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Section 1: 10-Q (10-Q)

awk-10q_20150630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                        

Commission file: number 001-34028

 

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

51-0063696

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1025 Laurel Oak Road, Voorhees, NJ

 

08043

(Address of principal executive offices)

 

(Zip Code)

(856) 346-8200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes     ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  

 

Class

 

Outstanding at July 30, 2015

Common Stock, $0.01 par value per share

 

180,256,635 shares

 

 

 


 

TABLE OF CONTENTS

AMERICAN WATER WORKS COMPANY, INC.

REPORT ON FORM 10-Q

FOR THE QUARTER ENDED June 30, 2015

INDEX

 

PART I. FINANCIAL INFORMATION

2

 

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

2

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

36

ITEM 4. CONTROLS AND PROCEDURES

36

 

 

PART II. OTHER INFORMATION

38

 

 

ITEM 1. LEGAL PROCEEDINGS

38

ITEM 1A. RISK FACTORS

39

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

40

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

40

ITEM 4. MINE SAFETY DISCLOSURES

40

ITEM 5. OTHER INFORMATION

40

ITEM 6. EXHIBITS

42

 

 

SIGNATURES

43

EXHIBITS INDEX

 

 

 

EXHIBIT 3.2

 

EXHIBIT 10.1

 

EXHIBIT 10.3

 

EXHIBIT 10.4

 

EXHIBIT 10.5

 

EXHIBIT 10.6

 

EXHIBIT 31.1

 

EXHIBIT 31.2

 

EXHIBIT 32.1

 

EXHIBIT 32.2

 

EXHIBIT 101

 

 

 

i


 

PART I.   FINANCIAL INFORMATION

ITEM  1.

CONSOLIDATED FINANCIAL STATEMENTS

 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In thousands, except per share data)

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

ASSETS

 

Property plant and equipment

 

 

 

 

 

 

 

Utility plant—at original cost, net of accumulated depreciation of $4,144,789 at

   June 30 and $3,991,680 at December 31

$

13,244,298

 

 

$

12,899,704

 

Nonutility property, net of accumulated depreciation of $247,013 at June 30

   and $248,341 at December 31

 

113,683

 

 

 

129,592

 

Total property, plant and equipment

 

13,357,981

 

 

 

13,029,296

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

144,752

 

 

 

23,080

 

Restricted funds

 

20,838

 

 

 

13,859

 

Accounts receivable

 

281,195

 

 

 

267,053

 

Allowance for uncollectible accounts

 

(35,518

)

 

 

(34,941

)

Unbilled revenues

 

265,347

 

 

 

220,538

 

Income taxes receivable

 

3,466

 

 

 

2,575

 

Materials and supplies

 

38,332

 

 

 

37,190

 

Deferred income taxes

 

130,168

 

 

 

86,601

 

Other

 

41,505

 

 

 

45,414

 

Total current assets

 

890,085

 

 

 

661,369

 

Regulatory and other long-term assets

 

 

 

 

 

 

 

Regulatory assets

 

1,195,231

 

 

 

1,153,429

 

Restricted funds

 

8,723

 

 

 

8,958

 

Goodwill

 

1,209,841

 

 

 

1,208,043

 

Other

 

70,471

 

 

 

69,861

 

Total regulatory and other long-term assets

 

2,484,266

 

 

 

2,440,291

 

TOTAL ASSETS

$

16,732,332

 

 

$

16,130,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In thousands, except per share data)

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

CAPITALIZATION AND LIABILITIES

 

Capitalization

 

 

 

 

 

 

 

Common stock ($0.01 par value, 500,000 shares authorized, 180,112 shares

   outstanding at June 30 and 179,462 at December 31)

$

1,801

 

 

$

1,795

 

Paid-in-capital

 

6,324,039

 

 

 

6,301,729

 

Accumulated deficit

 

(1,162,346

)

 

 

(1,295,549

)

Accumulated other comprehensive loss

 

(80,053

)

 

 

(81,868

)

Treasury stock

 

(30,051

)

 

 

(10,516

)

Total common stockholders' equity

 

5,053,390

 

 

 

4,915,591

 

Long-term debt

 

5,433,239

 

 

 

5,432,744

 

Redeemable preferred stock at redemption value

 

14,291

 

 

 

15,501

 

Total capitalization

 

10,500,920

 

 

 

10,363,836

 

Current liabilities

 

 

 

 

 

 

 

Short-term debt

 

820,982

 

 

 

449,959

 

Current portion of long-term debt

 

61,962

 

 

 

61,132

 

Accounts payable

 

283,570

 

 

 

285,800

 

Taxes accrued

 

41,141

 

 

 

24,505

 

Interest accrued

 

55,992

 

 

 

56,523

 

Other

 

248,541

 

 

 

363,079

 

Total current liabilities

 

1,512,188

 

 

 

1,240,998

 

Regulatory and other long-term liabilities

 

 

 

 

 

 

 

Advances for construction

 

359,498

 

 

 

367,693

 

Deferred income taxes

 

2,284,069

 

 

 

2,120,739

 

Deferred investment tax credits

 

24,339

 

 

 

25,014

 

Regulatory liabilities

 

395,549

 

 

 

391,782

 

Accrued pension expense

 

318,647

 

 

 

316,368

 

Accrued postretirement benefit expense

 

190,485

 

 

 

192,502

 

Other

 

48,027

 

 

 

37,152

 

Total regulatory and other long-term liabilities

 

3,620,614

 

 

 

3,451,250

 

Contributions in aid of construction

 

1,098,610

 

 

 

1,074,872

 

Commitments and contingencies (See Note 9)

 

 

 

TOTAL CAPITALIZATION AND LIABILITIES

$

16,732,332

 

 

$

16,130,956

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

3


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Operations and Comprehensive Income (Unaudited)

(In thousands, except per share data)

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Operating revenues

$

782,121

 

 

$

754,778

 

 

$

1,480,199

 

 

$

1,433,781

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operation and maintenance

 

336,624

 

 

 

337,849

 

 

 

660,456

 

 

 

663,029

 

Depreciation and amortization

 

108,923

 

 

 

105,685

 

 

 

216,300

 

 

 

211,609

 

General taxes

 

60,222

 

 

 

56,802

 

 

 

123,918

 

 

 

117,469

 

Gain on asset dispositions and purchases

 

(1,209

)

 

 

(345

)

 

 

(2,337

)

 

 

(555

)

Total operating expenses, net

 

504,560

 

 

 

499,991

 

 

 

998,337

 

 

 

991,552

 

Operating income

 

277,561

 

 

 

254,787

 

 

 

481,862

 

 

 

442,229

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

(75,421

)

 

 

(73,668

)

 

 

(151,094

)

 

 

(147,228

)

Allowance for other funds used during construction

 

2,835

 

 

 

2,058

 

 

 

5,195

 

 

 

4,259

 

Allowance for borrowed funds used during construction

 

1,542

 

 

 

1,271

 

 

 

4,064

 

 

 

2,754

 

Amortization of debt expense

 

(1,878

)

 

 

(1,629

)

 

 

(3,642

)

 

 

(3,302

)

Other, net

 

(1,012

)

 

 

(316

)

 

 

744

 

 

 

(1,857

)

Total other income (expenses)

 

(73,934

)

 

 

(72,284

)

 

 

(144,733

)

 

 

(145,374

)

Income from continuing operations before income taxes

 

203,627

 

 

 

182,503

 

 

 

337,129

 

 

 

296,855

 

Provision for income taxes

 

80,552

 

 

 

72,329

 

 

 

134,011

 

 

 

117,568

 

Income from continuing operations

 

123,075

 

 

 

110,174

 

 

 

203,118

 

 

 

179,287

 

Loss from discontinued operations, net of tax

 

 

 

 

(875

)

 

 

 

 

 

(1,865

)

Net income

$

123,075

 

 

$

109,299

 

 

$

203,118

 

 

$

177,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension amortized to periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prior service cost, net of tax of $25 and $26 for the three

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

months and $50 and $53 for the six months, respectively

 

39

 

 

 

42

 

 

$

78

 

 

$

83

 

Actuarial (gain) loss, net of tax of $832 and $(5) for the three

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

months and $1,664 and $(10) for the six months, respectively

 

1,302

 

 

 

(8

)

 

 

2,604

 

 

 

(15

)

Foreign currency translation adjustment

 

90

 

 

 

446

 

 

 

(906

)

 

 

(104

)

Unrealized loss on cash flow hedge, net of tax of $11 for the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

three months and $21 for the six months, respectively

 

19

 

 

 

 

 

 

39

 

 

 

 

Other comprehensive income (loss)

 

1,450

 

 

 

480

 

 

 

1,815

 

 

 

(36

)

Comprehensive income

$

124,525

 

 

$

109,779

 

 

$

204,933

 

 

$

177,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

0.69

 

 

$

0.62

 

 

$

1.13

 

 

$

1.00

 

Loss from discontinued operations, net of tax

$

0.00

 

 

$

(0.00

)

 

$

0.00

 

 

$

(0.01

)

Net income

$

0.69

 

 

$

0.61

 

 

$

1.13

 

 

$

0.99

 

Diluted earnings per share: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

0.68

 

 

$

0.61

 

 

$

1.13

 

 

$

1.00

 

Loss from discontinued operations, net of tax

$

0.00

 

 

$

(0.00

)

 

$

0.00

 

 

$

(0.01

)

Net income

$

0.68

 

 

$

0.61

 

 

$

1.13

 

 

$

0.99

 

Average common shares outstanding during the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

179,564

 

 

 

178,863

 

 

 

179,511

 

 

 

178,702

 

Diluted

 

180,371

 

 

 

179,693

 

 

 

180,348

 

 

 

179,512

 

Dividends declared per common share

$

0.34

 

 

$

0.31

 

 

$

0.34

 

 

$

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Amounts may not sum due to rounding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

Six Months Ended

June 30,

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

$

203,118

 

 

$

177,422

 

Adjustments to reconcile to net cash flows provided by operating activities

 

 

 

 

 

 

 

Depreciation and amortization

 

216,300

 

 

 

211,940

 

Deferred income taxes and amortization of investment tax credits

 

127,448

 

 

 

108,294

 

Provision for losses on accounts receivable

 

13,889

 

 

 

17,014

 

Allowance for other funds used during construction

 

(5,195

)

 

 

(4,259

)

Gain on asset dispositions and purchases

 

(2,337

)

 

 

(615

)

Pension and non-pension postretirement benefits

 

30,649

 

 

 

12,038

 

Other non-cash, net

 

(12,168

)

 

 

26,633

 

Changes in assets and liabilities

 

 

 

 

 

 

 

Receivables and unbilled revenues

 

(72,263

)

 

 

(53,745

)

Taxes accrued, including income taxes

 

15,745

 

 

 

4,667

 

Pension and non-pension postretirement benefit contributions

 

(25,464

)

 

 

(21,433

)

Accounts payable and accrued expenses

 

(10,006

)

 

 

(52,168

)

Other current assets and liabilities, net

 

(61,721

)

 

 

24,827

 

Net cash provided by operating activities

 

417,995

 

 

 

450,615

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Capital expenditures

 

(478,821

)

 

 

(401,781

)

Acquisitions and related costs

 

(41,244

)

 

 

(2,869

)

Proceeds from sale of assets

 

4,780

 

 

 

665

 

Removal costs from property, plant and equipment retirements, net

 

(45,929

)

 

 

(31,366

)

Net funds restricted

 

(5,961

)

 

 

(2,823

)

Net cash used in investing activities

 

(567,175

)

 

 

(438,174

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Proceeds from long-term debt

 

7,748

 

 

 

 

Repayment of long-term debt

 

(5,694

)

 

 

(4,565

)

Proceeds from short-term borrowings with maturities greater than three months

 

60,000

 

 

 

35,000

 

Repayment of short-term borrowings with maturities greater than three months

 

 

 

 

(256,000

)

Net short-term borrowings with maturities less than three months

 

311,023

 

 

 

293,131

 

Proceeds from issuances of employee stock plans and dividend reinvestment plan

 

12,808

 

 

 

12,169

 

Advances and contributions for construction, net of refunds of $11,430 and

   $10,459 at June 30, 2015 and 2014, respectively

 

13,051

 

 

 

8,401

 

Debt issuance costs

 

(2,006

)

 

 

 

Dividends paid

 

(116,649

)

 

 

(105,390

)

Anti-dilutive share repurchase

 

(13,226

)

 

 

 

Tax benefit realized from equity compensation

 

3,797

 

 

 

9,982

 

Net cash provided by (used in) financing activities

 

270,852

 

 

 

(7,272

)

Net increase in cash and cash equivalents

 

121,672

 

 

 

5,169

 

Cash and cash equivalents at beginning of period

 

23,080

 

 

 

26,964

 

Cash and cash equivalents at end of period

$

144,752

 

 

$

32,133

 

Non-cash investing activity:

 

 

 

 

 

 

 

Capital expenditures acquired on account but unpaid at end of period

$

191,521

 

 

$

115,127

 

Non-cash financing activity:

 

 

 

 

 

 

 

Advances and contributions

$

8,413

 

 

$

6,060

 

Long-term debt issued

$

 

 

$

9,977

 

Long-term debt retired

$

 

 

$

(875

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands)

 

 

Common  Stock

 

 

 

 

 

 

 

Accumulated

Other

 

Treasury Stock

 

Total

 

 

Shares

 

Par Value

 

Paid-in Capital

 

Accumulated Deficit

 

Comprehensive

Loss

 

Shares

 

At Cost

 

Stockholders' Equity

 

Balance at December 31, 2014

 

179,462

 

$

1,795

 

$

6,301,729

 

$

(1,295,549

)

$

(81,868

)

 

(261

)

$

(10,516

)

$

4,915,591

 

Cumulative effect of change in

   accounting principle

 

 

 

 

 

 

 

(8,395

)

 

 

 

 

 

 

 

(8,395

)

Net income

 

 

 

 

 

 

 

203,118

 

 

 

 

 

 

 

 

203,118

 

Direct stock reinvestment

   and purchase plan, net of

   expense of $28

 

53

 

 

 

 

2,827

 

 

 

 

 

 

 

 

 

 

2,827

 

Employee stock purchase

   plan

 

47

 

 

 

 

2,574

 

 

 

 

 

 

 

 

 

 

2,574

 

Stock-based compensation

   activity

 

550

 

 

6

 

 

16,909

 

 

(423

)

 

 

 

(113

)

 

(6,309

)

 

10,183

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

(250

)

 

(13,226

)

 

(13,226

)

Other comprehensive

   income, net of tax of $1,735

 

 

 

 

 

 

 

 

 

1,815

 

 

 

 

 

 

1,815

 

Dividends

 

 

 

 

 

 

 

(61,097

)

 

 

 

 

 

 

 

(61,097

)

Balance at June 30, 2015

 

180,112

 

$

1,801

 

$

6,324,039

 

$

(1,162,346

)

$

(80,053

)

 

(624

)

$

(30,051

)

$

5,053,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common  Stock

 

 

 

 

 

 

 

Accumulated

Other

 

Treasury Stock

 

Total

 

 

Shares

 

Par Value

 

Paid-in Capital

 

Accumulated Deficit

 

Comprehensive

Loss

 

Shares

 

At Cost

 

Stockholders' Equity

 

Balance at December 31, 2013

 

178,379

 

$

1,784

 

$

6,261,396

 

$

(1,495,698

)

$

(34,635

)

 

(132

)

$

(5,043

)

$

4,727,804

 

Net income

 

 

 

 

 

 

 

177,422

 

 

 

 

 

 

 

 

177,422

 

Direct stock reinvestment

   and purchase plan, net of

   expense of $14

 

23

 

 

 

 

1,017

 

 

 

 

 

 

 

 

 

 

1,017

 

Employee stock purchase

   plan

 

53

 

 

 

 

2,347

 

 

 

 

 

 

 

 

 

 

2,347

 

Stock-based compensation

   activity

 

686

 

 

7

 

 

25,642

 

 

(417

)

 

 

 

(122

)

 

(5,179

)

 

20,053

 

Other comprehensive

   loss, net of tax of $43

 

 

 

 

 

 

 

 

 

(36

)

 

 

 

 

 

(36

)

Dividends

 

 

 

 

 

 

 

(55,481

)

 

 

 

 

 

 

 

(55,481

)

Balance at June 30, 2014

 

179,141

 

$

1,791

 

$

6,290,402

 

$

(1,374,174

)

$

(34,671

)

 

(254

)

$

(10,222

)

$

4,873,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

6


 

American Water Works Company, Inc. and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited)

(In thousands, except per share data)

 

Note 1: Basis of Presentation

The unaudited consolidated financial statements provided in this report include the accounts of American Water Works, Company, Inc. and its subsidiaries (collectively, the “Company”) after the elimination of intercompany accounts and transactions. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on 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 at June 30, 2015 and 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 Consolidated Balance Sheet as of December 31, 2014 is derived from the Company's audited consolidated financial statements at December 31, 2014. The unaudited 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, 2014 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, due primarily to the seasonality of the Company’s operations.

The accompanying Notes to the Consolidated Financial Statements relate to continuing operations only unless otherwise indicated.

The Company reclassified previously reported 2014 data to conform to the current presentation for discontinued operations. See Note 3 for additional details on the Company’s discontinued operations.

 

 

Note 2: New Accounting Pronouncements

The following recently issued accounting standards have been adopted by the Company and have been included in the consolidated results of operations, financial position or footnotes of the accompanying Consolidated Financial Statements:

Service Concession Arrangements

In January 2014, the Financial Accounting Standards Board (“FASB”) issued guidance for an operating entity that enters into a service concession arrangement with a public sector grantor who controls or has the ability to modify or approve the services that the operating entity must provide with the infrastructure, to whom it must provide the services and at what price. The grantor must also control, through ownership or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement. The guidance specifies that an operating entity should not account for the service concession arrangement as a lease. The operating entity should refer instead to other accounting guidance to account for the various aspects of the arrangement. The guidance also specifies that the infrastructure used in such an arrangement should not be recognized as property, plant and equipment of the operating entity. To comply with this guidance, application was required on a modified retrospective basis to service concession arrangements that existed at January 1, 2015. The Company reduced nonutility property and other long-term assets for infrastructure related to service concession arrangements and recognized a cumulative effect adjustment of $8,395, net of tax, to the opening balance of accumulated deficit at January 1, 2015.

Reporting Discontinued Operations

In April 2014, the FASB issued guidance that changed the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the updated guidance, a discontinued operation is defined as a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. A strategic shift could include a disposal of a major geographical area of operations, a major line of business, a major equity method investment or other major part of the entity. A component comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity including a reportable segment, an operating segment, a reporting unit, a subsidiary or an asset group. The update no longer precludes presentation as a discontinued operation if there are operations and cash flows of the component that have not been eliminated from the reporting entity’s ongoing operations or if there is significant continuing involvement with a component after its disposal. The guidance is effective on a prospective basis for interim and annual periods beginning after December 15, 2014 (January 1, 2015 for the Company).

7


 

The following recently issued accounting standards are not yet required to be adopted by the Company:

Revenue from Contracts with Customers

In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the new guidance is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to receive in exchange for those goods or services. The guidance was originally effective for annual and interim periods beginning after December 15, 2016 (January 1, 2017 for the Company). Early adoption was not permitted. The new guidance allows for either full retrospective adoption, meaning the guidance is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements. The FASB voted on July 9, 2015 to defer the effective date of the new revenue recognition standard by one year, to annual reporting periods beginning after December 15, 2017 (January 1, 2018 for the Company). Additionally in its decision, the FASB decided to permit early adoption of the standard, but not before annual periods beginning after December 15, 2016 (January 1, 2017 for the Company). The Company is evaluating the new guidance, the best transition method and the impact the new standard will have on the Company’s results of operations, financial position or cash flows.

Accounting for Stock-based Compensation with Performance Targets

In June 2014, the FASB issued guidance for the accounting for stock-based compensation tied to performance targets. The amendments clarify that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period is a performance condition. As a result, the target is not reflected in the estimation of the award’s grant date fair value and compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The updated guidance may be applied either: (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 (January 1, 2016 for the Company). Early adoption is permitted. The Company is evaluating the impact the updated guidance will have on its results of operations, financial position or cash flows.

Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern

In August 2014, the FASB issued guidance that explicitly requires an entity’s management to assess the entity’s ability to continue as a going concern. The new guidance requires an entity to evaluate, at each interim and annual period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued (or are available to be issued) and to provide related disclosures, if applicable. The new guidance is effective for annual periods ending after December 15, 2016 and for interim and annual periods thereafter (January 1, 2017 for the Company). Early adoption is permitted. The adoption of this updated guidance is not expected to have a material impact on the Company’s results of operations, financial position or cash flows.

Amendments to the Consolidation Analysis

In February 2015, the FASB issued guidance that amends the consolidation analysis for variable interest entities (“VIEs”) as well as voting interest entities. The amended guidance (1) modifies the assessment of limited partnerships as VIEs, (2) amends the effect that fees paid to a decision maker or service provider have on the VIE analysis, (3) amends how variable interests held by a reporting entity’s related parties and de facto agents impact its consolidation conclusion, (4) clarifies how to determine whether equity holders have power over an entity and (5) provides a scope exception for registered and similar unregistered money market funds. The guidance is effective for the first interim period within annual reporting periods beginning after December 15, 2015 (January 1, 2016 for the Company). Early adoption is permitted as of the beginning of the annual period containing the adoption date. The guidance may be applied retrospectively to each prior reporting period presented or retrospectively with a cumulative effect adjustment to retained earnings for initial application of the guidance at the date of adoption (modified retrospective method). The Company is evaluating the impact the updated guidance will have on its results of operations, financial position or cash flows.

Presentation of Debt Issuance Costs

In April 2015, the FASB issued updated guidance on imputation of interest and simplifying the presentation of debt issuance costs. The updated guidance requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related liability. Such treatment is consistent with the current presentation of debt discounts or premiums. Prior to this amendment, debt issuance costs were reported in the balance sheet as an asset (i.e., a deferred charge), whereas debt discounts and premiums were, and remain, reported as deductions from or additions to the debt itself. Recognition and measurement guidance for debt issuance costs is not affected by the amendments. The effective date is for financial statements covering fiscal years beginning

8


 

after December 15, 2015 (January 1, 2016 for the Company) and interim periods within fiscal years beginning after December 15, 2016 (January 1, 2017 for the Company). Early adoption is permitted for financial statements that have not been previously issued. The amended guidance must be applied on a retrospective basis. Thus, balance sheets for each period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company is evaluating the new guidance and does not expect this new guidance to have a material impact on its results of operations, financial position or cash flows.

Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued guidance clarifying how customers should account for fees paid in a cloud computing arrangement. Examples of cloud computing arrangements include software as a service, platform as a service, infrastructure as a service and other similar hosting arrangements. Under the new guidance, if a cloud computing arrangement contains a software license, the customer would account for the fees related to the software license element in a manner consistent with the acquisition of other software licenses. If the arrangement does not include a software license, the customer would account for the arrangement as a service contract. The guidance may be applied retrospectively or prospectively to arrangements entered into, or materially modified after the effective date. The guidance is effective for annual periods, and interim periods therein, beginning after December 15, 2015 (January 1, 2016 for the Company). Early adoption is permitted. The Company is evaluating the impact the updated guidance will have on its results of operations, financial position or cash flows.  

 

 

Note 3: Acquisitions and Divestitures

Acquisitions

During the six-month period ended June 30, 2015, the Company closed on three acquisitions of various regulated water and wastewater systems for a total aggregate purchase price of $41,175. Assets acquired, principally plant, totaled $65,708, including $1,798 of goodwill, and liabilities assumed totaled $22,301, including $7,707 of contributions in aid of construction and other long-term liabilities of $14,039.

On July 9, 2015, the Company made a strategic acquisition in Water Solutions Holdings, LLC, a Delaware limited liability company, including its wholly owned subsidiary, Keystone Clearwater Solutions (“Keystone”), by acquiring a ninety-five percent interest in the entity for approximately $130,000. Keystone is a water service provider that offers a range of water related services to the oil and gas industry primarily in the Appalachian region of Pennsylvania, Ohio and West Virginia. The acquisition agreement calls for purchase price adjustments related to working capital, capital expenditures and results of operations through the date of close. The Company also entered into an agreement giving it the right to purchase the remaining membership interests upon the occurrence of certain triggering events or at defined dates of December 31, 2016 and December 31, 2018. The owners of the remaining membership interests also have the right to sell their membership interests upon the occurrence of these same triggering events or defined dates. The Company is in the process of determining the purchase price allocation for this acquisition.

Divestitures

In November 2014, the Company completed the sale of Terratec Environmental Ltd (“Terratec”) previously included in the Market-Based Operations segment. A summary of discontinued operations presented in the Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2014 is as follows:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2014

 

 

2014

 

Operating revenues

$

4,381

 

 

$

7,324

 

Total operating expenses, net

 

5,394

 

 

 

9,683

 

Operating loss

 

(1,013

)

 

 

(2,359

)

Other income (expenses), net

 

(1

)

 

 

(1

)

Loss from discontinued operations before

   income taxes

 

(1,014

)

 

 

(2,360

)

Benefit from income taxes

 

(139

)

 

 

(495

)

Loss from discontinued operations

$

(875

)

 

$

(1,865

)

 

 

9


 

Note 4: Stockholders’ Equity

Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2015 and 2014, respectively:

 

 

Defined Benefit Plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Benefit Plan Funded Status

 

 

Amortization of Prior Service Cost

 

 

Amortization of Actuarial (Gain) Loss

 

 

Foreign Currency Translation

 

 

Loss on Cash Flow Hedge

 

 

Total Accumulated Other Comprehensive Loss

 

Beginning balance at January 1, 2015

$

(115,830

)

 

$

879

 

 

$

31,119

 

 

$

2,755

 

 

$

(791

)

 

$

(81,868

)

Other comprehensive income (loss) before

   reclassifications

 

 

 

 

 

 

 

 

 

 

(906

)

 

 

 

 

 

(906

)

Amounts reclassified from accumulated

   other comprehensive income (loss)

 

 

 

 

78

 

 

 

2,604

 

 

 

 

 

 

39

 

 

 

2,721

 

Net comprehensive income (loss) for the

   period

 

 

 

 

78

 

 

 

2,604

 

 

 

(906

)

 

 

39

 

 

 

1,815

 

Ending balance at June 30, 2015

$

(115,830

)

 

$

957

 

 

$

33,723

 

 

$

1,849

 

 

$

(752

)

 

$

(80,053

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance at January 1, 2014

$

(69,711

)

 

$

713

 

 

$

31,150

 

 

$

3,213

 

 

$

 

 

$

(34,635

)

Other comprehensive income (loss) before

   reclassifications

 

 

 

 

 

 

 

 

 

 

(104

)

 

 

 

 

 

(104

)

Amounts reclassified from accumulated

   other comprehensive income (loss)

 

 

 

 

83

 

 

 

(15

)

 

 

 

 

 

 

 

 

68

 

Net comprehensive income (loss) for the

   period