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 ~~June 30, 2019~~March 31, 2020



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

For the transition period from ______ to ______

Commission File Number: 001-34028

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)



Delaware	51-0063696
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 Water Street, Camden, NJ 08102-1658

(Address of principal executive offices) (Zip Code)

(856) 955-4001

(Registrant’s telephone number, including area code)

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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



Large accelerated filer	☒	Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐	Emerging growth company	☐

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

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

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



Class		Shares Outstanding as of ~~July 25, 2019~~April 30, 2020
Common Stock, $0.01 par value per share		~~180,652,681~~181,022,922

TABLE OF CONTENTS



		Page
Forward-Looking Statements		1
	Part I. Financial Information
Item 1.	Consolidated Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2421
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3834
Item 4.	Controls and Procedures	3834
	Part II. Other Information
Item 1.	Legal Proceedings	3936
Item 1A.	Risk Factors	4037
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4041
Item 3.	Defaults Upon Senior Securities	4041
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42

Signatures		4344

* * *

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~~Statements included in Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q ~~that~~ are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words with prospective meanings such as “intend,” “plan,” “estimate,” “believe,” “anticipate,” “expect,” “predict,” “project,” “propose,” “assume,” “forecast,” “likely,” “uncertain,” “outlook,” “future,” “pending,” “goal,” “objective,” “potential,” “continue,” “seek to,” “may,” “can,” “should,” “will” and “could” or the negative of such terms or other variations or similar expressions. Forward-looking statements may relate to, among other things: ~~our~~the Company’s future financial performance, ~~including our operation and maintenance (“O&M”) efficiency ratio; our~~ liquidity and ~~future~~ cash flows; ~~our~~rate and revenue adjustments, including through general rate case filings, filings for infrastructure surcharges and other governmental agency authorizations and filings to address regulatory lag; growth and portfolio optimization ~~strategies; our~~strategies, including the timing and outcome of pending or future acquisition activity, the completion of the announced sale of New York American Water Company, Inc. and the amount of proceeds anticipated to be received therefrom; the amount and allocation of projected capital expenditures and related funding requirements; ~~our~~the Company’s ability to repay or refinance debt; ~~our projected strategy~~the ability to execute its current and long-term business, operational and capital expenditures strategies; its ability to finance current operations, capital expenditures and growth ~~initiatives;~~initiatives by accessing the debt and equity capital markets; the outcome and impact on the Company of legal and similar governmental and regulatory proceedings and related potential fines, penalties and other sanctions; ~~business process,~~the ability to complete, and the timing and efficacy of, the design, development, implementation and improvement of technology ~~improvement~~ and other strategic initiatives; the impacts to the Company of the current pandemic health event resulting from the novel coronavirus (“COVID-19”); the ability to capitalize on existing or future utility privatization opportunities; trends in ~~our industry;~~the industries in which the Company operates, including macro trends with respect to the Company’s efforts related to customer, technology and work execution; regulatory, legislative, tax policy or legal developments; ~~rate adjustments, including through general rate case filings, filings for infrastructure surcharges~~ and ~~filings to address regulatory lag; and~~projected impacts that the Tax Cuts and Jobs Act (the “TCJA”) may have on usthe Company and on ~~our~~its business, results of operations, cash flows and liquidity.

Forward-looking statements are predictions based on ~~our~~the Company’s current expectations and assumptions regarding future events. They are not guarantees or assurances of any outcomes, financial results, levels of activity, performance or achievements, and ~~you~~readers are cautioned not to place undue reliance upon them. These forward-looking statements are subject to a number of estimates, assumptions, known and unknown risks, uncertainties and other factors. ~~Our~~The Company’s 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;~~rates and regulatory responses to the COVID-19 pandemic;

the timeliness and outcome of regulatory commissions’ actions concerning rates, capital structure, authorized return on equity, capital investment, system acquisitions and dispositions, 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~~the Company’s water supplies or sources of water, or restrictions on ~~our~~its 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, consumer privacy, water quality and water quality accountability, emerging contaminants, public utility and tax regulations and policies, and impacts resulting from U.S., state and local elections;

weather conditions and events, climate variability patterns, and natural disasters, including drought or abnormally high rainfall, prolonged and abnormal ice or freezing conditions, strong winds, coastal and intercoastal flooding, pandemics (including COVID-19) and epidemics, earthquakes, landslides, hurricanes, tornadoes, wildfires, electrical storms, sinkholes and solar flares;

the outcome of litigation and similar governmental and regulatory proceedings, investigations or actions;

~~our~~the risks associated with the Company’s aging infrastructure, and its ability to appropriately maintain and replace current infrastructure, including ~~our~~its operational and technology systems, and manage the expansion of ~~our business;~~its businesses;

exposure or infiltration of ~~our~~the Company’s technology and critical infrastructure ~~and our technology~~ systems, including the disclosure of sensitive, personal or confidential information contained therein, through physical or cyber attacks or other means;

~~our~~the Company’s ability to obtain permits and other approvals for projects;

changes in ~~our~~the Company’s capital requirements;

~~our~~the Company’s ability to control operating expenses and to achieve ~~efficiencies in our operations;~~operating efficiencies;

the intentional or unintentional actions of a third party, including contamination of ~~our~~the Company’s water supplies or water provided to ~~our~~its customers;

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

~~our~~the Company’s ability to successfully meet growth projections for ~~our regulated~~the Regulated Businesses and ~~market-based businesses,~~the Market-Based Businesses (each as defined in this Form 10-Q), either individually or in the aggregate, and capitalize on growth opportunities, including, ~~our ability to,~~ among other ~~things:~~things, with respect to:

~~acquire, close~~acquiring, closing and successfully ~~integrate~~integrating regulated operations and market-based businesses;

~~enter~~

entering into contracts and other agreements with, or otherwise ~~obtain,~~obtaining, new customers or partnerships in ~~our market-based businesses;~~the Market-Based Businesses; and

~~realize~~realizing 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~~the Company’s operations;

~~our~~the Company’s ability to successfully develop and implement new technologies and to protect related intellectual property;

the Company’s ability to maintain safe work sites;

~~our~~the Company’s exposure to liabilities related to environmental laws and similar matters resulting from, among other things, water and wastewater service provided to ~~customers, including, for example, our water transfer business focused on customers in the shale natural gas exploration and production market;~~customers;

changes in general economic, political, business and financial market ~~conditions;~~conditions, including without limitation conditions and collateral consequences associated with the current pandemic health event resulting from COVID-19;

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 usthe Company or ~~our~~any of its subsidiaries, or on any of their current or future ~~debt~~indebtedness, that could increase ~~our~~the Company’s financing costs or funding requirements or affect ~~our~~the ability to borrow, make payments on debt or pay dividends;

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

changes in federal or state general, income and other tax laws, including any further rules, regulations, interpretations and guidance by the U.S. Department of the Treasury and state or local taxing authorities related to the enactment of the TCJA, the availability of tax credits and tax abatement programs, and ~~our~~the Company’s ability to utilize ~~our~~its U.S. federal and state income tax net operating loss (“NOL”) carryforwards;

migration of customers into or out of ~~our~~the Company’s service territories;

the use by municipalities of the power of eminent domain or other authority to condemn ~~our~~the systems of one or more of the Company’s utility subsidiaries, or the assertion by private landowners of similar rights against ~~us;~~such utility subsidiaries;

~~our~~any difficulty or inability to obtain insurance ~~our~~for the Company, its inability to obtain insurance at acceptable rates and on acceptable terms and conditions, or ~~our~~its inability to obtain reimbursement under existing insurance programs and coverages for any losses sustained;

the incurrence of impairment charges related to ~~our~~the Company’s goodwill or other assets;

labor actions, including work stoppages and strikes;

~~our~~the Company’s 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~~the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018 (“Form~~2019 (the “Form 10-K”) and in this Form 10-Q, and ~~you~~readers should refer to such risks, uncertainties and risk factors in evaluating such forward-looking statements. Any forward-looking statements ~~we make,~~the Company makes shall 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~~the Company does not have any obligation, and weit specifically ~~disclaim~~disclaims 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 usthe Company to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on ~~our~~the Company’s 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)


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Property, plant and equipment	$	23,355		$	23,204		$	24,351		$	23,941
Accumulated depreciation	(5,557		)	(5,795		)	(5,763		)	(5,709		)
Property, plant and equipment, net	17,798			17,409			18,588			18,232
Current assets:
Cash and cash equivalents	64			130			556			60
Restricted funds	22			28			33			31
Accounts receivable, net	337			301
Accounts receivable, net of allowance for uncollectible accounts of $40 and $41, respectively							292			294
Unbilled revenues	179			186			172			172
Materials and supplies	48			41			50			44
Assets held for sale							579			566
Other	91			95			119			118
Total current assets	741			781			1,801			1,285
Regulatory and other long-term assets:
Regulatory assets	1,180			1,156			1,132			1,128
Operating lease right-of-use assets	112			—			101			103
Goodwill	1,575			1,575			1,499			1,501
Postretirement benefit assets							158			159
Intangible assets	78			84			64			67
Postretirement benefit assets	168			155
Other	202			63			203			207
Total regulatory and other long-term assets	3,315			3,033			3,157			3,165
Total assets	$	21,854		$	21,223		$	23,546		$	22,682

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

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock ($0.01 par value; 500,000,000 shares authorized; 185,742,324 and 185,367,158 shares issued, respectively)	$	2		$	2
Common stock ($0.01 par value; 500,000,000 shares authorized; 186,188,334 and 185,903,727 shares issued, respectively)							$	2		$	2
Paid-in-capital	6,683			6,657			6,713			6,700
Accumulated deficit	(273		)	(464		)	(83		)	(207		)
Accumulated other comprehensive loss	(47		)	(34		)	(41		)	(36		)
Treasury stock, at cost (5,090,508 and 4,683,156 shares, respectively)	(338		)	(297		)
Treasury stock, at cost (5,167,039 and 5,090,855 shares, respectively)							(348		)	(338		)
Total common shareholders' equity	6,027			5,864			6,243			6,121
Long-term debt	8,642			7,569			8,621			8,639
Redeemable preferred stock at redemption value	6			7			4			5
Total long-term debt	8,648			7,576			8,625			8,644
Total capitalization	14,675			13,440			14,868			14,765
Current liabilities:
Short-term debt	397			964			1,641			786
Current portion of long-term debt	25			71			49			28
Accounts payable	140			175			152			203
Accrued liabilities	429			556			476			596
Accrued taxes	61			45			64			46
Accrued interest	88			87			91			84
Liabilities related to assets held for sale							130			128
Other	177			196			164			174
Total current liabilities	1,317			2,094			2,767			2,045
Regulatory and other long-term liabilities:
Advances for construction	245			252			259			240
Deferred income taxes and investment tax credits	1,823			1,740			1,929			1,893
Regulatory liabilities	1,886			1,907			1,795			1,806
Operating lease liabilities	97			—			87			89
Accrued pension liabilities	398			390
Accrued pension expense							404			411
Other	76			78			75			78
Total regulatory and other long-term liabilities	4,525			4,367			4,549			4,517
Contributions in aid of construction	1,337			1,322			1,362			1,355
Commitments and contingencies (See Note 9)
Commitments and contingencies (See Note 10)
Total capitalization and liabilities	$	21,854		$	21,223		$	23,546		$	22,682

The accompanying notes are an integral part of these 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,						For the Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Operating revenues	$	882		$	853		$	1,695		$	1,614		$	844		$	813
Operating expenses:
Operation and maintenance	372			348			737			695			383			365
Depreciation and amortization	142			134			286			263			145			144
General taxes	72			69			141			139			77			69
(Gain) on asset dispositions and purchases	(6		)	—			(9		)	(2		)	—			(3		)
Total operating expenses, net	580			551			1,155			1,095			605			575
Operating income	302			302			540			519			239			238
Other income (expense):
Interest, net	(94		)	(86		)	(187		)	(170		)	(96		)	(93		)
Non-operating benefit costs, net	4			2			8			5			13			4
Other, net	15			4			18			8			3			3
Total other income (expense)	(75		)	(80		)	(161		)	(157		)	(80		)	(86		)
Income before income taxes	227			222			379			362			159			152
Provision for income taxes	57			60			96			94			35			39
Net income attributable to common shareholders	$	170		$	162		$	283		$	268		$	124		$	113

Basic earnings per share: ~~(a)~~
Net income attributable to common shareholders	$	0.94		$	0.90		$	1.56		$	1.50		$	0.69		$	0.62
Diluted earnings per share:(a)
Net income attributable to common shareholders	$	0.94		$	0.91		$	1.56		$	1.50		$	0.68		$	0.62
Weighted-average common shares outstanding:
Basic	181			179			181			179			181			181
Diluted	181			179			181			179			181			181


(a)	Amounts may not calculate due to rounding.

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

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)


	For the Three Months Ended June 30,					For the Six Months Ended June 30,					For the Three Months Ended March 31,
	2019			2018		2019			2018		2020			2019
Net income attributable to common shareholders	$	170		$	162	$	283		$	268	$	124		$	113
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
Defined benefit pension plan actuarial loss, net of tax of $0 and $0 for the three months ended March 31, 2020 and 2019, respectively											1			1
Unrealized loss on cash flow hedges, net of tax of $(2) and $(6) for the three months ended March 31, 2020 and 2019, respectively											(6		)	(14		)
Net other comprehensive income (loss)	—			6		(13		)	10		(5		)	(13		)
Comprehensive income attributable to common shareholders	$	170		$	168	$	270		$	278	$	119		$	100

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

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

(In millions)


	For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	283		$	268		$	124		$	113
Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization	286			263			145			144
Deferred income taxes and amortization of investment tax credits	85			82			38			35
Provision for losses on accounts receivable	10			12			6			4
Gain on asset dispositions and purchases	(9		)	(2		)	—			(3		)
Pension and non-pension postretirement benefits	9			16			(1		)	5
Other non-cash, net	(46		)	(2		)	(18		)	(28		)
Changes in assets and liabilities:
Receivables and unbilled revenues	(40		)	(41		)	(4		)	5
Pension and postretirement benefit contributions	(14		)	—			(10		)	(7		)
Accounts payable and accrued liabilities	(47		)	(54		)	(91		)	(87		)
Other assets and liabilities, net	(37		)	(17		)	(9		)	(13		)
Net cash provided by operating activities	480			525			180			168
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(712		)	(739		)	(408		)	(326		)
Acquisitions, net of cash acquired	(80		)	(377		)	(21		)	(22		)
Proceeds from sale of assets	16			7			2			15
Removal costs from property, plant and equipment retirements, net	(41		)	(40		)	(23		)	(18		)
Net cash used in investing activities	(817		)	(1,149		)	(450		)	(351		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	1,184			15			8			2
Repayments of long-term debt	(146		)	(119		)	(6		)	(12		)
Proceeds from term loan							500			—
Net proceeds from revolving credit facility borrowings							215			—
Net short-term borrowings with maturities less than three months	(568		)	746			139			237
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	(11		)	—
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $11 and $6 for the three months ended March 31, 2020 and 2019, respectively							(5		)	(1		)
Advances and contributions for construction, net of refunds of $8 and $9 for the three months ended March 31, 2020 and 2019, respectively							7			2
Dividends paid	(173		)	(155		)	(90		)	(82		)
Anti-dilutive share repurchases	(36		)	(45		)	—			(36		)
Net cash provided by financing activities	265			638			768			110
Net (decrease) increase in cash, cash equivalents and restricted funds	(72		)	14
Net increase (decrease) in cash, cash equivalents and restricted funds							498			(73		)
Cash, cash equivalents and restricted funds at beginning of period	159			83			91			159
Cash, cash equivalents and restricted funds at end of period	$	87		$	97		$	589		$	86
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the end of period	$	194		$	180		$	256		$	184

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

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(In millions)

Common Stock Paid-in-Capital Accumulated Deficit Accumulated Other Comprehensive Loss Treasury Stock Total Shareholders' Equity
Shares Par Value Shares At Cost
Balance as of December 31, 2018 185.4
$ 2
$ 6,657
$ (464 ) $ (34 ) (4.7 ) $ (297 ) $ 5,864
Cumulative effect of change in accounting principle —
—
—
(2 ) —
—
—
(2 )
Net income attributable to common shareholders —
—
—
113
—
—
—
113
Direct stock reinvestment and purchase plan —
—
1
—
—
—
—
1
Employee stock purchase plan —
—
2
—
—
—
—
2
Stock-based compensation activity 0.2
—
8
—
—
(0.1 ) (5 ) 3
Repurchases of common stock —
—
—
—
—
(0.3 ) (36 ) (36 )
Net other comprehensive loss —
—
—
—
(13 ) —
—
(13 )
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 At Cost
Balance as of December 31, 2017 182.5
$ 2
$ 6,432
$ (723 ) $ (79 ) (4.1 ) $ (247 ) $ 5,385
Net income attributable to common 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



	Common Stock			Paid-in-Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock					Total Shareholders' Equity
	Shares	Par Value		Paid-in-Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Shares		At Cost			Total Shareholders' Equity
Balance as of December 31, 2019	185.9	$	2	$	6,700	$	(207	)	$	(36	)	(5.1	)	$	(338	)	$	6,121
Net income attributable to common shareholders	—	—		—		124			—			—		—			124
Common stock issuances (a)	0.3	—		13		—			—			(0.1	)	(10		)	3
Net other comprehensive loss	—	—		—		—			(5		)	—		—			(5		)
Balance as of March 31, 2020	186.2	$	2	$	6,713	$	(83	)	$	(41	)	(5.2	)	$	(348	)	$	6,243


(a)	Includes stock-based compensation, employee stock purchase plan and direct stock reinvestment and purchase plan activity.



	Common Stock			Paid-in-Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Treasury Stock					Total Shareholders' Equity
	Shares	Par Value		Paid-in-Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Shares		At Cost			Total Shareholders' Equity
Balance as of December 31, 2018	185.4	$	2	$	6,657	$	(464	)	$	(34	)	(4.7	)	$	(297	)	$	5,864
Cumulative effect of change in accounting principle	—	—		—		(2		)	—			—		—			(2		)
Net income attributable to common shareholders	—	—		—		113			—			—		—			113
Common stock issuances (a)	0.2	—		11		—			—			(0.1	)	(5		)	6
Repurchases of common stock	—	—		—		—			—			(0.3	)	(36		)	(36		)
Net other comprehensive loss	—	—		—		—			(13		)	—		—			(13		)
Balance as of March 31, 2019	185.6	$	2	$	6,668	$	(353	)	$	(47	)	(5.1	)	$	(338	)	$	5,932


(a)	Includes stock-based compensation, employee stock purchase plan and direct stock reinvestment and purchase plan activity.

The accompanying notes are an integral part of these 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 included in this report include the accounts of American Water Works Company, Inc. and all of its subsidiaries (the “Company” or “American Water”), in which a controlling interest is maintained after the elimination of intercompany balances and transactions. The ~~unaudited Consolidated Financial Statements~~financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting, and the rules and regulations for reporting on Quarterly Reports on Form 10-Q (“Form 10-Q”). Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. In the opinion of management, all adjustments necessary for a fair statement of the financial position as of ~~June 30, 2019,~~March 31, 2020, and the results of operations and cash flows for all periods presented, have been made. All adjustments are of a normal, recurring nature, except as otherwise disclosed.

The unaudited Consolidated Financial Statements and Notes included in this report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (“Form 10-K”), which provides a more complete discussion of the Company’s accounting policies, financial position, operating results and other matters. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year, primarily due to the seasonality of the Company’s operations.

Note 2: Significant Accounting Policies

New Accounting Standards

Presented in the table below are new accounting standards that were adopted by the Company in ~~2019:~~2020:



Standard	Description	Date of Adoption	Application	~~Effect on the Consolidated Financial Statements~~
~~Accounting for Leases~~	Updated the accounting and disclosure guidance for leasing arrangements. Under this guidance, a lessee 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. A package of optional transition practical expedients allows an entity not to reassess under the 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~~	~~Modified retrospective~~	~~See Note 12—Leases.~~
~~Targeted Improvements to Accounting for Hedging Activities~~	Updated the accounting and disclosure guidance for hedging activities, 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~~	~~Modified retrospective for adjustments related to the measurement of ineffectiveness for cash flow hedges; prospective for the updated presentation and disclosure requirements.~~	~~The adoption did not have a material impact on 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 SOFR as an eligible U.S. benchmark interest rate for the purposes of applying hedge accounting.~~	~~January 1, 2019~~	~~Prospective~~	~~The adoption did not have a material impact on the 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~~2020	Modified retrospective	The ~~Company is evaluating the~~standard did not have a material impact on 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 range and weighted average of significant unobservable inputs used to develop Level 3 measurements.	January 1, ~~2020; early adoption permitted~~2020	Prospective for added disclosures and for the narrative description of measurement uncertainty; retrospective for all other amendments.	The standard ~~will~~did not have a material impact on the Consolidated Financial Statements.
Facilitation of the Effects of Reference Rate Reform on Financial Reporting	Provided optional guidance for a limited time to ease the potential accounting burden associated with the transition from LIBOR. The guidance contains optional expedients and exceptions for contract modifications, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued. The expedients elected must be applied for all eligible contracts or transactions, with the exception of hedging relationships, which can be applied on an individual basis	March 12, 2020 through December 31, 2022	Prospective for contract modifications and hedging relationships; applied as of January 1, 2020.	The standard did not have a material impact on the Consolidated Financial Statements.

Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of March 31, 2020:



Standard	Description	Date of Adoption	Application	Estimated Effect on the Consolidated Financial Statements
Simplifying the Accounting for Income Taxes	The guidance removes exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize a deferred tax liability for changes in ownership of a foreign subsidiary or equity method investment, and the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss. The guidance adds requirements to reflect changes to tax laws or rates in the annual effective tax rate computation in the interim period in which the changes were enacted, to recognize franchise or other similar taxes that are partially based on income as an income-based tax and any incremental amounts as non-income-based tax, and to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.	January 1, 2021; early adoption permitted	Modified retrospective for amendments related to changes in ownership of a foreign subsidiary or equity method investment; Modified retrospective or retrospective for amendments related to taxes partially based on income; Prospective for all other amendments.	The Company is evaluating any impact on its Consolidated Financial Statements, as well as the timing of adoption.

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:~~March 31:


	2019		2018		2020		2019
Cash and cash equivalents	$	64	$	68	$	556	$	63
Restricted funds	22		27		33		22
Restricted funds included in other long-term assets	1		2		—		1
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows	$	87	$	97	$	589	$	86

Allowance for Uncollectible Accounts

Allowances for uncollectible accounts are maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the allowances for uncollectible accounts, including the length of time receivables are past due, previous loss history, current economic and societal conditions and reasonable and supportable forecasts that affect the collectability of receivables from customers. The Company generally writes off accounts when they become uncollectible or are over a certain number of days outstanding.

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:~~March 31, 2020:


	Revenues from Contracts with Customers			Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues			Revenues from Contracts with Customers			Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:
Water services:
Residential	$	415		$	—	$	415		$	399		$	—	$	399
Commercial	153			—		153			142			—		142
Fire service	35			—		35			37			—		37
Industrial	34			—		34			32			—		32
Public and other	51			—		51			49			—		49
Total water services	688			—		688			659			—		659
Wastewater services:
Residential	28			—		28			31			—		31
Commercial	7			—		7			8			—		8
Industrial									1			—		1
Public and other	5			—		5			3			—		3
Total wastewater services	40			—		40			43			—		43
Miscellaneous utility charges	8			—		8			8			—		8
Alternative revenue programs	—			17		17			—			7		7
Lease contract revenue	—			2		2			—			3		3
Total Regulated Businesses	736			19		755			710			10		720
Market-Based Businesses	132			—		132			128			—		128
Other	(5		)	—		(5		)	(4		)	—		(4		)
Total operating revenues	$	863		$	19	$	882		$	834		$	10	$	844


(a)	Includes revenues associated with provisional rates, 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 of $17 million and $13 million are included in unbilled revenues on the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, respectively. There were $11 million of contract assets added during the three months ended March 31, 2020, and $7 million of contract assets were transferred to accounts receivable during the same period.

Contract liabilities of $34 million and $27 million are included in other current liabilities on the Consolidated Balance Sheets as of ~~June 30, 2019.~~

~~Presented in~~March 31, 2020 and December 31, 2019, respectively. There were $36 million of contract liabilities added during the ~~table below are the changes in contract assets and liabilities for the six~~three months ended ~~June 30, 2019:~~March 31, 2020, and $29 million of contract liabilities were recognized as revenue during the same period.

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,~~March 31, 2020, the Company’s operation and maintenance (“O&M”) 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~~2070 and have RPOs of ~~$4.4~~$5.4 billion as of ~~June 30, 2019,~~March 31, 2020, 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~~2021 and 2038 and have RPOs of ~~$571~~$537 million as of ~~June 30, 2019,~~March 31, 2020, as measured by estimated remaining contract revenue. Some of the Company’s long-term contracts to operate and maintain the federal government’s, a municipality’s or other party’s water or wastewater treatment and delivery facilities include responsibility for certain maintenance for some of those facilities, in exchange for an annual fee. Unless specifically required to perform certain maintenance activities, the maintenance costs are recognized when the maintenance is performed.

Note 4: Acquisitions and Divestitures

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the Company closed on the acquisition of ~~nine~~2 regulated water ~~and wastewater~~ systems for a total aggregate purchase price of ~~$80~~$21 million, including the acquisition of the ~~City~~water system assets of ~~Alton, Illinois’ regional wastewater system~~the California based Fruitridge Vista Water Company (“Fruitridge”), on ~~June 27, 2019 for $55 million.~~February 4, 2020. Assets acquired from these acquisitions, principally utility plant, ~~totaled $81~~totaling $23 million, and liabilities assumed ~~totaled $1~~totaling $2 million. ~~These acquisitions were predominately~~The Fruitridge acquisition was accounted for as a business ~~combinations,~~combination, as the Company continues to grow its business through regulated acquisitions. The preliminary purchase price allocations related to ~~acquisitions accounted for as business combinations~~the Fruitridge acquisition will be finalized once the valuation of assets acquired has been completed, no later than one year after ~~their~~the acquisition date.

Assets Held for Sale

On November 20, 2019, the Company and the Company’s New York subsidiary, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co. (“Liberty”), pursuant to which Liberty will purchase all of the capital stock of the New York subsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in the Stock Purchase Agreement. The Company’s New York operations have approximately 125,000 customer connections in the State of New York. Algonquin Power & Utilities Corp., Liberty’s parent company, executed and delivered an absolute and unconditional guaranty of the performance of the obligations of Liberty under the Stock Purchase Agreement. Progress toward completion of the transaction continues and the Company currently estimates that the Stock Purchase will be completed as soon as practicable which is anticipated to be no later than early 2021. Accordingly, the assets and related liabilities of the New York subsidiary were classified as held for sale on the Consolidated Balance Sheets as of March 31, 2020.

Presented in the table below are the components of assets held for sale and liabilities related to assets held for sale of the New York subsidiary as of March 31, 2020:



	March 31, 2020
Current assets	$	13
Property, plant and equipment	468
Regulatory assets	54
Goodwill	39
Other assets	5
Assets held for sale	$	579
Current liabilities	25
Deferred income taxes	68
Regulatory liabilities	37
Liabilities related to assets held for sale	$	130

Note 5: Shareholders' Equity

Accumulated Other Comprehensive Loss

Presented in the table below are the changes in accumulated other comprehensive loss by component, net of tax, for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively:


	Defined Benefit Pension Plans							Foreign Currency Translation				Gain (Loss) on Cash Flow Hedges				Accumulated Other Comprehensive Loss			Defined Benefit Pension Plans							Foreign Currency Translation		Gain (Loss) on Cash Flow Hedges			Accumulated Other Comprehensive Loss
											Employee Benefit Plan Funded Status					Accumulated Other Comprehensive Loss			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, 2019																			$	(94	)	$	1	$	60	$	—	$	(3	)	$	(36	)
Other comprehensive loss before reclassifications																			—			—		—		—		(6		)	(6		)
Amounts reclassified from accumulated other comprehensive loss																			—			—		1		—		—			1
Net other comprehensive income (loss)																			—			—		1		—		(6		)	(5		)
Balance as of March 31, 2020																			$	(94	)	$	1	$	61	$	—	$	(9	)	$	(41	)
	Funded Status			Amortization of Prior Service Cost		Amortization of Actuarial Loss		Foreign Currency Translation		Foreign Currency Translation					Gain (Loss) on Cash Flow Hedges				Accumulated Other Comprehensive Loss
Balance as of December 31, 2018	$	(102	)	$	1	$	56			Foreign Currency Translation			$	(102	Gain (Loss) on Cash Flow Hedges			)	Accumulated Other Comprehensive Loss			$	1	$	56	$	1	$	10		$	(34	)
Other comprehensive loss before reclassifications	—			—		—		—				(13		)		(13		)	—			—		—		—		(14		)	(14		)
Amounts reclassified from accumulated other comprehensive loss	—			—		1		(1		)		—				—			—			—		1		—		—			1
Net other comprehensive income (loss)	—			—		1		(1		)		(13		)		(13		)	—			—		1		—		(14		)	(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	)
Balance as of March 31, 2019																			$	(102	)	$	1	$	57	$	1	$	(4	)	$	(47	)

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 ~~has~~have been capitalized as a regulatory asset. These accumulated other comprehensive loss components are included in the computation of net periodic pension cost.

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 a corresponding change of accumulated other comprehensive loss.

The amortization of the 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 Stock Repurchase Program~~

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

Dividends

On ~~June~~March 4, ~~2019,~~2020, the Company paid a cash dividend of $0.50 per share to shareholders of record as of ~~May 13, 2019.~~February 7, 2020.

On ~~July 26, 2019,~~April 29, 2020, the Company’s Board of Directors declared a quarterly cash dividend payment of ~~$0.50~~$0.55 per share, payable on ~~September 4, 2019~~June 2, 2020 to shareholders of record as of ~~August 9, 2019.~~May 12, 2020. Future dividends, when and as declared at the discretion of the Board of Directors, will be dependent upon future earnings and cash flows, compliance with various regulatory, financial and legal requirements, and other 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 the Company’s common stock.

Note 6: Long-Term Debt

~~Presented in the table below are issuances of long-term debt during the six months ended June 30, 2019:~~

Company Type Rate Maturity Amount
American Water Capital Corp. Senior Notes—fixed rate 3.45%-4.15% 2029-2049 $ 1,100
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 Private activity bonds and government funded debt—fixed rate 3.00% 2039 80
Total issuances $ 1,184


~~(a)~~	~~This debt relates to the New Jersey Environmental Infrastructure Financing Program.~~

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

Company Type Rate Maturity Amount
American Water Capital Corp. 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
Other American Water subsidiaries Private activity bonds and government funded debt—fixed rate 0.00%-6.20% 2019-2048 85
Other American Water subsidiaries Mortgage bonds—fixed rate 5.48%-9.13% 2019-2021 28
Other American Water subsidiaries Mandatorily redeemable preferred stock 8.49% 2036 1
Other American Water subsidiaries Term loan 5.76%-5.81% 2021 6
Total retirements and redemptions $ 146

On ~~May 13, 2019,~~April 14, 2020, American Water Capital Corp. (“AWCC”) completed a ~~$1.10~~$1.0 billion debt offering which included the sale of ~~$550~~$500 million aggregate principal amount of its 2.80% senior notes due 2030 and $500 million aggregate principal amount of its 3.45% ~~Senior Notes~~senior notes due ~~2029 and $550 million aggregate principal amount of its 4.15% Senior Notes due 2049.~~2050. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of ~~approximately $1.09 billion.~~$989 million. AWCC ~~used~~will use the net proceeds ~~to:~~of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to fund sinking fund payments for, and to repay ~~$25 million principal amount of AWCC’s 7.21% Series I Senior Notes~~ at maturity, ~~on May 19, 2019; (iii) repay $26~~$28 million in aggregate principal amount of ~~subsidiary~~outstanding long-term debt ~~at maturity during~~of AWCC and certain of the ~~second quarter of 2019; and (iv)~~Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper ~~obligations,~~obligations; and (iv) for general corporate ~~purposes.~~purposes, including potentially to repay outstanding short-term indebtedness under AWCC’s $750 million Term Loan Facility (as defined in Note 7—Short-Term Debt) and its $2.25 billion unsecured revolving credit facility.

During March 2020, the Company entered into 4 10-year treasury lock agreements, each with a notional amount of $100 million, to reduce interest rate exposure on debt, which was subsequently issued on April 14, 2020. These treasury lock agreements had an average fixed rate of 0.94%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. On ~~May 6, 2019,~~April 8, 2020 the Company terminated ~~five forward starting swap~~these 4 treasury lock agreements with an aggregate notional amount of ~~$510~~$400 million, realizing a net loss of ~~$30~~$6 million, to be amortized through interest, net over a 10 ~~and 30~~ year ~~periods,~~period, in accordance with the terms of the $1.0 billion new debt issued on ~~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 $3 million. The Company has designated these instruments as economic hedges, accounted for at fair value, with gains or losses recognized in interest, net. The gain recognized by the Company for the three and six months ended June 30, 2019 and 2018 was de minimis.

April 14, 2020. No ineffectiveness was recognized on hedging instruments for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

During the three months ended March 31, 2020, the Company’s regulated subsidiaries issued $8 million of private activity bonds and government funded debt with rates ranging from 0.00% to 5.00%, maturing in 2021 through 2048. During the three months ended March 31, 2020, AWCC, along with the Company’s regulated subsidiaries, retired or paid at maturity $6 million of various long-term debt with rates ranging from 0.00% to 12.25%, maturing in 2020 through 2048.

Presented in the table below are the gross fair values of the Company’s derivative liabilities, as well as the location of the liability balances on the Consolidated Balance Sheets:

Derivative Instrument

Derivative Designation

Balance Sheet Classification

June 30, 2019

December 31, 2018

Derivative Designation

Balance Sheet Classification

March 31, 2020

December 31, 2019

Liability derivative:

Forward starting swaps

Cash flow hedge

Other current liabilities

—

Treasury lock agreements

Cash flow hedge

Other current liabilities

—

Note 7: Short-Term Debt

On March 20, 2020, AWCC entered into a Term Loan Credit Agreement, by and among American Water, AWCC and the lenders party thereto, which provides for a term loan facility of up to $750 million (the “Term Loan Facility”). On March 20, 2020, AWCC borrowed $500 million under the Term Loan Facility, the proceeds of which are to be used for general corporate purposes of AWCC and American Water, and to provide additional liquidity. The Term Loan Facility allows for a single additional borrowing of up to $250 million on or before June 19, 2020 and requires AWCC to pay a commitment fee of 0.20% per year based on the daily amount of unutilized commitments. The Term Loan Facility commitments terminate on March 19, 2021. AWCC may from time to time prepay all or a portion of amounts due under the Term Loan Facility without any premium or penalty; however, any repaid amounts may not be reborrowed. Borrowings under the Term Loan Facility bear interest at a variable annual rate based on the London interbank market rate, or LIBOR, plus a margin of 0.80%, or at AWCC’s election, a base rate per year based on other market interest rates. The credit agreement for the Term Loan Facility contains the same affirmative and negative covenants and events of default as under AWCC’s $2.25 billion revolving credit facility. As of March 31, 2020, $500 million of principal was outstanding under the Term Loan Facility.

On April 1, 2020, 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, 2024 to March 21, 2025. As of March 31, 2020, AWCC had $215 million outstanding borrowings and $76 million of outstanding letters of credit under the revolving credit facility, and $926 million of outstanding commercial paper, with $1.03 billion available to fulfill short-term liquidity needs and to issue letters of credit. The weighted-average interest rate on AWCC short-term borrowings outstanding was approximately 1.83% and 1.86% at March 31, 2020 and December 31, 2019, respectively.

Note 7:8: Income Taxes

The Company’s effective income tax rate was ~~25.1%~~22.0% and ~~27.0%~~25.7% for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 25.3% and 26.0% for the six months ended June 30, 2019 and 2018,~~ respectively. The decrease in the Company’s effective income tax rate ~~during 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~~in the second quarter of ~~the Company’s regulated subsidiaries in~~ 2019, and ~~unitary state adjustments recorded~~an increase in 2018. The decrease in the Company’s effective income tax rate during the six months ended June 30, 2019 was primarily due to the amortization of the EADIT resulting from the TCJA, partially offset by changes in executive compensation and other deductions under the TCJA.stock option benefit.

Note 8:9: Pension and Other Postretirement Benefits

Presented in the table below are the components of net periodic benefit cost (credit):


	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Components of net periodic pension benefit cost:
Service cost	$	7		$	8		$	14		$	17		$	8		$	7
Interest cost	21			19			41			38			19			20
Expected return on plan assets	(23		)	(24		)	(45		)	(49		)	(28		)	(22		)
Amortization of prior service credit	(1		)	—			(2		)	—			(1		)	(1		)
Amortization of actuarial loss	8			7			16			14			8			8
Net periodic pension benefit cost	$	12		$	10		$	24		$	20		$	6		$	12

Components of net periodic other postretirement benefit credit:
Service cost	$	1		$	2		$	2		$	5		$	1		$	1
Interest cost	4			5			7			11			3			3
Expected return on plan assets	(5		)	(6		)	(9		)	(13		)	(4		)	(4		)
Amortization of prior service credit	(9		)	(4		)	(17		)	(9		)	(8		)	(8		)
Amortization of actuarial loss	1			1			2			2			1			1
Net periodic other postretirement benefit credit	$	(8	)	$	(2	)	$	(15	)	$	(4	)	$	(7	)	$	(7	)

The Company contributed ~~$7 million and $14~~$10 million for the funding of its defined benefit pension plans for the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020 and made ~~less than $1~~$7 million of funding contributions for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The Company made no0 contributions for the funding of its other postretirement benefit plans for each of the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. The Company expects to make pension contributions to the plan trusts of up to ~~$17~~$30 million during the remainder of ~~2019.~~2020.

Note 9:10: Commitments and Contingencies

Contingencies

The Company is routinely involved in legal actions incident to the normal conduct of its business. As of ~~June 30, 2019,~~March 31, 2020, the Company has accrued approximately ~~$21~~$12 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 ~~$24~~$2 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—10—Commitments and Contingencies, will not have a material adverse effect on the Company.

West Virginia Elk River Freedom Industries Chemical Spill

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”~~“West Virginia Plaintiffs”) arising out of the January 2014 Freedom Industries, Inc. chemical spill in West Virginia. The effective date of the Settlement was July 16, 2018.

Under the terms and conditions of the Settlement, West Virginia-American Water Company (“WVAWC”) and certain other Company affiliated entities (collectively, the ~~“American~~“West Virginia-American Water Defendants”) did not admit, and will not admit, any fault or liability for any of the allegations made by the West Virginia Plaintiffs in any of the actions that were resolved. Under federal class action rules, claimants had the right, until December 8, 2017, to elect to opt out of the final Settlement. Less than 100 of the estimated 225,000 putative class members elected to opt out from the Settlement, and these claimants will not receive any benefit from or be bound by the terms of the Settlement.

In June 2018, the Company and its remaining non-participating general liability insurance carrier settled for a payment to the Company of $20 million, out of a maximum of $25 million in potential coverage under the terms of the relevant policy, in exchange for a full release by the American Water Defendants of all claims against the insurance carrier related to the Freedom Industries chemical spill.

The aggregate pre-tax amount contributed by WVAWC of the $126 million portion of the Settlement with respect to the Company, net of insurance recoveries, is $19 million. As of ~~June 30, 2019, $7~~March 31, 2020, $0.5 million of the aggregate Settlement amount of $126 million has been reflected in accrued liabilities, and $7$0.5 million in offsetting insurance receivables ~~has~~have been reflected in other current assets on the Consolidated Balance Sheets. The amount reflected in accrued liabilities as of ~~June 30, 2019~~March 31, 2020 reflects ~~$18 million of~~ reductions in the liability ~~during the first six months of 2019, $14 million of which was recorded as~~and appropriate reductions to the offsetting insurance receivable reflected in other current ~~assets.~~assets, associated with payments made to the Settlement fund, the receipt of a final determination on all remaining medical claims and the calculation of remaining attorneys’ fees and claims administration costs. The Company ~~has~~ funded WVAWC’s contributions to the Settlement through existing sources of 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 for up to approximately 25,000 WVAWC customers. In the early morning hours of June 25, 2015, crews completed a repair, but that same day, the repair developed a leak. On June 26, 2015, a second repair was completed and service was restored that day to approximately 80% of the impacted customers, and to the remaining approximately 20% by the next morning. The second repair showed signs of leaking, but the water main was usable until June 29, 2015 to allow tanks to refill. The system was reconfigured to maintain service to all but approximately 3,000 customers while a final repair was completed safely on June 30, 2015. Water service was fully restored by July 1, 2015 to all customers affected by this event.

On June 2, 2017, a ~~class action~~ complaint captioned Jeffries, et al. v. West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County ~~against WVAWC~~ on behalf of ~~a purported~~an alleged 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 Jeffries 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.

In October 2017, WVAWC filed with the court a motion seeking to dismiss all of the Jeffries plaintiffs’ counts alleging statutory and common law tort claims. Furthermore, WVAWC asserted that the Public Service Commission of West Virginia, and not the court, has primary jurisdiction over allegations involving violations of the applicable tariff, the public utility code and related rules. OnIn May, ~~30,~~ 2018, the court, at a hearing, denied WVAWC’s motion to apply the primary jurisdiction doctrine, and onin 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 Jeffries plaintiffs’ tort claims. ~~The~~On August 21, 2019, the court ~~requested that the parties submit~~set a ~~scheduling order with~~procedural schedule in this case, including 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.September 21, 2020. Discovery in this case is ongoing. On February 4, 2020, the Jeffries plaintiffs filed a motion seeking class certification on the issues of breach of contract and negligence, and to determine the applicability of punitive damages and a multiplier for those damages if imposed. A hearing on class certification was held on March 11, 2020, followed by a status conference on April 7, 2020. This motion remains pending.

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~~The Company cannot ~~reasonably~~currently determine the likelihood of a loss, if any, or estimate the amount of any ~~reasonably possible~~loss or a range of such losses related to this proceeding.

Chattanooga, Tennessee Water Main Break Class Action Litigation

On September 12, 2019, Tennessee-American Water Company, a wholly owned subsidiary of the Company (“TAWC”), experienced a break of a 36-inch water transmission main, which caused service fluctuations or interruptions to TAWC customers and the issuance of a boil water notice. TAWC repaired the main break by early morning on September 14, 2019, and restored full water service by the afternoon on September 15, 2019, with the boil water notice lifted for all customers on September 16, 2019.

On September 17, 2019, a complaint captioned Bruce, et al. v. American Water Works Company, Inc., et al. was filed in the Circuit Court of Hamilton County, Tennessee against TAWC, the Company and American Water Works Service Company, Inc., a wholly owned subsidiary of the Company (collectively, the “Tennessee-American Water Defendants”), on behalf of an alleged class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga main break (the “Tennessee Plaintiffs”). The complaint alleges breach of contract and negligence against the Tennessee-American Water Defendants, as well as an equitable remedy of piercing the corporate veil. The Tennessee Plaintiffs seek an award of unspecified alleged damages for wage losses, business and economic losses, out-of-pocket expenses, loss of use and enjoyment of property and annoyance and inconvenience, as well as punitive damages, attorneys’ fees and pre- and post-judgment interest.

On November 22, 2019, the Tennessee-American Water Defendants filed a motion to dismiss the complaint for failure to state a claim upon which relief may be granted, and, with respect to the Company, for lack of personal jurisdiction. A hearing on this motion was held on February 18, 2020. The motion to dismiss remains pending.

The Tennessee-American Water Defendants believe that they have meritorious defenses to the claims raised in this class action complaint, and they are vigorously defending themselves against these allegations. The Company cannot currently determine the likelihood of a loss, if any, or estimate the amount of any loss or a range of such losses related to this proceeding.

Note ~~10:~~11: Earnings per Common Share

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,				For the Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Numerator:
Net income attributable to common shareholders	$	170	$	162	$	283	$	268	$	124	$	113

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

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 Omnibus Equity Compensation Plan and outstanding restricted stock units and performance stock units granted under the Company’s 2017 Omnibus Equity Compensation ~~Plans,~~Plan, 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,~~March 31, 2020 and 2019 ~~and 2018~~ because their effect would have been anti-dilutive under the treasury stock method.

Note ~~11:~~12: Fair Value of Financial Information

Fair Value of Financial Instruments

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

Current assets and current liabilities—The carrying amounts reported on the Consolidated Balance Sheets for current assets and current liabilities, including revolving credit debt, due to the short-term maturities and variable interest rates, approximate their fair values.

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. The Company calculated a base yield curve using a risk-free rate (a U.S. Treasury securities yield curve) plus a credit spread that is based on the following two factors: an average of the Company’s own publicly-traded debt securities and the current market rates for U.S. Utility A debt securities. The Company used these yield curve assumptions to derive a base yield for the Level 2 and Level 3 securities. Additionally, the Company adjusted the base yield for specific features of the debt securities, including call features, coupon tax treatment and collateral for the Level 3 instruments.

Presented in the tables below are the carrying amounts, including fair value adjustments previously recognized in acquisition purchase accounting, and the fair values of the Company’s financial instruments:


	Carrying Amount		At Fair Value as of June 30, 2019								Carrying Amount		At Fair Value as of March 31, 2020
	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	7	$	—	$	—	$	9	$	9	$	6	$	—	$	—	$	7	$	7
Long-term debt (excluding finance lease obligations)	8,666		7,436		415		1,650		9,501		8,667		7,456		404		1,616		9,476

	Carrying Amount		At Fair Value as of December 31, 2018								Carrying Amount		At Fair Value as of December 31, 2019
	Carrying Amount		Level 1		Level 2		Level 3		Total		Carrying Amount		Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	8	$	—	$	—	$	9	$	9	$	7	$	—	$	—	$	9	$	9
Long-term debt (excluding finance lease obligations)	7,638		5,760		433		1,728		7,921		8,664		7,689		417		1,664		9,770

Recurring Fair Value Measurements

Presented in the tables below are assets and liabilities measured and recorded at fair value on a recurring basis and their level within the fair value hierarchy:


	At Fair Value as of June 30, 2019								At Fair Value as of March 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2			Level 3		Total
Assets:
Restricted funds	$	23	$	—	$	—	$	23	$	33	$	—		$	—	$	33
Rabbi trust investments	15		—		—		15		16		—			—		16
Deposits	3		—		—		3		4		—			—		4
Other investments	4		—		—		4		10		—			—		10
Total assets	45		—		—		45		63		—			—		63

Liabilities:
Deferred compensation obligations	19		—		—		19		20		—			—		20
Mark-to-market derivative liabilities									—		8			—		8
Total liabilities	19		—		—		19		20		8			—		28
Total assets	$	26	$	—	$	—	$	26
Total assets (liabilities)									$	43	$	(8	)	$	—	$	35


	At Fair Value as of December 31, 2018									At Fair Value as of December 31, 2019
	Level 1		Level 2			Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Restricted funds	$	29	$	—		$	—	$	29	$	31	$	—	$	—	$	31
Rabbi trust investments	15		—			—		15		17		—		—		17
Deposits	3		—			—		3		3		—		—		3
Other investments	3		—			—		3		8		—		—		8
Total assets	50		—			—		50		59		—		—		59

Liabilities:
Deferred compensation obligations	17		—			—		17		21		—		—		21
Mark-to-market derivative liabilities	—		14			—		14
Total liabilities	17		14			—		31		21		—		—		21
Total assets (liabilities)	$	33	$	(14	)	$	—	$	19
Total assets										$	38	$	—	$	—	$	38

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,~~operation, maintenance and repair projects. ~~Long-term restricted funds of $1 million were included in other long-term assets on the Consolidated Balance Sheets as of June 30, 2019 and December 31, 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 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 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 assets and 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,~~treasury lock agreements, 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 on the Consolidated Balance Sheets.

Note ~~12:~~13: 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 ROU assets represent the right to 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 leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the 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 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 Company determines if an arrangement is a lease at inception. Operating leases are 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 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~~right-of-use (“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 carrying value of the finance lease assets was $147 million as of March 31, 2020 and December 31, 2019. 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 the Consolidated Balance Sheets and excluded from the finance lease disclosure presented below.

The Company also enters into ~~operation and maintenance (“~~O~~&M”)~~&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~~2020 through ~~2023,~~2024, and ~~$59~~$56 million thereafter, are included in operating lease ~~right-of-use~~ROU 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.~~March 31, 2020.

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



	For the Three Months Ended March 31, 2020
Cash paid for amounts in lease liabilities (a)	$	3


(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~~March 31, 2020
Weighted-average remaining lease term:
Finance lease	76 years
Operating leases	1819 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:~~March 31, 2020:

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		Amount
2019	$	17
2020	15		$	11
2021	12		13
2022	11		11
2023	6		7
2024			7
Thereafter	80		100
Total lease payments			149
Imputed interest			(52		)
Total	$	141	$	97

Note ~~13:~~14: 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, assess performance and ~~assess performance.~~allocate resources. The Company operates its businesses primarily through ~~one~~1 reportable segment, the Regulated Businesses segment. The Company also operates market-based businesses that, ~~provide~~individually, do not meet the criteria of a ~~broad range of related~~reportable segment in accordance with GAAP, and ~~complementary water and wastewater services within non-reportable operating segments,~~are collectively ~~referred to~~presented as the 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 adjustments related to the acquisitions are reported in Other as they are excluded from segment performance measures evaluated by management.

Presented in the tables below is summarized segment information:


	As of or for the Three Months Ended June 30, 2019											As of or for the Three Months Ended March 31, 2020
	Regulated Businesses			Market-Based Businesses		Other			Consolidated			Regulated Businesses			Market-Based Businesses		Other			Consolidated
Operating revenues	$	755		$	132	$	(5	)	$	882		$	720		$	128	$	(4	)	$	844
Depreciation and amortization	132			8		2			142			135			6		4			145
Total operating expenses, net	480			106		(6		)	580			503			99		3			605
Interest, net	(74		)	1		(21		)	(94		)	(72		)	1		(25		)	(96		)
Income before income taxes	208			29		(10		)	227			162			30		(33		)	159
Provision for income taxes	52			8		(3		)	57			40			8		(13		)	35
Net income attributable to common shareholders	156			21		(7		)	170			123			22		(21		)	124
Total assets	19,338			1,056		1,460			21,854			20,575			1,037		1,934			23,546
Capital expenditures	378			4		4			386
Cash paid for capital expenditures												404			3		1			408

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 Six Months Ended June 30, 2019
Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues $ 1,440
$ 266
$ (11 ) $ 1,695
Depreciation and amortization 262
17
7
286
Total operating expenses, net 950
214
(9 ) 1,155
Interest, net (147 ) 2
(42 ) (187 )
Income before income taxes 358
56
(35 ) 379
Provision for income taxes 92
15
(11 ) 96
Net income attributable to common shareholders 266
41
(24 ) 283
Total assets 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											As of or for the Three Months Ended March 31, 2019
	Regulated Businesses			Market-Based Businesses		Other			Consolidated			Regulated Businesses			Market-Based Businesses		Other			Consolidated
Operating revenues	$	1,410		$	214	$	(10	)	$	1,614		$	685		$	134	$	(6	)	$	813
Depreciation and amortization	245			11		7			263			130			9		5			144
Total operating expenses, net	915			184		(4		)	1,095			470			108		(3		)	575
Interest, net	(138		)	3		(35		)	(170		)	(73		)	1		(21		)	(93		)
Income before income taxes	368			34		(40		)	362			150			27		(25		)	152
Provision for income taxes	97			9		(12		)	94			40			7		(8		)	39
Net income attributable to common shareholders	271			25		(28		)	268			110			20		(17		)	113
Total assets	18,197			818		1,456			20,471			18,937			1,019		1,508			21,464
Capital expenditures	677			7		55			739
Cash paid for capital expenditures												315			4		7			326

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 and Notes thereto included elsewhere in this Form 10-Q, and in ~~our~~the Company’s Form 10-K for the year ended December 31, ~~2018.~~2019. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about ~~our~~the Company’s 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~~The Company’s 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~~that are discussed under “Forward-Looking Statements,” and elsewhere in this Form 10-Q. The Company has a disclosure committee consisting of members of senior management and other key employees involved in the preparation of the Company’s SEC reports. The committee is actively involved in the review and discussion of the Company’s SEC filings.

Overview

American Water is the largest and most geographically diverse, ~~publicly-traded~~publicly traded water and wastewater utility company in the United States, as measured by both operating revenues and population served. ~~Our~~The Company’s primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers, collectively presented as ~~our~~the “Regulated Businesses.” Services provided by ~~our~~the Company’s utilities are ~~generally~~ subject to ~~economic~~ regulation by ~~certain~~multiple state utility commissions or other entities engaged in utility regulation, collectively referred to as public utility commissions (“PUCs” ~~or “Regulators”~~). WeThe Company also ~~operate~~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 ~~our~~the “Market-Based Businesses.” These ~~businesses~~Market-Based Businesses are not subject to economic regulation by state PUCs. See Part I, Item 1—Business in ~~our~~the Company’s Form 10-K for additional information.

~~Operating Highlights~~Novel Coronavirus (COVID-19) Pandemic Update

~~Closed~~American Water continues to monitor the global outbreak of the current novel coronavirus (“COVID-19”) pandemic and is taking steps to mitigate potential risks to the Company. American Water has three main areas of focus as part of its response to COVID-19: the care and safety of its employees; the safety of its customers and the communities it serves; and the execution of its business continuity plan. American Water is also working with its vendors to understand the potential impacts to its supply chain, and, at this time, it does not anticipate any material negative impacts to its supply chain. American Water is also monitoring impacts of the pandemic on its access to the capital markets, and to the extent such access is adversely affected, American Water may need to consider alternative sources of funding for its operations and for working capital, any of which could increase its cost of capital. In response to these events to address liquidity needs, the Company has taken the steps outlined below in “Recent Financing Activities” and further discussed in “Liquidity and Capital Resources.”

This pandemic is a rapidly evolving situation, and American Water will continue to monitor developments affecting its employees, customers, contractors and vendors and take additional precautions as may be warranted. As the impact continues to be assessed, the Company will work with PUCs as they look to address COVID-19 response measures, customer protection and cost recovery for all regulated utilities in their jurisdictions. Through the three months ended March 31, 2020, the COVID-19 pandemic did not have a material impact on the ~~acquisition~~financial results of the ~~City~~Company as discussed in “Financial Results” and “Consolidated Results of ~~Alton, Illinois’ regional wastewater system~~Operations” below. The extent to which COVID-19 may impact American Water, including without limitation, its liquidity, financial condition, and results of operations, will depend on ~~June 27, 2019 for $55 million. This system currently serves approximately 23,000 wastewater customers, comprised of 11,000 customers in Alton~~future developments, which presently are highly uncertain and ~~an additional 12,000 customers under bulk contracts in the nearby communities of Bethalto~~cannot be predicted.

Recent Financing Activities

On March 20, 2020, American Water 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~~a wholly owned finance subsidiary of American Water, entered into a Term Loan Credit Agreement that provides for a term loan facility of up to $750 million (the “Term Loan Facility”). On March 20, 2020, AWCC borrowed $500 million under the Term Loan Facility, the proceeds of which are to be used for general corporate purposes of AWCC and American Water, and to provide additional liquidity. The Term Loan Agreement allows for a single additional borrowing of up to $250 million on or before June 19, 2020. See Note 7—Short-Term Debt in the Notes to Consolidated Financial Statements for additional information.

On April 14, 2020, AWCC completed a ~~$1.10~~$1.0 billion debt offering ~~on May 13, 2019,~~ which included the sale of ~~$550~~$500 million aggregate principal amount of its 2.80% senior notes due 2030 and $500 million aggregate principal amount of its 3.45% ~~Senior Notes~~senior notes due ~~2029 and $550 million aggregate principal amount of its 4.15% Senior Notes due 2049.~~2050. Net proceeds ~~from~~of 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.~~purposes, including potentially to repay short-term indebtedness under AWCC’s Term Loan Facility and its unsecured revolving credit facility. 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 short-term ‘A-1’ credit ratings, with a stable outlook.~~

Financial Results

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


	For the Three Months Ended June 30,					For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2019		2018			2019			2018			2020			2019
Diluted earnings per share (GAAP):
Net income attributable to common shareholders	$	0.94	$	0.91		$	1.56		$	1.50		$	0.68		$	0.62
Adjustments:
Depreciation related to assets held for sale												(0.02		)	—
Income tax impact												0.01			—
Net adjustment												(0.01		)	—

Freedom Industries settlement activities	—		(0.11		)	(0.02		)	(0.11		)	—			(0.02		)
Income tax impact	—		0.03			0.01			0.03			—			0.01
Net adjustments	—		(0.08		)	(0.01		)	(0.08		)
Net adjustment												—			(0.01		)

Total net adjustments												(0.01		)	(0.01		)

Adjusted diluted earnings per share (non-GAAP)	$	0.94	$	0.83		$	1.55		$	1.42		$	0.67		$	0.61

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, diluted earnings per share (GAAP) were ~~$0.94 and $1.56, respectively,~~$0.68, an increase of ~~$0.03 per diluted share, or 3.3%, and~~ $0.06 per diluted share, ~~or 4.0%, respectively,~~ as compared to the prior year. Included in 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~~$0.67 for the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020, an increase of ~~$0.11~~$0.06 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 primarily by continued growth in ~~our~~the Regulated Businesses from infrastructure investment, acquisitions and organic growth, combined with growth in our Market-Based Businesses, primarily from our Homeowner Services 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 higher interest expense supporting growth in the business.growth.

Adjustments to GAAP

Adjusted diluted earnings per share represents a non-GAAP financial measure and, as shown in the table above, is calculated as GAAP diluted earnings per share, excluding the impact of ~~previously disclosed settlement activities~~one or more of the following events: (i) the effect of the discontinuation of depreciation expense on the assets of the Company’s New York subsidiary, which have been presented as assets held for sale; and (ii) the benefit from the reduction during the first quarter of 2019 of the liability related to the Freedom Industries chemical spill settlement in West Virginia. ~~See Note 9—Commitments and Contingencies in the Notes to Consolidated Financial Statements for additional information.~~

~~We believe~~The Company believes that this non-GAAP measure is useful to investors because it provides ~~investors with useful information~~an indication of the Company’s baseline performance, excluding items that are not considered by ~~excluding certain matters that may not~~management to be ~~indicative~~reflective of ~~our~~its ongoing operating results, and that providing this non-GAAP measure will allow investors to better understand ~~our~~the businesses’ operating performance and facilitate a meaningful year-to-year comparison of ~~our~~the Company’s results of operations. With respect to the inclusion of depreciation related to assets held for sale, which must cease under GAAP, management believes that inclusion of this depreciation is useful for investors to make reasonable year-to-year comparisons with respect to depreciation on the assets of the Company’s New York subsidiary. Although management uses this non-GAAP financial measure internally to evaluate ~~our~~its results of operations, ~~we do~~the Company does not intend results reflected by this non-GAAP measure to represent results as defined by GAAP, and the reader should not consider them as indicators of performance. This non-GAAP financial measure is derived from ~~our~~the Company’s consolidated financial information but is not presented in ~~our~~the financial statements prepared in accordance with GAAP. This measure should be considered in addition to, and not as a substitute for, measures of financial performance prepared in accordance with 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, may have significant limitations on its use.

~~Focusing on Central Themes~~

In 2019, our strategy, which is driven by our vision and values, will continue to be anchored on our five central themes: (i) safety; (ii) customer; (iii) people; (iv) growth; and (v) operational excellence. We continue 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 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 six months of 2019 with respect to growth and operational excellence is described below.

Growth—Wethrough capital investment in infrastructure and regulated acquisitions, as well as strategic growth opportunities in the Market-Based Businesses

The Company expects to continue to grow ~~our business~~its businesses, with the majority of its growth to be achieved in the Regulated Businesses through (i) continued capital investment in ~~our~~the Company’s infrastructure to provide safe, clean, reliable and affordable water and wastewater services to its customers, and (ii) regulated acquisitions

to expand the Company’s services to new customers. The Company also expects to continue to grow the Market-Based Businesses, which leverages its core water and wastewater competencies. During the first ~~six~~three months of ~~2019, we made~~2020,the Company invested $457 million, primarily in the Regulated Businesses, as discussed below:

Regulated Businesses Growth

$432 million capital ~~investments of approximately $792 million, focused~~investment in ~~two key areas:~~

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

$8021 million ~~for~~to fund acquisitions in ~~our~~the Regulated Businesses, which added approximately ~~28,400~~5,100 water and wastewater customers through ~~June 30, 2019, including~~March 31, 2020.

During April 2020, the Company closed on the acquisition of ~~the City of Alton, Illinois’ regional~~three regulated water and wastewater ~~system. We have currently~~systems, adding approximately 1,100 customers. The Company has entered into agreements for pending acquisitions in ~~our~~the Regulated Businesses to add approximately ~~38,200~~45,800 additional customers.

For the full year of ~~2019, our~~2020, capital investments, including acquisitions, are expected to be ~~in the range of $1.8 billion to~~approximately $1.9 billion.

Operational ~~Excellence—We continue~~Excellence

The Company continues to strive for industry-leading operational efficiency. The Company’s focus is aimed at enhancing its customer experience and operational efficiency,

~~Our~~ largely through the use of technology. The Company’s adjusted regulated O&M efficiency ratio, which ~~we use~~is used as a measure of the operating performance of ~~our~~the Regulated Businesses, was ~~35.4%~~34.5% for the twelve months ended ~~June 30, 2019,~~March 31, 2020, as compared to ~~35.3%~~35.5% for the twelve months ended ~~June 30, 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.~~March 31, 2019. The ~~slight unfavorable change~~improvement in this ratio was largely due to an increase in operating revenues, as well as continued focus on operating costs of the ~~impact on revenue from the unusually wet weather conditions experienced in the Northeast and Midwest.~~Regulated Businesses.

~~Our~~The Company’s adjusted regulated O&M efficiency ratio is a non-GAAP measure, and is defined as ~~the~~its operation and maintenance expenses from ~~our~~the Regulated Businesses, divided by the ~~pro forma~~ operating revenues from ~~our~~the Regulated Businesses, where both operation and maintenance expenses and ~~pro forma~~ operating revenues were adjusted to eliminate purchased water expense. ~~Additionally,~~Also excluded from operation and maintenance expenses ~~we excluded~~are the allocable portion of non-operation and maintenance support services costs, mainly depreciation and general taxes, which are reflected in ~~our~~the 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 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). WeCompany also ~~made the following adjustments to our O&M efficiency ratio: (i)~~ excluded from operation and maintenance expenses, the impact of certain Freedom Industries chemical spill settlement 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 the2019. The items discussed above were excluded from the O&M efficiency ratio calculation as ~~we believe such items~~they are not reflective of management’s ability to increase the efficiency of ~~our~~the Regulated ~~Businesses.~~Businesses, and in preparing operating plans, budgets and forecasts and in assessing historical performance, management relies, in part, on trends in the Company's historical results, exclusive of these items.

~~We evaluate our~~The Company evaluates its operating performance using this ratio, and ~~believe~~believes it is useful to investors because it directly measures improvement in the operating performance and efficiency of ~~our~~the Regulated Businesses. This information is derived from ~~our~~the Company’s consolidated financial information but is not presented in ~~our~~its financial statements prepared in accordance with GAAP. This information ~~is intended~~supplements and should be read in conjunction with the Company's GAAP disclosures, and should be considered as an addition to, ~~enhance an investor’s overall understanding of our operating performance. Our~~and not a substitute for, any GAAP measure. The Company’s adjusted regulated O&M efficiency ratio is not an accounting measure that is based on GAAP, may not be comparable to other companies’ operating measures and should not be used in place of the GAAP information provided elsewhere in this Form 10-Q.

Presented in the table below is the calculation of ~~our~~the Company’s adjusted regulated 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~~its adjusted O&M efficiency ratio:


	For the Twelve Months Ended June 30,						For the Twelve Months Ended March 31,
(Dollars in millions)	2019			2018			2020			2019
Total operation and maintenance expenses ~~(a)~~	$	1,520		$	1,383		$	1,562		$	1,496
Less:
Operation and maintenance expenses—Market-Based Businesses	387			334			386			380
Operation and maintenance expenses—Other ~~(a)~~	(48		)	(40		)	(27		)	(43		)
Total operation and maintenance expenses—Regulated Businesses ~~(a)~~	1,181			1,089			1,203			1,159
Less:
Regulated purchased water expenses	132			133			139			131
Allocation of non-operation and maintenance expenses	33			29			31			32
Impact of Freedom Industries settlement activities ~~(b)~~(a)	(4		)	(42		)	—			(24		)
Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,020		$	969		$	1,033		$	1,020

Total operating revenues	$	3,521		$	3,371		$	3,640		$	3,493
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	528			430			533			511
Operating revenues—Other	(22		)	(22		)	(22		)	(21		)
Total pro forma operating revenues—Regulated Businesses	3,015			2,876
Total operating revenues—Regulated Businesses							3,129			3,003
Less:
Regulated purchased water revenues (d)	132			133
Adjusted pro forma operating revenues—Regulated Businesses (ii)	$	2,883		$	2,743
Regulated purchased water revenues (b)							139			131
Adjusted operating revenues—Regulated Businesses (ii)							$	2,990		$	2,872

Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	35.4		%	35.3		%	34.5		%	35.5		%


(a)	Includes the impact of a settlement in 2018 with one of the Company’s ~~adoption~~general liability insurance carriers, and a reduction in the first quarter of ~~ASU 2017-07on January 1, 2018.~~ 2019 of a liability, each related to the Freedom Industries chemical spill.


(b)	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

Presented in the table below are annualized incremental revenues, assuming a constant water sales volume, resulting from general rate cases ~~and infrastructure surcharges~~authorizations that became effective:

(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



(In millions)	During the Three Months Ended March 31, 2020
General rate cases by state:
California (a)	$	5
Total general rate cases	$	5

Infrastructure surcharges by state:
Pennsylvania (effective January 1, 2020)	$	10
New Jersey (effective January 1, 2020)	10
Illinois (effective January 1, 2020)	7
West Virginia (effective January 1, 2020)	3
Total infrastructure surcharges	$	30


(a)	~~Our~~The Company’s California subsidiary ~~received approval~~filed for the ~~second rate~~third year ~~(2019)~~(2020) step increase requesting $5 million associated with its most recent general ~~rate~~ case ~~authorization,~~authorization. The $5 million request was approved and the step rates became effective ~~May 11, 2019.~~


~~(b)~~	~~Our New York subsidiary implemented its third step increase associated with its most recent general rate case authorization, effective April~~on January 1, ~~2019.~~2020.

~~Our~~

Directly related to the emergence of the COVID-19 pandemic and its impacts on various processes, on March 25, 2020, the New York State Public Service Commission approved the Company’s New York subsidiary’s request to postpone the subsidiary’s previously approved step increase, originally scheduled to go into effect April 1, 2020. Per the order, the rate increase will be postponed for five months until September 1, 2020, at which time the previously approved step increase will go into effect. The order further provides a make whole provision to recover the delayed revenues with no earnings impact. In addition to the rate increase postponement, the System Improvement Charge, normally scheduled to go into effect August 1, 2020, will also be postponed until September 1, 2020. The rate increase postponement is applicable to all customers, including residential and commercial customers and fire service and irrigation accounts.

The Company’s Indiana subsidiary filed for and, on May 4, 2020, received ~~an order approving~~approval to implement 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 inincrease for the second rate year, effective ~~approximately~~ May 1, ~~2020.~~2020, pending protest rights to the certified numbers.

Effective ~~July~~April 1, ~~2019, our New Jersey and~~2020, the Company’s Pennsylvania ~~subsidiaries~~subsidiary implemented infrastructure surcharges for annualized incremental revenues of ~~$15 million and $3 million, respectively.~~$5 million.

Pending General Rate Case Filings

On April 29, 2020, the Company’s Pennsylvania subsidiary filed a general rate case requesting $92 million and $46 million in annualized incremental revenues for rate year 1 and rate year 2, respectively.

On December 16, 2019, the Company’s New Jersey subsidiary filed a general rate case requesting $88 million in annualized incremental revenues.

On July 1, 2019, ~~our~~the Company’s California subsidiary filed a general rate case requesting $26 million annualized incremental revenues for 2021, and increases of $10 million and $11 million in the escalation year of 2022 and the attrition year of 2023, respectively. On October 11, 2019, the Company filed its 100 day update for the same proceeding and updated the request to $27 million annualized incremental revenues for 2021, and increases of $10 million and $10 million in the escalation year of 2022 and the attrition year of 2023, respectively.

On January 22, 2020, the Company’s California subsidiary submitted a request to delay by one year its cost of capital filing and maintain its current authorized cost of capital through 2021. On March 12, 2020, the California Public Utilities Commission granted the request for a one year extension of the cost of capital. The current cost of capital parameters will remain unchanged in 2021 and the subsidiary may file a new cost of capital application by May 1, 2021, to adjust its authorized cost of capital beginning January 1, 2022.

In 2018, ~~our~~the Company’s Virginia subsidiary filed a general rate case requesting $5 million in annualized incremental revenues. On May 1, 2019, interim rates under bond and subject to refund were implemented and will remain in effect until a final decision is received on this general rate case filing.

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

Pending Infrastructure Surcharge Filings

Presented in the table below are ~~our~~the Company’s pending infrastructure surcharge filings:


(In millions)	Date Filed	Amount		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		November 15, 2019	$	2
Missouri				March 2, 2020	9
Kentucky				March 2, 2020	2
Total pending infrastructure surcharge filings		$	8		$	13

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

Tax Matters

~~Tax Cuts~~In March 2020, the Coronavirus Aid, Relief, and ~~Jobs~~Economic Security Act

~~On December 22, 2017, the TCJA~~ (the “CARES Act”) was signed into ~~law, which, among other things, enacted significant and complex changes~~law. The CARES Act includes certain tax relief provisions applicable to the ~~Internal Revenue Code of 1986, including a reduction in~~Company including: (i) the federal corporate income tax rate 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 taxes. In 2018, the Company’s 14 regulatory jurisdictions began to consider the impactsimmediate refund of the ~~TCJA. The Company has adjusted customer rates~~corporate alternative minimum tax credit; (ii) the ability to ~~reflect the lower income~~carryback net operating losses for five years for tax ~~rate in 10 states. In one~~years 2018 through 2020; and (iii) delayed payment of those 10 states, a portion of the tax savings is being used to reduce certain regulatory assets. In one additional state, we are using the tax savings to offset additional capital investment and to reduce a regulatory asset. Proceedings in the other three regulatory jurisdictions remain pending.

The enactment of the TCJA required a re-measurement of our deferred income taxes that materially impacted our 2017 results of operations and financial position. The portion of this re-measurement related to our Regulated Businesses was substantially offset by a regulatory liability, as we believe it is probable that the excess accumulated deferred income taxes (“EADIT”) created by the TCJA will be used to benefit our regulated customers in future rates.employer payroll taxes. The Company is ~~amortizing EADIT and crediting customers in three states, including one state where~~still evaluating the ~~EADIT is being used to offset future infrastructure investments. Amortization~~impact of ~~EADIT will begin in three additional states during~~ the ~~third quarter of 2019. In the eight remaining regulated jurisdictions, we~~CARES Act, but it does not expect the ~~timing of~~CARES Act to have a material impact on 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~~Company’s 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.Financial Statements.

Legislative Updates

During ~~2019, our~~2020, the Company’s 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.~~May 6, 2020:

Indiana House Enrolled Act ~~1406 established~~1131 establishes an appraisal process for non-municipal utilities to establish fair value and creates a presumption that the ~~first state appropriation~~appraised value is a reasonable purchase price. Additionally, all new municipal systems will now be regulated 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.10 years.

During ~~2019, our~~2020, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of ~~July 31, 2019:~~May 6, 2020:

~~In Pennsylvania, House~~Indiana Senate Enrolled Act 254 authorizes recovery without a full rate case for service enhancements for health, safety or environmental concerns for above ground infrastructure, and exempts relocation from distribution system improvement charge recovery caps.

West Virginia Senate Bill ~~751, now Act 53 of 2019, was passed and~~551 allows for expanded asset valuation, combined water and wastewater ~~utilities responsible~~ratemaking and the expansion of how municipalities can utilize proceeds from the sale of a water or wastewater system.

Virginia SB831 establishes fair market value for ~~funding~~ the ~~income taxes on taxable contributions~~state, and ~~advances~~the legislation authorizes a water or sewer public utility acquiring a water or sewer system to ~~record~~elect to have its rate base established by using the ~~income taxes paid in accumulated deferred income taxes for accounting and ratemaking purposes.~~

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

Condemnation and Eminent Domain

All or portions of ~~our~~the 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”)~~CPCN was granted; and (iii) the right of purchase given or reserved under the law of the state 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, wethe Regulated Businesses 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~~the Monterey water service system assets (the “Monterey system assets”) of the Company’s California subsidiary, and, if feasible, to proceed with a purchase of those assets without an additional public vote. This service territory represents approximately 40,000 customers. OnIn November ~~27,~~ 2018, Measure J was certified to have passed. ~~The~~

On August 19, 2019, the MPWMD’s General Manager issued a report that recommends that the MPWMD ~~has until August 27, 2019~~board (1) develop criteria to ~~complete a~~determine which water systems should be considered for acquisition, (2) examine the feasibility ~~study and submit to its board a written plan for~~of acquiring the Monterey system ~~assets.~~assets and consider public ownership of smaller systems only if the MPWMD becomes the owner of a larger system, (3) evaluate whether it is in the public interest to acquire the Monterey system assets and sufficiently satisfy the criterion of “feasible” as provided in Measure J, (4) ensure there is significant potential for cost savings before agreeing to commence an acquisition, and (5) develop more fully alternate operating plans before deciding whether to consider a Resolution of Necessity.

On November 6, 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (1) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (2) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (3) the acquisition of the Monterey system assets by the MPWMD would be economically feasible. On April 6, 2020, the MPWMD issued a notice of preparation of a full environmental impact report for the potential acquisition of the Monterey system assets and a related district boundary adjustment that would be required if MPWMD were to acquire and operate certain of the Monterey system assets located outside the MPWMD’s boundaries. If the MPWMD were to ~~determine~~make a final determination that ~~such~~ an acquisition of the Monterey system assets is feasible, ~~then the MPWMD would commence~~ a multi-year eminent domain proceeding against ~~our~~the Company’s California subsidiary would need to be commenced by the MPWMD to first establish ~~the MPWMD’s~~its right to take the Monterey system assets and, if such right is established, to determine the amount of just compensation to be paid to the California subsidiary for ~~the system~~such 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~~the Company’s 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~~A valuation trial has ~~not~~ currently been scheduled ~~it is not likely to commence before the first quarter of~~for October 26, 2020.

Furthermore, the law in certain jurisdictions in which ~~our~~the 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~~the Company’s consolidated results of operations:


	For the Three Months Ended June 30,											For the Six Months Ended June 30,											For the Three Months Ended March 31,
	2019			2018			Increase (Decrease)					2019			2018			Increase (Decrease)					2020			2019
(Dollars in millions)
Operating revenues	$	882		$	853		$	29		3.4	%	$	1,695		$	1,614		$	81		5.0	%	$	844		$	813
Operating expenses:
Operation and maintenance	372			348			24					737			695			42					383			365
Depreciation and amortization	142			134			8					286			263			23					145			144
General taxes	72			69			3					141			139			2					77			69
(Gain) on asset dispositions and purchases	(6		)	—			(6		)			(9		)	(2		)	(7		)			—			(3		)
Total operating expenses, net	580			551			29			5.3	%	1,155			1,095			60			5.5	%	605			575
Operating income	302			302			—					540			519			21					239			238
Other income (expense):
Interest, net	(94		)	(86		)	(8		)			(187		)	(170		)	(17		)			(96		)	(93		)
Non-operating benefit costs, net	4			2			2					8			5			3					13			4
Other, net	15			4			11					18			8			10					3			3
Total other income (expense)	(75		)	(80		)	5			(6.3	)%	(161		)	(157		)	(4		)	2.5	%	(80		)	(86		)
Income before income taxes	227			222			5					379			362			17					159			152
Provision for income taxes	57			60			(3		)			96			94			2					35			39
Net income attributable to common shareholders	$	170		$	162		$	8		4.9	%	$	283		$	268		$	15		5.6	%	$	124		$	113

The main factors contributing to the $11 million increases in net income attributable to common ~~stockholders~~shareholders for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 are described in “Segment Results of Operations” below. Additionally, during the second quarter of 2019, there was an increase at parent company from the sale of a legacy investment, partially offset by higher interest expense supporting growth in the business.

Segment Results of Operations

~~Our~~The Company’s operating segments are comprised of the revenue-generating components of ~~the~~its business for which separate financial information is internally produced and regularly used by management to make operating decisions, assess performance and allocate resources. The Company operates its business primarily through one reportable segment, the Regulated Businesses segment. WeThe Company also ~~operate several~~operates market-based businesses ~~within operating segments~~ that, individually, do not meet the criteria of a reportable segment in accordance with ~~GAAP. These non-reportable operating segments~~GAAP, and are collectively presented as ~~our~~the Market-Based Businesses, which is consistent with how management assesses the results of these businesses.

Regulated Businesses Segment

Presented in the table below is financial information for ~~our~~the Regulated Businesses:


	For the Three Months Ended June 30,											For the Six Months Ended June 30,											For the Three Months Ended March 31,
	2019			2018			Increase (Decrease)					2019			2018			Increase (Decrease)					2020			2019
(Dollars in millions)
Operating revenues	$	755		$	744		$	11		1.5	%	$	1,440		$	1,410		$	30		2.1	%	$	720		$	685
Operation and maintenance	287			264			23			8.7	%	565			542			23			4.2	%	298			278
Depreciation and amortization	132			123			9					262			245			17					135			130
General taxes	67			66			1					131			131			—					72			64
(Gain) on asset dispositions and purchases	(6		)	(1		)	(5		)			(8		)	(3		)	(5		)
Other income (expenses)	(67		)	(64		)	(3		)			(132		)	(127		)	(5		)			(54		)	(65		)
Income before income taxes																							162			150
Provision for income taxes	52			59			(7		)			92			97			(5		)			40			40
Net income attributable to common shareholders	156			167			(11		)	(6.6	)%	266			271			(5		)	(1.8	)%	123			110

Operating Revenues

Presented in the tables below is information regarding the main components of ~~our~~the Regulated Businesses’ operating revenues, with explanations for material variances provided in the ensuing discussions:


	For the Three Months Ended June 30,									For the Six Months Ended June 30,									For the Three Months Ended March 31,
	2019		2018		Increase (Decrease)					2019		2018		Increase (Decrease)					2020		2019
(Dollars in millions)
Water services:
Residential	$	415	$	410	$	5		1.2	%	$	793	$	778	$	15		1.9	%	$	399	$	378
Commercial	153		152		1			0.7	%	289		285		4			1.4	%	142		136
Fire service	35		34		1			2.9	%	69		67		2			3.0	%	37		34
Industrial	34		34		—			—	%	66		65		1			1.5	%	32		32
Public and other	68		62		6			9.7	%	120		112		8			7.1	%	56		52
Total water services	705		692		13			1.9	%	1,337		1,307		30			2.3	%	666		632
Wastewater services	40		38		2			5.3	%	80		76		4			5.3	%	43		40
Other (a)	10		14		(4		)	(28.6	)%	23		27		(4		)	(14.8	)%	11		13
Total operating revenues	$	755	$	744	$	11		1.5	%	$	1,440	$	1,410	$	30		2.1	%	$	720	$	685


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


	For the Three Months Ended June 30,						For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2019	2018	Increase (Decrease)				2019	2018	Increase (Decrease)				2020	2019
(Gallons in millions)
Billed water services volumes:
Residential	39,106	40,783	(1,677	)	(4.1	)%	74,873	78,238	(3,365	)	(4.3	)%	35,550	35,767
Commercial	19,197	19,767	(570	)	(2.9	)%	36,633	37,514	(881	)	(2.3	)%	17,080	17,436
Industrial	9,164	9,198	(34	)	(0.4	)%	17,809	18,895	(1,086	)	(5.7	)%	8,439	8,645
Fire service, public and other	12,119	12,343	(224	)	(1.8	)%	23,210	23,923	(713	)	(3.0	)%	11,546	11,091
Billed water services volumes	79,586	82,091	(2,505	)	(3.1	)%	152,525	158,570	(6,045	)	(3.8	)%	72,615	72,939

For the three months ended ~~June 30, 2019,~~March 31, 2020, operating revenues increased ~~$11~~$35 million, primarily due to a:

$~~30 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment 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~~31 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; and a

$67 million increase from water and wastewater acquisitions, as well as organic growth in existing ~~systems; partially offset by a~~

$28 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; and a

$6 million decrease resulting from 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.systems.

Operation and Maintenance

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


	For the Three Months Ended June 30,										For the Six Months Ended June 30,									For the Three Months Ended March 31,
	2019		2018			Increase (Decrease)					2019		2018		Increase (Decrease)					2020		2019
(Dollars in millions)
Employee-related costs																				$	125	$	117
Production costs	$	75	$	77		$	(2	)			$	144	$	146	$	(2	)			72		69
Employee-related costs	115		110			5					232		227		5
Operating supplies and services	56		53			3					111		101		10					56		55
Maintenance materials and supplies	18		17			1					37		39		(2		)			19		19
Customer billing and accounting	13		16			(3		)			24		26		(2		)			14		11
Other	10		(9		)	19					17		3		14					12		7
Total	$	287	$	264		$	23		8.7	%	$	565	$	542	$	23		4.2	%	$	298	$	278

For the three months ended ~~June 30, 2019,~~March 31, 2020, operation and maintenance expense increased ~~$23~~$20 million, primarily due to a:

$19 million increase in other operation and maintenance expense principally due to a $20 million benefit recorded in the second quarter of 2018, resulting from an insurance settlement related to the Freedom Industries chemical spill in West Virginia; and a

$58 million increase in employee-related costs from higher headcount and related compensation expense ~~supporting~~in support of the growth in the ~~businesses; partially offset by~~business; and a

$3 million ~~decrease~~increase in customer billing and accounting ~~from a decrease in customer uncollectible expense, primarily in our Pennsylvania and Missouri subsidiaries.~~

~~For the six months ended June 30, 2019, operation and maintenance expense increased $23 million,~~ primarily due to a:higher customer uncollectible expense; and a

$145 million increase in other operation and maintenance expense principally due to ~~a $20 million insurance settlement benefit recorded in the second quarter of 2018, as discussed above, offset in part by~~ a $4 million reduction to the liability related to the Freedom Industries chemical spill, recorded in the first quarter of ~~2019 (see Note 9—Commitments and Contingencies in the Notes to Consolidated Financial Statements for additional information); a~~

~~$10 million increase in operating supplies and services from higher costs for temporary workers for technology support services, as well as an increase in other operating expenses; and a~~

~~$5 million increase in employee-related costs from higher headcount and related compensation expense supporting growth in the businesses; partially offset by a~~

$6 million combined decrease in production costs, customer billing and accounting and maintenance materials and supplies largely 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 colder weather experienced in the first quarter of 2018.2019.

Depreciation and Amortization

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, depreciation and amortization increased $9$5 million, ~~and $17 million, respectively,~~ primarily due to additional utility plant placed in service.

~~(Gain) on Asset Dispositions and Purchases~~General Taxes

For the three ~~and six~~ months ended ~~June 30, 2019, (gain) on asset dispositions and purchases~~March 31, 2020, general taxes increased $5$8 million, primarily due to ~~a $6 million gain recognized on a land sale~~incremental property taxes in ~~our~~several of the Company’s subsidiaries, including in Pennsylvania ~~subsidiary.~~and New Jersey.

Other Income (Expenses)

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, other income (expenses) increased $3$11 million, ~~and $5 million, respectively,~~ primarily due to ~~an increase in interest expense from the issuance of incremental long-term debt~~reduction in the ~~second quarter~~non-service cost components of ~~2019~~pension 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~~other postretirement benefits expense 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.~~favorable actuarial performance.

Market-Based Businesses

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


	For the Three Months Ended June 30,								For the Six Months Ended June 30,								For the Three Months Ended March 31,
	2019		2018		Increase (Decrease)				2019		2018		Increase (Decrease)				2020		2019
(Dollars in millions)
Operating revenues	$	132	$	114	$	18	15.8	%	$	266	$	214	$	52	24.3	%	$	128	$	134
Operation and maintenance	96		89		7		7.9	%	194		169		25		14.8	%	91		98
Depreciation and amortization	8		7		1				17		11		6				6		9
Income before income taxes																	30		27
Provision for income taxes	8		5		3				15		9		6				8		7
Net income attributable to common shareholders	21		13		8		61.5	%	41		25		16		64.0	%	22		20

Operating Revenues

For the three months ended ~~June 30, 2019,~~March 31, 2020, operating revenues ~~increased $18~~decreased $6 million, primarily due to a:

$3016 million decrease in Keystone Clearwater Solutions, LLC (“Keystone”) from the sale of the Company’s Keystone operations in the fourth quarter of 2019; partially offset by a

$9 million increase in ~~our Homeowner Services Group from contract growth, including $28 million from the acquisition of Pivotal in the second quarter of 2018; and a~~

~~$2 million increase in our~~ Military Services Group (“MSG”) from increased capital upgrades primarily at Fort Polk and Fort Hood, and the addition of two new military contracts in ~~2018 (Wright-Patterson Air Force~~2019 (Joint Base San Antonio 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;~~United States Military Academy at West Point); 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 six months ended June 30, 2019, operating revenues increased $52 million, primarily due to a:~~

~~$65~~4 million increase in ~~our~~ Homeowner Services Group primarily from price increases for existing customers and contract ~~growth, including $59 million from the acquisition of Pivotal in the second quarter of 2018; and 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.~~growth.

Operation and Maintenance

For the three months ended ~~June 30, 2019,~~March 31, 2020, operation and maintenance expense ~~increased~~decreased $7 million, primarily due to ~~an:~~a:

$~~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~~

$814 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~~Company’s Keystone operations in the ~~third~~fourth quarter of ~~2018.~~

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

~~$40 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; and a~~

~~$3 million increase in our Military Services Group from the addition of two new military contracts in 2018, as discussed above;~~2019; partially offset by a

$~~14 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~~increase in ~~Keystone~~MSG 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 the addition of property, plant and equipment and intangible assets from the acquisition of Pivotal in the second quarter of 2018.~~

~~Provision for Income Taxes~~

For the three and six months ended June 30, 2019, our provision for income taxes increased $3 million and $6 million, respectively, primarily due to higher pretax income in the first half of 2019, largely from the acquisition of Pivotal in the second quarter of 2018.capital upgrades, as discussed above.

Liquidity and Capital Resources

For a general overview of ~~our~~the 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 in ~~our~~the Company’s Form 10-K.

~~We fund liquidity~~Liquidity needs for capital investment, working capital and other financial commitments are generally funded through cash flows from operations, public and private debt offerings, commercial paper markets, and, if and to the extent necessary, borrowings under ~~the AWCC~~AWCC’s revolving credit facility.

The Company continues to assess its short and long-term liquidity needs in light of the impact of the COVID-19 pandemic on the financial and capital markets, especially with respect to the market for corporate commercial paper, which has experienced recent volatility and shortages of liquidity. In response to these events, on March 20, 2020, AWCC entered into a $750 million 364-day term loan credit facility and immediately executed a $500 million draw thereunder to support the Company’s short-term liquidity by retaining that amount in cash. The term loan facility allows for a single additional borrowing of up to $250 million on or before June 19, 2020 and requires AWCC to pay a commitment fee of 0.20% per year based on the daily amount of unutilized commitments. The Company has also utilized its existing sources of liquidity, such as current cash balances, cash flows from operations and borrowings under the revolving credit facility as necessary or desirable to meet the Company’s short-term liquidity requirements. The Company had cash and cash equivalents of $556 million as of March 31, 2020.

The Company’s revolving credit facility provides $2.25 billion in aggregate total commitments from a diversified group of financial institutions. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support, and to provide a sublimit of up to $150 million for letters of credit. The maximum aggregate principal amount of short-term borrowings authorized for issuance under AWCC’s commercial paper program is $2.10 billion. 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. As of March 31, 2020, AWCC had $1.22 billion in total borrowings and letters of credit outstanding and total remaining availability of $1.03 billion under the revolving credit facility. The weighted-average interest rate on AWCC short-term borrowings outstanding was approximately 1.83% and 1.86% at March 31, 2020 and December 31, 2019, respectively. On April ~~9, 2019,~~1, 2020, 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~~2024 to March 21, ~~2024. The~~2025.

Presented in the table below is the aggregate credit facility ~~is used principally to support AWCC’s~~commitments, commercial paper ~~program~~limit 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 each for up to a one-year period, as to which one such extension request remains. As of June 30, 2019, AWCC had no outstanding borrowings and $80 million of outstanding lettersletter of credit sublimit under the revolving credit facility, ~~with $2.17 billion~~as well as the available capacity for each as of March 31, 2020:



	Commercial Paper Limit			Letters of Credit Sublimit			Total (a)
(In millions)
Total availability	$	2,100		$	150		$	2,250
Outstanding commercial paper	(926		)	—			(926		)
Outstanding revolving credit facility borrowings	(215		)	—			(215		)
Outstanding letters of credit	—			(76		)	(76		)
Total outstanding	(1,141		)	(76		)	(1,217		)
Remaining availability as of March 31, 2020	$	959		$	74		$	1,033


(a)	Total remaining availability of $1.03 billion as of March 31, 2020 may be accessed through revolver draws.

Presented in the table below is the Company’s total available liquidity as of March 31, 2020:



	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Availability on Term Loan Credit Facility		Total Available Liquidity
(In millions)
Available Liquidity as of March 31, 2020	$	556	$	1,033	$	250	$	1,839

The Company believes that existing sources of liquidity are sufficient to ~~fulfill short-term liquidity needs~~meet its cash requirements for the foreseeable future. However, as the impacts of the COVID-19 pandemic on the economy, the financial and ~~to issue letters of credit. We regularly evaluate the~~ capital markets, and ~~closely monitor~~ the ~~financial condition of~~Company’s operations evolve, the ~~financial institutions with contractual commitments in our revolving credit facility.~~

~~In order~~Company will continue to ~~meet short-term~~assess its liquidity needs, AWCC issues commercial paper that is supported by 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 June 30, 2019, the revolving credit facility supported $397 million in outstanding commercial paper. We believe that our ability to access the capital markets, the revolving credit facility and our cash flows from operations will generate sufficient cash to fund our short-term requirements. However, we can provideneeds. Though not currently anticipated, no assurances can be provided that the lenders will meet ~~their~~ existing commitments to AWCC under the revolving credit facility, or that weAWCC will be able to access the commercial paper or loan markets in the future on ~~terms~~ acceptable terms. In the event of a more severe and/or sustained market deterioration, the Company may need to ~~us or at all.~~obtain additional sources of liquidity, which would require the Company to evaluate available alternatives and take appropriate actions. See Note 7—Short-Term Debt in the Notes to Consolidated Financial Statements for additional information.

On ~~May 13, 2019,~~April 14, 2020, AWCC completed a ~~$1.10~~$1.0 billion debt offering which included the sale of ~~$550~~$500 million aggregate principal amount of its 2.80% senior notes due 2030 and $500 million aggregate principal amount of its 3.45% ~~Senior Notes~~senior notes due ~~2029 and $550 million aggregate principal amount of its 4.15% Senior Notes due 2049.~~2050. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of ~~approximately $1.09 billion.~~$989 million. AWCC ~~used~~will use the net proceeds ~~to:~~of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to fund sinking fund payments for, and to repay ~~$25 million principal amount of AWCC’s 7.21% Series I Senior Notes~~ at maturity, ~~on May 19, 2019; (iii) repay $26~~$28 million in aggregate principal amount of ~~subsidiary~~outstanding long-term debt ~~at maturity during~~of AWCC and certain of the ~~second quarter of 2019; and (iv)~~Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper ~~obligations,~~obligations; and (iv) for general corporate ~~purposes.~~

~~On May 6, 2019,~~purposes, including potentially to repay outstanding short-term indebtedness under AWCC’s $750 million term loan facility and its $2.25 billion unsecured revolving credit facility. In connection with the debt offering, the Company ~~terminated five forward starting swap~~entered into four 10-year treasury lock agreements during March 2020, each with ~~an aggregate~~a notional amount of ~~$510 million, realizing a net loss of $30~~$100 million, to ~~be amortized through~~reduce interest ~~net over 10~~rate exposure on debt. These treasury lock agreements had an average fixed rate of 0.94% and ~~30 year periods,~~were terminated on April 8, 2020. See Note 6—Long-Term Debt in ~~accordance with~~ the ~~terms of the new debt issued on May 13, 2019.~~Notes to Consolidated Financial Statements for additional information.

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 warmer months. Presented in the table below is a summary of the major items affecting ~~our~~the Company’s cash flows provided by operating activities:


	For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2019			2018			2020			2019
(In millions)
Net income	$	283		$	268		$	124		$	113
Add (less):
Depreciation and amortization	286			263			145			144
Deferred income taxes and amortization of investment tax credits	85			82			38			35
Other non-cash activities (a)	(36		)	24			(13		)	(22		)
Changes in working capital (b)	(94		)	(112		)	(104		)	(95		)
Settlement of cash flow hedges	(30		)	—
Pension and postretirement healthcare contributions	(14		)	—			(10		)	(7		)
Net cash flows provided by operations	$	480		$	525		$	180		$	168


(a)	Includes provision for losses on accounts receivable, (gain) on asset dispositions and purchases, pension and non-pension postretirement benefits and other non-cash, net. Details of each component can be found on 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, less the settlement of cash flow hedges.~~net.

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, cash flows provided by operating activities ~~decreased $45~~increased $12 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 pension healthcare contributions, and changes in other non-cash activities, including activity in regulatory balancing accounts, primarily in our California subsidiary. Partially offsetting these decreases was an increase in net income. The main factors contributing to the increase in net income are described in “Consolidated Results of Operations” and “Segment Results of Operations” above.

Cash Flows Used in Investing Activities

Presented in the table below is a summary of the major items affecting ~~our~~the Company’s cash flows used in investing activities:


	For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2019			2018			2020			2019
(In millions)
Net capital expenditures	$	(712	)	$	(739	)	$	(408	)	$	(326	)
Acquisitions	(80		)	(377		)	(21		)	(22		)
Other investing activities, net (a)	(25		)	(33		)	(21		)	(3		)
Net cash flows used in investing activities	$	(817	)	$	(1,149	)	$	(450	)	$	(351	)


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

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, cash used in investing activities ~~decreased $332~~increased $99 million, primarily due to continued investment across all infrastructure categories, mainly replacement and renewal of transmission and distribution infrastructure in the ~~acquisition~~Company’s Regulated Businesses. Additionally, proceeds from the sale of ~~Pivotal for $363 million on June 4, 2018, and the timing of payments for capital expenditures.~~assets were higher in 2019 compared to 2020. For the full year of ~~2019, our~~2020, capital investments, including acquisitions, are expected to be ~~in the range of $1.8 billion to~~approximately $1.9 billion.

Cash Flows Provided by Financing Activities

Presented in the table below is a summary of the major items affecting ~~our~~the Company’s cash flows provided by financing activities:


	For the Six Months Ended June 30,						For the Three Months Ended March 31,
	2019			2018			2020			2019
(In millions)
Proceeds from long-term debt	$	1,184		$	15		$	8		$	2
Repayments of long-term debt	(146		)	(119		)	(6		)	(12		)
Proceeds from term loan							500			—
Net proceeds from revolving credit facility borrowings							215			—
Net proceeds from short-term borrowings	(568		)	746			139			237
Proceeds from issuance of common stock	—			183
Dividends paid	(173		)	(155		)	(90		)	(82		)
Anti-dilutive stock repurchases	(36		)	(45		)	—			(36		)
Other financing activities, net (a)	4			13			2			1
Net cash flows provided by financing activities	$	265		$	638		$	768		$	110


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

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, cash flows provided by financing activities ~~decreased $373~~increased $658 million, primarily due to the ~~issuance of common stock in 2018,~~$500 million borrowed under 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 2019. AWCC issued $1.10 billion of long-term debt as part of its May 13, 2019 debt offering, of which $51term loan facility and $215 million ~~of the~~ net ~~proceeds was used to repay long-term debt obligations at maturity. Net proceeds from the debt offering were also used to repay pre-existing short-term~~ borrowings ~~which resulted in a net cash outflow for the six months ended June 30, 2019 of $568 million.~~

~~Credit Facilities and Short-Term Debt~~

~~Presented in the table below is the aggregate revolving credit facility commitments, the letter of credit sublimit~~ under the revolving credit facility ~~and~~during the first quarter of 2020, as described above, partially offset by lower proceeds from commercial paper ~~limit, as well as the available capacity for each as of June 30, 2019:~~and no anti-dilutive stock repurchases in 2020.

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)
June 30, 2019 $ 2,262
$ 2,181
$ 150
$ 70
$ 2,100
$ 1,703


~~(a)~~	Includes amounts related to the revolving credit facility for Keystone. As of June 30, 2019, the total commitment under the Keystone revolving credit facility was $12 million, of which $11 million was available for borrowing, subject to compliance with a collateral base calculation.

The weighted-average interest rate on AWCC short-term borrowings was approximately 2.74% and 2.34% for the three months ended June 30, 2019 and 2018, respectively, and approximately 2.79% and 2.15% for the six months ended June 30, 2019 and 2018, respectively.

Debt Covenants

~~Our~~The Company’s debt agreements contain financial and non-financial covenants. To the extent that ~~we are~~the Company is not in compliance with these covenants, an event of default may occur under one or more debt agreements and wethe Company or ~~our~~its subsidiaries may be restricted in ~~our~~its ability to pay dividends, issue new debt or access ~~our~~the revolving credit facility. ~~Our~~The 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~~Failure to comply with any of these covenants could accelerate repayment obligations.

Covenants in certain long-term notes, the term loan facility and the revolving credit facility require usthe Company 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 ~~June 30, 2019, our~~March 31, 2020, the Company’s ratio was ~~0.60~~0.62 to 1.00 and therefore ~~we were~~the Company was 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.

Presented in the table below are long-term and short-term credit ratings and rating outlooks as of ~~July 31, 2019~~May 6, 2020 as issued by the following rating agencies:



Securities	Moody's Investors Service	Standard & Poor's Ratings Service
Rating ~~outlook~~Outlook	Stable	Stable
Senior unsecured debt	Baa1	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~~the ability to generate cash flows in an amount sufficient to service ~~our~~ debt and meet ~~our~~ investment plans. WeThe Company can provide no assurances that ~~our~~its ability to generate cash flows is sufficient to maintain ~~our~~its existing ratings. None of ~~our~~the Company’s borrowings are subject to default or prepayment as a result of the downgrading of these security ratings, although such a downgrading could increase fees and interest charges under ~~our~~its credit facility.

As part of ~~the~~its normal course of business, wethe Company routinely ~~enter~~enters into contracts for the purchase and sale of water, energy, chemicals and other services. These contracts either contain express provisions or otherwise permit usthe Company and ~~our~~its counterparties to demand adequate assurance of future performance when there are reasonable grounds for doing so. In accordance with the contracts and applicable contract law, if ~~we are~~the Company is 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 future performance, which could include a demand that wethe Company must provide collateral to secure ~~our~~its obligations. ~~We do~~The Company does not expect to post any collateral which will have a material adverse impact on the Company’s results of operations, financial position or cash flows.

Access to the capital markets, including the commercial paper market, and respective financing costs in those markets, may be directly affected by the Company’s securities ratings. The Company primarily accesses the debt capital markets, including the commercial paper market, through AWCC. However, the Company has also issued debt through its regulated subsidiaries, primarily in the form of tax-exempt securities or borrowings under state revolving funds, to lower the overall cost of debt.

Dividends

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

Application of Critical Accounting Policies and Estimates

~~Our financial~~Financial condition of the Company, 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~~the Company’s Form 10-K for a discussion of ~~our~~its critical accounting policies. Additionally, see Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements for updates to ~~our~~the significant accounting policies previously disclosed in ~~our~~the Company’s Form 10-K.

Recent Accounting Standards

See Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements for a description of new accounting standards recently adopted or pending adoption.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~We are~~The Company is exposed to market risk in the normal course of business, including changes in commodity prices, equity prices and interest rates. For further discussion of ~~our~~its exposure to market risk, see Part II, Item 7A—Quantitative and Qualitative Disclosures about Market Risk in ~~our~~the Company’s Form 10-K. Except as described below, there have been no significant changes to ~~our~~the Company’s exposure to market risk since December 31, ~~2018.~~2019.

~~On May 6, 2019, we terminated five forward starting swap~~During March 2020, the Company entered into four 10-year treasury lock agreements, each with ~~an aggregate~~a notional amount of ~~$510~~$100 million, ~~and, as~~to reduce interest rate exposure on debt, which was subsequently issued on April 14, 2020. These treasury lock agreements had an average fixed rate of 0.94%. A hypothetical 1% adverse change in interest rates would result in a ~~result, we have no significant derivative instruments outstanding as~~decrease in the fair value of ~~June 30, 2019.~~the treasury lock agreements of approximately $29 million at March 31, 2020. On April 8, 2020, the Company terminated these four treasury lock agreements.

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~~The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of ~~our~~its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of ~~June 30, 2019.~~March 31, 2020.

Based on that evaluation, ~~our~~the Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~June 30, 2019, our~~March 31, 2020, the Company’s disclosure controls and procedures were effective at a reasonable level of assurance.

Changes in Internal Control over Financial Reporting

~~On June 4, 2018, the~~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 internal control over financial reporting that occurred during the three months ended ~~June 30, 2019,~~March 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The following information updates and amends the information provided in ~~our~~the Company’s Form 10-K in Part I, Item 3—~~Legal Proceedings, and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 in Part II, Item 1—~~Legal Proceedings. Capitalized terms used but not otherwise defined herein have the meanings set forth in ~~our~~the Company’s 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,~~March 10, 2020, the parties to the lawsuit seeking damages associated with the failure of the RDP, executed a settlement agreement to resolve the litigation in part without trial. Under the terms of the settlement agreement, MCWD and RMC ~~filed a motion for judgment on the pleadings against~~are to pay Cal ~~Am. On February 25, 2019, the court granted RMC’s motion as to certain~~Am an aggregate of $5.2 million in settlement of Cal ~~Am's tort claims. On April 8, 2019, Cal Am filed a writ petition with the California Court of Appeal challenging the trial court's ruling, which was denied on May 29, 2019.~~

~~On March 1, 2019,~~Am’s contract claims against MCWD ~~filed a motion for summary judgment~~and all claims against ~~Cal Am~~RMC relating to the RDP. Under this agreement, Cal Am’s and MCWRA’s right to appeal the dismissal of their tort claims against ~~it. On June 20, 2019, the court granted MCWD’s motion. On July 22, 2019, Cal Am filed a writ petition with the California Court of Appeal challenging this ruling.~~

~~The trial date for this matter is currently January 6, 2020.~~MCWD are expressly reserved.

Monterey Peninsula Water Supply Project

~~CPUC Final Approval of Water Supply Project~~

On July 2, 2019, Cal Am notified MPWMD and Monterey One Water (formerly the 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 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 Monterey One Water responded to Cal Am’s 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,~~April 16, 2020, due to the ~~City~~COVID-19 pandemic, the State of ~~Marina Planning Commission adopted a resolution denying~~California issued an order suspending for 60 days all deadlines under the Permit Streamlining Act. This action effectively extends the Coastal Commission’s deadline to vote on Cal Am’s ~~coastal development permit application. Cal Am appealed the Marina Planning Commission's decision~~original jurisdiction application from July 24, 2020 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 the City and 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.

~~On May 10, 2019, the City issued a notice of final local action based upon the Marina Planning Commission’s decision. On May~~September 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 its test slant well. On July 15, 2019, MCWD filed a petition for rehearing with the Court of Appeal, which was denied on July 19, 2019.2020.

Desalination Plant Development Permit

On April ~~24, 2019,~~20, 2020, due to the COVID-19 pandemic, the Monterey County ~~Planning Commission approved Cal Am’s application for~~Superior Court vacated a ~~combined development permit for construction~~case management conference related to the challenge by MCWD of Monterey County’s approval of the desalination plant ~~in unincorporated Monterey County. MCWD~~combined development permit. The court did not address the stay on physical construction, which had been continued until April 21, 2020. The court set a briefing schedule and a ~~public advocacy group appealed the Monterey County Planning Commission’s decision to the County Board of Supervisors.~~ hearing on MCWD’s petition for October 6, 2020.

Water Supply Project Land Acquisition and Slant Well Site Use

On ~~July 15,~~December 30, 2019, the ~~County Board~~City of ~~Supervisors denied~~Marina filed a lawsuit in the ~~appeals~~Supreme Court of California challenging the County’s filing, and ~~upheld~~SDWR’s acceptance of the ~~Monterey County Planning Commission’s approval.~~

~~* * *~~

~~Based on~~filing, as the ~~foregoing,~~exclusive GSA for the CEMEX site. To protect its interest in the matter, Cal Am ~~estimates that the earliest date by~~filed an application to intervene in this lawsuit, which was approved on February 18, 2020.

Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining required approvals for the Water Supply Project. However, based on the matters discussed in Part I, Item 3—Legal Proceedings—Alternative Water Supply in Lieu of Carmel River Diversions—Monterey Peninsula Water Supply Project ~~desalination plant could be completed is sometime~~ in ~~2021. There~~the Company’s Form 10-K, as amended above, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. ~~Furthermore, there can be no assurance~~Due to the delay in the approval schedule, Cal Am currently does not believe that ~~Cal Am~~it will be able to fully comply with the diversion reduction requirements and other remaining requirements under the 2009 Order and the 2016 Order, including the 2021 Deadline. The CPUC’s final decision approving the Water Supply Project permits recovery of all of Cal Am’s prudently incurred costs associated therewith, subject to the frameworks set forth in the final decision related to cost caps, O&M costs, financing, ratemaking and contingency matters. Cal Am currently believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order. Further attempts to comply with the 2009 Order and the 2016 Order, or ~~that any such compliance will not~~the 2021 Deadline, may result in material additional costs or obligations to Cal Am, ~~or the Company.~~and failure to comply could lead to fines and penalties against Cal Am.

Dunbar, West Virginia Water Main Break Class Action Litigation

~~The court requested~~On February 4, 2020, the Jeffries plaintiffs filed a motion seeking class certification on the issues of breach of contract and negligence, and to determine the applicability of punitive damages and a multiplier for those damages, if imposed. On February 25, 2020, WVAWC filed a response to the motion, claiming that the ~~parties submit~~Jeffries plaintiffs failed to prove the mandatory elements required for class certification. A hearing on class certification was held on March 11, 2020, followed by a ~~scheduling order~~status conference on April 7, 2020. The class certification motion remains pending.

Chattanooga, Tennessee Water Main Break Class Action Litigation

On November 22, 2019, the Tennessee-American Water Defendants filed a motion to dismiss the complaint for failure to state a claim upon which relief may be granted, and, with ~~a trial date of August 26, 2019. The parties by agreement proposed~~respect to the ~~court an agreed-upon scheduling order with a June 2020 trial date.~~Company, for lack of personal jurisdiction. A hearing on this motion was held on February 18, 2020. The ~~court did not enter the order because the trial date is not available, so setting a new trial date and schedule~~motion to dismiss remains pending. ~~Discovery in this case is ongoing.~~

ITEM 1A. RISK FACTORS

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

In this Item 1A, unless the context otherwise requires, references to “we,” “us,” “our,” and “American Water” mean American Water Works Company, Inc. and its subsidiaries, taken together as a whole. Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Form 10-K.

Our utility operations are subject to extensive regulation by state PUCs and other regulatory agencies, which significantly affects our business, financial condition, results of operations and cash flows. Our utility operations also may be subject to fines, penalties and other sanctions for an inability to meet these regulatory requirements.

Our Regulated Businesses provide water and wastewater services to our customers through subsidiaries that are subject to regulation by state PUCs. This regulation affects the rates we charge our customers and has a significant impact on our business and results of operations. Generally, the state PUCs authorize us to charge rates that they determine are sufficient to recover our prudently incurred operating expenses, including, but not limited to, operating and maintenance costs, depreciation, financing costs and taxes, and provide us the opportunity to earn an appropriate rate of return on invested capital.

Our ability to successfully implement our business plan and strategy depends on the rates authorized by the various state PUCs. We periodically file rate increase applications with state PUCs. The ensuing administrative process may be lengthy and costly. Our rate increase requests may or may not be approved, or may be partially approved, and any approval may not occur in a timely manner. Moreover, a PUC may not approve a rate request to an extent that is sufficient to:

cover our expenses, including purchased water and costs of chemicals, fuel and other commodities used in our operations;

enable us to recover our investment; and

provide us with an opportunity to earn an appropriate rate of return on our investment.

Approval of the PUCs is also required in connection with other aspects of our utilities’ operations. Some state PUCs are empowered to impose financial penalties, fines and other sanctions for non-compliance with applicable rules and regulations. Our utilities are also required to have numerous permits, approvals and certificates from the PUCs that regulate their businesses and authorize acquisitions, dispositions, and, in certain cases, affiliated transactions. Although we believe that each utility subsidiary has obtained or sought renewal of the material permits, approvals and certificates necessary for its existing operations, we are unable to predict the impact that future regulatory activities may have on our business.

The current COVID-19 pandemic may limit or curtail significantly or entirely the ability of PUCs to approve or authorize applications and other requests we may make with respect to our Regulated Businesses, including without limitation any or all types of approvals described above, as PUCs and their staffs seek to reduce, delay or streamline proceedings and other activities. PUCs and other governmental authorities have taken, and may continue to take, emergency or other actions in light of the pandemic that may impact us, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic. At this time, we are unable to predict the impact that this pandemic or other related events may have on our ability to obtain these approvals as needed or requested by the Regulated Businesses in the ordinary course or at all, or the nature of any emergency or other action that may be taken by the PUCs or other governmental authorities.

In any of these cases, our business, financial condition, results of operations, cash flows and liquidity may be adversely affected. Even if rates are sufficient, we face the risk that we will not achieve the rates of return on our invested capital to the extent permitted by state PUCs. This could occur if certain conditions exist, including, but not limited to, if water usage is less than the level anticipated in establishing rates, or if our investments or expenses prove to be higher than the level estimated in establishing rates.

Service disruptions caused by severe weather conditions, climate variability patterns or natural or other disasters may disrupt our operations or reduce the demand for our water services, which could adversely affect our financial condition, results of operations, cash flows and liquidity.

Service interruptions due to severe weather, climate variability patterns and natural or other events are possible across all our businesses. These include, among other things, storms, freezing conditions, high wind conditions, hurricanes, tornadoes, earthquakes, landslides, drought, wildfires, coastal and intercoastal floods or high water conditions, including those in or near designated flood plains, pandemics (including COVID-19) and epidemics, severe electrical storms, sinkholes and solar flares. Weather and other natural events such as these may affect the condition or operability of our facilities, limiting or preventing us from delivering water or wastewater services to our customers, or requiring us to make substantial capital expenditures to repair any damage. Tariffs in place or cost recovery proceedings with respect to our Regulated Businesses may not provide reimbursement to us, in whole or in part, for any of these impacts.

Government restrictions on water use may also result in decreased use of water services, even if our water supplies are sufficient to serve our customers, which may adversely affect our financial condition, results of operations and cash flows. Seasonal drought conditions that may impact our water services are possible across all of our service areas. Governmental restrictions imposed in response to a drought may apply to all systems within a region independent of the supply adequacy of any individual system. Responses may range from voluntary to mandatory water use restrictions, rationing restrictions, water conservation regulations, and requirements to minimize water system leaks. While expenses incurred in implementing water conservation and rationing plans may generally be recoverable provided the relevant PUC determines they were reasonable and prudent, we cannot assure that any such expenses incurred will, in fact, be fully recovered. Moreover, reductions in water consumption, including those resulting from installation of equipment or changed consumer behavior, may persist even after drought restrictions are repealed and the drought has ended, which could adversely affect our business, financial condition, results of operations and cash flows.

Our business has inherently dangerous workplaces. If we fail to maintain safe work sites, we may experience workforce injuries or loss of life, and be exposed to financial losses, including penalties and other liabilities.

Safety is a core value and a strategy at American Water. Our safety performance and continual progress to our ultimate desired goal of zero injuries is critical to our reputation. We maintain health and safety standards to protect our employees, customers, contractors, vendors and the public. Although we intend to adhere to such health and safety standards with a goal of achieving zero injuries, it is extremely challenging to eliminate all safety incidents at all times.

At our business sites, including construction and maintenance sites, our employees, contractors and others are often in close proximity to large pieces of equipment, moving vehicles, pressurized water, underground trenches and vaults, chemicals and other regulated materials. On many sites, we are responsible for safety and, accordingly, must implement important safety procedures and practices above what governmental regulations require. As an essential business that must continue to provide water and wastewater services during the current COVID-19 pandemic, we are keenly focused on the care and safety of our employees, contractors, vendors and others who work at or visit our worksites. In this regard, for example, we have instituted work-from-home guidelines for all employees who can work remotely, closed all customer payment locations, implemented social distancing for work-related activities at a worksite, and encouraged the practice of frequent hand-washing. If the procedures we implement are ineffective or are not followed by our employees or others, or we fail to implement procedures, our employees, contractors and others may experience illness, or minor, serious or fatal injuries. Unsafe work sites have the potential to increase employee turnover, expose us to litigation and raise our operating costs. Any of the foregoing could result in financial losses, which could have a material adverse impact on our business, financial condition, results of operations and cash flows.

In addition, our operations can involve the delivery, handling and storage of hazardous chemicals, which, if improperly delivered, handled, stored or disposed of, could result in serious injury, death, environmental damage or property damage, and could subject us to penalties or other liabilities. We are also subject to regulations dealing with occupational health and safety. Although we maintain functional employee groups whose primary purpose is to ensure we implement effective health and, safety work procedures and practices throughout our organization, including construction sites and maintenance sites, the failure to comply with such regulations or procedures could subject us to liability.

Our indebtedness could affect our business adversely and limit our ability to plan for or respond to changes in our business, and we may be unable to generate sufficient cash flows to satisfy our liquidity needs.

As of March 31, 2020, our aggregate long-term and short-term debt balance (including preferred stock with mandatory redemption requirements) was $10.3 billion, and our working capital (defined as current assets less current liabilities) was in a deficit position. Our indebtedness could have important consequences, including:

limiting our ability to obtain additional financing to fund future working capital requirements or capital expenditures;

exposing us to interest rate risk with respect to the portion of our indebtedness that bears interest at variable rates;

limiting our ability to pay dividends on our common stock or make payments in connection with our other obligations;

impairing our access to the capital markets for debt and equity;

requiring that an increasing portion of our cash flows from operations be dedicated to the payment of the principal and interest on our debt, thereby reducing funds available for future operations, dividends on our common stock or capital expenditures;

limiting our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; and

placing us at a competitive disadvantage compared to those of our competitors that have less debt.

In order to meet our capital expenditure needs, we may be required to borrow additional funds under the revolving credit facility or issue a combination of new short-term and long-term debt, and/or equity. We continue to assess our short- and long-term liquidity needs in light of the impact of the COVID-19 pandemic on the financial and capital markets, especially with respect to the market for corporate commercial paper, which has experienced recent volatility and shortages of liquidity. In response to these events, on March 20, 2020, we entered into a $750 million 364-day term loan credit facility and immediately executed a $500 million draw thereunder to support our short-term liquidity by retaining that amount in cash. We have also utilized our existing sources of liquidity, such as our current cash balances, cash flows from operations and borrowings under the revolving credit facility as necessary or desirable to meet our short-term liquidity requirements. We believe that existing sources of liquidity will be sufficient to meet our cash requirements for the foreseeable future. However, as the impacts of the COVID-19 pandemic on the economy, the financial and capital markets and our operations evolve, we will continue to assess our liquidity needs. In the event of a sustained market deterioration, we may need to obtain additional sources of liquidity, which would require us to evaluate available alternatives and take appropriate actions.

Moreover, additional borrowings may be required to refinance outstanding indebtedness. Debt maturities and sinking fund payments in 2020, 2021 and 2022 will be $28 million, $310 million and $14 million, respectively. We can provide no assurance that we will be able to access the debt or equity capital markets on favorable terms, if at all. Moreover, as new debt is added to our current debt levels, the related risks we now face could intensify, limiting our ability to refinance existing debt on favorable terms.

In an attempt to manage our exposure to interest rate risk associated with our issuance of variable and fixed rate debt, we have in the past (including during the first quarter of 2020) entered into, and in the future may enter into, financial derivative instruments, including without limitation, interest rate swaps, forward starting swaps, swaptions and U.S. Treasury lock agreements. However, these efforts may not be effective to fully mitigate interest rate risk, and may expose us to other risks and uncertainties, including quarterly “mark to market” valuation risk associated with these instruments, that could negatively and materially affect our financial condition, results of operations and cash flows.

Our ability to pay our expenses and satisfy our debt service obligations depends in significant part on our future performance, which will be affected by the financial, business, economic, competitive, legislative (including tax initiatives and reforms, and other similar legislation or regulation), regulatory and other risk factors described in this section, many of which are beyond our control. If we do not have sufficient cash flows to pay the principal and interest on our outstanding debt, we may be required to refinance all or part of our existing debt, reduce capital investments, sell assets, borrow additional funds or sell additional equity. In addition, if our business does not generate sufficient cash flows from operations, or if we are unable to incur indebtedness sufficient to enable us to fund our liquidity needs, we may be unable to plan for or respond to changes in our business, which could cause our financial condition, operating results and prospects to be affected materially and adversely.

Our inability to access the capital or financial markets or other events could affect our ability to meet our liquidity needs at reasonable cost and our ability to meet long-term commitments, which could adversely affect our financial condition and results of operations.

In addition to cash from operations, we generally rely primarily on AWCC’s $2.25 billion revolving credit facility, its $2.1 billion commercial paper program, and the capital markets to satisfy our liquidity needs. On April 1, 2020, 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, 2024 to March 21, 2025. Historically, we have regularly used AWCC’s commercial paper program rather than this revolving credit facility as a principal source of short-term borrowing due to the generally more attractive rates we generally could obtain in the commercial paper market. In addition, on March 20, 2020, AWCC entered into the 364-day term loan to provide additional short-term liquidity support. As of April 6, 2020, AWCC had $215 million in outstanding borrowings under the revolving credit facility, $950 million of commercial paper outstanding, $76 million in outstanding letters of credit and $500 million outstanding under the 364-day term loan. There can be no assurance that AWCC will be able to continue to access its commercial paper program or its revolving credit facility, when, as and if desired, or that the amount of capital available thereunder will be sufficient to meet all of our liquidity needs at a reasonable, or any, cost.

Under the terms of the revolving credit facility and the 364-day term loan, our consolidated debt cannot exceed 70% of our consolidated capitalization, as determined under the terms of those facilities. If our equity were to decline or debt were to increase to a level that causes us to exceed this limit, lenders under the credit facility and/or the term loan would be entitled to refuse any further extension of credit and to declare all of the outstanding debt under the credit facility and/or the term loan immediately due and payable. To avoid such a default, a waiver or renegotiation of this covenant would be required, which would likely increase funding costs and could result in additional covenants that would restrict our operational and financing flexibility.

Our ability to comply with this and other covenants contained in the revolving credit facility, the term loan and our other consolidated indebtedness is subject to various risks and uncertainties, including events beyond our control. For example, events that could cause a reduction in equity include, without limitation, a significant write-down of our goodwill. Even if we are able to comply with this or other covenants, the limitations on our operational and financial flexibility could harm our business by, among other things, limiting our ability to incur indebtedness or reduce equity in connection with financings or other corporate opportunities that we may believe would be in our best interests or the interests of our shareholders to complete.

Disruptions in the capital markets or changes in our credit ratings could also limit our ability to access capital on terms favorable to us or at all. For example, on April 1, 2019, Moody’s Investors Service changed the Company’s senior unsecured debt rating to Baa1, from A3, with a stable outlook. While the lending banks that participate in the revolving credit facility and the term loan have met all of their obligations under those facilities, disruptions in the credit markets, changes in our credit ratings, or deterioration of the banking industry’s financial condition could discourage or prevent lenders from meeting their existing lending commitments, extending the terms of such commitments, or agreeing to new commitments. These or other occurrences may cause our lenders to not meet their existing commitments, and we may not be able to access the commercial paper or loan or capital markets in the future on terms acceptable to us or at all. Furthermore, our inability to maintain, renew or replace commitments under these facilities could materially increase our cost of capital and adversely affect our financial condition, results of operations and liquidity. Longer-term disruptions in the capital and credit markets as a result of economic, legislative, political or other uncertainty, including as a result of the current COVID-19 pandemic, changes in U.S. tax and other laws, reduced financing alternatives, or failures of significant financial institutions could adversely affect our access to the liquidity needed for our business. Any significant disruption in the capital, debt or credit markets, or financial institution failures could require us to take measures to conserve cash until the market stabilizes or until alternative financing can be arranged. Such measures could include delaying or deferring capital expenditures, reducing or suspending dividend payments, and reducing other discretionary expenditures. Finally, there is no assurance that we will be able to access the equity capital markets to obtain financing when necessary or desirable and on terms that are reasonable or acceptable to us.

Any of the foregoing events that impede our access to the capital markets, or the failure of any of our lenders to meet their commitments that result from financial market disruptions, could expose us to increased interest expense, require us to institute cash conservation measures or otherwise adversely and materially affect our business, financial condition, results of operations, cash flows and liquidity.

Market volatility and other conditions may impact the value of benefit plan assets and liabilities, as well as assumptions related to the benefit plans, which may require us to provide significant additional funding.

The performance of the capital markets affects the values of the assets that are held in trust to satisfy significant future obligations under our pension and postretirement benefit plans. The value of these assets is subject to market fluctuations and volatility, which may cause investment returns to fall below our projected return rates. Recently, in connection with the COVID-19 pandemic, the stock market generally has experienced significant day-to-day fluctuations in market prices. We are currently unable to predict the effect, if any, of the COVID-19 pandemic on the valuation of our pension assets and liabilities. A decline in the market value of our pension and postretirement benefit plan assets as of the measurement date can increase the funding requirements under our pension and postretirement benefit plans. Additionally, our pension and postretirement benefit plan liabilities are sensitive to changes in interest rates. In connection with the COVID-19 pandemic, interest rates have experienced volatility and are subject to potential further adjustments based on the actions of the U.S. Federal Reserve, and others. If interest rates are lower at the measurement date, our liabilities would increase, potentially increasing benefit expense and funding requirements. Further, changes in demographics, such as increases in life expectancy assumptions and increasing trends in health care costs may also increase our funding requirements. Future increases in pension and other postretirement costs as a result of reduced plan assets may not be fully recoverable in rates, in which case our results of operations and financial position could be negatively affected.

In addition, market factors can affect assumptions we use in determining funding requirements with respect to our pension and postretirement plans. For example, a relatively modest change in our assumptions regarding discount rates can materially affect our calculation of funding requirements. To the extent that market data compels us to reduce the discount rate used in our assumptions, our benefit obligations could be materially increased, which could adversely affect our financial position, results of operations and cash flows.

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 ~~June 30, 2019.~~March 31, 2020. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through ~~June 30, 2019,~~March 31, 2020, the Company repurchased an aggregate of 4,860,000 shares of common stock under the program, leaving an aggregate of 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~~Indenture, dated as of December 4, 2009, between American Water Capital Corp.~~, dated May 13, 2019, establishing the terms~~ and ~~authorizing the issuance of its 3.450% Senior Notes due 2029~~Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed ~~on May 13, 2019)~~December 3, 2010).
4.2		Officers’ Certificate of ~~American Water Capital Corp.,~~AWCC, dated ~~May 13, 2019,~~April 14, 2020, establishing the terms and authorizing the issuance of ~~its 4.150%~~the 2.80% Senior Notes due ~~2049~~2030 (incorporated by reference to Exhibit 4.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed April 14, 2020).
4.3		Officers’ Certificate of AWCC, dated April 14, 2020, establishing the terms and authorizing the issuance of the 3.45% Senior Notes due 2050 (incorporated by reference to Exhibit 4.2 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed April 14, 2020).
10.1.1		Second Amended and Restated Credit Agreement, dated as of March 21, 2018, by and among American Water Works Company, Inc., American Water Capital Corp., each of the Lenders party thereto, Wells Fargo Bank, National Association, as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and Mizuho Bank, Ltd., PNC Bank, National Association, and U.S. Bank National Association, as co-documentation agents (incorporated by reference to Exhibit 10.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed on March 21, 2018).
10.1.2		Extension Agreement, dated as of April 9, 2019, among American Water Works Company, Inc., American Water Capital Corp., each of the Lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 10.17.2 to American Water Works Company, Inc.’s Quarterly Report on Form 10-Q, File No. 001-34028, filed on May ~~13,~~1, 2019).
*~~10.1~~10.1.3		~~Offer Letter for Employment,~~Extension Agreement, dated ~~May~~as of April 1, ~~2019, between~~2020, among American Water Works Company, Inc., American Water Capital Corp., each of the Lenders party thereto, and ~~M. Susan Hardwick.~~Wells Fargo Bank, National Association, as administrative agent.
*10.2		Term Loan Credit Agreement, dated as of March 20, 2020, by and among American Water, ~~Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2019 Restricted Stock Unit Grant (for M. Susan Hardwick)~~AWCC, Wells Fargo Bank, National Association, as administrative agent and as a lender, Wells Fargo Securities LLC, as a joint lead arranger and joint bookrunner, and each of Mizuho Bank, Ltd. and U.S. Bank National Association, as a joint lead arranger and joint bookrunner, and as a lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, File No. 001-34028, filed March 20, 2020).
*10.3		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2019 Performance~~2020 Restricted Stock Unit ~~Grant Form A (for M. Susan Hardwick).~~Grant.
*10.4		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2019 Performance~~2020 Restricted Stock Unit Grant ~~Form B~~ (for ~~M. Susan Hardwick)~~Chief Executive Officer and Chief Operating Officer).
*10.5		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2019~~2020 Restricted Stock Unit Grant (for ~~Brian Chin)~~M. Susan Hardwick).
*10.6		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2019~~2020 Restricted Stock Unit Grant (for Michael A. Sgro).
*10.7		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Restricted Stock Unit Grant (for Loyd A. Warnock).
*10.8		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form A-1.
*10.9		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form A-2.
*10.10		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form A (for M. Susan Hardwick).
*10.11		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form A (for Michael A. Sgro).
*10.12		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form A (for Loyd A. Warnock).
*10.13		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form B-1.
*10.14		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form B-2.
*10.15		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form B (for M. Susan Hardwick).



Exhibit Number		Exhibit Description
*10.16		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form B (for Michael A. Sgro).
*10.17		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form B (for Loyd A. Warnock).
*10.18		Offer Letter for ~~Non-Employee Directors.~~Employment, dated February 12, 2020, between American Water Works Company, Inc. and Walter J. Lynch.
*31.1		Certification of ~~Susan N. Story,~~Walter J. Lynch, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.2		Certification of 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,~~Walter J. Lynch, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
**32.2		Certification of M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)


*	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 ~~31st~~6th day of ~~July, 2019.~~May, 2020.



	AMERICAN WATER WORKS COMPANY, INC.
	(REGISTRANT)
By	/s/ ~~SUSAN N. STORY~~WALTER J. LYNCH
	~~Susan N. Story~~Walter J. Lynch President and Chief Executive Officer (Principal Executive Officer)
By	/s/ M. SUSAN HARDWICK
	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)

4344



	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



Company	Type	Rate	Maturity	Amount
American Water Capital Corp.	Senior Notes—fixed rate	3.45%-4.15%	2029-2049	$	1,100
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	Private activity bonds and government funded debt—fixed rate	3.00%	2039	80
Total issuances				$	1,184



	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



(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



	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)
June 30, 2019	$	2,262	$	2,181	$	150	$	70	$	2,100	$	1,703