UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2014
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file: number 001-34028
_________________________
AMERICAN WATER WORKS COMPANY, INC.
(Exact name of registrant as specified in its charter)
_________________________
Delaware |
|
51-0063696 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
1025 Laurel Oak Road, Voorhees, NJ |
|
08043 |
(Address of principal executive offices) |
|
(Zip Code) |
(856) 346-8200
(Registrant’s telephone number, including area code)
_________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
x |
|
Accelerated filer |
|
¨ |
|
|
|
|
|
|
|
Non-accelerated filer |
|
¨ |
|
Smaller reporting company |
|
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). ¨ Yes x No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at October 30, 2014 |
Common Stock, $0.01 par value per share |
|
179,309,045 shares |
TABLE OF CONTENTS
AMERICAN WATER WORKS COMPANY, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED September 30, 2014
INDEX
2 |
|
|
|
2 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
22 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
37 |
37 |
|
|
|
38 |
|
|
|
38 |
|
40 |
|
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
40 |
40 |
|
40 |
|
41 |
|
42 |
|
|
|
43 |
|
|
|
|
|
EXHIBIT 31.1 |
|
EXHIBIT 31.2 |
|
EXHIBIT 32.1 |
|
EXHIBIT 32.2 |
|
EXHIBIT 101 |
|
i
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In thousands, except per share data)
|
September 30, |
|
|
December 31, |
|
||
|
2014 |
|
|
2013 |
|
||
ASSETS |
|
||||||
Property plant and equipment |
|
|
|
|
|
|
|
Utility plant—at original cost, net of accumulated depreciation of $4,010,604 at September 30 and $3,894,326 at December 31 |
$ |
12,668,123 |
|
|
$ |
12,244,359 |
|
Nonutility property, net of accumulated depreciation of $239,780 at September 30 and $215,083 at December 31 |
|
131,235 |
|
|
|
143,995 |
|
Total property, plant and equipment |
|
12,799,358 |
|
|
|
12,388,354 |
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
74,128 |
|
|
|
26,964 |
|
Restricted funds |
|
20,040 |
|
|
|
28,505 |
|
Accounts receivable |
|
284,273 |
|
|
|
241,926 |
|
Allowance for uncollectible accounts |
|
(34,579 |
) |
|
|
(33,823 |
) |
Unbilled revenues |
|
227,037 |
|
|
|
215,725 |
|
Income taxes receivable |
|
9,608 |
|
|
|
5,778 |
|
Materials and supplies |
|
37,203 |
|
|
|
32,973 |
|
Deferred income taxes |
|
104,251 |
|
|
|
18,609 |
|
Assets of discontinued operations |
|
6,256 |
|
|
|
7,761 |
|
Other |
|
28,744 |
|
|
|
28,276 |
|
Total current assets |
|
756,961 |
|
|
|
572,694 |
|
Regulatory and other long-term assets |
|
|
|
|
|
|
|
Regulatory assets |
|
874,828 |
|
|
|
858,465 |
|
Restricted funds |
|
17,243 |
|
|
|
754 |
|
Goodwill |
|
1,208,065 |
|
|
|
1,207,764 |
|
Other |
|
59,192 |
|
|
|
60,998 |
|
Total regulatory and other long-term assets |
|
2,159,328 |
|
|
|
2,127,981 |
|
TOTAL ASSETS |
$ |
15,715,647 |
|
|
$ |
15,089,029 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
2
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (Unaudited)
(In thousands, except per share data)
|
September 30, |
|
|
December 31, |
|
||
|
2014 |
|
|
2013 |
|
||
CAPITALIZATION AND LIABILITIES |
|
||||||
Capitalization |
|
|
|
|
|
|
|
Common stock ($0.01 par value, 500,000 shares authorized, 179,265 shares outstanding at September 30 and 178,379 at December 31) |
$ |
1,793 |
|
|
$ |
1,784 |
|
Paid-in-capital |
|
6,297,187 |
|
|
|
6,261,396 |
|
Accumulated deficit |
|
(1,333,164 |
) |
|
|
(1,495,698 |
) |
Accumulated other comprehensive loss |
|
(35,942 |
) |
|
|
(34,635 |
) |
Treasury stock |
|
(10,222 |
) |
|
|
(5,043 |
) |
Total common stockholders' equity |
|
4,919,652 |
|
|
|
4,727,804 |
|
Long-term debt |
|
|
|
|
|
|
|
Long-term debt |
|
5,540,648 |
|
|
|
5,212,881 |
|
Redeemable preferred stock at redemption value |
|
15,958 |
|
|
|
17,177 |
|
Total capitalization |
|
10,476,258 |
|
|
|
9,957,862 |
|
Current liabilities |
|
|
|
|
|
|
|
Short-term debt |
|
313,979 |
|
|
|
630,307 |
|
Current portion of long-term debt |
|
55,581 |
|
|
|
14,174 |
|
Accounts payable |
|
260,713 |
|
|
|
264,115 |
|
Taxes accrued |
|
46,945 |
|
|
|
32,166 |
|
Interest accrued |
|
97,062 |
|
|
|
52,087 |
|
Liabilities of discontinued operations |
|
1,667 |
|
|
|
3,824 |
|
Other |
|
282,988 |
|
|
|
238,860 |
|
Total current liabilities |
|
1,058,935 |
|
|
|
1,235,533 |
|
Regulatory and other long-term liabilities |
|
|
|
|
|
|
|
Advances for construction |
|
368,827 |
|
|
|
375,729 |
|
Deferred income taxes |
|
2,118,499 |
|
|
|
1,841,584 |
|
Deferred investment tax credits |
|
25,362 |
|
|
|
26,408 |
|
Regulatory liabilities |
|
385,288 |
|
|
|
373,319 |
|
Accrued pension expense |
|
90,026 |
|
|
|
108,542 |
|
Accrued postretirement benefit expense |
|
88,338 |
|
|
|
88,419 |
|
Other |
|
36,893 |
|
|
|
38,929 |
|
Total regulatory and other long-term liabilities |
|
3,113,233 |
|
|
|
2,852,930 |
|
Contributions in aid of construction |
|
1,067,221 |
|
|
|
1,042,704 |
|
Commitments and contingencies (See Note 10) |
— |
|
|
— |
|
||
TOTAL CAPITALIZATION AND LIABILITIES |
$ |
15,715,647 |
|
|
$ |
15,089,029 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands, except per share data)
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Operating revenues |
$ |
846,169 |
|
|
$ |
822,190 |
|
|
$ |
2,279,950 |
|
|
$ |
2,172,694 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operation and maintenance |
|
341,348 |
|
|
|
337,674 |
|
|
|
1,004,377 |
|
|
|
962,853 |
|
Depreciation and amortization |
|
106,789 |
|
|
|
102,495 |
|
|
|
318,398 |
|
|
|
303,002 |
|
General taxes |
|
60,807 |
|
|
|
58,087 |
|
|
|
178,276 |
|
|
|
175,789 |
|
(Gain) loss on asset dispositions and purchases |
|
(60 |
) |
|
|
768 |
|
|
|
(616 |
) |
|
|
529 |
|
Total operating expenses, net |
|
508,884 |
|
|
|
499,024 |
|
|
|
1,500,435 |
|
|
|
1,442,173 |
|
Operating income |
|
337,285 |
|
|
|
323,166 |
|
|
|
779,515 |
|
|
|
730,521 |
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net |
|
(75,445 |
) |
|
|
(77,389 |
) |
|
|
(222,673 |
) |
|
|
(233,260 |
) |
Allowance for other funds used during construction |
|
2,805 |
|
|
|
2,800 |
|
|
|
7,064 |
|
|
|
9,895 |
|
Allowance for borrowed funds used during construction |
|
1,570 |
|
|
|
1,679 |
|
|
|
4,324 |
|
|
|
5,102 |
|
Amortization of debt expense |
|
(1,669 |
) |
|
|
(1,524 |
) |
|
|
(4,971 |
) |
|
|
(4,729 |
) |
Other, net |
|
(733 |
) |
|
|
(449 |
) |
|
|
(2,591 |
) |
|
|
(1,481 |
) |
Total other income (expenses) |
|
(73,472 |
) |
|
|
(74,883 |
) |
|
|
(218,847 |
) |
|
|
(224,473 |
) |
Income from continuing operations before income taxes |
|
263,813 |
|
|
|
248,283 |
|
|
|
560,668 |
|
|
|
506,048 |
|
Provision for income taxes |
|
107,205 |
|
|
|
98,374 |
|
|
|
224,773 |
|
|
|
196,325 |
|
Income from continuing operations |
|
156,608 |
|
|
|
149,909 |
|
|
|
335,895 |
|
|
|
309,723 |
|
Income (loss) from discontinued operations, net of tax |
|
(4,423 |
) |
|
|
756 |
|
|
|
(6,288 |
) |
|
|
(152 |
) |
Net income |
$ |
152,185 |
|
|
$ |
150,665 |
|
|
$ |
329,607 |
|
|
$ |
309,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan amortized to periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost, net of tax of $26 and $28 for the three months and $79 and $83 for the nine months, respectively |
|
41 |
|
|
|
43 |
|
|
|
124 |
|
|
|
130 |
|
Actuarial loss, net of tax of $(4) and $1,424 for the three months and $(14) and $4,273 for the nine months, respectively |
|
(7 |
) |
|
|
2,228 |
|
|
|
(22 |
) |
|
|
6,683 |
|
Foreign currency translation adjustment |
|
(490 |
) |
|
|
296 |
|
|
|
(594 |
) |
|
|
(523 |
) |
Unrealized loss on cash flow hedge, net of tax of $(439) for the three and nine months |
|
(815 |
) |
|
|
0 |
|
|
|
(815 |
) |
|
|
0 |
|
Other comprehensive income (loss) |
|
(1,271 |
) |
|
|
2,567 |
|
|
|
(1,307 |
) |
|
|
6,290 |
|
Comprehensive income |
$ |
150,914 |
|
|
$ |
153,232 |
|
|
$ |
328,300 |
|
|
$ |
315,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
$ |
0.87 |
|
|
$ |
0.84 |
|
|
$ |
1.88 |
|
|
$ |
1.74 |
|
Income (loss) from discontinued operations, net of tax |
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
(0.04 |
) |
|
$ |
(0.00 |
) |
Basic earnings per share |
$ |
0.85 |
|
|
$ |
0.85 |
|
|
$ |
1.84 |
|
|
$ |
1.74 |
|
Diluted earnings per share: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
$ |
0.87 |
|
|
$ |
0.84 |
|
|
$ |
1.87 |
|
|
$ |
1.73 |
|
Income (loss) from discontinued operations, net of tax |
$ |
(0.02 |
) |
|
$ |
0.00 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.00 |
) |
Diluted earnings per share |
$ |
0.85 |
|
|
$ |
0.84 |
|
|
$ |
1.83 |
|
|
$ |
1.73 |
|
Average common shares outstanding during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
178,992 |
|
|
|
177,965 |
|
|
|
178,800 |
|
|
|
177,671 |
|
Diluted |
|
179,948 |
|
|
|
179,154 |
|
|
|
179,723 |
|
|
|
178,906 |
|
Dividends declared per common share |
$ |
0.62 |
|
|
$ |
0.56 |
|
|
$ |
0.93 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Amounts may not sum due to rounding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows (Unaudited)
(In thousands, except per share data)
|
Nine Months Ended September 30, |
|
|||||
|
2014 |
|
|
2013 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income |
$ |
329,607 |
|
|
$ |
309,571 |
|
Adjustments |
|
|
|
|
|
|
|
Depreciation and amortization |
|
318,398 |
|
|
|
303,002 |
|
Provision for deferred income taxes |
|
213,125 |
|
|
|
195,240 |
|
Amortization of deferred investment tax credits |
|
(1,046 |
) |
|
|
(1,126 |
) |
Provision for losses on accounts receivable |
|
26,087 |
|
|
|
18,331 |
|
Allowance for other funds used during construction |
|
(7,064 |
) |
|
|
(9,895 |
) |
(Gain) loss on asset dispositions and purchases |
|
(616 |
) |
|
|
529 |
|
Pension and non-pension postretirement benefits |
|
18,056 |
|
|
|
58,552 |
|
Stock-based compensation expense |
|
9,670 |
|
|
|
8,916 |
|
Other, net |
|
(229 |
) |
|
|
(12,264 |
) |
Changes in assets and liabilities |
|
|
|
|
|
|
|
Receivables and unbilled revenues |
|
(77,323 |
) |
|
|
(108,062 |
) |
Taxes receivable, including income taxes |
|
(3,830 |
) |
|
|
(5,513 |
) |
Other current assets |
|
(15,292 |
) |
|
|
(13,188 |
) |
Pension and non-pension postretirement benefit contributions |
|
(35,783 |
) |
|
|
(77,664 |
) |
Accounts payable |
|
(30,141 |
) |
|
|
(28,577 |
) |
Taxes accrued, including income taxes |
|
14,779 |
|
|
|
10,064 |
|
Interest accrued |
|
44,975 |
|
|
|
47,481 |
|
Change in book overdraft |
|
(2,052 |
) |
|
|
(7,993 |
) |
Other current liabilities |
|
39,581 |
|
|
|
1,145 |
|
Operating cash flows provided by continuing operations |
|
840,902 |
|
|
|
688,549 |
|
Operating cash flows provided by (used in) discontinued operations, net |
|
(640 |
) |
|
|
127 |
|
Net cash provided by operating activities |
|
840,262 |
|
|
|
688,676 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Capital expenditures |
|
(664,859 |
) |
|
|
(664,975 |
) |
Acquisitions |
|
(6,053 |
) |
|
|
(16,554 |
) |
Proceeds from sale of assets |
|
804 |
|
|
|
749 |
|
Removal costs from property, plant and equipment retirements, net |
|
(51,959 |
) |
|
|
(49,639 |
) |
Net funds released |
|
738 |
|
|
|
11,339 |
|
Investing cash flows used in continuing operations |
|
(721,329 |
) |
|
|
(719,080 |
) |
Investing cash flows used in discontinued operations |
|
(12 |
) |
|
|
(287 |
) |
Net cash used in investing activities |
|
(721,341 |
) |
|
|
(719,367 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
500,497 |
|
|
|
2,737 |
|
Repayment of long-term debt |
|
(136,739 |
) |
|
|
(13,149 |
) |
Proceeds from short-term borrowings with maturities greater than three months |
|
35,000 |
|
|
|
20,000 |
|
Repayment of short-term borrowings with maturities greater than three months |
|
(256,000 |
) |
|
|
0 |
|
Net short-term borrowings (repayments) with maturities less than three months |
|
(95,328 |
) |
|
|
99,450 |
|
Proceeds from issuances of employee stock plans and DRIP |
|
15,446 |
|
|
|
19,788 |
|
Advances and contributions for construction, net of refunds of $16,305 and $16,671 at September 30, 2014 and 2013, respectively |
|
21,293 |
|
|
|
13,486 |
|
Debt issuance costs |
|
(4,593 |
) |
|
|
(1,126 |
) |
Redemption of preferred stock |
|
(1,200 |
) |
|
|
(2,920 |
) |
Dividends paid |
|
(160,848 |
) |
|
|
(99,554 |
) |
Tax benefit realized from equity compensation |
|
10,715 |
|
|
|
0 |
|
Net cash (used in) provided by financing activities |
|
(71,757 |
) |
|
|
38,712 |
|
Net increase in cash and cash equivalents |
|
47,164 |
|
|
|
8,021 |
|
Cash and cash equivalents at beginning of period |
|
26,964 |
|
|
|
24,433 |
|
Cash and cash equivalents at end of period |
$ |
74,128 |
|
|
$ |
32,454 |
|
Non-cash investing activity: |
|
|
|
|
|
|
|
Capital expenditures acquired on account but unpaid at end of period |
$ |
163,053 |
|
|
$ |
119,807 |
|
Non-cash financing activity: |
|
|
|
|
|
|
|
Advances and contributions |
$ |
8,876 |
|
|
$ |
9,379 |
|
Dividends accrued |
$ |
55,494 |
|
|
$ |
49,837 |
|
Long-term debt issued |
$ |
9,977 |
|
|
$ |
0 |
|
Long-term debt retired |
$ |
(1,215 |
) |
|
$ |
0 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
American Water Works Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands, except per share data)
|
Common Stock |
|
|
|
|
|
|
|
Accumulated Other |
|
Treasury Stock |
|
Preferred Stock of Subsidiary Companies Without Mandatory |
|
Total |
|
|||||||||||
|
Shares |
|
Par Value |
|
Paid-in Capital |
|
Accumulated Deficit |
|
Comprehensive Loss |
|
Shares |
|
At Cost |
|
Redemption Requirements |
|
Stockholders' Equity |
|
|||||||||
Balance at December 31, 2013 |
|
178,379 |
|
$ |
1,784 |
|
$ |
6,261,396 |
|
$ |
(1,495,698 |
) |
$ |
(34,635 |
) |
|
(132 |
) |
$ |
(5,043 |
) |
$ |
0 |
|
$ |
4,727,804 |
|
Net income |
|
0 |
|
|
0 |
|
|
0 |
|
|
329,607 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
329,607 |
|
Direct stock reinvestment and purchase plan, net of expense of $22 |
|
34 |
|
|
0 |
|
|
1,568 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
1,568 |
|
Employee stock purchase plan |
|
75 |
|
|
1 |
|
|
3,458 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
3,459 |
|
Stock-based compensation activity |
|
777 |
|
|
8 |
|
|
30,765 |
|
|
(640 |
) |
|
0 |
|
|
(122 |
) |
|
(5,179 |
) |
|
0 |
|
|
24,954 |
|
Other comprehensive loss, net of tax of $(374) |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
(1,307 |
) |
|
0 |
|
|
0 |
|
|
0 |
|
|
(1,307 |
) |
Dividends |
|
0 |
|
|
0 |
|
|
0 |
|
|
(166,433 |
) |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
(166,433 |
) |
Balance at September 30, 2014 |
|
179,265 |
|
$ |
1,793 |
|
$ |
6,297,187 |
|
$ |
(1,333,164 |
) |
$ |
(35,942 |
) |
|
(254 |
) |
$ |
(10,222 |
) |
$ |
0 |
|
$ |
4,919,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
Accumulated Other |
|
Treasury Stock |
|
Preferred Stock of Subsidiary Companies Without Mandatory |
|
Total |
|
|||||||||||
|
Shares |
|
Par Value |
|
Paid-in Capital |
|
Accumulated Deficit |
|
Comprehensive Loss |
|
Shares |
|
At Cost |
|
Redemption Requirements |
|
Stockholders' Equity |
|
|||||||||
Balance at December 31, 2012 |
|
176,988 |
|
$ |
1,770 |
|
$ |
6,222,644 |
|
$ |
(1,664,955 |
) |
$ |
(116,191 |
) |
|
0 |
|
$ |
0 |
|
$ |
1,720 |
|
$ |
4,444,988 |
|
Net income |
|
0 |
|
|
0 |
|
|
0 |
|
|
309,571 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
309,571 |
|
Direct stock reinvestment and purchase plan, net of expense of $41 |
|
35 |
|
|
0 |
|
|
1,399 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
1,399 |
|
Employee stock purchase plan |
|
81 |
|
|
1 |
|
|
3,270 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
3,271 |
|
Stock-based compensation activity |
|
1,017 |
|
|
10 |
|
|
23,973 |
|
|
(416 |
) |
|
0 |
|
|
(132 |
) |
|
(5,043 |
) |
|
0 |
|
|
18,524 |
|
Subsidiary preferred stock redemption |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
(1,720 |
) |
|
(1,720 |
) |
Other comprehensive income, net of tax of $4,356 |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
6,290 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
6,290 |
|
Dividends |
|
0 |
|
|
0 |
|
|
0 |
|
|
(149,391 |
) |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
(149,391 |
) |
Balance at September 30, 2013 |
|
178,121 |
|
$ |
1,781 |
|
$ |
6,251,286 |
|
$ |
(1,505,191 |
) |
$ |
(109,901 |
) |
|
(132 |
) |
$ |
(5,043 |
) |
$ |
0 |
|
$ |
4,632,932 |
|
The accompanying notes are an integral part of these consolidated financial statements.
6
American Water Works Company, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
(In thousands, except per share data)
Note 1: Basis of Presentation
The accompanying Consolidated Balance Sheet of American Water Works Company, Inc. and Subsidiary Companies (the “Company”) at September 30, 2014, the Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2014 and 2013, the Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013, and the Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2014 and 2013, are unaudited, but reflect all adjustments, which are, in the opinion of management, necessary to present fairly the consolidated financial position, the consolidated changes in stockholders’ equity, the consolidated results of operations and comprehensive income, and the consolidated cash flows for the periods presented. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Because they cover interim periods, the unaudited consolidated financial statements and related notes to the consolidated financial statements do not include all disclosures and notes normally provided in annual financial statements and, therefore, should be read in conjunction with the Company’s Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the year, due primarily to the seasonality of the Company’s operations.
The accompanying Notes to the Consolidated Financial Statements relate to continuing operations only unless otherwise indicated. Certain reclassifications have been made to previously reported data to conform to the current presentation. In 2014 the Company revised the 2013 balance sheet to classify $18,609 of deferred income taxes as current rather than non-current. The change in classification was not material to the previously issued financial statements.
Note 2: New Accounting Pronouncements
The following recently issued accounting standards have been adopted by the Company and have been included in the consolidated results of operations, financial position or footnotes of the accompanying Consolidated Financial Statements:
Obligations Resulting from Joint and Several Liability Arrangements
In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Examples of obligations within the scope of the updated guidance include debt arrangements, other contractual obligations and settled litigation and judicial rulings. The update requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of the following: (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. The updated guidance also includes additional disclosures regarding the nature and amount of the obligation, as well as other information about those obligations. The update was effective on a retrospective basis for interim and annual periods beginning January 1, 2014. The adoption of this guidance did not have an impact on the Company’s results of operations, financial position or cash flows.
Foreign Currency Matters
In June 2013, the FASB issued guidance for a parent’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. The amendments resolve differing views in practice and apply to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or a business within a foreign entity. The update was effective prospectively for interim and annual periods beginning January 1, 2014. The adoption of this guidance did not have an impact on the Company’s results of operations, financial position or cash flows.
The following recently issued accounting standards are not yet required to be adopted by the Company:
Service Concession Arrangements
In January 2014, the FASB issued guidance for an operating entity that enters into a service concession arrangement with a public sector grantor who controls or has the ability to modify or approve the services that the operating entity must provide with the infrastructure, to whom it must provide the services and at what price. The grantor also controls, through ownership or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement. The guidance specifies that an operating entity should not account for the service concession arrangement as a lease. The operating entity should refer instead to other accounting guidance to account for the various aspects of the arrangement. The guidance also specifies that the infrastructure used in the arrangement should not be recognized as property, plant and equipment of the operating entity. This update should be applied on a modified
7
retrospective basis to service concession arrangements that exist at the beginning of an entity’s fiscal year of adoption. This requires the cumulative effect of applying the update to be recognized as an adjustment to the opening retained earnings balance for the annual period of adoption. The update is effective for interim and annual periods beginning January 1, 2015. Early adoption is permitted. The adoption of this updated guidance is not expected to have a material impact on results of operations, financial position or cash flows.
Reporting Discontinued Operations
In April 2014, the FASB issued guidance that changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the updated guidance, a discontinued operation is defined as a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. A strategic shift could include a disposal of a major geographical area of operations, a major line of business, a major equity method investment or other major part of the entity. A component comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity including a reportable segment, an operating segment, a reporting unit, a subsidiary or an asset group. The update no longer precludes presentation as a discontinued operation if there are operations and cash flows of the component that have not been eliminated from the reporting entity’s ongoing operations or if there is significant continuing involvement with a component after its disposal. The guidance is effective on a prospective basis for interim and annual periods beginning after January 1, 2015. In general, this guidance is likely to result in fewer disposals of assets qualifying as discontinued operations.
Revenue from Contracts with Customers
In May 2014, the FASB issued a comprehensive new revenue recognition standard that supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the new guidance is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The guidance is effective for annual and interim periods beginning January 1, 2017 and early adoption is not permitted. The new guidance allows for either full retrospective adoption, meaning the guidance is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company is evaluating the new guidance, the best transition method and the impact the new standard will have on its results of operations, financial position or cash flows.
Accounting for Stock-based Compensation with Performance Targets
In June 2014, the FASB issued guidance for the accounting for stock-based compensation tied to performance targets. The amendments clarify that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period is a performance condition. As a result, the target is not reflected in the estimation of the award’s grant date fair value and compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is evaluating the impact the updated guidance will have on its results of operations, financial position or cash flows.
Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern
In August 2014, the FASB issued guidance that explicitly requires an entity’s management to assess the entity’s ability to continue as a going concern. The new guidance requires an entity to evaluate, at each interim and annual period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued (or are available to be issued) and to provide related disclosures, if applicable. The new guidance is effective for annual periods ending after December 15, 2016 and for interim and annual periods thereafter. Early adoption is permitted. The Company does not expect this new guidance to have a material impact on its results of operations, financial position or cash flows.
Note 3: Acquisitions and Divestitures
Acquisitions
During the nine-month period ended September 30, 2014, the Company closed on nine acquisitions: five regulated water systems, one regulated wastewater, and three regulated water and wastewater systems. The aggregate purchase price of these acquisitions totaled $6,134. Assets acquired, principally plant, totaled $13,119. Liabilities assumed totaled $6,985, including contributions in aid of construction of $4,231 and debt of $1,683.
Divestitures
In the third quarter of 2014, the Company approved a plan to exit the Class B biosolids management business by selling Terratec Environmental Ltd (“Terratec”), and as a result, has included the results as discontinued operations for all periods presented. Terratec, which was previously included in the Market-Based Operations segment, is based in Canada and provides environmentally sustainable
8
management and disposal of biosolids and wastewater by-products. The Company expects to complete the disposition during the fourth quarter of 2014.
Included in the loss on discontinued operations is an estimated loss on the disposal of Terratec in the amount of $3,470. The provision for income taxes for 2014 includes the utilization of $1,480 of tax attributes as a result of the expected sale. Charges recorded in connection with the discontinued operations include estimates that are subject to subsequent adjustment.
A summary of discontinued operations presented in the Consolidated Statements of Operations and Comprehensive Income follows:
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Operating revenues |
$ |
4,910 |
|
|
$ |
7,006 |
|
|
$ |
12,234 |
|
|
$ |
16,904 |
|
Total operating expenses, net |
|
7,973 |
|
|
|
6,297 |
|
|
|
17,657 |
|
|
|
17,430 |
|
Income (loss) from discontinued operations before income taxes |
|
(3,063 |
) |
|
|
709 |
|
|
|
(5,423 |
) |
|
|
(526 |
) |
Provision (benefit) for income taxes |
|
1,360 |
|
|
|
(47 |
) |
|
|
865 |
|
|
|
(374 |
) |
Income (loss) from discontinued operations |
$ |
(4,423 |
) |
|
$ |
756 |
|
|
$ |
(6,288 |
) |
|
$ |
(152 |
) |
Assets and liabilities of discontinued operations in the accompanying Consolidated Balance Sheets include the following:
|
September 30, 2014 |
|
|
December 31, 2013 |
|
||
ASSETS |
|
|
|
|
|
|
|
Total property, plant and equipment |
$ |
2,168 |
|
|
$ |
2,808 |
|
Current assets |
|
4,088 |
|
|
|
4,953 |
|
Total assets of discontinued operations |
$ |
6,256 |
|
|
$ |
7,761 |
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
Current liabilities |
$ |
1,667 |
|
|
$ |
3,824 |
|
Total liabilities of discontinued operations |
$ |
1,667 |
|
|
$ |
3,824 |
|
Note 4: Goodwill
The Company’s annual goodwill impairment test is conducted at November 30 of each calendar year. Interim reviews are performed when the Company determines that a triggering event that would more likely than not reduce the fair value of a reporting unit below its carrying value has occurred. The Company has determined no such triggering event had occurred during the nine months ended September 30, 2014.
The change in the Company’s goodwill assets, as allocated between the reporting units is as follows:
|
Regulated Unit |
|
|
Market-Based Operations |
|
|
Consolidated |
|
|||||||||||||||||||
|
Cost |
|
|
Accumulated Impairment |
|
|
Cost |
|
|
Accumulated Impairment |
|
|
Cost |
|
|
Accumulated Impairment |
|
|
Total Net |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
$ |
3,412,063 |
|
|
$ |
(2,332,670 |
) |
|
$ |
235,990 |
|
|
$ |
(107,619 |
) |
|
$ |
3,648,053 |
|
|
$ |
(2,440,289 |
) |
|
$ |
1,207,764 |
|
Goodwill from acquisitions |
|
301 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
301 |
|
|
|
0 |
|
|
|
301 |
|
Balance at September 30, 2014 |
$ |
3,412,364 |
|
|
$ |