Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

awk-10q_20170630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2017

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.      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).      Yes      No

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

(Do not check if a smaller reporting company)

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).      Yes      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 as of July 27, 2017

Common Stock, $0.01 par value per share

 

178,282,329 shares

(excludes 4,064,010 treasury shares as of July 27, 2017)

 

 

 


 

TABLE OF CONTENTS

AMERICAN WATER WORKS COMPANY, INC.

Quarterly REPORT ON FORM 10-Q

FOR THE QUARTER ENDED June 30, 2017

INDEX

 

FORWARD LOOKING STATEMENTS

 

1

 

 

 

PART I. FINANCIAL INFORMATION

 

3

 

 

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

3

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

 

23

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

35

ITEM 4. CONTROLS AND PROCEDURES

 

35

 

 

 

PART II. OTHER INFORMATION

 

36

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

36

ITEM 1A. RISK FACTORS

 

39

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

 

39

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

39

ITEM 4. MINE SAFETY DISCLOSURES

 

39

ITEM 5. OTHER INFORMATION

 

39

ITEM 6. EXHIBITS

 

40

 

 

 

SIGNATURES

 

41

EXHIBIT INDEX

 

42

 

 

 

i


 

FORWARD-LOOKING STATEMENTS

We have made statements in Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Quarterly Report on Form 10-Q (“Form 10-Q”), that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words with prospective meanings such as “intend,” “plan,” “estimate,” “believe,” “anticipate,” “expect,” “predict,” “project,” “assume,” “forecast,” “outlook,” “future,” “pending,” “goal,” “objective,” “potential,” “continue,” “seek to,” “may,” “can,” “should,” “will” and “could” or the negative of such terms or other variations or similar expressions. Forward-looking statements may relate to, among other things, our future financial performance, including our adjusted operation and maintenance (“O&M”) efficiency ratio, cash flows, our growth and portfolio optimization strategies, our projected capital expenditures and related funding requirements, our ability to repay debt, our projected strategy to finance current operations and growth initiatives, the impact of legal proceedings and potential fines and penalties, business process and technology improvement initiatives, trends in our industry, regulatory, legislative, political, tax policy or legal developments or rate adjustments, including rate case filings, filings for infrastructure surcharges and filings to address regulatory lag.

Forward-looking statements are predictions based on our current expectations and assumptions regarding future events. They are not guarantees or assurances of any outcomes, financial results or levels of activity, performance or achievements, and you are cautioned not to place undue reliance upon them. These forward-looking statements are subject to a number of estimates and assumptions, and known and unknown risks, uncertainties and other factors. Our actual results may vary materially from those discussed in the forward-looking statements included herein as a result of the following important factors:

 

the decisions of governmental and regulatory bodies, including decisions to raise or lower rates;

 

the timeliness and outcome of regulatory commissions’ actions concerning rates, capital structure, authorized return on equity, capital investment, permitting and other decisions;

 

changes in customer demand for, and patterns of use of, water, such as may result from conservation efforts;

 

changes in laws, governmental regulations and policies, including environmental, health and safety, water quality, public utility and tax regulations and policies, and impacts resulting from U.S., state and local elections;

 

weather conditions, patterns, events or natural disasters, including drought or abnormally high rainfall, strong winds, coastal and intercoastal flooding, earthquakes, landslides, hurricanes, tornadoes, electrical storms and solar flares;

 

the outcome of litigation and similar government actions, including matters related to the Freedom Industries chemical spill in West Virginia and the binding global agreement in principle to settle claims related to this chemical spill;

 

our ability to appropriately maintain current infrastructure, including our operational and information technology (“IT”) systems, and manage the expansion of our business;

 

exposure or infiltration of our critical infrastructure, operational technology and IT systems through physical or cyber attacks or other disruptions;

 

our ability to obtain permits and other approvals for projects;

 

changes in our capital requirements;

 

our ability to control operating expenses and to achieve efficiencies in our operations;

 

the intentional or unintentional actions of a third party, including contamination of our water supplies or water provided to our customers;

 

our ability to obtain adequate and cost-effective supplies of chemicals, electricity, fuel, water and other raw materials that are needed for our operations;

 

our ability to successfully meet growth projections for our business and capitalize on growth opportunities, including our ability to, among other things, acquire and integrate water and wastewater systems into our regulated operations, and enter into contracts and other agreements with, or otherwise obtain, new customers in our market-based businesses;

 

risks and uncertainties associated with contracting with the U.S. government, including ongoing compliance with applicable government procurement and security regulations;

 

cost overruns relating to improvements in or the expansion of our operations;

 

our ability to maintain safe work sites;

1


 

 

our exposure to liabilities related to environmental laws and similar matters resulting from, among other things, water and wastewater service provided to customers, including, for example, our water management solutions that are focused on customers in the natural gas exploration and production market;

 

changes in general economic, political, business and financial market conditions;

 

access to sufficient capital on satisfactory terms and when and as needed to support operations and capital expenditures;

 

fluctuations in interest rates;

 

restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or funding requirements or affect our ability to borrow, make payments on debt or pay dividends;

 

fluctuations in the value of benefit plan assets and liabilities that could increase our cost and funding requirements;

 

changes in federal or state general, income and other tax laws, including tax reform, the availability of tax credits and tax abatement programs, and our ability to utilize our U.S. and state net operating loss carryforwards;

 

migration of customers into or out of our service territories;

 

the use by municipalities of the power of eminent domain or other authority to condemn our systems;

 

difficulty in obtaining, or the inability to obtain, insurance at acceptable rates and on acceptable terms and conditions, or an inability to obtain reimbursement under existing insurance programs for any losses sustained;  

 

the incurrence of impairment charges related to our goodwill or other assets;

 

labor actions, including work stoppages and strikes;

 

the ability to retain and attract qualified employees;

 

civil disturbances or terrorist threats or acts, or public apprehension about future disturbances or terrorist threats or acts; and

 

the impact of new, and changes to existing, accounting standards.

These forward-looking statements are qualified by, and should be read together with, the risk factors and other statements contained in our Annual Report on Form 10-K for the year ended December 31, 2016 (“Form 10-K”), and in this Form 10-Q, and you should refer to such risks, uncertainties and risk factors in evaluating such forward-looking statements. Any forward-looking statements we make speak only as of the date this Form 10-Q was filed with the United States Securities and Exchange Commission (“SEC”). Except as required by the federal securities laws, we do not have any obligation, and we specifically disclaim any undertaking or intention, to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise. New factors emerge from time to time, and it is not possible for us to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on our businesses, either viewed independently or together, or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. The foregoing factors should not be construed as exhaustive.

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)

 

 

June 30, 2017

 

 

December 31, 2016

 

ASSETS

 

Property, plant and equipment

$

20,575

 

 

$

19,954

 

Accumulated depreciation

 

(5,184

)

 

 

(4,962

)

Property, plant and equipment, net

 

15,391

 

 

 

14,992

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

64

 

 

 

75

 

Restricted funds

 

28

 

 

 

20

 

Accounts receivable, net

 

288

 

 

 

269

 

Unbilled revenues

 

236

 

 

 

263

 

Materials and supplies

 

41

 

 

 

39

 

Other

 

151

 

 

 

118

 

Total current assets

 

808

 

 

 

784

 

Regulatory and other long-term assets:

 

 

 

 

 

 

 

Regulatory assets

 

1,324

 

 

 

1,289

 

Goodwill

 

1,373

 

 

 

1,345

 

Other

 

70

 

 

 

72

 

Total regulatory and other long-term assets

 

2,767

 

 

 

2,706

 

TOTAL ASSETS

$

18,966

 

 

$

18,482

 

 

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

 

3


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)

 

 

June 30, 2017

 

 

December 31, 2016

 

CAPITALIZATION AND LIABILITIES

 

Capitalization:

 

 

 

 

 

 

 

Common stock ($0.01 par value, 500,000,000 shares authorized, 182,342,528

   and 181,798,555 shares issued, respectively)

$

2

 

 

$

2

 

Paid-in-capital

 

6,416

 

 

 

6,388

 

Accumulated deficit

 

(702

)

 

 

(873

)

Accumulated other comprehensive loss

 

(85

)

 

 

(86

)

Treasury stock, at cost (4,064,010 and 3,701,867 shares, respectively)

 

(247

)

 

 

(213

)

Total common stockholders' equity

 

5,384

 

 

 

5,218

 

Long-term debt

 

5,650

 

 

 

5,749

 

Redeemable preferred stock at redemption value

 

9

 

 

 

10

 

Total long-term debt

 

5,659

 

 

 

5,759

 

Total capitalization

 

11,043

 

 

 

10,977

 

Current liabilities:

 

 

 

 

 

 

 

Short-term debt

 

1,117

 

 

 

849

 

Current portion of long-term debt

 

686

 

 

 

574

 

Accounts payable

 

134

 

 

 

154

 

Accrued liabilities

 

490

 

 

 

609

 

Taxes accrued

 

47

 

 

 

31

 

Interest accrued

 

62

 

 

 

63

 

Other

 

125

 

 

 

112

 

Total current liabilities

 

2,661

 

 

 

2,392

 

Regulatory and other long-term liabilities:

 

 

 

 

 

 

 

Advances for construction

 

291

 

 

 

300

 

Deferred income taxes, net

 

2,723

 

 

 

2,596

 

Deferred investment tax credits

 

23

 

 

 

23

 

Regulatory liabilities

 

410

 

 

 

403

 

Accrued pension expense

 

422

 

 

 

419

 

Accrued postretirement benefit expense

 

85

 

 

 

87

 

Other

 

70

 

 

 

67

 

Total regulatory and other long-term liabilities

 

4,024

 

 

 

3,895

 

Contributions in aid of construction

 

1,238

 

 

 

1,218

 

Commitments and contingencies (see Note 9)

 

 

 

 

 

 

 

TOTAL CAPITALIZATION AND LIABILITIES

$

18,966

 

 

$

18,482

 

 

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

 

 

4


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Operations (Unaudited)

(In millions, except per share data)

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Operating revenues

$

844

 

 

$

827

 

 

$

1,600

 

 

$

1,570

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operation and maintenance

 

349

 

 

 

351

 

 

 

686

 

 

 

699

 

Depreciation and amortization

 

126

 

 

 

115

 

 

 

250

 

 

 

231

 

General taxes

 

63

 

 

 

64

 

 

 

131

 

 

 

130

 

Gain on asset dispositions and purchases

 

(2

)

 

 

(2

)

 

 

(2

)

 

 

(3

)

Total operating expenses, net

 

536

 

 

 

528

 

 

 

1,065

 

 

 

1,057

 

Operating income

 

308

 

 

 

299

 

 

 

535

 

 

 

513

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

(85

)

 

 

(81

)

 

 

(170

)

 

 

(161

)

Other, net

 

3

 

 

 

7

 

 

 

6

 

 

 

9

 

Total other income (expense)

 

(82

)

 

 

(74

)

 

 

(164

)

 

 

(152

)

Income from continuing operations before income taxes

 

226

 

 

 

225

 

 

 

371

 

 

 

361

 

Provision for income taxes

 

95

 

 

 

88

 

 

 

147

 

 

 

142

 

Net income attributable to common stockholders

$

131

 

 

$

137

 

 

$

224

 

 

$

219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

0.74

 

 

$

0.77

 

 

$

1.26

 

 

$

1.23

 

Diluted earnings per share: (a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

0.73

 

 

$

0.77

 

 

$

1.26

 

 

$

1.23

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

178

 

 

 

178

 

 

 

178

 

 

 

178

 

Diluted

 

179

 

 

 

178

 

 

 

179

 

 

 

178

 

Dividends declared per common share

$

0.415

 

 

$

0.375

 

 

$

0.415

 

 

$

0.375

 

 

(a)

Amounts may not sum due to rounding.

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

 

 

5


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income attributable to common stockholders

$

131

 

 

$

137

 

 

$

224

 

 

$

219

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension amortized to periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial loss, net of tax of $1 for the three months and

  $2 for the six months ended June 30, 2017 and 2016,

  respectively

 

2

 

 

 

2

 

 

 

4

 

 

 

3

 

Foreign currency translation adjustment

 

 

 

 

(1

)

 

 

(1

)

 

 

 

Unrealized loss on cash flow hedges, net of tax of $(3) and

   $(6) for the three months and $(1) and $(7) for the six

   months ended June 30, 2017 and 2016, respectively

 

(5

)

 

 

(10

)

 

 

(2

)

 

 

(11

)

Net other comprehensive income (loss)

 

(3

)

 

 

(9

)

 

 

1

 

 

 

(8

)

Comprehensive income attributable to common stockholders

$

128

 

 

$

128

 

 

$

225

 

 

$

211

 

 

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

 

6


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

(In millions)

 

 

For the Six Months Ended June 30,

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net income

$

224

 

 

$

219

 

Adjustments to reconcile to net cash flows provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

250

 

 

 

231

 

Deferred income taxes and amortization of investment tax credits

 

137

 

 

 

152

 

Provision for losses on accounts receivable

 

11

 

 

 

9

 

Gain on asset dispositions and purchases

 

(2

)

 

 

(3

)

Pension and non-pension postretirement benefits

 

29

 

 

 

31

 

Other non-cash, net

 

(50

)

 

 

(32

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Receivables and unbilled revenues

 

(3

)

 

 

(13

)

Pension and non-pension postretirement benefit contributions

 

(23

)

 

 

(28

)

Accounts payable and accrued liabilities

 

(46

)

 

 

22

 

Other assets and liabilities, net

 

(3

)

 

 

(52

)

Net cash provided by operating activities

 

524

 

 

 

536

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

Capital expenditures

 

(602

)

 

 

(597

)

Acquisitions

 

(9

)

 

 

(24

)

Proceeds from sale of assets and securities

 

4

 

 

 

2

 

Removal costs from property, plant and equipment retirements, net

 

(28

)

 

 

(44

)

Net funds restricted

 

(5

)

 

 

(2

)

Net cash used in investing activities

 

(640

)

 

 

(665

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

Proceeds from long-term debt

 

20

 

 

 

2

 

Repayments of long-term debt

 

(6

)

 

 

(13

)

Net short-term borrowings with maturities less than three months

 

268

 

 

 

321

 

Proceeds from issuances of employee stock plans and DRIP

 

16

 

 

 

18

 

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

   $12, respectively

 

12

 

 

 

12

 

Debt issuance costs

 

-

 

 

 

(1

)

Dividends paid

 

(141

)

 

 

(127

)

Anti-dilutive stock repurchase

 

(54

)

 

 

(65

)

Taxes paid related to employee stock plans

 

(10

)

 

 

(11

)

Net cash provided by financing activities

 

105

 

 

 

136

 

Net (decrease) increase in cash and cash equivalents

 

(11

)

 

 

7

 

Cash and cash equivalents as of beginning of period

 

75

 

 

 

45

 

Cash and cash equivalents as of end of period

$

64

 

 

$

52

 

Non-cash investing activity:

 

 

 

 

 

 

 

Capital expenditures acquired on account but unpaid as of end of period

$

145

 

 

$

167

 

Acquisition financed by treasury stock

$

33

 

 

$

-

 

 

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

 

 

7


 

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In millions)

 

 

Common Stock

 

 

 

 

Accumulated

 

Accumulated Other Comprehensive

 

Treasury Stock

 

Total

Stockholders'

 

 

Shares

 

Par Value

 

Paid-in-Capital

 

Deficit

 

Loss

 

Shares

 

At Cost

 

Equity

 

Balance as of December 31, 2016

 

181.8

 

$

2

 

$

6,388

 

$

(873

)

$

(86

)

 

(3.7

)

$

(213

)

$

5,218

 

Cumulative effect of change in

   accounting principle

 

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

21

 

Net income attributable to common

   stockholders

 

 

 

 

 

 

 

224

 

 

 

 

 

 

 

 

224

 

Direct stock reinvestment and

   purchase plan

 

0.1

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

5

 

Employee stock purchase plan

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

4

 

Stock-based compensation activity

 

0.4

 

 

 

 

13

 

 

 

 

 

 

(0.1

)

 

(7

)

 

6

 

Acquisitions via treasury stock

 

 

 

 

 

6

 

 

 

 

 

 

0.4

 

 

27

 

 

33

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

(0.7

)

 

(54

)

 

(54

)

Net other comprehensive income

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Dividends

 

 

 

 

 

 

 

(74

)

 

 

 

 

 

 

 

(74

)

Balance as of June 30, 2017

 

182.3

 

$

2

 

$

6,416

 

$

(702

)

$

(85

)

 

(4.1

)

$

(247

)

$

5,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

Accumulated

 

Accumulated Other Comprehensive

 

Treasury Stock

 

Total

Stockholders'

 

 

Shares

 

Par Value

 

Paid-in-Capital

 

Deficit

 

Loss

 

Shares

 

At Cost

 

Equity

 

Balance as of December 31, 2015

 

180.9

 

$

2

 

$

6,351

 

$

(1,073

)

$

(88

)

 

(2.6

)

$

(143

)

$

5,049

 

Net income attributable to common

   stockholders

 

 

 

 

 

 

 

219

 

 

 

 

 

 

 

 

219

 

Direct stock reinvestment and

   purchase plan

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

3

 

Employee stock purchase plan

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

3

 

Stock-based compensation activity

 

0.7

 

 

 

 

25

 

 

 

 

 

 

(0.1

)

 

(6

)

 

19

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

(1.0

)

 

(65

)

 

(65

)

Net other comprehensive loss

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Dividends

 

 

 

 

 

 

 

(67

)

 

 

 

 

 

 

 

(67

)

Balance as of June 30, 2016

 

181.6

 

$

2

 

$

6,382

 

$

(921

)

$

(96

)

 

(3.7

)

$

(214

)

$

5,153

 

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

 

 

8


 

American Water Works Company, Inc. and Subsidiary Companies

Notes to Consolidated Financial Statements (Unaudited)

(Unless otherwise noted, in millions, 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 all of its subsidiaries (collectively, “American Water” or the “Company”) in which a controlling interest is maintained 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 as of June 30, 2017 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, 2016 is derived from the Company's audited consolidated financial statements as of December 31, 2016. The unaudited consolidated 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, 2016 (“Form 10-K”) 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.

Note 2: New Accounting Standards

The Company adopted the following accounting standard on January 1, 2017:

 

Standard

 

Description

 

Date of

Adoption

 

Application

 

Estimated Effect

on the Consolidated

Financial Statements

(or Other Significant

Matters)

Simplification of Employee Share-Based Payment Accounting

 

Simplified accounting and disclosure requirements for share-based payment awards. The updated guidance addresses simplification in areas such as: (i) the recognition of excess tax benefits and deficiencies; (ii) the classification of excess tax benefits and taxes paid on the Consolidated Statements of Cash Flows; (iii) election of an accounting policy for forfeitures; and (iv) the amount an employer can withhold to cover income taxes and still qualify for equity classification.

 

January 1, 2017

 

Modified retrospective for the recognition of excess tax benefits and deficiencies; full retrospective for the classification of excess tax benefits and taxes paid on the Consolidated Statements of Cash Flows

 

The adoption of this standard resulted in a cumulative effect to increase retained earnings by $21, with an offsetting decrease to deferred income taxes, net. Also, the adoption resulted in a net increase in cash flows from operating activities and a net decrease in cash flows from financing activities of $14 and $18 for the six months ended June 30, 2017 and 2016, respectively, on the Consolidated Statements of Cash Flows.

9


 

The following recently issued accounting standards are not yet required to be adopted by the Company as of June 30, 2017:

 

Standard

 

Description

 

Date of

Adoption

 

Permitted Application

 

Estimated Effect

on the Consolidated

Financial Statements

(or Other Significant

Matters)

Revenue from Contracts with Customers

 

Changes the criteria for recognizing revenue from a contract with a customer. Replaces existing guidance on revenue recognition, including most industry specific guidance. The objective is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries and across capital markets.  The underlying principle is that an entity will recognize revenue to depict the transfer of goods and services to customers at an amount the entity expects to be entitled to in exchange for those goods or services.  The guidance also requires a number of disclosures regarding the nature, amount, timing and uncertainty of revenue and the related cash flows.

 

January 1, 2018; early adoption permitted

 

Full or modified retrospective

 

The Company substantially completed its evaluation of the requirements of the new standard based on current interpretations and does not expect there to be a change in the measurement or timing of revenue recognized. The Company continues to monitor for new authoritative and interpretative guidance, which upon release could impact the Company’s current evaluation. The Company plans to adopt the new standard on January 1, 2018 using the modified retrospective method.

Classification of Certain Cash Receipts and Cash Payments on the Statement of Cash Flows

 

Provides guidance on the presentation and classification in the statement of cash flows for the following cash receipts and payments: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions and (viii) separately identifiable cash flows and application of the predominance principle.

 

January 1, 2018; early adoption permitted

 

Retrospective

 

The Company does not anticipate significant impacts on its consolidated statements of cash flows.

Presentation of Changes in Restricted Cash on the Statement of Cash Flows

 

Updates the accounting and disclosure guidance for the classification and presentation of changes in restricted cash on the statements of cash flows. The amended guidance requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents and amounts described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will now be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows.

 

January 1, 2018; early adoption permitted

 

Retrospective

 

The Company does not anticipate significant impacts on its consolidated statements of cash flows.

Clarifying the Definition of a Business

 

Updates the accounting guidance to clarify the definition of a business with the objective of assisting entities with evaluating whether transactions should be accounted for as acquisitions, or disposals, of assets or businesses.

 

January 1, 2018; early adoption permitted

 

Prospective

 

The update could result in more acquisitions being accounted for as asset acquisitions. The effect on the Company's consolidated financial statements will be dependent on the transactions executed by the Company subsequent to adoption.

Gains and Losses from the Derecognition of Nonfinancial Assets

 

Updated the guidance to clarify the accounting for gains and losses resulting from the derecognition of nonfinancial assets and partial sale of nonfinancial assets. The guidance also clarifies the definition of an in-substance nonfinancial asset.

 

January 1, 2018; early adoption permitted

 

Full or modified retrospective

 

The Company is evaluating the impact on its consolidated financial statements and related disclosures.

Presentation of Net Periodic Pension Cost and Net Periodic  Postretirement Benefit Cost

 

Updated authoritative guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The remaining components of net periodic benefit cost are required to be presented separately from the service cost component in an income statement line item outside of operating income. Also, the guidance allows for only the service cost component to be eligible for capitalization. The updated guidance does not impact the accounting for net periodic benefit costs as regulatory assets or liabilities.

 

January 1, 2018; early adoption permitted

 

Retrospective for the presentation of service cost component; prospective for the capitalization of service cost component

 

The Company is evaluating the impact on its consolidated financial statements and related disclosures.

10


 

Standard

 

Description

 

Date of

Adoption

 

Permitted Application

 

Estimated Effect

on the Consolidated

Financial Statements

(or Other Significant

Matters)

Accounting for Leases

 

Updated the accounting and disclosure guidance for leasing arrangements. Under this guidance, a lessee will be required to recognize the following for all leases, excluding short-term leases, at the commencement date: (i) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Under the guidance, lessor accounting is largely unchanged.

 

January 1, 2019; early adoption permitted

 

Modified retrospective

 

The Company is evaluating the effect on its consolidated financial statements and related disclosures.

Simplification of Goodwill Impairment Testing

 

Updated authoritative guidance which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments in the update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying value exceeds the reporting unit's fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

 

January 1, 2020; early adoption permitted

 

Prospective

 

The Company is considering early adopting this guidance for its next annual goodwill impairment test, which will occur during the fourth quarter of 2017. The Company does not expect the adoption to have a material impact on its consolidated financial statements or related disclosures.

Measurement of Credit Losses

 

Updated the accounting guidance on reporting credit losses for financial assets held at amortized cost basis and available-for-sale debt securities. Under this guidance, expected credit losses are required to be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount of financial assets. Also, this guidance requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down.

 

January 1, 2020; early adoption permitted

 

Modified retrospective

 

The Company is evaluating the impact on its consolidated financial statements and related disclosures, as well as the timing of adoption.

 

 

11


 

Note 3: Acquisitions

During the six months ended June 30, 2017, the Company closed on ten acquisitions of various regulated water and wastewater systems for a total aggregate purchase price of $42. Included in this total was the Company’s acquisition of all the outstanding capital stock of the Shorelands Water Company, Inc. on April 3, 2017, for total consideration of $33, in the form of approximately 0.4 shares of the Company’s common stock. Assets acquired for the aforementioned acquisitions, principally utility plant, totaled $37. Liabilities assumed totaled $21, including $7 of contributions in aid of construction and assumed debt of $7. The Company recorded additional goodwill of $28 associated with three of its acquisitions, which is reported in the Company’s Regulated Businesses segment.  The Company also recognized a bargain purchase gain of $2 associated with one of these acquisitions. The preliminary purchase price allocations related to these acquisitions will be finalized once the valuation of assets acquired has been completed, no later than one year after their acquisition date.

Also, the Company made a non-escrowed deposit of $2 during the first quarter of 2017 related to the acquisition of the McKeesport, Pennsylvania wastewater system, which the Company expects to close by the first quarter of 2018.

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, 2017 and 2016, respectively:

 

 

Defined Benefit Plans

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Employee

Benefit Plan

Funded Status

 

 

Amortization

of Prior

Service Cost

 

 

Amortization

of Actuarial

Loss

 

 

Foreign

Currency

Translation

 

 

Gain (Loss) on

Cash Flow

Hedges

 

 

Other

Comprehensive

Loss

 

Beginning balance as of December 31, 2016

$

(147

)

 

$

1

 

 

$

42

 

 

$

2

 

 

$

16

 

 

$

(86

)

Other comprehensive loss

   before reclassifications

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(2

)

 

 

(3

)

Amounts reclassified from accumulated

   other comprehensive loss

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Net other comprehensive income (loss)

 

 

 

 

 

 

 

4

 

 

 

(1

)

 

 

(2

)

 

 

1

 

Ending balance as of June 30, 2017

$

(147

)

 

$

1

 

 

$

46

 

 

$

1

 

 

$

14

 

 

$

(85

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance as of December 31, 2015

$

(126

)

 

$

1

 

 

$

36

 

 

$

2

 

 

$

(1

)

 

$

(88

)

Other comprehensive loss

   before reclassifications

 

 

 

 

 

 

 

 

 

 

 

 

 

(11

)

 

 

(11

)

Amounts reclassified from accumulated

   other comprehensive loss

 

 

 

 

 

 

 

3