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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 SeptemberJune 30, 20192020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 001-34028
AMERICAN WATER WORKS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware51-0063696
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1 Water Street,, Camden,, NJ08102-1658
(Address of principal executive offices) (Zip Code)
(856) (856) 955-4001
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, par value $0.01 per shareAWKNew 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.
 ClassShares Outstanding as of October 24, 2019July 31, 2020
Common Stock, $0.01 par value per share180,776,169181,204,068




TABLE OF CONTENTS
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Part I. Financial Information
Item 1.
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Item 2.
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Item 3.
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Item 4.
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Part II. Other Information
Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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4751
* * *
Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”), unless the context otherwise requires, references to 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.

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FORWARD-LOOKING STATEMENTS
Statements madeincluded 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 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: the Company’s future financial performance, including its operation and maintenance (“O&M”) efficiency ratio; its liquidity and future cash flows; itsrate 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; itsstrategies, 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; itsthe Company’s ability to repay or refinance debt; the ability to execute its projected strategycurrent 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 the industries in which the Company operates;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; andprojected impacts that the Tax Cuts and Jobs Act (the “TCJA”) may have on the Company and on its business, results of operations, cash flows and liquidity.
Forward-looking statements are predictions based on 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 youreaders 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. 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;efforts, impacts of the COVID-19 pandemic, or otherwise;
•limitations on the availability of the Company’s water supplies or sources of water, or restrictions on its use thereof, resulting from allocation rights, governmental or regulatory requirements and restrictions, drought, overuse or other factors;
•a loss of one or more large industrial or commercial customers due to adverse economic conditions, the COVID-19 pandemic, 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;
•the risks associated with the Company’s aging infrastructure, and its ability to appropriately maintain and replace current infrastructure, including its operational and technology systems, and manage the expansion of its business;businesses;
•exposure or infiltration of the Company’s technology and critical infrastructure systems, including the disclosure of sensitive, personal or confidential information contained therein, through physical or cyber attacks or other means;
•the Company’s ability to obtain permits and other approvals for projects;
•changes in the Company’s capital requirements;
•the Company’s ability to control operating expenses and to achieve efficiencies in its operations;operating efficiencies;
•the intentional or unintentional actions of a third party, including contamination of the Company’s water supplies or water provided to its customers;
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•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 its operations;materials;
•the Company’s ability to successfully meet growth projections for its regulatedthe 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, its ability to, among other things:things, with respect to:
acquire, close•acquiring, closing and successfully integrateintegrating regulated operations and market-based businesses;

enter•entering into contracts and other agreements with, or otherwise obtain,obtaining, new customers or partnerships in the Company’s market-based businesses;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 the Company’s operations;
•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;
•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, the Company’s 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 the Company or any of its subsidiaries, or on any of their current or future indebtedness, that could increase the Company’s financing costs or funding requirements or affect itsthe ability to borrow, make payments on debt or pay dividends;
•fluctuations in the value of benefit plan assets and liabilities that could increase 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 the Company’s ability to utilize its U.S. federal and state income tax net operating loss (“NOL”) carryforwards;
•migration of customers into or out of the Company’s service territories;
•the use by municipalities of the power of eminent domain or other authority to condemn the systems of one or more of the Company’s utility subsidiaries, or the assertion by private landowners of similar rights against such utility subsidiaries;
•any difficulty or inability to obtain insurance for the Company, its inability to obtain insurance at acceptable rates and on acceptable terms and conditions, or its inability to obtain reimbursement under existing insurance programs and coverages for any losses sustained;
•the incurrence of impairment charges related to the Company’s goodwill or other assets;
•labor actions, including work stoppages and strikes;
•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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“Form2019 (the “Form 10-K”) and in this Form 10-Q, and youreaders should refer to such risks, uncertainties and risk factors in evaluating such forward-looking statements. Any forward-looking statements 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, the Company does not have any obligation, and it specifically 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 the Company to predict all such factors. Furthermore, it may not be possible to assess the impact of any such factor on 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.

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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
September 30, 2019 December 31, 2018 June 30, 2020December 31, 2019
ASSETSASSETSASSETS
Property, plant and equipment$23,807
 $23,204
Property, plant and equipment$24,745  $23,941  
Accumulated depreciation(5,656) (5,795)Accumulated depreciation(5,801) (5,709) 
Property, plant and equipment, net18,151
 17,409
Property, plant and equipment, net18,944  18,232  
Current assets: 
  
Current assets:  
Cash and cash equivalents94
 130
Cash and cash equivalents569  60  
Restricted funds22
 28
Restricted funds36  31  
Accounts receivable, net335
 301
Accounts receivable, net of allowance for uncollectible accounts of $43 and $41, respectivelyAccounts receivable, net of allowance for uncollectible accounts of $43 and $41, respectively298  294  
Unbilled revenues187
 186
Unbilled revenues207  172  
Materials and supplies46
 41
Materials and supplies51  44  
Assets held for saleAssets held for sale598  566  
Other115
 95
Other137  118  
Total current assets799
 781
Total current assets1,896  1,285  
Regulatory and other long-term assets: 
  
Regulatory and other long-term assets:  
Regulatory assets1,178
 1,156
Regulatory assets1,144  1,128  
Operating lease right-of-use assets109
 —
Operating lease right-of-use assets99  103  
Goodwill1,576
 1,575
Goodwill1,506  1,501  
Postretirement benefit assetsPostretirement benefit assets158  159  
Intangible assets74
 84
Intangible assets61  67  
Postretirement benefit assets150
 155
Other201
 63
Other201  207  
Total regulatory and other long-term assets3,288
 3,033
Total regulatory and other long-term assets3,169  3,165  
Total assets$22,238
 $21,223
Total assets$24,009  $22,682  
The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In millions, except share and per share data)
September 30, 2019 December 31, 2018 June 30, 2020December 31, 2019
CAPITALIZATION AND LIABILITIESCAPITALIZATION AND LIABILITIESCAPITALIZATION AND LIABILITIES
Capitalization:   Capitalization:  
Common stock ($0.01 par value; 500,000,000 shares authorized; 185,860,356 and 185,367,158 shares issued, respectively)$2
 $2
Common stock ($0.01 par value; 500,000,000 shares authorized; 186,369,041 and 185,903,727 shares issued, respectively)Common stock ($0.01 par value; 500,000,000 shares authorized; 186,369,041 and 185,903,727 shares issued, respectively)$2  $2  
Paid-in-capital6,695
 6,657
Paid-in-capital6,730  6,700  
Accumulated deficit(123) (464)Accumulated deficit(7) (207) 
Accumulated other comprehensive loss(46) (34)Accumulated other comprehensive loss(39) (36) 
Treasury stock, at cost (5,090,726 and 4,683,156 shares, respectively)(338) (297)
Treasury stock, at cost (5,167,871 and 5,090,855 shares, respectively)Treasury stock, at cost (5,167,871 and 5,090,855 shares, respectively)(348) (338) 
Total common shareholders' equity6,190
 5,864
Total common shareholders' equity6,338  6,121  
Long-term debt8,640
 7,569
Long-term debt9,589  8,639  
Redeemable preferred stock at redemption value6
 7
Redeemable preferred stock at redemption value4  5  
Total long-term debt8,646
 7,576
Total long-term debt9,593  8,644  
Total capitalization14,836
 13,440
Total capitalization15,931  14,765  
Current liabilities: 
  
Current liabilities:  
Short-term debt474
 964
Short-term debt920  786  
Current portion of long-term debt29
 71
Current portion of long-term debt69  28  
Accounts payable149
 175
Accounts payable169  203  
Accrued liabilities490
 556
Accrued liabilities512  596  
Accrued taxes78
 45
Accrued taxes58  46  
Accrued interest96
 87
Accrued interest90  84  
Liabilities related to assets held for saleLiabilities related to assets held for sale133  128  
Other172
 196
Other162  174  
Total current liabilities1,488
 2,094
Total current liabilities2,113  2,045  
Regulatory and other long-term liabilities: 
  
Regulatory and other long-term liabilities:  
Advances for construction247
 252
Advances for construction260  240  
Deferred income taxes and investment tax credits1,904
 1,740
Deferred income taxes and investment tax credits1,980  1,893  
Regulatory liabilities1,849
 1,907
Regulatory liabilities1,786  1,806  
Operating lease liabilities94
 —
Operating lease liabilities84  89  
Accrued pension liabilities399
 390
Accrued pension expenseAccrued pension expense397  411  
Other76
 78
Other75  78  
Total regulatory and other long-term liabilities4,569
 4,367
Total regulatory and other long-term liabilities4,582  4,517  
Contributions in aid of construction1,345
 1,322
Contributions in aid of construction1,383  1,355  
Commitments and contingencies (See Note 9)


 


Commitments and contingencies (See Note 11)Commitments and contingencies (See Note 11)
Total capitalization and liabilities$22,238
 $21,223
Total capitalization and liabilities$24,009  $22,682  
The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)
 For the Three Months Ended June 30,For the Six Months Ended June 30,
 2020201920202019
Operating revenues$931  $882  $1,775  $1,695  
Operating expenses:  
Operation and maintenance391  372  774  737  
Depreciation and amortization152  142  297  286  
General taxes75  72  152  141  
(Gain) on asset dispositions and purchases—  (6) —  (9) 
Total operating expenses, net618  580  1,223  1,155  
Operating income313  302  552  540  
Other income (expense):  
Interest, net(101) (94) (197) (187) 
Non-operating benefit costs, net12  4  25  8  
Other, net8  15  11  18  
Total other income (expense)(81) (75) (161) (161) 
Income before income taxes232  227  391  379  
Provision for income taxes56  57  91  96  
Net income attributable to common shareholders$176  $170  $300  $283  
Basic earnings per share:  
Net income attributable to common shareholders$0.97  $0.94  $1.66  $1.56  
Diluted earnings per share: (a)
  
Net income attributable to common shareholders$0.97  $0.94  $1.65  $1.56  
Weighted-average common shares outstanding:  
Basic181  181  181  181  
Diluted181  181  181  181  
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2019 2018 2019 2018
Operating revenues$1,013
 $976
 $2,708
 $2,590
Operating expenses:       
Operation and maintenance395
 390
 1,132
 1,085
Depreciation and amortization144
 141
 430
 404
General taxes68
 71
 209
 210
(Gain) on asset dispositions and purchases—
 (18) (9) (20)
Impairment charge—
 57
 —
 57
Total operating expenses, net607
 641
 1,762
 1,736
Operating income406
 335
 946
 854
Other income (expense):       
Interest, net(97) (89) (284) (259)
Non-operating benefit costs, net4
 5
 12
 10
Other, net5
 4
 23
 12
Total other income (expense)(88) (80) (249) (237)
Income before income taxes318
 255
 697
 617
Provision for income taxes78
 70
 174
 164
Consolidated net income240
 185
 523
 453
Net loss attributable to noncontrolling interest—
 (2) —
 (2)
Net income attributable to common shareholders$240
 $187
 $523
 $455
        
Basic earnings per share: (a)
       
Net income attributable to common shareholders$1.33
 $1.04
 $2.90
 $2.54
Diluted earnings per share: (a)
       
Net income attributable to common shareholders$1.33
 $1.04
 $2.89
 $2.53
Weighted-average common shares outstanding:       
Basic181
 181
 181
 179
Diluted181
 181
 181
 180

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

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
For the Three Months Ended September 30, For the Nine Months Ended September 30, For the Three Months Ended June 30,For the Six Months Ended June 30,
2019 2018 2019 2018 2020201920202019
Net income attributable to common shareholders$240
 $187
 $523
 $455
Net income attributable to common shareholders$176  $170  $300  $283  
Other comprehensive income (loss), net of tax:       Other comprehensive income (loss), net of tax:  
Defined benefit pension plans:       
Amortization of actuarial loss, net of tax of $0 and $1 for the three months ended September 30, 2019 and 2018, respectively, and $1 and $2 for the nine months ended September 30, 2019 and 2018, respectively1
 2
 2
 6
Defined benefit pension plan actuarial loss, net of tax of $0 and $1 for the three months ended June 30, 2020 and 2019, respectively and $0 and $1 for the six months ended June 30, 2020 and 2019, respectivelyDefined benefit pension plan actuarial loss, net of tax of $0 and $1 for the three months ended June 30, 2020 and 2019, respectively and $0 and $1 for the six months ended June 30, 2020 and 2019, respectively—  —  1  1  
Foreign currency translation adjustment—
 —
 (1) —
Foreign currency translation adjustment—  (1) —  (1) 
Unrealized gain (loss) on cash flow hedges, net of tax of $0 and $2 for the three months ended September 30, 2019 and 2018, respectively, and $(5) and $4 for the nine months ended September 30, 2019 and 2018, respectively—
 7
 (13) 13
Unrealized gain (loss) on cash flow hedges, net of tax of $1 and $1 for the three months ended June 30, 2020 and 2019, respectively and $(1) and $(5) for the six months ended June 30, 2020 and 2019, respectivelyUnrealized gain (loss) on cash flow hedges, net of tax of $1 and $1 for the three months ended June 30, 2020 and 2019, respectively and $(1) and $(5) for the six months ended June 30, 2020 and 2019, respectively2  1  (4) (13) 
Net other comprehensive income (loss)1
 9
 (12) 19
Net other comprehensive income (loss)2  —  (3) (13) 
Comprehensive income attributable to common shareholders$241
 $196
 $511
 $474
Comprehensive income attributable to common shareholders$178  $170  $297  $270  
The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
 For the Six Months Ended June 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES  
Net income$300  $283  
Adjustments to reconcile to net cash flows provided by operating activities:  
Depreciation and amortization297  286  
Deferred income taxes and amortization of investment tax credits96  85  
Provision for losses on accounts receivable14  10  
Gain on asset dispositions and purchases—  (9) 
Pension and non-pension postretirement benefits(4) 9  
Other non-cash, net(40) (46) 
Changes in assets and liabilities:  
Receivables and unbilled revenues(54) (40) 
Pension and postretirement benefit contributions(22) (14) 
Accounts payable and accrued liabilities(28) (47) 
Other assets and liabilities, net(28) (37) 
Net cash provided by operating activities531  480  
CASH FLOWS FROM INVESTING ACTIVITIES  
Capital expenditures(870) (712) 
Acquisitions, net of cash acquired(40) (80) 
Proceeds from sale of assets2  16  
Removal costs from property, plant and equipment retirements, net(50) (41) 
Net cash used in investing activities(958) (817) 
CASH FLOWS FROM FINANCING ACTIVITIES  
Proceeds from long-term debt1,163  1,184  
Repayments of long-term debt(166) (146) 
Proceeds from term loan500  —  
Net short-term borrowings with maturities less than three months(367) (568) 
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $16 and $9 for the six months ended June 30, 2020 and 2019, respectively2  6  
Advances and contributions for construction, net of refunds of $15 and $17 for the six months ended June 30, 2020 and 2019, respectively11  9  
Debt issuance costs(12) (11) 
Dividends paid(190) (173) 
Anti-dilutive share repurchases—  (36) 
Net cash provided by financing activities941  265  
Net increase (decrease) in cash, cash equivalents and restricted funds514  (72) 
Cash, cash equivalents and restricted funds at beginning of period91  159  
Cash, cash equivalents and restricted funds at end of period$605  $87  
Non-cash investing activity:  
Capital expenditures acquired on account but unpaid as of the end of period$250  $194  
 For the Nine Months Ended September 30,
 2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES   
Net income$523
 $453
Adjustments to reconcile to net cash flows provided by operating activities:   
Depreciation and amortization430
 404
Deferred income taxes and amortization of investment tax credits163
 142
Provision for losses on accounts receivable18
 22
Gain on asset dispositions and purchases(9) (20)
Impairment charge—
 57
Pension and non-pension postretirement benefits13
 19
Other non-cash, net(51) 27
Changes in assets and liabilities:   
Receivables and unbilled revenues(54) (70)
Pension and postretirement benefit contributions(23) (11)
Accounts payable and accrued liabilities(16) (23)
Other assets and liabilities, net(45) 32
Impact of Freedom Industries settlement activities(4) (40)
Net cash provided by operating activities945
 992
CASH FLOWS FROM INVESTING ACTIVITIES   
Capital expenditures(1,115) (1,136)
Acquisitions, net of cash acquired(85) (381)
Proceeds from sale of assets17
 33
Removal costs from property, plant and equipment retirements, net(71) (61)
Net cash used in investing activities(1,254) (1,545)
CASH FLOWS FROM FINANCING ACTIVITIES   
Proceeds from long-term debt1,191
 1,355
Repayments of long-term debt(153) (330)
Net short-term borrowings with maturities less than three months(491) (341)
Proceeds from issuance of common stock—
 183
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $11 and $7 for the nine months ended September 30, 2019 and 2018, respectively13
 8
Advances and contributions for construction, net of refunds of $25 and $20 for the nine months ended September 30, 2019 and 2018, respectively16
 15
Debt issuance costs(11) (12)
Make-whole premium on early debt redemption—
 (10)
Dividends paid(263) (237)
Anti-dilutive share repurchases(36) (45)
Net cash provided by financing activities266
 586
Net (decrease) increase in cash, cash equivalents and restricted funds(43) 33
Cash, cash equivalents and restricted funds at beginning of period159
 83
Cash, cash equivalents and restricted funds at end of period$116
 $116
Non-cash investing activity:   
Capital expenditures acquired on account but unpaid as of the end of period$245
 $187
The accompanying notes are an integral part of these Consolidated Financial Statements.

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American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(In millions)
Common StockPaid-in-CapitalAccumulated DeficitAccumulated Other Comprehensive LossTreasury StockTotal Shareholders' Equity
 SharesPar ValueSharesAt Cost
Balance as of December 31, 2019185.9  $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, 2020186.2  $2  $6,713  $(83) $(41) (5.2) $(348) $6,243  
Net income attributable to common shareholders—  —  —  176  —  —  —  176  
Common stock issuances (a)0.2  —  17  —  —  —  —  17  
Net other comprehensive loss—  —  —  —  2  —  —  2  
Dividends ($0.55 declared per common share)—  —  —  (100) —  —  —  (100) 
Balance as of June 30, 2020186.4  $2  $6,730  $(7) $(39) (5.2) $(348) $6,338  
 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, 2018185.4
 $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 activity0.2
 —
 8
 —
 —
 (0.1) (5) 3
Repurchases of common stock—
 —
 —
 —
 —
 (0.3) (36) (36)
Net other comprehensive loss—
 —
 —
 —
 (13) —
 —
 (13)
Balance as of March 31, 2019185.6
 $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 activity0.1
 —
 10
 —
 —
 —
 —
 10
Dividends ($0.50 declared per common share)—
 —
 —
 (90) —
 —
 —
 (90)
Balance as of June 30, 2019185.7
 2
 6,683
 (273) (47) (5.1) (338) 6,027
Net income attributable to common shareholders—
 —
 —
 240
 —
 —
 —
 240
Direct stock reinvestment and purchase plan—
 —
 3
 —
 —
 —
 —
 3
Employee stock purchase plan—
 —
 3
 —
 —
 —
 —
 3
Stock-based compensation activity0.2
 —
 6
 —
 —
 —
 —
 6
Net other comprehensive loss—
 —
 —
 —
 1
 —
 —
 1
Dividends ($0.50 declared per common share)—
 —
 —
 (90) —
 —
 —
 (90)
Balance as of September 30, 2019185.9
 $2
 $6,695
 $(123) $(46) (5.1) $(338) $6,190
(a)Includes stock-based compensation, employee stock purchase plan and direct stock reinvestment and purchase plan activity.

 Common StockPaid-in-CapitalAccumulated DeficitAccumulated Other Comprehensive LossTreasury StockTotal Shareholders' Equity
 SharesPar ValueSharesAt Cost
Balance as of December 31, 2018185.4  $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, 2019185.6  $2  $6,668  $(353) $(47) (5.1) $(338) $5,932  
Net income attributable to common shareholders—  —  —  170  —  —  —  170  
Common stock issuances (a)0.1  —  15  —  —  —  —  15  
Dividends ($0.50 declared per common share)—  —  —  (90) —  —  —  (90) 
Balance as of June 30, 2019185.7  $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, 2017182.5
 $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 activity0.2
 —
 4
 —
 —
 (0.1) (5) (1)
Repurchases of common stock—
 —
 —
 —
 —
 (0.5) (45) (45)
Net other comprehensive income—
 —
 —
 —
 4
 —
 —
 4
Balance as of March 31, 2018182.7
 $2
 $6,438
 $(617) $(75) (4.7) $(297) $5,451
Net income attributable to common shareholders—
 —
 —
 162
 —
 —
 —
 162
Direct stock reinvestment and purchase plan0.1
 —
 3
 —
 —
 —
 —
 3
Employee stock purchase plan0.1
 —
 3
 —
 —
 —
 —
 3
Stock-based compensation activity—
 —
 10
 (1) —
 —
 —
 9
Issuance of common stock2.3
 —
 183
 —
 —
 —
 —
 183
Net other comprehensive income—
 —
 —
 —
 6
 —
 —
 6
Dividends ($0.455 declared per common share)—
 —
 —
 (81) —
 —
 —
 (81)
Balance as of June 30, 2018185.2
 2
 6,637
 (537) (69) (4.7) (297) 5,736
Net income attributable to common shareholders—
 —
 —
 187
 —
 —
 —
 187
Direct stock reinvestment and purchase plan—
 —
 1
 —
 —
 —
 —
 1
Employee stock purchase plan—
 —
 2
 —
 —
 —
 —
 2
Stock-based compensation activity0.1
 —
 7
 —
 —
 —
 —
 7
Net other comprehensive income—
 —
 —
 —
 9
 —
 —
 9
Dividends ($0.455 declared per common share)—
 —
 —
 (82) —
 —
 —
 (82)
Balance as of September 30, 2018185.3
 $2
 $6,647
 $(432) $(60) (4.7) $(297) $5,860
(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.

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American Water Works Company, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
(Unless otherwise noted, in millions, except per share data)
Note 1: Basis of Presentation
The unaudited Consolidated Financial Statements 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 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 SeptemberJune 30, 2019,2020, 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, 20182019 (“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:
StandardDescriptionDate of AdoptionApplicationEffect 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 (“ROU”) 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, 2019Modified 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, 2019Modified 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 PurposesDesignated the OIS rate based on SOFR as an eligible U.S. benchmark interest rate for the purposes of applying hedge accounting.January 1, 2019Prospective
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 September 30, 2019:
StandardDescriptionDate of AdoptionApplicationEstimated Effect on the Consolidated Financial Statements
Measurement of Credit Losses on Financial InstrumentsUpdated 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 permitted2020Modified retrospectiveThe Company is evaluating thestandard did not have a material impact on the Consolidated Financial Statements.
Changes to the Disclosure Requirements for Fair Value MeasurementUpdated 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 permitted2020Prospective for added disclosures and for the narrative description of measurement uncertainty; retrospective for all other amendments.
The standard willdid not have a material impact on the Consolidated Financial Statements.

Facilitation of the Effects of Reference Rate Reform on Financial ReportingProvided 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 basisMarch 12, 2020 through December 31, 2022Prospective 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.
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Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of June 30, 2020:
StandardDescriptionDate of AdoptionApplicationEstimated 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 SeptemberJune 30:
 20202019
Cash and cash equivalents$569  $64  
Restricted funds36  22  
Restricted funds included in other long-term assets—  1  
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows$605  $87  
 2019 2018
Cash and cash equivalents$94
 $86
Restricted funds22
 29
Restricted funds included in other long-term assets—
 1
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows$116
 $116
Allowance for Uncollectible Accounts
Allowances for uncollectible accounts are maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the allowance for uncollectible accounts, including the length of time receivables are past due, previous loss history, current economic and societal conditions and reasonable and supportable forecasts that affect the collectability of receivables from customers. The Company generally writes off accounts when they become uncollectible or are over a certain number of days outstanding.
Presented in the table below are the changes in the allowance for uncollectible accounts for the periods ended June 30:
20202019
Balance as of January 1$(41) $(45) 
Amounts charged to expense(14) (10) 
Amounts written off10  13  
Less: Allowance for uncollectible accounts included in assets held for sale (a)2  —  
Balance as of June 30$(43) $(42) 

(a)This portion of the allowance for uncollectible accounts is related to the pending transactions contemplated by the Stock Purchase Agreement between the Company and the Company’s New York subsidiary and Liberty Utilities Co., and is included in assets held for sale on the Consolidated Balance Sheets. See Note 5—Acquisitions and Divestitures for additional information.
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Reclassifications
Certain reclassifications have been made to prior periods in the Consolidated Financial Statements and Notes to conform to the current presentation.
Note 3: Impact of Novel Coronavirus (COVID-19) Pandemic
American Water continues to monitor the global outbreak of the current novel coronavirus (“COVID-19”) pandemic. To date, the Company has experienced COVID-19 financial impacts, including an increase in uncollectible accounts expense, additional debt costs, and certain incremental operation and maintenance (“O&M”) expenses. The Company has also experienced decreased revenues as a result of the waiver of late fees, foregone reconnect fees, and lower base revenues, primarily from the Company’s commercial and industrial customers, partially offset by increased revenues from the Company’s residential customers.
The Company requested authorization for deferred accounting of COVID-19 financial impacts in all 14 regulatory jurisdictions in which it operates. As of August 5, 2020, American Water has commission orders authorizing deferred accounting for COVID-19 financial impacts in 10 of 14 jurisdictions, with 4 requests pending. In addition to approving deferred accounting, 2 regulatory jurisdictions have also approved cost recovery mechanisms for COVID-19 financial impacts, as presented in the table below:
Commission OrdersDescriptionStates Allowed
Regulatory assetsAllows the Company to establish regulatory assets to record certain financial impacts related to the COVID-19 pandemic.CA, HI, IA, IL, IN, MD, NJ, PA, VA, WV
Cost recovery mechanismsCalifornia’s Catastrophic Event Memorandum Account allows the Company to track and recover certain financial impacts related to the COVID-19 pandemic. Illinois has authorized cost recovery of COVID-19 financial impacts through a special purpose rider over a 24-month period.CA, IL
Consistent with these regulatory orders, the Company recorded $14 million in regulatory assets and $2 million of regulatory liabilities for financial impacts related to the COVID-19 pandemic on the Consolidated Balance Sheets as of June 30, 2020.
Note 3:4: 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.”

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Presented in the table below are operating revenues disaggregated for the three months ended SeptemberJune 30, 2019:2020:
Revenues from Contracts with CustomersOther Revenues Not from Contracts with Customers (a)Total Operating Revenues
Regulated Businesses:
Water services: 
Residential$474  $—  $474  
Commercial142  —  142  
Fire service36  —  36  
Industrial31  —  31  
Public and other41  —  41  
Total water services724  —  724  
Wastewater services: 
Residential33  —  33  
Commercial9  —  9  
Industrial—  —  —  
Public and other4  —  4  
Total wastewater services46  —  46  
Miscellaneous utility charges10  —  10  
Alternative revenue programs—  21  21  
Lease contract revenue—  2  2  
Total Regulated Businesses780  23  803  
Market-Based Businesses132  —  132  
Other(4) —  (4) 
Total operating revenues$908  $23  $931  
(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.
12

Revenues from Contracts with Customers Other Revenues Not from Contracts with Customers (a) Total Operating Revenues
Regulated Businesses:     
Water services:     
Residential$503
 $1
 $504
Commercial188
 —
 188
Fire service37
 —
 37
Industrial38
 —
 38
Public and other64
 —
 64
Total water services830
 1
 831
Wastewater services: 
    
Residential31
 —
 31
Commercial9
 —
 9
Industrial1
 —
 1
Public and other2
 —
 2
Total wastewater services43
 —
 43
Miscellaneous utility charges9
 —
 9
Alternative revenue programs—
 (1) (1)
Lease contract revenue—
 1
 1
Total Regulated Businesses882
 1
 883
Market-Based Businesses136
 —
 136
Other(5) (1) (6)
Total operating revenues$1,013
 $—
 $1,013
(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 ninesix months ended SeptemberJune 30, 2019:2020:
Revenues from Contracts with CustomersOther Revenues Not from Contracts with Customers (a)Total Operating Revenues
Regulated Businesses:
Water services:
Residential$873  $—  $873  
Commercial284  —  284  
Fire service73  —  73  
Industrial63  —  63  
Public and other90  —  90  
Total water services1,383  —  1,383  
Wastewater services:
Residential64  —  64  
Commercial17  —  17  
Industrial1  —  1  
Public and other7  —  7  
Total wastewater services89  —  89  
Miscellaneous utility charges18  —  18  
Alternative revenue programs—  28  28  
Lease contract revenue—  5  5  
Total Regulated Businesses1,490  33  1,523  
Market-Based Businesses260  —  260  
Other(8) —  (8) 
Total operating revenues$1,742  $33  $1,775  

Revenues from Contracts with Customers Other Revenues Not from Contracts with Customers (a) Total Operating Revenues
Regulated Businesses:     
Water services:     
Residential$1,296
 $1
 $1,297
Commercial477
 —
 477
Fire service106
 —
 106
Industrial104
 —
 104
Public and other160
 —
 160
Total water services2,143
 1
 2,144
Wastewater services: 
    
Residential88
 —
 88
Commercial23
 —
 23
Industrial2
 —
 2
Public and other10
 —
 10
Total wastewater services123
 —
 123
Miscellaneous utility charges27
 —
 27
Alternative revenue programs—
 23
 23
Lease contract revenue—
 6
 6
Total Regulated Businesses2,293
 30
 2,323
Market-Based Businesses402
 —
 402
Other(16) (1) (17)
Total operating revenues$2,679
 $29
 $2,708
(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.
(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 $26 million and $13 million are included in unbilled revenues on the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, respectively. There were $29 million of contract assets added during the six months ended June 30, 2020, and $16 million of contract assets were transferred to accounts receivable during the same period.
Contract liabilities of $37 million and $27 million are included in other current liabilities on the Consolidated Balance Sheets as of SeptemberJune 30, 2019.

Presented in2020 and December 31, 2019, respectively. There were $66 million of contract liabilities added during the table below are the changes in contract assets and liabilities for the ninesix months ended SeptemberJune 30, 2019:2020, and $56 million of contract liabilities were recognized as revenue during the same period.
 Amount
Contract assets: 
Balance as of January 1, 2019$14
Additions14
Transfers to accounts receivable, net(19)
Balance as of September 30, 2019$9
  
Contract liabilities: 
Balance as of January 1, 2019$20
Additions52
Transfers to operating revenues(42)
Balance as of September 30, 2019$30
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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 SeptemberJune 30, 2019,2020, the Company’s operation and maintenance (“O&M”)&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 2070 and have RPOs of $5.4$5.5 billion as of SeptemberJune 30, 2019,2020, 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 20202021 and 2038 and have RPOs of $559$493 million as of SeptemberJune 30, 2019,2020, 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 4:5: Acquisitions and Divestitures
During the ninesix months ended SeptemberJune 30, 2019,2020, the Company closed on the acquisition of 1612 regulated water and wastewater systems for a total aggregate purchase price of $85$40 million, including the acquisition of the Citywater system assets of Alton, Illinois’ regional wastewater systemthe California based Fruitridge Vista Water Company, on June 27, 2019 for $55 million.February 4, 2020. Assets acquired from these acquisitions, principally utility plant, totaled $89$57 million, and liabilities assumed totaled $4$24 million, including $15 million of contributions in aid of construction and assumed debt of $6 million. TheseThe Company recorded additional goodwill of $7 million associated with 2 of its acquisitions, which is reported in its Regulated Businesses segment. Several of these acquisitions were predominately accounted for as business combinations, as the Company continues to grow its business through regulated acquisitions. The preliminary purchase price allocations related to acquisitions accounted for as business combinations will be finalized once the valuation of assets acquired has been completed, no later than one year after their acquisition date.
Subsequent to September 30,Assets Held for Sale
On November 20, 2019, the Company closed on 3 regulated water and wastewater systemsthe 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 a totalan aggregate purchase price of $137approximately $608 million highlighted byin cash, subject to adjustment as provided in the acquisitionStock Purchase Agreement. The Company’s regulated 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 water assets of Steelton Borough, Pennsylvania for $22 million and Lake Station, Indiana for $21 million, and the wastewater assetsperformance of the Townshipobligations of Exeter, PennsylvaniaLiberty under the Stock Purchase Agreement. The Stock Purchase is subject to various conditions, including obtaining regulatory approval and satisfying or waiving other closing conditions. The Stock Purchase Agreement may be terminated by either party if the Stock Purchase is not completed by June 30, 2021, subject to extension for $94 million.up to six months if all of the conditions to closing have been met, other than obtaining regulatory approvals. Liberty may also terminate the Stock Purchase Agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the New York subsidiary, taken as a whole. Progress toward completion of the transaction continues, and subject to such closing conditions and no exercise of termination rights, the Company estimates that the Stock Purchase will be completed in 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 June 30, 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 June 30, 2020:
June 30, 2020
Current assets$15 
Property, plant and equipment479 
Regulatory assets59 
Goodwill39 
Other assets6 
Assets held for sale$598 
Current liabilities21 
Deferred income taxes70 
Regulatory liabilities37 
Other liabilities5 
Liabilities related to assets held for sale$133 
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Note 5:6: Shareholders' Equity
Accumulated Other Comprehensive Loss
Presented in the table below are the changes in accumulated other comprehensive loss by component, net of tax, for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively:
 Defined Benefit Pension Plans Foreign Currency Translation Gain (Loss) on Cash Flow Hedges Accumulated Other Comprehensive Loss
 Funded Status Amortization of Prior Service Cost Amortization of Actuarial Loss   
Balance as of December 31, 2018$(102) $1
 $56
 $1
 $10
 $(34)
Other comprehensive loss before reclassifications—
 —
 —
 —
 (13) (13)
Amounts reclassified from accumulated other comprehensive loss—
 —
 2
 (1) —
 1
Net other comprehensive income (loss)—
 —
 2
 (1) (13) (12)
Balance as of September 30, 2019$(102) $1
 $58
 $—
 $(3) $(46)
            
Balance as of December 31, 2017$(140) $1
 $49
 $1
 $10
 $(79)
Other comprehensive income before reclassifications—
 —
 —
 —
 13
 13
Amounts reclassified from accumulated other comprehensive loss—
 —
 6
 —
 —
 6
Net other comprehensive income—
 —
 6
 —
 13
 19
Balance as of September 30, 2018$(140) $1
 $55
 $1
 $23
 $(60)

 Defined Benefit Pension PlansForeign Currency TranslationGain (Loss) on Cash Flow HedgesAccumulated Other Comprehensive Loss
 Employee Benefit Plan Funded StatusAmortization of Prior Service CostAmortization of Actuarial Loss
Balance as of December 31, 2019$(94) $1  $60  $—  $(3) $(36) 
Other comprehensive loss before reclassifications—  —  —  —  (4) (4) 
Amounts reclassified from accumulated other comprehensive loss—  —  1  —  —  1  
Net other comprehensive income (loss)—  —  1  —  (4) (3) 
Balance as of June 30, 2020$(94) $1  $61  $—  $(7) $(39) 
Balance as of December 31, 2018$(102) $1  $56  $1  $10  $(34) 
Other comprehensive loss before reclassifications—  —  —  —  (13) (13) 
Amounts reclassified from accumulated other comprehensive loss—  —  1  (1) —  —  
Net other comprehensive income (loss)—  —  1  (1) (13) (13) 
Balance as of June 30, 2019$(102) $1  $57  $—  $(3) $(47) 
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 hashave 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 nine months ended September 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 September 30, 2019, there were 5.1 million shares of common stock available for repurchase under the program.
Dividends
On September 4, 2019,June 2, 2020, the Company paid a quarterly cash dividend of $0.50$0.55 per share to shareholders of record as of August 9, 2019.May 12, 2020.
On OctoberJuly 29, 2019,2020, the Company’s Board of Directors declared a quarterly cash dividend payment of $0.50$0.55 per share, payable on December 4, 2019September 1, 2020 to shareholders of record as of NovemberAugust 12, 2019.2020. 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 6:7: Long-Term Debt
Presented in the table below are issuances of long-term debt during the nine months ended September 30, 2019:
Company Type Rate Maturity Amount
American Water Capital Corp. Senior Notes—fixed rate 3.45%-4.15% 2029-2049 $1,100
Other American Water subsidiaries Private activity bonds and government funded debt—fixed rate 0.00%-4.23% 2021-2048 91
Total issuances       $1,191
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 nine months ended September 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 92
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       $153
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 Notessenior 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 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 subsidiaryoutstanding long-term debt at maturity duringof AWCC and certain of the second quarter of 2019; and (iv)Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper obligations and short-term indebtedness under AWCC’s $2.25 billion unsecured revolving credit facility; and (iv) for general corporate purposes.
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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 swapthese 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. NoApril 14, 2020. NaN ineffectiveness was recognized on hedging instruments for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
In addition to the senior notes issued by AWCC as described above, during the six months ended June 30, 2020, the Company’s regulated subsidiaries issued $163 million of senior notes, private activity bonds and government funded debt with rates ranging from 0.00% to 5.00%, maturing in 2021 through 2048. During the six months ended June 30, 2020, AWCC, along with the Company’s regulated subsidiaries, retired or paid at maturity $166 million of various long-term debt with rates ranging from 0.00% to 12.25%, maturing in 2020 through 2048.
Note 8: Short-Term Debt
As a result of the COVID-19 pandemic and to ensure adequate liquidity, 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 were used for general corporate purposes of AWCC and American Water, and to provide additional liquidity. The Company has employed interest rate swapsTerm Loan Facility allowed for a single additional borrowing of up to fix the interest cost$250 million, which expired unused on June 19, 2020. The Term Loan Facility commitments terminate on March 19, 2021. AWCC may from time to time prepay all or a portion of its variable-rate debt with an aggregate notional amountamounts due under the Term Loan Facility without any premium or penalty. Borrowings under the Term Loan Facility bear interest at a variable annual rate based on LIBOR, plus a margin of $3 million.0.80%. The Company has designated these instrumentscredit agreement for the Term Loan Facility contains the same affirmative and negative covenants and events of default as economic hedges, accounted for at fair value, with gains or losses recognized in interest, net.under AWCC’s $2.25 billion revolving credit facility. As of June 30, 2020, $500 million of principal was outstanding under the Term Loan Facility.
Presented inOn April 1, 2020, the table below are the gross fair valuestermination date of the Company’s derivative liabilities, as well ascredit agreement with respect to AWCC’s revolving credit facility was extended, pursuant to the locationterms of the liability balancescredit agreement, from March 21, 2024 to March 21, 2025. As of June 30, 2020, AWCC had 0 outstanding borrowings and $76 million of outstanding letters of credit under the revolving credit facility, and $420 million of outstanding commercial paper, with $1.75 billion available to fulfill short-term liquidity needs and to issue letters of credit. During the six months ended June 30, 2020, the Company drew down and subsequently paid off $650 million of borrowings under the revolving credit facility. The weighted-average interest rate on AWCC short-term borrowings outstanding, including $500 million of principal outstanding under the Consolidated Balance Sheets:Term Loan Facility as of June 30, 2020, was approximately 1.06% and 1.86% at June 30, 2020 and December 31, 2019, respectively.
Derivative Instrument Derivative Designation Balance Sheet Classification September 30, 2019 December 31, 2018
Liability derivative:      
  
Forward starting swaps Cash flow hedge Other current liabilities $—
 $14

Note 7:9: Income Taxes
The Company’s effective income tax rate was 24.5%24.1% and 27.5%25.1% for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively and 25.0%23.3% and 26.6%25.3% for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. The decrease in the Company’s effective income tax rate duringfor the three and nine months ended SeptemberJune 30, 20192020 was primarily due to changes in state tax law, state income apportionment, and the amortization of the excess accumulated deferred income taxes (“EADIT”) resulting from the Tax Cuts and Jobs Act (the “TCJA”), which is generally reflectedbegan in customer rates beginningthe second quarter of 2019. The decrease in 2019.the Company’s effective income tax rate for the six months ended June 30, 2020 was primarily due to the amortization of the EADIT resulting from the TCJA, and an increase in stock based compensation benefits.

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Note 8:10: 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,
 2020201920202019
Components of net periodic pension benefit cost:  
Service cost$8  $7  $16  $14  
Interest cost18  21  37  41  
Expected return on plan assets(28) (23) (56) (45) 
Amortization of prior service credit(1) (1) (2) (2) 
Amortization of actuarial loss8  8  16  16  
Net periodic pension benefit cost before settlements5  12  11  24  
Settlements (a)
1  —  1  —  
Net periodic pension benefit cost$6  $12  $12  $24  
Components of net periodic other postretirement benefit credit:
Service cost$1  $1  $2  $2  
Interest cost3  4  6  7  
Expected return on plan assets(5) (5) (9) (9) 
Amortization of prior service credit(8) (9) (16) (17) 
Amortization of actuarial loss—  1  1  2  
Net periodic other postretirement benefit credit$(9) $(8) $(16) $(15) 
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2019 2018 2019 2018
Components of net periodic pension benefit cost:       
Service cost$7
 $8
 $21
 $25
Interest cost21
 19
 62
 57
Expected return on plan assets(23) (24) (68) (73)
Amortization of prior service credit(1) —
 (3) —
Amortization of actuarial loss8
 6
 24
 20
Net periodic pension benefit cost$12
 $9
 $36
 $29
        
Components of net periodic other postretirement benefit credit:       
Service cost$1
 $2
 $3
 $7
Interest cost4
 5
 11
 16
Expected return on plan assets(5) (7) (14) (20)
Amortization of prior service credit(9) (7) (26) (16)
Amortization of actuarial loss1
 1
 3
 3
Net periodic other postretirement benefit credit$(8) $(6) $(23) $(10)

(a)Due to the amount of lump sum payment distributions from the Company’s New York Water Service Corporation Pension Plan, a settlement charge of $1 million was recorded during the three and six months ended June 30, 2020. There were 0 settlement charges recorded during the three and six months ended June 30, 2019. In accordance with existing regulatory accounting treatment, the Company has maintained the settlement charge in regulatory assets. The amount is being amortized in accordance with existing regulatory practice.
The Company contributed $9$12 million and $23$22 million for the funding of its defined benefit pension plans for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively, and made $11contributed $7 million and $14 million for the funding of funding contributionsits defined benefit pension plans for the three and ninesix months ended SeptemberJune 30, 2018.2019, respectively. The Company made 0 contributions for the funding of its other postretirement benefit plans for each of the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. The Company expects to make pension contributions to the plan trusts of up to $8$17 million during the remainder of 2019.2020.
Note 9:11: Commitments and Contingencies
Contingencies
The Company is routinely involved in legal actions incident to the normal conduct of its business. As of SeptemberJune 30, 2019,2020, the Company has accrued approximately $20approximately $8 million of probable loss contingencies and has estimated that the maximum amount of losses associated with reasonably possible loss contingencies that can be reasonably estimated is $25 million. $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—11—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 “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 “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
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Table 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.Contents

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 West Virginia-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 SeptemberJune 30, 2019, $52020, $0.5 million of the aggregate Settlement amount of $126 million has been reflected in accrued liabilities, and $5$0.5 million in offsetting insurance receivables hashave been reflected in other current assets on the Consolidated Balance Sheets. The amount reflected in accrued liabilities as of SeptemberJune 30, 20192020 reflects $20 million of reductions in the liability during the first nine months of 2019, $16 million of which was also recorded asand 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 determination by the Settlement fund’s appeal adjudicator 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 putative class action complaint captioned Jeffries, et al. v. West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County on behalf of a purportedan 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. On August 21, 2019, the court set a procedural schedule in this case, including a trial date of 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. On June 11, 2020, the court ruled that it would partially grant the Jeffries plaintiffs’ motion for certification of an issues class and would deny the request for certification of a class to determine a punitive damages multiplier for the class.On July 14, 2020, the court entered an order reflecting its June 11, 2020 rulings, and WVAWC intends to appeal this order to the West Virginia Supreme Court of Appeals. The court also set a new trial date for April 12, 2021 and requested the parties prepare an appropriate scheduling order.
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. The Company cannot 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, (“TAWC”), 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.
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On September 17, 2019, a putative class action 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 a putativean 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. On June 8, 2020, the judge hearing the case transferred the matter to a different judge prior to ruling on the motion to dismiss. Oral argument on the motion to dismiss has been scheduled for September 9, 2020.
The Tennessee-American Water Defendants believe that they have meritorious defenses to the claims raised in this class action complaint, and they intend toare vigorously defenddefending themselves against these allegations. The Company cannot 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.
Note 10:12: 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 September 30, For the Nine Months Ended September 30,
 2019 2018 2019 2018
Numerator:       
Net income attributable to common shareholders$240
 $187
 $523
 $455
        
Denominator: 
  
  
  
Weighted-average common shares outstanding—Basic181
 181
 181
 179
Effect of dilutive common stock equivalents—
 —
 —
 1
Weighted-average common shares outstanding—Diluted181
 181
 181
 180

 For the Three Months Ended June 30,For the Six Months Ended June 30,
 2020201920202019
Numerator:  
Net income attributable to common shareholders$176  $170  $300  $283  
Denominator:
Weighted-average common shares outstanding—Basic181  181  181  181  
Effect of dilutive common stock equivalents—  —  —  —  
Weighted-average common shares outstanding—Diluted181  181  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 million1000000 share-based awards were excluded from the computation of diluted EPS for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019, because their effect would have been anti-dilutive under the treasury stock method.
Note 11:13: 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
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Table 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.Contents

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 September 30, 2019
  Level 1 Level 2 Level 3 Total
Preferred stock with mandatory redemption requirements$7
 $—
 $—
 $10
 $10
Long-term debt (excluding finance lease obligations)8,666
 7,717
 416
 1,664
 9,797
          
 Carrying Amount At Fair Value as of December 31, 2018
  Level 1 Level 2 Level 3 Total
Preferred stock with mandatory redemption requirements$8
 $—
 $—
 $9
 $9
Long-term debt (excluding finance lease obligations)7,638
 5,760
 433
 1,728
 7,921

Carrying AmountAt Fair Value as of June 30, 2020
 Level 1Level 2Level 3Total
Preferred stock with mandatory redemption requirements$6  $—  $—  $7  $7  
Long-term debt (excluding finance lease obligations)9,656  9,387  424  1,747  11,558  
 Carrying AmountAt Fair Value as of December 31, 2019
 Level 1Level 2Level 3Total
Preferred stock with mandatory redemption requirements$7  $—  $—  $9  $9  
Long-term debt (excluding finance lease obligations)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, 2020
 Level 1Level 2Level 3Total
Assets:    
Restricted funds$36  $—  $—  $36  
Rabbi trust investments16  —  —  16  
Deposits4  —  —  4  
Other investments14  —  —  14  
Total assets70  —  —  70  
Liabilities:    
Deferred compensation obligations20  —  —  20  
Total liabilities20  —  —  20  
Total assets (liabilities)$50  $—  $—  $50  
At Fair Value as of September 30, 2019At Fair Value as of December 31, 2019
Level 1 Level 2 Level 3 Total Level 1Level 2Level 3Total
Assets:       Assets:    
Restricted funds$22
 $—
 $—
 $22
Restricted funds$31  $—  $—  $31  
Rabbi trust investments16
 —
 —
 16
Rabbi trust investments17  —  —  17  
Deposits3
 —
 —
 3
Deposits3  —  —  3  
Other investments13
 —
 —
 13
Other investments8  —  —  8  
Total assets54
 —
 —
 54
Total assets59  —  —  59  
       
Liabilities:       Liabilities:    
Deferred compensation obligations20
 —
 —
 20
Deferred compensation obligations21  —  —  21  
Total liabilities20
 —
 —
 20
Total liabilities21  —  —  21  
Total assets$34
 $—
 $—
 $34
Total assets$38  $—  $—  $38  
 At Fair Value as of December 31, 2018
 Level 1 Level 2 Level 3 Total
Assets:       
Restricted funds$29
 $—
 $—
 $29
Rabbi trust investments15
 —
 —
 15
Deposits3
 —
 —
 3
Other investments3
 —
 —
 3
Total assets50
 —
 —
 50
        
Liabilities:       
Deferred compensation obligations17
 —
 —
 17
Mark-to-market derivative liabilities—
 14
 —
 14
Total liabilities17
 14
 —
 31
Total assets (liabilities)$33
 $(14) $—
 $19
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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 less than $1 million and $1 million were included in other long-term assets on the Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018, respectively.
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 12:14: 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 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 ROU 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 ROUright-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 June 30, 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 O&M agreements with the Partners. The Company pays an annual fee for use of the Partners’ assets in performing under the O&M agreements. The O&M agreements are recorded as operating leases, and future annual use fees of $4$4 million in 20192020 through 2023,2024, and $59$56 million thereafter, are included in operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets.
Rental expenses under operating and finance leases were $4$3 million and $12 $7 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively.
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Presented in the table below is supplemental cash flow information:
For the Three Months Ended June 30,For the Six Months Ended June 30,
Cash paid for amounts in lease liabilities (a)
$4  $8  
Right-of-use assets obtained in exchange for new operating lease liabilities—  1  
 For the Three Months Ended September 30, 2019 For the Nine Months Ended September 30, 2019
Cash paid for amounts in lease liabilities (a)
$3
 $12
Right-of-use assets obtained in exchange for new operating lease liabilities—
 119
(a)Includes operating and financing cash flows from operating and finance leases.
(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 SeptemberJune 30, 20192020
Weighted-average remaining lease term:
Finance lease76 years
Operating leases1819 years
Weighted-average discount rate:
Finance lease12%
Operating leases4%


Presented in the table below are the future maturities of lease liabilities at SeptemberJune 30, 2019:2020:
 Amount
2019$4
202015
202113
202212
20238
Thereafter106
Total lease payments158
Imputed interest(53)
Total$105

Amount
2020$6  
202113  
202211  
20237  
20247  
Thereafter100  
Total lease payments144  
Imputed interest(50) 
Total$94  
Presented in the table below are the future minimum rental commitments, as of December 31, 2018, under operating leases that have initial or remaining non-cancelable lease terms over the next five years and thereafter:
 Amount
2019$17
202015
202112
202211
20236
Thereafter80
Total$141

Note 13:15: 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 allocate resources. The Company operates its businesses primarily through 1 reportable segment, the Regulated Businesses segment. The Company also operates market-based businesses that, individually, do not meet the criteria of a reportable segment in accordance with GAAP, and are collectively 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.
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Presented in the tables below is summarized segment information:
 As of or for the Three Months Ended June 30, 2020
Regulated BusinessesMarket-Based BusinessesOtherConsolidated
Operating revenues$803  $132  $(4) $931  
Depreciation and amortization144  7  1  152  
Total operating expenses, net512  102  4  618  
Interest, net(74) —  (27) (101) 
Income before income taxes236  30  (34) 232  
Provision for income taxes58  8  (10) 56  
Net income attributable to common shareholders177  23  (24) 176  
Total assets21,536  1,075  1,398  24,009  
Cash paid for capital expenditures457  3  2  462  
 As of or for the Three Months Ended June 30, 2019
Regulated BusinessesMarket-Based BusinessesOtherConsolidated
Operating revenues$755  $132  $(5) $882  
Depreciation and amortization132  8  2  142  
Total operating expenses, net480  106  (6) 580  
Interest, net(74) 1  (21) (94) 
Income before income taxes208  29  (10) 227  
Provision for income taxes52  8  (3) 57  
Net income attributable to common shareholders156  21  (7) 170  
Total assets19,338  1,056  1,460  21,854  
Cash paid for capital expenditures378  4  4  386  
 As of or for the Six Months Ended June 30, 2020
 Regulated BusinessesMarket-Based BusinessesOtherConsolidated
Operating revenues$1,523  $260  $(8) $1,775  
Depreciation and amortization279  13  5  297  
Total operating expenses, net1,015  201  7  1,223  
Interest, net(146) 1  (52) (197) 
Income before income taxes398  60  (67) 391  
Provision for income taxes98  16  (23) 91  
Net income attributable to common shareholders300  45  (45) 300  
Total assets21,536  1,075  1,398  24,009  
Cash paid for capital expenditures861  6  3  870  
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As of or for the Three Months Ended September 30, 2019 As of or for the Six Months Ended June 30, 2019
Regulated Businesses Market-Based Businesses Other Consolidated Regulated BusinessesMarket-Based BusinessesOtherConsolidated
Operating revenues$883
 $136
 $(6) $1,013
Operating revenues$1,440  $266  $(11) $1,695  
Depreciation and amortization132
 9
 3
 144
Depreciation and amortization262  17  7  286  
Total operating expenses, net505
 108
 (6) 607
Total operating expenses, net950  214  (9) 1,155  
Interest, net(74) 1
 (24) (97)Interest, net(147) 2  (42) (187) 
Income before income taxes313
 30
 (25) 318
Income before income taxes358  56  (35) 379  
Provision for income taxes77
 7
 (6) 78
Provision for income taxes92  15  (11) 96  
Net income attributable to common shareholders236
 23
 (19) 240
Net income attributable to common shareholders266  41  (24) 283  
Total assets19,787
 1,060
 1,391
 22,238
Total assets19,338  1,056  1,460  21,854  
Capital expenditures399
 2
 2
 403
Cash paid for capital expendituresCash paid for capital expenditures693  8  11  712  
24
 As of or for the Three Months Ended September 30, 2018
 Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues$857
 $125
 $(6) $976
Depreciation and amortization128
 9
 4
 141
Impairment charge—
 57
 —
 57
Total operating expenses, net505
 139
 (3) 641
Interest, net(71) —
 (18) (89)
Income before income taxes288
 (14) (19) 255
Provision for income taxes76
 (5) (1) 70
Net income attributable to common shareholders213
 (7) (19) 187
Total assets18,415
 973
 1,492
 20,880
Capital expenditures373
 2
 22
 397
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 As of or for the Nine Months Ended September 30, 2019
 Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues$2,323
 $402
 $(17) $2,708
Depreciation and amortization394
 26
 10
 430
Total operating expenses, net1,455
 322
 (15) 1,762
Interest, net(221) 3
 (66) (284)
Income before income taxes671
 86
 (60) 697
Provision for income taxes169
 22
 (17) 174
Net income attributable to common shareholders502
 64
 (43) 523
Total assets19,787
 1,060
 1,391
 22,238
Capital expenditures1,092
 10
 13
 1,115
 As of or for the Nine Months Ended September 30, 2018
 Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues$2,267
 $339
 $(16) $2,590
Depreciation and amortization373
 20
 11
 404
Impairment charge—
 57
 —
 57
Total operating expenses, net1,420
 323
 (7) 1,736
Interest, net(209) 3
 (53) (259)
Income before income taxes656
 20
 (59) 617
Provision for income taxes173
 4
 (13) 164
Net income attributable to common shareholders484
 18
 (47) 455
Total assets18,415
 973
 1,492
 20,880
Capital expenditures1,050
 9
 77
 1,136


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 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 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. 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 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-tradedpublicly traded water and wastewater utility company in the United States, as measured by both operating revenues and population served. 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 the “Regulated Businesses.” Services provided by the Company’s utilities are generally subject to economic regulation by certainmultiple state utility commissions or other entities engaged in utility regulation, collectively referred to as public utility commissions (“PUCs” or “Regulators”). 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 “Market-Based Businesses.” These businessesMarket-Based Businesses are not subject to economic regulation by state PUCs. See Part I, Item 1—Business in the Company’s Form 10-K for additional information.
Operating HighlightsNovel Coronavirus (COVID-19) Pandemic Update
During October 2019,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 closed onhas taken the acquisitions of three regulated watersteps outlined below in “Recent Financing Activities” and wastewater systems forfurther discussed in “Liquidity and Capital Resources.”
This pandemic is a total aggregate purchase price of $137 million, highlighted byrapidly evolving situation, and American Water continues to monitor developments affecting its employees, customers, contractors and vendors and take additional precautions as may be warranted. To date, the acquisition of the water assets of Steelton Borough, PennsylvaniaCompany has experienced COVID-19 financial impacts, including an increase in uncollectible accounts expense, additional debt costs, and Lake Station, Indiana, and the wastewater assets of the Township of Exeter, Pennsylvania. The acquired systems currently serve approximately 14,700 customers.
The Military Services Group (“MSG”) was awarded contracts for ownership,certain incremental operation and maintenance (“O&M”) expenses. The Company has also experienced decreased revenues as a result of the waterwaiver of late fees, foregone reconnect fees, and wastewater systems at Joint Base San Antoniolower base revenues, primarily from the Company’s commercial and industrial customers, partially offset by increased revenues from the Company’s residential customers. See Note 3—Impact of Novel Coronavirus (COVID-19) Pandemic in Texas, effective September 26, 2019, and the United States Military Academy at West Point, New York, effective September 30, 2019.Notes to Consolidated Financial Statements for additional information. The contract awards include estimated aggregate revenues of approximately $967 million over a 50-year period, subjectextent to annual economic price adjustments, and expand MSG’s footprint to 16 installations across the country.which COVID-19 may further impact American Water, was selectedincluding without limitation, its liquidity, financial condition, and results of operations, will depend on future developments, which presently are highly uncertain and cannot be predicted.
The Company requested authorization for bothdeferred accounting of COVID-19 financial impacts in all 14 regulatory jurisdictions in which it operates. As of August 5, 2020, American Water has commission orders authorizing deferred accounting for COVID-19 financial impacts in ten of 14 jurisdictions, with four requests pending. In addition to approving deferred accounting, two regulatory jurisdictions have also approved cost recovery mechanisms for COVID-19 financial impacts, as presented in the table below:
Commission OrdersDescriptionStates Allowed
Regulatory assetsAllows the Company to establish regulatory assets to record certain financial impacts related to the COVID-19 pandemic.CA, HI, IA, IL, IN, MD, NJ, PA, VA, WV
Cost recovery mechanismsCalifornia’s Catastrophic Event Memorandum Account allows the Company to track and recover certain financial impacts related to the COVID-19 pandemic. Illinois has authorized cost recovery of COVID-19 financial impacts through a special purpose rider over a 24-month period.CA, IL
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Consistent with these regulatory orders, the Company recorded $14 million in regulatory assets and $2 million of regulatory liabilities for financial impacts related to the COVID-19 pandemic on the Consolidated Balance Sheets as of June 30, 2020.
Recent Financing Activities
As a result of the two waterCOVID-19 pandemic and wastewater utility privatization contracts awarded byto ensure adequate liquidity, on March 20, 2020, American Water and American Water Capital Corp. (“AWCC”), 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 DepartmentTerm Loan Facility, the proceeds of Defensewhich were used for general corporate purposes of AWCC and American Water, and to provide additional liquidity. The Term Loan Facility allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020. See Note 8—Short-Term Debt in fiscal year 2019, as discussed above.the Notes to Consolidated Financial Statements for additional information.

On April 14, 2020, AWCC completed a $1.0 billion debt offering which included the sale of $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 due 2050. Net proceeds 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, repay commercial paper obligations and short-term indebtedness under AWCC’s unsecured revolving credit facility, and for general corporate purposes. See Note 7—Long-Term Debt in the Notes to Consolidated Financial Statements for additional information.
Financial Results
Presented inFor the table below are the Company’sthree and six months ended June 30, 2020, diluted earnings per share as determined in accordance with accounting principles generally accepted in the United States (“GAAP”),were $0.97 and the Company’s adjusted diluted earnings per share (a non-GAAP measure):
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2019 2018 2019 2018
Diluted earnings per share (GAAP):       
Net income attributable to common shareholders$1.33
 $1.04
 $2.89
 $2.53
Adjustments:       
Freedom Industries settlement activities—
 —
 (0.02) (0.11)
Income tax impact—
 —
 0.01
 0.03
Net adjustments—
 —
 (0.01) (0.08)
        
Gain on sale of portion of Contract Services Group contracts—
 (0.08) —
 (0.08)
Income tax impact—
 0.02
 —
 0.02
Net adjustment—
 (0.06) —
 (0.06)
        
Impairment charge—
 0.31
 —
 0.31
Income tax impact—
 (0.08) —
 (0.08)
Net loss attributable to noncontrolling interest—
 (0.01) —
 (0.01)
Net adjustment—
 0.22
 —
 0.22
        
Total net adjustments—
 0.16
 (0.01) 0.08
        
Adjusted diluted earnings per share (non-GAAP)$1.33
 $1.20
 $2.88
 $2.61
For the three and nine months ended September 30, 2019, diluted earnings per share (GAAP) were $1.33 and $2.89,$1.65, respectively, an increase of $0.29 per diluted share,$0.03 and $0.36$0.09 per diluted share, 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 $1.33 and $2.88 for the three and nine months ended September 30, 2019, respectively, an increase of $0.13 per diluted share, and $0.27 per diluted share, respectively, compared to the prior year.
These increases were primarily driven by: (i)by continued growth in the Regulated Businesses from infrastructure investment, acquisitions and organic growth; (ii) growth, as well as the benefit related to depreciation expense not recorded during 2020 on the assets of the Company’s New York subsidiary, as required by assets held for sale accounting. Partially offsetting these increases were impacts from the COVID-19 pandemic, primarily from a net decrease in revenues in the Market-BasedRegulated Businesses primarily from itsand some delay in new partner relationships and launch of new products in the Homeowner Services Group’sGroup (“HOS”) 2018 acquisition of Pivotal Home Solutions (“Pivotal”) and from MSG’s addition of two new military contracts in 2018; and (iii) a lower effective income tax rate.. Additionally, as previously reported, during the secondfirst quarter of 2019, there was an increase at parent companythe Company recorded a $4 million pre-tax benefit from the sale of a legacy investment, offset by higher interest expense supporting growth in the business for the nine months ended September 30, 2019.
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 one or morereduction of the following events: (i) previously reported settlement activitiesliability related to the Freedom Industries chemical spill settlement in West Virginia; (ii) the gain recognized in the third quarterVirginia. See “Segment Results of 2018 on the sale of the majority of the Company’s Contract Services Group’s (“CSG”) O&M contracts; and (iii) a goodwill and intangible asset impairment charge related to narrowing of the scope of the Keystone Clearwater Solutions, LLC (“Keystone”) business in the third quarter of 2018.

The Company believes that this non-GAAP measure provides investors with useful information by excluding certain matters that may not be indicative of its ongoing operating results, and that providing this non-GAAP measure will allow investors to better understand the businesses’ operating performance and facilitate a meaningful year-to-year comparison of the Company’s results of operations. Although management uses this non-GAAP financial measure internally to evaluate its results of operations, 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 the Company’s consolidated financial information but is not presented in the financial statements prepared in accordance with GAAP. This measure should be considered in addition to, and not as a substituteOperations” below 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.additional information.
Growth—through capital investment in infrastructure and regulated acquisitions, as well as strategic growth opportunities in the Market-Based Businesses
During the first nine months of 2019, capital investments of approximately $1.25 billion were made, focused in two key areas:
$1.17 billion, of whichThe Company expects to continue to grow its businesses, with the majority wasof its growth to be achieved in the Regulated Businesses through (i) continued capital investment in 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 months of 2020,the Company invested $930 million, primarily in the Regulated Businesses, as discussed below:
Regulated Businesses Growth
•$881 million capital investment in the Regulated Businesses, the majority for infrastructure improvements;improvements and replacements.
•$8540 million forto fund acquisitions in the Regulated Businesses, which added approximately 32,20010,700 water and wastewater customers through Septemberthe six months ended June 30, 2019.2020.
In October 2019,During July 2020, the acquisitionsCompany closed on the acquisition of threeone regulated water and wastewater systems for a total aggregate purchase price of $137 million,system, adding approximately 14,700 customers were closed. Highlighted acquisitions are detailed below:
On October 9, 2019,100 customers. As of August 5, 2020, the Company’s Pennsylvania subsidiary acquired the water assets of the Steelton Borough, Pennsylvania for $22 million. This system currently serves approximately 2,400 customers.
On October 22, 2019, the Company’s Indiana subsidiary acquired the water assets of Lake Station, Indiana for $21 million. This system currently serves approximately 3,300 customers.
On October 24, 2019, the Company’s Pennsylvania subsidiary also acquired the wastewater assets of the Township of Exeter, Pennsylvania for $94 million. This system currently serves approximately 9,000 customers.
The Company has entered into agreements for pending acquisitions in the Regulated Businesses to add approximately 26,40043,600 additional customers. For the full year of 2019, capital investments, including acquisitions, are expectedThe Company plans to beinvest approximately $1.9 billion.billion as planned across its footprint in 2020.
MSG was awarded contracts for ownership, operation
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Sale of New York American Water Company, Inc.
On November 20, 2019, the Company and maintenancethe 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 water and wastewater systems at Joint Base San Antonio in Texas, effective September 26, 2019, andcapital stock of the United States Military Academy at West Point, New York effective September 30, 2019. Highlights of these contract awards are detailed below:
Joint Base San Antonio is comprised of Randolph Air Force Base, Fort Sam Houston, Camp Bullis and Lackland Air Force Base. The installation spans 46,539 acres, across 11 geographically separated parcels of land, and directly or indirectly supports over 187,000 jobs across the state of Texas. The contract award includes estimated revenuessubsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $448$608 million over a 50-year period,in cash, subject to an annual economic price adjustment.
adjustment as provided in the Stock Purchase Agreement. The United States Military Academy is located at West Point,Company’s regulated New York the oldest continuously operated Army postoperations have approximately 125,000 customer connections in the United States.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. The institution’s campus, central post and training areas expand across nearly16,000 acres, andStock Purchase is home to a student body of approximately 4,400 cadets. The total contract award includes estimated revenues of approximately $519 million over a 50-year period, subject to an annual economic price adjustment.various conditions, including obtaining regulatory approval and satisfying or waiving other closing conditions. The Stock Purchase Agreement may be terminated by either party if the Stock Purchase is not completed by June 30, 2021, subject to extension for up to six months if all of the conditions to closing have been met, other than obtaining regulatory approvals. Liberty may also terminate the Stock Purchase Agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the New York subsidiary, taken as a whole. Progress toward completion of the transaction continues, and subject to such closing conditions and no exercise of termination rights, the Company estimates that the Stock Purchase will be completed in 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 June 30, 2020. See Note 5—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements for additional information.
Operational 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, largely through the use of technology. The Company’s adjusted regulated O&M efficiency ratio, which is used as a measure of the operating performance of the Regulated Businesses, was 35.0%34.3% for the twelve months ended SeptemberJune 30, 2019,2020, as compared to 35.7%35.2% for the twelve months ended SeptemberJune 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.2019. The improvement in this ratio was largely due toreflects the continued focus on operating costs, as well as an increase in operating revenues fromfor the Regulated Businesses.
The Company’s adjusted regulated O&M efficiency ratio is a non-GAAP measure, and is defined as theits operation and maintenance expenses from the Regulated Businesses, divided by the pro forma operating revenues from 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 are the allocable portion of non-operation and maintenance support services costs, mainly depreciation and general taxes, which are reflected in the Regulated Businesses segment as operation and maintenance expenses, were excluded, 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, the estimated impact of the TCJA on operating revenues for the 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) is provided. The following adjustments to the Company’s O&M efficiency ratio were also made: (i) excluded from operation and maintenance expenses, the impact of certain Freedom Industries chemical spill settlement activities recognized in 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 the Company’s Form 10-K for additional information). The items discussed above were excluded from the O&M efficiency ratio calculation as such itemsthey are not reflective of management’s ability to increase the efficiency of 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.
The Company evaluates its operating performance using this ratio, and believes it is useful to investors because it directly measures improvement in the operating performance and efficiency of the Regulated Businesses. This information is derived from the Company’s consolidated financial information but is not presented in the Company’sits financial statements prepared in accordance with GAAP.accounting principles generally accepted in the United States (“GAAP”). This information is intended to enhance an investor’s overall understanding ofsupplements and should be read in conjunction with the Company’s operating performance.GAAP disclosures, and should be considered as an addition to, 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.

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Presented in the table below is the calculation of 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 its adjusted O&M efficiency ratio:
For the Twelve Months Ended June 30,
(Dollars in millions)20202019
Total operation and maintenance expenses$1,581  $1,520  
Less:
Operation and maintenance expenses—Market-Based Businesses384  387  
Operation and maintenance expenses—Other(17) (48) 
Total operation and maintenance expenses—Regulated Businesses1,214  1,181  
Less:
Regulated purchased water expenses142  132  
Allocation of non-operation and maintenance expenses30  33  
Adjusted operation and maintenance expenses—Regulated Businesses (i)
$1,042  $1,016  
Total operating revenues$3,690  $3,521  
Less:
Operating revenues—Market-Based Businesses533  528  
Operating revenues—Other(20) (22) 
Total operating revenues—Regulated Businesses3,177  3,015  
Less:
Regulated purchased water revenues (a)
142  132  
Adjusted operating revenues—Regulated Businesses (ii)
$3,035  $2,883  
Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)
34.3 %35.2 %
(a)The calculation assumes regulated purchased water revenues approximate regulated purchased water expenses.
28
 For the Twelve Months Ended September 30,
(Dollars in millions)2019 2018
Total operation and maintenance expenses (a)
$1,526
 $1,451
Less:   
Operation and maintenance expenses—Market-Based Businesses398
 346
Operation and maintenance expenses—Other (a)
(49) (40)
Total operation and maintenance expenses—Regulated Businesses (a)
1,177
 1,145
Less:   
Regulated purchased water expenses133
 134
Allocation of non-operation and maintenance expenses32
 30
Impact of Freedom Industries settlement activities (b)
(4) (20)
Adjusted operation and maintenance expenses—Regulated Businesses (i)
$1,016
 $1,001
    
Total operating revenues$3,558
 $3,410
Less:   
Pro forma adjustment for impact of the TCJA (c)
—
 40
Total pro forma operating revenues3,558
 3,370
Less:   
Operating revenues—Market-Based Businesses540
 455
Operating revenues—Other(22) (22)
Total pro forma operating revenues—Regulated Businesses3,040
 2,937
Less:   
Regulated purchased water revenues (d)
133
 134
Adjusted pro forma operating revenues—Regulated Businesses (ii)
$2,907
 $2,803
    
Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)
35.0% 35.7%
(a)
Includes the impact of the Company’s adoption of ASU 2017-07on January 1, 2018.
(b)Includes the impact of a settlement in 2018 with one of the Company’s 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 the 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 surchargesauthorizations that became effective:
(In millions)During the Three Months Ended June 30, 2020During the Six Months Ended June 30, 2020
General rate cases by state:
Indiana (a)
$13  $13  
California (b)
—  5  
Total general rate cases$13  $18  
Infrastructure surcharges by state:
New Jersey (effective January 1, 2020 and June 29, 2020)
$10  $20  
Missouri (effective June 27, 2020)
10  10  
Pennsylvania (effective January 1, 2020 and April 1, 2020)
5  15  
Tennessee (c)
2  2  
Illinois (effective January 1, 2020)
—  7  
West Virginia (effective January 1, 2020)
—  3  
Total infrastructure surcharges$27  $57  
(In millions)During the Three Months Ended September 30, 2019 During the Nine Months Ended September 30, 2019
General rate cases by state:   
Indiana (a)
$4
 $4
Kentucky (effective June 28, 2019)
—
 13
California (b)
—
 4
New York (c)
—
 4
West Virginia (effective February 25, 2019)
—
 19
Maryland (effective February 5, 2019)
—
 1
Total general rate cases$4
 $45
    
Infrastructure surcharges by state:   
Tennessee (effective September 1, 2019)
$1
 $1
New York (effective August 1, 2019)
2
 2
New Jersey (effective July 1, 2019)
15
 15
Pennsylvania (effective July 1, 2019 and April 1, 2019)
3
 5
Missouri (effective June 24, 2019)
—
 9
Illinois (effective January 1, 2019)
—
 8
West Virginia (effective January 1, 2019)
—
 2
Total infrastructure surcharges$21
 $42
(a)The Company’s Indiana subsidiary filed for and, on May 4, 2020, received approval to implement a $13 million increase for the second rate year, effective May 1, 2020.
(a)The Company’s Indiana subsidiary received an order approving a joint settlement agreement with all major parties with respect to its general rate case filing, authorizing annualized incremental revenues of $4 million in the first rate year, effective July 1, 2019, and $13 million in the second rate year, effective approximately May 1, 2020.
(b)The Company’s California subsidiary received approval for the second rate year (2019) step increase associated with its most recent general rate case authorization, effective May 11, 2019.
(c)The Company’s New York subsidiary implemented its third step increase associated with its most recent general rate case authorization, effective April 1, 2019.
(b)The Company’s California subsidiary filed for the third year (2020) step increase requesting $5 million associated with its most recent general case authorization. The $5 million request was approved and the step rates became effective on January 1, 2020.
(c)The Company’s Tennessee subsidiary received approval on May 11, 2020, for infrastructure surcharges for annualized incremental revenues of $2 million, effective January 1, 2020.
Directly related to 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.
Effective OctoberJuly 1, 2019,2020, the Company’s Pennsylvania subsidiaryand Kentucky subsidiaries implemented infrastructure surcharges for annualized incremental revenues of $6 million.$4 million and $1 million, respectively.
Pending General Rate Case Filings
On June 30, 2020, the Company’s Missouri subsidiary filed a general rate case requesting $78 million in annualized incremental revenues.
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 May 28, 2020, the Office of Consumer Advocate filed a motion seeking an extension of the latest date new rates may become effective, and on June 4, 2020, the administrative law judge issued an order extending the statutory suspension period by 45 days from January 28, 2021 to March 4, 2021. On June 24, 2020, the Company’s Pennsylvania subsidiary filed a petition for reconsideration of this order.
On December 16, 2019, the Company’s New Jersey subsidiary filed a general rate case requesting $88 million in annualized incremental revenues.
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On July 1, 2019, 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. Directly related to the COVID-19 pandemic, the California Public Utilities Commission (“CPUC”) suspended the procedural schedule in the general rate case and directed the parties to participate in an alternative dispute resolution process and provide a joint status conference statement by November 15, 2020.
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, 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 the Company’s pending infrastructure surcharge filings:
(In millions)Date Filed Amount
Pending infrastructure surcharge filings by state:   
MissouriAugust 26, 2019 $6
West VirginiaJune 28, 2019 4
Total pending infrastructure surcharge filings  $10
(In millions)Date FiledAmount
Pending infrastructure surcharge filings by state:
West VirginiaJune 29, 2020$4 
New YorkMay 29, 20201 
Total pending infrastructure surcharge filings$5 
There is no assurance that all or any portion of these requests will be granted.
Tax Matters
Tax CutsIn March 2020, the Coronavirus Aid, Relief, and JobsEconomic Security Act
On December 22, 2017, the TCJA (the “CARES Act”) was signed into law, which, among other things, enacted significant and complex changeslaw. The CARES Act includes certain tax relief provisions applicable to the Internal Revenue CodeCompany including: (i) the immediate refund of 1986, includingthe corporate alternative minimum tax credit; (ii) the ability to carryback net operating losses for five years for tax years 2018 through 2020; and (iii) delayed payment of employer payroll taxes. The Company is still evaluating the impact of the CARES Act, but it does not expect the CARES Act to have a reduction in 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,material impact on the Company’s 14 regulatory jurisdictions began to consider the impacts of the TCJA. The Company has adjusted customer rates to reflect the lower income tax rate in 11 states. In one of those 11 states, a portion of the tax savings is being used to reduce certain regulatory assets. In one additional state, the Company is using the tax savings to offset additional capital investment and to reduce a regulatory asset. Proceedings in the other two regulatory jurisdictions remain pending.
The enactment of the TCJA required a re-measurement of the Company’s deferred income taxes that materially impacted its 2017 results of operations and financial position. The portion of this re-measurement related to the Regulated Businesses was substantially offset by a regulatory liability, as the Company believes it is probable that the excess accumulated deferred income taxes (“EADIT”) created by the TCJA will be used to benefit its regulated customers in future rates. Six of the Company’s regulated subsidiaries are amortizing EADIT and crediting customers, including one which is using the EADIT to offset future infrastructure investments. The Company expects the timing of the amortization of EADIT credits by the eight remaining regulated subsidiaries to be addressed in pending or future rate cases or other proceedings.
On March 23, 2018, President Trump signed the Consolidated Appropriations Act of 2018 (the “CAA”). The CAA corrects and clarifies some aspects of the TCJA related to bonus depreciation eligibility. Specifically, property that was either acquired, or as to which construction began prior to September 27, 2017, is eligible for bonus depreciation. The Company had a federal NOL carryover balance as of December 31, 2018 that is not expected to be fully utilized until 2020, which is when the Company expects that it will become a cash taxpayer for federal income tax purposes.Financial Statements.
Legislative Updates
During 2019,2020, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as of October 30, 2019:August 5, 2020:
In Illinois,•Indiana House Enrolled Act 1131 establishes an appraisal process for non-municipal utilities to establish fair value and creates a presumption that the Governor signedappraised value is 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 allowsreasonable purchase price. Additionally, all municipalities to take advantage of the benefits of the program.new municipal systems will now be regulated for 10 years.
•Indiana Senate Enrolled Act 472254 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 551 allows non-municipal utilities to benefit from full appraisal recovery of their assets in a sale.
Indiana House Enrolled Act 1406 established the first state appropriation for water infrastructure investment at $20 million per year.
Indiana Senate Enrolled Act 4 extends leveling legislation to require biannual water loss audits and establishes the state revolving fund administrator as the central coordinator for water issues in the state.
In Pennsylvania, House Bill 751, now Act 53 of 2019, allowsexpanded asset valuation, combined water and wastewater ratemaking and the expansion of how municipalities can utilize proceeds from the sale of a water or wastewater system.
•Iowa amended HF2452 legislation, which gives the Iowa Utilities Board 180 days to approve acquisitions and allows systems to qualify as a distressed system when they do not have a certified operator.
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During 2020, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of August 5, 2020:
•Missouri House Bill 2120 requires most small community water utilities responsibleto establish a cyber security plan and valve and hydrant inspection program with reporting to the Department of Natural Resources certifying compliance with these provisions upon request.
•Virginia Senate Bill 831 establishes fair market value for funding the income taxes on taxable contributionsstate, and advancesthe legislation authorizes a water or sewer public utility acquiring a water or sewer system to recordelect to have its rate base established by using the income taxes paid in accumulated deferred income taxes for accounting and ratemaking purposes.fair market value.
In West Virginia, House Bill 117 allows qualified low income customersJuly 2020, the CPUC released a proposed decision under its Low-Income Rate Payer Assistance program rulemaking, which if adopted would require the Company’s California subsidiary to apply forfile a 20% discountproposal to alter its water revenue adjustment mechanism in its next general rate case filing in 2022, which would become effective in January 2024. The Company’s California subsidiary provided comments on their wastewater bill.

the proposed decision on July 27, 2020. The CPUC will consider the proposed decision no earlier than August 6, 2020.
Condemnation and Eminent Domain
All or portions of 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”(a “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, the 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 the Company’s California subsidiary’s 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.
On August 19, 2019, the MPWMD’s General Manager issued a report that recommends that the MPWMD board (1) develop criteria to determine which water systems should be considered for acquisition, (2) examine the feasibility of acquiring the Monterey system 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. The Company estimates
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 WPMWD’s feasibility study willMonterey 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 June 12, 2020, the MPWMD issued in early November 2019, with public hearingsa draft environmental impact report for the potential acquisition of the Monterey system assets and a related district boundary adjustment that would be required if the MPWMD were to follow.acquire and operate certain of the Monterey system assets located outside the MPWMD’s boundaries. Comments on the draft report are due August 3, 2020. If the MPWMD were ultimately to determinemake a final determination that an acquisition of the Monterey system assets is feasible, then the MPWMD would commence a multi-year eminent domain proceeding against the Company’s California subsidiary would need to be commenced by the MPWMD to first establish the MPWMD’sits 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 systemsuch 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 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. AlthoughA valuation trial to establish the datevalue of the valuation trialpipeline has not currently been scheduled it is not likely to commence beforefor the first quarterweek of December 14, 2020.
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Furthermore, the law in certain jurisdictions in which 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 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 September 30, For the Nine Months Ended September 30, 2020201920202019
2019 2018 Increase (Decrease) 2019 2018 Increase (Decrease)
(Dollars in millions)           
(In millions)(In millions)
Operating revenues$1,013
 $976
 $37
 $2,708
 $2,590
 $118
Operating revenues$931  $882  $1,775  $1,695  
Operating expenses:           Operating expenses:
Operation and maintenance395
 390
 5
 1,132
 1,085
 47
Operation and maintenance391  372  774  737  
Depreciation and amortization144
 141
 3
 430
 404
 26
Depreciation and amortization152  142  297  286  
General taxes68
 71
 (3) 209
 210
 (1)General taxes75  72  152  141  
(Gain) on asset dispositions and purchases—
 (18) 18
 (9) (20) 11
(Gain) on asset dispositions and purchases—  (6) —  (9) 
Impairment charge—
 57
 (57) —
 57
 (57)
Total operating expenses, net607
 641
 (34) 1,762
 1,736
 26
Total operating expenses, net618  580  1,223  1,155  
Operating income406
 335
 71
 946
 854
 92
Operating income313  302  552  540  
Other income (expense):           Other income (expense):
Interest, net(97) (89) (8) (284) (259) (25)Interest, net(101) (94) (197) (187) 
Non-operating benefit costs, net4
 5
 (1) 12
 10
 2
Non-operating benefit costs, net12  4  25  8  
Other, net5
 4
 1
 23
 12
 11
Other, net8  15  11  18  
Total other income (expense)(88) (80) (8) (249) (237) (12)Total other income (expense)(81) (75) (161) (161) 
Income before income taxes318
 255
 63
 697
 617
 80
Income before income taxes232  227  391  379  
Provision for income taxes78
 70
 8
 174
 164
 10
Provision for income taxes56  57  91  96  
Consolidated net income240
 185
 55
 523
 453
 70
Net loss attributable to noncontrolling interest—
 (2) 2
 —
 (2) 2
Net income attributable to common shareholders$240
 $187
 $53
 $523
 $455
 $68
Net income attributable to common shareholders$176  $170  $300  $283  
The main factors contributing to the $6 million and $17 million increases in net income attributable to common shareholders for the three and ninesix months ended SeptemberJune 30, 20192020, respectively, are described in “Segment Results of Operations” below. Additionally, as previously reported, duringPartially offsetting the second quarter of 2019,increases in net income described below, there was an increasehigher interest expense at parent company from the sale of a legacy investment, offset by higher interest expense supporting growth in the business for the nine months ended September 30, 2019. Further, there was a benefit in the provision for income taxes during the three and ninesix months ended SeptemberJune 30, 2019, primarily due to changes in state tax law, state income apportionment, and the amortization of EADIT resulting from the TCJA, which is generally reflected in customer rates beginning in 2019.2020.
Segment Results of Operations
The Company’s operating segments are comprised of the revenue-generating components of 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. The Company also operates market-based businesses that, individually, do not meet the criteria of a reportable segment in accordance with GAAP, and are collectively presented as the Market-Based Businesses, which is consistent with how management assesses the results of these businesses.


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Regulated Businesses Segment
Presented in the table below is financial information for the Regulated Businesses:
For the Three Months Ended June 30,For the Six Months Ended June 30,
For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020201920202019
2019 2018 Increase (Decrease) 2019 2018 Increase (Decrease)
(Dollars in millions)           
(In millions)(In millions)  
Operating revenues$883
 $857
 $26
 $2,323
 $2,267
 $56
Operating revenues$803  $755  $1,523  $1,440  
Operation and maintenance310
 314
 (4) 875
 856
 19
Operation and maintenance299  287  597  565  
Depreciation and amortization132
 128
 4
 394
 373
 21
Depreciation and amortization144  132  279  262  
General taxes64
 66
 (2) 195
 197
 (2)General taxes70  67  142  131  
(Gain) on asset dispositions and purchases(1) (3) 2
 (9) (6) (3)(Gain) on asset dispositions and purchases(1) (6) (3) (8) 
Other income (expenses)(64) (64) —
 (196) (191) (5)Other income (expenses)(56) (67) (110) (132) 
Income before income taxes313
 288
 25
 671
 656
 15
Income before income taxes236  208  398  358  
Provision for income taxes77
 76
 1
 169
 173
 (4)Provision for income taxes58  52  98  92  
Net income attributable to common shareholders236
 213
 23
 502
 484
 18
Net income attributable to common shareholders177  156  300  266  
Operating Revenues
Presented in the tables below is information regarding the main components of 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,
 2020201920202019
(In millions) 
Water services:  
Residential$474  $415  $873  $793  
Commercial142  153  284  289  
Fire service36  35  73  69  
Industrial31  34  63  66  
Public and other62  68  118  120  
Total water services745  705  1,411  1,337  
Wastewater services46  40  89  80  
Other (a)
12  10  23  23  
Total operating revenues$803  $755  $1,523  $1,440  
(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,
 2020201920202019
(Gallons in millions) 
Billed water services volumes:  
Residential42,408  39,106  77,958  74,873  
Commercial15,798  19,197  32,878  36,633  
Industrial8,058  9,164  16,497  17,809  
Fire service, public and other11,085  12,119  22,631  23,210  
Billed water services volumes77,349  79,586  149,964  152,525  
33
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2019 2018 Increase (Decrease) 2019 2018 Increase (Decrease)
(Dollars in millions)           
Water services:           
Residential$504
 $482
 $22
 $1,297
 $1,260
 $37
Commercial188
 183
 5
 477
 468
 9
Fire service37
 35
 2
 106
 102
 4
Industrial38
 40
 (2) 104
 105
 (1)
Public and other63
 61
 2
 183
 173
 10
Total water services830
 801
 29
 2,167
 2,108
 59
Wastewater services43
 41
 2
 123
 117
 6
Other (a)
10
 15
 (5) 33
 42
 (9)
Total operating revenues$883
 $857
 $26
 $2,323
 $2,267
 $56
(a)Includes other operating revenues consisting primarily of miscellaneous utility charges, fees and rents.
Table of Contents
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
 2019 2018 Increase (Decrease) 2019 2018 Increase (Decrease)
(Gallons in millions)           
Billed water services volumes:           
Residential50,962
 52,963
 (2,001) 125,835
 131,201
 (5,366)
Commercial24,207
 24,914
 (707) 60,840
 62,428
 (1,588)
Industrial10,423
 10,752
 (329) 28,232
 29,647
 (1,415)
Fire service, public and other14,541
 14,504
 37
 37,751
 38,427
 (676)
Billed water services volumes100,133
 103,133
 (3,000) 252,658
 261,703
 (9,045)

For the three months ended SeptemberJune 30, 2019,2020, operating revenues increased $26$48 million, primarily due to a:
$26to: (i) $29 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; a
$6(ii) $9 million increase from water and wastewater acquisitions, as well as organic growth in existing systems; and a
•
$5(iii) $7 million increase in demand, including $11 million increase in other operating revenues largely driven by a settlement agreement in the Company’s New York subsidiary during the third quarter of 2018; partially offset by a
$6 million decrease from the impacts of the TCJA, principally in the Company’s West Virginia subsidiary, where, during the third quarter of 2018, it was authorized to use a portion of the income tax savings resulting from the TCJA for accelerated recovery of certain regulatory assets, resulting in an increase in operating revenues and operation and maintenance expense during 2018; and a
$3 million decrease from lower water services demand and ongoing customer usage reductions from conservation.
For the nine months ended September 30, 2019, operating revenues increased $56 million, primarily due to a:
$86 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; and a
$12 million increase from water and wastewater acquisitions, as well as organic growth in existing systems; partially offset by a
$32 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; andoffset by $10 million of lower demand as a
$10 million decrease from the impacts result of the TCJA, principallyCOVID-19 pandemic, primarily from decreased revenues from the Company’s Missouri subsidiary’s 2018 general rate case decision which authorized the adjustment of customer rates, effective May 28, 2018, to reflect the income tax savings resultingcommercial and industrial customers, partially offset by increased revenues from the TCJA.Company’s residential customer.
For the six months ended June 30, 2020, operating revenues increased $83 million, primarily due to: (i) $60 million increase from authorized rate increases, including infrastructure surcharges, principally to fund infrastructure investment in various states; (ii) $16 million increase from water and wastewater acquisitions, as well as organic growth in existing systems; and (iii) $6 million increase in demand, including $11 million increase driven by unusually wet weather conditions experienced in the Northeast and Midwest during the second quarter of 2019, offset by $10 million of lower demand as a result of the COVID-19 pandemic, primarily from decreased revenues from the Company’s commercial and industrial customers, partially offset by increased revenues from the Company’s residential customers.
Operation and Maintenance
Presented in the table below is information regarding the main components of 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 September 30, For the Nine Months Ended September 30, 2020201920202019
2019 2018 Increase (Decrease) 2019 2018 Increase (Decrease)
(Dollars in millions)           
(In millions)(In millions)  
Employee-related costsEmployee-related costs$119  $115  $244  $232  
Production costs$95
 $92
 $3
 $239
 $238
 $1
Production costs81  75  153  144  
Employee-related costs116
 116
 —
 348
 343
 5
Operating supplies and services57
 60
 (3) 168
 161
 7
Operating supplies and services54  56  110  111  
Maintenance materials and supplies17
 17
 —
 54
 56
 (2)Maintenance materials and supplies19  18  38  37  
Customer billing and accounting15
 17
 (2) 39
 43
 (4)Customer billing and accounting13  13  27  24  
Other10
 12
 (2) 27
 15
 12
Other13  10  25  17  
Total$310
 $314
 $(4) $875
 $856
 $19
Total$299  $287  $597  $565  
For the three months ended SeptemberJune 30, 2019,2020, operation and maintenance expense decreased $4increased $12 million, primarily due to: (i) $4 million increase in employee-related costs primarily from higher group insurance costs due to a:higher rates in 2020; and (ii) $6 million increase in production costs primarily due to higher purchased water usage across several subsidiaries, including the Company’s California and New Jersey subsidiaries.
$3For the six months ended June 30, 2020, operation and maintenance expense increased $32 million, decreaseprimarily due to: (i) $12 million increase in operating suppliesemployee-related costs from higher headcount and services from lower contracted services during 2019, and costs incurred during 2018 related to a settlement agreementcompensation expense in support of the growth in the business, as well as higher group insurance costs due to higher rates in 2020, and higher pension expense due to higher service costs; (ii) $9 million increase in production costs primarily due to higher purchased water usage across several subsidiaries, including the Company’s New York subsidiary and condemnation proceedings in Monterey, California; a
$2California subsidiary; (iii) $3 million decreaseincrease in customer billing and accounting from a decrease inprimarily due to higher customer uncollectible expense; and a
$2 million decrease in other operation and maintenance expense from the impacts of the TCJA, where, during the third quarter of 2018, the Company’s West Virginia subsidiary was authorized to use a portion of the income tax savings resulting from the TCJA for accelerated recovery of certain regulatory assets, resulting in an increase in operating revenues and operation and maintenance expense during 2018; partially offset by a
$3 million increase in production costs from purchased water and chemical prices and usage increases.

For the nine months ended September 30, 2019, operation and maintenance expense increased $19 million, primarily due to a:
$12(iv) $8 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, offset in part by (i) a $4 million reduction to the liability related to the Freedom Industries chemical spill, recorded in the first quarter of 2019, and (ii) the accelerated recovery of certain regulatory assets in the Company’s West Virginia subsidiary during 2018, as discussed above; a
$7 million increase in operating supplies and services from higher software licensing costs, and expenses related to various projects in the Company’s California subsidiary, offset in part by costs in incurred during 2018 related to a settlement agreement in the Company’s New York subsidiary, as discussed above; and a
$5 million increase in employee-related costs from higher headcount and related compensation expense in support of the growth in the business, offset in part by lower pension service costs; partially offset by a
$4 million decrease in customer billing and accounting from a decrease in customer uncollectible expense.2019.
Depreciation and Amortization
For the three and ninesix months ended SeptemberJune 30, 2019,2020, depreciation and amortization increased $4$12 million and $21$17 million, respectively, primarily due to additional utility plant placed in service.
General Taxes
For the three and six months ended June 30, 2020, general taxes increased $3 million and $11 million, respectively, primarily due to increased property assessments and incremental property taxes in several of the Company’s subsidiaries, including in Pennsylvania and New Jersey.
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(Gain) on Asset Dispositions and Purchases
For the three and six months ended June 30, 2020, (gain) on asset dispositions and purchases decreased $5 million and $5 million, respectively, primarily due to a $6 million pre-tax gain recognized on a land sale in the Company’s Pennsylvania subsidiary during the second quarter of 2019.
Other Income (Expenses)
There was no change in other income (expenses) forFor the three and six months ended SeptemberJune 30, 2019. For the nine months ended September 30, 2019,2020, other income (expenses) increased $5$11 million and $22 million, respectively, primarily due to an increase in interest expense from the issuance of incremental long-term debtreduction in the second quarternon-service cost components of 2019pension and the third quarter of 2018, in support of the growth in the business.other postretirement benefits expense resulting from favorable actuarial performance.
Provision for Income Taxes
For the three and six months ended SeptemberJune 30, 2019,2020, the Company’s provision for income taxes increased $1 million. For the nine months ended September 30, 2019, the provision for income taxes decreased $4$6 million and $6 million, respectively, primarily due to a lower effective income tax rate.an increase in pre-tax income.
Market-Based Businesses
Presented in the table below is information for 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 September 30, For the Nine Months Ended September 30, 2020201920202019
2019 2018 Increase (Decrease) 2019 2018 Increase (Decrease)
(Dollars in millions)           
(In millions)(In millions)  
Operating revenues$136
 $125
 $11
 $402
 $339
 $63
Operating revenues$132  $132  $260  $266  
Operation and maintenance98
 87
 11
 292
 256
 36
Operation and maintenance94  96  185  194  
Depreciation and amortization9
 9
 —
 26
 20
 6
Depreciation and amortization7  8  13  17  
(Gain) on asset dispositions and purchases—
 (14) 14
 —
 (13) 13
Impairment charge—
 57
 (57) —
 57
 (57)
Income before income taxes30
 (14) 44
 86
 20
 66
Income before income taxes30  29  60  56  
Provision for income taxes7
 (5) 12
 22
 4
 18
Provision for income taxes8  8  16  15  
Net income attributable to common shareholders23
 (7) 30
 64
 18
 46
Net income attributable to common shareholders23  21  45  41  
Operating Revenues
For the three months ended SeptemberJune 30, 2019,2020, operating revenues remained consistent primarily due to: (i) $14 million decrease from the sale of the Company’s Keystone Clearwater Solutions, LLC (“Keystone”) operations in the fourth quarter of 2019; (ii) $3 million decrease from the expiration of the Company’s contract with the Township of Edison, New Jersey in 2019; (iii) $14 million increase in Military Services Group (“MSG”) from increased $11capital upgrades primarily at Fort Polk and the Picatinny Arsenal, and the addition of two new military contracts in 2019 (Joint Base San Antonio and the United States Military Academy at West Point, New York); and (iv) $4 million increase in HOS primarily from price increases for existing customers and contract growth.
For the six months ended June 30, 2020, operating revenues decreased $6 million, primarily due to a:
$8to: (i) $30 million decrease from the sale of the Company’s Keystone operations in the fourth quarter of 2019; (ii) $5 million decrease from the expiration of the Company’s contract with the Township of Edison, New Jersey in 2019; (iii) $23 million increase in MSG from increased capital upgrades primarily at Fort Leonard Wood, Fort Polk and Fort Hood, and the addition of two new military contracts in 2018 (Wright-Patterson Air Force2019 (Joint Base San Antonio and Fort Leonard Wood)the United States Military Academy at West Point, New York); and higher capital upgrades at Picatinny Arsenal; a
$6(iv) $8 million increase in HOS primarily from price increases for existing customers and contract growth, including $2 million from the acquisition of Pivotal in the second quarter of 2018; partially offset by a

$4 million decrease in CSG from the sale of the majority of its O&M contracts in the third quarter of 2018.
For the nine months ended September 30, 2019, operating revenues increased $63 million, primarily due to a:
$70 million increase in HOS from contract growth, including $61 million from the acquisition of Pivotal in the second quarter of 2018; and a
$15 million increase in MSG from the addition of two new contracts in 2018, as discussed above; partially offset by a
$17 million decrease in CSG from the sale of the majority of its O&M contracts in the third quarter of 2018; and a
$7 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 SeptemberJune 30, 2019,2020, operation and maintenance expense increased $11decreased $2 million, primarily due to an:
$8to: (i) $11 million increase in HOSdecrease from the acquisitionsale of Pivotal in the second quarter of 2018,Company’s Keystone operations, as well as contract growthdiscussed above; and increased claims expense; and a
$6(ii) $12 million increase in MSG from the addition of two new military contracts in 2018 and higherincreased capital upgrades, at Picatinny Arsenal, as discussed above; partially offset by aabove.
$3For the six months ended June 30, 2020, operation and maintenance expense decreased $9 million, primarily due to: (i) $25 million decrease in CSG from the sale of the majority of its O&M contracts in the third quarter of 2018.
For the nine months ended September 30, 2019, operation and maintenance expense increased $36Company’s Keystone operations, as discussed above; (ii) $3 million primarily due to a:
$48 million increase in HOSdecrease from the acquisitionexpiration of Pivotalthe Company’s contract with the Township of Edison, New Jersey in the second quarter of 2018, as well as contract growth2019; and increased claims expense; and a
$10(iii) $20 million increase in MSG from the addition of two new military contracts in 2018,increased capital upgrades, as discussed above; partially offset by aabove.
$16 million decrease in CSG from the sale
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Table of the majority of its O&M contracts in the third quarter of 2018; and aContents
$9 million decrease in Keystone from the exit of the construction business in the third quarter of 2018.
Depreciation and Amortization
There was no change in depreciation and amortization expense for the three months ended September 30, 2019. For the nine months ended September 30, 2019, depreciation and amortization increased $6 million, primarily due to the addition of property, plant and equipment and intangible assets from the acquisition of Pivotal in the second quarter of 2018.
(Gain) on Asset Dispositions and Purchases
For the three and ninesix months ended SeptemberJune 30, 2019, (gain) on asset dispositions2020, depreciation and purchasesamortization decreased $1 million and $4 million, respectively, primarily due to the sale of the majority of CSG’s O&M contracts in 2018.
Impairment Charge
During the three months ended September 30, 2018, a goodwill and intangible asset impairment charge was recorded forCompany’s Keystone the result of operational and financial challenges encounteredoperations in the construction business, and the Company’s determination to narrow the scopefourth quarter of the Keystone business, to focus on its core operations of providing water transfer services.2019.
Provision for Income Taxes
For the three and nine months ended September 30, 2019, the provision for income taxes increased $12 million and $18 million, respectively, primarily due to an increase in pre-tax income.
Liquidity and Capital Resources
For a general overview of 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 the Company’s Form 10-K.

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 American Water Capital Corp. (“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. 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 allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020. 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 $569 million as of June 30, 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 for the issuance of up to $150 million in 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 June 30, 2020, AWCC had no outstanding borrowings and $76 million of outstanding letters of credit under the revolving credit facility, and $420 million of outstanding commercial paper, with $1.75 billion available to fulfill short-term liquidity needs and to issue letters of credit. During the six months ended June 30, 2020, the Company drew down and subsequently paid off $650 million of borrowings under the revolving credit facility. The weighted-average interest rate on AWCC short-term borrowings outstanding, including $500 million of outstanding principal on the Term Loan Facility as of June 30, 2020, was approximately 1.06% and 1.86% at June 30, 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, 20232024 to March 21, 2024. The2025.
Presented in the table below is the aggregate credit facility is used principally to support AWCC’scommitments, commercial paper programlimit and to provide a sublimitletter 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 September 30, 2019, AWCC had no outstanding borrowings and $80 million of outstanding letters of creditavailability under the revolving credit facility, with $2.17as well as the available capacity for each as of June 30, 2020:
Commercial Paper LimitLetters of CreditTotal (a)
(In millions)
Total availability$2,100  $150  $2,250  
Outstanding commercial paper(420) —  (420) 
Outstanding letters of credit—  (76) (76) 
Total outstanding(420) (76) (496) 
Remaining availability as of June 30, 2020$1,680  $74  $1,754  
(a)Total remaining availability of $1.75 billion as of June 30, 2020 may be accessed through revolver draws.
Presented in the table below is the Company’s total available to fulfill short-term liquidity needs and to issue lettersas of credit. June 30, 2020:
Cash and Cash EquivalentsAvailability on Revolving Credit FacilityTotal Available Liquidity
(In millions)
Available liquidity as of June 30, 2020$569  $1,754  $2,323  
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The Company regularly evaluatesbelieves that existing sources of liquidity are sufficient to meet its cash requirements for the foreseeable future. However, as the impacts of the COVID-19 pandemic on the economy, the financial and capital markets, and closely monitor the financial condition of the financial institutions with contractual commitments in its revolving credit facility.
In order to meet short-term 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 September 30, 2019, the revolving credit facility supported $474 million in outstanding commercial paper. The Company believes its ability to access the capital markets, the revolving credit facility and cash flows from operations will generate sufficient cash to fund the Company’s short-term requirements. However,operations evolve, the Company will continue to assess its liquidity needs. Though not currently anticipated, no assurances can be provided that the lenders will meet existing commitments to AWCC under the revolving credit facility, or that AWCC will be able to access the commercial paper or loan markets in the future on acceptable terms.In the event of a sustained market deterioration, the Company may need to obtain additional sources of liquidity, which would require the Company to evaluate available alternatives and take appropriate actions. See Note 8—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 Notessenior 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 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 Company utility subsidiaryoutstanding long-term debt at maturity duringof AWCC and certain of the second quarter of 2019; and (iv)Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper obligations and short-term indebtedness under AWCC’s $2.25 billion unsecured revolving credit facility; and (iv) for general corporate purposes.
On May 6, 2019, AWCC terminated five forward starting swap In connection with the debt offering, the Company entered into four 10-year treasury lock agreements during March 2020, each with an aggregatea notional amount of $510 million, realizing a net loss of $30$100 million, to be amortized throughreduce interest net over 10rate 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 7—Long-Term Debt in accordance with the terms of the new debt issued on May 13, 2019. The Company has no significant derivative instruments outstanding as of September 30, 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 the Company’s cash flows provided by operating activities:
 For the Six Months Ended June 30,
 20202019
(In millions)  
Net income$300  $283  
Add (less):
Depreciation and amortization297  286  
Deferred income taxes and amortization of investment tax credits96  85  
Other non-cash activities (a)
(30) (36) 
Changes in working capital (b)
(104) (94) 
Settlement of cash flow hedges(6) (30) 
Pension and postretirement healthcare contributions(22) (14) 
Net cash flows provided by operations$531  $480  
 For the Nine Months Ended September 30,
 2019 2018
(In millions)   
Net income$523
 $453
Add (less):   
Depreciation and amortization430
 404
Deferred income taxes and amortization of investment tax credits163
 142
Non-cash impairment charge—
 57
Other non-cash activities (a)
(29) 48
Changes in working capital (b)
(85) (61)
Settlement of cash flow hedges(30) —
Pension and postretirement healthcare contributions(23) (11)
Impact of Freedom Industries settlement activities(4) (40)
Net cash flows provided by operations$945
 $992
(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.
(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.
(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.
For the ninesix months ended SeptemberJune 30, 2019,2020, cash flows provided by operating activities decreased $47increased $51 million, primarily due to an increase in net income and the decrease in cash paid for the settlement of cash flow hedges on May 6, 2019in 2020 compared to the prior year in connection with the Company’s $1.10 billionAWCC’s 2020 and 2019 debt offering that closed on May 13, 2019, an increase in pension contributions, and changes in other non-cash activities, including activity in regulatory balancing accounts, primarily in the Company’s California subsidiary. Partially offsetting these decreases was an increase in net income.offerings. The main factors contributing to the increase in net income are described in “Consolidated Results of Operations” and “Segment Results of Operations” above.
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Cash Flows Used in Investing Activities
Presented in the table below is a summary of the major items affecting the Company’s cash flows used in investing activities:
 For the Six Months Ended June 30,
 20202019
(In millions)  
Net capital expenditures$(870) $(712) 
Acquisitions(40) (80) 
Other investing activities, net (a)
(48) (25) 
Net cash flows used in investing activities$(958) $(817) 
 For the Nine Months Ended September 30,
 2019 2018
(In millions)   
Net capital expenditures$(1,115) $(1,136)
Acquisitions(85) (381)
Other investing activities, net (a)
(54) (28)
Net cash flows used in investing activities$(1,254) $(1,545)
(a)Includes removal costs from property, plant and equipment retirements and proceeds from sale of assets.
(a)Includes removal costs from property, plant and equipment retirements and proceeds from sale of assets.
For the ninesix months ended SeptemberJune 30, 2019,2020, cash used in investing activities decreased $291increased $141 million, primarily due to continued investment across all infrastructure categories, mainly replacement and renewal of transmission and distribution infrastructure in the Company’s Regulated Businesses. Additionally, proceeds from the sale of assets were higher in 2019 compared to 2020. Partially offsetting these increases was a decrease in acquisitions primarily due to the acquisition of Pivotalthe City of Alton, Illinois’ regional wastewater system for $363$55 million on June 4, 2018, andin the timingsecond quarter of payments for capital expenditures. For the full year of 2019, capital investments, including acquisitions, are expected2019. The Company plans to beinvest approximately $1.9 billion.

billion as planned across its footprint in 2020.
Cash Flows Provided by Financing Activities
Presented in the table below is a summary of the major items affecting the Company’s cash flows provided by financing activities:
 For the Six Months Ended June 30,
 20202019
(In millions)  
Proceeds from long-term debt$1,163  $1,184  
Repayments of long-term debt(166) (146) 
Proceeds from term loan500  —  
Net repayments of short-term borrowings(367) (568) 
Dividends paid(190) (173) 
Anti-dilutive stock repurchases—  (36) 
Other financing activities, net (a)
1  4  
Net cash flows provided by financing activities$941  $265  
 For the Nine Months Ended September 30,
 2019 2018
(In millions)   
Proceeds from long-term debt$1,191
 $1,355
Repayments of long-term debt(153) (330)
Net proceeds from short-term borrowings(491) (341)
Proceeds from issuance of common stock—
 183
Dividends paid(263) (237)
Anti-dilutive stock repurchases(36) (45)
Other financing activities, net (a)
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 1
Net cash flows provided by financing activities$266
 $586
(a)Includes proceeds from issuances of common stock under various employee stock plans and the dividend reinvestment plan, net of taxes paid, and advances and contributions for construction, net of refunds.
(a)Includes proceeds from issuances of common stock under various employee stock plans and the dividend reinvestment plan, net of taxes paid, advances and contributions for construction, net of refunds, and debt issuance costs.
For the ninesix months ended SeptemberJune 30, 2019,2020, cash flows provided by financing activities decreased $320increased $676 million, primarily due to the issuance of common stock in 2018, the proceeds of which were used to finance a portion of the 2018 acquisition of Pivotal, as well as an increase in cash used for dividend payments in 2019. AWCC issued $1.10 billion of long-term debt as part of its May 13, 2019 debt offering, of which $51$500 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 nine months ended September 30, 2019 of $491 million.
Credit Facilities and Short-Term Debt
Presented in the table below is the aggregate revolving credit facility commitments, the letter of credit sublimitborrowed under the revolving credit facility andTerm Loan Facility during the first quarter of 2020, lower net repayments of commercial paper limit, as well as the available capacity for each as of September 30, 2019:borrowings and no anti-dilutive stock repurchases in 2020, partially offset by higher dividends paid 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)           
September 30, 2019$2,262
 $2,176
 $150
 $70
 $2,100
 $1,626
(a)Includes amounts related to the revolving credit facility for Keystone. As of September 30, 2019, the total commitment under the Keystone revolving credit facility was $12 million, of which $6 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 2.37% and 2.39% for the three months ended September 30, 2019 and 2018, respectively, and approximately 2.71% and 2.22% for the nine months ended September 30, 2019 and 2018, respectively.
Debt Covenants
The Company’s debt agreements contain financial and non-financial covenants. To the extent that the Company is not in compliance with these covenants, an event of default may occur under one or more debt agreements and the Company or its subsidiaries may be restricted in its ability to pay dividends, issue new debt or access the revolving credit facility. 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. 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 the 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 SeptemberJune 30, 2019,2020, the Company’s ratio was 0.600.63 to 1.00 and therefore the Company was in compliance with the covenants.

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Security Ratings
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.
Presented in the table below are long-term and short-term credit ratings and rating outlooks as of October 30, 2019August 5, 2020 as issued by the following rating agencies:
SecuritiesMoody's Investors ServiceStandard & Poor's Ratings Service
Rating outlookStableStable
Senior unsecured debtBaa1A
Commercial paperP-2A-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 the ability to generate cash flows in an amount sufficient to service debt and meet investment plans. The Company can provide no assurances that its ability to generate cash flows is sufficient to maintain its existing ratings. None of 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 its credit facility.
As part of theits normal course of business, the Company routinely enters into contracts for the purchase and sale of water, energy, chemicals and other services. These contracts either contain express provisions or otherwise permit the Company and 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 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 the Company providesmust provide collateral to secure its obligations. 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 the Company’s dividends, see Note 5—6—Shareholders' Equity in the Notes to Consolidated Financial Statements for additional information.
Application of Critical Accounting Policies and Estimates
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 the Company’s Form 10-K for a discussion of its critical accounting policies. Additionally, see Note 2—Significant Accounting Policies in the Notes to Consolidated Financial Statements for updates to the significant accounting policies previously disclosed in 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
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 its exposure to market risk, see Part II, Item 7A—Quantitative and Qualitative Disclosures about Market Risk in the Company’s Form 10-K. Except as described below, there have been no significant changes to the Company’s exposure to market risk since December 31, 2018.2019.
On May 6, 2019, five forward starting swapApril 8, 2020, the Company terminated four treasury lock agreements with an aggregate notional amount of $510$400 million, were terminated, and as a result, the Company hashad no significant derivative instruments outstanding as of SeptemberJune 30, 2019.2020.
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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.
The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of SeptemberJune 30, 2019.2020.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of SeptemberJune 30, 2019,2020, the Company’s disclosure controls and procedures were effective at a reasonable level of assurance.
Changes in Internal Control over Financial Reporting
The Company concluded that there have been no changes in internal control over financial reporting that occurred during the three months ended SeptemberJune 30, 2019,2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following information updates and amends the information provided in the Company’s Form 10-K in Part I, Item 3—Legal Proceedings, and in the Company’sour Quarterly Report on Form 10-Q for the quartersquarter ended March 31, 2019 and June 30, 20192020 in Part II, Item 1—Legal Proceedings. Capitalized terms used but not otherwise defined herein have the meanings set forth in the Company’s Form 10-K.
Alternative Water Supply in Lieu of Carmel River Diversions
Regional Desalination Project LitigationCompliance with SWRCB Orders to Reduce Carmel River Diversions
Review of CPUC-Approved Settlement Agreement
On September 19, 2019, the CPUC issued a decision affirming its prior decisions with respect to the settlement agreement that resolved matters among the parties thereto associated with the termination of the RDP agreements, after considering the issue remanded by the California Supreme Court.
Cal Am’s Action for Damages Following RDP Termination
On September 5, 2019, MCWD filed a motion for summary judgment against Cal Am relatingcontinues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining required approvals for the contract claims in Cal Am’s complaint. A hearingWater Supply Project. However, based on the motion has not yet been scheduled. The trial date for the consolidated action is currently January 6, 2020.
matters discussed in Part I, Item 3—Legal Proceedings—Alternative Water Supply in Lieu of Carmel River Diversions—Monterey Peninsula Water Supply Project
CPUC Final Approval of Water Supply Project
On August 28, 2019, in the California Supreme Court declined to consider the February 2019 petitions filedCompany’s Form 10-K, as amended by the City of Marina and MCWD to challenge the sufficiency of the final EIR/EIS.
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. 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 took place on August 27, 2019, at which time the court dismissed the petition without leave to amend. On October 17, 2019, WRAMP filed motions seeking clarification and a reconsideration of the court’s ruling. A hearing on these motions is set for December 3, 2019.
Coastal Development Permit Application
On October 28, 2019, staff of the Coastal Commission issued a report recommending a denial of Cal Am’s application for a coastal development permit with respect to the Water Supply Project.  As previously reported, this application had originally been submitted to the City of Marina to consider those portions of the project within the City’s coastal zone, and in May 2019, Cal Am had appealed to the Coastal Commission the denial of the application by the City’s Planning Commission. The Coastal Commission will meet on November 14, 2019 to review and consider the staff’s recommendation.  Cal Am disagrees with the staff report’s findings and recommendation and intends to challenge them at the Coastal Commission meeting.
Desalination Plant Development Permit
On April 24, 2019, the Monterey County Planning Commission approved Cal Am’s application for a combined development permit for construction of the desalination plant in unincorporated Monterey County. MCWD and a public advocacy group appealed the Monterey County Planning Commission’s decision to the County Board of Supervisors. On July 15, 2019, the County Board of Supervisors denied the appeals and upheld the Monterey County Planning Commission’s approval.

On August 21, 2019, MCWD filed a petition in Monterey County Superior Court challenging Monterey County’s approval of Cal Am’s combined development permit application and seeking injunctive relief to enjoin Monterey County and Cal Am from commencing construction of the desalination plant. On September 4, 2019, MCWD filed an ex parte application for an immediate stay of construction activities related to the combined development permit, and seeking a temporary restraining order. On September 10, 2019, the court denied MCWD's application for a stay and temporary restraining order, and scheduled a hearing on the motion for a preliminary injunction for October 4, 2019. On October 9, 2019, after a hearing, the court denied, without prejudice, MCWD’s motion for a preliminary injunction, but issued a stay of the County’s approval of the combined development permit, precluding commencement of physical construction of the desalination plant until November 19, 2019, at which time the parties are to advise the court of the Coastal Commission’s decision on Cal Am’s application for a coastal development permit for the slant wells needed to source water for the desalination plant. That decision of the Coastal Commission is currently scheduled for November 14, 2019. In the interim, Cal Am may continue to obtain permits needed for the desalination plant’s construction.
*     *    *
Based on the foregoing, Cal Am estimates that the earliest date by which the Water Supply Project desalination plant could be completed is sometime in 2021. Theredisclosures below, 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 assuranceDue to the delay in the approval schedule, Cal Am currently does not believe that Cal Amit will be able to fully comply with the diversion reduction requirements and other remaining requirements under the 2009 Order and the 2016 Order, orincluding the 2021 Deadline. Cal Am has notified the SWRCB that, any such compliancedue to circumstances beyond Cal Am’s control, an interim 2020 milestone for construction of the Water Supply Project set forth in the 2016 Order will not be met, potentially triggering a diversion reduction requirement.The SWRCB has the option to suspend the diversion reduction, or otherwise modify the schedule in the 2016 Order, should it choose. 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 the 2021 Deadline, may result in material additional costs or obligations to Cal Am, orand failure to comply could lead to fines and penalties against Cal Am.
Monterey Peninsula Water Supply Project
Coastal Development Permit Application
On April 16, 2020, due to the Company.COVID-19 pandemic, the State of 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 original jurisdiction application from July 24, 2020 to September 22, 2020. The Coastal Commission has informed Cal Am that it plans to consider Cal Am’s application at a future meeting, likely to be held on September 17, 2020.
Desalination Plant Development Permit
The Monterey County Superior Court extended the stay on the commencement of physical construction of the desalination plant to August 25, 2020. The court has also set a briefing schedule and a hearing on MCWD’s petition for October 6, 2020.
Water Supply Project Land Use Acquisition and Slant Well Site Use
On May 8, 2020, the City filed a lawsuit, which it amended on June 29, 2020, in Monterey County Superior Court, naming Cal Am and CEMEX as defendants, and MCWRA and MCWD as real parties in interest. The lawsuit alleges a claim for breach of contract against CEMEX and seeks a declaration voiding the permanent easement to Cal Am and prohibiting extraction of water by Cal Am’s slant wells at the CEMEX site in excess of 500 acre-feet per year and the export of such water outside the groundwater basin. Cal Am intends to defend itself vigorously against these claims.
Dunbar, West Virginia Water Main Break Class Action Litigation
On August 21, 2019,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 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 status conference on April 7, 2020. On June 11, 2020, the court ruled that it would partially grant the Jeffries plaintiffs’ motion for certification of an issues class and would deny the request for certification of a class to determine a punitive damages multiplier for the class. On July 14, 2020, the court entered an order reflecting its June 11, 2020 rulings, and WVAWC intends to appeal this order to the West Virginia Supreme Court of Appeals. The court also set a procedural schedule in this case, including anew trial date for April 12, 2021 and requested the parties prepare an appropriate scheduling order.
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Table of September 21, 2020. Discovery in this case is ongoing.Contents
Chattanooga, Tennessee Water Main Break Class Action Litigation
On September 12,November 22, 2019, Tennessee-American Water Company (“TAWC”), a wholly owned subsidiary of the Company, 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 putative class action 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 a putative 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 piercingfiled a motion to dismiss the corporate veil. The Tennessee Plaintiffs seek an award of unspecified alleged damagescomplaint for wage losses, businessfailure to state a claim upon which relief may be granted, 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.
The Tennessee-American Water Defendants believe that they have meritorious defenseswith respect to the claims raised inCompany, for lack of personal jurisdiction. A hearing on this class action complaint, and they intendmotion was held on February 18, 2020. On June 8, 2020, the judge hearing the case transferred the matter to vigorously defend themselves against these allegations.a different judge prior to ruling on the motion to dismiss. Oral argument on the motion to dismiss has been scheduled for September 9, 2020.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, youreaders should carefully consider the factors discussed in Part I, Item 1A—Risk Factors in the Company’s Form 10-K, and in itsthe Company’s other public filings with the SEC, which could materially affect 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 the Company’sForm 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 and extending or delaying procedural schedules in our regulatory proceedings. At this time, we are unable to predict the range of impacts 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 further 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, whether due to conservation efforts, impacts of the COVID-19 pandemic or otherwise, or if our investments or expenses prove to be higher than the level estimated in establishing rates.
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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.
A loss of one or more large industrial or commercial customers could have a material adverse impact upon the results of operations of one or more of our Regulated Businesses.
Adverse economic conditions, the COVID-19 pandemic or other factors may cause our customers, particularly industrial and large commercial customers, to curtail operations. A curtailment of operations by such a customer would typically result in reduced water usage by that customer. In more severe circumstances, the decline in usage could be permanent. For the first six months of 2020, the Company’s regulated revenues increased by approximately $83 million, which included $10 million in estimated lower revenues from the impact of COVID-19 on net customer demand, related mainly to industrial and commercial customers. Any decrease in demand resulting from difficult economic conditions or the current COVID-19 pandemic affecting these customers could adversely affect our financial condition and results of operations. Tariffs in place with respect to our Regulated Businesses may not reimburse us, in whole or in part, for any of these impacts.
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.
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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 June 30, 2020, our aggregate long-term and short-term debt balance (including preferred stock with mandatory redemption requirements) was $10.6 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 the $750 million 364-day Term Loan Facility and immediately executed a $500 million draw thereunder to support our short-term liquidity by retaining that amount in cash. The Term Loan Facility allowed for a single additional borrowing of up to $250 million, which expired unused on June 19, 2020. 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. Other than debt with respect to the Term Loan Facility, debt maturities and sinking fund payments in 2021, 2022 and 2023 will be $314 million, $14 million and $270 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.
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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 $750 million 364-day Term Loan Facility to provide additional short-term liquidity support. As of June 30, 2020, AWCC had no outstanding borrowings under the revolving credit facility, $420 million of commercial paper outstanding, $76 million in outstanding letters of credit and $500 million outstanding under the 364-day Term Loan Facility. 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 Facility, 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 those facilities would be entitled to refuse any further extension of credit under the revolving credit facility and to declare all of the outstanding debt under the revolving credit facility and/or the Term Loan Facility 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 Facility 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 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 our revolving credit facility 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.
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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.
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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 SeptemberJune 30, 2019.2020. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through SeptemberJune 30, 2019,2020, 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.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.

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ITEM 6. EXHIBITS
 Exhibit NumberExhibit 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).
10.1.14.1
Amended and Restated Letter AgreementIndenture, dated as of December 4, 2009, between Loyd Warnock and American Water Works Company, Inc., dated May 7, 2014Capital Corp. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.44.1 to American Water Works Company, Inc.’s AnnualCurrent Report on Form 10-K,8-K, File No. 001-34028, filed February 25, 2016)December 3, 2010).
10.1.24.2
Amendment,Officers’ Certificate of American Water Capital Corp., dated April 25, 2018, to Amended14, 2020, establishing the terms and Restated Letter Agreement between Loyd Warnock and American Water Works Company, Inc.authorizing the issuance of the 2.80% Senior Notes due 2030 (incorporated by reference to Exhibit 10.2.24.1 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 American Water Capital Corp., 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 2, 2018)1, 2019).
*10.1.3
Amendment,Extension Agreement, dated July 25, 2019, to Amended and Restated Letter Agreement between Loyd Warnock andas of April 1, 2020, 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 10.1.3 to American Water Works Company, Inc.’s Quarterly Report on Form 10-Q, File No. 001-34028, filed on May 5, 2020).
*31.110.2
Offer Letter for Employment, dated April 28, 2020, between American Water Works Company, Inc. and William Varley.
*10.3
Separation Agreement and General Release, dated as of May 13, 2020, between American Water Works Company, Inc. and Loyd A. Warnock.
*10.4
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Restricted Stock Unit Grant, dated April 1, 2020 (for Walter J. Lynch).
*10.5
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form A, dated April 1, 2020 (for Walter J. Lynch).
*10.6
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form B, dated April 1, 2020 (for Walter J. Lynch).
*10.7
American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Stock Unit Grant Form for Non-Employee Directors.
*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 PresidentPresident 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.
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101.INSExhibit NumberExhibit Description
101.INSXBRL 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.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)
 *Filed herewith.
**Furnished herewith.

* Filed herewith.
**  Furnished herewith.
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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 30th5th day of October, 2019.
August, 2020.
AMERICAN WATER WORKS COMPANY, INC.
(REGISTRANT)
By/s/ SUSAN N. STORYWALTER 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)

4751