UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September~~June 30, ~~2017~~2019



☐	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~~ 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~~1 Water Street, Camden, NJ08102-1658

(Address of principal executive offices) (Zip Code)

(856) 955-4001

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common stock, par value $0.01 per share	AWK	New York Stock Exchange

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, 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	☐
	~~(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		Shares Outstanding as of ~~October 26, 2017~~July 25, 2019
Common Stock, $0.01 par value per share		~~178,375,400 shares~~ ~~(excludes 4,064,010 treasury shares as of October 26, 2017)~~ 180,652,681

TABLE OF CONTENTS

~~AMERICAN WATER WORKS COMPANY, INC.~~

~~QUARTERLY REPORT ON FORM 10-Q~~

~~FOR THE QUARTER ENDED SEPTEMBER 30, 2017~~

~~INDEX~~



		Page
~~FORWARD LOOKING STATEMENTS~~Forward-Looking Statements		1
	Part I. Financial Information
Item 1.	~~PART I. FINANCIAL INFORMATION~~Consolidated Financial Statements	3
Item 2.
~~ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	324
~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~ Item 3.	23
~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	~~ITEM 4. CONTROLS AND PROCEDURES~~Controls and Procedures	38
	Part II. Other Information
Item 1.	~~PART II. OTHER INFORMATION~~Legal Proceedings	39
Item 1A.
~~ITEM 1. LEGAL PROCEEDINGS~~Risk Factors	3940
Item 2.	~~ITEM 1A. RISK FACTORS~~Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	42
~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~		42
~~ITEM 4. MINE SAFETY DISCLOSURES~~	42
~~ITEM 5. OTHER INFORMATION~~	42
~~ITEM 6. EXHIBITS~~Signatures	43

~~SIGNATURES~~	44

* * *

Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”), unless the context otherwise requires, references to “we”, “us”, “our”, the “Company” and “American Water” mean American Water Works Company, Inc. and all of its subsidiaries, taken together as a whole. References to “parent company” mean American Water Works Company, Inc., without its subsidiaries.

Table of Contents

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,~~things: our future financial performance, including our ~~adjusted~~ operation and maintenance (“O&M”) efficiency ~~ratio,~~ratio; our liquidity and future cash ~~flows,~~flows; our growth and portfolio optimization ~~strategies,~~strategies; our projected capital expenditures and related funding ~~requirements,~~requirements; our ability to repay ~~debt,~~debt; our projected strategy to finance current operations and growth ~~initiatives,~~initiatives; the outcome and impact of legal and similar governmental and regulatory proceedings and related potential fines, penalties and ~~penalties,~~other sanctions; business process, ~~and~~ technology improvement ~~initiatives,~~and other strategic initiatives; trends in our ~~industry,~~industry; regulatory, legislative, ~~political,~~ tax policy or legal ~~developments or~~developments; rate adjustments, including through general rate case filings, filings for infrastructure surcharges and filings to address regulatory ~~lag.~~lag; and impacts that the Tax Cuts and Jobs Act (the “TCJA”) may have on us and on 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 ~~change~~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 ~~government actions, including matters related to the Freedom Industries chemical spill in West Virginia~~governmental and ~~the preliminarily approved global class action settlement agreement related to this chemical spill;~~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~~and our technology ~~and IT~~ systems, including the disclosure of sensitive, personal or confidential information contained therein, through physical or cyber attacks or other ~~disruptions;~~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 ~~business~~regulated and market-based businesses, either individually or in the aggregate, and capitalize on growth opportunities, including our ability to, among other ~~things,~~ things:

acquire, close and successfully integrate ~~water and wastewater systems into our~~ regulated operations and market-based businesses;

enter into contracts and other agreements with, or otherwise obtain, new customers in our market-based businesses; and

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 ~~management solutions that are~~transfer business 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 ~~tax reform,~~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;~~

~~difficulty in obtaining,~~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 anour 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~~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 risks and uncertainties set forth above, and the risk factors and other statements contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 (“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.

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, 2017			December 31, 2016			June 30, 2019			December 31, 2018
ASSETS
Property, plant and equipment	$	20,946		$	19,954		$	23,355		$	23,204
Accumulated depreciation	(5,265		)	(4,962		)	(5,557		)	(5,795		)
Property, plant and equipment, net	15,681			14,992			17,798			17,409
Current assets:
Cash and cash equivalents	93			75			64			130
Restricted funds	28			20			22			28
Accounts receivable, net	312			269			337			301
Unbilled revenues	234			263			179			186
Materials and supplies	42			39			48			41
Other	151			118			91			95
Total current assets	860			784			741			781
Regulatory and other long-term assets:
Regulatory assets	1,374			1,289			1,180			1,156
Operating lease right-of-use assets							112			—
Goodwill	1,373			1,345			1,575			1,575
Intangible assets							78			84
Postretirement benefit assets							168			155
Other	73			72			202			63
Total regulatory and other long-term assets	2,820			2,706			3,315			3,033
TOTAL ASSETS	$	19,361		$	18,482
Total assets							$	21,854		$	21,223

The accompanying notes are an integral part of these ~~consolidated financial statements.~~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, 2017			December 31, 2016			June 30, 2019			December 31, 2018
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock ($0.01 par value, 500,000,000 shares authorized, 182,437,980 and 181,798,555 shares issued, respectively)	$	2		$	2
Common stock ($0.01 par value; 500,000,000 shares authorized; 185,742,324 and 185,367,158 shares issued, respectively)							$	2		$	2
Paid-in-capital	6,423			6,388			6,683			6,657
Accumulated deficit	(573		)	(873		)	(273		)	(464		)
Accumulated other comprehensive loss	(87		)	(86		)	(47		)	(34		)
Treasury stock, at cost (4,064,010 and 3,701,867 shares, respectively)	(247		)	(213		)
Total common stockholders' equity	5,518			5,218
Treasury stock, at cost (5,090,508 and 4,683,156 shares, respectively)							(338		)	(297		)
Total common shareholders' equity							6,027			5,864
Long-term debt	6,672			5,749			8,642			7,569
Redeemable preferred stock at redemption value	9			10			6			7
Total long-term debt	6,681			5,759			8,648			7,576
Total capitalization	12,199			10,977			14,675			13,440
Current liabilities:
Short-term debt	103			849			397			964
Current portion of long-term debt	687			574			25			71
Accounts payable	144			154			140			175
Accrued liabilities	498			609			429			556
Taxes accrued	61			31
Interest accrued	103			63
Accrued taxes							61			45
Accrued interest							88			87
Other	151			112			177			196
Total current liabilities	1,747			2,392			1,317			2,094
Regulatory and other long-term liabilities:
Advances for construction	279			300			245			252
Deferred income taxes, net	2,862			2,596
Deferred investment tax credits	23			23
Deferred income taxes and investment tax credits							1,823			1,740
Regulatory liabilities	408			403			1,886			1,907
Accrued pension expense	421			419
Accrued postretirement benefit expense	84			87
Operating lease liabilities							97			—
Accrued pension liabilities							398			390
Other	74			67			76			78
Total regulatory and other long-term liabilities	4,151			3,895			4,525			4,367
Contributions in aid of construction	1,264			1,218			1,337			1,322
Commitments and contingencies (see Note 9)
TOTAL CAPITALIZATION AND LIABILITIES	$	19,361		$	18,482
Commitments and contingencies (See Note 9)
Total capitalization and liabilities							$	21,854		$	21,223

The accompanying notes are an integral part of these ~~consolidated financial statements.~~Consolidated Financial Statements.

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,
	2019			2018			2019			2018
Operating revenues	$	882		$	853		$	1,695		$	1,614
Operating expenses:
Operation and maintenance	372			348			737			695
Depreciation and amortization	142			134			286			263
General taxes	72			69			141			139
(Gain) on asset dispositions and purchases	(6		)	—			(9		)	(2		)
Total operating expenses, net	580			551			1,155			1,095
Operating income	302			302			540			519
Other income (expense):
Interest, net	(94		)	(86		)	(187		)	(170		)
Non-operating benefit costs, net	4			2			8			5
Other, net	15			4			18			8
Total other income (expense)	(75		)	(80		)	(161		)	(157		)
Income before income taxes	227			222			379			362
Provision for income taxes	57			60			96			94
Net income attributable to common shareholders	$	170		$	162		$	283		$	268

Basic earnings per share: (a)
Net income attributable to common shareholders	$	0.94		$	0.90		$	1.56		$	1.50
Diluted earnings per share:
Net income attributable to common shareholders	$	0.94		$	0.91		$	1.56		$	1.50
Weighted-average common shares outstanding:
Basic	181			179			181			179
Diluted	181			179			181			179

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Operating revenues $ 936
$ 930
$ 2,536
$ 2,500
Operating expenses:
Operation and maintenance 324
432
1,010
1,131
Depreciation and amortization 128
119
378
350
General taxes 61
65
192
195
Gain on asset dispositions and purchases (7 ) (5 ) (9 ) (8 )
Total operating expenses, net 506
611
1,571
1,668
Operating income 430
319
965
832
Other income (expense):
Interest, net (89 ) (81 ) (259 ) (242 )
Loss on early extinguishment of debt (6 ) —
(6 ) —
Other, net 5
5
11
14
Total other income (expense) (90 ) (76 ) (254 ) (228 )
Income before income taxes 340
243
711
604
Provision for income taxes 137
95
284
237
Net income attributable to common stockholders $ 203
$ 148
$ 427
$ 367

Basic earnings per share: (a)

Net income attributable to common stockholders $ 1.14
$ 0.83
$ 2.39
$ 2.06
Diluted earnings per share:
Net income attributable to common stockholders $ 1.13
$ 0.83
$ 2.39
$ 2.05
Weighted-average common shares outstanding:
Basic 178
178
178
178
Diluted 179
178
179
179
Dividends declared per common share $ 0.415
$ 0.375
$ 0.83
$ 0.75


(a)	Amounts may not calculate due to rounding.

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

Consolidated Financial Statements.

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Comprehensive Income ~~(Loss)~~ (Unaudited)

(In millions)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Net income attributable to common stockholders $ 203
$ 148
$ 427
$ 367
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 $3 for the nine months ended September 30, 2017 and 2016, respectively 1
1
5
4
Foreign currency translation adjustment —
—
(1 ) —
Unrealized loss on cash flow hedges, net of tax of $(3) and $(3) for the three months and $(4) and $(10) for the nine months ended September 30, 2017 and 2016, respectively (3 ) (4 ) (5 ) (15 )
Net other comprehensive income (loss) (2 ) (3 ) (1 ) (11 )
Comprehensive income (loss) attributable to common stockholders $ 201
$ 145
$ 426
$ 356



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019			2018		2019			2018
Net income attributable to common shareholders	$	170		$	162	$	283		$	268
Other comprehensive income (loss), net of tax:
Defined benefit pension plans:
Amortization of actuarial loss, net of tax of $1 and $2 for the three months ended June 30, 2019 and 2018, respectively, and $1 for the six months ended June 30, 2019 and 2018	—			6		1			4
Foreign currency translation adjustment	(1		)	—		(1		)	—
Unrealized gain (loss) on cash flow hedges, net of tax of $1 and $0 for the three months ended June 30, 2019 and 2018, respectively, and $(5) and $2 for the six months ended June 30, 2019 and 2018, respectively	1			—		(13		)	6
Net other comprehensive income (loss)	—			6		(13		)	10
Comprehensive income attributable to common shareholders	$	170		$	168	$	270		$	278

The accompanying notes are an integral part of these ~~consolidated financial statements.~~Consolidated Financial Statements.

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

(In millions)


	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
	2017			2016			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	427		$	367		$	283		$	268
Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization	378			350			286			263
Deferred income taxes and amortization of investment tax credits	264			243			85			82
Provision for losses on accounts receivable	21			18			10			12
Gain on asset dispositions and purchases	(9		)	(8		)	(9		)	(2		)
Pension and non-pension postretirement benefits	44			43			9			16
Other non-cash, net	(39		)	(48		)	(46		)	(2		)
Changes in assets and liabilities:
Receivables and unbilled revenues	(34		)	(83		)	(40		)	(41		)
Pension and non-pension postretirement benefit contributions	(36		)	(42		)
Pension and postretirement benefit contributions							(14		)	—
Accounts payable and accrued liabilities	(22		)	184			(47		)	(54		)
Other assets and liabilities, net	(8		)	(79		)	(37		)	(17		)
Net cash provided by operating activities	986			945			480			525
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(964		)	(928		)	(712		)	(739		)
Acquisitions	(10		)	(29		)
Proceeds from sale of assets and securities	9			5
Acquisitions, net of cash acquired							(80		)	(377		)
Proceeds from sale of assets							16			7
Removal costs from property, plant and equipment retirements, net	(51		)	(62		)	(41		)	(40		)
Net funds restricted	(5		)	—
Net cash used in investing activities	(1,021		)	(1,014		)	(817		)	(1,149		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	1,382			2			1,184			15
Repayments of long-term debt	(334		)	(20		)	(146		)	(119		)
Net short-term borrowings with maturities less than three months	(746		)	322			(568		)	746
Proceeds from issuances of employee stock plans and DRIP	21			22
Advances and contributions for construction, net of refunds of $16 and $17, respectively	23			16
Proceeds from issuance of common stock							—			183
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $9 and $6 for the six months ended June 30, 2019 and 2018, respectively							6			6
Advances and contributions for construction, net of refunds of $17 and $16 for the six months ended June 30, 2019 and 2018, respectively							9			7
Debt issuance costs	(13		)	(1		)	(11		)	—
Dividends paid	(215		)	(194		)	(173		)	(155		)
Anti-dilutive stock repurchase	(54		)	(65		)
Taxes paid related to employee stock plans	(11		)	(12		)
Anti-dilutive share repurchases							(36		)	(45		)
Net cash provided by financing activities	53			70			265			638
Net increase in cash and cash equivalents	18			1
Cash and cash equivalents as of beginning of period	75			45
Cash and cash equivalents as of end of period	$	93		$	46
Net (decrease) increase in cash, cash equivalents and restricted funds							(72		)	14
Cash, cash equivalents and restricted funds at beginning of period							159			83
Cash, cash equivalents and restricted funds at end of period							$	87		$	97
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of end of period	$	175		$	182
Acquisition financed by treasury stock	$	33		$	—
Capital expenditures acquired on account but unpaid as of the end of period							$	194		$	180

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

Consolidated Financial Statements.

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Changes in ~~Stockholders’~~Shareholders’ Equity (Unaudited)

(In millions)


	Common Stock			Paid-in-Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss				Treasury Stock							Total Stockholders' Equity			Common Stock					Paid-in-Capital			Accumulated Deficit				Accumulated Other Comprehensive Loss				Treasury Stock							Total Shareholders' Equity
	Shares	Par Value				Shares				Accumulated Other Comprehensive Loss			At Cost				Shares			Par Value								Shares	Paid-in-Capital		At Cost					Accumulated Other Comprehensive Loss											Total Shareholders' Equity
Balance as of December 31, 2016	181.8	$	2	Paid-in-Capital		$	Accumulated Deficit	6,388		$	(873	)		$	(86	)		(3.7	)		Total Stockholders' Equity		$	(213	)		$	5,218
Balance as of December 31, 2018																								185.4			$	2	$	6,657		Accumulated Deficit		$	(464	)		$	(34	)		(4.7	)		$	(297	)		$	5,864
Cumulative effect of change in accounting principle	—	—		—			21			—				—			—				21			—			—		—			(2		)		—				—			—				(2		)
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

	Common Stock									Accumulated Other Comprehensive Loss				Treasury Stock							Total Stockholders' Equity
	Shares	Par Value		Paid-in-Capital			Accumulated Deficit						Shares			At Cost
Balance as of December 31, 2015	180.9	$	2	$	6,351		$	(1,073	)	Accumulated Other Comprehensive Loss	$	(88	)		(2.6	)		$	(143	)	Total Stockholders' Equity				$	5,049
Net income attributable to common stockholders	—	—		—			367			—				—			—				367
Net income attributable to common shareholders																								—			—		—			113				—				—			—				113
Direct stock reinvestment and purchase plan	—	—		4			—			—				—			—				4			—			—		1			—				—				—			—				1
Employee stock purchase plan	—	—		5			—			—				—			—				5			—			—		2			—				—				—			—				2
Stock-based compensation activity	0.8	—		28			—			—				(0.1	)		(6		)		22			0.2			—		8			—				—				(0.1	)		(5		)		3
Repurchases of common stock	—	—		—			—			—				(1.0	)		(65		)		(65		)	—			—		—			—				—				(0.3	)		(36		)		(36		)
Net other comprehensive loss	—	—		—			—			(11		)		—			—				(11		)	—			—		—			—				(13		)		—			—				(13		)
Dividends	—	—		—			(133		)	—				—			—				(133		)
Balance as of September 30, 2016	181.7	$	2	$	6,388		$	(839	)	$	(99	)		(3.7	)		$	(214	)		$	5,238
Balance as of March 31, 2019																								185.6			$	2	$	6,668		$	(353	)		$	(47	)		(5.1	)		$	(338	)		$	5,932
Net income attributable to common shareholders																								—			—		—			170				—				—			—				170
Direct stock reinvestment and purchase plan																								—			—		2			—				—				—			—				2
Employee stock purchase plan																								—			—		3			—				—				—			—				3
Stock-based compensation activity																								0.1			—		10			—				—				—			—				10
Dividends ($0.50 declared per common share)																								—			—		—			(90		)		—				—			—				(90		)
Balance as of June 30, 2019																								185.7			$	2	$	6,683		$	(273	)		$	(47	)		(5.1	)		$	(338	)		$	6,027

																								Common Stock					Paid-in-Capital			Accumulated Deficit				Accumulated Other Comprehensive Loss				Treasury Stock							Total Shareholders' Equity
																								Shares			Par Value				Shares					Accumulated Other Comprehensive Loss			At Cost								Total Shareholders' Equity
Balance as of December 31, 2017																								182.5			$	2	Paid-in-Capital		$	Accumulated Deficit	6,432			$	(723	)		$	(79	)		(4.1	)		$	(247	)		$	5,385
Net income attributable to common shareholders																								—			—		—			106				—				—			—				106
Direct stock reinvestment and purchase plan																								—			—		1			—				—				—			—				1
Employee stock purchase plan																								—			—		1			—				—				—			—				1
Stock-based compensation activity																								0.2			—		4			—				—				(0.1	)		(5		)		(1		)
Repurchases of common stock																								—			—		—			—				—				(0.5	)		(45		)		(45		)
Net other comprehensive income																								—			—		—			—				4				—			—				4
Balance as of March 31, 2018																								182.7			$	2	$	6,438		$	(617	)		$	(75	)		(4.7	)		$	(297	)		$	5,451
Net income attributable to common shareholders																								—			—		—			162				—				—			—				162
Direct stock reinvestment and purchase plan																								0.1			—		3			—				—				—			—				3
Employee stock purchase plan																								0.1			—		3			—				—				—			—				3
Stock-based compensation activity																								—			—		10			(1		)		—				—			—				9
Issuance of common stock																								2.3			—		183			—				—				—			—				183
Net other comprehensive income																								—			—		—			—				6				—			—				6
Dividends ($0.455 declared per common share)																								—			—		—			(81		)		—				—			—				(81		)
Balance as of June 30, 2018																								185.2			$	2	$	6,637		$	(537	)		$	(69	)		(4.7	)		$	(297	)		$	5,736

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

Consolidated Financial Statements.

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~~Consolidated Financial Statements included in this report include the accounts of American Water Works Company, Inc. and all of its subsidiaries ~~(collectively,~~(the “Company” or “American Water” ~~or the “Company”~~), in which a controlling interest is maintained after the elimination of intercompany ~~accounts~~balances and transactions. The ~~financial statements~~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.~~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~~June 30, ~~2017~~2019, 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 ~~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~~Financial Statements and ~~notes~~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~~2018 (“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 ~~primarily~~ to the seasonality of the Company’s operations.

Note 2: Significant Accounting Policies

New Accounting Standards

~~The~~Presented in the table below are new accounting standards that were adopted by the Company ~~adopted the following accounting standard on January 1, 2017:~~in 2019:



Standard	Description	Date of Adoption	Application	Effect on the Consolidated Financial Statements ~~(or Other Significant Matters)~~
~~Simplification of Employee Share-Based Payment~~ Accounting for Leases	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 cumulative effect of adoption increased retained earnings by $21, with an offsetting decrease to deferred income taxes, net. Adoption also increased cash flows from operating activities and decreased cash flows from financing activities by $17 and $20 for the nine months ended September 30, 2017 and 2016, respectively, on the Consolidated Statements of Cash Flows.

~~The following recently issued accounting standards are not yet required to be adopted by the Company as of September 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 has substantially completed its evaluation and does not expect a material change. The Company continues to monitor for new interpretative guidance, which could impact the current evaluation. The Company plans to adopt 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 will reclassify a $34 make-whole premium payment from operating activities to financing activities on its Consolidated Statements of Cash Flows upon adoption. See Note 6: Long-Term Debt in the Notes to Consolidated Financial Statements for further information regarding this make-whole premium payment.
~~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 acquisitions that close 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 does not expect the adoption to have a material impact on its consolidated financial statements. The Company plans to adopt using the modified retrospective method.~~
~~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 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; early adoption permitted~~	~~Retrospective for the presentation of net periodic benefit cost components in the income statement; prospective for the capitalization of net periodic benefit costs components in total assets~~	The Company will reclassify net periodic benefit cost components, other than the service cost component, to other, net in the Consolidated Statements of Operations. The Company will continue to capitalize and will record net periodic benefit costs probable of recovery from customers as a regulatory asset or liability, other than the service cost components.
~~Accounting for Leases~~	Updated the accounting and disclosure guidance for leasing arrangements. Under this guidance, a lessee ~~will be~~is 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~~A package of optional transition practical expedients allows an entity not to reassess under the ~~guidance, lessor accounting is largely unchanged.~~ new guidance: (i) whether any expired or existing contracts as of the adoption date 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 expired or existing land easements as of the adoption date 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~~ 2019	Modified retrospective	~~The Company is evaluating the effect on its consolidated financial statements.~~

See Note 12—Leases.

~~Standard~~	~~Description~~	~~Date of~~ ~~Adoption~~	~~Permitted Application~~	~~Estimated Effect on the Consolidated Financial Statements~~ ~~(or Other Significant Matters)~~
Targeted Improvements to Accounting for Hedging Activities	Updated the accounting and disclosure guidance for hedging activities, ~~which allows~~allowing 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~~ 2019	Modified retrospective for adjustments related to the measurement of ineffectiveness for cash flow hedges; prospective for the updated presentation and disclosure ~~requirements~~ requirements.	The ~~Company does~~adoption did not ~~expect the adoption to~~ have a material impact on ~~its consolidated financial statements~~the Consolidated Financial Statements.
Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes	Designated the OIS rate based on ~~the hedges held~~SOFR as ~~of the balance sheet date. The Company is evaluating the timing of adoption.~~
~~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~~eligible U.S. benchmark interest rate 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~~purposes 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.~~applying hedge accounting.	January 1, ~~2020; early adoption permitted~~2019	Prospective	The ~~Company is evaluating the~~adoption did not have a material impact on ~~its consolidated financial statements, as well as~~ the ~~timing of adoption.~~Consolidated Financial Statements.

Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of June 30, 2019:



Standard	Description	Date of Adoption	Application	Estimated Effect on the Consolidated Financial Statements
Measurement of Credit Losses on Financial Instruments	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,~~the Consolidated Financial Statements.
Changes to the 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 ~~timing~~range and weighted average of ~~adoption.~~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 standard will not have a material impact on the Consolidated Financial Statements.

Cash, Cash Equivalents and Restricted Funds

Presented in the table below is a reconciliation of the cash and cash equivalents and restricted funds amounts 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 June 30:



	2019		2018
Cash and cash equivalents	$	64	$	68
Restricted funds	22		27
Restricted funds included in other long-term assets	1		2
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows	$	87	$	97

Reclassifications

Certain reclassifications have been made to prior periods in the Consolidated Financial Statements and Notes to conform to the current presentation.

Note 3: Revenue Recognition

Disaggregated Revenues

The Company’s primary business involves the ownership of regulated utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as the Company’s “Regulated Businesses.” The Company also operates market-based businesses that provide a broad range of related and complementary water, wastewater and other services to residential and smaller commercial customers, the U.S. government on military installations and shale natural gas exploration and production companies, as well as municipalities, utilities and industrial customers, collectively presented as the Company’s “Market-Based Businesses.”

Presented in the table below are operating revenues disaggregated for the three months ended June 30, 2019:



	Revenues from Contracts with Customers			Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:
Water services:
Residential	$	415		$	—	$	415
Commercial	153			—		153
Fire service	35			—		35
Industrial	34			—		34
Public and other	51			—		51
Total water services	688			—		688
Wastewater services:
Residential	28			—		28
Commercial	7			—		7
Public and other	5			—		5
Total wastewater services	40			—		40
Miscellaneous utility charges	8			—		8
Alternative revenue programs	—			17		17
Lease contract revenue	—			2		2
Total Regulated Businesses	736			19		755
Market-Based Businesses	132			—		132
Other	(5		)	—		(5		)
Total operating revenues	$	863		$	19	$	882


(a)	Includes revenues associated with alternative revenue programs, lease contracts and intercompany rent, which are outside the scope of Accounting Standards Codification Topic 606, Revenue From Contracts With Customers (“ASC 606”),and accounted for under other existing GAAP.

Presented in the table below are operating revenues disaggregated for the six months ended June 30, 2019:



	Revenues from Contracts with Customers			Other Revenues Not from Contracts with Customers (a)			Total Operating Revenues
Regulated Businesses:
Water services:
Residential	$	793		$	—		$	793
Commercial	289			—			289
Fire service	69			—			69
Industrial	66			—			66
Public and other	96			—			96
Total water services	1,313			—			1,313
Wastewater services:
Residential	57			—			57
Commercial	14			—			14
Industrial	1			—			1
Public and other	8			—			8
Total wastewater services	80			—			80
Miscellaneous utility charges	18			—			18
Alternative revenue programs	—			24			24
Lease contract revenue	—			5			5
Total Regulated Businesses	1,411			29			1,440
Market-Based Businesses	266			—			266
Other	(10		)	(1		)	(11		)
Total operating revenues	$	1,667		$	28		$	1,695


(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 June 30, 2019.

Presented in the table below are the changes in contract assets and liabilities for the six months ended June 30, 2019:



	Amount
Contract assets:
Balance as of January 1, 2019	$	14
Additions	11
Transfers to accounts receivable, net	(18		)
Balance as of June 30, 2019	$	7

Contract liabilities:
Balance as of January 1, 2019	$	20
Additions	36
Transfers to operating revenues	(28		)
Balance as of June 30, 2019	$	28

Remaining Performance Obligations

Remaining performance obligations (“RPOs”) represent revenues the Company expects to recognize in the future from contracts that are in progress. The Company enters into agreements for the provision of services to water and wastewater facilities for the U.S. military, municipalities and other customers. As of June 30, 2019, 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 installations expire between 2051 and 2069 and have RPOs of $4.4 billion as of June 30, 2019, 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 2020 and 2038 and have RPOs of $571 million as of June 30, 2019, as measured by estimated remaining contract revenue.

Note 4: Acquisitions

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, the Company closed on ~~14 acquisitions~~the acquisition of ~~various~~nine regulated water and wastewater systems for a total aggregate purchase price of ~~$43. Included in this total was~~$80 million, including the ~~Company’s~~ acquisition of ~~all~~ the ~~outstanding capital stock~~City of ~~the Shorelands Water Company, Inc.~~Alton, Illinois’ regional wastewater system on ~~April 3, 2017,~~June 27, 2019 for ~~total consideration of $33, in the form of approximately 0.4 shares of the Company’s common stock.~~$55 million. Assets acquired ~~in the aforementioned~~from these acquisitions, principally utility plant, totaled ~~$40. Liabilities~~$81 million, and liabilities assumed totaled ~~$23, including $10 of contributions in aid of construction and assumed debt of $7. The~~$1 million. These acquisitions were predominately accounted for as business combinations, as the Company recorded additional goodwill of $28 associated with three of the acquisitions, which is reported in the Company’s Regulated Businesses segment, and recognized a bargain purchase gain of $2 associated with one of thecontinues to grow its business through regulated acquisitions. The preliminary purchase price allocations related to ~~these~~ acquisitions accounted for as business combinations will be finalized once the valuation of assets acquired has been completed, no later than one year after their acquisition date.

During the first quarter of 2017, the Company made a non-escrowed deposit of $2 related to the asset purchase agreement to acquire substantially all of the wastewater collection and treatment system assets of the Municipal Authority of the City of McKeesport, Pennsylvania for approximately $159. On October 26, 2017, a joint petition for settlement of this acquisition was approved by the Pennsylvania Public Utility Commission. The closing of this acquisition is subject to the satisfaction of various conditions and covenants. The Company expects to close this acquisition by the end of 2017.

Note ~~4: Stockholders’~~5: Shareholders' Equity

Accumulated Other Comprehensive Loss

~~The following~~Presented in the table ~~presents~~below are the changes in accumulated other comprehensive loss by component, net of tax, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively:



	Defined Benefit Pension Plans							Foreign Currency Translation			Gain (Loss) on Cash Flow Hedges			Accumulated Other Comprehensive Loss
	Funded Status			Amortization of Prior Service Cost		Amortization of Actuarial Loss		Foreign Currency Translation			Gain (Loss) on Cash Flow Hedges			Accumulated Other Comprehensive Loss
Balance as of December 31, 2018	$	(102	)	$	1	$	56	$	1		$	10		$	(34	)
Other comprehensive loss before reclassifications	—			—		—		—			(13		)	(13		)
Amounts reclassified from accumulated other comprehensive loss	—			—		1		(1		)	—			—
Net other comprehensive income (loss)	—			—		1		(1		)	(13		)	(13		)
Balance as of June 30, 2019	$	(102	)	$	1	$	57	$	—		$	(3	)	$	(47	)

Balance as of December 31, 2017	$	(140	)	$	1	$	49	$	1		$	10		$	(79	)
Other comprehensive income before reclassifications	—			—		—		—			6			6
Amounts reclassified from accumulated other comprehensive loss	—			—		4		—			—			4
Net other comprehensive income	—			—		4		—			6			10
Balance as of June 30, 2018	$	(140	)	$	1	$	53	$	1		$	16		$	(69	)

Defined Benefit Plans Foreign Currency Translation Gain (Loss) on Cash Flow Hedges Accumulated Other Comprehensive Loss
Employee
Benefit Plan
Funded Status Amortization
of Prior
Service Cost Amortization
of Actuarial
Loss
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 )

Beginning balance as of December 31, 2015 $ (126 ) $ 1
$ 36
$ 2
$ (1 ) $ (88 )
Other comprehensive loss before reclassifications —
—
—
—
(15 ) (15 )
Amounts reclassified from accumulated other comprehensive loss —
—
4
—
—
4
Net other comprehensive income (loss) —
—
4
—
(15 ) (11 )
Ending balance as of September 30, 2016 $ (126 ) $ 1
$ 40
$ 2
$ (16 ) $ (99 )

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~~has 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 8— Pension~~

During the second quarter of 2019, the Company substantially exited its foreign operations in Canada due to a contract expiration in its Contract Services Group. As a result, the Company recognized a pre-tax gain of $1 million from cumulative foreign currency translation, and ~~Other Postretirement Benefits.~~a corresponding change of accumulated other comprehensive loss.

The amortization of the ~~loss~~gain (loss) 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.

~~Anti-dilutive~~Anti-Dilutive Stock Repurchase Program

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, the Company repurchased ~~0.7~~0.4 million shares of its common stock in the open market at an aggregate cost of ~~$54~~$36 million under the anti-dilutive stock repurchase program authorized by the Company’s Board of Directors in 2015. As of ~~September~~June 30, ~~2017,~~2019, there were ~~6.1~~5.1 million shares of common stock available for repurchase under the program.

~~Note 5: Stock Based Compensation~~Dividends

On June 4, 2019, the Company paid a cash dividend of $0.50 per share to shareholders of record as of May ~~12, 2017,~~13, 2019.

On July 26, 2019, the Company’s ~~stockholders approved~~Board of Directors declared a quarterly cash dividend payment of $0.50 per share, payable on September 4, 2019 to shareholders of record as of August 9, 2019. Future dividends, when and as declared at the American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan (the “2017 Omnibus Plan”). A total of 7.2 shares of common stock may be issued under the 2017 Omnibus Plan. The 2017 Omnibus Plan provides that grants of awards may be in anydiscretion of the ~~following forms: incentive stock options, nonqualified stock options, stock appreciation rights, stock units, stock awards,~~Board of Directors, will be dependent upon future earnings and cash flows, compliance with various regulatory, financial and legal requirements, and other ~~stock-based awards and dividend equivalents, which may be granted only~~factors. See Note 9—Shareholders' Equity in the Notes to Consolidated Financial Statements in the Company’s Form 10-K for additional information regarding the payment of dividends on ~~stock units or other stock-based awards.~~

the Company’s common stock.

Note 6: Long-Term Debt

~~The following~~Presented in the table below are issuances of long-term debt ~~was issued~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2019:


Company	Type	Rate	Maturity	Amount		Type	Rate	Maturity	Amount
American Water Capital Corp. ~~(a)~~	Senior Notes	2.95%-3.75%	2027-2047	$	1,350	Senior Notes—fixed rate	3.45%-4.15%	2029-2049	$	1,100
Other American Water subsidiaries	Private activity bonds and government funded debt—fixed rate	0.00%-3.92%	2020-2036	21
American Water Capital Corp.						Private activity bonds and government funded debt—fixed rate (a)	0.00%-5.00%	2021-2047	4
Other American Water subsidiaries	Term Loan	4.48%-4.98%	2021	11		Private activity bonds and government funded debt—fixed rate	3.00%	2039	80
Total issuances				$	1,382				$	1,184


(a)	~~American Water Capital Corp. (“AWCC”), which is a wholly owned subsidiary of~~This debt relates to the Company, has a support agreement with the Company that, under certain circumstances, is the functional equivalent of a parent company guarantee. This indebtedness is considered “debt” for purposes of this support agreement.New Jersey Environmental Infrastructure Financing Program.

~~The following~~Presented in the table below are retirements and redemptions of long-term debt ~~was retired~~ through sinking fund provisions, optional redemptions or payment at maturity, during the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2019:


Company	Type	Rate	Maturity	Amount		Type	Rate	Maturity	Amount
American Water Capital Corp.	Senior Notes	5.62%-5.77%	2018-2021	$	319	Senior Notes—fixed rate	7.21%	2019	$	25
American Water Capital Corp.	Private activity bonds and government funded debt—fixed rate	1.79%-2.90%	2021-2031	1		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%-5.38%	2017-2041	12		Private activity bonds and government funded debt—fixed rate	0.00%-6.20%	2019-2048	85
Other American Water subsidiaries	Term Loan	4.48%-4.98%	2021	1		Mortgage bonds—fixed rate	5.48%-9.13%	2019-2021	28
Other American Water subsidiaries	Mandatorily redeemable preferred stock	8.49%	2036	1		Mandatorily redeemable preferred stock	8.49%	2036	1
Other American Water subsidiaries						Term loan	5.76%-5.81%	2021	6
Total retirements and redemptions				$	334				$	146

On ~~August 10, 2017, AWCC~~May 13, 2019, American Water Capital Corp. (“AWCC”) completed a ~~$1,350~~$1.10 billion debt offering which included the sale of ~~$600~~$550 million aggregate principal amount of its ~~2.95%~~3.45% Senior Notes due ~~in 2027~~2029 and ~~$750~~$550 million aggregate principal amount of its ~~3.75%~~4.15% Senior Notes due ~~in 2047.~~2049. At the closing of the offering, AWCC received, after deduction of underwriting discounts and ~~debt issuance costs, $1,333. On September 13, 2017,~~before deduction of offering expenses, net proceeds of approximately $1.09 billion. AWCC used ~~proceeds from~~ the ~~offering~~net proceeds to: (i) ~~prepay $138~~lend funds to parent company and its regulated subsidiaries; (ii) repay $25 million principal amount of ~~its outstanding 5.62%~~AWCC’s 7.21% Series CI Senior Notes ~~due December 21, 2018 (“Series C Senior Notes”)~~at maturity on May 19, 2019; (iii) repay $26 million aggregate principal amount of subsidiary debt at maturity during the second quarter of 2019; and ~~$181 of its outstanding 5.77% Series D Senior Notes due December 21, 2021 (“Series D Senior Notes”); (ii)~~(iv) repay AWCC’s commercial paper ~~obligations;~~obligations, and ~~(iii)~~ for general corporate purposes. Subsequently, AWCC used proceeds from the offering to repay at maturity, $524 of its 6.085% Senior Notes on October 15, 2017. In addition, the Company repaid $33 of 7.08% subsidiary debt at maturity on November 1, 2017.

As a result of AWCC’s prepayment of the Series C and Series D Senior Notes and payment of a make-whole premium to the holders thereof of $34, the Company recorded an early debt extinguishment charge of $6, which was associated with the portion of the debt allocable to the Company’s parent. Substantially all of the early debt extinguishment costs allocable to the Company’s utility subsidiaries were recorded as regulatory assets that the Company believes are probable of recovery in future rates.

On ~~August 7, 2017,~~May 6, 2019, the Company terminated ~~four~~five forward starting swap agreements with an aggregate notional amount of ~~$300,~~$510 million, realizing a ~~gain~~net loss of ~~$19~~$30 million, to be amortized through interest, net over 10 and 30 ~~years. The Company has one remaining forward starting swap agreement, which was entered into on February 8, 2017,~~year periods, in accordance with ~~a notional amount of $100 to reduce interest rate exposure for a portion of~~ the expected refinancing of AWCC’s Series C Senior Notes. This forward starting swap agreement terminates in November 2018 and has an average fixed rate of 2.67%. The Company has designated this forward starting swap agreement as a cash flow hedge with its 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 termterms of the new ~~debt.~~

The Company has an interest rate swap to hedge $100 of its 6.085% Senior Notes maturing in the fourth quarter of 2017. The Company pays variable interest of six-month LIBOR plus 3.422% and has designated this interest rate swap as a fair value hedge accounted for at fair value with gains or losses, as well as the offsetting gains or lossesdebt issued on the hedged item, recognized in interest, net. The net gain and loss recognized by the Company for the three and nine months ended September 30, 2017 and 2016 was de minimis. This interest rate swap matured on October 15, 2017.

May 13, 2019.

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 ~~$6.~~$3 million. The Company has designated these ~~interest rate swaps~~instruments as economic hedges, accounted for at fair value, with gains or losses ~~deferred as a regulatory asset or regulatory liability.~~recognized in interest, net. The ~~net~~ gain recognized by the Company for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 was de minimis.

No ineffectiveness was recognized on hedging instruments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018.

~~The following~~Presented in the table ~~provides a summary of~~below are the gross fair ~~value for~~values of the Company’s derivative ~~asset and~~ liabilities, as well as the location of the ~~asset and~~ liability balances inon the Consolidated Balance Sheets:

Derivative Instrument

Derivative Designation

Balance Sheet Classification

June 30, 2019

December 31, 2018

Liability derivative:

Forward starting swaps

Cash flow hedge

Other current liabilities

—

Derivative Instruments Derivative Designation Balance Sheet Classification September 30, 2017 December 31, 2016
Asset Derivative

Forward starting swaps Cash flow hedge Other current assets $ —
$ 27
Interest rate swap Fair value hedge Other current assets —
1

Liability Derivative

Interest rate swap Fair value hedge Current portion of long-term debt $ —
$ 1
Forward starting swaps Cash flow hedge Other long-term liabilities 2
—

Note 7: Income Taxes

The Company’s effective income tax rate was ~~40.3%~~25.1% and ~~39.1%~~27.0% for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively, and ~~39.9%~~25.3% and ~~39.2%~~26.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

~~On April 11, 2017,~~The decrease in the ~~State of New York enacted legislation that increased the state~~Company’s effective income tax rate onduring the three months ended June 30, 2019 was primarily due to the amortization of the excess accumulated deferred income taxes (“EADIT”) resulting from the Tax Cuts and Jobs Act (the “TCJA”), which began for three of the Company’s ~~taxable income attributable to New York. This legislation eliminated~~regulated subsidiaries in 2019, and unitary state adjustments recorded in 2018. The decrease in the ~~production of water as a qualified manufacturing activity in New York, which effectively increased the state~~Company’s effective income tax rate ~~in New York. As a result~~during the six months ended June 30, 2019 was primarily due to the amortization of the ~~legislative change,~~EADIT resulting from the Company was required to re-measure its cumulative deferred tax balances using the higher state income tax rate in the second quarter of 2017. This change in legislation was the primary cause of an increase to the Company’s unitary deferred tax liability of $11. The portion of this increase related to the Company’s New York subsidiary calculated on a stand-alone basis was $7, and wasTCJA, partially offset by ~~a regulatory asset, as~~changes in executive compensation and other deductions under the Company believes it is probable of recovery in future rates. The remaining increase in the deferred tax liability was calculated through state tax apportionment rates and recorded at the consolidated level, resulting in a non-cash, cumulative charge to earnings of $4 during the second quarter of 2017.TCJA.

On July 7, 2017, the State of Illinois enacted legislation that increased, effective July 1, 2017, the state income tax rate on the Company’s taxable income attributable to Illinois from 7.75% to 9.5%. As a result of the legislative change, the Company was required to re-measure its cumulative deferred tax balances using the higher state income tax rate in the third quarter of 2017. This change in legislation was the primary cause of the increase to the Company’s unitary deferred tax liability of $7. The portion of this increase related to the Company’s Illinois subsidiary calculated on a stand-alone basis was $4, and was offset by a regulatory asset, as the Company believes it is probable of recovery in future rates. The remaining increase in the deferred tax liability was recorded at the consolidated level, resulting in a non-cash, cumulative charge of $3 during the third quarter of 2017.

Note 8: Pension and Other Postretirement Benefits

~~The following~~Presented in the table ~~provides~~below are the components of net periodic benefit ~~costs:~~cost (credit):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Components of net periodic pension benefit cost:
Service cost	$	7		$	8		$	14		$	17
Interest cost	21			19			41			38
Expected return on plan assets	(23		)	(24		)	(45		)	(49		)
Amortization of prior service credit	(1		)	—			(2		)	—
Amortization of actuarial loss	8			7			16			14
Net periodic pension benefit cost	$	12		$	10		$	24		$	20

Components of net periodic other postretirement benefit credit:
Service cost	$	1		$	2		$	2		$	5
Interest cost	4			5			7			11
Expected return on plan assets	(5		)	(6		)	(9		)	(13		)
Amortization of prior service credit	(9		)	(4		)	(17		)	(9		)
Amortization of actuarial loss	1			1			2			2
Net periodic other postretirement benefit credit	$	(8	)	$	(2	)	$	(15	)	$	(4	)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Components of net periodic pension benefit cost
Service cost $ 8
$ 8
$ 25
$ 24
Interest cost 20
20
60
60
Expected return on plan assets (23 ) (24 ) (70 ) (72 )
Amortization of actuarial loss 9
7
27
21
Net periodic pension benefit cost $ 14
$ 11
$ 42
$ 33

Components of net periodic other postretirement benefit cost
Service cost $ 3
$ 3
$ 8
$ 9
Interest cost 7
7
20
22
Expected return on plan assets (7 ) (7 ) (20 ) (20 )
Amortization of prior service credit (5 ) (3 ) (14 ) (4 )
Amortization of actuarial loss 3
1
8
3
Net periodic other postretirement benefit cost $ 1
$ 1
$ 2
$ 10

The Company ~~made contributions~~contributed $7 million and $14 million for the funding of its defined benefit pension plans ~~of $11 and $8~~ for the three and six months ended ~~September~~June 30, ~~2017 and 2016,~~2019, respectively, and ~~$31 and $25~~made less than $1 million of funding contributions for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016, respectively, and expects to contribute $9 during the remainder of 2017. In addition, the~~2018. The Company made no contributions for the funding of its other postretirement benefit plans for each of ~~$2 and $6 for~~ the three and six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016, respectively, and $5 and $17 for the nine months ended September 30, 2017 and 2016, respectively, and~~2018. The Company expects to ~~contribute $1~~make pension contributions to the plan trusts of up to $17 million during the remainder of ~~2017.~~2019.

Note 9: Commitments and Contingencies

Contingencies

The Company is routinely involved in legal actions incident to the normal conduct of its business. As of ~~September~~June 30, ~~2017,~~2019, the Company has accrued approximately ~~$139~~$21 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 ~~$27.~~$24 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 9,9—Commitments and Contingencies, will not have a material adverse effect on the Company.

West Virginia Elk River Freedom Industries Chemical Spill

~~Background~~

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 9, 2014 ~~a chemical storage tank owned by~~ Freedom Industries, Inc. ~~leaked two substances, 4-methylcyclohexane methanol, or “MCHM”,~~chemical spill in West Virginia. The effective date of the Settlement was July 16, 2018.

Under the terms and ~~PPH/DiPPH, a mix~~conditions of ~~polyglycol ethers, into~~ the ~~Elk River near the~~Settlement, West Virginia-American Water Company (“WVAWC”) treatment plant intake in Charleston, West Virginia. After having been alerted to the leak of MCHM by the West Virginia Department of Environmental Protection (“DEP”), WVAWC took immediate steps to gather more information about MCHM, augment its treatment process as a precaution, and begin consultations with federal, state and local public health officials. As soon as possible after it was determined that the augmented treatment process would not fully remove the MCHM, a joint decision was reached in consultation with the West Virginia Bureau for Public Health to issue a “Do Not Use” order for all of its approximately 93,000 customer accounts in parts of nine West Virginia counties served by the Charleston treatment plant. By January 18, 2014, none of WVAWC’s customers were subject to the Do Not Use order.

~~Following the Freedom Industries chemical spill, numerous lawsuits were filed against WVAWC~~ and certain other Company affiliated entities (collectively, the “American Water Defendants”) with respect to this matter in the U.S. District Court for the Southern District of West Virginia or West Virginia Circuit Courts in Kanawha, Boone and Putnam counties, and to date, 74 cases remain pending. Four of the cases pending before the U.S. district court were consolidated for purposes of discovery, and an amended consolidated class action complaint for those cases (the “Federal action”) was filed in December 2014 by several plaintiffs. On January 28, 2016, all of the then-filed state court cases were referred to West Virginia’s Mass Litigation Panel for further proceedings, which have been stayed pending the negotiation by the parties and approval by the court in the Federal action of a global agreement to settle all of such cases, as described below. On July 7, 2016, the court in the Federal action scheduled trial to begin on October 25, 2016, but the court has granted several continuances of the trial, which is currently postponed indefinitely in light of the preliminarily approved global settlement agreement described below. The Mass Litigation Panel has also stayed its proceedings until January 23, 2018.

~~Preliminary Approval of WVAWC Global Class Action Litigation Settlement~~

On October 31, 2016, the court in the Federal action approved the preliminary principles, terms and conditions of a binding global agreement in principle to settle claims among the American Water Defendants, and all class members, putative class members, claimants and potential claimants, arising out of the Freedom Industries chemical spill. On April 27, 2017, the parties filed with the court in the Federal action a proposed settlement agreement providing details of the terms of the settlement of these matters and requesting that the court in the Federal action grant preliminary approval of such settlement. On July 6, 2017, the court in the Federal action issued an opinion denying without prejudice the joint motion for preliminary approval of the Settlement. On August 25, 2017, the parties filed a proposed amended settlement agreement and related materials addressing the matters set forth in the July 6, 2017 order.

On September 21, 2017, the court in the Federal action issued an order granting preliminary approval of a settlement class and proposed class action settlement (the “Settlement”) with respect to claims against the American Water Defendants by all putative class members (collectively, the “Plaintiffs”) for all claims and potential claims arising out of the Freedom Industries chemical spill. The Settlement proposes a global resolution of all federal and state litigation and potential claims against the American Water Defendants and their insurers. Under the terms and conditions of the Settlement and the proposed amended settlement agreement, the American Water Defendants havedid not ~~admitted,~~admit, and will not admit, any fault or liability for any of the allegations made by the Plaintiffs in any of the actions ~~to be~~that were resolved. Under federal class action rules, ~~a claimant may~~claimants had the right, until December 8, 2017, to elect to opt out of the final Settlement. Less than 100 of the estimated 225,000 putative class members elected to opt out from the Settlement, ~~in which case such claimant~~and these claimants will not receive any benefit from or be bound by the terms of the Settlement. ~~The American Water Defendants would have~~

In June 2018, the right to withdraw from the Settlement if more than a certain number of putative class members opt out of the Settlement. The deadline imposed by the court in the Federal action for any Plaintiff to opt out of the Settlement or file an objection to the Settlement is December 8, 2017.

~~The proposed aggregate pre-tax amount of the Settlement is $126, of which $43 would be contributed by WVAWC,~~Company and ~~the remainder would be contributed by certain of the Company’s~~its remaining non-participating general liability insurance ~~carriers. The WVAWC contribution was reduced from $65 to $43 ($26 after tax) due to~~carrier settled for a settlement in the third quarter of 2017 with another of the Company’s general liability insurance carriers, as discussed below. The Company has general liability insurance under a series of policies underwritten by a number of individual carriers. Two of these insurance carriers, which provide an aggregate of $50 in insurance coveragepayment to the Company ~~under these policies, had been originally requested to participate in the Settlement at the time~~ of the initial filing of the binding agreement in principle with the court in the Federal action, but did not agree to do so at that time. WVAWC filed a lawsuit against one of these carriers alleging that the carrier’s failure to agree to participate in the Settlement constituted a breach of contract. On September 19, 2017, the Company and the insurance carrier settled this lawsuit for $22,$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 ~~Company and WVAWC~~American Water Defendants of all claims against the insurance carrier related to the Freedom Industries chemical spill. WVAWC and the settling insurer have agreed to stay this litigation pending final approval of the Settlement. The Company and WVAWC continue to pursue vigorously their rights to insurance coverage for contributions by WVAWC to the Settlement in mandatory arbitration with the remaining non-participating carrier. This arbitration proceeding remains pending.

The proposed Settlement would establish a two-tier settlement fund for the payment of claims, comprised of (i) a simple claim fund, which is also referred to as the “guaranteed fund,” of $76, of which $29 will beaggregate pre-tax amount contributed by WVAWC ~~including insurance deductibles, and $47 would be contributed by two~~ of the Company’s general liability insurance carriers, and (ii) an individual review claim fund of up to $50, of which up to $14 would be contributed by WVAWC and up to $36 would be contributed by a number of the Company’s general liability insurance carriers. Separately, up to $25 would be contributed to the guaranteed fund by another defendant to the Settlement. If any final approval order by the court in the Federal action$126 million Settlement with respect to the Settlement is appealed and such appeal would delay potential payment to claimants under the Settlement, WVAWC and the other defendant to the Settlement will contribute up to $50 and $25, respectively, to the Settlement (not including, in the case of WVAWC, any contributions by the Company’s general liability insurance carriers which would not be made until such time as a final, non-appealable order is issued) into an escrow account during the pendency of such appeals. For certain claims, WVAWC and the other defendant to the Settlement may, in lieu of these escrowed contributions, make advance payments of such claims if agreed to by the parties. All administrative expenses of the Settlement and attorneys’ fees of class counsel related thereto would be paid from the funds designated to pay claims covered by the Settlement.

~~As a result of these events, in the third quarter of 2016, the~~ Company, ~~recorded a charge to earnings,~~ net of insurance ~~receivables,~~recoveries, is $19 million. As of ~~$65 ($39 after-tax). Additionally, in~~June 30, 2019, $7 million of the ~~third quarter of 2017, the Company recorded a benefit of $22 ($13 after-tax) as an additional insurance receivable reflecting the settlement with the insurance carrier described above. The settlement~~aggregate Settlement amount of $126 ismillion has been reflected in ~~Accrued Liabilities~~accrued liabilities, and $7 million in offsetting insurance receivables has been reflected in other current assets on the Consolidated Balance Sheets. The amount reflected in accrued liabilities as of June 30, 2019 reflects $18 million of reductions in the liability during the first six months of 2019, $14 million of which was recorded as reductions to the offsetting insurance ~~receivables are~~receivable reflected in ~~Other Current Assets in the Consolidated Balance Sheet as of September 30, 2017.~~other current assets. The Company ~~intends to fund~~has funded WVAWC’s contributions to the Settlement through existing sources of liquidity, although no contribution by WVAWC will be required unless and until the terms of the Settlement are finally approved by the court in the Federal action. Furthermore, under the terms of the Settlement, WVAWC has agreed that it will not seek rate recovery from the Public Service Commission of West Virginia for approximately $4 in direct response costs expensed in 2014 by WVAWC relating to the Freedom Industries chemical spill as well as for amounts paid by WVAWC under the Settlement.

The Company’s insurance policies operate under a layered structure where coverage is generally provided in the upper layers after claims have exhausted lower layers of coverage. The $36 to be contributed by a number of the Company’s general liability insurance carriers to the individual review claim fund, as noted above, is from higher layers of the insurance structure than the insurance carrier that was requested, but presently has not agreed, to participate in the Settlement. Any recovery by WVAWC or the Company from the remaining non-participating carrier would reimburse WVAWC for its contributions to the guaranteed fund.

~~Other Related Proceedings~~

Additionally, investigations with respect to the matter have been initiated by the U.S. Chemical Safety and Hazard Investigation Board (the “CSB”), the U.S. Attorney’s Office for the Southern District of West Virginia, the West Virginia Attorney General, and the Public Service Commission of West Virginia (the “PSC”). As a result of the U.S. Attorney’s Office investigation, Freedom Industries and six former Freedom Industries employees (three of whom also were former owners of Freedom Industries), pled guilty to violations of the federal Clean Water Act.

In May 2014, the PSC issued an Order initiating a General Investigation into certain matters relating to WVAWC’s response to the Freedom Industries chemical spill. Three parties intervened in the proceeding, including the Consumer Advocate Division of the PSC and two attorney-sponsored groups, including one sponsored by some of the plaintiffs’ counsel involved in the civil litigation described above. On January 26, 2017, WVAWC and the other parties agreed to resolve the General Investigation and filed a joint stipulation with the PSC containing the terms of the settlement. The parties to the joint stipulation filed a proposed order with the PSC on February 8, 2017. On June 15, 2017, the PSC entered an order accepting the joint stipulation that had been filed by the parties in January 2017 as a reasonable basis for resolving the General Investigation and removing the proceeding from the docket. The PSC’s order did not require WVAWC to take any further action with respect to the matters covered by the General Investigation. The PSC order concludes the General Investigation.

The CSB is an independent investigatory agency with no regulatory mandate or ability to issue fines or citations; rather, the CSB can only issue recommendations for further action. In response to the Freedom Industries chemical spill, the CSB commenced an investigation shortly thereafter. On September 28, 2016, the CSB issued and adopted its investigation report in which it recommended that the Company conduct additional source water protection activities. The Company provided written comments to the CSB’s report suggesting that the recommendation made to the Company would be better directed to the U.S. Environmental Protection Agency in order to promote industry-wide implementation of the CSB’s recommendation. On February 15, 2017, the Company filed a response to the CSB’s recommendation. On April 4, 2017, the CSB indicated that the implementation by the Company of source water protection activities resolved the first two parts of the CSB’s recommendation. The CSB also noted that compliance by the Company with the third part of its recommendation is ongoing and that closure of this part is contingent upon completion of updated contingency planning for the Company’s water utilities outside of West Virginia. In light of public response to its original September 2016 investigation report, on May 11, 2017, the CSB issued a new version of this report. The primary substantive change addressed CSB’s factual evaluation of the duration and volume of contamination from the leaking tank, decreasing its estimate of the leak time but increasing the volume estimate by 10%. No substantive changes were made to the conclusions and recommendations in the original report.

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 complaint in Lincoln County state 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. On June 12, 2017, the 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 complaint seeks an injunction against WVAWC that would require the creation of various databases and public repositories of documents related to this chemical spill, as well as further study and risk assessments regarding the alleged exposure by Lincoln County residents to the released chemicals. WVAWC believes that the lawsuit is without merit and intends to vigorously contest the claims and allegations raised in the complaint.

~~California Public Utilities Commission Residential Rate Design Proceeding~~

In December 2016, the California Public Utilities Commission (the “CPUC”) issued a final decision in a proceeding involving California-American Water Company, the Company’s wholly owned subsidiary (“Cal Am”), adopting a new residential rate design for Cal Am’s Monterey District. The decision allowed for recovery by Cal Am of $32 in under-collections in the water revenue adjustment mechanism/modified cost balancing account (“WRAM/MCBA”) over a five-year period, plus interest, and modified existing conservation and rationing plans. In its decision, the CPUC noted concern regarding Cal Am’s residential tariff administration, specifically regarding the lack of verification of customer-provided information about the number of residents per household. This information was used for generating billing determinants under the tiered rate system. As a result, the CPUC kept this proceeding open to address several issues, including whether Cal Am’s residential tariff administration violated a statute, rule or CPUC decision, and if so, whether a penalty should be imposed.

On February 24, 2017, Cal Am, the Monterey Peninsula Water Management District, the CPUC’s Office of Ratepayer Advocates, and the Coalition of Peninsula Businesses filed for CPUC approval of a joint settlement agreement (the “Joint Settlement Agreement”), which among other things, proposed to resolve the CPUC’s residential tariff administration concerns by providing for a waiver by Cal Am of $0.5 of cost recovery for residential customers through the WRAM/MCBA in lieu of a penalty. Approval of the Joint Settlement Agreement, which is required for it to take effect, remains pending before the CPUC.

On March 28, 2017, the administrative law judge assigned to the proceeding issued a ruling stating there was sufficient evidence to conclude, on a preliminary basis, that Cal Am’s administration of the residential tariff violated certain provisions of the California Public Utilities Code and a CPUC decision. The ruling ordered Cal Am to show cause why it should not be penalized for these administrative violations and directed the settling parties to address whether the cost recovery waiver in the Joint Settlement Agreement was reasonable compared to a potential penalty range described by the administrative law judge. During hearings held on April 13-14, 2017, the administrative law judge clarified that this potential penalty range is $3 to $179 (calculated as a continuing violation dating back to 2000 and applying penalties of up to $20 thousand per day until January 1, 2012 and penalties of up to $50 thousand per day thereafter, reflecting a 2012 change to the relevant statute). The administrative law judge also noted that a per diem penalty may not be appropriate, as Cal Am’s monthly billing practices did not allow Cal Am to update customer-provided information for billing purposes on a daily basis. Hearings before the administrative law judge in this matter occurred in August and September 2017. Cal Am also submitted additional testimony on the issue of whether Cal Am should be penalized, and if so, the reasonable amount of any such penalty. A subsequent hearing in this proceeding is currently scheduled for November 27, 2017.

As of September 30, 2017, the portions of this loss contingency that are probable and/or reasonable possible have been determined to be immaterial to the Company and have been included in the aggregate maximum amounts described above in the first paragraph of “Contingencies” in this Note 9.

~~Missouri Infrastructure System Replacement Surcharge Litigation~~

In March 2016, the Western District of the Missouri Court of Appeals ruled that the Missouri Public Service Commission (“MoPSC”) did not have statutory authority to issue an order in June 2015 approving an infrastructure system replacement surcharge (“ISRS”) for Missouri-American Water Company (“MAWC”), a wholly owned subsidiary of the Company. The court held that the MoPSC’s June 2015 order authorizing the ISRS increase was invalid because St. Louis County did not have a population of at least one million residents, as required by the statute. MAWC believes that the MoPSC’s June 2015 order authorizing the collection of ISRS revenues is lawful. In June 2016, the Missouri Supreme Court granted MAWC’s application to transfer the case from the Court of Appeals to the Missouri Supreme Court, and as a result of that order, the March 2016 ruling of the Court of Appeals was vacated.

On March 14, 2017, in a unanimous decision, the Missouri Supreme Court dismissed the case as moot, finding that there were no longer any ISRS funds in dispute because MAWC had completed a rate case during the appellate process and the disputed charges were now incorporated in base rates. On May 30, 2017, the Missouri Supreme Court denied a Motion for Rehearing filed by the Missouri Office of Public Counsel, which action concluded the litigation in this matter.liquidity.

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 tofor 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 onby July 1, 2015 to all customers affected by this event.

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.

OnIn 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 ~~asserts~~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. ~~This~~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. On February 21, 2019, the court issued an order denying WVAWC’s motion to dismiss the plaintiffs’ tort claims. The court requested that the parties submit a scheduling order with a trial date of August 26, 2019. The parties by agreement proposed to the court an agreed-upon scheduling order with a June 2020 trial date. The court did not enter the order because the trial date is not available, so setting a new trial date and schedule remains pending. Discovery in this case is ongoing.

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.

N~~ote~~Note 10: Earnings per Common Share

~~The following~~Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted earnings per share (“EPS”) calculations:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Numerator:
Net income attributable to common shareholders	$	170	$	162	$	283	$	268

Denominator:
Weighted-average common shares outstanding—Basic	181		179		181		179
Effect of dilutive common stock equivalents	—		—		—		—
Weighted-average common shares outstanding—Diluted	181		179		181		179

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Numerator
Net income attributable to common stockholders $ 203
$ 148
$ 427
$ 367

Denominator

Weighted-average common shares outstanding—Basic 178
178
178
178
Effect of dilutive common stock equivalents 1
—
1
1
Weighted-average common shares outstanding—Diluted 179
178
179
179

The effect of dilutive common stock equivalents is related to outstanding stock options, restricted stock units and performance stock units granted under the Company’s 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 six months ended June 30, 2019 and 2018 because their effect would have been anti-dilutive under the treasury stock method.

Note 11: Fair Value of Financial ~~Assets and Liabilities~~Information

Fair Value of Financial Instruments

The ~~Company used the~~ following methods and assumptions ~~to estimate~~were used by the Company in estimating its fair value disclosures for financial instruments:

Current assets and current liabilities—The carrying amounts reported inon the ~~accompanying~~ 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.

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 portion of the Company’s debts do not trade in active markets, the~~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: ~~(i)~~ an average of the Company’s own publicly-traded debt securities and ~~(ii)~~ 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~~Presented in the tables below are 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~~ fair values of the Company’s financial ~~instruments were as follows:~~instruments:



	Carrying Amount		At Fair Value as of June 30, 2019
	Carrying Amount		Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	7	$	—	$	—	$	9	$	9
Long-term debt (excluding finance lease obligations)	8,666		7,436		415		1,650		9,501

	Carrying Amount		At Fair Value as of December 31, 2018
	Carrying Amount		Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	8	$	—	$	—	$	9	$	9
Long-term debt (excluding finance lease obligations)	7,638		5,760		433		1,728		7,921

Carrying Amount At Fair Value as of September 30, 2017
Level 1 Level 2 Level 3 Total
Preferred stock with mandatory redemption requirements $ 11
$ —
$ —
$ 15
$ 15
Long-term debt (excluding capital lease obligations) 7,357
5,375
990
1,867
8,232

Carrying Amount At Fair Value as of December 31, 2016
Level 1 Level 2 Level 3 Total
Preferred stock with mandatory redemption requirements $ 12
$ —
$ —
$ 15
$ 15
Long-term debt (excluding capital lease obligations) 6,320
3,876
1,363
1,805
7,044

Recurring Fair Value Measurements

~~The following table presents~~Presented in the tables below are assets and liabilities measured and recorded at fair value on a recurring basis and their level inwithin the fair value hierarchy:


	At Fair Value as of September 30, 2017									At Fair Value as of June 30, 2019
	Level 1		Level 2			Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Restricted funds	$	29	$	—		$	—	$	29	$	23	$	—	$	—	$	23
Rabbi trust investments	14		—			—		14		15		—		—		15
Deposits	4		—			—		4		3		—		—		3
Other investments	4		—			—		4		4		—		—		4
Total assets	51		—			—		51		45		—		—		45

Liabilities:
Deferred compensation obligations	16		—			—		16		19		—		—		19
Mark-to-market derivative liabilities	—		2			—		2
Total liabilities	16		2			—		18		19		—		—		19
Total net assets (liabilities)	$	35	$	(2	)	$	—	$	33
Total assets										$	26	$	—	$	—	$	26



	At Fair Value as of December 31, 2018
	Level 1		Level 2			Level 3		Total
Assets:
Restricted funds	$	29	$	—		$	—	$	29
Rabbi trust investments	15		—			—		15
Deposits	3		—			—		3
Other investments	3		—			—		3
Total assets	50		—			—		50

Liabilities:
Deferred compensation obligations	17		—			—		17
Mark-to-market derivative liabilities	—		14			—		14
Total liabilities	17		14			—		31
Total assets (liabilities)	$	33	$	(14	)	$	—	$	19

At Fair Value as of December 31, 2016
Level 1 Level 2 Level 3 Total
Assets:
Restricted funds $ 24
$ —
$ —
$ 24
Rabbi trust investments 12
—
—
12
Deposits 3
—
—
3
Mark-to-market derivative assets —
28
—
28
Other investments 1
—
—
1
Total assets 40
28
—
68

Liabilities:
Deferred compensation obligations 13
—
—
13
Total liabilities 13
—
—
13
Total net assets (liabilities) $ 27
$ 28
$ —
$ 55

Restricted funds—The Company’s restricted funds primarily represent proceeds received from financings for the construction and capital improvement of facilities and from customers for future services under operations, maintenance and ~~maintenance~~repair projects. ~~The proceeds of these financings are held in escrow until the designated expenditures are incurred.~~ Long-term restricted funds of $1 ~~and $4~~million were included in other long-term assets on the Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016, respectively.~~2018.

Rabbi trust investments—The Company’s rabbi trust investments consist of equity and index funds from which supplemental executive retirement plan benefits and deferred compensation obligations can be paid. The Company includes these assets in other long-term ~~assets.~~assets on the Consolidated Balance Sheets.

Deposits—Deposits include escrow funds and certain other deposits held in trust. The Company includes cash deposits in other current ~~assets.~~assets on the Consolidated Balance Sheets.

Deferred compensation obligations—The Company’s deferred compensation plans allow participants to defer certain cash compensation into notional investment accounts. The Company includes such plans in other long-term liabilities on the Consolidated Balance Sheets. The value of the Company’s deferred compensation obligations is based on the market value of the participants’ notional investment accounts. The notional investments are comprised primarily of mutual funds, which are based on observable market prices.

Mark-to-market derivative ~~asset~~assets and ~~liability—~~liabilities—The Company utilizes fixed-to-floating interest-rate swaps, typically designated as fair-value hedges, to achieve a targeted level of variable-rate debt as a percentage of total debt. The Company also employs derivative financial instruments in the form of variable-to-fixed interest rate swaps and forward starting interest rate swaps, classified as economic hedges and cash flow hedges, respectively, in order to fix the interest cost on existing or forecasted debt. The Company uses a calculation of future cash inflows and estimated future outflows, which are discounted, to determine the current fair value. Additional inputs to the present value calculation include the contract terms, counterparty credit risk, interest rates and market volatility.

Other investments—Other investments primarily represent money market funds used for active employee benefits. The Company includes other investments in other current ~~assets.~~assets on the Consolidated Balance Sheets.

~~Deferred compensation obligations—~~

Note 12: Leases

On January 1, 2019, the Company adopted Accounting Standards Update 2016-02, Leases (Topic 842),andall related amendments (collectively, the “Standard”).The Company implemented the guidance in the Standard using the modified retrospective approach and applied the optional transition method, which allowed entities to apply the new Standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this approach, prior periods have not been restated and continue to be reported under the accounting standards in effect for those periods. The Standard includes practical expedients, which relate to the identification and classification of leases that commenced before the adoption date, initial direct costs for leases that commenced before the adoption date, the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset and the ability to carry forward accounting treatment for existing land easements. The Company has made an accounting policy election not to include leases with a lease term of twelve months or less in the adoption of the Standard.

Adoption of the Standard resulted in the recognition of operating lease right-of-use (“ROU”) assets and operating lease liabilities as of January 1, 2019 of approximately $117 million and $115 million, respectively. The difference between the ROU assets and operating lease liabilities was recorded as an adjustment to retained earnings. The Standard did not materially impact the Company’s consolidated results of operations and had no impact on cash flows.

The Company’s ~~deferred compensation plans allow participants~~ROU assets represent the right to ~~defer certain cash compensation into notional investment accounts. The Company includes such plans in other long-term liabilities. The~~use an underlying asset for the lease term and the Company’s lease liabilities represent the obligation to make lease payments arising from the lease. ROU assets and lease liabilities are generally recognized at the commencement date based on the present value of discounted lease payments over the lease term. As most of the Company’s ~~deferred compensation obligations is~~leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the ~~market~~information available at the commencement date in determining the present value of discounted lease payments. The implicit rate is used when readily determinable. ROU assets also include any upfront lease payments and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the ~~participants’ notional investment accounts.~~ lease when it is reasonably certain that the option will be exercised. Lease expense is recognized on a straight-line basis over the lease term.

The ~~notional investments~~Company determines if an arrangement is a lease at inception. Operating leases are ~~comprised primarily of mutual funds,~~included in operating lease right-of-use assets, accrued liabilities and operating lease liabilities on the Consolidated Balance Sheets. Finance leases are included in property, plant and equipment, accrued liabilities and other long-term liabilities on the Consolidated Balance Sheets.

The Company has lease agreements with lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) and non-lease components (e.g., common-area maintenance costs), which are ~~based~~generally accounted for separately; however, the Company accounts for the lease and non-lease components as a single lease component for certain leases. Additionally, the Company applies a portfolio approach to effectively account for the ROU assets and lease liabilities.

The Company has operating and finance leases involving real property, including facilities, utility assets, vehicles, and equipment. Certain operating leases have renewal options ranging from one to 60 years. The exercise of lease renewal options is at the Company’s sole discretion. Renewal options that the Company was reasonably certain to exercise are included in the Company’s ROU assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 40 years, seven years, and five years, respectively. Certain lease agreements include variable rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company participates in a number of arrangements with various public entities (“Partners”) in West Virginia. Under these arrangements, the Company transferred a portion of its utility plant to the Partners in exchange for an equal principal amount of Industrial Development Bonds (“IDBs”) issued by the Partners under the Industrial Development and Commercial Development Bond Act. The Company leased back the utility plant under agreements for a period of 30 to 40 years. The Company has recorded these agreements as finance leases in property, plant and equipment, as ownership of the assets will revert back to the Company at the end of the lease term. The Company determined that the finance lease obligations and the investments in IDBs meet the conditions for offsetting, and as such, are reported net on ~~observable market prices.~~the Consolidated Balance Sheets and excluded from the finance lease disclosure presented below.

The Company also enters into operation and maintenance (“O&M”) agreements with the Partners. The Company pays an annual fee for use of the Partners’ assets in performing under the O&M agreements. The O&M agreements are recorded as operating leases, and future annual use fees of $4 million in 2019 through 2023, and $59 million thereafter, are included in operating lease right-of-use assets and operating lease liabilities on the Consolidated Balance Sheets.

Rental expenses under operating and finance leases were $4 million and $8 million for the three and six months ended June 30, 2019, respectively.

Presented in the table below is supplemental cash flow information:



	For the Three Months Ended June 30, 2019		For the Six Months Ended June 30, 2019
Cash paid for amounts in lease liabilities (a)	$	5	$	9
Right-of-use assets obtained in exchange for new operating lease liabilities	—		119


(a)	Includes operating and financing cash flows from operating and finance leases.

Presented in the table below are the weighed-average remaining lease terms and the weighted-average discount rates for finance and operating leases:



	As of June 30, 2019
Weighted-average remaining lease term:
Finance lease	7 years
Operating leases	18 years

Weighted-average discount rate:
Finance lease	12	%
Operating leases	4	%

Presented in the table below are the future maturities of lease liabilities at June 30, 2019:



	Amount
2019	$	8
2020	15
2021	13
2022	12
2023	8
Thereafter	106
Total lease payments	162
Imputed interest	(54		)
Total	$	108

Presented in the table below are the future minimum rental commitments, as of December 31, 2018, under operating leases that have initial or remaining non-cancelable lease terms over the next five years and thereafter:



	Amount
2019	$	17
2020	15
2021	12
2022	11
2023	6
Thereafter	80
Total	$	141

Note ~~12:~~13: Segment Information

The Company’s operating segments are comprised of the revenue-generating components of its businesses for which separate financial information is internally produced and regularly used by management to make operating decisions and assess performance. The Company ~~conducts~~operates its ~~business~~businesses primarily through one reportable segment, the Regulated Businesses segment. The Company also operates ~~several~~market-based businesses that provide a broad range of related and complementary water and wastewater services ~~in four operating segments that individually do not meet the criteria of a reportable segment in accordance with GAAP. These four~~within non-reportable operating segments, ~~are~~ collectively ~~presented~~referred to as the ~~Company’s “Market-Based~~Market-Based Businesses.” “Other” includes corporate costs that are not allocated to the Company’s operating segments, eliminations of inter-segment transactions, fair value adjustments and associated income and deductions related to the acquisitions that have not been allocated to the operating segments for evaluation of performance and allocation of resource purposes. The ~~following~~adjustments related to the acquisitions are reported in Other as they are excluded from segment performance measures evaluated by management.

Presented in the tables ~~include the Company’s~~below is summarized segment information:


	As of or for the Three Months Ended September 30, 2017											As of or for the Three Months Ended June 30, 2019
	Regulated Businesses			Market-Based Businesses		Other			Consolidated			Regulated Businesses			Market-Based Businesses		Other			Consolidated
Operating revenues	$	842		$	100	$	(6	)	$	936		$	755		$	132	$	(5	)	$	882
Depreciation and amortization	121			5		2			128			132			8		2			142
Total operating expenses, net	433			80		(7		)	506			480			106		(6		)	580
Interest, net	(67		)	1		(23		)	(89		)	(74		)	1		(21		)	(94		)
Income before income taxes	347			21		(28		)	340			208			29		(10		)	227
Provision for income taxes	135			7		(5		)	137			52			8		(3		)	57
Net income attributable to common stockholders	212			14		(23		)	203
Net income attributable to common shareholders												156			21		(7		)	170
Total assets	17,390			600		1,371			19,361			19,338			1,056		1,460			21,854
Capital expenditures												378			4		4			386



	As of or for the Three Months Ended June 30, 2018
	Regulated Businesses			Market-Based Businesses		Other			Consolidated
Operating revenues	$	744		$	114	$	(5	)	$	853
Depreciation and amortization	123			7		4			134
Total operating expenses, net	453			98		—			551
Interest, net	(69		)	2		(19		)	(86		)
Income before income taxes	226			18		(22		)	222
Provision for income taxes	59			5		(4		)	60
Net income attributable to common shareholders	167			13		(18		)	162
Total assets	18,197			818		1,456			20,471
Capital expenditures	347			1		27			375


	As of or for the Three Months Ended September 30, 2016											As of or for the Six Months Ended June 30, 2019
	Regulated Businesses			Market-Based Businesses		Other			Consolidated			Regulated Businesses			Market-Based Businesses		Other			Consolidated
Operating revenues	$	826		$	109	$	(5	)	$	930		$	1,440		$	266	$	(11	)	$	1,695
Depreciation and amortization	111			4		4			119			262			17		7			286
Total operating expenses, net	521			98		(8		)	611			950			214		(9		)	1,155
Interest, net	(64		)	—		(17		)	(81		)	(147		)	2		(42		)	(187		)
Income before income taxes	246			12		(15		)	243			358			56		(35		)	379
Provision for income taxes	94			5		(4		)	95			92			15		(11		)	96
Net income attributable to common stockholders	152			7		(11		)	148
Net income attributable to common shareholders												266			41		(24		)	283
Total assets	16,020			545		1,406			17,971			19,338			1,056		1,460			21,854
Capital expenditures												693			8		11			712



	As of or for the Six Months Ended June 30, 2018
	Regulated Businesses			Market-Based Businesses		Other			Consolidated
Operating revenues	$	1,410		$	214	$	(10	)	$	1,614
Depreciation and amortization	245			11		7			263
Total operating expenses, net	915			184		(4		)	1,095
Interest, net	(138		)	3		(35		)	(170		)
Income before income taxes	368			34		(40		)	362
Provision for income taxes	97			9		(12		)	94
Net income attributable to common shareholders	271			25		(28		)	268
Total assets	18,197			818		1,456			20,471
Capital expenditures	677			7		55			739

As of or for the Nine Months Ended September 30, 2017
Regulated
Businesses Market-Based
Businesses Other Consolidated
Operating revenues $ 2,247
$ 306
$ (17 ) $ 2,536
Depreciation and amortization 357
13
8
378
Total operating expenses, net 1,327
263
(19 ) 1,571
Interest, net (200 ) 2
(61 ) (259 )
Income before income taxes 731
46
(66 ) 711
Provision for income taxes 285
17
(18 ) 284
Net income attributable to common stockholders 446
29
(48 ) 427
Total assets 17,390
600
1,371
19,361

As of or for the Nine Months Ended September 30, 2016
Regulated
Businesses Market-Based
Businesses Other Consolidated
Operating revenues $ 2,176
$ 338
$ (14 ) $ 2,500
Depreciation and amortization 328
11
11
350
Total operating expenses, net 1,385
300
(17 ) 1,668
Interest, net (191 ) 1
(52 ) (242 )
Income before income taxes 610
44
(50 ) 604
Provision for income taxes 236
18
(17 ) 237
Net income attributable to common stockholders 374
26
(33 ) 367
Total assets 16,020
545
1,406
17,971


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

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

The following discussion should be read together with the unaudited ~~consolidated financial statements~~Consolidated Financial Statements and ~~the notes~~Notes thereto included elsewhere in this Form ~~10-Q.~~10-Q, and in our Form 10-K for the year ended December 31, 2018. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business, operations and financial performance. The cautionary statements made in this Form 10-Q should be read as applying to all related forward-looking statements whenever they appear in this Form 10-Q. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Forward-Looking Statements,” and elsewhere in this Form 10-Q.

~~General~~Overview

~~Through its subsidiaries,~~ American Water ~~Works Company, Inc. (“American Water” or the “Company”)~~ is the largest and most geographically diverse, ~~investor-owned~~ publicly-traded water and wastewater utility company in the United States, as measured by both operating ~~revenue~~revenues and population served. Our primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and ~~other customers, including~~ sale for resale ~~and public authority customers. Our~~customers, collectively presented as our “Regulated Businesses.” Services provided by our utilities are generally subject to economic regulation by certain state utility commissions or other entities engaged in utility ~~regulation. We report the results of our utilities in our Regulated Businesses segment.~~regulation, collectively referred to as public utility commissions (“PUCs” or “Regulators”). We also operate ~~several~~market-based businesses that provide a broad range of related and complementary water, wastewater and ~~wastewater~~other services ~~that~~to residential and smaller commercial customers, the U.S. government on military installations and shale natural gas exploration and production companies, as well as municipalities, utilities and industrial customers, collectively presented as our “Market-Based Businesses.” These businesses are not subject to economic regulation by state ~~utility commissions or other entities engaged in utility regulation. We present the results of these businesses as our “Market-Based Businesses.” For further description of our businesses, see~~PUCs. See Part I, Item 1—Business in our Form ~~10-K.~~10-K for additional information.

~~You should read~~Operating Highlights

Closed on the ~~following discussion~~acquisition of the City of Alton, Illinois’ regional wastewater system on June 27, 2019 for $55 million. This system currently serves approximately 23,000 wastewater customers, comprised of 11,000 customers in ~~conjunction with~~Alton and an additional 12,000 customers under bulk contracts in the nearby communities of Bethalto and Godfrey.

Finalized two general rate case proceedings:

An order was received for our Kentucky subsidiary’s general rate case filing, authorizing annualized incremental revenues of $13 million, effective June 28, 2019.

A settlement in our Indiana subsidiary’s general rate case filing was approved, authorizing annualized incremental revenues of $4 million in the first rate year, effective July 1, 2019, and $13 million in the second rate year, effective approximately May 1, 2020.

American Water Capital Corp. (“AWCC”), our wholly owned finance subsidiary, completed a $1.10 billion debt offering on May 13, 2019, which included the sale of $550 million aggregate principal amount of its 3.45% Senior Notes due 2029 and $550 million aggregate principal amount of its 4.15% Senior Notes due 2049. Net proceeds from this offering were used to lend funds to parent company and its regulated subsidiaries, repay various senior notes and regulated subsidiary debt obligations at maturity, and repay commercial paper obligations, and for general corporate purposes. See Note 6—Long-Term Debt in the Notes to Consolidated Financial Statements for additional information.

On June 7, 2019, Standard & Poor’s Ratings Service affirmed the Company’s long-term ‘A’ and ~~related Notes included elsewhere in this Form 10-Q and in our Form 10-K.~~short-term ‘A-1’ credit ratings, with a stable outlook.

Financial Results

~~Highlights of~~Presented in the table below are our diluted earnings per share, as determined in accordance with accounting principles generally accepted in the United States (“GAAP”), and our adjusted diluted earnings per share (a non-GAAP measure) ~~for~~:



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019		2018			2019			2018
Diluted earnings per share (GAAP):
Net income attributable to common shareholders	$	0.94	$	0.91		$	1.56		$	1.50
Adjustments:
Freedom Industries settlement activities	—		(0.11		)	(0.02		)	(0.11		)
Income tax impact	—		0.03			0.01			0.03
Net adjustments	—		(0.08		)	(0.01		)	(0.08		)

Adjusted diluted earnings per share (non-GAAP)	$	0.94	$	0.83		$	1.55		$	1.42

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 are as follows:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Diluted earnings per share (GAAP):
Net income attributable to common stockholders $ 1.13
$ 0.83
$ 2.39
$ 2.05
Non-GAAP adjustments:
Impact of Freedom Industries settlement activities (0.12 ) 0.36
(0.12 ) 0.36
Income tax impact 0.05
(0.14 ) 0.05
(0.14 )
Net non-GAAP adjustment (0.07 ) 0.22
(0.07 ) 0.22

Early debt extinguishment at the parent company 0.03
—
0.03
—
Income tax impact (0.01 ) —
(0.01 ) —
Net non-GAAP adjustment 0.02
—
0.02
—

Total net non-GAAP adjustments (0.05 ) 0.22
(0.05 ) 0.22

Adjusted diluted earnings per share (non-GAAP) $ 1.08
$ 1.05
$ 2.34
$ 2.27

For the three months ended September 30, 2017, net income attributable to common stockholders was $1.13 per diluted share, an increase of $0.30 per diluted share, or 36.1%, over the same period in 2016. Included in the 2017 amount was an after-tax benefit of $13 million, or $0.07 per diluted share, resulting from an insurance settlement with one of our general liability insurance carriers related to the Freedom Industries matter and an after-tax charge of $4 million, or $(0.02) per diluted share, resulting from an early debt extinguishment charge at the parent company. Included in the 2016 amount was an after-tax charge of $39 million, or $(0.22) per diluted share, resulting from the binding global agreement in principle to settle claims associated with the Freedom Industries chemical spill.

~~Excluding these items, adjusted~~2019, diluted earnings per share ~~(a non-GAAP measure) was $1.08 for the three months ended September 30, 2017,~~(GAAP) were $0.94 and $1.56, respectively, an increase of $0.03 per diluted share, or ~~2.9% over~~3.3%, and $0.06 per diluted share, or 4.0%, respectively, as compared to the ~~same period~~prior year. Included in ~~2016. This~~these amounts are the items presented in the table above and discussed in greater detail in “Adjustments to GAAP” below.

Excluding the items presented in the table above, adjusted diluted earnings per share (non-GAAP) were $0.94 and $1.55 for the three and six months ended June 30, 2019, respectively, an increase ~~was primarily due~~ of $0.11 per diluted share, or 13.3%, and $0.13 per diluted share, or 9.2%, respectively, compared to the prior year.

These increases were driven by continued growth in our Regulated Businesses ~~segment, largely driven by~~from infrastructure investment, acquisitions and organic growth, combined with growth in our Market-Based Businesses, primarily from our Homeowner Services ~~Group. These increases were~~Group’s 2018 acquisition of Pivotal Home Solutions (“Pivotal”), and from our Military Services Group’s addition of two new military contracts in 2018. Additionally, during the second quarter of 2019, there was an increase at parent company from the sale of a legacy investment, partially offset by ~~warmer weather~~higher interest expense supporting growth in the ~~third quarter of 2016 and a discrete tax adjustment recorded at the parent company associated with legislative changes in the State of Illinois impacting state tax apportionment.~~business.

~~For the nine months ended September 30, 2017, net income attributable~~Adjustments to common stockholders was $2.39 per diluted share, an increase of $0.34 per diluted share, or 16.6% over the same period in 2016. Included in the 2017 amount was an after-tax benefit of $13 million, or $0.07 per diluted share, resulting from an insurance settlement with one of our general liability insurance carriers related to the Freedom Industries matter and an after-tax charge of $4 million, or $(0.02) per diluted share, resulting from an early debt extinguishment charge at the parent company. Included in the 2016 amount was an after-tax charge of $39 million, or $(0.22) per diluted share, resulting from the binding global agreement in principle to settle claims associated with the Freedom Industries chemical spill.

Excluding these items, adjusted diluted earnings per share (a non-GAAP measure) was $2.34 for the nine months ended September 30, 2017, an increase of $0.07 per diluted share, or 3.1%, over the same period in 2016. This increase was primarily due to continued growth in our Regulated Businesses segment, largely driven by infrastructure investment, acquisitions and organic growth, combined with growth in our Market-Based Businesses from our Homeowner Services Group. These increases were partially offset by overall warmer weather in 2016 and two discrete tax adjustments recorded at the parent company associated with legislative changes in the States of New York and Illinois impacting state tax apportionment.GAAP

Adjusted diluted earnings per share represents a non-GAAP financial measure and ~~means~~is calculated as GAAP diluted earnings per share, ~~calculated in accordance with U.S. GAAP,~~ excluding the impact of ~~(1) the September 2017 insurance~~previously disclosed settlement activities related to the Freedom Industries chemical spill ~~(2)~~settlement in West Virginia. See Note 9—Commitments and Contingencies in the ~~debt extinguishment charge incurred in September 2017 with respect~~Notes to ~~the early extinguishment of debt allocated to the parent company and (3) the October 2016 binding global agreement in principle to settle claims related to the Freedom Industries chemical spill.~~ Consolidated Financial Statements for additional information.

We believe that this non-GAAP measure provides investors with useful information by excluding certain matters that may not be indicative of our ongoing operating results, and that providing this non-GAAP measure will allow investors to better understand ~~better~~ our businesses’ operating performance and facilitate a meaningful year-to-year comparison of our results of operations. Although management uses this non-GAAP financial measure internally to evaluate our results of operations, we do not intend results ~~excluding the adjustments~~reflected by this non-GAAP measure to represent results as defined by ~~U.S.~~ GAAP, and the reader should not consider them as indicators of performance. This non-GAAP financial measure is derived from our consolidated financial information but is not presented in our financial statements prepared in accordance with ~~U.S. GAAP, and thus it~~GAAP. This measure should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with ~~U.S.~~ GAAP. In addition, this non-GAAP financial measure as defined and used above, may not be comparable to similarly titled non-GAAP measures used by other companies, and, accordingly, it may have significant limitations on its use.

Focusing on Central Themes

~~For 2017,~~In 2019, our ~~focus continues~~strategy, which is driven by our vision and values, will continue to be anchored on our five central themes: ~~1) Safety, 2) Customers, 3) People, 4) Growth~~(i) safety; (ii) customer; (iii) people; (iv) growth; and ~~5) Technology and Operational Efficiency.~~(v) operational excellence. We continue ~~our~~to focus on operating our business responsibly and managing our operating and capital costs in a manner that benefits our customers and produces long-term value for our ~~stockholders.~~shareholders. Additionally, we continue to execute on our ongoing strategy that ensures a safe workplace for our employees, emphasizes public safety for our customers and communities, and leverages our human resources, processes and technology innovation to make our business more effective and efficient. The progress that we have made during the first ~~nine~~six months of ~~2017~~2019 with respect to growth and ~~improvement in our~~ operational ~~efficiency ratio~~excellence is described below.

Growth—~~Infrastructure improvements, acquisitions~~We continue to grow our business through continued capital investment in our infrastructure and ~~strategic capital investments~~regulated acquisitions

During the first ~~nine~~six months of ~~2017,~~2019, we made capital investments of approximately ~~$1.0 billion,~~$792 million, focused in two key areas:

$~~963~~712 million, of which the majority was in our Regulated Businesses ~~segment~~ for infrastructure improvements; and

$4380 million ~~to fund~~for acquisitions in our Regulated Businesses, ~~segment,~~ which added approximately ~~16,000~~28,400 water and wastewater ~~customers. This includes~~customers through June 30, 2019, including the acquisition ~~on April 3, 2017,~~ of ~~all~~ the ~~outstanding capital stock~~City of ~~Shorelands Water Company, Inc. (“Shorelands”),~~Alton, Illinois’ regional wastewater system. We have currently entered into agreements for ~~total consideration of $33 million~~pending acquisitions in ~~the form of 438,211 shares of~~ our ~~common stock. Shorelands, which is now a part of our New Jersey subsidiary, provides water service~~Regulated Businesses to add approximately ~~11,000 customers in Monmouth County, New Jersey.~~38,200 additional customers.

For the full year of ~~2017,~~2019, our capital ~~investment,~~investments, including ~~regulated~~ acquisitions, isare expected to be ~~approximately $1.65~~in the range of $1.8 billion to $1.9 billion.

Operational Excellence—We continue to strive for industry-leading operational efficiency

Included in this range is the asset purchase agreement signed by our Pennsylvania subsidiary to acquire substantially all of the wastewater collection and treatment system assets of the Municipal Authority of the City of McKeesport, Pennsylvania for approximately $159 million, subject to certain adjustments provided in the agreement. The system currently represents approximately 22,000 wastewater customers. In connection with the execution of this agreement, $7 million in non-escrowed deposits have been made to the seller. On October 26, 2017, the Pennsylvania Public Utility Commission approved a joint petition for settlement of this acquisition. The closing of this acquisition is subject to the satisfaction of various conditions and covenants. We are expecting to close this acquisition by the end of 2017.

On September 29, 2017, our Military Services Group was awarded a contract for ownership, operation and maintenance of the water and wastewater systems at Wright-Patterson Air Force Base, the largest single-site employer in the state of Ohio. The contract award includes estimated revenues of approximately $490 million over a 50-year period, subject to an annual economic price adjustment. With the addition of this base, our backlog of revenue associated with our military contracts is approximately $3.5 billion over their remaining contract terms.

~~Technology & Operational Efficiency—Continuing Improvement in Adjusted Operation and Maintenance (“O&M”) Efficiency Ratio for our Regulated Businesses~~

~~We continued to improve on our adjusted O&M efficiency ratio (a non-GAAP measure).~~ Our adjusted O&M efficiency ratio, which we use as a measure of the operating performance of our Regulated Businesses, was 35.4% for the twelve months ended ~~September~~June 30, ~~2017 was 34.2%,~~2019, as compared to ~~34.9%~~35.3% for the twelve months ended ~~September~~June 30, ~~2016.~~2018, with all periods prior to January 1, 2018 presented on a pro forma basis to include the estimated impact of the TCJA on operating revenues. The ~~improvement~~slight unfavorable change in this ratio ~~for the twelve months ended September 30, 2017, as compared~~was largely due to the ~~same period~~impact on revenue from the unusually wet weather conditions experienced in ~~2016, was primarily attributable to an increase in regulated operating revenue.~~the Northeast and Midwest.

Our adjusted O&M efficiency ratio is defined as ~~our regulated~~the operation and maintenance expenses from our Regulated Businesses, divided by ~~regulated~~the pro forma operating revenues from our Regulated Businesses, where both operation and maintenance expenses and pro forma operating revenues were adjusted to eliminate purchased water expense. Additionally, from operation and maintenance expenses, we excluded the allocable portion of non-operation and maintenance support services ~~cost,~~costs, mainly depreciation and general taxes, ~~that~~which are reflected in our Regulated Businesses segment as operation and maintenance expenses, but for consolidated financial reporting purposes, are categorized within other line items in the accompanying Consolidated Statements of Operations.

In addition to the ~~standard~~adjustments discussed above, for period-to-period comparability purposes, we have presented the estimated impact of the TCJA on operating revenues for our Regulated Businesses on a pro forma basis for all periods presented prior to January 1, 2018, as if the lower federal corporate income tax rate was in effect for these periods (see “Tax Matters” below for additional information). We also made the following adjustments to our ~~adjusted~~ O&M efficiency ~~ratio, for 2016 and 2017, we have also~~ratio: (i) excluded from operation and maintenance expenses, the impact of certain Freedom Industries chemical spill settlement ~~activities.~~activities recognized in 2017 and 2018, and the impact of the reduction of the liability related to the Freedom Industries chemical spill settlement recognized in the first quarter of 2019 (see Note 9—Commitments and Contingencies in the Notes to Consolidated Financial Statements and “—Financial Results—Adjustments to GAAP” above for additional information); and (ii) excluded from operation and maintenance expenses, the impact of the Company’s January 1, 2018 adoption of Accounting Standards Update 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), for 2017, 2018 and 2019 (see Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements in our Form 10-K for additional information). We excluded ~~all~~ the items discussed above ~~items~~ from the calculation as we believe such items are not reflective of management’s ability to increase the efficiency of our ~~regulated operations.~~Regulated Businesses.

We evaluate our operating performance using this ratio, and believe it is useful to investors, because ~~we believe~~ it directly measures improvement in the efficiency of our ~~regulated operations.~~Regulated Businesses. This information is derived from our consolidated financial information but is not presented in our financial statements prepared in accordance with GAAP. This information is intended to enhance an investor’s overall understanding of our operating performance. Our adjusted O&M efficiency ratio is not aan accounting measure that is based on GAAP, ~~financial measure,~~ may not be comparable to other companies’ operating measures and should not be used in place of the GAAP information provided elsewhere in this ~~report.~~Form 10-Q.

~~The following~~Presented in the table ~~provides~~below is the calculation of our adjusted O&M efficiency ratio and a reconciliation that compares operation and maintenance expenses and operating revenues, each as determined in accordance with GAAP, to those amounts utilized in the calculation of our adjusted O&M efficiency ~~ratio, for the twelve months ended September 30, 2017 as compared to the same period in 2016:~~ratio:


	For the twelve months ended September 30,						For the Twelve Months Ended June 30,
(In millions)	2017			2016
(Dollars in millions)							2019			2018
Total operation and maintenance expenses(a)	$	1,383		$	1,511		$	1,520		$	1,383
Less:
Operation and maintenance expenses—Market-Based Businesses	334			391			387			334
Operation and maintenance expenses—Other(a)	(46		)	(42		)	(48		)	(40		)
Total operation and maintenance expenses—Regulated Businesses(a)	1,095			1,162			1,181			1,089
Less:
Regulated purchased water expenses	124			120			132			133
Allocation of non-operation and maintenance expenses	29			29			33			29
Impact of Freedom Industries settlement activities ~~(a)~~(b)	(22		)	65			(4		)	(42		)
Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	964		$	948		$	1,020		$	969

Total operating revenues	$	3,338		$	3,283		$	3,521		$	3,371
Less:
Pro forma adjustment for impact of the TCJA (c)							—			87
Total pro forma operating revenues							3,521			3,284
Less:
Operating revenues—Market-Based Businesses	419			464			528			430
Operating revenues—Other	(23		)	(17		)	(22		)	(22		)
Total regulated operating revenues—Regulated Businesses	2,942			2,836
Total pro forma operating revenues—Regulated Businesses							3,015			2,876
Less:
Regulated purchased water revenues (b)	124			120
Adjusted operating revenues—Regulated Businesses (ii)	$	2,818		$	2,716
Regulated purchased water revenues (d)							132			133
Adjusted pro forma operating revenues—Regulated Businesses (ii)							$	2,883		$	2,743

Adjusted operation and maintenance efficiency ratio—Regulated Businesses (i) / (ii)	34.2		%	34.9		%
Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)							35.4		%	35.3		%


(a)	Includes ~~binding agreement in principle in 2016 and settlement with general liability insurance carrier in 2017.~~the impact of the Company’s adoption of ASU 2017-07on January 1, 2018.


(b)	~~Calculation~~Includes the impact of settlements in 2017 and 2018 with two of our general liability insurance carriers, and the reduction of the liability related to the Freedom Industries chemical spill in the first quarter of 2019.


(c)	Includes the estimated impact of the TCJA on operating revenues for our Regulated Businesses for all periods presented prior to January 1, 2018, as if the lower federal corporate income tax rate was in effect for these periods.


(d)	The calculation assumes regulated purchased water revenues approximate regulated purchased water expenses.

Regulatory Matters

~~The~~Presented in the table below ~~provides~~are annualized incremental revenues, ~~resulting from rate authorizations that became effective during the nine months ended September 30, 2017 for general rate cases,~~ assuming a constant water sales volume, resulting from general rate cases and infrastructure ~~surcharge mechanisms. There were no rate authorizations~~surcharges that became ~~effective during the three months ended September 30, 2017.~~effective:

(In millions) For the Nine Months Ended September 30, 2017
General rate cases by state:
New York (effective June 1, 2017)
$ 4
Virginia (a)
5
Iowa (effective March 27, 2017)
4
California (effective January 13, 2017 - February 2, 2017)
5
Illinois (effective January 1, 2017)
25
Total general rate cases $ 43

Infrastructure surcharges by state:
New Jersey (effective June 1, 2017)
$ 10
Indiana (effective March 22, 2017)
8
Tennessee (effective March 14, 2017)
2
Pennsylvania (effective January 1, 2017)
1
West Virginia (effective January 1, 2017)
2
Total infrastructure surcharges $ 23



(In millions)	During the Three Months Ended June 30, 2019		During the Six Months Ended June 30, 2019
General rate cases by state:
Kentucky (effective June 28, 2019)	$	13	$	13
California (a)	4		4
New York (b)	4		4
West Virginia (effective February 25, 2019)	—		19
Maryland (effective February 5, 2019)	—		1
Total general rate cases	$	21	$	41

Infrastructure surcharges by state:
Missouri (effective June 24, 2019)	$	9	$	9
Pennsylvania (effective April 1, 2019)	2		2
Illinois (effective January 1, 2019)	—		8
West Virginia (effective January 1, 2019)	—		2
Total infrastructure surcharges	$	11	$	21


(a)	~~The~~Our California subsidiary received approval for the second rate year (2019) step increase associated with its most recent general rate case authorization, effective ~~date of the~~May 11, 2019.


(b)	Our New York subsidiary implemented its third step increase associated with its most recent general rate ~~order was May 24, 2017, authorizing the implementation of interim rates as of~~case authorization, effective April 1, ~~2016.~~2019.

Our Indiana subsidiary received an order approving a joint settlement agreement with all major parties with respect to its general rate case filing, authorizing annualized incremental revenues of $4 million in the first rate year, effective July 1, 2019, and $13 million in the second rate year, effective approximately May 1, 2020.

Effective July 1, 2019, our New Jersey and Pennsylvania subsidiaries implemented infrastructure surcharges for annualized incremental revenues of $15 million and $3 million, respectively.

Pending General Rate Case ~~and Cost of Capital~~ Filings

During the second quarter of 2017, our Pennsylvania subsidiary filed a general rate case requesting $108 million in additional annualized water and wastewater revenues. On October 16, 2017, a proposed settlement agreement was entered into by our Pennsylvania subsidiary and the other parties to the proceeding, providing for additional annualized water and wastewater revenues of $62 million, subject to approval by the administrative law judges assigned to the case and the PaPUC.

On ~~September 15, 2017, our New Jersey subsidiary filed a general rate case requesting $129 million in additional annualized water and wastewater revenues.~~

~~On June 30, 2017, our Missouri subsidiary filed a general rate case requesting $84 million in additional annualized water and wastewater revenues.~~

On April 3, 2017, our California subsidiary filed an application requesting a cost of capital of 8.49%, compared to 8.41% currently authorized. The results of this proceeding will not become effective until January 2018.

~~During the third quarter of 2016,~~July 1, 2019, our California subsidiary filed a general rate case requesting ~~$35~~$26 million ~~in additional~~ annualized incremental revenues for 2021, and ~~an increase~~increases of $8$10 million and $11 million in the escalation year of ~~2019~~2022 and the attrition year of 2020. During the fourth quarter of 2016, our California subsidiary filed an update to its general rate case, adjusting its request for additional annualized revenues to $32 million and increasing its request to $9 million in the escalation year of 2019.2023, respectively.

~~Pending Infrastructure Surcharge Filings~~

~~On October 31, 2017,~~In 2018, our Virginia subsidiary filed ~~for infrastructure surcharges requesting $1 million in additional annualized revenues.~~

~~On October 13, 2017, our New Jersey subsidiary filed for an infrastructure surcharge requesting $4 million in additional annualized revenues.~~

During the second quarter of 2017, our West Virginia subsidiary filed for an infrastructure surcharge requesting $3 million in additional annualized revenues. On October 11, 2017, our West Virginia subsidiary filed a settlement agreement with the Public Service Commission of West Virginia (“WVPSC”), whereby all parties to the proceeding have agreed to an infrastructure surcharge that provides for approximately the requested increase amount in annualized revenues, subject to approval by the WVPSC.

~~During the second quarter of 2017, our Missouri subsidiary filed for an infrastructure surcharge~~general rate case requesting $5 million in ~~additional~~ annualized incremental revenues. On ~~August 29, 2017, our Missouri subsidiary refiled~~May 1, 2019, interim rates under bond and ~~adjusted its request for additional annualized revenues~~subject to ~~$6 million.~~

~~Other Regulatory Filings~~

~~On August 4, 2017, our Illinois subsidiary filed a petition with Illinois Commerce Commission (“ICC”) to place into~~refund were implemented and will remain in effect revised depreciation rates applicable to depreciable water and wastewater plant resulting from a new depreciation study. The petition requested that these new rates would be effective January 1, 2017. We expect the ICC to provideuntil a final ~~ruling~~decision is received on ~~the petition in the fourth quarter of 2017. The estimated effect of the new study is to lower depreciation expense by approximately $16 million on an annualized basis.~~this general rate case filing.

There is no assurance that all or any portion of these requests will be granted.

~~Other~~ Pending Infrastructure Surcharge Filings

Presented in the table below are our pending infrastructure surcharge filings:



(In millions)	Date Filed	Amount
Pending infrastructure surcharge filings by state:
West Virginia	June 28, 2019	$	4
New York	May 30, 2019	2
Tennessee	November 16, 2018	2
Total pending infrastructure surcharge filings		$	8

There is no assurance that all or any portion of these requests will be granted.

Tax Matters

Tax Cuts and Jobs Act

On ~~April 11,~~December 22, 2017, the ~~State~~TCJA was signed into law, which, among other things, enacted significant and complex changes to the Internal Revenue Code of ~~New York enacted legislation that increased~~1986, including a reduction in the ~~state~~federal corporate income tax rate ~~on our taxable~~from 35% to 21% as of January 1, 2018, and certain other provisions related specifically to the public utility industry, including continuation of interest expense deductibility, the exclusion from utilizing bonus depreciation and the normalization of deferred income ~~attributable~~taxes. In 2018, the Company’s 14 regulatory jurisdictions began to ~~New York. This legislation eliminated~~consider the ~~production~~impacts of ~~water as a qualified manufacturing activity in New York, which effectively increased~~ the ~~state~~TCJA. The Company has adjusted customer rates to reflect the lower income tax rate in ~~New York. As~~10 states. In one of those 10 states, a ~~result~~portion of the ~~legislative change,~~tax savings is being used to reduce certain regulatory assets. In one additional state, we ~~were required to re-measure our cumulative deferred tax balances~~are using the ~~higher state income~~ tax ~~rate~~savings to offset additional capital investment and to reduce a regulatory asset. Proceedings in the ~~second quarter~~other three regulatory jurisdictions remain pending.

The enactment of ~~2017. This change in legislation was~~ the ~~primary cause~~TCJA required a re-measurement of ~~an increase to~~ our ~~unitary~~ deferred ~~tax liability~~income taxes that materially impacted our 2017 results of ~~$11 million.~~operations and financial position. The portion of this ~~increase~~re-measurement related to our ~~New York subsidiary calculated on a stand-alone basis~~Regulated Businesses was ~~$7 million, and was~~substantially offset by a regulatory ~~asset,~~liability, as we believe it is probable ~~of recovery~~that the excess accumulated deferred income taxes (“EADIT”) created by the TCJA will be used to benefit our regulated customers in future rates. The Company is amortizing EADIT and crediting customers in three states, including one state where the EADIT is being used to offset future infrastructure investments. Amortization of EADIT will begin in three additional states during the third quarter of 2019. In the eight remaining ~~increase~~regulated jurisdictions, we expect the timing of the amortization of EADIT credits to be addressed in pending or future rate cases or other proceedings.

On March 23, 2018, President Trump signed the Consolidated Appropriations Act of 2018 (the “CAA”). The CAA corrects and clarifies some aspects of the TCJA related to bonus depreciation eligibility. Specifically, property that was either acquired, or as to which construction began prior to September 27, 2017, is eligible for bonus depreciation. The Company had a federal NOL carryover balance as of December 31, 2018 that is not expected to be fully utilized until 2020, which is when the Company expects that it will become a cash taxpayer for federal income tax purposes.

Legislative Updates

During 2019, our regulatory jurisdictions enacted the following legislation that has been approved and is effective as of July 31, 2019:

In Illinois, the Governor signed a 10-year extension of the System’s Viability Act, Illinois’ fair market value legislation. In addition to extending the Act, the updated law removes the previous size restriction and allows all municipalities to take advantage of the benefits of the program.

Indiana Senate Enrolled Act 472 allows non-municipal utilities to benefit from full appraisal recovery of their assets in a sale.

Indiana House Enrolled Act 1406 established the first state appropriation for water infrastructure investment at $20 million per year.

Indiana Senate Enrolled Act 4 extends leveling legislation to require biannual water loss audits and establishes the state revolving fund administrator as the central coordinator for water issues in the state.

During 2019, our regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of July 31, 2019:

In Pennsylvania, House Bill 751, now Act 53 of 2019, was passed and allows water and wastewater utilities responsible for funding the income taxes on taxable contributions and advances to record the income taxes paid in accumulated deferred ~~tax liability~~income taxes for accounting and ratemaking purposes.

In West Virginia, House Bill 117 was ~~calculated~~passed and allows qualified low income customers to apply for a 20% discount on their wastewater bill.

Condemnation and Eminent Domain

All or portions of our Regulated Businesses’ utility assets could be acquired by state, municipal or other government entities through one or more of the following methods: (i) eminent domain (also known as condemnation); (ii) the right of purchase given or reserved by a municipality or political subdivision when the original certificate of public convenience and necessity (“CPCN”) was granted; and (iii) the right of purchase given or reserved under the law of the state ~~tax apportionment~~in which the utility subsidiary was incorporated or from which it received its CPCN. The acquisition consideration related to such a proceeding initiated by a local government may be determined consistent with applicable eminent domain law, or may be negotiated or fixed by appraisers as prescribed by the law of the state or in the particular CPCN.

As such, we are periodically subject to condemnation proceedings in the ordinary course of business. For example, a citizens group in Monterey, California successfully added “Measure J” to the November 6, 2018 election ballot asking voters to decide whether the Monterey Peninsula Water Management District (the “MPWMD”) should conduct a feasibility study concerning the potential purchase of our California subsidiary’s Monterey water service assets, and, if feasible, to proceed with a purchase of those assets without an additional public vote. This service territory represents approximately 40,000 customers. On November 27, 2018, Measure J was certified to have passed. The MPWMD has until August 27, 2019 to complete a feasibility study and submit to its board a written plan for acquiring the system assets. If the MPWMD were to determine that such an acquisition is feasible, then the MPWMD would commence a multi-year eminent domain proceeding against our California subsidiary to first establish the MPWMD’s right to take the system assets and, if such right is established, determine the amount of just compensation to be paid for the system assets.

Also, five municipalities in the Chicago, Illinois area (approximately 30,300 customers in total) formed a water agency and filed an eminent domain lawsuit against our Illinois subsidiary in January 2013, seeking to condemn the water pipeline that serves those five municipalities. Before filing its eminent domain lawsuit, the water agency made an offer of $38 million for the pipeline. A jury trial will take place to establish the value of the pipeline. The parties have filed with the court updated valuation reports. Although the date of the valuation trial has not currently been scheduled, it is not likely to commence before the first quarter of 2020.

Furthermore, the law in certain jurisdictions in which our Regulated Businesses operate provides for eminent domain rights allowing private property owners to file a lawsuit to seek just compensation against a public utility, if a public utility’s infrastructure has been determined to be a substantial cause of damage to that property. In these actions, the plaintiff would not have to prove that the public utility acted negligently. In California, most recently, lawsuits have been filed in connection with large-scale natural events such as wildfires. Some have included allegations that infrastructure of certain utilities triggered the natural event that resulted in damage to the property. In some cases, the PUC has allowed certain costs or losses incurred by the utility to be recovered from customers in rates, but in other cases such recovery in rates has been disallowed. Also, the utility may have obtained insurance that could respond to some or all of such losses, although the utility would be at risk for any losses not ultimately subject to rate or insurance recovery or losses that exceed the limits of such insurance.

Consolidated Results of Operations

Presented in the table below are our consolidated results of operations:



	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2019			2018			Increase (Decrease)					2019			2018			Increase (Decrease)
(Dollars in millions)
Operating revenues	$	882		$	853		$	29		3.4	%	$	1,695		$	1,614		$	81		5.0	%
Operating expenses:
Operation and maintenance	372			348			24					737			695			42
Depreciation and amortization	142			134			8					286			263			23
General taxes	72			69			3					141			139			2
(Gain) on asset dispositions and purchases	(6		)	—			(6		)			(9		)	(2		)	(7		)
Total operating expenses, net	580			551			29			5.3	%	1,155			1,095			60			5.5	%
Operating income	302			302			—					540			519			21
Other income (expense):
Interest, net	(94		)	(86		)	(8		)			(187		)	(170		)	(17		)
Non-operating benefit costs, net	4			2			2					8			5			3
Other, net	15			4			11					18			8			10
Total other income (expense)	(75		)	(80		)	5			(6.3	)%	(161		)	(157		)	(4		)	2.5	%
Income before income taxes	227			222			5					379			362			17
Provision for income taxes	57			60			(3		)			96			94			2
Net income attributable to common shareholders	$	170		$	162		$	8		4.9	%	$	283		$	268		$	15		5.6	%

The main factors contributing to the increases in net income attributable to common stockholders for the three and ~~recorded at the consolidated level, resulting~~six months ended June 30, 2019 are described in ~~a non-cash, cumulative charge to earnings~~“Segment Results of ~~$4 million~~Operations” below. Additionally, during the second quarter of ~~2017.~~

On July 7, 2017, the State of Illinois enacted legislation that increased, effective July 1, 2017, the state income tax rate on our taxable income attributable to Illinois from 7.75% to 9.5%. As a result of the legislative change, we were required to re-measure our cumulative deferred tax balances using the higher state income tax rate in the third quarter of 2017. This change in legislation2019, there was ~~the primary cause of~~ an increase ~~to our unitary deferred tax liability~~at parent company from the sale of ~~$7 million. The portion of this increase related to our Illinois subsidiary calculated on~~ a stand-alone basis was $4 million, and was offset by a regulatory asset, as we believe it is probable of recovery in future rates. The remaining increase in the deferred tax liability was recorded at the consolidated level, resulting in a non-cash, cumulative charge to earnings of $3 million during the third quarter of 2017.

During the second quarter of 2017, we were notified by the assessor for St. Louis County, Missouri, that it was changing its long standing practice of valuing regulated water and wastewater property located in the County using a seven-year life, and instead intends to use a twenty-year life for a substantial portion of this property. During the second quarter of 2017, we were also notified by the assessor for Platte County, Missouri, that it intended to change its long standing practice of valuing regulated water and wastewater property located in the County using a twenty-year life, and instead intends to use a fifty-year life for a substantial portion of this property. These changes in practice and the resulting valuations as assessed by the respective County, will increase our property tax obligation beginning in 2017. We have asked the Missouri regulator for an accounting recovery mechanism that would allow deferral of any increase in tax resulting from these changes in long standing practice, and we believe these increases are recoverable through future customer rates. As a result, during the second quarter of 2017, we recorded the additional estimated increase in property tax obligation of $2 million, with an offset to a regulatory asset. During the third quarter of 2017, we filed complaints with the Missouri State Tax Commission, seeking review of property assessments in Platte County.

~~Consolidated Results of Operations~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Operating revenues $ 936
$ 930
$ 6
0.6 % $ 2,536
$ 2,500
$ 36
1.4 %
Operating expenses:
Operation and maintenance 324
432
(108 ) (25.0 )% 1,010
1,131
(121 ) (10.7 )%
Depreciation and amortization 128
119
9
7.6 % 378
350
28
8.0 %
General taxes 61
65
(4 ) (6.2 )% 192
195
(3 ) (1.5 )%
Gain on asset dispositions and purchases (7 ) (5 ) (2 ) 40.0 % (9 ) (8 ) (1 ) 12.5 %
Total operating expenses, net 506
611
(105 ) (17.2 )% 1,571
1,668
(97 ) (5.8 )%
Operating income 430
319
111
34.8 % 965
832
133
16.0 %
Other income (expenses):
Interest, net (89 ) (81 ) (8 ) 9.9 % (259 ) (242 ) (17 ) 7.0 %
Loss on extinguishment of debt (6 ) —
(6 ) 100.0%
(6 ) —
(6 ) 100.0%
Other, net 5
5
—
— % 11
14
(3 ) (21.4 )%
Total other income (expenses) (90 ) (76 ) (14 ) 18.4 % (254 ) (228 ) (26 ) 11.4 %
Income before income taxes 340
243
97
39.9 % 711
604
107
17.7 %
Provision for income taxes 137
95
42
44.2 % 284
237
47
19.8 %
Net income attributable to common stockholders $ 203
$ 148
$ 55
37.2 % $ 427
$ 367
$ 60
16.3 %

~~Comparison of Consolidated Results of Operations~~

~~Operating revenues.~~ ~~For the three months ended September 30, 2017, operating revenues increased primarilydue to a:~~

~~$16 million increase in our Regulated Businesses segment principally due to authorized rate increases to fund infrastructure~~legacy investment, ~~growth, acquisitions and organic growth,~~ partially offset by ~~lower water services demand in 2017, including a $7 million reduction due to warmer weather~~higher interest expense supporting growth in the ~~third quarter of 2016; partially offset by a~~

$9 million decrease in our Market-Based Businesses primarily due to lower capital upgrades in our Military Services Group, largely from reduced military base budgets, partially offset by incremental revenues in our Homeowner Services Group from customer growth and price increases for existing customers.

~~For the nine months ended September 30, 2017, operating revenues increased primarily due to a:~~

$71 million increase in our Regulated Businesses segment principally due to authorized rate increases to fund infrastructure investment growth, acquisitions and organic growth, partially offset by lower water services demand in 2017, including a $12 million reduction due to overall warmer weather in 2016; partially offset by a

$32 million decrease in our Market-Based Businesses primarily due to lower capital upgrades in our Military Services Group, largely from reduced military base budgets and the completion of a large project in mid-2016 at Fort Polk, partially offset by incremental revenues in our Homeowner Services Group from customer growth and price increases for existing customers.

~~Operation and maintenance.~~ ~~For the three months ended September 30, 2017,operation and maintenance expense decreased primarily due to a:~~

$88 million decrease in our Regulated Businesses segment principally due to a $65 million charge recorded in the third quarter of 2016, resulting from the binding global agreement in principle to settle claims associated with the Freedom Industries chemical spill in West Virginia, and a $22 million benefit recorded in the third quarter of 2017, resulting from an insurance settlement with one of our general liability insurance carriers also related to this matter in West Virginia; partially offset by a

~~$17 million decrease in our Market-Based Businesses primarily due to lower capital upgrades in our Military Services Group, as discussed above.~~

~~For the nine months ended September 30, 2017,operation and maintenance expense decreased primarily due to a:~~

$87 million decrease in our Regulated Businesses segment due to a $65 million charge recorded in the third quarter of 2016, resulting from the binding global agreement in principle to settle claims associated with the Freedom Industries chemical spill in West Virginia, and a $22 million benefit recorded in the third quarter of 2017, resulting from an insurance settlement with one of our general liability insurance carriers also related to this matter in West Virginia; and a

~~$6 million increase in our Regulated Business segment principally due to increases in production costs, employee-related costs and operating supplies and services; partially offset by a~~

$38 million decrease in our Market-Based Businesses primarily due to lower capital upgrades in our Military Services Group, as discussed above, partially offset by incremental costs associated with growth in our Homeowner Services Group.

~~Depreciation and amortization.~~ ~~For the three and nine months ended September 30, 2017, depreciation and amortization expense increased primarily due to additional utility plant placed in service.~~

~~General taxes.~~ ~~For the three and nine months ended September 30, 2017, general taxes decrease largely due to property tax refund credits in our Pennsylvania subsidiary.~~

~~Other income (expenses).~~ For the three and nine months ended September 30, 2017, other income (expenses) increased principally due to: (i) an increase in interest expense from the issuance of long-term debt in the fourth quarter of 2016 and in the third quarter of 2017; (ii) a $6 million early debt extinguishment charge at the parent company; and (iii) additional interest expense incurred on long-term debt that was refinanced in August 2017, but did not mature until October 2017.

~~Provision for income taxes.~~ For the three and nine months ended September 30, 2017, our provision for income taxes increased primarily due to higher pretax income and two discrete tax adjustments of $4 million and $3 million recorded at the parent company in the second and third quarters of 2017, associated with legislative changes in the States of New York and Illinois impacting state tax apportionment.business.

Segment Results of Operations

Our operating segments are ~~determined based on how we~~comprised of the revenue-generating components of the business for which separate financial information is internally produced and regularly used by management to make operating decisions, assess performance and allocate ~~our~~ resources. ~~We evaluate the performance of our segments and allocate resources based on several factors, with the primary measure being income from continuing operations.~~

~~We conduct our~~The Company operates its business primarily through one reportable segment, ~~our~~the Regulated Businesses segment. We also operate several market-based businesses ~~that provide a broad range of related and complementary water and wastewater services~~ within ~~four~~ operating segments that individually do not meet the criteria of a reportable segment in accordance with GAAP. These ~~four~~ non-reportable operating segments are collectively presented as our ~~“Market-Based Businesses”,~~Market-Based Businesses, which is consistent with how management assesses the results of ~~our~~these businesses.

Regulated Businesses Segment

~~The following~~Presented in the table ~~summarizes certain~~below is financial information for our Regulated ~~Businesses segment:~~Businesses:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Operating revenues $ 842
$ 826
$ 16
1.9 % $ 2,247
$ 2,176
$ 71
3.3 %
Operation and maintenance 262
350
(88 ) (25.1 )% 800
881
(81 ) (9.2 )%
Total operating expenses, net 433
521
(88 ) (16.9 )% 1,327
1,385
(58 ) (4.2 )%
Net income attributable to common stockholders 212
152
60
39.5 % 446
374
72
19.3 %



	For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2019			2018			Increase (Decrease)					2019			2018			Increase (Decrease)
(Dollars in millions)
Operating revenues	$	755		$	744		$	11		1.5	%	$	1,440		$	1,410		$	30		2.1	%
Operation and maintenance	287			264			23			8.7	%	565			542			23			4.2	%
Depreciation and amortization	132			123			9					262			245			17
General taxes	67			66			1					131			131			—
(Gain) on asset dispositions and purchases	(6		)	(1		)	(5		)			(8		)	(3		)	(5		)
Other income (expenses)	(67		)	(64		)	(3		)			(132		)	(127		)	(5		)
Provision for income taxes	52			59			(7		)			92			97			(5		)
Net income attributable to common shareholders	156			167			(11		)	(6.6	)%	266			271			(5		)	(1.8	)%

Operating Revenues

~~Operating revenues~~.~~The following~~Presented in the tables ~~and discussion provide explanation of~~below is information regarding the ~~variances related to the three~~main components of our Regulated Businesses’ operating ~~revenues—water services~~ revenues, ~~wastewater services revenues and other revenues:~~with explanations for material variances provided in the ensuing discussions:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Billed water services:
Residential $ 477
$ 468
$ 9
1.9 % $ 1,244
$ 1,199
$ 45
3.8 %
Commercial 176
172
4
2.3 % 453
436
17
3.9 %
Industrial 37
38
(1 ) (2.6 )% 103
101
2
2.0 %
Public and other 96
94
2
2.1 % 262
253
9
3.6 %
Other water revenues 6
16
(10 ) (62.5 )% 31
42
(11 ) (26.2 )%
Billed water services 792
788
4
0.5 % 2,093
2,031
62
3.1 %
Unbilled water services —
(4 ) 4
(100.0 )% 8
23
(15 ) (65.2 )%
Total water services revenues 792
784
8
1.0 % 2,101
2,054
47
2.3 %
Wastewater services revenues 36
28
8
28.6 % 106
83
23
27.7 %
Other revenues 14
14
—
— % 40
39
1
2.6 %
Total operating revenues $ 842
$ 826
$ 16
1.9 % $ 2,247
$ 2,176
$ 71
3.3 %



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2019		2018		Increase (Decrease)					2019		2018		Increase (Decrease)
(Dollars in millions)
Water services:
Residential	$	415	$	410	$	5		1.2	%	$	793	$	778	$	15		1.9	%
Commercial	153		152		1			0.7	%	289		285		4			1.4	%
Fire service	35		34		1			2.9	%	69		67		2			3.0	%
Industrial	34		34		—			—	%	66		65		1			1.5	%
Public and other	68		62		6			9.7	%	120		112		8			7.1	%
Total water services	705		692		13			1.9	%	1,337		1,307		30			2.3	%
Wastewater services	40		38		2			5.3	%	80		76		4			5.3	%
Other (a)	10		14		(4		)	(28.6	)%	23		27		(4		)	(14.8	)%
Total operating revenues	$	755	$	744	$	11		1.5	%	$	1,440	$	1,410	$	30		2.1	%


(a)	Includes other operating revenues consisting primarily of miscellaneous utility charges, fees and rents.


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017	2016	Increase (Decrease)				2017	2016	Increase (Decrease)				2019	2018	Increase (Decrease)				2019	2018	Increase (Decrease)
(In millions)
(Gallons in millions)
Billed water services volumes:
Residential	53,928	55,108	(1,180	)	(2.1	)%	131,488	132,453	(965	)	(0.7	)%	39,106	40,783	(1,677	)	(4.1	)%	74,873	78,238	(3,365	)	(4.3	)%
Commercial	24,913	25,170	(257	)	(1.0	)%	61,793	62,273	(480	)	(0.8	)%	19,197	19,767	(570	)	(2.9	)%	36,633	37,514	(881	)	(2.3	)%
Industrial	10,661	11,013	(352	)	(3.2	)%	29,218	29,194	24		0.1	%	9,164	9,198	(34	)	(0.4	)%	17,809	18,895	(1,086	)	(5.7	)%
Public and other	15,085	14,512	573		3.9	%	38,920	37,983	937		2.5	%
Fire service, public and other													12,119	12,343	(224	)	(1.8	)%	23,210	23,923	(713	)	(3.0	)%
Billed water services volumes	104,587	105,803	(1,216	)	(1.1	)%	261,419	261,903	(484	)	(0.2	)%	79,586	82,091	(2,505	)	(3.1	)%	152,525	158,570	(6,045	)	(3.8	)%

For the three months ended ~~September~~June 30, ~~2017,~~2019, operating revenues increased $11 million, primarily due to a:

$2030 million increase from authorized rate increases, ~~and~~including infrastructure surcharges, principally to fund infrastructure investment ~~growth~~in various states; partially offset by a

$19 million decrease from lower water services demand, including $13 million driven by unusually wet weather conditions experienced in the Northeast and Midwest during the second quarter of 2019, and ongoing customer usage reductions from conservation.

For the six months ended June 30, 2019, operating revenues increased $30 million, primarily due to a:

$60 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; and a

$126 million increase ~~attributable to recent~~from water and wastewater acquisitions, as well as organic growth in existing systems; partially offset by a

$1928 million decrease ~~due to~~from lower water services demand, ~~excluding the impact of completed acquisitions,~~ including ~~a $7~~$13 million ~~reduction due to warmer~~driven by unusually wet weather conditions experienced in the ~~third~~Northeast and Midwest during the second quarter of ~~2016.~~

~~For the nine months ended September 30, 2017, operating revenues increased primarily due to a:~~

~~$67 million increase~~2019, and ongoing customer usage reductions from ~~authorized rate increases and infrastructure surcharges to fund infrastructure investment growth in various states;~~

~~$31 million increase attributable to recent water and wastewater acquisitions, as well as organic growth in existing systems;~~conservation; and a

$6 million ~~increase in wastewater services, excluding the impact of completed acquisitions,~~decrease resulting from ~~higher treatment volumes, as well as an increase in private fire service connections; partially offset by a~~our Missouri subsidiary’s 2018 general rate case decision authorizing the adjustment of customer rates, effective May 28, 2018, to reflect the income tax savings resulting from the TCJA.

~~$36 million decrease due to lower water services demand, excluding the impact of completed acquisitions, including a $12 million reduction due to overall warmer weather in 2016.~~

Operation and ~~maintenance.~~ ~~The following~~Maintenance

Presented in the table ~~summarizes~~below is information regarding the main components of ~~operation~~our Regulated Businesses’ operating and maintenance ~~expense:~~expense, with explanations for material variances provided in the ensuing discussions:


	For the Three Months Ended September 30,										For the Nine Months Ended September 30,									For the Three Months Ended June 30,										For the Six Months Ended June 30,
	2017			2016		Increase (Decrease)					2017		2016		Increase (Decrease)					2019		2018			Increase (Decrease)					2019		2018		Increase (Decrease)
(In millions)
(Dollars in millions)
Production costs	$	87		$	86	$	1		1.2	%	$	224	$	220	$	4		1.8	%	$	75	$	77		$	(2	)			$	144	$	146	$	(2	)
Employee-related costs	112			107		5			4.7	%	334		328		6			1.8	%	115		110			5					232		227		5
Operating supplies and services	51			50		1			2.0	%	150		149		1			0.7	%	56		53			3					111		101		10
Maintenance materials and supplies	15			16		(1		)	(6.3	)%	49		46		3			6.5	%	18		17			1					37		39		(2		)
Customer billing and accounting	14			17		(3		)	(17.6	)%	37		41		(4		)	(9.8	)%	13		16			(3		)			24		26		(2		)
Other	(17		)	74		(91		)	(123.0	)%	6		97		(91		)	(93.8	)%	10		(9		)	19					17		3		14
Total	$	262		$	350	$	(88	)	(25.1	)%	$	800	$	881	$	(81	)	(9.2	)%	$	287	$	264		$	23		8.7	%	$	565	$	542	$	23		4.2	%

For the three months ended ~~September~~June 30, ~~2017,~~2019, operation and maintenance expense ~~decreased~~increased $23 million, primarily due to a:

$9119 million ~~decrease~~increase in other operation and maintenance expense principally due to a ~~$65~~$20 million ~~charge~~benefit recorded in the ~~third~~second quarter of ~~2016,~~2018, resulting from ~~the binding global agreement in principle~~an insurance settlement related to ~~settle claims associated with~~ the Freedom Industries chemical spill in West ~~Virginia,~~Virginia; and a ~~$22~~

$5 million ~~benefit recorded~~increase in employee-related costs from higher headcount and related compensation expense supporting growth in the third quarter of 2017, resulting from an insurance settlement with one of our general liability insurance carriers also related to this matter in West Virginia; as well as lower casualty insurance expense attributable tobusinesses; partially offset by a ~~decrease in historical claims experience; and a~~

$3 million decrease in customer billing and accounting ~~largely due to~~from a decrease in customer uncollectible expense, ~~resulting from focused collection efforts; partially offset by a~~

~~$5 million increase~~primarily in ~~employee-related costs primarily due to higher pension expense resulting from a decrease in the discount rate~~our Pennsylvania and ~~increased plan obligations, as well as higher other postretirement benefit plan expense resulting from plan amendments approved in the third quarter of 2016; and a~~

$1 million increase in operating supplies and services principally due to a $5 million write-off recorded in the third quarter of 2016, related to timekeeping system costs that were previously capitalized, partially offset by higher contracted services expense.Missouri subsidiaries.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, operation and maintenance expense ~~decreased~~increased $23 million, primarily due to a:

$9114 million ~~decrease~~increase in other operation and maintenance expense principally due to a ~~$65~~$20 million ~~charge~~insurance settlement benefit recorded in the ~~third~~second quarter of ~~2016, resulting from~~2018, as discussed above, offset in part by a $4 million reduction to the ~~binding global agreement in principle~~liability related to ~~settle claims associated with~~ the Freedom Industries chemical spill, ~~in West Virginia, and a $22 million benefit~~ recorded in the ~~third~~first quarter of ~~2017, resulting from an insurance settlement with one of our general liability insurance carriers also related~~2019 (see Note 9—Commitments and Contingencies in the Notes to ~~this matter in West Virginia; as well as lower casualty insurance expense attributable to a decrease in historical claims experience; and~~Consolidated Financial Statements for additional information); a

$~~4 million decrease in customer billing and accounting largely due to a decrease in customer uncollectible expense resulting from focused collection efforts; partially offset by a~~

~~$4 million increase in production costs primarily due to purchased water price and usage increases in our California subsidiary, as well as fuel and power price increases;~~

$6 million increase in employee-related costs primarily due to higher pension expense resulting from a decrease in the discount rate and increased plan obligations, as well as higher compensation expense in support of the growth of the business;

$110 million increase in operating supplies and services ~~principally due to a $5 million write-off of timekeeping system~~from higher costs ~~that were previously capitalized~~for temporary workers for technology support services, as well as an increase in other operating expenses; and a $7

$5 million ~~judgment~~increase in ~~litigation, both recorded~~employee-related costs from higher headcount and related compensation expense supporting growth in the ~~third quarter of 2016,~~businesses; partially offset by ~~higher contracted services expense; and~~ a

$36 million ~~increase~~combined decrease in production costs, customer billing and accounting and maintenance materials and supplies largely ~~due to~~from lower purchased water usage in our California subsidiary, lower customer uncollectible expense, and a higher volume of main breaks and paving expense driven by the ~~timing~~colder weather experienced in the first quarter of ~~maintenance activities.~~2018.

~~Operating expenses, net.~~ Depreciation and Amortization

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, operating expenses, net decreased~~2019, depreciation and amortization increased $9 million and $17 million, respectively, primarily due to additional utility plant placed in service.

(Gain) on Asset Dispositions and Purchases

For the ~~decrease in operating~~three and ~~maintenance expense as explained above, as well~~six months ended June 30, 2019, (gain) on asset dispositions and purchases increased $5 million, primarily due to a ~~$3 million decrease in property taxes in our Pennsylvania subsidiary from credit refunds and a $7~~$6 million gain recognized on a land sale in our ~~Kentucky subsidiary, partially offset by higher depreciation~~Pennsylvania subsidiary.

Other Income (Expenses)

For the three and ~~amortization expense of $10~~six months ended June 30, 2019, other income (expenses) increased $3 million and ~~$29~~$5 million, respectively, primarily due to ~~additional utility plant placed~~an increase in ~~service.~~interest expense from the issuance of incremental long-term debt in the second quarter of 2019 and the third quarter of 2018, supporting growth in the business.

Provision for Income Taxes

For the three and six months ended June 30, 2019, our provision for income taxes decreased $7 million and $5 million, respectively, primarily due to the benefit from amortization of EADIT resulting from the TCJA, which began for three of our regulated subsidiaries in 2019, and unitary state adjustments and other deductions under the TCJA recorded in 2018.

Market-Based Businesses

~~The following~~Presented in the table ~~summarizes certain financial~~below is information for our Market-Based ~~Businesses:~~Businesses, with explanations for material variances provided in the ensuing discussions:

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Operating revenues $ 100
$ 109
$ (9 ) (8.3 )% $ 306
$ 338
$ (32 ) (9.5 )%
Operation and maintenance 75
92
(17 ) (18.5 )% 247
285
(38 ) (13.3 )%
Total operating expenses, net 80
98
(18 ) (18.4 )% 263
300
(37 ) (12.3 )%
Net income attributable to common
stockholders 14
7
7
100.0 % 29
26
3
11.5 %



	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2019		2018		Increase (Decrease)				2019		2018		Increase (Decrease)
(Dollars in millions)
Operating revenues	$	132	$	114	$	18	15.8	%	$	266	$	214	$	52	24.3	%
Operation and maintenance	96		89		7		7.9	%	194		169		25		14.8	%
Depreciation and amortization	8		7		1				17		11		6
Provision for income taxes	8		5		3				15		9		6
Net income attributable to common shareholders	21		13		8		61.5	%	41		25		16		64.0	%

Operating ~~revenues.~~ Revenues

For the three months ended ~~September~~June 30, ~~2017,~~2019, operating revenues ~~decreased~~increased $18 million, primarily due to a:

$~~12 million decrease in our Military Services Group principally due to lower capital upgrades in 2017, largely from reduced military base budgets; partially offset by a~~

$530 million increase in our Homeowner Services Group from ~~customer~~contract growth, including $28 million from the acquisition of Pivotal in the second quarter of 2018; and ~~price increases for existing customers.~~a

$2 million increase in our Military Services Group from the addition of two new contracts in 2018 (Wright-Patterson Air Force Base and Fort Leonard Wood); partially offset by an

$8 million decrease in Keystone from the exit of the construction business in the third quarter of 2018; and a

$7 million decrease in our Contract Services Group from the sale of the majority of our O&M contracts in the third quarter of 2018.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, operating revenues ~~decreased~~increased $52 million, primarily due to a:

$49 million decrease in our Military Services Group principally due to lower capital upgrades in 2017, largely from reduced military base budgets, and the completion of a large project in mid-2016 at Fort Polk; partially offset by a

~~$15~~65 million increase in our Homeowner Services Group from ~~customer~~contract growth, including $59 million from the acquisition of Pivotal in the second quarter of 2018; and ~~price increases for existing customers.~~a

$7 million increase in our Military Services Group from the addition of two new contracts in 2018, as discussed above, offset in part by lower capital upgrades at Fort Meade as a result of the completion of a large project in the fourth quarter of 2018; partially offset by a

$13 million decrease in our Contract Services Group from the sale of the majority of our O&M contracts in the third quarter of 2018; and an

$8 million decrease in Keystone from the exit of the construction business in the third quarter of 2018.

Operation and ~~maintenance.~~ ~~The following table summarizes information regarding the components of operation and maintenance expense:~~

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
(In millions)
Production costs $ 9
$ 10
$ (1 ) (10.0 )% $ 28
$ 27
$ 1
3.7 %
Employee-related costs 21
24
(3 ) (12.5 )% 69
72
(3 ) (4.2 )%
Operating supplies and services 26
38
(12 ) (31.6 )% 84
128
(44 ) (34.4 )%
Maintenance materials and supplies 13
18
(5 ) (27.8 )% 54
51
3
5.9 %
Other 6
2
4
200.0 % 12
7
5
71.4 %
Total $ 75
$ 92
$ (17 ) (18.5 )% $ 247
$ 285
$ (38 ) (13.3 )%
Maintenance

For the three months ended ~~September~~June 30, ~~2017,~~2019, operation and maintenance expense ~~decreased~~increased $7 million, primarily due to an:

$18 million increase in our Homeowner Services Group from the acquisition of Pivotal in the second quarter of 2018, as well as contract growth and increased claims expense; partially offset by an

$8 million decrease in Keystone from the exit of the construction business in the third quarter of 2018; and a

$6 million decrease in our Contract Services Group from the sale of the majority of our O&M contracts in the third quarter of 2018.

For the six months ended June 30, 2019, operation and maintenance expense increased $25 million, primarily due to a:

$1240 million ~~decrease~~increase in ~~operating supplies~~our Homeowner Services Group from the acquisition of Pivotal in the second quarter of 2018, as well as contract growth and ~~services primarily due to lower capital upgrades~~increased claims expense; and a

$3 million increase in our Military Services Group from the addition of two new military contracts in ~~2017,~~2018, as discussed ~~above, as well as lower advertising and marketing expense in our Homeowners Services Group; and a~~

~~$5 million decrease in maintenance materials and supplies principally due to the timing of claims activity in our Homeowners Services Group,~~ ~~as well as the~~ ~~volume and timing of specific maintenance activities; partially offset by a~~

~~$4 million increase in other operation and maintenance expense largely due to an increase in customer uncollectible expense and billing and collection fees, primarily in our Homeowner Services Group.~~

~~For the nine months ended September 30, 2017, operation and maintenance expense decreased primarily due to a:~~

$44 million decrease in operating supplies and services primarily due to lower capital upgrades in our Military Services Group in 2017, as discussed above, as well as lower advertising and marketing expense in our Homeowners Services Group;above; partially offset by a

$514 million ~~increase~~decrease in ~~other operation~~our Contract Services Group from the sale of the majority of our O&M contracts in the third quarter of 2018; and ~~maintenance expense largely~~an

$8 million decrease in Keystone from the exit of the construction business in the third quarter of 2018.

Depreciation and Amortization

For the three and six months ended June 30, 2019, depreciation and amortization increased $1 million and $6 million, respectively, primarily due to ~~an increase~~the addition of property, plant and equipment and intangible assets from the acquisition of Pivotal in ~~customer uncollectible expense~~the second quarter of 2018.

Provision for Income Taxes

For the three and ~~billing~~six months ended June 30, 2019, our provision for income taxes increased $3 million and ~~collection fees, principally~~$6 million, respectively, primarily due to higher pretax income in ~~our Homeowner Services Group.~~the first half of 2019, largely from the acquisition of Pivotal in the second quarter of 2018.

Liquidity and Capital Resources

For a general overview of our sources and uses of capital resources, see the introductory discussion in Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources ~~contained~~ in our Form 10-K.

We fund liquidity needs for capital investment, working capital and other financial commitments through cash flows from operations, public and private debt offerings, commercial paper markets and, if and to the extent necessary, ~~borrowing~~borrowings under the ~~American Water Capital Corp. (“AWCC”)~~AWCC revolving credit facility. The revolving credit facility provides ~~$1.75~~$2.25 billion in aggregate total commitments from a diversified group of financial ~~institutions~~institutions. On April 9, 2019, the termination date of the credit agreement with respect to AWCC’s revolving credit facility was extended, pursuant to the terms of the credit agreement, from March 21, 2023 to March 21, 2024. The facility is used principally to support AWCC’s commercial paper program and to provide a sublimit 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 up to two extensions of its expiration date ~~of June 2020 (subject to extension by us~~each for up to ~~two~~a one-year ~~periods).~~period, as to which one such extension request remains. As of June 30, 2019, AWCC had no outstanding borrowings and $80 million of outstanding letters of credit under the revolving credit facility, with $2.17 billion available to fulfill short-term liquidity needs and to issue letters of credit. We regularly evaluate the capital markets and closely monitor the financial condition of the financial institutions with contractual commitments in our revolving credit facility.

In order to meet ~~our~~ short-term liquidity needs, ~~we, through~~ AWCC ~~our wholly owned financing subsidiary, issue~~issues commercial paper ~~which~~that is supported by ~~our~~its revolving credit facility. The maximum aggregate principal amount of short-term borrowings authorized for issuance under AWCC’s commercial paper program is $2.10 billion. As of ~~September~~June 30, 2017, AWCC had no outstanding borrowings and $86 million of outstanding letters of credit under the revolving credit facility, with $1.66 billion available to fulfill our short-term liquidity needs and to issue letters of credit. As of September 30, 2017,2019, the revolving credit facility supported ~~$103~~$397 million in outstanding commercial paper. We believe that our ability to access the capital markets, ~~our~~the revolving credit facility and our cash flows from operations will generate sufficient cash to fund our short-term requirements. However, we can provide no assurances that the lenders will meet their existing commitments to AWCC under the revolving credit facility, or that we will be able to access the commercial paper or loan markets in the future on terms acceptable to us or at all.

On ~~August 10, 2017,~~May 13, 2019, AWCC completed a ~~$1,350 million~~$1.10 billion debt offering which included the sale of ~~$600~~$550 million aggregate principal amount of its ~~2.95%~~3.45% Senior Notes due ~~in 2027~~2029 and ~~$750~~$550 million aggregate principal amount of its ~~3.75%~~4.15% Senior Notes due ~~in 2047.~~2049. At the closing of the offering, AWCC received, after deduction of underwriting discounts and ~~debt issuance costs, $1,333 million. On September 13, 2017,~~before deduction of offering expenses, net proceeds of approximately $1.09 billion. AWCC used the net proceeds ~~from the offering:~~to: (i) lend funds to ~~prepay $138~~parent company and its regulated subsidiaries; (ii) repay $25 million principal amount of ~~its outstanding 5.62%~~AWCC’s 7.21% Series CI Senior Notes ~~due December 21, 2018 (“Series C Senior Notes”)~~at maturity on May 19, 2019; (iii) repay $26 million aggregate principal amount of subsidiary debt at maturity during the second quarter of 2019; and ~~$181 million of its outstanding 5.77% Series D Senior Notes due December 21, 2021 (“Series D Senior Notes”); (ii) to~~(iv) repay AWCC’s commercial paper ~~obligations;~~obligations, and ~~(iii)~~ for general corporate purposes. ~~Subsequently, AWCC used proceeds from the offering to repay at maturity, $524 million of its 6.085% Senior Notes on October 15, 2017. In addition,~~

On May 6, 2019, the Company ~~repaid $33 million of 7.08% subsidiary debt at maturity on November 1, 2017.~~

As a result of AWCC’s prepayment of the Series C and Series D Senior Notes and payment of a make-whole premium to the holders thereof of $34 million, we recorded an early debt extinguishment charge of $6 million, which was associated with the portion of the debt allocable to our parent company. Substantially all of the early debt extinguishment costs allocable to our utility subsidiaries were recorded as regulatory assets that we believe are probable of recovery in future rates.

~~On August 7, 2017, we~~ terminated ~~four~~five forward starting swap agreements with an aggregate notional amount of ~~$300~~$510 million, realizing a ~~gain~~net loss of ~~$19~~$30 million, to be amortized through interest, net over 10 and 30 ~~years. We have one remaining forward swap agreement, which was entered into on February 8, 2017,~~year periods, in accordance with ~~a notional amount of $100 million to reduce interest rate exposure for a portion of~~ the expected refinancing of AWCC’s Series C Senior Notes. This forward starting swap agreement terminates in November 2018 and has an average fixed rate of 2.67%. We have designated this forward starting swap agreement as a cash flow hedge with its 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 termterms of the new ~~debt.~~

On October 15, 2017, our interest rate swap to hedge $100 million of AWCC’s 6.085% Senior Notes matured. See Note 6—Long-Term Debt in the Notes to Consolidated Financial Statements for further information.

debt issued on May 13, 2019.

Cash Flows Provided by Operating Activities

Cash flows provided by operating activities primarily result from the sale of water and wastewater services and, due to the seasonality of demand, are generally greater during the ~~third quarter of each fiscal year. The following~~warmer months. Presented in the table ~~provides~~below is a summary of the major items affecting our cash flows provided by ~~our~~ operating activities:


	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
	2017			2016			2019			2018
(In millions)
Net income	$	427		$	367		$	283		$	268
Add (less):
Non-cash activities (a)	659			598
Depreciation and amortization							286			263
Deferred income taxes and amortization of investment tax credits							85			82
Other non-cash activities (a)							(36		)	24
Changes in working capital (b)	(64		)	22			(94		)	(112		)
Settlement of cash flow hedges							(30		)	—
Pension and postretirement healthcare contributions	(36		)	(42		)	(14		)	—
Net cash flows provided by operations	$	986		$	945		$	480		$	525


(a)	Includes ~~depreciation and amortization, deferred income taxes and amortization of deferred investment tax credits,~~ provision for losses on accounts receivable, ~~gain~~(gain) on asset dispositions and purchases, pension and non-pension postretirement benefits ~~expense~~ and other non-cash, net. Details of each component can be found inon the Consolidated Statements of Cash Flows.


(b)	Changes in working capital include changes to receivables and unbilled revenues, accounts payable and accrued liabilities, and other current assets and liabilities, ~~net.~~net, less the settlement of cash flow hedges.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, cash flows provided by operating activities decreased $45 million, primarily due to the settlement of cash flow hedges on May 6, 2019 in connection with the Company’s $1.10 billion debt offering that closed on May 13, 2019, an increase in ~~cash flows from operating~~pension healthcare contributions, and changes in other non-cash activities, ~~as compared to the same period~~including activity in ~~2016, is~~regulatory balancing accounts, primarily ~~due to~~in our California subsidiary. Partially offsetting these decreases was an increase in net ~~income after non-cash adjustments.~~income. The main factors contributing to the increase in net income ~~increase~~ are described in ~~this section under “Comparison of Consolidated~~“Consolidated Results of Operations” and ~~included higher operating revenue and lower operation and maintenance expense. The increase in non-cash activities was mainly the result~~“Segment Results of ~~an increase in depreciation and amortization attributable to infrastructure investment projects placed into service and an increase in deferred income taxes.~~

The change in working capital was primarily the result of the following: (i) timing of accounts payable and accrued liabilities, including the accrual recorded during the third quarter of 2016 for costs associated with the binding global agreement in principle as to settlement of claims related to the Freedom Industries chemical spill in West Virginia; (ii) the $34 million make-whole premium paid on early debt extinguishment associated with the prepayment of $138 million of outstanding Series C Senior Notes and $181 million of outstanding Series D Senior Notes; (iii) a decrease in unbilled revenues as a result of our Military Services Group achieving significant capital project milestones during 2016; and (iv) change in other current assets and liabilities, including an increase in prepaid taxes, partially offset by the decrease of other current assets associated with the termination of our four forward starting swap agreements.Operations” above.

Cash Flows Used in Investing Activities

~~The following~~Presented in the table ~~provides information regarding~~below is a summary of the major items affecting our cash flows used in ~~our~~ investing activities:


	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
	2017			2016			2019			2018
(In millions)
Net capital expenditures	$	(964	)	$	(928	)	$	(712	)	$	(739	)
Acquisitions	(10		)	(29		)	(80		)	(377		)
Other investing activities, net (a)	(47		)	(57		)	(25		)	(33		)
Net cash flows used in investing activities	$	(1,021	)	$	(1,014	)	$	(817	)	$	(1,149	)


(a)	Includes removal costs from property, plant and equipment retirements ~~net,~~and proceeds from sale of ~~assets and net funds restricted.~~assets.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, cash used in investing activities ~~increased~~decreased $332 million, primarily due to ~~continued investment across all infrastructure categories, mainly replacement~~the acquisition of Pivotal for $363 million on June 4, 2018, and ~~renewal~~the timing of ~~transmission and distribution infrastructure in our Regulated Businesses, partially offset by decreased cash used for acquisitions. We expect investments of approximately $1.65 billion in 2017~~payments for capital ~~expenditures and acquisitions. Construction~~expenditures. For the full year of 2019, our new corporate headquarters building in Camden, New Jersey is underway. The cost of construction is currently estimated to be up to $164 million, exclusive of any tax incentives, of which $72 million iscapital investments, including acquisitions, are expected to be ~~incurred~~ in ~~2017. During~~ the ~~nine months ended September 30, 2017, we spent approximately $36 million towards this construction.~~

range of $1.8 billion to $1.9 billion.

Cash Flows Provided by Financing Activities

~~The following~~Presented in the table ~~provides information regarding~~below is a summary of the major items affecting our cash flows provided by ~~our~~ financing activities:


	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
	2017			2016			2019			2018
(In millions)
Proceeds from long-term debt	$	1,382		$	2		$	1,184		$	15
Repayments of long-term debt	(334		)	(20		)	(146		)	(119		)
Net proceeds from short-term borrowings	(746		)	322			(568		)	746
Proceeds from issuance of common stock							—			183
Dividends paid	(215		)	(194		)	(173		)	(155		)
Anti-dilutive stock repurchases	(54		)	(65		)	(36		)	(45		)
Other financing activities, net (a)	20			25			4			13
Net cash flows provided by financing activities	$	53		$	70		$	265		$	638


(a)	Includes proceeds from issuances of common stock under various employee stock plans and our dividend reinvestment plan, net of taxes paid, advances and contributions for construction, net of refunds, ~~taxes paid related to employee stock plans~~ and debt issuance costs.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017, the decrease in~~2019, cash flows provided by financing activities ~~as compared to the same period in 2016, is~~decreased $373 million, primarily due to the issuance of common stock in 2018, the proceeds of which were used to finance a portion of the 2018 acquisition of Pivotal, as well as an increase in cash used for dividend payments in ~~2017. Additionally, the Company~~2019. AWCC issued ~~approximately $1,333 million~~$1.10 billion of long-term debt ~~after deduction of underwriting discounts and debt issuance costs,~~ as part of ~~the August 10, 2017~~its May 13, 2019 debt ~~financing,~~offering, of which ~~approximately $319~~$51 million of the net proceeds was used ~~for the early extinguishment of pre-existing~~to repay long-term ~~debt. Additional~~debt obligations at maturity. Net proceeds from the debt ~~financing~~offering were also used ~~for the repayment of~~to repay pre-existing short-term borrowings, ~~resulting~~which resulted in a net cash outflow for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 of ~~$746~~$568 million.

Credit Facilities and Short-Term Debt

~~The following~~Presented in the table ~~summarizes information regarding our~~below is the aggregate revolving credit facility commitments, the letter of credit ~~sub-limits and available funds~~sublimit under ~~those~~the revolving credit ~~facilities,~~facility and the commercial paper limit, as well as ~~outstanding amounts of commercial paper and outstanding borrowings under~~ the ~~respective facilities~~available capacity for each as of ~~September~~June 30, ~~2017:~~2019:


	Credit Facilities Commitment (a)		Available Credit Facility Capacity (a)		Letter of Credit Sublimit		Available Letter of Credit Capacity		Commercial Paper Limit		Available Commercial Paper Capacity		Credit Facility Commitments (a)		Available Credit Facility Capacity (a)		Letter of Credit Sublimit		Available Letter of Credit Capacity		Commercial Paper Limit		Available Commercial Paper Capacity
(In millions)
September 30, 2017	$	1,762	$	1,669	$	150	$	86	$	1,600	$	1,497
June 30, 2019													$	2,262	$	2,181	$	150	$	70	$	2,100	$	1,703

(a)

Includes amounts related to the revolving credit facility ~~of Keystone Clearwater Solutions, LLC (“Keystone”), our water management solutions subsidiary.~~for Keystone. As of ~~September~~June 30, ~~2017,~~2019, the total commitment under the Keystone revolving credit facility was $12 million, of which $5$11 million was available for borrowing, subject to compliance with a collateral base calculation. ~~At September 30, 2017, there were no outstanding borrowings under this credit facility.~~

The weighted-average interest rate on AWCC short-term borrowings was approximately 2.74% and 2.34% for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016 was~~2018, respectively, and approximately ~~1.38%~~2.79% and ~~0.78%, respectively. The weighted-average interest rate on AWCC short-term borrowings~~2.15% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016 was approximately 1.19% and 0.76%,~~2018, respectively.

~~Capital Structure~~

~~The following table indicates the percentage of our capitalization represented by the components of our capital structure as of the dates set forth below:~~

September 30, 2017 December 31, 2016
Total common stockholders' equity 42.5 % 42.1 %
Long-term debt and redeemable preferred stock at redemption value 51.4 % 46.4 %
Short-term debt and current portion of long-term debt 6.1 % 11.5 %
100 % 100 %

Debt Covenants

Our debt agreements contain financial and non-financial covenants. To the extent that we are not in compliance with these covenants, an event of default may occur under one or more debt agreements and we or our subsidiaries may be restricted in our ability to pay dividends, issue new debt or access our revolving credit facility. Our long-term debt indentures contain a number of covenants that, among other things, prohibit or restrict the Company from issuing debt secured by the Company’s assets, subject to certain exceptions. Our failure to comply with any of these covenants could accelerate repayment obligations.

Covenants in certain long-term notes and the revolving credit facility require us to maintain a ratio of consolidated debt to consolidated capitalization (as defined in the relevant documents) of not more than 0.70 to 1.00. On ~~September~~June 30, ~~2017,~~2019, our ratio was ~~0.58~~0.60 to 1.00, and therefore we were in compliance with the covenants.

Security Ratings

Our access to the capital markets, including the commercial paper market, and respective financing costs in those markets, may be directly affected by our securities ratings. We primarily access the debt capital markets, including the commercial paper market, through AWCC. However, we have also issued debt through our regulated subsidiaries, primarily in the form of tax exempt securities or borrowings under state revolving funds, to lower our overall cost of debt.

~~Our~~Presented in the table below are long-term and short-term credit ratings and rating outlooks as of ~~September 30, 2017:~~July 31, 2019 as issued by the following rating agencies:



Securities	Moody's Investors Service	Standard & Poor's Ratings Service
Rating outlook	Stable	Stable
Senior unsecured debt	A3Baa1	A
Commercial paper	P-2	A-1

On June 7, 2019, Standard & Poor’s Ratings Service affirmed the Company’s long-term ‘A’ and short-term ‘A-1’ credit ratings, with a stable outlook.

On April 1, 2019, Moody’s Investors Service changed the Company’s senior unsecured debt rating to Baa1, from A3, with a stable outlook. The Company’s commercial paper rating remained unchanged.

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently of any other rating. Security ratings are highly dependent upon our ability to generate cash flows in an amount sufficient to service our debt and meet our investment plans. We can provide no assurances that our ability to generate cash flows is sufficient to maintain our existing ratings. None of our borrowings are subject to default or prepayment as a result of athe downgrading of these security ratings, although such a downgrading could increase fees and interest charges under our credit facility.

~~Dividends~~

~~On September 1, 2017, we paid a cash dividend of $0.415 per share to our stockholders of record as of August 9, 2017.~~

On October 31, 2017, our Board of Directors declared a quarterly cash dividend payment of $0.415 per share payable on December 1, 2017 to stockholders of record as of November 10, 2017. Future dividends, when and as declared at the discretionAs part of the ~~Board~~normal course of ~~Directors, will be dependent upon future earnings~~business, we routinely enter into contracts for the purchase and ~~cash flows, compliance with various regulatory, financial and legal requirements,~~sale of water, energy, chemicals and other ~~factors. See Part II, Item 7—Management’s Discussion~~services. These contracts either contain express provisions or otherwise permit us and ~~Analysis~~our counterparties to demand adequate assurance of ~~Financial Condition~~future performance when there are reasonable grounds for doing so. In accordance with the contracts and ~~Results~~applicable contract law, if we are downgraded by a credit rating agency, especially if such downgrade is to a level below investment grade, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of ~~Operations—Liquidity and Capital Resources—Dividends in~~future performance, which could include a demand that we provide collateral to secure our ~~Form 10-K for more information regarding restrictions~~obligations. We do not expect to post any collateral which will have a material adverse impact on the ~~payment~~Company’s results of operations, financial position or cash flows.

Dividends

For discussion of our dividends, ~~on our common stock.~~see Note 5—Shareholders' Equity in the Notes to Consolidated Financial Statements for additional information.

Application of Critical Accounting Policies and Estimates

Our financial condition, results of operations and cash flows are impacted by the methods, assumptions and estimates used in the application of critical accounting policies. See Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates in our Form 10-K for a discussion of our critical accounting policies. Additionally, see Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements for updates to our significant accounting policies previously disclosed in our Form 10-K.

Recent Accounting Standards

See Note 2—~~New~~Significant Accounting ~~Standards to~~Policies in the Notes to Consolidated Financial Statements ~~included in Part I, Item 1—Consolidated Financial Statements of this Quarterly Report on Form 10-Q~~ for a description of new accounting standards recently adopted or pending adoption.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are ~~subject~~exposed to market ~~risks~~risk in the normal course of business, including changes in commodity prices, equity prices and interest ~~rates and equity prices.~~rates. For afurther discussion of our exposure to market risk, ~~refer to~~see Part II, Item 7A—Quantitative and Qualitative Disclosures about Market Risk ~~contained~~ in our Form 10-K. Except as described below, there have been no significant changes to our exposure to market risk since December 31, ~~2016.~~2018.

On ~~February 8, 2017,~~May 6, 2019, we ~~entered into a~~terminated five forward starting swap ~~agreement~~agreements with aan aggregate notional amount of ~~$100~~$510 million, ~~to reduce interest rate exposure on debt expected to be issued in 2018. This forward starting swap agreement terminates in November 2018~~ and, ~~has an average fixed rate~~as a result, we have no significant derivative instruments outstanding as of 2.67%. A hypothetical one hundred basis point change in the forward starting swap rates would have resulted in a $21 million increase or decrease in fair value of this swap agreement for the nine months ended SeptemberJune 30, ~~2017.~~2019.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

American Water maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Our management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of ~~September~~June 30, ~~2017.~~2019.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September~~June 30, ~~2017,~~2019, our disclosure controls and procedures were effective at a reasonable level of assurance.

Changes in Internal Control over Financial Reporting

WeOn June 4, 2018, the Company completed the acquisition of Pivotal. See Note 4—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements in our Form 10-K for additional information. During the second quarter of 2019, we completed the integration of Pivotal into our internal control over financial reporting structure and concluded that there have been no changes in ~~our~~ internal control over financial reporting that occurred during the three months ended ~~September~~June 30, ~~2017,~~2019, that have materially affected, or are reasonably likely to materially affect, ~~our~~the Company’s internal control over financial ~~reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).~~

reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following information updates and amends the information provided in our Form 10-K in Part I, Item 3—Legal Proceedings, and in our Quarterly ~~Reports~~Report on Form 10-Q for the ~~quarters~~quarter ended March 31, ~~2017 and June 30, 2017~~2019 in Part II, Item 1—Legal Proceedings. Capitalized terms used but not otherwise defined herein have the meanings set forth in our Form 10-K.

Alternative Water Supply in Lieu of Carmel River Diversions

Compliance with SWRCB Orders to Reduce Carmel River Diversions

On May 30, 2019, Cal Am met again with MPWMD and the SWRCB to discuss the conflicting regulatory interpretations regarding the calculation of a baseline to determine increases in use of water at existing service addresses. The SWRCB has agreed to circulate a proposed new interpretation, which would be subject to public review and comment.

Regional Desalination Project Litigation

Cal Am’s Action for Damages Following RDP Termination

On January 22, 2019, RMC filed a motion for judgment on the ~~court’s disposition~~pleadings against Cal Am. On February 25, 2019, the court granted RMC’s motion as to certain of Cal Am's tort claims. On April 8, 2019, Cal Am filed a ~~related issue in another case, MCWD’s~~writ petition towith the ~~Supreme~~California Court of ~~California~~Appeal challenging the trial court's ruling, which was denied on May 29, 2019.

On March 1, 2019, MCWD filed a motion for ~~review of~~summary judgment against Cal Am relating to Cal Am’s tort claims against it. On June 20, 2019, the ~~CPUC approval of~~court granted MCWD’s motion. On July 22, 2019, Cal Am filed a ~~settlement agreement resolving matters among the signatory parties has been remanded to the CPUC, and remains pending.~~

~~Trial has been set for June 18, 2018 in the consolidated action in San Francisco County Superior Court associated~~writ petition with the ~~failure~~California Court of ~~the RDP.~~Appeal challenging this ruling.

The trial date for this matter is currently January 6, 2020.

Monterey Peninsula Water Supply Project

CPUC Final Approval of Water Supply Project

On ~~January 12, 2017,~~July 2, 2019, Cal Am notified MPWMD and Monterey One Water (formerly the ~~CPUC issued a Draft Environmental Impact Report/Environmental Impact Statement. The comment period~~Monterey Regional Water Pollution Control Agency) (collectively, the “Agencies”) that an event of default occurred under the water purchase agreement for the GWR Project because the Agencies failed to deliver to Cal Am by July 1, 2019 advanced treated recycled water produced by the GWR Project. Under the water purchase agreement, upon the occurrence of this ~~report expired March 29, 2017~~event of default, Cal Am had the right to terminate the water purchase agreement immediately. Cal Am has elected not to exercise its right to terminate the water purchase agreement at this time, but in its notification to the Agencies, Cal Am expressly reserved its right to terminate the water purchase agreement until such time as the Agencies commence their required delivery of water from the GWR Project. On July 16, 2019, MPWMD and ~~a final report is expected~~Monterey One Water responded to ~~be issued in the first quarter of 2018.~~

~~The CPUC has set hearings for October 25 through November 3, 2017 on~~ Cal Am’s ~~request~~event of default notice and estimated that water delivery would begin by mid-October.

On April 17, 2019, Water Ratepayers Association of the Monterey Peninsula (“WRAMP”), a citizens’ advocacy group, filed an amended complaint in Monterey County Superior Court asserting a “qui tam” claim under the California False Claims Act on behalf of itself and the State of California against Cal Am and certain environmental consultants who worked on the CPUC’s environmental analysis of the MPWSP. WRAMP claims that the consultants submitted false data in connection with modeling of potential groundwater impacts from the MPWSP, and that Cal Am had allegedly supported those efforts. The State Attorney General declined to proceed with this action after it was originally filed in 2016. On July 10, 2019, defendants filed a joint demurrer challenging the legal sufficiency of the allegations of the amended complaint. A hearing on the demurrer is scheduled for August 27, 2019.

Coastal Development Permit Application

On March 7, 2019, the City of Marina Planning Commission adopted a ~~certificate~~resolution denying Cal Am’s coastal development permit application. Cal Am appealed the Marina Planning Commission's decision to the City Council, which set a public hearing on the appeal for April 30, 2019. On April 25, 2019, Cal Am submitted a letter to the City challenging the impartiality of ~~public convenience~~the City and ~~necessity for~~three of its council members with respect to the Water Supply Project. On April 29, 2019, the City informed Cal Am that it intended to proceed with the hearing with the participation of the challenged City Council members. As a result, on April 29, 2019, Cal Am notified the City that it was withdrawing its appeal, as Cal Am believes it could not receive a fair and impartial hearing before the City Council.

~~After conducting~~

On May 10, 2019, the City issued a ~~trial on August 30, 2017 for all matters raised in MCWD’s November 2015 challenge~~notice of final local action based upon the Marina Planning Commission’s decision. On May 22, 2019, Cal Am appealed this decision to the Coastal Commission, as permitted under the City’s code and the California Coastal Act. On June 11, 2019, the City challenged the appealability of the Marina Planning Commission’s decision. Appeals of this decision were also filed by two third parties, and three members of the Coastal Commission each independently initiated appeals of the Marina Planning Commission’s decision. On July 11, 2019, the Coastal Commission held a hearing on the issue of appealability and determined that the Marina Planning Commission’s decision was appealable to the Coastal Commission and that the appeals filed were valid.

Test Slant Well Permitting

On June 28, 2019, the California Court of Appeal dismissed MCWD’s January 2018 appeal that had challenged the amendment by the Coastal Commission of Cal Am’s coastal development permits for ~~the~~its test slant ~~well, other than claims that had been~~well. On July 15, 2019, MCWD filed a petition for rehearing with the Court of Appeal, which was denied ~~by the court in September 2016, the court~~ on ~~October 3, 2017 denied all of MCWD’s claims with respect to these matters.~~July 19, 2019.

Desalination Plant Development Permit

On ~~July 13, 2017,~~April 24, 2019, the ~~Coastal~~Monterey County Planning Commission ~~adopted~~approved Cal Am’s application for a consent agreement and cease and desist order requiring sand mining operations on the property on which intake wells will be located to cease by the end of 2020 and the property to be sold to either a non-profit or governmental entity. The consent agreement strictly limits future usecombined development permit for construction of the ~~property but preserves Cal Am’s existing property rights~~desalination plant in unincorporated Monterey County. MCWD and ~~allows uses consistent with existing easements~~a public advocacy group appealed the Monterey County Planning Commission’s decision to the County Board of Supervisors. On July 15, 2019, the County Board of Supervisors denied the appeals and ~~other rights of record. If~~upheld the test slant well is to remain at the site and be used as part of the Water Supply Project, as currently proposed, Cal Am will likely need to seek an amendment and extension of its coastal development permit to allow the test slant well to remain and be maintained in the interim period until the Water Supply Project is operational. Cal Am will also need to seek an extension of its current lease for the test slant well with the State Lands Commission. This lease expires on December 16, 2017. Cal Am has filed an application for extension of this lease with the State Lands Commission, and approval of the application is to be considered at its November 29, 2017 meeting.Monterey County Planning Commission’s approval.

* * *

Based on the foregoing, ~~including the information contained in our Form 10-K with respect to the Water Supply Project (other than as updated in this Form 10-Q),~~ Cal Am estimates that the earliest date by which the Water Supply Project desalination plant could be completed is sometime in 2021. There can be no assurance ~~that Cal Am’s application for the Water Supply Project will be approved or~~ that the Water Supply Project will be completed on a timely basis, if ever. Furthermore, there can be no assurance that Cal Am will be able to comply with the diversion reduction requirements and other remaining requirements under the 2009 Order and the 2016 Order, or that any such compliance will not result in material additional costs or obligations to Cal Am or the Company.

~~California Public Utilities Commission Residential Rate Design Proceeding~~

Hearings before the administrative law judge in this proceeding took place in August and September 2017, and a subsequent hearing is currently scheduled for November 27, 2017. Cal Am also submitted additional testimony on the issue of whether Cal Am should be penalized, and if so, the reasonable amount of any such penalty.

~~West Virginia Elk River Freedom Industries Chemical Spill~~

~~Preliminary Approval of WVAWC Global Class Action Litigation Settlement~~

The Settlement covered by the order proposes a global resolution of all federal and state litigation and potential claims against the American Water Defendants and their insurers. Under the terms and conditions of the Settlement and the proposed amended settlement agreement, 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 to be resolved. Under federal class action rules, a claimant may elect to opt out of the final Settlement, in which case such claimant will not receive any benefit from or be bound by the terms of the Settlement. The American Water Defendants would have the right to withdraw from the Settlement if more than a certain number of putative class members opt out of the Settlement. The deadline imposed by the court in the Federal action for any Plaintiff to opt out of the Settlement or file an objection to the Settlement is December 8, 2017.

The proposed aggregate pre-tax amount of the Settlement with respect to the Company remains at $126 million. However, the aggregate portion of the Settlement to be contributed by WVAWC, net of insurance recoveries, has been reduced from $65 million to $43 million (approximately $26 million after-tax) due to the recent settlement with one of the Company’s general liability insurance carriers, as discussed below. This reduction will apply to WVAWC’s contributions to the guaranteed fund. The contribution by another defendant to the Settlement remains at $25 million. If any final approval order by the court with respect to the Settlement is appealed and such appeal would delay potential payment to claimants under the Settlement, WVAWC and the other defendant to the Settlement will contribute up to $50 million and $25 million, respectively, to the Settlement (not including, in the case of WVAWC, any contributions by the Company’s general liability insurance carriers which would not be made until such time as a final, non-appealable order is issued) into an escrow account during the pendency of such appeals. For certain claims, WVAWC and the other defendant to the Settlement may, in lieu of these escrowed contributions, make advance payments of such claims if agreed to by the parties. All administrative expenses of the Settlement and attorneys’ fees of class counsel related thereto would be paid from the funds designated to pay claims covered by the Settlement.

Notice of the terms of the Settlement to members of the settlement class commenced on October 11, 2017 and is expected to be completed by November 8, 2017. Following the notice period, the court will hold a fairness hearing to consider final approval of the Settlement, which is currently scheduled to be held on January 9, 2018. There can be no assurance that the Settlement will not be amended further or that the court will provide its final approval as to any agreement negotiated between the parties reflecting the terms of the Settlement.

The court in the Federal action has currently postponed a trial indefinitely in light of the preliminary approval of the Settlement and the global settlement agreement described above, and the Mass Litigation Panel stayed its proceedings until January 23, 2018.

Two of the Company’s insurance carriers that provide an aggregate of $50 million in insurance coverage to the Company under its general liability policies, had been originally requested, but at the time of the initial filing of the binding agreement in principle with the court in the Federal action in October 2016, had not agreed, to participate in the Settlement. WVAWC had filed a lawsuit against one of these carriers alleging that the carrier’s failure to agree to participate in the Settlement constituted a breach of contract. On September 19, 2017, the Company and the insurance carrier settled this lawsuit for $22 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 Company and WVAWC of all claims against the insurance carrier related to the Freedom Industries chemical spill, and the parties agreed to stay this litigation pending final approval of the Settlement. The settlement with the insurance carrier reduced the total amount of WVAWC’s potential contributions to the Settlement from $65 million to $43 million. In the third quarter of 2017, WVAWC recorded an additional insurance receivable of $22 million, resulting in an after-tax benefit of $13 million.

The Company and WVAWC continue to pursue vigorously their rights to insurance coverage for contributions by WVAWC to the Settlement in mandatory arbitration with the remaining non-participating carrier. This arbitration proceeding remains pending. Despite these efforts, the Company may not ultimately be successful in obtaining further reimbursement under the remaining insurance policy for amounts that WVAWC may be required to contribute to the Settlement.

Dunbar, West Virginia Water Main Break Class Action Litigation

~~On October 12, 2017, WVAWC filed~~The court requested that the parties submit a scheduling order with a trial date of August 26, 2019. The parties by agreement proposed to the court an agreed-upon scheduling order with a ~~motion seeking to dismiss all of~~June 2020 trial date. The court did not enter the ~~plaintiffs’ counts alleging statutory~~order because the trial date is not available, so setting a new trial date and common law tort claims. Furthermore, WVAWC asserts that the PSC, and not the court, has primary jurisdiction over allegations involving violations of the applicable tariff, the public utility code and related rules. This motionschedule remains pending.

~~The Company and WVAWC believe that WVAWC has valid, meritorious defenses to the claims raised~~ Discovery in this ~~class action complaint. WVAWC~~case is vigorously defending itself against these allegations. While WVAWC and the Company are unable to predict the outcome of this matter, an adverse outcome could have a material adverse effect on the Company’s financial condition, results of operations, cash flows, liquidity and/or reputation.ongoing.

~~Contract Operations Group -- East Palo Alto Water System Voluntary Report~~

By letter dated October 4, 2017, the SWRCB advised AWE that it is in compliance with all of the directives and relevant statutory and administrative provisions specified in the SWRCB’s June 15, 2017 citation. While AWE has completed all required compliance activities with respect to the citation, the SWRCB has previously reserved the right to take additional enforcement action. Proven violations of the CSDWA may result in civil and criminal penalties. AWE continues to cooperate with the SWRCB, the City of East Palo Alto and other authorities regarding this matter.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A—Risk Factors in our Form 10-K, and in our other public filings, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors previously disclosed in Part I, Item 1A—Risk Factors in our Form 10-K.

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

In February 2015, the Board of Directors authorized an anti-dilutive stock repurchase program to mitigate the dilutive effect of shares issued through the Company’s dividend reinvestment, employee stock purchase and executive compensation activities. The program allows the Company to purchase up to 10 million shares of its outstanding common stock over an unrestricted period of time in the open market or through privately negotiated transactions. The program is conducted in accordance with Rule 10b-18 of the Exchange Act, and, to facilitate these repurchases, the Company enters into Rule 10b5-1 stock repurchase plans with a third-party broker, which allow the Company to repurchase shares of its common stock at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Subject to applicable regulations, the Company may elect to amend or cancel the program or the stock repurchase parameters at its discretion to manage dilution.

The Company did not repurchase shares of common stock during the three months ended ~~September~~June 30, ~~2017.~~2019. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through ~~September~~June 30, ~~2017,~~2019, the Company repurchased an aggregate of ~~3,950,000~~4,860,000 shares of common stock under the program, leaving an aggregate of ~~6,050,000~~5,140,000 shares available for repurchase under this program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



Exhibit Number		Exhibit Description
3.1		Restated Certificate of Incorporation of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34028, filed November 6, 2008).
3.2		Amended and Restated Bylaws of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34028, filed August 5, 2015).
4.1		Officers’ Certificate of American Water Capital Corp., dated ~~August 10, 2017,~~May 13, 2019, establishing the terms and authorizing the issuance of its ~~2.95%~~3.450% Senior Notes due ~~2027~~2029 (incorporated by reference to Exhibit 4.1 to ~~the Company’s~~American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed ~~August 10, 2017)~~on May 13, 2019).
4.2		Officers’ Certificate of American Water Capital Corp., dated ~~August 10, 2017,~~May 13, 2019, establishing the terms and authorizing the issuance of its ~~3.75%~~4.150% Senior Notes due ~~2047~~2049 (incorporated by reference to Exhibit 4.2 to ~~the Company’s~~American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed ~~August 10, 2017)~~on May 13, 2019).
*10.1		Offer Letter for Employment, dated May 1, 2019, between American Water Works Company, Inc. and ~~its Designated Subsidiaries~~M. Susan Hardwick.
*10.2		American Water Works Company, Inc. 2017 ~~Nonqualified Employee~~Omnibus Equity Compensation Plan 2019 Restricted Stock ~~Purchase~~Unit Grant (for M. Susan Hardwick).
*10.3		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~(incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on~~2019 Performance Stock Unit Grant Form ~~S-8, File No. 333-219682, filed August 4, 2017)~~A (for M. Susan Hardwick).
*10.4		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2019 Performance Stock Unit Grant Form B (for M. Susan Hardwick).
*10.5		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2019 Restricted Stock Unit Grant (for Brian Chin).
*10.6		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2019 Stock Unit Grant Form for Non-Employee Directors.
*31.1		Certification of Susan N. Story, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.2		Certification of ~~Linda G. Sullivan,~~M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
**32.1		Certification of Susan N. Story, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
**32.2		Certification of ~~Linda G. Sullivan,~~M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
*101101.INS		~~The following financial statements from American Water Works Company, Inc.’s Quarterly Report on Form 10-Q for~~XBRL Instance Document - the ~~quarterly period ended September 30, 2017, filed with~~instance document does not appear in the ~~Securities and Exchange Commission on November 1, 2017, formatted in~~Interactive Data File because its XBRL ~~(eXtensible Business Reporting Language): (i)~~tags are embedded within the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated Statements of Changes in Stockholders’ Equity; and (vi) the Notes to Consolidated Financial Statements.Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.


*	Filed herewith.


**	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the ~~1st~~31st day of ~~November, 2017.~~July, 2019.



	AMERICAN WATER WORKS COMPANY, INC.
	(REGISTRANT)
By	/s/ SUSAN N. STORY
	Susan N. Story President and Chief Executive Officer (Principal Executive Officer)
By	/s/ ~~LINDA G. SULLIVAN~~M. SUSAN HARDWICK
	~~Linda G. Sullivan~~M. Susan Hardwick Executive Vice President and Chief Financial Officer (Principal Financial Officer)
By	/s/ MELISSA K. WIKLE
	Melissa K. Wikle Vice President and Controller (Principal Accounting Officer)

4443



	Defined Benefit Plans							Foreign Currency Translation			Gain (Loss) on Cash Flow Hedges			Accumulated Other Comprehensive Loss
	Employee Benefit Plan Funded Status			Amortization of Prior Service Cost		Amortization of Actuarial Loss		Foreign Currency Translation			Gain (Loss) on Cash Flow Hedges			Accumulated Other Comprehensive Loss
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	)

Beginning balance as of December 31, 2015	$	(126	)	$	1	$	36	$	2		$	(1	)	$	(88	)
Other comprehensive loss before reclassifications	—			—		—		—			(15		)	(15		)
Amounts reclassified from accumulated other comprehensive loss	—			—		4		—			—			4
Net other comprehensive income (loss)	—			—		4		—			(15		)	(11		)
Ending balance as of September 30, 2016	$	(126	)	$	1	$	40	$	2		$	(16	)	$	(99	)



	At Fair Value as of December 31, 2016
	Level 1		Level 2		Level 3		Total
Assets:
Restricted funds	$	24	$	—	$	—	$	24
Rabbi trust investments	12		—		—		12
Deposits	3		—		—		3
Mark-to-market derivative assets	—		28		—		28
Other investments	1		—		—		1
Total assets	40		28		—		68

Liabilities:
Deferred compensation obligations	13		—		—		13
Total liabilities	13		—		—		13
Total net assets (liabilities)	$	27	$	28	$	—	$	55



(In millions)	For the Nine Months Ended September 30, 2017
General rate cases by state:
New York (effective June 1, 2017)	$	4
Virginia (a)	5
Iowa (effective March 27, 2017)	4
California (effective January 13, 2017 - February 2, 2017)	5
Illinois (effective January 1, 2017)	25
Total general rate cases	$	43

Infrastructure surcharges by state:
New Jersey (effective June 1, 2017)	$	10
Indiana (effective March 22, 2017)	8
Tennessee (effective March 14, 2017)	2
Pennsylvania (effective January 1, 2017)	1
West Virginia (effective January 1, 2017)	2
Total infrastructure surcharges	$	23