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Section 1: 10-Q (10-Q)

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Table of Contents

 
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 September 30, 2018
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.)
1 Water Street, Camden, NJ
08102-1658
(Address of principal executive offices)
(Zip Code)
(856) 955-4001
(Registrant’s telephone number, including area code)
1025 Laurel Oak Road, Voorhees, NJ 08043
(Former name, former address and former fiscal year, if changed since last report)
 
 
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 every Interactive Data File required to be submitted 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 such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
 
 
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 October 25, 2018
Common Stock, $0.01 par value per share
 
180,598,794 shares
(excludes 4,683,156 treasury shares as of October 25, 2018)




TABLE OF CONTENTS
 
 
Page
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


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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,” “propose,” “assume,” “forecast,” “likely,” “uncertain,” “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 operation and maintenance (“O&M”) efficiency ratio, our 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, tax policy or legal developments or rate adjustments, including rate case filings, filings for infrastructure surcharges and filings to address regulatory lag, and impacts that the Tax Cuts and Jobs Act (the “TCJA”) may have on us and our business, results of operations, cash flows and liquidity.
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 customer rates;
the timeliness and outcome of regulatory commissions’ actions concerning rates, capital structure, authorized return on equity, capital investment, system acquisitions, taxes, permitting and other decisions;
changes in customer demand for, and patterns of use of, water, such as may result from conservation efforts;
limitations on the availability of our water supplies or sources of water, or restrictions on our use thereof, resulting from allocation rights, governmental or regulatory requirements and restrictions, drought, overuse or other factors;
changes in laws, governmental regulations and policies, including with respect to environmental, health and safety, water quality and emerging contaminants, public utility and tax regulations and policies, and impacts resulting from U.S., state and local elections;
weather conditions and events, climate variability patterns, and natural disasters, including drought or abnormally high rainfall, prolonged and abnormal ice or freezing conditions, strong winds, coastal and intercoastal flooding, earthquakes, landslides, hurricanes, tornadoes, wildfires, electrical storms and solar flares;
the outcome of litigation and similar governmental and regulatory proceedings, investigations or actions;
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, including the disclosure of sensitive or confidential information contained therein, through physical or cyber attacks or other means;
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 regulated and market-based businesses, either individually or in the aggregate, and capitalize on growth opportunities, including our ability to, among other things:
acquire, close and successfully integrate regulated operations and market-based businesses;
enter into contracts and other agreements with, or otherwise obtain, new customers in our market-based businesses; and

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realize anticipated benefits and synergies from new acquisitions;
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;
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 transfer solutions that are focused on customers in the shale 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 us or 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 any further rules, regulations, interpretations and guidance by the U.S. Department of the Treasury and state or local taxing authorities related to the enactment of the TCJA, the availability of tax credits and tax abatement programs, and our ability to utilize our U.S. federal and state income tax net operating loss (“NOL”) 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, or the assertion by private landowners of similar rights against us;
our difficulty or inability to obtain insurance, our inability to obtain insurance at acceptable rates and on acceptable terms and conditions, or our 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;
our 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, 2017 (“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 U.S. 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.

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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) 
 
September 30, 2018
 
December 31, 2017
ASSETS
Property, plant and equipment
$
22,734

 
$
21,716

Accumulated depreciation
(5,671
)
 
(5,470
)
Property, plant and equipment, net
17,063

 
16,246

Current assets:
 

 
 

Cash and cash equivalents
86

 
55

Restricted funds
29

 
27

Accounts receivable, net
347

 
272

Unbilled revenues
203

 
212

Materials and supplies
42

 
41

Other
93

 
113

Total current assets
800

 
720

Regulatory and other long-term assets:
 

 
 

Regulatory assets
1,086

 
1,061

Goodwill
1,571

 
1,379

Postretirement benefit asset
193

 

Intangible assets
91

 
9

Other
76

 
67

Total regulatory and other long-term assets
3,017

 
2,516

Total assets
$
20,880

 
$
19,482

The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data) 
 
September 30, 2018
 
December 31, 2017
CAPITALIZATION AND LIABILITIES
Capitalization:
 
 
 
Common stock ($0.01 par value, 500,000,000 shares authorized, 185,279,397 and 182,508,564 shares issued, respectively)
$
2

 
$
2

Paid-in-capital
6,647

 
6,432

Accumulated deficit
(432
)
 
(723
)
Accumulated other comprehensive loss
(60
)
 
(79
)
Treasury stock, at cost (4,683,156 and 4,064,010 shares, respectively)
(297
)
 
(247
)
Total common stockholders' equity
5,860

 
5,385

Long-term debt
7,570

 
6,490

Redeemable preferred stock at redemption value
7

 
8

Total long-term debt
7,577

 
6,498

Total capitalization
13,437

 
11,883

Current liabilities:
 

 
 

Short-term debt
564

 
905

Current portion of long-term debt
263

 
322

Accounts payable
141

 
195

Accrued liabilities
455

 
630

Taxes accrued
67

 
33

Interest accrued
89

 
73

Other
169

 
167

Total current liabilities
1,748

 
2,325

Regulatory and other long-term liabilities:
 

 
 

Advances for construction
259

 
271

Deferred income taxes, net
1,670

 
1,551

Deferred investment tax credits
21

 
22

Regulatory liabilities
1,962

 
1,664

Accrued pension expense
393

 
384

Accrued postretirement benefit expense

 
40

Other
78

 
66

Total regulatory and other long-term liabilities
4,383

 
3,998

Contributions in aid of construction
1,312

 
1,276

Commitments and contingencies (See Note 12)


 


Total capitalization and liabilities
$
20,880

 
$
19,482

The accompanying notes are an integral part of these Consolidated Financial Statements.


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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Operating revenues
$
976

 
$
936

 
$
2,590

 
$
2,536

Operating expenses:
 
 
 
 
 
 
 
Operation and maintenance
390

 
322

 
1,085

 
1,003

Depreciation and amortization
141

 
128

 
404

 
378

General taxes
71

 
61

 
210

 
192

Gain on asset dispositions and purchases
(18
)
 
(7
)
 
(20
)
 
(9
)
Impairment charge
57

 

 
57

 

Total operating expenses, net
641

 
504

 
1,736

 
1,564

Operating income
335

 
432

 
854

 
972

Other income (expense):
 
 
 
 
 
 
 
Interest, net
(89
)
 
(89
)
 
(259
)
 
(259
)
Non-operating benefit costs, net
5

 
(2
)
 
10

 
(7
)
Loss on early extinguishment of debt
(2
)
 
(6
)
 
(2
)
 
(6
)
Other, net
6

 
5

 
14

 
11

Total other income (expense)
(80
)
 
(92
)
 
(237
)
 
(261
)
Income before income taxes
255

 
340

 
617

 
711

Provision for income taxes
70

 
137

 
164

 
284

Consolidated net income
185

 
203

 
453

 
427

Net loss attributable to noncontrolling interest
(2
)
 

 
(2
)
 

Net income attributable to common stockholders
$
187

 
$
203

 
$
455

 
$
427

 
 
 
 
 
 
 
 
Basic earnings per share: (a)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
1.04

 
$
1.14

 
$
2.54

 
$
2.39

Diluted earnings per share: (a)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
1.04

 
$
1.13

 
$
2.53

 
$
2.39

Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
181

 
178

 
179

 
178

Diluted
181

 
179

 
180

 
179

Dividends declared per common share
$
0.455

 
$
0.415

 
$
0.91

 
$
0.83

(a)
Amounts may not calculate due to rounding.
The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income attributable to common stockholders
$
187

 
$
203

 
$
455

 
$
427

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Pension amortized to periodic benefit cost:
 
 
 
 
 
 
 
Actuarial loss, net of tax of $1 and $1 for the three months and $2 and $3 for the nine months ended September 30, 2018 and 2017, respectively
2

 
1

 
6

 
5

Foreign currency translation adjustment

 

 

 
(1
)
Unrealized gain (loss) on cash flow hedges, net of tax of $2 and $(3) for the three months ended and $4 and $(4) for the nine months ended September 30, 2018 and 2017, respectively
7

 
(3
)
 
13

 
(5
)
Net other comprehensive income (loss)
9

 
(2
)
 
19

 
(1
)
Comprehensive income attributable to common stockholders
$
196

 
$
201

 
$
474

 
$
426

The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
 
For the Nine Months Ended September 30,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
453

 
$
427

Adjustments to reconcile to net cash flows provided by operating activities:
 
 
 
Depreciation and amortization
404

 
378

Deferred income taxes and amortization of investment tax credits
142

 
264

Provision for losses on accounts receivable
22

 
21

Gain on asset dispositions and purchases
(20
)
 
(9
)
Impairment charge
57

 

Pension and non-pension postretirement benefits
19

 
44

Other non-cash, net
27

 
(39
)
Changes in assets and liabilities:
 
 
 
Receivables and unbilled revenues
(70
)
 
(34
)
Pension and postretirement benefit contributions
(11
)
 
(36
)
Accounts payable and accrued liabilities
(23
)
 
(22
)
Other assets and liabilities, net
32

 
48

Impact of Freedom Industries settlement activities
(40
)
 
(22
)
Net cash provided by operating activities
992

 
1,020

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Capital expenditures
(1,136
)
 
(964
)
Acquisitions, net of cash acquired
(381
)
 
(10
)
Proceeds from sale of assets
33

 
9

Removal costs from property, plant and equipment retirements, net
(61
)
 
(51
)
Net cash used in investing activities
(1,545
)
 
(1,016
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from long-term debt
1,355

 
1,382

Repayments of long-term debt
(330
)
 
(334
)
Net short-term borrowings with maturities less than three months
(341
)
 
(746
)
Proceeds from issuance of common stock
183

 

Proceeds from issuances of employee stock plans and direct stock purchase plan
15

 
21

Advances and contributions for construction, net of refunds of $20 and $16 for the nine months ended September 30, 2018 and 2017, respectively
15

 
23

Debt issuance costs
(12
)
 
(13
)
Make-whole premium on early debt redemption
(10
)
 
(34
)
Dividends paid
(237
)
 
(215
)
Anti-dilutive share repurchases
(45
)
 
(54
)
Taxes paid related to employee stock plans
(7
)
 
(11
)
Net cash provided by financing activities
586

 
19

Net increase in cash and cash equivalents and restricted funds
33

 
23

Cash and cash equivalents and restricted funds at beginning of period
83

 
99

Cash and cash equivalents and restricted funds at end of period
$
116

 
$
122

Non-cash investing activity:
 
 
 
Capital expenditures acquired on account but unpaid as of end of period
$
187

 
$
175

Acquisition financed by treasury stock
$

 
$
33

 
The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In millions)
 
Common Stock
 
Paid-in-Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total Stockholders' Equity
 
Shares
 
Par Value
 
 
 
 
Shares
 
At Cost
 
Balance as of December 31, 2017
182.5

 
$
2

 
$
6,432

 
$
(723
)
 
$
(79
)
 
(4.1
)
 
$
(247
)
 
$
5,385

Net income attributable to common stockholders

 

 

 
455

 

 

 

 
455

Direct stock reinvestment and purchase plan
0.1

 

 
5

 

 

 

 

 
5

Employee stock purchase plan
0.1

 

 
6

 

 

 

 

 
6

Stock-based compensation activity
0.3

 

 
21

 
(1
)
 

 
(0.1
)
 
(5
)
 
15

Issuance of common stock
2.3

 

 
183

 

 

 

 

 
183

Repurchases of common stock

 

 

 

 

 
(0.5
)
 
(45
)
 
(45
)
Net other comprehensive income

 

 

 

 
19

 

 

 
19

Dividends

 

 

 
(163
)
 

 

 

 
(163
)
Balance as of September 30, 2018
185.3

 
$
2

 
$
6,647

 
$
(432
)
 
$
(60
)
 
(4.7
)
 
$
(297
)
 
$
5,860

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Paid-in-Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total Stockholders' Equity
 
Shares
 
Par Value
 
 
 
 
Shares
 
At Cost
 
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

 

 

 
427

 

 

 

 
427

Direct stock reinvestment and purchase plan
0.1

 

 
6

 

 

 

 

 
6

Employee stock purchase plan

 

 
5

 

 

 

 

 
5

Stock-based compensation activity
0.5

 

 
18

 

 

 
(0.1
)
 
(7
)
 
11

Acquisitions via treasury stock

 

 
6

 

 

 
0.4

 
27

 
33

Repurchases of common stock

 

 

 

 

 
(0.7
)
 
(54
)
 
(54
)
Net other comprehensive loss

 

 

 

 
(1
)
 

 

 
(1
)
Dividends

 

 

 
(148
)
 

 

 

 
(148
)
Balance as of September 30, 2017
182.4

 
$
2

 
$
6,423

 
$
(573
)
 
$
(87
)
 
(4.1
)
 
$
(247
)
 
$
5,518

The accompanying notes are an integral part of these Consolidated Financial Statements.

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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 balances and transactions. The unaudited Consolidated 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 Quarterly Reports on Form 10-Q (“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 September 30, 2018, and the 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 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, 2017 (“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, primarily due to the seasonality of the Company’s operations.

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Note 2: Significant Accounting Policies
New Accounting Standards
The Company adopted the following accounting standards in 2018:
Standard
 
Description
 
Date of
Adoption
 
Application
 
Effect on the Consolidated Financial Statements
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
 
Modified retrospective
 
The adoption had no material impact on the Consolidated Financial Statements. Additional disclosures were added in the Notes to Consolidated Financial Statements. For additional information, see Note 3—Revenue Recognition.
Clarifying the Definition of a Business
 
Updated 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
 
Prospective
 
The adoption had no material impact on the Consolidated Financial Statements.
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost
 
Updated authoritative guidance to require 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 only allows for 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
 
Retrospective for the presentation of the service cost component and the other components of net periodic benefit costs on the Consolidated Statements of Operations; prospective for the limitation of capitalization to only the service cost component of net periodic benefit costs in total assets.
 
The Company presented in the current period, and reclassified in the prior periods, net periodic benefit costs, other than the service cost component, in non-operating benefit costs, net on the Consolidated Statements of Operations.
Simplification of Goodwill Impairment Testing
 
Updated authoritative guidance to simplify 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.
 
August 31, 2018

 
Prospective
 
See Note 6—Goodwill and Other Intangible Assets.
Cloud Computing Service Arrangements
 
Updated the accounting and disclosure guidance for cloud computing arrangements that are service contracts. Under this guidance, implementation costs incurred in cloud computing arrangements and in developing or obtaining internal-use software follow the same capitalization requirements. The accounting for the service element of the arrangement remains unchanged.
 
September 30, 2018
 
Prospective
 
The adoption had no material impact on the Consolidated Financial Statements.

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The following recently issued accounting standards have not yet been adopted by the Company as of September 30, 2018:
Standard
 
Description
 
Date of
Adoption
 
Application
 
Estimated Effect on the Consolidated Financial Statements
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. A package of optional transition practical expedients allows an entity not to reassess under the new guidance: (i) whether any existing contracts are or contain leases; (ii) lease classification; and (iii) initial direct costs. Additional optional transition practical expedients are available which allow an entity not to evaluate existing land easements if the easements were not previously accounted for as leases, and to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment in the opening balance of retained earnings in the period of adoption.
 
January 1, 2019; early adoption permitted
 
Modified retrospective
 
The Company has not yet quantified the impact of recognizing right-of-use assets and lease liabilities, but is evaluating the impact on its Consolidated Financial Statements. The Company has defined a process and implemented software to meet the accounting and reporting requirements of the guidance and is assessing lease arrangements. The Company expects to elect all practical expedients available under the new lease accounting and disclosure guidance and will not elect early adoption for the standard.
Accounting for Hedging Activities

 
Updated the accounting and disclosure guidance for hedging activities, which allows for more financial and nonfinancial hedging strategies to be eligible for hedge accounting. Under this guidance, a qualitative effectiveness assessment is permitted for certain hedges if an entity can reasonably support an expectation of high effectiveness throughout the term of the hedge, provided that an initial quantitative test establishes that the hedge relationship is highly effective. Also, for cash flow hedges determined to be highly effective, all changes in the fair value of the hedging instrument will be recorded in other comprehensive income, with a subsequent reclassification to earnings when the hedged item impacts earnings.
 
January 1, 2019; early adoption permitted

 
Modified retrospective for adjustments related to the measurement of ineffectiveness for cash flow hedges; prospective for the updated presentation and disclosure requirements.

 
The Company does not expect the adoption to have a material impact on its Consolidated Financial Statements based upon its hedging activities as of the balance sheet date. The Company is evaluating the timing of adoption.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
 
Permits an entity to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the “TCJA”) to retained earnings.

 
January 1, 2019; early adoption permitted


 
In the period of adoption or retrospective.


 
The Company is evaluating any impact on its Consolidated Financial Statements, as well as the timing of adoption.
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 any impact on its Consolidated Financial Statements, as well as the timing of adoption.
Disclosure Requirements for Fair Value Measurement
 
Updated the disclosure requirements for fair value measurement. The guidance removes the requirements to disclose transfers between Level 1 and Level 2 measurements, the timing of transfers between levels, and the valuation processes for Level 3 measurements. Disclosure of transfers into and out of Level 3 measurements will be required. The guidance adds disclosure requirements for the change in unrealized gains and losses in other comprehensive income for recurring Level 3 measurements, as well as the range and weighted average of significant unobservable inputs used to develop Level 3 measurements.
 
January 1, 2020; early adoption permitted
 
Prospective for added disclosures and for the narrative description of measurement uncertainty; retrospective for all other amendments.
 
The Company does not expect the adoption to have a material impact on its Consolidated Financial Statements, and the Company is evaluating the timing of adoption.
Disclosure Requirements for Defined Benefit Plans
 
Updated the disclosure requirements for defined benefit plans. The guidance removes the requirement to disclose the amounts in accumulated other comprehensive income to be recognized as net periodic benefit cost, the effects of a one percent change in assumed healthcare costs and a number of other disclosures. The guidance clarifies that projected benefit obligations and accumulated benefit obligations should be disclosed, and adds disclosure requirements for the weighted-average interest crediting rates for promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation.
 
December 31, 2020; early adoption permitted
 
Retrospective
 
The Company is evaluating any impact on its Consolidated Financial Statements, as well as the timing of adoption.

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Cash, Cash Equivalents and Restricted Funds
The following table provides a reconciliation of the cash, cash equivalents and restricted funds as presented on the Consolidated Balance Sheets, to the sum of such amounts presented on the Consolidated Statements of Cash Flows for the periods ended September 30:
 
2018
 
2017
Cash and cash equivalents
$
86

 
$
93

Restricted funds
29

 
28

Restricted funds included in other long-term assets
1

 
1

Cash and cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows
$
116

 
$
122

Reclassifications
Certain reclassifications have been made to prior periods in the accompanying Consolidated Financial Statements and Notes to conform to the current presentation.
Note 3: Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, Revenue From Contracts With Customers, and all related amendments (collectively, “ASC 606” or the “standard”), using the modified retrospective approach, applied to contracts which were not completed as of January 1, 2018. Under this approach, periods prior to the adoption date have not been restated and continue to be reported under the accounting standards in effect for those periods. The Company’s revenue associated with alternative revenue programs and lease contracts is outside the scope of ASC 606 and accounted for under other existing GAAP.
Under ASC 606, a performance obligation is a promise within a contract to transfer a distinct good or service, or a series of distinct goods and services, to a customer. Revenue is recognized when performance obligations are satisfied and the customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for goods or services. Under the standard, a contract’s transaction price is allocated to each distinct performance obligation. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identifies the contracts with a customer; (ii) identifies the performance obligations within the contract, including whether they are distinct and capable of being distinct in the context of the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when, or as, the Company satisfies each performance obligation.
The Company’s revenues from contracts with customers are discussed below. Customer payments for contracts are generally due within 30 days of billing and none of the contracts with customers have payment terms that exceed one year; therefore, the Company elected to apply the significant financing component practical expedient and no amount of consideration has been allocated as a financing component. See Note 15—Segment Information for further discussion of the Company’s operating segments.
Regulated Businesses Revenue
Revenue from the Company’s Regulated Businesses is generated primarily from water and wastewater services delivered to customers. These contracts contain a single performance obligation, the delivery of water and wastewater services, as the promise to transfer the individual good or service is not separately identifiable from other promises within the contracts and, therefore, is not distinct. Revenues are recognized over time, as services are provided. There are generally no significant financing components or variable consideration. Revenues include amounts billed to customers on a cycle basis, and unbilled amounts calculated based on estimated usage from the date of the meter reading associated with the latest customer bill, to the end of the accounting period. The amounts that the Company has a right to invoice are determined by each customer’s actual usage, an indicator that the invoice amount corresponds directly to the value transferred to the customer. The Company elected to use the right to invoice and the disclosure of remaining performance obligations practical expedients for these revenues.
Market-Based Businesses Revenue
Through various protection programs, the Company provides fixed fee services to domestic homeowners and smaller commercial customers to protect against repair costs for interior and external water and sewer lines, interior electric and gas lines, heating and cooling systems, water heaters, power surge protection and other related services. Most of the contracts have a one-year term and each service is a separate performance obligation, satisfied over time, as the customers simultaneously receive and consume the benefits provided from the service. Customers are obligated to pay for the protection programs ratably over 12 months or via a one-time, annual fee, with revenues recognized ratably over time for these services. Advances from customers are deferred until the performance obligation is satisfied. The Company elected to use the disclosure of remaining performance obligations practical expedients for these revenues.

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The Company’s Market-Based Businesses also have long-term, fixed fee contracts to operate and maintain water and wastewater facilities with the U.S. government on various military bases and facilities owned by municipal and industrial customers, as well as shorter-term contracts that provide water management solutions for shale natural gas companies and customers in the water services market. Billing and revenue recognition for the fixed fee revenues occurs ratably over the term of the contract, as customers simultaneously receive and consume the benefits provided by the Company. Additionally, these contracts allow the Company to make capital improvements to underlying infrastructure, which are initiated through separate modifications or amendments to the original contract, whereby stand-alone, fixed pricing is separately stated for each improvement. The Company has determined that these capital improvements are separate performance obligations, with revenue recognized over time based on performance completed at the end of each reporting period. The Company elected to use the significant financing component practical expedient for these contract revenues. Losses on contracts are recognized during the period in which the losses first become probable and estimable. Revenues recognized during the period in excess of billings on construction contracts are recorded as unbilled revenues, with billings in excess of revenues recorded as other current liabilities until the recognition criteria are met. Changes in contract performance and related estimated contract profitability may result in revisions to costs and revenues, and are recognized in the period in which revisions are determined.
Disaggregated Revenues
The following table summarizes the Company’s operating revenues disaggregated for the three months ended September 30, 2018:
(In millions)
Revenues from Contracts with Customers
 
Other Revenues Not from Contracts with Customers (a)
 
Total Operating Revenues
Regulated Businesses:
 
 
 
 
 
Water services:
 
 
 
 
 
Residential
$
475

 
$
7

 
$
482

Commercial
180

 
3

 
183

Industrial
40

 

 
40

Public and other
86

 
2

 
88

Total water services
781

 
12

 
793

Wastewater services:
 

 
 
 
 
Residential
29

 

 
29

Commercial
8

 

 
8

Industrial
3

 

 
3

Public and other
1

 

 
1

Total wastewater services
41

 

 
41

Miscellaneous utility charges
13

 

 
13

Alternative revenue programs

 
8

 
8

Lease contract revenue

 
2

 
2

Total Regulated Businesses
835

 
22

 
857

Market-Based Businesses
125

 

 
125

Other
(5
)
 
(1
)
 
(6
)
Total operating revenues
$
955

 
$
21

 
$
976

(a)
Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent which are outside the scope of ASC 606 and accounted for under other existing GAAP.

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The following table summarizes of the Company’s operating revenues disaggregated for the nine months ended September 30, 2018:
(In millions)
Revenues from Contracts with Customers
 
Other Revenues Not from Contracts with Customers (a)
 
Total Operating Revenues
Regulated Businesses:
 
 
 
 
 
Water services:
 
 
 
 
 
Residential
$
1,253

 
$
7

 
$
1,260

Commercial
465

 
3

 
468

Industrial
105

 

 
105

Public and other
251

 
2

 
253

Total water services
2,074

 
12

 
2,086

Wastewater services:
 

 
 
 
 
Residential
83

 

 
83

Commercial
22

 

 
22

Industrial
10

 

 
10

Public and other
2

 

 
2

Total wastewater services
117

 

 
117

Miscellaneous utility charges
36

 

 
36

Alternative revenue programs

 
22

 
22

Lease contract revenue

 
6

 
6

Total Regulated Businesses
2,227

 
40

 
2,267

Market-Based Businesses
339

 

 
339

Other
(14
)
 
(2
)
 
(16
)
Total operating revenues
$
2,552

 
$
38

 
$
2,590

(a)
Includes revenues associated with provisional rates, alternative revenue programs, lease contracts and intercompany rent which are outside the scope of ASC 606 and accounted for under other existing GAAP.
Contract Balances
Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. In the Company’s Market-Based Businesses, certain contracts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Contract assets are recorded when billing occurs subsequent to revenue recognition, and are reclassified to accounts receivable when billed and the right to consideration becomes unconditional. Contract liabilities are recorded when the Company receives advances from customers prior to satisfying contractual performance obligations, particularly for construction contracts and home warranty protection program contracts, and are recognized as revenue when the associated performance obligations are satisfied. Contract assets are included in unbilled revenues and contract liabilities are included in other current liabilities on the Consolidated Balance Sheets as of September 30, 2018.

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Table of Contents

The following table summarizes the changes in contract assets and liabilities for the nine months ended September 30, 2018:
(In millions)
 
Contract assets:
 
Balance at January 1, 2018
$
35

Additions
20

Transfers to accounts receivable, net
(38
)
Balance at September 30, 2018
$
17

 
 
Contract liabilities:
 
Balance at January 1, 2018
$
25

Additions
49

Transfers to operating revenues
(45
)
Balance at September 30, 2018
$
29

Remaining Performance Obligations
Remaining performance obligations (“RPOs”) represent revenues the Company expects to recognize in the future from contracts that are in progress. As of September 30, 2018, the Company’s operation and maintenance and capital improvement contracts in the Market-Based Businesses have RPOs. Contracts with the U.S. government for work on various military bases expire between 2051 and 2068 and have RPOs of $4.4 billion as of September 30, 2018, as measured by estimated remaining contract revenue. Such contracts are subject to customary termination provisions held by the U.S. government, prior to the agreed-upon contract expiration. Contracts with municipalities and commercial customers expire between 2018 and 2038 and have RPOs of $612 million as of September 30, 2018, as measured by estimated remaining contract revenue. Approximately $61 million of RPOs were eliminated in conjunction with the sale of 20 of the Company’s Contract Services Group’s contracts to subsidiaries of Veolia Environnement S.A. See Note 4—Acquisitions and Divestitures for further discussion of this transaction.
Note 4: Acquisitions and Divestitures
Regulated Acquisitions
During the nine months ended September 30, 2018, the Company closed on seven acquisitions of various regulated water and wastewater systems for a total aggregate purchase price of $18 million. Assets acquired in these acquisitions, principally utility plant, totaled $19 million. Liabilities assumed, primarily contributions in aid of construction, totaled $1 million.
Market-Based Businesses Acquisitions
Pivotal Home Solutions Acquisition
On June 4, 2018, the Company, through its subsidiary American Water Enterprises, LLC, completed the acquisition of Pivotal Home Solutions (“Pivotal”) for a total purchase price of $365 million, net of cash received and including $9 million in working capital. Pivotal is headquartered in Naperville, Illinois, and is a provider of home warranty protection products and services, operating in 18 states, with approximately 1.2 million customer contracts at the time of acquisition. Pivotal is complementary to the Company’s Homeowner Services Group product offerings, and enhances its presence in the home warranty solutions markets through utility partnerships. The results of Pivotal have been consolidated into the Homeowner Services Group non-reportable operating segment.
This acquisition was funded through the issuance of common stock, as described below, and from borrowings through the Company’s commercial paper program, which were subsequently refinanced with the issuance of long-term debt during the third quarter of 2018. This acquisition is being accounted for as a business combination which requires, among other things, the assets acquired and the liabilities assumed to be recognized at their fair values at the acquisition date. The purchase price allocation is based upon preliminary information and is subject to change upon the completion of formal valuations and other reviews and assessments, which will occur no later than one year after the acquisition date.

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The following table provides the preliminary purchase price allocation for the Pivotal acquisition as of June 4, 2018, and the adjustments that have been made through September 30, 2018:
 
June 4, 2018
(as initially reported)
 
Measurement Period Adjustments
 
June 4, 2018
(as adjusted)
Identifiable assets:
 
 
 
 
 
Accounts receivable
$
23

 
$
(1
)
 
$
22

Other current assets
1

 
1

 
2

Property, plant and equipment
21

 
1

 
22

Intangible assets
96

 
(4
)
 
92

Total identifiable assets
141

 
(3
)
 
138

Liabilities assumed:
 
 
 
 
 
Accounts payable and accrued liabilities
(5
)
 

 
(5
)
Other current liabilities
(14
)
 
2

 
(12
)
Long-term liabilities
(1
)
 

 
(1
)
Total liabilities assumed
(20
)
 
2

 
(18
)
Net identifiable assets acquired
121

 
(1
)
 
120

Goodwill
242

 
3

 
245

Net assets acquired
$
363

 
$
2

 
$
365

Customer relationships, which comprise the majority of the preliminary intangible assets balance, are amortized based on historical attrition rates over their estimated useful lives of up to 21 years, with a weighted average life of approximately six years, as the assets are expected to contribute to the cash flows of the Company. The remaining intangible assets are amortized over their expected benefit periods of up to six years, with a weighted average life of approximately three years. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized, and represents the expected revenue and cost synergies of the combined business and assembled workforce of Pivotal. The goodwill is included in the Company’s Homeowner Services Group reporting unit, within the Market-Based Businesses, and is deductible for income tax purposes.
Pivotal’s revenue and net income included in the Company’s Consolidated Statements of Operations for the three and nine months ended September 30, 2018, did not have a material impact on the overall consolidated results of operations of the Company.
Equity Forward Transaction and Common Stock Issuance
On April 11, 2018, the Company effected an equity forward transaction by entering into a forward sale agreement with each of two forward purchasers in connection with a public offering of 2,320,000 shares of the Company’s common stock. In the equity forward transaction, the forward purchasers, or an affiliate, borrowed an aggregate of 2,320,000 shares of the Company’s common stock from third parties and sold them to the underwriters in the public offering. On June 7, 2018, the Company elected to fully and physically settle both forward sale agreements, resulting in the issuance of a total of 2,320,000 shares of its common stock at a price of $79.01 per share, for aggregate net proceeds of $183 million. The net proceeds of the transaction were used to finance a portion of the purchase price of the Pivotal acquisition described above.
Highlighted Pending Acquisitions
On April 13, 2018, the Company’s Illinois subsidiary entered into an agreement to acquire the City of Alton, Illinois’ regional wastewater system for approximately $54 million. This system currently serves approximately 23,000 customer equivalents, comprised of approximately 11,000 direct connections in Alton and service to an additional 12,000 customers under bulk contracts in the nearby communities of Bethalto and Godfrey. The Company is expecting to close this acquisition by the end of the first quarter of 2019, pending regulatory approval.
On May 30, 2018, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the wastewater assets of Exeter Township, Pennsylvania for approximately $96 million. This system currently serves nearly 9,000 customers, and the Company is expecting to close this acquisition during the second quarter of 2019, pending regulatory approval.

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Table of Contents

Divestitures
On July 5, 2018, the Company entered into an agreement for the sale of the majority of its Contract Services Group to subsidiaries of Veolia Environnement S.A. for $27 million. The Company closed on the sale of 20 of the 22 contracts associated with this agreement during the third quarter of 2018, and expects to close on the remaining two contracts, subject to customer consents, by the end of 2018. As part of the sale, the Company recognized a pre-tax gain of $14 million for the three and nine months ended September 30, 2018.
Note 5: Regulatory Liabilities
Tax Cuts and Jobs Act
On December 22, 2017, the TCJA was signed into law, which, among other things, enacted significant and complex changes to the Internal Revenue Code of 1986, including a reduction in the federal corporate income tax rate from 35% to 21% as of January 1, 2018. During the nine months ended September 30, 2018, the Company’s 14 regulatory jurisdictions began to consider the impacts of the TCJA. The Company has adjusted customer rates to reflect the lower income tax rate in eight states. In one state, a portion of the tax savings is being used to offset additional capital investment and to reduce certain regulatory assets. One additional state is using a portion of the tax savings to reduce certain regulatory assets. Proceedings in the other five jurisdictions remain pending. With respect to excess accumulated deferred income taxes, regulators in five states have agreed with the Company’s overall timeline of passing the excess back to customers beginning no earlier than 2019, when the Company is able to produce the normalization schedule using the average rate assumption method. In one of those states we entered into a stipulated settlement that, if approved, would authorize the amortization of the re-measured deferred income taxes to offset future infrastructure investments.
The Company generally expects its regulated customers to benefit from the tax savings resulting from the TCJA. As a result, the Company has recorded a $55 million reserve on revenue during the nine months ended September 30, 2018, for the estimated tax savings resulting from the TCJA, with a corresponding regulatory liability, of which the current portion is $22 million (recorded in Other Current Liabilities), and the long-term portion is $33 million (recorded in regulatory liabilities). We cannot predict how each jurisdiction may calculate the amount of credits due to customers. If any of the Company’s regulatory jurisdictions determines the credits due to customers are higher than the expected reduction to income tax expense, this would result in an adverse impact to results of operations and cash flows.
Other Postretirement Benefit Plan Remeasurement
On August 31, 2018, the other postretirement benefit plan was remeasured to reflect an announced plan amendment which changed benefits for certain union and non-union plan participants. As a result of the remeasurement, the Company recorded a $227 million reduction to the net accumulated postretirement benefit obligation, with a corresponding regulatory liability. See Note 11—Pension and Other Post-Retirement Benefits for further discussion.
Note 6: Goodwill and Other Intangible Assets
The following table summarizes changes in the carrying amount of goodwill for the nine months ended September 30, 2018:
 
Regulated Businesses
 
Market-Based Businesses
 
Consolidated
 
Cost
 
Accumulated Impairment
 
Cost
 
Accumulated Impairment
 
Cost
 
Accumulated Impairment
 
Total Net
Balance as of December 31, 2017
$
3,492

 
$
(2,332
)
 
$
327

 
$
(108
)
 
$
3,819

 
$
(2,440
)
 
$
1,379

Goodwill from acquisitions

 

 
245

 

 
245

 

 
245

Goodwill impairment charge

 

 

 
(53
)
 

 
(53
)
 
(53
)
Balance as of September 30, 2018
$
3,492

 
$
(2,332
)
 
$
572

 
$
(161
)
 
$
4,064

 
$
(2,493
)
 
$
1,571

During the nine months ended September 30, 2018, the Company recorded goodwill of $245 million as part of the acquisition of Pivotal. Goodwill acquired from this acquisition was allocated to the Homeowner Services Group reporting unit, within the Market-Based Businesses. See Note 4—Acquisitions and Divestitures for further discussion.
The Company allocates goodwill at the reporting unit level and evaluates goodwill for impairment on an annual basis, as of November 30, or on an interim basis, if an event occurs or circumstances change that would more likely than not, reduce the fair value of a reporting unit below its carrying value. As a result of operational and financial challenges encountered in the construction business of Keystone Clearwater Solutions, LLC (“Keystone”), the Company substantially exited this business line during the third quarter of 2018. This action, along with the exit of the water trucking business line during the first half of 2018, narrowed the scope of the Keystone business going forward, focusing solely on providing water transfer services.

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Table of Contents

Based on the factors discussed above, the Company concluded there were indicators that the Keystone reporting unit may be impaired. Accordingly, impairment testing was performed as part of the preparation of the Company’s Consolidated Financial Statements, resulting in an aggregate, non-cash, pre-tax impairment charge of $57 million, of which, $54 million was attributable to the Company, after adjustment for noncontrolling interest.
In terms of the process followed for the impairment, the Company first completed an impairment test of the Keystone reporting unit’s customer relationship intangible asset at September 30, 2018. The results of this impairment test showed that the fair value of the intangible asset was lower than its carrying value, resulting in a non-cash, pre-tax impairment charge of $4 million, which is recorded in Impairment charge on the Consolidated Statement of Operations for the three and nine months ended September 30, 2018.
The Company then completed an interim goodwill impairment test for the Keystone reporting unit at September 30, 2018. The results of this impairment test showed the fair value of the Keystone reporting unit was lower than its carrying value, resulting in a non-cash, pre-tax impairment charge of $53 million, which is recorded in Impairment charge on the Consolidated Statement of Operations for the three and nine months ended September 30, 2018. The Company estimated the fair value of the Keystone reporting unit using an income approach valuation technique which estimates the amount and timing of future discounted cash flows from operations of the Keystone reporting unit, relying on multiple projected scenarios. Significant assumptions used in estimating the fair value included, but was not limited to, forecasts of future operating results, including revenue per well, well completions and gross profit margin; capital expenditures; tax rates; working capital; weighted average cost of capital; and long-term growth rates. See Note 14—Fair Value of Financial Assets and Liabilities for further discussion.
Note 7: Stockholders' Equity
Accumulated Other Comprehensive Loss
The following table presents changes in accumulated other comprehensive loss by component, net of tax, for the nine months ended September 30, 2018 and 2017, respectively:
 
Defined Benefit Plans
 
Foreign Currency Translation
 
Gain on Cash Flow Hedges
 
Accumulated Other Comprehensive Loss
 
Employee
Benefit Plan
Funded Status
 
Amortization
of Prior
Service Cost
 
Amortization
of Actuarial
(Gain) Loss
 
 
 
Beginning balance as of December 31, 2017
$
(140
)
 
$
1

 
$
49

 
$
1

 
$
10

 
$
(79
)
Other comprehensive income before reclassifications

 

 

 

 
13

 
13

Amounts reclassified from accumulated other comprehensive loss

 

 
6

 

 

 
6

Net other comprehensive income

 

 
6

 

 
13

 
19

Ending balance as of September 30, 2018
$
(140
)
 
$
1

 
$
55

 
$
1

 
$
23

 
$
(60
)
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance as of December 31, 2016
$
(147
)
 
$
1

 
$
42

 
$
2

 
$
16

 
$
(86
)
Other comprehensive loss before reclassifications

 

 

 
(1
)
 
(5
)
 
(6
)
Amounts reclassified from accumulated other comprehensive loss

 

 
5

 

 

 
5

Net other comprehensive income (loss)

 

 
5

 
(1
)
 
(5
)
 
(1
)
Ending balance as of September 30, 2017
$
(147
)
 
$
1

 
$
47

 
$
1

 
$
11

 
$
(87
)
The Company does not reclassify the amortization of defined benefit pension cost components from accumulated other comprehensive loss directly to net income in its entirety, as a portion of these costs have been capitalized as a regulatory asset. These accumulated other comprehensive income loss components are included in the computation of net periodic pension cost. See Note 11—Pension and Other Post-Retirement Benefits for further discussion.
The amortization of the gain on cash flow hedges is reclassified to net income during the period incurred and is included in interest, net in the accompanying Consolidated Statements of Operations.

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Table of Contents

Anti-dilutive Stock Repurchase Program
During the nine months ended September 30, 2018, the Company repurchased 0.6 million shares of common stock in the open market at an aggregate cost of $45 million under the anti-dilutive stock repurchase program authorized by the Company’s Board of Directors in 2015. As of September 30, 2018, there were 5.5 million shares of common stock available for repurchase under the program.
Equity Forward Transaction
See Note 4—Acquisitions and Divestitures for discussion relating to the forward sale agreements entered into by the Company on April 11, 2018, and the subsequent settlement of these agreements on June 7, 2018.
Note 8: Long-Term Debt
The following long-term debt was issued during the nine months ended September 30, 2018:
Company
 
Type
 
Rate
 
Maturity
 
Amount
American Water Capital Corp.
 
Senior Notes—fixed rate
 
3.75%-4.20%
 
2028-2048
 
$
1,325

American Water Capital Corp.
 
Private activity bonds and government funded debt—fixed rate (a)
 
0.00%-5.00%
 
2020-2048
 
30

Total issuances
 
 
 
 
 
 
 
$
1,355

(a)
Approximately $26 million of this debt relates to the New Jersey Environmental Infrastructure Financing Program.
The following long-term debt was retired through sinking fund provisions, optional redemptions or payment at maturity during the nine months ended September 30, 2018:
Company
 
Type
 
Rate
 
Maturity
 
Amount
American Water Capital Corp.
 
Senior Notes—fixed rate
 
5.62%-6.25%
 
2018-2022
 
$
310

American Water Capital Corp.
 
Private activity bonds and government funded debt—fixed rate
 
1.79%-2.90%
 
2021-2031
 
1

Other American Water subsidiaries
 
Private activity bonds and government funded debt—fixed rate
 
0.00%-5.40%
 
2018-2047
 
15

Other American Water subsidiaries
 
Mortgage bonds—fixed rate
 
9.13%
 
2021
 
1

Other American Water subsidiaries
 
Term Loan
 
4.83%-5.69%
 
2021
 
2

Other American Water subsidiaries
 
Mandatorily redeemable preferred stock
 
8.49%
 
2036
 
1

Total retirements and redemptions
 
 
 
 
 
 
 
$
330

On August 9, 2018, American Water Capital Corp. (“AWCC”) completed a $1.325 billion debt offering which included the sale of $625 million aggregate principal amount of its 3.75% Senior Notes due in 2028, and $700 million aggregate principal amount of its 4.20% Senior Notes due in 2048. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of approximately $1.3 billion. AWCC used proceeds from the offering to: (i) lend funds to American Water and its regulated operating subsidiaries; (ii) repay $191 million principal amount of AWCC’s 5.62% Senior Notes due 2018 upon maturity on December 21, 2018; (iii) prepay $100 million aggregate principal amount of AWCC’s outstanding 5.62% Series E Senior Notes due March 29, 2019 (the “Series E Notes”) and $100 million aggregate principal amount of AWCC’s outstanding 5.77% Series F Senior Notes due March 29, 2022 (the “Series F Notes”, and, together with the Series E Notes, the “Series Notes”); and (iv) repay AWCC’s commercial paper obligations and for general corporate purposes.
As a result of AWCC’s prepayment of the Series Notes, a make-whole premium of $10 million was paid to the holders thereof on September 11, 2018. Substantially all of the early debt extinguishment costs were allocable to the Company’s utility subsidiaries and recorded as regulatory assets, as the Company believes they are probable of recovery in future rates.
On August 6, 2018, the Company terminated four forward starting swap agreements with an aggregate notional amount of $400 million, realizing a net gain of $9 million, to be amortized through interest, net over 10 and 30 year periods, in correlation with the terms of the new debt issued on August 9, 2018.

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On August 17, 2018, the Company entered into two forward starting swap agreements, each with a notional amount of $80 million, to reduce interest rate exposure on debt expected to be issued in 2019. These forward starting swap agreements terminate in August 2019, and have an average fixed rate of 2.98%. On October 11, 2018, the Company entered into two additional forward starting swap agreements, each with a notional amount of $100 million, to reduce interest rate exposure on debt expected to be issued in 2019. These forward starting swap agreements terminate in December 2019, and have an average fixed rate of 3.31%. The Company has designated these forward starting swap agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. Upon termination, the cumulative gain or loss recorded in accumulated other comprehensive gain or loss will be amortized through interest, net over the term of the new debt.
The Company has employed interest rate swaps to fix the interest cost on a portion of its variable-rate debt with an aggregate notional amount of $5 million. The Company has designated these interest rate swaps as economic hedges, accounted for at fair value with gains or losses deferred as a regulatory asset or regulatory liability. The net gain recognized by the Company for the three and nine months ended September 30, 2018 and 2017 was de minimis.
No ineffectiveness was recognized on hedging instruments for the three and nine months ended September 30, 2018 and 2017.
The following table provides a summary of the gross fair value for the Company’s derivative assets and liabilities, as well as the location of the asset and liability balances on the Consolidated Balance Sheets:
Derivative Instruments
 
Derivative Designation
 
Balance Sheet Classification
 
September 30, 2018
 
December 31, 2017
Asset derivative:
 
 
 
 
 
 

 
 

Forward starting swaps
 
Cash flow hedge
 
Other current assets
 
$
5

 
$

Liability derivative:
 
 
 
 
 
 

 
 

Forward starting swaps
 
Cash flow hedge
 
Other current liabilities
 
$

 
$
3

Note 9: Short-Term Debt
On March 21, 2018, AWCC and certain lenders amended and restated the credit agreement with respect to AWCC’s revolving credit facility to increase the maximum commitments under the facility from $1.75 billion to $2.25 billion, and to extend the expiration date of the facility from June 2020 to March 2023. The facility is used principally to support AWCC’s commercial paper program and to provide a sub-limit of up to $150 million for letters of credit. Subject to satisfying certain conditions, the credit agreement also permits AWCC to increase the maximum commitment under the facility by up to an aggregate of $500 million, and to request extensions of its expiration date for up to two one-year periods. As of September 30, 2018, AWCC had no outstanding borrowings and $88 million of outstanding letters of credit under the revolving credit facility, with $2.16 billion available to fulfill our short-term liquidity needs and to issue letters of credit. The financial covenants with respect to the facility remained unchanged from the credit agreement in effect on December 31, 2017.
On March 21, 2018, AWCC increased the maximum aggregate principal amount of borrowings authorized for issuance under its commercial paper program from $1.60 billion to $2.10 billion. As of September 30, 2018, AWCC had $564 million in commercial paper outstanding. The weighted-average interest rate on AWCC short-term borrowings was approximately 2.39% and 1.38% for the three months ended September 30, 2018 and 2017 respectively, and approximately 2.22% and 1.19% for the nine months ended September 30, 2018 and 2017, respectively.
Note 10: Income Taxes
The Company’s effective income tax rate was 27.5% and 40.3% for the three months ended September 30, 2018 and 2017, respectively, and 26.6% and 39.9% for the nine months ended September 30, 2018 and 2017, respectively. The decrease in the Company’s effective income tax rate primarily resulted from the reduction in the federal corporate income tax rate from 35% to 21% as of January 1, 2018, from the enactment of the TCJA. There were no significant adjustments recorded during the nine months ended September 30, 2018 pursuant to Staff Accounting Bulletin 118.

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Note 11: Pension and Other Post-Retirement Benefits
The following table provides the components of net periodic benefit (credit) costs:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Components of net periodic pension benefit cost:
 
 
 
 
 
 
 
Service cost
$
8

 
$
8

 
$
25

 
$
25

Interest cost
19

 
20

 
57

 
60

Expected return on plan assets
(24
)
 
(23
)
 
(73
)
 
(70
)
Amortization of actuarial loss
6

 
9

 
20

 
27

Net periodic pension benefit cost
$
9

 
$
14

 
$
29

 
$
42

 
 
 
 
 
 
 
 
Components of net periodic other post-retirement benefit (credit) cost:
 
 
 
 
 
 
 
Service cost
$
2

 
$
3

 
$
7

 
$
8

Interest cost
5

 
7

 
16

 
20

Expected return on plan assets
(7
)
 
(7
)
 
(20
)
 
(20
)
Amortization of prior service credit
(7
)
 
(5
)
 
(16
)
 
(14
)
Amortization of actuarial loss
1

 
3

 
3

 
8

Net periodic other post-retirement benefit (credit) cost
$
(6
)
 
$
1

 
$
(10
)
 
$
2

The Company made a contribution of $11 million for the funding of its defined benefit pension plans for the three and nine months ended September 30, 2018, and made contributions of $11 million and $31 million for the three and nine months ended September 30, 2017, respectively. In addition, the Company made no contributions for the funding of its other post-retirement plans for the three and nine months ended September 30, 2018, and made contributions of $2 million and $5 million for the three and nine months ended September 30, 2017, respectively. The Company expects to make pension contributions to the plan trusts of up to $11 million during the remainder of 2018.
On August 31, 2018, the other postretirement benefit plan was remeasured to reflect an announced plan amendment which changed benefits for certain union and non-union plan participants. The remeasurement included a $175 million reduction in future benefits payable to plan participants, and resulted in a $227 million reduction to the net accumulated postretirement benefit obligation. The plan amendment will be amortized over 10.2 years, the average future working lifetime to full eligibility age for all plan participants. The following table provides the significant assumptions related to the Company’s other postretirement benefit plan:
 
September 30, 2018
 
December 31, 2017
Weighted-average assumptions used to determine benefit obligations:
 
 
 
Discount rate
4.23%
 
3.73%
Expected return on plan assets
4.77%
 
4.77%
Medical trend
graded from 7.00% in 2018 to 4.50% in 2026+
 
graded from 7.00% in 2018 to 4.50% in 2026+
Note 12: Commitments and Contingencies
Contingencies
The Company is routinely involved in legal actions incident to the normal conduct of its business. As of September 30, 2018, the Company has accrued approximately $55 million of probable loss contingencies and has estimated that the maximum amount of losses associated with reasonably possible loss contingencies that can be reasonably estimated is $25 million. For certain matters, claims and actions, the Company is unable to estimate possible losses. The Company believes that damages or settlements, if any, recovered by plaintiffs in such matters, claims or actions, other than as described in this Note 12—Commitments and Contingencies, will not have a material adverse effect on the Company.

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West Virginia Elk River Freedom Industries Chemical Spill
Global Class Action Litigation Settlement
On June 8, 2018, the U.S. District Court for the Southern District of West Virginia granted final approval of a settlement class and global class action settlement (the “Settlement”) for all claims and potential claims by all putative class members (collectively, the “Plaintiffs”) arising out of the January 2014 Freedom Industries, Inc. chemical spill in West Virginia. The effective date of the Settlement is July 16, 2018.
Under the terms and conditions of the Settlement, West Virginia-American Water Company (“WVAWC”) and certain other Company affiliated entities (collectively, the “American Water Defendants”) have not admitted, and will not admit, any fault or liability for any of the allegations made by the Plaintiffs in any of the actions that were resolved. Under federal class action rules, claimants had the right, until December 8, 2017, to elect to opt out of the final Settlement. Less than 100 of the 225,000 estimated putative class members opted out from the Settlement, and these claimants will not receive any benefit from or be bound by the terms of the Settlement.
In June 2018, the Company and its remaining non-participating general liability insurance carrier settled for a payment to the Company of $20 million, out of a maximum of $25 million in potential coverage under the terms of the relevant policy, in exchange for a full release by the American Water Defendants of all claims against the insurance carrier related to the Freedom Industries chemical spill.
As a result, the aggregate pre-tax amount to be contributed by WVAWC of the $126 million Settlement with respect to the Company, net of insurance recoveries, is $23 million. As of September 30, 2018, $40 million of the aggregate settlement amount of $126 million, reflecting payments made by the Company under the terms of the Settlement, is reflected in Accrued Liabilities, and the offsetting insurance receivables are reflected in Other Current Assets on the Consolidated Balance Sheet. The Company has funded WVAWC’s contributions to the Settlement through existing sources of liquidity.
Other Related Proceedings
On March 16, 2017, the Lincoln County (West Virginia) Commission (the “LCC”) passed a county ordinance entitled the “Lincoln County, WV Comprehensive Public Nuisance Investigation and Abatement Ordinance.” The ordinance establishes a mechanism that Lincoln County believes will allow it to pursue criminal or civil proceedings for the “public nuisance” it alleges was caused by the Freedom Industries chemical spill. On April 20, 2017, the LCC filed a civil complaint in Lincoln County circuit court against WVAWC and certain other defendants not affiliated with the Company, alleging that the Freedom Industries chemical spill caused a public nuisance in Lincoln County. The complaint seeks an injunction against WVAWC that would require the creation of various databases and public repositories of documents related to the Freedom Industries chemical spill, as well as further study and risk assessments regarding the alleged exposure of Lincoln County residents to the released chemicals. On June 12, 2017, the West Virginia Mass Litigation Panel entered an order granting a motion to transfer this case to its jurisdiction and stayed the case consistent with the existing stay order. The LCC has elected to opt out of the Settlement. On January 26, 2018, the LCC filed a motion seeking to lift the stay imposed by the Mass Litigation Panel. On March 5, 2018, this motion was denied. On July 31, 2018, WVAWC filed a motion to dismiss the LCC’s complaint. On September 21, 2018, the Mass Litigation Panel heard arguments on this motion. This motion remains pending. WVAWC believes that this lawsuit is without merit and intends to vigorously contest the claims and allegations raised in the complaint.
On September 28, 2018, the Mass Litigation Panel entered an order dismissing all of its pending cases except for two, one of which was the LCC’s complaint discussed above.
California Public Utilities Commission Residential Rate Design Proceeding
On July 12, 2018, the California Public Utilities Commission (the “CPUC”) adopted the April 9, 2018 presiding officer’s decision that resolved the CPUC’s residential tariff administration proceeding. The adoption provides for a waiver by California-American Water Company, a wholly owned subsidiary of the Company, of $0.5 million of cost recovery for residential customers through the water revenue adjustment mechanism/modified cost balancing account, in lieu of a penalty.
Dunbar, West Virginia Water Main Break Class Action Litigation
On the evening of June 23, 2015, a 36-inch pre-stressed concrete transmission water main, installed in the early 1970s, failed. The water main is part of WVAWC’s West Relay pumping station located in the City of Dunbar. The failure of the main caused water outages and low pressure to up to approximately 25,000 WVAWC customers. In the early morning hours of June 25, 2015, crews completed a repair, but that same day, the repair developed a leak. On June 26, 2015, a second repair was completed and service was restored that day to approximately 80% of the impacted customers, and to the remaining approximately 20% by the next morning. The second repair showed signs of leaking but the water main was usable until June 29, 2015 to allow tanks to refill. The system was reconfigured to maintain service to all but approximately 3,000 customers while a final repair was completed safely on June 30, 2015. Water service was fully restored by July 1, 2015 to all customers affected by this event.

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On June 2, 2017, a class action complaint was filed in West Virginia Circuit Court in Kanawha County against WVAWC on behalf of a purported class of residents and business owners who lost water service or pressure as a result of the Dunbar main break. The complaint alleges breach of contract by WVAWC for failure to supply water, violation of West Virginia law regarding the sufficiency of WVAWC’s facilities and negligence by WVAWC in the design, maintenance and operation of the water system. The plaintiffs seek unspecified alleged damages on behalf of the class for lost profits, annoyance and inconvenience, and loss of use, as well as punitive damages for willful, reckless and wanton behavior in not addressing the risk of pipe failure and a large outage.
On October 12, 2017, WVAWC filed with the court a motion seeking to dismiss all of the plaintiffs’ counts alleging statutory and common law tort claims. Furthermore, WVAWC asserted that the Public Service Commission of West Virginia, and not the court, has primary jurisdiction over allegations involving violations of the applicable tariff, the public utility code and related rules. On May 30, 2018, the court, at a hearing, denied WVAWC’s motion to apply the primary jurisdiction doctrine, and on October 11, 2018, the court issued a written order to that effect. The court will issue a written order on the motion to dismiss, and has set a trial date of August 26, 2019.
The Company and WVAWC believe that WVAWC has valid, meritorious defenses to the claims raised in this class action complaint. WVAWC is vigorously defending itself against these allegations. Given the current stage of this proceeding, the Company cannot reasonably estimate the amount of any reasonably possible losses or a range of such losses related to this proceeding.
Note 13: Earnings per Common Share
The following table is a reconciliation of the numerator and denominator for basic and diluted earnings per share (“EPS”) calculations:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
187

 
$
203

 
$
455

 
$
427

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Weighted-average common shares outstanding—Basic
181

 
178

 
179

 
178

Effect of dilutive common stock equivalents

 
1

 
1

 
1

Weighted-average common shares outstanding—Diluted
181

 
179

 
180

 
179

The effect of dilutive common stock equivalents is related to outstanding stock options, restricted stock units and performance stock units granted under the 2007 and 2017 Omnibus Equity Compensation Plans, as well as estimated shares to be purchased under the Company’s 2017 Nonqualified Employee Stock Purchase Plan. Less than one million share-based awards were excluded from the computation of diluted EPS for the three and nine months ended September 30, 2018 and 2017 because their effect would have been anti-dilutive under the treasury stock method.
Equity Forward Transaction and Common Stock Issuance
See Note 4—Acquisitions and Divestitures for discussion regarding the forward sale agreements entered into by the Company on April 11, 2018, and the physical settlement of these agreements on June 7, 2018.
Note 14: Fair Value of Financial Assets and Liabilities
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:
Current assets and current liabilities—The carrying amounts reported on the Consolidated Balance Sheets for current assets and current liabilities, including revolving credit debt, due to the short-term maturities and variable interest rates, approximate their fair values.

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Preferred stock with mandatory redemption requirements and long-term debt—The fair values of preferred stock with mandatory redemption requirements and long-term debt are categorized within the fair value hierarchy based on the inputs that are used to value each instrument. The fair value of long-term debt classified as Level 1 is calculated using quoted prices in active markets. Level 2 instruments are valued using observable inputs and Level 3 instruments are valued using observable and unobservable inputs. The fair values of instruments classified as Level 2 and Level 3 are determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market rates. As a majority of the Company’s debt is not traded in active markets, the Company calculated a base yield curve using a risk-free rate (a U.S. Treasury securities yield curve) plus a credit spread that is based on the following two factors: an average of the Company’s own publicly-traded debt securities and the current market rates for U.S. Utility A debt securities. The Company used these yield curve assumptions to derive a base yield for the Level 2 and Level 3 securities. Additionally, the Company adjusted the base yield for specific features of the debt securities, including call features, coupon tax treatment and collateral for the Level 3 instruments.
The following table presents the carrying amounts, including fair value adjustments previously recognized in acquisition purchase accounting and a fair value adjustment related to the Company’s interest rate swap fair value hedge (which is classified as Level 2 in the fair value hierarchy), and the fair values of the financial instruments:
 
Carrying Amount
 
At Fair Value as of September 30, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Preferred stock with mandatory redemption requirements
$
9

 
$

 
$

 
$
11

 
$
11

Long-term debt (excluding capital lease obligations)
7,831

 
5,798

 
624

 
1,703

 
8,125

 
 
 
 
 
 
 
 
 
 
 
Carrying Amount
 
At Fair Value as of December 31, 2017
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Preferred stock with mandatory redemption requirements
$
10

 
$

 
$

 
$
14

 
$
14

Long-term debt (excluding capital lease obligations)
6,809

 
4,846

 
976

 
1,821

 
7,643

Recurring Fair Value Measurements
The following table presents assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy as of September 30, 2018 and December 31, 2017, respectively:
 
At Fair Value as of September 30, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Restricted funds
$
31

 
$

 
$

 
$
31

Rabbi trust investments
16

 

 

 
16

Deposits
3

 

 

 
3

Mark-to-market derivative assets

 
5

 

 
5

Other investments
6

 

 

 
6

Total assets
56

 
5

 

 
61

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation obligations
18

 

 

 
18

Mark-to-market derivative liabilities

 

 
 
 

Total liabilities
18

 

 

 
18

Total net assets (liabilities)
$
38

 
$
5

 
$

 
$
43


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Table of Contents

 
At Fair Value as of December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Restricted funds
$
28

 
$

 
$

 
$
28

Rabbi trust investments
15

 

 

 
15

Deposits
4

 

 

 
4

Other investments
3

 

 

 
3

Total assets
50

 

 

 
50

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Deferred compensation obligations
17

 

 

 
17

Mark-to-market derivative liabilities

 
3

 

 
3

Total liabilities