Business Context and Reporting Period
Company: American Water Works Company, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 20, 2009
Subject: Item 5.02(f) – Departure of Directors or Principal Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
This filing updates compensation information for Named Executive Officers (NEOs) that was unavailable at the time of the Company's Initial Public Offering (IPO) effective January 30, 2009. The Board approved 2008 annual incentive payouts, performance-vesting results for equity awards granted at the IPO, amendments to deferred compensation plans, and the adoption of the 2009 annual incentive plan.
Key Financial Metrics and Compensation Data
Company Performance Metrics (2008 Adjusted):
- Operating Income: $596,106,535
- Regional Operating Income: Eastern Division ($416,356,436), Central Region ($119,694,973), Western Division ($143,073,687).
- Audited Net Income: $194,834,000 (2008); $140,700,000 (2007).
- Equity Vesting Performance: Combined 2007-2008 net income resulted in 97.56% of the target, triggering a 90.85% vesting rate for the first grant of performance-based stock options and restricted stock units.
2008 Executive Compensation Summary (Total Compensation):
| Executive Officer | Position | Total Compensation ($) | Non-Equity Incentive ($) | Stock/Option Awards ($) |
|---|---|---|---|---|
| Donald L. Correll | President & CEO | 3,003,802 | 1,351,092 | 378,421 |
| Ellen C. Wolf | SVP & CFO | 2,045,329 | 910,950 | 265,668 |
| John S. Young | President, American Water Services | 2,243,161 | 769,218 | 236,148 |
| Walter J. Lynch | President, Regulated Operations | 1,274,680 | 557,850 | 107,054 |
| Terry L. Gloriod | President, Missouri American Water | 1,454,828 | 439,847 | 71,096 |
Material Changes and Updates
Updates to IPO Registration Statement: The filing corrects the 2008 Summary Compensation Table and Outstanding Equity Awards table previously filed in the S-1 Registration Statement. These updates reflect final 2008 performance results which were undetermined at the IPO's effective time.
- Incentive Payouts: Financial and operational components for 2008 were finalized. For example, the Eastern Division financial component payout was 81% of target, while the Central Region was 115% of target. Operational metrics varied, with customer satisfaction payouts at 0% of target across divisions due to specific thresholds.
- Equity Vesting: The first grant of performance-based stock options and restricted stock units vested at 90.85% of the target number based on the 2007-2008 net income performance curve.
- Deferred Compensation: Amendments were made to the Nonqualified Savings and Deferred Compensation Plan, including one-time 5.25% contributions for certain participants and the elimination of the Company common stock as an investment option.
Outlook, Risks, and Management Commentary
2009 Compensation Plans:
- Annual Incentive Plan: Adopted for 2009, based on short-term financial/non-financial goals and individual performance.
- Equity Grants: New nonqualified stock options and performance stock units were granted. These vest in three equal annual installments (2010, 2011, 2012). Performance stock units are contingent on Total Stockholder Return relative to the Dow Jones Utility Index over the 2009-2011 period.
Termination and Change in Control: The filing details potential payments upon termination. For example, in the event of an involuntary termination without cause following a change in control, CEO Donald Correll is eligible for approximately $2.01 million in total benefits (including cash severance, deferred compensation, and accelerated equity vesting).
Risks/Contingencies: The filing notes that equity awards remain subject to time-vesting conditions and continued employment. Performance stock units are contingent on future market performance relative to an index.
Investor Verification Checklist
- Verify 2008 Net Income: Confirm the adjusted audited net income of $194.8 million used to calculate the 90.85% equity vesting rate.
- Review Equity Vesting Schedules: Note that the first grant of IPO equity awards time-vests on January 1, 2010, while the second grant time-vests on January 1, 2011.
- Assess Deferred Compensation Changes: Review the elimination of the Company stock investment option in the deferred compensation plans and the impact of the one-time 5.25% contributions.
- Examine Severance Provisions: Review the "Potential Payments on Termination or Change in Control" tables to understand the financial exposure in the event of executive turnover or a change in control.
- Check Performance Metrics: Verify the specific operational metrics (e.g., customer satisfaction, safety) that resulted in 0% payouts for certain divisions in 2008.