rainfall and dry conditions in
the state of California, the Governor of California issued a drought declaration requesting the residents
to reduce their water consumption by 20%. Further, in April 2015, the Governor issued an executive
order addressing the drought and in July 2015, the State Water Resources Control Board approved
statewide water restrictions. Due to these restrictions, the company was not able to supply enough
water to its customers and had negative impact on its financial conditions.
Severe weather conditions can disrupt the companys operating infrastructure. This may create a
gap in supply-demand which could ultimately put a downward pressure on the financials. American
Water may also loose substantial amount of capital in restoration of disrupted facilities.
Capital risks
The water and wastewater utility business is very capital intensive. The company invests significant
amounts of capital to add, replace and maintain property, plant and equipment. In FY2014, American
Water invested $1,000 million in net company funded capital improvements. The level of capital

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SWOT Analysis

expenditures necessary to maintain the integrity of its systems could increase in the future. American
Water funds capital improvement projects using cash generated from operations, borrowings under
its revolving credit facility and commercial paper programs, and issuances of long-term debt and
equity securities.
If the company does not obtain sufficient capital, it may be unable to maintain its existing property,
plant, and equipment. The company may also be unable to realize its capital investment strategies
and meet its growth targets. Even if American Water has adequate resources to make required
capital expenditures, it faces the additional risk it may not complete major capital expenditures on
time, as a result of construction delays or other obstacles. Each of these outcomes could adversely
affect the companys financial condition and results of operations.

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