2019 Investor Day
AMERICAN WATER
Non-GAAP Financial Information
This presentation includes adjusted earnings per share ("Adjusted EPS") both as the Company's 2019 adjusted earnings guidance and as the 2018 earnings per share ("EPS") compound annual growth rate anchor, both of
which constitute "non-GAAP financial measures" under SEC rules. These non-GAAP financial measures are derived from the Company's consolidated financial information but are not presented in the Company's
consolidated financial statements prepared in accordance with GAAP. Adjusted EPS as 2019 adjusted earnings guidance is defined as GAAP EPS excluding the impact of previously-reported settlement activities related to
the Freedom Industries chemical spill in West Virginia. Adjusted EPS as the 2018 EPS compound annual growth rate anchor is defined as 2018 GAAP EPS, excluding the impact of (1) the gain recognized in the third quarter
of 2018 on the sale of the majority of the Contract Services Group's operation and maintenance ("O&M") contracts; (2) a goodwill and intangible asset impairment charge related to the narrowing of the scope of the
business of Keystone Clearwater Solutions in the third quarter of 2018; and (3) the June 2018 insurance settlement related to the Freedom Industries chemical spill in West Virginia.
Management believes that these non-GAAP financial measures are useful to investors because they provide an indication of the Company's baseline performance excluding items that are not considered by management
to be reflective of the Company's ongoing operating results. Management believes that these non-GAAP financial measures will allow investors to understand better the operating performance of the Company's
businesses and will facilitate a meaningful year-to-year comparison of its results of operations. Although management uses these non-GAAP financial measures internally to evaluate the Company's results of operations,
management does not intend results excluding the items to represent results as defined by GAAP, and investors should not consider them as indicators of performance. These non-GAAP financial measures are derived
from the Company's consolidated financial information but are not presented in its consolidated financial statements prepared in accordance with GAAP, and thus they should be considered in addition to, and not as a
substitute for, measures of financial performance prepared in accordance with GAAP. In addition, the Company's definition of Adjusted EPS may not be comparable to the same or similar measures used by other
companies, and, accordingly, they may have significant limitations on their use.
This presentation also includes adjusted regulated segment O&M efficiency ratios, both historical and forward-looking, which, in addition to the pro forma adjustment for the impact of the Tax Cuts and Jobs Act (the
"TCJA"), excludes from its calculation (i) estimated purchased water revenues and purchased water expenses, (ii) the impact of the Freedom Industries chemical spill in 2014 and certain related settlement activities
recognized in 2016, 2018 and 2019, (iii) the estimated impact in 2012 and 2014 of weather, and (iv) the allocable portion of non-O&M support services costs, mainly depreciation and general taxes. Also, an alternative
presentation of this ratio has been provided for each of 2010, 2012, 2014 and 2016 which includes the pro forma adjustment for the impact of the TCJA and includes for 2012, 2014 and 2016 the impact of the Company's
implementation of Accounting Standards Update 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit, on January 1,
2018. These adjusted O&M efficiency ratios constitute "non-GAAP financial measures" under SEC rules. These ratios are derived from the Company's consolidated financial information but are not presented in its
consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures supplement and should be read in conjunction with the Company's GAAP disclosures but should not be
considered an alternative to the GAAP measures. Management believes that the presentation of the Company's adjusted O&M efficiency ratios is useful to investors because it provides a means of evaluating the
Company's operating performance without giving effect to items that are not reflective of management's ability to increase efficiency of the Company's regulated operations. In preparing operating plans, budgets and
forecasts, and in assessing historical and future performance, management relies, in part, on trends in the Company's historical results and predictions of future results, exclusive of these items. The Company's definition
of these ratios may not be comparable to the same or similar measures used by other companies, and, accordingly, these non-GAAP financial measures may have significant limitations on their use. Management is unable
to present a reconciliation of adjustments to the components of the forward-looking O&M efficiency ratio without unreasonable effort because management cannot reliably predict the nature, amount or probable
significance of all the adjustments for future periods; however, these adjustments may, individually or in the aggregate, cause the non-GAAP financial measure component of the forward-looking ratio to differ significantly
from the most directly comparable GAAP financial measure.
Set forth in this appendix are tables that reconcile Adjusted EPS as 2019 adjusted EPS guidance and as the 2018 EPS compound annual growth rate anchor, each to GAAP EPS, and each of the components of its historical
O&M efficiency ratios to its most directly comparable GAAP financial measure.
All references throughout this presentation to EPS refer to diluted EPS attributable to common shareholders.
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