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 March 31, ~~2020~~2021



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

For the transition period from ______ to ______

Commission ~~File Number:~~ file number: 001-34028

AMERICAN WATER WORKS COMPANY, INC.

(Exact name of registrant as specified in its charter)



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

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 Class~~each class

Trading Symbol

Name of ~~Each Exchange~~each exchange on ~~Which Registered~~which registered

Common stock, par value $0.01 per share

AWK

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

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

Class

Shares Outstanding as of April ~~30, 2020~~27, 2021

Common Stock, ~~$0.01~~ par value $0.01 per share

~~181,022,922~~181,469,196

TABLE OF CONTENTS

* * *

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 the “parent company” mean American Water Works Company, Inc., without its subsidiaries.

Table of Contents

FORWARD-LOOKING STATEMENTS

Statements included in Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q 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, liquidity and cash flows; rate and revenue adjustments, including through general rate case filings, filings for infrastructure surcharges and other governmental agency authorizations and filings to address regulatory lag; growth and portfolio optimization strategies, including the timing and outcome of pending or future acquisition activity, the completion of the announced sale of the Company’s New York ~~American Water Company, Inc.~~subsidiary and the amount of proceeds anticipated to be received therefrom; the ability of the Company’s California subsidiary to obtain adequate alternative water supplies in lieu of diversions from the Carmel River and to comply with certain regulatory orders and interpretations thereof with respect to such diversions; the amount and allocation of projected capital expenditures and related funding requirements; the Company’s ability to repay or refinance debt; the ability to execute its current and long-term business, operational and capital expenditures strategies; its ability to finance current operations, capital expenditures and growth initiatives by accessing the debt and equity capital markets; the outcome and impact on the Company of ~~legal and similar~~ governmental and regulatory investigations and proceedings and related potential fines, penalties and other sanctions; the ability to complete, and the timing and efficacy of, the design, development, implementation and improvement of technology 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, including macro trends with respect to the Company’s efforts related to customer, technology and work execution; regulatory, legislative, tax policy or legal developments; and ~~projected~~ impacts that ~~the Tax Cuts and Jobs Act (the “TCJA”)~~future significant tax legislation 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 readers are cautioned not to place undue reliance upon them. These forward-looking statements are subject to a number of estimates, assumptions, known and unknown risks, uncertainties and other factors. 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 and regulatory responses to the COVID-19 pandemic;

•the timeliness and outcome of regulatory commissions’ and other authorities’ actions concerning rates, capital structure, authorized return on equity, capital investment, system acquisitions and dispositions, taxes, permitting, water supply and management, 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 and data privacy, water quality and water quality accountability, contaminants of emerging ~~contaminants,~~concern, public utility and tax regulations and policies, and impacts resulting from U.S., state and local ~~elections;~~elections and changes in federal, state and local executive administrations;

•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 improve the resiliency of, or maintain and replace, current or future infrastructure and systems, including its ~~operational~~technology and ~~technology systems,~~other assets, and manage the expansion of its 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;

Table of Contents

•the Company’s ability to obtain permits and other approvals for ~~projects;~~projects and construction of various water and wastewater facilities;

•changes in the Company’s capital requirements;

•the Company’s ability to control operating expenses and to achieve operating efficiencies;

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

•the Company’s ability to obtain adequate and cost-effective supplies of equipment (including personal protective equipment), chemicals, electricity, fuel, water and other raw materials;

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

•acquiring, closing and successfully integrating regulated operations and market-based businesses;

•entering into contracts and other agreements with, or otherwise obtaining, new customers or partnerships in the Market-Based Businesses; and

•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;

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

•access to sufficient debt and/or equity capital on satisfactory terms and when and as needed to support operations and capital expenditures;

•fluctuations in interest rates;

~~restrictive~~•ability to comply with affirmative or negative covenants in the current or ~~changes to the credit ratings on~~future indebtedness of the Company or any of its subsidiaries, or onthe issuance of new or modified credit ratings or outlooks or other communications by credit rating agencies with respect to the Company or any of ~~their~~its subsidiaries (or any current or future indebtedness ~~that~~thereof), which could increase ~~the Company’s~~ financing costs or funding requirements orand affect the Company’s or its subsidiaries’ ability to ~~borrow,~~issue, repay or redeem debt, pay dividends or make ~~payments on debt or pay dividends;~~distributions;

•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~~(i) future significant tax legislation, (ii) 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,~~Tax Cuts and Jobs Act of 2017 (the “TCJA”), (iii) the availability of, or the Company’s compliance with, the terms of applicable tax credits and tax abatement programs, and (iv) 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 or future 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 unrest, or terrorist threats or acts, or public apprehension about future disturbances, unrest, or terrorist threats or acts; and

•the impact of new, and changes to existing, accounting standards.

Table of Contents

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, ~~2019~~2020 (the “Form 10-K”) and in this Form 10-Q, and readers 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.

Table of Contents

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)


	March 31, 2020			December 31, 2019				March 31, 2021		December 31, 2020
ASSETS	ASSETS						ASSETS
Property, plant and equipment	$	24,351		$	23,941		Property, plant and equipment	$	25,934	$	25,614
Accumulated depreciation	(5,763		)	(5,709		)	Accumulated depreciation	(6,029)		(5,904)
Property, plant and equipment, net	18,588			18,232			Property, plant and equipment, net	19,905		19,710
Current assets:							Current assets:
Cash and cash equivalents	556			60			Cash and cash equivalents	69		547
Restricted funds	33			31			Restricted funds	30		29
Accounts receivable, net of allowance for uncollectible accounts of $40 and $41, respectively	292			294
Accounts receivable, net of allowance for uncollectible accounts of $67 and $60, respectively							Accounts receivable, net of allowance for uncollectible accounts of $67 and $60, respectively	274		321
Unbilled revenues	172			172			Unbilled revenues	219		206
Materials and supplies	50			44			Materials and supplies	52		47
Assets held for sale	579			566			Assets held for sale	654		629
Other	119			118			Other	168		127
Total current assets	1,801			1,285			Total current assets	1,466		1,906
Regulatory and other long-term assets:							Regulatory and other long-term assets:
Regulatory assets	1,132			1,128			Regulatory assets	1,127		1,127
Operating lease right-of-use assets	101			103			Operating lease right-of-use assets	98		95
Goodwill	1,499			1,501			Goodwill	1,511		1,504
Postretirement benefit assets	158			159			Postretirement benefit assets	167		173
Intangible assets	64			67			Intangible assets	52		55
Other	203			207			Other	199		196
Total regulatory and other long-term assets	3,157			3,165			Total regulatory and other long-term assets	3,154		3,150
Total assets	$	23,546		$	22,682		Total assets	$	24,525	$	24,766

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

Table of Contents

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Balance Sheets (Unaudited)

(In millions, except share and per share data)


	March 31, 2020			December 31, 2019				March 31, 2021		December 31, 2020
CAPITALIZATION AND LIABILITIES	CAPITALIZATION AND LIABILITIES						CAPITALIZATION AND LIABILITIES
Capitalization:							Capitalization:
Common stock ($0.01 par value; 500,000,000 shares authorized; 186,188,334 and 185,903,727 shares issued, respectively)	$	2		$	2
Common stock ($0.01 par value; 500,000,000 shares authorized; 186,727,874 and 186,466,707 shares issued, respectively)							Common stock ($0.01 par value; 500,000,000 shares authorized; 186,727,874 and 186,466,707 shares issued, respectively)	$	2	$	2
Paid-in-capital	6,713			6,700			Paid-in-capital	6,757		6,747
Accumulated deficit	(83		)	(207		)
Retained earnings							Retained earnings	235		102
Accumulated other comprehensive loss	(41		)	(36		)	Accumulated other comprehensive loss	(48)		(49)
Treasury stock, at cost (5,167,039 and 5,090,855 shares, respectively)	(348		)	(338		)
Treasury stock, at cost (5,260,064 and 5,168,215 shares, respectively)							Treasury stock, at cost (5,260,064 and 5,168,215 shares, respectively)	(363)		(348)
Total common shareholders' equity	6,243			6,121			Total common shareholders' equity	6,583		6,454
Long-term debt	8,621			8,639			Long-term debt	9,325		9,329
Redeemable preferred stock at redemption value	4			5			Redeemable preferred stock at redemption value	3		4
Total long-term debt	8,625			8,644			Total long-term debt	9,328		9,333
Total capitalization	14,868			14,765			Total capitalization	15,911		15,787
Current liabilities:							Current liabilities:
Short-term debt	1,641			786			Short-term debt	1,115		1,282
Current portion of long-term debt	49			28			Current portion of long-term debt	311		329
Accounts payable	152			203			Accounts payable	134		189
Accrued liabilities	476			596			Accrued liabilities	466		591
Accrued taxes	64			46			Accrued taxes	76		50
Accrued interest	91			84			Accrued interest	98		88
Liabilities related to assets held for sale	130			128			Liabilities related to assets held for sale	80		137
Other	164			174			Other	171		215
Total current liabilities	2,767			2,045			Total current liabilities	2,451		2,881
Regulatory and other long-term liabilities:							Regulatory and other long-term liabilities:
Advances for construction	259			240			Advances for construction	267		270
Deferred income taxes and investment tax credits	1,929			1,893			Deferred income taxes and investment tax credits	2,223		2,113
Regulatory liabilities	1,795			1,806			Regulatory liabilities	1,736		1,770
Operating lease liabilities	87			89			Operating lease liabilities	84		81
Accrued pension expense	404			411			Accrued pension expense	368		388
Other	75			78			Other	83		83
Total regulatory and other long-term liabilities	4,549			4,517			Total regulatory and other long-term liabilities	4,761		4,705
Contributions in aid of construction	1,362			1,355			Contributions in aid of construction	1,402		1,393
Commitments and contingencies (See Note 10)
Commitments and contingencies (See Note 12)							Commitments and contingencies (See Note 12)	0		0
Total capitalization and liabilities	$	23,546		$	22,682		Total capitalization and liabilities	$	24,525	$	24,766

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

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Operations (Unaudited)

(In millions, except per share data)


	For the Three Months Ended March 31,
		2021		2020
Operating revenues		$	888	$	844
Operating expenses:
Operation and maintenance		419		383
Depreciation and amortization		157		145
General taxes		83		77
Total operating expenses, net		659		605
Operating income		229		239
Other income (expense):
Interest, net		(98)		(96)
Non-operating benefit costs, net		20		13
Other, net		4		3
Total other income (expense)		(74)		(80)
Income before income taxes		155		159
Provision for income taxes		22		35
Net income attributable to common shareholders		$	133	$	124

Basic earnings per share:
Net income attributable to common shareholders		$	0.73	$	0.69
Diluted earnings per share: (a)
Net income attributable to common shareholders		$	0.73	$	0.68
Weighted-average common shares outstanding:
Basic		181		181
Diluted		182		181

For the Three Months Ended March 31,
2020 2019
Operating revenues $ 844
$ 813
Operating expenses:
Operation and maintenance 383
365
Depreciation and amortization 145
144
General taxes 77
69
(Gain) on asset dispositions and purchases —
(3 )
Total operating expenses, net 605
575
Operating income 239
238
Other income (expense):
Interest, net (96 ) (93 )
Non-operating benefit costs, net 13
4
Other, net 3
3
Total other income (expense) (80 ) (86 )
Income before income taxes 159
152
Provision for income taxes 35
39
Net income attributable to common shareholders $ 124
$ 113

Basic earnings per share:
Net income attributable to common shareholders $ 0.69
$ 0.62
Diluted earnings per share: (a)

Net income attributable to common shareholders $ 0.68
$ 0.62
Weighted-average common shares outstanding:
Basic 181
181
Diluted 181
181

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

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Comprehensive Income (Unaudited)

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

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Cash Flows (Unaudited)

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


	For the Three Months Ended March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	133	$	124
Adjustments to reconcile to net cash flows provided by operating activities:
Depreciation and amortization	157		145
Deferred income taxes and amortization of investment tax credits	26		38
Provision for losses on accounts receivable	11		6
Pension and non-pension postretirement benefits	(10)		(1)
Other non-cash, net	(41)		(18)
Changes in assets and liabilities:
Receivables and unbilled revenues	26		(4)
Pension and postretirement benefit contributions	(9)		(10)
Accounts payable and accrued liabilities	(57)		(91)
Other assets and liabilities, net	(57)		(9)
Net cash provided by operating activities	179		180
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(342)		(408)
Acquisitions, net of cash acquired	(3)		(21)
Proceeds from sale of assets	0		2
Removal costs from property, plant and equipment retirements, net	(18)		(23)
Net cash used in investing activities	(363)		(450)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	2		8
Repayments of long-term debt	(25)		(6)
(Repayments of) proceeds from term loan	(500)		500
Net proceeds from revolving credit facility borrowings	0		215
Net short-term borrowings with maturities less than three months	334		139
Proceeds from issuances of employee stock plans and direct stock purchase plan, net of taxes paid of $15 and $11 for the three months ended March 31, 2021 and 2020, respectively	(11)		(5)
Advances and contributions for construction, net of refunds of $6 and $8 for the three months ended March 31, 2021 and 2020, respectively	7		7
Dividends paid	(100)		(90)
Net cash (used in) provided by financing activities	(293)		768
Net (decrease) increase in cash, cash equivalents and restricted funds	(477)		498
Cash, cash equivalents and restricted funds at beginning of period	576		91
Cash, cash equivalents and restricted funds at end of period	$	99	$	589
Non-cash investing activity:
Capital expenditures acquired on account but unpaid as of the end of period	$	223	$	256

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

American Water Works Company, Inc. and Subsidiary Companies

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)


	Common Stock			Paid-in-Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Total Shareholders' Equity
	Shares	Par Value								Shares	At Cost
Balance as of December 31, 2020	186.5	$	2	$	6,747	$	102	$	(49)	(5.2)	$	(348)	$	6,454
Net income attributable to common shareholders	—	—		—		133		—		—	—		133
Common stock issuances (a)	0.2	—		10		—		—		(0.1)	(15)		(5)
Net other comprehensive loss	—	—		—		—		1		—	—		1
Balance as of March 31, 2021	186.7	$	2	$	6,757	$	235	$	(48)	(5.3)	$	(363)	$	6,583

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, 2019 185.9
$ 2
$ 6,700
$ (207 ) $ (36 ) (5.1 ) $ (338 ) $ 6,121
Net income attributable to common shareholders —
—
—
124
—
—
—
124
Common stock issuances (a) 0.3
—
13
—
—
(0.1 ) (10 ) 3
Net other comprehensive loss —
—
—
—
(5 ) —
—
(5 )
Balance as of March 31, 2020 186.2
$ 2
$ 6,713
$ (83 ) $ (41 ) (5.2 ) $ (348 ) $ 6,243

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

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


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

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

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

(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 March 31, ~~2020,~~2021, 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, ~~2019~~2020 (“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 ~~2020:~~

Standard

Description

Date of Adoption

Application

Effect on the Consolidated Financial Statements

~~Measurement of Credit Losses on Financial Instruments~~

Updated the accounting guidance on reporting credit losses for financial assets held at amortized cost basis and available-for-sale debt securities. Under this guidance, expected credit losses are required to be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount of financial assets. Also, this guidance requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a direct write-down.

~~January 1, 2020~~

~~Modified retrospective~~

~~The standard did not have a material impact on the Consolidated Financial Statements.~~

~~Changes to the Disclosure Requirements for Fair Value Measurement~~

Updated the disclosure requirements for fair value measurement. The guidance removes the requirements to disclose transfers between Level 1 and Level 2 measurements, the timing of transfers between levels, and the valuation processes for Level 3 measurements. Disclosure of transfers into and out of Level 3 measurements will be required. The guidance adds disclosure requirements for the change in unrealized gains and losses in other comprehensive income for recurring Level 3 measurements, as well as the range and weighted average of significant unobservable inputs used to develop Level 3 measurements.

~~January 1, 2020~~

~~Prospective for added disclosures and for the narrative description of measurement uncertainty; retrospective for all other amendments.~~

~~The standard did not have a material impact on the Consolidated Financial Statements.~~

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

Provided optional guidance for a limited time to ease the potential accounting burden associated with the transition from ~~LIBOR.~~London Interbank Offered Rate (“LIBOR”). The guidance contains optional expedients and exceptions for contract modifications, hedging relationships, and other transactions that reference LIBOR or other reference rates expected to be discontinued. The expedients elected must be applied for all eligible contracts or transactions, with the exception of hedging relationships, which can be applied on an individual ~~basis~~basis.

March 12, 2020 through December 31, 2022

Prospective for contract modifications and hedging relationships; applied as of January 1, 2020.

The standard did not have a material impact on the Consolidated Financial Statements.

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

~~Standard~~

~~Description~~

~~Date of Adoption~~

~~Application~~

~~Estimated Effect on the Consolidated Financial Statements~~

Simplifying the Accounting for Income Taxes

The guidance removes exceptions related to the incremental approach for intraperiod tax allocation, the requirement to recognize a deferred tax liability for changes in ownership of a foreign subsidiary or equity method investment, and the general methodology for calculating income taxes in an interim period when the year-to-date loss exceeds the anticipated loss. The guidance adds requirements to reflect changes to tax laws or rates in the annual effective tax rate computation in the interim period in which the changes were enacted, to recognize franchise or other similar taxes that are partially based on income as an income-based tax and any incremental amounts as non-income-based tax, and to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.

January 1, ~~2021; early adoption permitted~~

2021

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 standard did not have a material impact on the Consolidated Financial Statements.

Table of Contents

Presented in the table below are recently issued accounting standards that have not yet been adopted by the Company as of March 31, 2021:

Standard

Description

Date of Adoption

Application

Estimated Effect on the Consolidated Financial Statements

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

Simplification of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. This will result in fewer embedded conversion features being separately recognized from the host contract. Earnings per share (“EPS”) calculations have been simplified for certain instruments.

January 1, 2022; early adoption permitted not before fiscal years beginning after December 15, 2020

Either modified retrospective or fully retrospective

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 March 31:


	2021		2020
Cash and cash equivalents (a)	$	69	$	556
Restricted funds	30		33
Cash, cash equivalents and restricted funds as presented on the Consolidated Statements of Cash Flows	$	99	$	589

2020 2019
Cash and cash equivalents $ 556
$ 63
Restricted funds 33
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 $ 589
$ 86

Allowance for Uncollectible Accounts

Allowances for uncollectible accounts are maintained for estimated probable losses resulting from the Company’s inability to collect receivables from customers. Accounts that are outstanding longer than the payment terms are considered past due. A number of factors are considered in determining the ~~allowances~~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. An increase in the allowance for uncollectible accounts for the period ending March 31, 2021 reflects the impacts from the current novel coronavirus (“COVID-19”) pandemic, including an increase in uncollectible accounts expense and a reduction in amounts written off due to shutoff moratoria in place across the Company’s subsidiaries.

Presented in the table below are the changes in the allowance for uncollectible accounts for the three months ended March 31:


	2021		2020
Balance as of January 1	$	(60)	$	(41)
Amounts charged to expense	(11)		(6)
Amounts written off	0		7
Less: Allowance for uncollectible accounts included in assets held for sale (a)	4		2
Balance as of March 31	$	(67)	$	(40)

(a)This portion of the allowance for uncollectible accounts is related to the pending transactions contemplated by the Stock Purchase Agreement among the Company, the Company’s New York subsidiary and an affiliate of Liberty Utilities Co., and is included in assets held for sale on the Consolidated Balance Sheets. See Note 6—Acquisitions and Divestitures for additional information.

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 COVID-19 pandemic and has experienced financial impacts resulting from lower revenues from the suspension of late fees and foregone reconnect fees in certain states, certain incremental operation and maintenance (“O&M”) expenses, an increase in uncollectible accounts expense and additional debt costs. These impacts are collectively referred to as “financial impacts.”

As of May 3, 2021, American Water has commission orders authorizing deferred accounting or cost recovery for COVID-19 financial impacts in 11 of 14 jurisdictions, with proceedings in 3 jurisdictions pending. NaN jurisdiction, Kentucky, issued an order denying a request to defer to a regulatory asset the financial impacts related to the COVID-19 pandemic. Other regulatory actions to date are presented in the table below:

Commission Actions

Description

States

Orders issued with deferred accounting

Allows the Company to establish regulatory assets to record certain financial impacts related to the COVID-19 pandemic.

HI, IA, IN, MD, NJ, PA (a), VA, WV

Orders issued with cost recovery

California’s Catastrophic Event Memorandum Account allows the Company’s California subsidiary to track certain financial impacts related to the COVID-19 pandemic for future recovery requests. Illinois has authorized cost recovery of COVID-19 financial impacts through a special purpose rider over a 24-month period, which was implemented effective October 1, 2020. Additionally, Illinois approved a bad debt rider tariff on December 16, 2020, allowing collection of actual bad debt expense over last authorized beginning April 2021 through February 2023. Illinois approved a stipulation in March 2021 to allow the rider to be extended through the end of 2023. Missouri issued a base rate case order April 7, 2021, authorizing recovery in rates of the COVID-19 financial impacts deferred through March 31, 2021 over a three-year period.

CA, IL, MO

Proceedings pending

Pending proceedings considering deferred accounting authorization for the future recovery of COVID-19 financial impacts.

NY, TN

(a)The Pennsylvania Public Utility Commission (the “PaPUC”) has granted deferral authority on incremental expenses above those embedded in rates resulting from COVID-19. The Company’s Pennsylvania subsidiary has filed for confirmation to defer as a regulatory asset all identified COVID-19 financial impacts, with the proceeding currently pending before the PaPUC.

Consistent with these regulatory orders, the Company has recorded $43 million in regulatory assets and $5 million of regulatory liabilities for the financial impacts related to the COVID-19 pandemic on the Consolidated Balance Sheets as of March 31, 2021.

As of May 3, 2021, 5 states continue moratoria on the suspension of service disconnections due to non-payment. The moratoria on disconnects have expired in 9 states.

Note 4: Regulatory Matters

General Rate Cases and Infrastructure Surcharges

Presented in the table below are annualized incremental revenues, excluding reductions for the amortization of excess accumulated deferred income tax (“EADIT”) that are generally offset in income tax expense, assuming a constant water sales volume, resulting from general rate case authorizations and infrastructure surcharge authorizations that became effective in the current period:


(In millions)	During the Three Months Ended March 31, 2021		During the Three Months Ended March 31, 2020
General rate cases by state:
Pennsylvania (a)	$	70	$	0
California (b)	0		5
Total general rate cases	$	70	$	5

Infrastructure surcharges by state:
Indiana (effective March 17, 2021)	$	8	$	0
Pennsylvania (effective January 1, 2021 and January 1, 2020)	8		10
Illinois (effective January 1, 2021 and January 1, 2020)	7		7
West Virginia (effective January 1, 2021 and January 1, 2020)	5		3
Tennessee (effective January 1, 2021)	3		0
New Jersey (effective January 1, 2020)	0		10
Total infrastructure surcharges	$	31	$	30

(a)The Company’s Pennsylvania subsidiary was authorized additional annualized revenues of $90 million, excluding a reduction in revenues for tax savings passed back to customers as a result of the Tax Cuts and Jobs Act of 2017 (the “TCJA”), over two steps. The EADIT reduction in revenues is $19 million. The overall increase, net of TCJA, is $71 million in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the second step will be effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the average rate assumption method (“ARAM”), and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million annually includes both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, 2018 through December 31, 2020 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over two years.

(b)The Company’s California subsidiary received approval for the third year (2020) step increase associated with its most recent general rate case authorization, effective January 1, 2020.

On April 7, 2021, the Company’s Missouri subsidiary was authorized additional annualized revenues of $22 million, excluding a reduction in revenues for tax savings passed back to customers as a result of the TCJA. The EADIT reduction in revenues is $25 million and is offset by a like reduction in income tax expense. The protected EADIT balance of $72 million is being returned to customers using the ARAM, and the unprotected EADIT balance of $74 million is being returned to customers over 10 years. The $25 million EADIT reduction includes both the protected and unprotected catch-up period EADIT of $13 million. The catch-up period of January 1, 2018 through May 31, 2021 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over 2.5 years.

On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (the “NJBPU”) that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which seeks approval of acquisition adjustments in rates of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in April 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. The Company’s New Jersey subsidiary filed exceptions to the initial decision and recommendations by the ALJ, which were responded to by the New Jersey Division of Rate Counsel. The Company is now awaiting a decision by the NJBPU.

Due in part to the COVID-19 pandemic, the New York State Public Service Commission approved, through a series of orders, the Company’s New York subsidiary’s request to postpone the previously approved step increase, originally scheduled to go into effect April 1, 2020 until May 1, 2021. The orders provided a make whole provision to recover the delayed revenues with no earnings impact. These delays impact rates for all metered and fire customers, which the Company is authorized to recover in a make-whole surcharge, which began May 1, 2021.

Pending General Rate Case Filings

On April 30, 2021, the Company’s West Virginia subsidiary filed a general rate case requesting $32 million in annualized incremental revenues excluding proposed reductions in revenues for tax savings to be passed back to customers as a result of TCJA and infrastructure surcharges. The proposed EADIT reduction in revenues is $1 million and the exclusion for infrastructure surcharges is $10 million.

On August 28, 2020, the Company’s Iowa subsidiary filed a general rate case requesting $3 million in annualized incremental revenues. Office of Consumer Advocate (“OCA”) and intervenor direct testimony was filed on December 17, 2020 and cross-reply testimony was filed on December 31, 2020. The Company’s Iowa subsidiary reply testimony was filed on January 14, 2021, and OCA rebuttal testimony was filed on February 8, 2021. Evidentiary hearings were held on March 3 and March 4, 2021. An order is anticipated between May 4, 2021 and June 30, 2021 with new rates effective in July 2021.

On July 1, 2019, the Company’s California subsidiary filed a general rate case requesting $26 million in 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 in annualized incremental revenues for 2021, and increases of $10 million in both the escalation year of 2022 and the attrition year of 2023, respectively. On September 10, 2020, the California Public Utilities Commission (the “CPUC”) approved the Company’s California subsidiary’s motion for interim rates, establishing a memorandum account to track the difference between interim and final rates adopted by the CPUC in this proceeding, which were effective on January 1, 2021. Following settlement discussions among all parties to the proceeding, on January 22, 2021 and January 25, 2021, the Company’s California subsidiary filed with the CPUC a comprehensive settlement entered into among the Company’s California subsidiary, the Public Advocates Office, and other intervenors. These settlement agreements resolved all matters in dispute among the parties to the settlements. These settlements, as well as resolution of issues raised by non-settling parties, are now before the CPUC for approval.

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 CPUC granted the request for a one-year extension of the cost of capital filing to May 1, 2021, to set its authorized cost of capital beginning January 1, 2022. On January 5, 2021, the Company’s California subsidiary submitted a request to further delay by one year its cost of capital filing and maintain the authorized cost of capital through 2022. On February 22, 2021, the CPUC denied the request to further delay the cost of capital filing. The Company’s California subsidiary submitted its cost of capital application on May 3, 2021. Once approved by the CPUC, the new authorized cost of capital will be effective January 1, 2022.

Note 3:5: Revenue Recognition

Disaggregated Revenues

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.” The Company also operates market-based businesses that provide ~~complementary~~water, wastewater and other services to residential and smaller commercial customers, the U.S. government on military installations, as well as municipalities ~~utilities~~ and ~~industrial~~utility customers, collectively presented as the “Market-Based Businesses.”

Presented in the table below are operating revenues disaggregated for the three months ended March 31, ~~2020:~~2021:


	Revenues from Contracts with Customers		Other Revenues Not from Contracts with Customers (a)		Total Operating Revenues
Regulated Businesses:
Water services:
Residential	$	430	$	0	$	430
Commercial	144		—		144
Fire service	37		—		37
Industrial	32		—		32
Public and other	44		—		44
Total water services	687		0		687
Wastewater services:
Residential	36		—		36
Commercial	9		—		9
Industrial	1		—		1
Public and other	4		—		4
Total wastewater services	50		—		50
Miscellaneous utility charges	8		—		8
Alternative revenue programs	—		9		9
Lease contract revenue	—		1		1
Total Regulated Businesses	745		10		755
Market-Based Businesses	137		—		137
Other	(4)		0		(4)
Total operating revenues	$	878	$	10	$	888

Revenues from Contracts with Customers Other Revenues Not from Contracts with Customers (a) Total Operating Revenues
Regulated Businesses:
Water services:
Residential $ 399
$ —
$ 399
Commercial 142
—
142
Fire service 37
—
37
Industrial 32
—
32
Public and other 49
—
49
Total water services 659
—
659
Wastewater services:

Residential 31
—
31
Commercial 8
—
8
Industrial 1
—
1
Public and other 3
—
3
Total wastewater services 43
—
43
Miscellaneous utility charges 8
—
8
Alternative revenue programs —
7
7
Lease contract revenue —
3
3
Total Regulated Businesses 710
10
720
Market-Based Businesses 128
—
128
Other (4 ) —
(4 )
Total operating revenues $ 834
$ 10
$ 844

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

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 $50 million and $39 million are included in unbilled revenues on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively. Contract assets of $17 million and $13 million are included in unbilled revenues on the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, respectively. There were $19 million of contract assets added during the three months ended March 31, 2021, and $8 million of contract assets were transferred to accounts receivable during the same period. There were $11 million of contract assets added during the three months ended March 31, 2020, and $7 million of contract assets were transferred to accounts receivable during the same period.

Contract liabilities of $44 million and $35 million are included in other current liabilities on the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively. Contract liabilities of $34 million and $27 million are included in other current liabilities on the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, respectively. There were $57 million of contract liabilities added during the three months ended March 31, 2021, and $48 million of contract liabilities were recognized as revenue during the same period. There were $36 million of contract liabilities added during the three months ended March 31, 2020, and $29 million of contract liabilities were recognized as revenue during the same period.

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 March 31, ~~2020,~~2021, 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~~2071 and have RPOs of ~~$5.4~~$6.3 billion as of March 31, ~~2020,~~2021, 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 2021 and 2038 and have RPOs of ~~$537~~$547 million as of March 31, ~~2020,~~2021, 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 4:6: Acquisitions and Divestitures

During the three months ended March 31, ~~2020,~~2021, the Company closed on the acquisition of 2 regulated water systems for a total aggregate purchase price of ~~$21 million, including the acquisition of the water system assets of the California based Fruitridge Vista Water Company (“Fruitridge”), on February 4, 2020.~~$3 million. Assets acquired from these acquisitions, principally utility plant, ~~totaling $23~~totaled $3 million.

Subsequent to March 31, 2021, the Company closed on 3 regulated water and wastewater systems for a total aggregate purchase price of $1 million.

On April 6, 2021, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the wastewater assets of the York City Sewer Authority for $235 million, plus an amount of average daily revenue calculated for the period between the final meter reading and ~~liabilities assumed totaling $2~~the date of closing. This system currently directly and indirectly serves more than 45,000 customers through bulk contracts. In connection with the execution of the acquisition agreement, the Company’s Pennsylvania subsidiary paid a $20 million deposit to the seller on April 30, 2021, which is refundable in the event the agreement is terminated prior to closing of the acquisition. The Company expects to close this acquisition by the beginning of 2022, pending regulatory approval.

On March 29, 2021, the Company’s New Jersey subsidiary entered into an agreement to acquire the water and wastewater assets of Egg Harbor City for $22 million. The ~~Fruitridge~~water and wastewater systems currently serve approximately 1,500 customers each, or 3,000 combined, and are being sold through the New Jersey Water Infrastructure Protection Act process. The Company expects to close this acquisition ~~was accounted for as a business combination, as~~in the ~~Company continues to grow its business through regulated acquisitions. The preliminary purchase price allocations related to the Fruitridge acquisition will be finalized once the valuation~~second half of ~~assets acquired has been completed, no later than one year after the acquisition date.~~2021, pending regulatory approval.

Assets Held for Sale

On November 20, 2019, the Company and the Company’s New York subsidiary, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co., which it subsequently assigned to its indirect, wholly owned subsidiary Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), pursuant to which Liberty will purchase all of the capital stock of the New York subsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in the Stock Purchase Agreement. The Company’s regulated New York operations have approximately 125,000 ~~customer connections~~customers in the State of New York. Algonquin Power & Utilities Corp., Liberty’s ultimate parent company, executed and delivered an absolute and unconditional guaranty of the performance of all of the obligations of Liberty under the Stock Purchase Agreement. ~~Progress toward completion~~The Stock Purchase is subject to various conditions, including obtaining approvals and satisfying or waiving other closing conditions. The Stock Purchase Agreement has an initial termination date of June 30, 2021. Either party may extend the ~~transaction continues~~initial termination date beyond June 30, 2021, and the Company ~~currently estimates that~~intends to extend such date, if necessary, provided all of the conditions to closing have been or are capable of being met, other than obtaining regulatory approvals. If not otherwise extended, the ultimate termination date is December 31, 2021. Liberty may also terminate the Stock Purchase ~~will be completed~~Agreement if any governmental authority initiates a condemnation or eminent domain proceeding against a majority of the consolidated properties of the Company’s New York subsidiary, taken as ~~soon as practicable which is anticipated to be no later than early 2021. Accordingly, the~~a whole. The assets and related liabilities of the Company’s New York subsidiary were classified as held for sale on the Consolidated Balance Sheets as of March 31, ~~2020.~~2021.

Presented in the table below are the components of assets held for sale and liabilities related to assets held for sale of the New York subsidiary as of March 31, ~~2020:~~2021:

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


	March 31, 2021
Property, plant and equipment	$	523
Current assets	13
Regulatory assets	77
Goodwill	31
Other assets	10
Assets held for sale	$	654
Current liabilities	14
Regulatory liabilities	48
Other liabilities	18
Liabilities related to assets held for sale	$	80

Note 5:7: 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 three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively:

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

Balance as of December 31, 2018 $ (102 ) $ 1
$ 56
$ 1
$ 10
$ (34 )
Other comprehensive loss before reclassifications —
—
—
—
(14 ) (14 )
Amounts reclassified from accumulated other comprehensive loss —
—
1
—
—
1
Net other comprehensive income (loss) —
—
1
—
(14 ) (13 )
Balance as of March 31, 2019 $ (102 ) $ 1
$ 57
$ 1
$ (4 ) $ (47 )


	Defined Benefit Pension Plans						Loss on Cash Flow Hedges		Accumulated Other Comprehensive Loss
	Employee Benefit Plan Funded Status		Amortization of Prior Service Cost		Amortization of Actuarial Loss
Balance as of December 31, 2020	$	(106)	$	1	$	63	$	(7)	$	(49)
Other comprehensive loss before reclassifications	—		—		—		0		0
Amounts reclassified from accumulated other comprehensive loss	—		—		1		—		1
Net other comprehensive income (loss)	—		—		1		0		1
Balance as of March 31, 2021	$	(106)	$	1	$	64	$	(7)	$	(48)

Balance as of December 31, 2019	$	(94)	$	1	$	60	$	(3)	$	(36)
Other comprehensive loss before reclassifications	—		—		—		(6)		(6)
Amounts reclassified from accumulated other comprehensive loss	—		—		1		—		1
Net other comprehensive income (loss)	—		—		1		(6)		(5)
Balance as of March 31, 2020	$	(94)	$	1	$	61	$	(9)	$	(41)

The Company does not reclassify the amortization of defined benefit pension cost components from accumulated other comprehensive loss directly to net income in its entirety, as a portion of these costs have been ~~capitalized~~deferred as a regulatory asset. These accumulated other comprehensive loss components are included in the computation of net periodic pension cost.

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.

On March ~~4, 2020,~~2, 2021, the Company paid a quarterly cash dividend of ~~$0.50~~$0.55 per share to shareholders of record as of February ~~7, 2020.~~8, 2021.

On April ~~29, 2020,~~28, 2021, the Company’s Board of Directors declared a quarterly cash dividend payment of ~~$0.55~~$0.6025 per share, payable on June ~~2, 2020~~1, 2021 to shareholders of record as of May ~~12, 2020.~~11, 2021. 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—10—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 6:8: Long-Term Debt

On April 14, 2020, American Water Capital Corp. (“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. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of $989 million. AWCC will use the net proceeds of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to fund sinking fund payments for, and to repay at maturity, $28 million in aggregate principal amount of outstanding long-term debt of AWCC and certain of the Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper obligations; and (iv) for general corporate purposes, including potentially to repay outstanding short-term indebtedness under AWCC’s $750 million Term Loan Facility (as defined in Note 7—Short-Term Debt) and its $2.25 billion unsecured revolving credit facility.

During March 2020, the Company entered into 4 10-year treasury lock agreements, each with a notional amount of $100 million, to reduce interest rate exposure on debt, which was subsequently issued on April 14, 2020. These treasury lock agreements had an average fixed rate of 0.94%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. On April 8, 2020 the Company terminated these 4 treasury lock agreements with an aggregate notional amount of $400 million, realizing a net loss of $6 million, to be amortized through interest, net over a 10 year period, in accordance with the terms of the $1.0 billion new debt issued on April 14, 2020. No ineffectiveness was recognized on hedging instruments for the three months ended March 31, 2020 and 2019.

During the three months ended March 31, ~~2020,~~2021, American Water Capital Corp. (“AWCC”) and the Company’s regulated subsidiaries issued $8in the aggregate $2 million of private activity bonds and government funded debt in multiple transactions with annual interest rates ranging from 0.00% to 5.00%, with a weighted average interest rate of 0.17%, maturing in 2021 through ~~2048.~~2047. During the three months ended March 31, ~~2020,~~2021, AWCC ~~along with~~and the Company’s regulated subsidiaries retired or paid at maturity $6an aggregate of $25 million of various long-term debt issues with annual interest rates ranging from 0.00% to 12.25%, with a weighted average interest rate of 8.35%, maturing in ~~2020~~2021 through 2048.

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

Derivative Instrument Derivative Designation Balance Sheet Classification March 31, 2020 December 31, 2019
Liability derivative:

Treasury lock agreements Cash flow hedge Other current liabilities $ 8
$ —

Note 7:9: Short-Term Debt

Liquidity needs for capital investment, working capital and other financial commitments are funded through cash flows from operations, public and private debt offerings, commercial paper markets and, if and to the extent necessary, borrowings under the AWCC revolving credit facility. The revolving credit facility provides $2.25 billion in aggregate total commitments from a diversified group of financial institutions. The termination date of the credit agreement with respect to AWCC’s revolving credit facility is March 21, 2025. The facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support and to provide a sub-limit of up to $150 million for letters of credit.

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

~~On April 1, 2020, the termination date~~Short-term debt consists of ~~the credit agreement with respect to AWCC’s revolving~~commercial paper and credit facility borrowings totaling $1.12 billion and $786 million as of March 31, 2021 and December 31, 2020, respectively. The weighted-average interest rate on AWCC’s outstanding short-term borrowings, including $500 million of outstanding principal on the Term Loan Facility as of December 31, 2020, was ~~extended, pursuant to the terms of the credit agreement, from~~approximately 0.17% and 0.53% at March ~~21, 2024 to March 21, 2025.~~31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, ~~AWCC had $215 million~~there were 0 commercial paper or credit facility borrowings outstanding ~~borrowings~~with maturities greater than three months.

Presented in the tables below is the aggregate credit facility commitments, commercial paper limit and ~~$76 million of outstanding letters~~letter of credit availability under the revolving credit facility, ~~and $926 million~~as well as the available capacity for each:


	As of March 31, 2021
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,100	$	150	$	2,250
Outstanding debt	(1,115)		(76)		(1,191)
Remaining availability as of March 31, 2021	$	985	$	74	$	1,059

(a)Total remaining availability of ~~outstanding commercial paper, with $1.03~~$1.06 billion ~~available to fulfill short-term liquidity needs and to issue letters~~as of ~~credit. The weighted-average interest rate on AWCC short-term borrowings outstanding was approximately 1.83% and 1.86% at~~ March 31, 2021 may be accessed through revolver draws.


	As of December 31, 2020
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,100	$	150	$	2,250
Outstanding debt	(786)		(76)		(862)
Remaining availability as of December 31, 2020	$	1,314	$	74	$	1,388

(a)Total remaining availability of $1.39 billion as of December 31, 2020 may be accessed through revolver draws.

Presented in the table below is the Company’s total available liquidity as of March 31, 2021 and December 31, ~~2019, respectively.~~2020, respectively:


	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)
Available liquidity as of March 31, 2021	$	69	$	1,059	$	1,128
Available liquidity as of December 31, 2020	$	547	$	1,388	$	1,935

Note 8:10: Income Taxes

The Company’s effective income tax rate was ~~22.0%~~14.2% and ~~25.7%~~22.0% for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The decrease in the Company’s effective income tax rate for the three months ended March 31, 2021 was primarily due to an increase in the amortization of ~~the excess accumulated deferred income taxes~~EADIT due to regulatory orders resulting from the ~~Tax Cuts and Jobs Act, which began in the second quarter of 2019,~~TCJA, and an increase in deductions for stock ~~option benefit~~.based compensation benefits.

Note 9:11: Pension and Other Postretirement Benefits

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

For the Three Months Ended March 31,
2020 2019
Components of net periodic pension benefit cost:
Service cost $ 8
$ 7
Interest cost 19
20
Expected return on plan assets (28 ) (22 )
Amortization of prior service credit (1 ) (1 )
Amortization of actuarial loss 8
8
Net periodic pension benefit cost $ 6
$ 12

Components of net periodic other postretirement benefit credit:
Service cost $ 1
$ 1
Interest cost 3
3
Expected return on plan assets (4 ) (4 )
Amortization of prior service credit (8 ) (8 )
Amortization of actuarial loss 1
1
Net periodic other postretirement benefit credit $ (7 ) $ (7 )


	For the Three Months Ended March 31,
	2021		2020
Components of net periodic pension benefit cost:
Service cost	$	9	$	8
Interest cost	17		19
Expected return on plan assets	(32)		(28)
Amortization of prior service credit	(1)		(1)
Amortization of actuarial loss	7		8
Net periodic pension benefit cost	$	0	$	6

Components of net periodic other postretirement benefit credit:
Service cost	$	1	$	1
Interest cost	2		3
Expected return on plan assets	(5)		(4)
Amortization of prior service credit	(8)		(8)
Amortization of actuarial loss	0		1
Net periodic other postretirement benefit credit	$	(10)	$	(7)

The Company contributed $9 million and $10 million for the funding of its defined benefit pension plans for the three months ended March 31, 2021 and 2020, ~~and made $7 million of funding contributions for the three months ended March 31, 2019.~~respectively. The Company made 0 contributions for the funding of its other postretirement benefit plans for each of the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. The Company expects to make pension contributions to the plan trusts of ~~up to $30~~$28 million during the remainder of ~~2020.~~2021.

Note ~~10:~~12: Commitments and Contingencies

The Company is routinely involved in legal actions incident to the normal conduct of its business. As of March 31, ~~2020,~~2021, the Company has accrued ~~approximately $12~~approximately $5 millionof probable loss contingencies and has estimated that the maximum amount of losses associated with reasonably possible loss contingencies that can be reasonably estimated is ~~$2 million.~~$4 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 ~~10—~~12—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 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, the Company’s West ~~Virginia-American Water Company~~Virginia subsidiary (“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.

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 March 31, ~~2020,~~2021, $0.5 million of the aggregate Settlement amount of $126 million has been reflected in accrued liabilities, and $0.5 million in offsetting insurance receivables have been reflected in other current assets on the Consolidated Balance Sheets. The amount reflected in accrued liabilities as of March 31, ~~2020~~2021 reflects reductions in the liability and appropriate reductions to the offsetting insurance receivable reflected in other current assets, associated with payments made to the Settlement fund, the receipt of a ~~final~~ 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 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~~the West Relay pumping station located in the City of ~~Dunbar.~~Dunbar, West Virginia and owned by WVAWC. 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 being 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 complaint captioned Jeffries, et al. v. West Virginia-American Water Company was filed in West Virginia Circuit Court in Kanawha County on behalf of an alleged class of residents and business owners who lost water service or pressure as a result of the Dunbar main break. The complaint alleges breach of contract by WVAWC for failure to supply water, violation of West Virginia law regarding the sufficiency of WVAWC’s facilities and negligence by WVAWC in the design, maintenance and operation of the water system. The Jeffries plaintiffs seek unspecified alleged damages on behalf of the class for lost profits, annoyance and inconvenience, and loss of use, as well as punitive damages for willful, reckless and wanton behavior in not addressing the risk of pipe failure and a large outage.

~~In October 2017, WVAWC filed with the court a motion seeking to dismiss all of the~~ ~~Jeffries~~ plaintiffs’ counts alleging statutory and common law tort claims. Furthermore, WVAWC asserted that the Public Service Commission of West Virginia, and not the court, has primary jurisdiction over allegations involving violations of the applicable tariff, the public utility code and related rules. In May, 2018, the court, at a hearing, denied WVAWC’s motion to apply the primary jurisdiction doctrine, and in October, 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~~ 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 July 14, 2020, the Circuit Court entered an order granting the Jeffries plaintiffs’ motion for certification of a class regarding certain liability issues but denying certification of a class to determine a punitive damages multiplier. On August 31, 2020, WVAWC filed a Petition for Writ of Prohibition in the Supreme Court of Appeals of West Virginia seeking to vacate or remand the Circuit Court order certifying the issues class. At the request of the parties, on September 10, 2020, the Circuit Court ordered the stay of all matters in the class proceeding pending consideration of this petition. On December 3, 2020, the Supreme Court of Appeals issued an order to show cause stating that there are sufficient grounds for oral argument to consider prohibiting the class certification ~~was held on March 11, 2020, followed~~order. On January 28, 2021, the Supreme Court of Appeals granted a motion by the Jeffries plaintiffs to remand the case back to the Circuit Court for further consideration in light of a ~~status conference on April 7, 2020. This motion remains pending.~~recent Supreme Court of Appeals decision issued in another case relating to the class certification issues raised.

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 loss or a range of such losses related to this proceeding.

Chattanooga, Tennessee Water Main Break Class Action Litigation

On September 12, 2019, ~~Tennessee-American Water Company, a wholly owned~~the Company’s Tennessee subsidiary ~~of the Company~~ (“TAWC”), experienced a ~~break of~~leak in 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 onof September 15, 2019, with the boil water notice lifted for all customers on September 16, 2019.

On September 17, 2019, a complaint captioned Bruce, et al. v. American Water Works Company, Inc., et al. was filed in the Circuit Court of Hamilton County, Tennessee against TAWC, the Company and American Water Works Service Company, Inc.~~, a wholly owned subsidiary of~~ (“Service Company,” and together with TAWC and the Company, ~~(collectively,~~collectively, the “Tennessee-American Water Defendants”), on behalf of ~~an alleged~~a proposed class of individuals or entities who lost water service or suffered monetary losses as a result of the Chattanooga ~~main break~~incident (the “Tennessee Plaintiffs”). The complaint ~~alleges~~alleged breach of contract and negligence against the Tennessee-American Water Defendants, as well as an equitable remedy of piercing the corporate veil. ~~The~~In the complaint as originally filed, the Tennessee Plaintiffs ~~seek~~were seeking 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~~Oral argument on ~~this motion was held on February 18, 2020. The~~the motion to dismiss ~~remains pending.~~

~~The~~took place on September 9, 2020. On September 18, 2020, the court (i) granted the motion to dismiss the Tennessee Plaintiffs’ negligence claim against all Tennessee-American Water Defendants, (ii) denied the motion to dismiss the breach of contract claim against TAWC, (iii) held in abeyance the motion to dismiss the breach of contract claims against the Company and Service Company pending a further hearing and (iv) held in abeyance the Company’s motion to dismiss the complaint for lack of personal jurisdiction. On September 24, 2020, at the request of the Tennessee Plaintiffs, the court dismissed without prejudice all claims in the Bruce complaint against the Company and Service Company. The impact of the September 2020 court orders was that all of the Tennessee Plaintiffs’ claims in this complaint were dismissed, other than the breach of contract claims against TAWC. On October 16, 2020, TAWC answered the complaint, and the parties are commencing with discovery.

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

Alternative Water Supply in Lieu of Carmel River Diversions

Compliance with Orders to Reduce Carmel River Diversions—Monterey Peninsula Water Supply Project

Under a 2009 order (the “2009 Order”) of the State Water Resources Control Board (the “SWRCB”), the Company’s California subsidiary (“Cal Am”) is required to decrease significantly its yearly diversions of water from the Carmel River according to a set reduction schedule. In 2016, the SWRCB issued an order (the “2016 Order”) approving a deadline of December 31, 2021 for Cal Am’s compliance with these prior orders (the “2021 Deadline”).

Cal Am is currently involved in developing the Monterey Peninsula Water Supply Project (the “Water Supply Project”), which includes the construction of a desalination plant, to be owned by Cal Am, and the construction of wells that would supply water to the desalination plant. In addition, the Water Supply Project also includes Cal Am’s purchase of water from a groundwater replenishment project (the “GWR Project”) between Monterey One Water and the Monterey Peninsula Water Management District (the “MPWMD”). The Water Supply Project is intended, among other things, to fulfill Cal Am’s obligations under the 2009 Order and the 2016 Order.

Cal Am’s ability to move forward on the Water Supply Project is subject to administrative review by the California Public Utilities Commission (the “CPUC”) and other government agencies, obtaining necessary permits, and intervention from other parties. In September 2016, the CPUC unanimously approved a final decision to authorize Cal Am to enter into a water purchase agreement for the GWR Project and to construct a pipeline and pump station facilities and recover up to the incurred $50 million in associated costs plus an allowance for funds used during construction (“AFUDC”), subject to meeting certain criteria.

In September 2018, the CPUC unanimously approved another final decision finding that (i) the Water Supply Project meets the CPUC’s requirements for a certificate of public convenience and necessity, (ii) the issuance of the final decision should not be delayed, and (iii) an additional procedural phase was not necessary to consider alternative projects. The CPUC’s 2018 decision concludes that the Water Supply Project is the best project to address estimated future water demands in Monterey, and, in addition to the cost recovery approved in its 2016 decision, adopts Cal Am’s cost estimates for the Water Supply Project, which amounted to an aggregate of $279 million plus AFUDC at a rate representative of Cal Am’s actual financing costs. The 2018 final decision specifies the procedures for recovery of all of Cal Am’s prudently incurred costs associated with the Water Supply Project upon its completion, subject to the frameworks included in the final decision related to cost caps, operation and maintenance costs, financing, ratemaking and contingency matters. The reasonableness of the Water Supply Project costs will be reviewed in the first general rate case filed by Cal Am after it becomes operational. Cal Am has incurred $161 million in aggregate costs as of March 31, 2021 related to the Water Supply Project, which includes $38 million in AFUDC. While Cal Am believes that its expenditures to date have been prudent and necessary to comply with the 2009 Order and the 2016 Order, as well as the CPUC’s 2016 and 2018 final decisions, Cal Am cannot currently predict its ability to recover all of its costs and expenses associated with the Water Supply Project and there can be no assurance that Cal Am will be able to recover all of such costs and expenses in excess of the $50 million in construction costs previously approved by the CPUC in its 2016 final decision.

Coastal Development Permit Application

In June 2018, Cal Am submitted a coastal development permit application to the City of Marina (the “City”) for those project components of the Water Supply Project located within the City’s coastal zone. Members of the City’s Planning Commission, as well as City councilpersons, have publicly expressed opposition to the Water Supply Project. In May 2019, the City issued a notice of final local action based upon the denial by the Planning Commission of Cal Am’s coastal development permit application. Thereafter, Cal Am appealed this decision to the California Coastal Commission (the “Coastal Commission”), as permitted under the City’s code and the California Coastal Act. At the same time, Cal Am submitted an application to the Coastal Commission for a coastal development permit for those project components located within the Coastal Commission’s original jurisdiction. In October 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, largely based on a memorandum prepared by the general manager of the MPWMD that contradicted findings made by the CPUC in its final decision approving the Water Supply Project. In November 2019, discussions between staffs of the Coastal Commission and the CPUC took place regarding the Coastal Commission staff recommendation, at which time the CPUC raised questions about the Coastal Commission staff’s findings on water supply and demand, groundwater impacts and the viability of a project that the Coastal Commission staff believes may be a possible alternative to the Water Supply Project.

On August 25, 2020, the staff of the Coastal Commission released a report again recommending denial of Cal Am’s application for a coastal development permit. Although the report concluded that the Water Supply Project would have a negligible impact on groundwater resources, the report also concluded it would impact other coastal resources, such as environmentally sensitive habitat areas and wetlands, and that the Coastal Commission staff believes that a feasible alternative project exists that would avoid those impacts. The staff’s report also noted disproportionate impacts to communities of concern. On September 16, 2020, Cal Am withdrew its original jurisdiction application to allow additional time to address the Coastal Commission staff’s environmental justice concerns. The withdrawal of the original jurisdiction application did not impact Cal Am’s appeal of the City’s denial, which remains pending before the Coastal Commission. Cal Am refiled the original jurisdiction application on November 6, 2020. On December 3, 2020, the Coastal Commission sent to Cal Am a notice of incomplete application, identifying certain additional information needed to consider the application complete. In March 2021, Cal Am provided responses to the Coastal Commission’s notice of incomplete application. The original jurisdiction application remains pending.

Cal Am continues to work constructively with all appropriate agencies to provide necessary information in connection with obtaining required approvals for the Water Supply Project. However, based on the foregoing, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. Due to the delay in the approval schedule, Cal Am currently does not believe that it will be able to fully comply with the diversion reduction requirements and other remaining requirements under the 2009 Order and the 2016 Order, including the 2021 Deadline. While the Company cannot currently predict the likelihood or result of any adverse outcome associated with these matters, further attempts to comply with the 2009 Order and the 2016 Order, or the 2021 Deadline, may result in material additional costs and obligations to Cal Am,including fines and penalties against Cal Am in the event of noncompliance with the 2009 Order and the 2016 Order.

Note ~~11:~~13: 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”)~~EPS calculations:

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

Denominator:

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


	For the Three Months Ended March 31,
	2021		2020
Numerator:
Net income attributable to common shareholders	$	133	$	124

Denominator:
Weighted-average common shares outstanding—Basic	181		181
Effect of dilutive common stock equivalents	1		0
Weighted-average common shares outstanding—Diluted	182		181

The effect of dilutive common stock equivalents is related to outstanding stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) granted under the Company’s 2007 Omnibus Equity Compensation Plan and outstanding ~~restricted stock units~~RSUs and ~~performance stock units~~PSUs granted under the Company’s 2017 Omnibus Equity Compensation Plan, as well as estimated shares to be purchased under the Company’s 2017 Nonqualified Employee Stock Purchase Plan. Less than ~~one million~~1000000 share-based awards were excluded from the computation of diluted EPS for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020, because their effect would have been anti-dilutive under the treasury stock method.

Note ~~12:~~14: 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.

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:


	As of March 31, 2021
	Carrying Amount		At Fair Value
			Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	4	$	0	$	0	$	5	$	5
Long-term debt (excluding finance lease obligations)	9,634		8,821		405		1,665		10,891

	As of December 31, 2020
	Carrying Amount		At Fair Value
			Level 1		Level 2		Level 3		Total
Preferred stock with mandatory redemption requirements	$	5	$	0	$	0	$	7	$	7
Long-term debt (excluding finance lease obligations)	9,656		9,639		415		1,753		11,807

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

Carrying Amount At Fair Value as of December 31, 2019
Level 1 Level 2 Level 3 Total
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

Table of Contents

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:


	As of March 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Restricted funds	$	30	$	0	$	0	$	30
Rabbi trust investments	21		0		0		21
Deposits	6		0		0		6
Other investments	16		0		0		16
Total assets	73		0		0		73

Liabilities:
Deferred compensation obligations	25		0		0		25
Total liabilities	25		0		0		25
Total assets	$	48	$	0	$	0	$	48

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

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

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

Liabilities:
Deferred compensation obligations 21
—
—
21
Total liabilities 21
—
—
21
Total assets $ 38
$ —
$ —
$ 38


	As of December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Restricted funds	$	29	$	0	$	0	$	29
Rabbi trust investments	19		0		0		19
Deposits	4		0		0		4
Other investments	11		0		0		11
Total assets	63		0		0		63

Liabilities:
Deferred compensation obligations	24		0		0		24
Total liabilities	24		0		0		24
Total assets	$	39	$	0	$	0	$	39

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 operation, maintenance and repair projects.

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.

Table of Contents

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 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 may use 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 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. The Company had no significant mark-to-market derivatives outstanding as of March 31, 2021.

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 ~~13:~~15: Leases

The Company has operating and finance leases involving real property, including facilities, utility assets, vehicles, and equipment. Certain operating leases have renewal options ~~ranging~~ranging fromone 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 right-of-use (“ROU”) assets. Certain operating leases contain the option to purchase the leased property. The operating leases for real property, vehicles and equipment will expire over the next 4039 years, ~~seven~~six 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 $146 million and $147 million as of March 31, ~~2020~~2021 and December 31, ~~2019.~~2020, respectively. 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 million in ~~2020~~2021 through ~~2024,~~2025, and ~~$56~~$52 million ~~thereafter,~~ 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 $4 millionfor the three months ended March 31, ~~2020.~~2021 and March 31, 2020, respectively.

~~Presented~~For the three months ended March 31, 2021, cash paid for amounts in lease liabilities, which includes operating and financing cash flows from operating and finance leases, was $3 million. For the ~~table below is supplemental cash flow information:~~three months ended March 31, 2021, ROU assets obtained in exchange for new operating lease liabilities was $6 million.

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


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

~~Presented in~~As of March 31, 2021, the ~~table below are the weighed-average~~weighted-average remaining lease ~~terms~~term of the finance lease and operating leases were five years and 18 years, respectively, and the weighted-average discount ~~rates for~~rate of the finance lease and operating ~~leases:~~leases were 12% and 4%, respectively.



	~~As of March 31, 2020~~
~~Weighted-average remaining lease term:~~
~~Finance lease~~	~~6 years~~
~~Operating leases~~	~~19 years~~

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

~~Presented in the table below are the~~The future maturities of lease liabilities at March 31, ~~2020:~~2021 are $10 million in 2021, $12 million in 2022, $9 million in 2023, $8 million in 2024, $7 million in 2025 and $96 million thereafter. At March 31, 2021 imputed interest was $47 million.

Amount
2020 $ 11
2021 13
2022 11
2023 7
2024 7
Thereafter 100
Total lease payments 149
Imputed interest (52 )
Total $ 97

Note ~~14:~~16: 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.

Table of Contents

Presented in the tables below is summarized segment information:


	As of or for the Three Months Ended March 31, 2021
	Regulated Businesses		Market-Based Businesses		Other		Consolidated
Operating revenues	$	755	$	137	$	(4)	$	888
Depreciation and amortization	147		5		5		157
Total operating expenses, net	543		114		2		659
Interest, net	(71)		(1)		(26)		(98)
Income before income taxes	163		22		(30)		155
Provision for income taxes	28		6		(12)		22
Net income attributable to common shareholders	135		17		(19)		133
Total assets	22,032		892		1,601		24,525
Cash paid for capital expenditures	338		2		2		342


	As of or for the Three Months Ended March 31, 2020
	Regulated Businesses		Market-Based Businesses		Other		Consolidated
Operating revenues	$	720	$	128	$	(4)	$	844
Depreciation and amortization	135		6		4		145
Total operating expenses, net	503		99		3		605
Interest, net	(72)		1		(25)		(96)
Income before income taxes	162		30		(33)		159
Provision for income taxes	40		8		(13)		35
Net income attributable to common shareholders	123		22		(21)		124
Total assets	20,575		1,037		1,934		23,546
Cash paid for capital expenditures	404		3		1		408

As of or for the Three Months Ended March 31, 2020
Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues $ 720
$ 128
$ (4 ) $ 844
Depreciation and amortization 135
6
4
145
Total operating expenses, net 503
99
3
605
Interest, net (72 ) 1
(25 ) (96 )
Income before income taxes 162
30
(33 ) 159
Provision for income taxes 40
8
(13 ) 35
Net income attributable to common shareholders 123
22
(21 ) 124
Total assets 20,575
1,037
1,934
23,546
Cash paid for capital expenditures 404
3
1
408

As of or for the Three Months Ended March 31, 2019
Regulated Businesses Market-Based Businesses Other Consolidated
Operating revenues $ 685
$ 134
$ (6 ) $ 813
Depreciation and amortization 130
9
5
144
Total operating expenses, net 470
108
(3 ) 575
Interest, net (73 ) 1
(21 ) (93 )
Income before income taxes 150
27
(25 ) 152
Provision for income taxes 40
7
(8 ) 39
Net income attributable to common shareholders 110
20
(17 ) 113
Total assets 18,937
1,019
1,508
21,464
Cash paid for capital expenditures 315
4
7
326

Table of Contents

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 the Notes thereto included elsewhere in this Form 10-Q, and in the Company’s Form 10-K for the year ended December 31, ~~2019.~~2020. 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,”~~Statements” and elsewhere in this Form 10-Q. The Company has a disclosure committee consisting of members of senior management and other key employees involved in the preparation of the Company’s SEC reports. The committee is actively involved in the review and discussion of the Company’s SEC filings.

Overview

American Water is the largest and most geographically diverse, publicly traded 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 subject to regulation by multiple state utility commissions or other entities engaged in utility regulation, collectively referred to as public utility commissions (“PUCs”). The Company also operates market-based businesses that provide ~~complementary~~ water, wastewater and other services to residential and smaller commercial customers, the U.S. government on military installations, as well as municipalities ~~utilities~~ and ~~industrial~~utility customers, collectively presented as the “Market-Based Businesses.” These Market-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.

Novel Coronavirus (COVID-19) Pandemic Update

American Water continues to monitor the ~~global outbreak of the current novel coronavirus (“COVID-19”)~~COVID-19 pandemic and ~~is taking~~has taken steps to mitigate ~~potential risks~~adverse impacts to the Company. ~~American Water~~The Company 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~~continues to work with its vendors to ~~understand the potential impacts to~~prevent disruptions in its supply chain, and, at this time, ithas not experienced, and does not anticipate, any material negative ~~impacts~~impacts. The Company also continues to ~~its supply chain. American Water is also monitoring~~monitor the impacts of the COVID-19 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~~

The Company has ~~taken~~experienced financial impacts resulting from lower revenues from the ~~steps outlined below~~suspension of late fees and foregone reconnect fees in ~~“Recent Financing Activities”~~certain states, certain incremental operation and ~~further discussed~~maintenance (“O&M”) expenses, an increase in ~~“Liquidity~~uncollectible accounts expense and ~~Capital Resources.”~~

~~This pandemic is a rapidly evolving situation, and American Water will continue~~additional debt costs.These impacts are collectively referred to ~~monitor developments affecting its employees, customers, contractors and vendors and take~~as “financial impacts.” See Note 3—Impact of Novel Coronavirus (COVID-19) Pandemic in the Notes to Consolidated Financial Statements for additional precautions as may be warranted. As the impact continues to be assessed, the Company will work with PUCs as they look to address COVID-19 response measures, customer protection and cost recovery for all regulated utilities in their jurisdictions. Through the three months ended March 31, 2020, the COVID-19 pandemic did not have a material impact on the financial results of the Company as discussed in “Financial Results” and “Consolidated Results of Operations” below.information. The extent to which COVID-19 may further impact American Water, including without limitation, its liquidity, financial condition, and results of operations, will depend on future developments, which presently ~~are highly uncertain and~~ cannot be predicted.

~~Recent Financing Activities~~

Table of Contents

~~On March 20, 2020,~~As of May 3, 2021, American Water ~~and American Water Capital Corp. (“AWCC”),~~has commission orders authorizing deferred accounting or cost recovery for COVID-19 financial impacts in 11 of 14 jurisdictions, with proceedings in three jurisdictions pending. One jurisdiction, Kentucky, issued an order denying a ~~wholly owned finance subsidiary of American Water, entered into~~request to defer to a ~~Term Loan Credit Agreement that provides for a term loan facility of up~~regulatory asset the financial impacts related to ~~$750 million (the “Term Loan Facility”). On March 20, 2020, AWCC borrowed $500 million under~~ the ~~Term Loan Facility, the proceeds of which~~COVID-19 pandemic. Other regulatory actions to date are to be used for general corporate purposes of AWCC and American Water, and to provide additional liquidity. The Term Loan Agreement allows for a single additional borrowing of up to $250 million on or before June 19, 2020. See Note 7—Short-Term Debtpresented in the ~~Notes~~table below:

Commission Actions

Description

States

Orders issued with deferred accounting

Allows the Company to establish regulatory assets to record certain financial impacts related to the COVID-19 pandemic.

HI, IA, IN, MD, NJ, PA (a), VA, WV

Orders issued with cost recovery

California’s Catastrophic Event Memorandum Account allows the Company’s California subsidiary to track certain financial impacts related to the COVID-19 pandemic for future recovery requests. Illinois has authorized cost recovery of COVID-19 financial impacts through a special purpose rider over a 24-month period, which was implemented effective October 1, 2020. Additionally, Illinois approved a bad debt rider tariff on December 16, 2020, allowing collection of actual bad debt expense over last authorized beginning April 2021 through February 2023. Illinois approved a stipulation in March 2021 to allow the rider to be extended through the end of 2023. Missouri issued a base rate case order on April 7, 2021, authorizing recovery in rates of the COVID-19 financial impacts deferred through March 31, 2021 over a three-year period.

CA, IL, MO

Proceedings pending

Pending proceedings considering deferred accounting authorization for the future recovery of COVID-19 financial impacts.

NY, TN

~~On April 14, 2020, AWCC completed a $1.0 billion debt offering which included~~As of May 3, 2021, five states continue moratoria on the ~~sale~~suspension of ~~$500 million aggregate principal amount of its 2.80% senior notes~~service disconnections due ~~2030~~to non-payment. The moratoria on disconnects have expired in nine states. The Company continues to monitor the evolving COVID-19 pandemic and ~~$500 million aggregate principal amount of its 3.45% senior notes due 2050. Net proceeds of this offering were used~~will continue to ~~lend funds to parent company~~comply with the current ordered moratoria and its regulated subsidiaries, repay various senior notes and regulated subsidiary debt obligations at maturity, repay commercial paper obligations and for general corporate purposes, including potentially to repay short-term indebtedness under AWCC’s Term Loan Facility and its unsecured revolving credit facility. See Note 6—Long-Term Debt in the Notes to Consolidated Financial Statements for additional information.

any future moratoria implemented.

Financial Results

~~Presented in~~For the ~~table below are the Company’s~~three months ended March 31, 2021, diluted earnings per share, ~~as determined~~prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), ~~and the Company’s adjusted diluted earnings per share (a non-GAAP measure):~~

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

Freedom Industries settlement activities —
(0.02 )
Income tax impact —
0.01
Net adjustment —
(0.01 )

Total net adjustments (0.01 ) (0.01 )

Adjusted diluted earnings per share (non-GAAP) $ 0.67
$ 0.61

~~For the three months ended March 31, 2020, diluted earnings per share (GAAP)~~ were ~~$0.68,~~$0.73, an increase of ~~$0.06~~$0.05 per diluted share, as compared ~~to the prior year. Included in these amounts~~ ~~are the items presented in the table above and discussed in greater detail in “Adjustments to GAAP” below.~~ ~~Excluding the items presented in the table above, adjusted diluted earnings per share (non-GAAP) were $0.67 for the three months ended March 31, 2020, an increase of $0.06 per diluted share, compared~~ to the prior year. ~~These increases were~~This increase was primarily driven ~~primarily~~ by continued growth in the Regulated Businesses from infrastructure investment, acquisitions and organic ~~growth.~~

~~Adjustments to GAAP~~

~~Adjusted diluted earnings per share represents a non-GAAP financial measure~~growth, and ~~as shown~~were partially offset by additional costs associated with an increase in claims in 2021 in Homeowner Services Group (“HOS”) from extreme cold weather across the table above, is calculated as GAAP diluted earnings per share, excluding the impact of one or more of the following events: (i) the effect of the discontinuation of depreciation expense on the assets of the Company’s New York subsidiary, which have been presented as assets held for sale; and (ii) the benefit from the reductioncountry during the first quarter of ~~2019~~2021, primarily in Texas and Illinois, and a continuation of ~~the liability related~~more stay-at-home activities as experienced throughout most of 2020 due to the ~~Freedom Industries chemical spill settlement in West Virginia.~~

The Company believes that this non-GAAP measure is useful to investors because it provides an indication of the Company’s baseline performance, excluding items that are not considered by management to be reflective 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. With respect to the inclusion of depreciation related to assets held for sale, which must cease under GAAP, management believes that inclusion of this depreciation is useful for investors to make reasonable year-to-year comparisons with respect to depreciation on the assets of the Company’s New York subsidiary. Although management uses this non-GAAP financial measure internally to evaluate 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 substitute for, measures of financial performance prepared in accordance with GAAP. In addition, this non-GAAP financial measure as defined and used above, may not be comparable to similarly titled non-GAAP measures used by other companies, and, accordingly, may have significant limitations on its use.

COVID-19 pandemic.

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

The Company expects to continue to grow its businesses, with the majority of 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. The Company plans to invest approximately $1.9 billion across its footprint in 2021. During the first three months of ~~2020,~~2021, the Company invested ~~$457~~$342 million, primarily in the Regulated Businesses, as discussed below:

Regulated Businesses - Growth and Optimization

•$~~432~~336 million capital investment in the Regulated Businesses, the majority for infrastructure improvements and ~~replacements.~~replacements; and

•$213 million to fund acquisitions in the Regulated Businesses, which added approximately ~~5,100~~600 water and wastewater customers through the three months ended March 31, ~~2020.~~2021, in addition to approximately 3,600 customers added through organic growth through the three months ended March 31, 2021.

Table of Contents

On April 6, 2021, the Company’s Pennsylvania subsidiary entered into an agreement to acquire the wastewater assets of the York City Sewer Authority for $235 million, plus an amount of average daily revenue calculated for the period between the final meter reading and the date of closing. This system currently directly and indirectly serves more than 45,000 customers through bulk contracts. In connection with the execution of the acquisition agreement, the Company’s Pennsylvania subsidiary paid a $20 million deposit to the seller on April 30, 2021, which is refundable in the event the agreement is terminated prior to closing of the acquisition. The Company expects to close this acquisition by the beginning of 2022, pending regulatory approval.

On March 29, 2021, the Company’s New Jersey subsidiary entered into an agreement to acquire the water and wastewater assets of Egg Harbor City for $22 million. The water and wastewater systems currently serve approximately 1,500 customers each, or 3,000 combined, and are being sold through the New Jersey Water Infrastructure Protection Act process. The Company expects to close this acquisition in the second half of 2021, pending regulatory approval.

During April ~~2020,~~2021, the Company closed on the acquisition of three regulated water and wastewater systems adding approximately ~~1,100 customers. The~~300 customers, for a total aggregate purchase price of $1 million. As of May 3, 2021, the Company has entered into agreements for pending acquisitions in the Regulated Businesses to add approximately ~~45,800~~86,000 additional customers. ~~For~~

Sale of New York American Water Company, Inc.

On November 20, 2019, the ~~full year~~Company and the Company’s New York subsidiary entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Liberty Utilities Co, which it subsequently assigned to its indirect, wholly owned subsidiary Liberty Utilities (Eastern Water Holdings) Corp. (“Liberty”), pursuant to which Liberty will purchase all of the capital stock of the New York subsidiary (the “Stock Purchase”) for an aggregate purchase price of approximately $608 million in cash, subject to adjustment as provided in the Stock Purchase Agreement. The Company’s regulated New York operations have approximately 125,000 customers in the State of New York. Algonquin Power & Utilities Corp., Liberty’s ultimate parent company, executed and delivered an absolute and unconditional guaranty of the performance of all of the obligations of Liberty under the Stock Purchase Agreement. The Stock Purchase is subject to various conditions, including obtaining approvals and satisfying or waiving other closing conditions. The Stock Purchase Agreement has an initial termination date of June 30, 2021. Either party may extend the initial termination date beyond June 30, 2021, and the Company intends to extend such date, if necessary, provided all of the conditions to closing have been or are capable of being met, other than obtaining regulatory approvals. If not otherwise extended, the ultimate termination date is December 31, 2021. 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 Company’s New York subsidiary, taken as a whole.

In 2020, ~~capital investments,~~the Governor of New York proposed legislation that, among other things, required the New York State Department of Public Service (“NYSDPS”) to study whether private water suppliers should be placed under municipal control. On February 3, 2021, the Governor issued a press release announcing that he directed the NYSDPS Special Counsel to commence and lead a municipalization feasibility study (the “Study”). The Study was released on March 29, 2021 finding that municipalization was feasible and in the public interest. The Study focused primarily on the imminent need for tax relief for the Company’s New York subsidiary’s customers and included recommendations to eliminate the Special Franchise Tax and create a new public authority to potentially acquire all or a portion of the system. Despite the Study’s findings, the Governor’s budget was released without addressing the Special Franchise Tax and without the creation of an authority. The Company’s New York subsidiary continues to work constructively with the NYSDPS, including ~~acquisitions, are expected~~through ongoing settlement discussions among all parties to the proceeding held on April 16, 2021, and continues to take all actions necessary to facilitate the completion of the Stock Purchase. Subject to satisfying or waiving the various conditions to closing, and assuming no prior termination of the Stock Purchase Agreement by Liberty as described above, the Company remains confident that the Stock Purchase will be ~~approximately $1.9 billion.~~completed.

The assets and related liabilities of the Company’s New York subsidiary were classified as held for sale on the Consolidated Balance Sheets as of March 31, 2021. See Note 6—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 34.1% for the twelve months ended March 31, 2021, as compared to 34.5% for the twelve months ended March 31, ~~2020, as compared to 35.5% for the twelve months ended March 31, 2019.~~2020. The improvement in this ratio ~~was largely due to~~reflects the continued focus on operating costs, as well as an increase in operating revenues ~~as well as continued focus on operating costs of~~for the Regulated Businesses.

Table of Contents

The Company’s adjusted regulated O&M efficiency ratio is a non-GAAP measure, and is defined by the Company as its operation and maintenance expenses from the Regulated Businesses, divided by the operating revenues from the Regulated Businesses, where both operation and maintenance expenses and operating revenues were adjusted to eliminate purchased water expense. Operating revenues were further adjusted to exclude the reductions for the amortization of excess accumulated deferred income taxes. Also excluded from operation and maintenance expenses ~~are~~is the allocable portion of non-operation and maintenance support services costs, mainly depreciation and general taxes, which ~~are~~is reflected in the Regulated Businesses segment as operation and maintenance expenses, but for consolidated financial reporting purposes, ~~are~~is categorized within other line items in the accompanying Consolidated Statements of Operations. In addition to the adjustments discussed above, the Company also excluded from operation and maintenance expenses, the impact of certain Freedom Industries chemical spill settlement activities recognized in 2018 and 2019. The items discussed above were excluded from the O&M efficiency ratio calculation as they are not reflective of management’s ability to increase the efficiency of the Regulated 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.Businesses.

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 its financial statements prepared in accordance with GAAP. This information supplements and should be read in conjunction with the ~~Company's~~Company’s 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 (i) is not an accounting measure that is based on ~~GAAP,~~GAAP; (ii) is not based on a standard, objective industry definition or method of calculation; (iii) may not be comparable to other companies’ operating ~~measures~~measures; and (iv) should not be used in place of the GAAP information provided elsewhere in this Form 10-Q.

Presented in the table below is the calculation of 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 March 31,
(Dollars in millions)	2021			2020
Total operation and maintenance expenses	$	1,658		$	1,562
Less:
Operation and maintenance expenses—Market-Based Businesses	404			386
Operation and maintenance expenses—Other	(26)			(27)
Total operation and maintenance expenses—Regulated Businesses	1,280			1,203
Less:
Regulated purchased water expenses	152			139
Allocation of non-operation and maintenance expenses	43			31
Adjusted operation and maintenance expenses—Regulated Businesses (i)	$	1,085		$	1,033

Total operating revenues	$	3,822		$	3,640
Less:
Operating revenues—Market-Based Businesses	549			533
Operating revenues—Other	(17)			(22)
Total operating revenues—Regulated Businesses	3,290			3,129
Less:
Regulated purchased water revenues (a)	152			139
Revenue reductions for the amortization of excess accumulated deferred income taxes	(46)			—
Adjusted operating revenues—Regulated Businesses (ii)	$	3,184		$	2,990

Adjusted O&M efficiency ratio—Regulated Businesses (i) / (ii)	34.1		%	34.5		%

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

For the Twelve Months Ended March 31,
(Dollars in millions) 2020 2019
Total operation and maintenance expenses $ 1,562
$ 1,496
Less:
Operation and maintenance expenses—Market-Based Businesses 386
380
Operation and maintenance expenses—Other (27 ) (43 )
Total operation and maintenance expenses—Regulated Businesses 1,203
1,159
Less:
Regulated purchased water expenses 139
131
Allocation of non-operation and maintenance expenses 31
32
Impact of Freedom Industries settlement activities (a)
—
(24 )
Adjusted operation and maintenance expenses—Regulated Businesses (i)
$ 1,033
$ 1,020

Total operating revenues $ 3,640
$ 3,493
Less:
Operating revenues—Market-Based Businesses 533
511
Operating revenues—Other (22 ) (21 )
Total operating revenues—Regulated Businesses 3,129
3,003
Less:
Regulated purchased water revenues (b)
139
131
Adjusted operating revenues—Regulated Businesses (ii)
$ 2,990
$ 2,872

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


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


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

Table of Contents

Regulatory Matters

General Rate Cases and Infrastructure Surcharges

Presented in the table below are annualized incremental revenues, excluding reductions for the amortization of excess accumulated deferred income tax (“EADIT”) that are generally offset in income tax expense, assuming a constant water sales volume, resulting from general rate ~~cases~~case authorizations and infrastructure surcharge authorizations that became ~~effective:~~effective in the current period:


(In millions)	During the Three Months Ended March 31, 2021		During the Three Months Ended March 31, 2020
General rate cases by state:
Pennsylvania (a)	$	70	$	—
California (b)	—		5
Total general rate cases	$	70	$	5

Infrastructure surcharges by state:
Indiana (effective March 17, 2021)	$	8	$	—
Pennsylvania (effective January 1, 2021 and January 1, 2020)	8		10
Illinois (effective January 1, 2021 and January 1, 2020)	7		7
West Virginia (effective January 1, 2021 and January 1, 2020)	5		3
Tennessee (effective January 1, 2021)	3		—
New Jersey (effective January 1, 2020)	—		10
Total infrastructure surcharges	$	31	$	30

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

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


~~(a)~~	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.

(a)The Company’s Pennsylvania subsidiary was authorized additional annualized revenues of $90 million, excluding a reduction in revenues for tax savings passed back to customers as a result of the TCJA, over two steps. The EADIT reduction in revenues is $19 million. The overall increase, net of TCJA, is $71 million in revenues combined over two steps. The first step was effective January 28, 2021 in the amount of $70 million ($51 million including TCJA reductions) and the second step will be effective January 1, 2022 in the amount of $20 million. The protected EADIT balance of $200 million is being returned to customers using the average rate assumption method (“ARAM”), and the unprotected EADIT balance of $116 million is being returned to customers over 20 years. The $19 million annually includes both the protected and unprotected EADIT amortizations and a portion of catch-up period EADIT. A bill credit of $11 million annually for two years returns to customers the remainder of the EADIT catch-up period amortization. The catch-up period of January 1, 2018 through December 31, 2020 covers the period from when the lower federal corporate income tax rate went into effect until new base rates went into effect and will be amortized over two years.

~~Directly related~~(b)The Company’s California subsidiary received approval for the third year (2020) step increase associated with its most recent general rate case authorization, effective January 1, 2020.

On March 2, 2021, an administrative law judge (“ALJ”) in the Office of Administrative Law of New Jersey filed an initial decision with the New Jersey Board of Public Utilities (the “NJBPU”) that recommended denial of a petition filed by the Company’s New Jersey subsidiary, which seeks approval of acquisition adjustments in rates of $29 million associated with the acquisitions of Shorelands Water Company, Inc. in April 2017 and the Borough of Haddonfield’s water and wastewater systems in 2015. The Company’s New Jersey subsidiary filed exceptions to the ~~emergence~~initial decision and recommendations by the ALJ, which were responded to by the New Jersey Division of Rate Counsel. The Company is now awaiting a decision by the NJBPU.

Due in part to the COVID-19 pandemic, ~~and its impacts on various processes, on March 25, 2020,~~ the New York State Public Service Commission approved, through a series of orders, 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~~2020 until ~~September~~May 1, ~~2020, at which time the previously approved step increase will go into effect.~~2021. The ~~order further provides~~orders provided 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 toThese delays impact rates for all ~~customers, including residential and commercial customers~~metered and fire ~~service and irrigation accounts.~~

~~The Company’s Indiana subsidiary filed for and, on May 4, 2020, received approval~~customers, which the Company is authorized to ~~implement~~recover in a ~~$13 million increase for the second rate year, effective~~make-whole surcharge, which began May 1, ~~2020, pending protest rights to the certified numbers.~~2021.

~~Effective April 1, 2020, the Company’s Pennsylvania subsidiary implemented infrastructure surcharges for annualized incremental revenues~~

Table of ~~$5 million.~~Contents

Pending General Rate Case Filings

On April ~~29, 2020,~~30, 2021, the Company’s ~~Pennsylvania~~West Virginia subsidiary filed a general rate case requesting ~~$92 million and $46~~$32 million in annualized incremental revenues excluding proposed reductions in revenues for ~~rate year 1~~tax savings to be passed back to customers as a result of TCJA and ~~rate year 2, respectively.~~infrastructure surcharges. The proposed EADIT reduction in revenues is $1 million and the exclusion for infrastructure surcharges is $10 million.

On ~~December 16, 2019,~~August 28, 2020, the Company’s ~~New Jersey~~Iowa subsidiary filed a general rate case requesting ~~$88~~$3 million in annualized incremental revenues. Office of Consumer Advocate (“OCA”) and intervenor direct testimony was filed on December 17, 2020 and cross-reply testimony was filed on December 31, 2020. The Company’s Iowa subsidiary reply testimony was filed on January 14, 2021, and OCA rebuttal testimony was filed on February 8, 2021. Evidentiary hearings were held on March 3 and March 4, 2021. An order is anticipated between May 4, 2021 and June 30, 2021 with new rates effective in July 2021.

On July 1, 2019, the Company’s California subsidiary filed a general rate case requesting $26 million in 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~~100-day update for the same proceeding and updated the request to $27 million in annualized incremental revenues for 2021, and increases of $10 million ~~and $10 million~~ in both the escalation year of 2022 and the attrition year of 2023, respectively. On September 10, 2020, the California Public Utilities Commission (the “CPUC”) approved the Company’s California subsidiary’s motion for interim rates, establishing a memorandum account to track the difference between interim and final rates adopted by the CPUC in this proceeding, which were effective on January 1, 2021. Following settlement discussions among all parties to the proceeding, on January 22, 2021 and January 25, 2021, the Company’s California subsidiary filed with the CPUC a comprehensive settlement entered into among the Company’s California subsidiary, the Public Advocates Office, and other intervenors. These settlement agreements resolved all matters in dispute among the parties to the settlements. These settlements, as well as resolution of issues raised by non-settling parties, are now before the CPUC for approval.

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~~CPUC granted the request for a ~~one year~~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~~filing to May 1, 2021, to ~~adjust~~set its authorized cost of capital beginning January 1, 2022.

~~In 2018,~~ On January 5, 2021, the Company’s ~~Virginia~~California subsidiary ~~filed~~submitted a ~~general rate case requesting $5 million in annualized incremental revenues.~~request to further delay by one year its cost of capital filing and maintain the authorized cost of capital through 2022. On February 22, 2021, the CPUC denied the request to further delay the cost of capital filing. The Company’s California subsidiary submitted its cost of capital application 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~~3, 2021. Once approved by the CPUC, the new authorized cost of ~~these requests~~capital will be ~~granted.~~effective January 1, 2022.

~~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:
Tennessee November 15, 2019 $ 2
Missouri March 2, 2020 9
Kentucky March 2, 2020 2
Total pending infrastructure surcharge filings $ 13

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

~~Tax Matters~~

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes certain tax relief provisions applicable to the Company including: (i) the immediate refund of the 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 material impact on the Company’s Consolidated Financial Statements.

Legislative Updates

During ~~2020,~~2021, the Company’s regulatory jurisdictions enacted the following legislation that has been approved and is effective as of May ~~6, 2020:~~3, 2021:

•Indiana House Enrolled Act ~~1131~~349 establishes ~~an appraisal process~~a tax rider for ~~non-municipal~~water and wastewater utilities based upon a change in state or federal income tax law. The legislation also requires the Indiana Finance Authority to ~~establish fair value and creates a presumption~~prioritize loans that ~~the appraised value is a reasonable purchase price. Additionally, all new municipal systems will now be regulated for 10 years.~~secure long-term benefits over shorter term projects.

During ~~2020,~~2021, the Company’s regulatory jurisdictions enacted the following legislation that has been approved but is not yet effective as of May ~~6, 2020:~~3, 2021:

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

~~West Virginia Senate~~•The Kentucky General Assembly has adopted House Bill ~~551 allows for expanded asset valuation, combined~~465 relating to the acquisition of water and wastewater ~~ratemaking~~utilities. The legislation affirms a method in valuing water and wastewater systems above net book value and establishes a timeline of 60 days for Public Service Commission approval of an acquisition. The legislation will be effective on June 30, 2021.

•Indiana House Enrolled Act 1287 creates a mechanism that reduces the ~~expansion of how municipalities can utilize proceeds from the sale of~~required upfront cost to new customers for a water or wastewater ~~system.~~

~~Virginia SB831 establishes fair market value for the state, and the~~utility to extend service to underserved areas. This legislation ~~authorizes a water or sewer public utility acquiring a water or sewer system to elect to have its rate base established by using the fair market value.~~will be effective on July 1, 2021.

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 ~~CPCN~~certificate of public convenience and necessity (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.

Table of Contents

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 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 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. In November 2018, Measure J was certified to have passed.

OnIn 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,~~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,~~system; (3) evaluate whether itthe acquisition of the Monterey system assets by the MPWMD is in the public interest ~~to acquire the Monterey system assets~~ and sufficiently ~~satisfy~~satisfies the criterion of “feasible” as provided in Measure J,J; (4) ensure there is significant potential for cost savings before agreeing to commence an ~~acquisition,~~acquisition; and (5) develop more fully alternate operating plans before deciding whether to consider a Resolution of Necessity.

OnIn November 6, 2019, the MPWMD issued a preliminary valuation and cost of service analysis report, finding in part that (1) an estimate of the Monterey system assets’ total value plus adjustments would be approximately $513 million, (2) the cost of service modeling results indicate significant annual reductions in revenue requirements and projected monthly water bills, and (3) the acquisition of the Monterey system assets by the MPWMD would be economically feasible. On ~~April 6,~~June 12, 2020, the MPWMD issued a ~~notice of preparation of a full~~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 acquire and operate certain of the Monterey system assets located outside the MPWMD’s boundaries. On September 15, 2020, the MPWMD gave notice of its intention to appraise the Monterey system assets and related property interests. On September 29, 2020, the Company’s California subsidiary declined to make the Monterey system assets and related property interests available for inspection or to comply with any of the other requests contained in the MPWMD’s notice. On October 7, 2020, the MPWMD issued a final environmental impact report (“FEIR”), and on November 4, 2020, the MPWMD certified the FEIR, which purports to analyze the environmental impacts of the MPWMD’s project to (1) acquire the Monterey system assets through the power of eminent domain, if necessary, and (2) expand its geographic boundaries to include all parts of this system. On November 25, 2020, the Company’s California subsidiary filed a petition challenging this certification in court. See Item 3—Legal Proceedings—Challenge of Certification—Proposed Monterey System Final Environmental Impact Report in the Company’s Form 10-K.

On February 26, 2021, the MPWMD filed an application with the Local Agency Formation Commission of Monterey County (“LAFCO”) seeking approval to become a retail water provider and annex approximately 58 parcels of land into the MPWMD’s boundaries. Approval by LAFCO is a precondition to the MPWMD’s ability to file an eminent domain proceeding against the Company’s California subsidiary to acquire the Monterey system assets. If the MPWMD were to make a final determination that an acquisition of the Monterey system assets is feasible, it would then need to file a multi-year eminent domain proceeding against the Company’s California ~~subsidiary~~subsidiary. In that proceeding, it would first need to ~~be commenced by the MPWMD to first~~ establish its right to take the Monterey system ~~assets and, if~~assets. If such right is established, ~~to determine~~ the amount of just compensation to be paid to the California subsidiary for such ~~assets.~~

assets would then need to be determined. The MPWMD has stated that it anticipates filing such an eminent domain proceeding in late 2021 or early 2022.

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. A valuation trial has ~~currently~~ been scheduled for the week of October ~~26, 2020.~~25, 2021.

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, lawsuits have been filed in connection with large-scale natural events such as wildfires. Some of these lawsuits 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.

Table of Contents

Consolidated Results of Operations

Presented in the table below are the Company’s consolidated results of operations:


	For the Three Months Ended March 31,
		2021		2020
(In millions)
Operating revenues		$	888	$	844
Operating expenses:
Operation and maintenance		419		383
Depreciation and amortization		157		145
General taxes		83		77
Total operating expenses, net		659		605
Operating income		229		239
Other income (expense):
Interest, net		(98)		(96)
Non-operating benefit costs, net		20		13
Other, net		4		3
Total other income (expense)		(74)		(80)
Income before income taxes		155		159
Provision for income taxes		22		35
Net income attributable to common shareholders		$	133	$	124

For the Three Months Ended March 31,
2020 2019
(Dollars in millions)
Operating revenues $ 844
$ 813
Operating expenses:
Operation and maintenance 383
365
Depreciation and amortization 145
144
General taxes 77
69
(Gain) on asset dispositions and purchases —
(3 )
Total operating expenses, net 605
575
Operating income 239
238
Other income (expense):
Interest, net (96 ) (93 )
Non-operating benefit costs, net 13
4
Other, net 3
3
Total other income (expense) (80 ) (86 )
Income before income taxes 159
152
Provision for income taxes 35
39
Net income attributable to common shareholders $ 124
$ 113

The main factors contributing to the $11 million increases in net income attributable to common shareholders for the three months ended March 31, 2020 are described in “Segment Results of Operations” below.

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.

Regulated Businesses Segment

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


	For the Three Months Ended March 31,
		2021		2020
(In millions)
Operating revenues		$	755	$	720
Operation and maintenance		320		298
Depreciation and amortization		147		135
General taxes		76		72
Other income (expenses)		(48)		(54)
Income before income taxes		163		162
Provision for income taxes		28		40
Net income attributable to common shareholders		135		123

For the Three Months Ended March 31,
2020 2019
(Dollars in millions)
Operating revenues $ 720
$ 685
Operation and maintenance 298
278
Depreciation and amortization 135
130
General taxes 72
64
Other income (expenses) (54 ) (65 )
Income before income taxes 162
150
Provision for income taxes 40
40
Net income attributable to common shareholders 123
110

Table of Contents

Operating Revenues

Presented in the tables below is information regarding the main components of the Regulated Businesses’ operating revenues:


	For the Three Months Ended March 31,
		2021		2020
(In millions)
Water services:
Residential		$	430	$	399
Commercial		144		142
Fire service		37		37
Industrial		32		32
Public and other		53		56
Total water services		696		666
Wastewater services:
Residential		36		31
Commercial		9		8
Industrial		1		1
Public and other		4		3
Total wastewater services		50		43
Other (a)		9		11
Total operating revenues		$	755	$	720

(a)Includes other operating revenues ~~with explanations for material variances provided in the ensuing discussions:~~consisting primarily of miscellaneous utility charges, fees and rents.

For the Three Months Ended March 31,
2020 2019
(Dollars in millions)
Water services:
Residential $ 399
$ 378
Commercial 142
136
Fire service 37
34
Industrial 32
32
Public and other 56
52
Total water services 666
632
Wastewater services 43
40
Other (a)
11
13
Total operating revenues $ 720
$ 685


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


	For the Three Months Ended March 31,			For the Three Months Ended March 31,
	2020	2019			2021	2020
(Gallons in millions)			(Gallons in millions)
Billed water services volumes:			Billed water services volumes:
Residential	35,550	35,767	Residential		36,859	35,550
Commercial	17,080	17,436	Commercial		15,898	17,080
Industrial	8,439	8,645	Industrial		8,069	8,439
Fire service, public and other	11,546	11,091	Fire service, public and other		10,863	11,546
Billed water services volumes	72,615	72,939
Total billed water services volumes			Total billed water services volumes		71,689	72,615

For the three months ended March 31, ~~2020,~~2021, operating revenues increased $35 million, primarily due ~~to a:~~

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:~~expense:

For the three months ended March 31, ~~2020,~~2021, operation and maintenance expense increased ~~$20~~$22 million, primarily due ~~to a:~~

Depreciation and Amortization

For the three months ended March 31, ~~2020,~~2021, depreciation and amortization increased $5$12 million, primarily due to additional utility plant placed in ~~service.~~service from capital infrastructure investments and acquisitions.

For the three months ended March 31, ~~2020,~~2021, general taxes increased $8$4 million, primarily due to ~~incremental property taxes~~increased capital investments, including acquisitions and an increase in ~~several of~~ the ~~Company’s subsidiaries, including in Pennsylvania and~~ New ~~Jersey.~~Jersey Gross Receipts Tax.

Other Income (Expenses)

For the three months ended March 31, ~~2020,~~2021, other income (expenses) increased ~~$11~~$6 million, primarily due to the reduction in the non-service cost components of pension and other postretirement benefits expense resulting from ~~favorable actuarial performance.~~higher asset returns.

Provision for Income Taxes

For the three months ended March 31, 2021, the Regulated Businesses’ provision for income taxes decreased $12 million. The Regulated Businesses’ effective income tax rate was 17.2% and 24.7% for the three months ended March 31, 2021 and 2020, respectively. The decrease in the Regulated Businesses’ effective income tax rate for the three months ended March 31, 2021 was primarily due to an increase in the amortization of EADIT from the settlement of regulatory orders. The amortization of EADIT is generally offset with reductions in revenue.

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:~~Businesses:

For the three months ended March 31, ~~2020,~~2021, operating revenues ~~decreased $6~~increased $9 million primarily due to a:

Operation and Maintenance

For the three months ended March 31, ~~2020, operation and maintenance~~2021, O&M expense ~~decreased $7~~increased $16 million, primarily due to a:

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 AWCC’s revolving credit ~~facility.~~

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

equity. The Company’s revolving credit facility provides $2.25 billion in aggregate total commitments from a diversified group of financial institutions. The revolving credit facility is used principally to support AWCC’s commercial paper program, to provide additional liquidity support, and to provide ~~a sublimit~~for the issuance of up to $150 million ~~for~~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 March 31, 2020, AWCC had $1.22 billion in total borrowings and letters of credit outstanding and total remaining availability of $1.03 billion under the revolving credit facility.~~ The weighted-average interest rate on ~~AWCC~~AWCC’s outstanding short-term borrowings, including $500 million of outstanding principal on the Term Loan Facility (as defined below) as of December 31, 2020, was approximately ~~1.83%~~0.17% and ~~1.86%~~0.53% at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. ~~On April 1, 2020,~~

To ensure adequate liquidity given the ~~termination date~~impacts of the ~~credit agreement with respect~~COVID-19 pandemic on debt and capital markets, on March 20, 2020, AWCC entered into a Term Loan Credit Agreement, by and among parent company, AWCC and the lenders party thereto (the “Term Loan Facility”). The proceeds were used for general corporate purposes of AWCC and American Water and to ~~AWCC’s revolving credit facility~~provide additional liquidity. As of December 31, 2020, $500 million of principal was ~~extended, pursuant to~~outstanding under the ~~terms~~Term Loan Facility. The Term Loan Facility commitments terminated at maturity on March 19, 2021 and the Term Loan Facility was repaid in full.

Presented in the ~~table~~tables below is the aggregate credit facility commitments, commercial paper limit and letter of credit ~~sublimit~~availability under the revolving credit facility, as well as the available capacity for ~~each~~each:


	As of March 31, 2021
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,100	$	150	$	2,250
Outstanding debt	(1,115)		(76)		(1,191)
Remaining availability as of March 31, 2021	$	985	$	74	$	1,059

(a)Total remaining availability of $1.06 billion as of March 31, ~~2020:~~2021 may be accessed through revolver draws.


	As of December 31, 2020
	Commercial Paper Limit		Letters of Credit		Total (a)
(In millions)
Total availability	$	2,100	$	150	$	2,250
Outstanding debt	(786)		(76)		(862)
Remaining availability as of December 31, 2020	$	1,314	$	74	$	1,388

Commercial Paper Limit Letters of Credit Sublimit Total (a)
(In millions)
Total availability $ 2,100
$ 150
$ 2,250
Outstanding commercial paper (926 ) —
(926 )
Outstanding revolving credit facility borrowings (215 ) —
(215 )
Outstanding letters of credit —
(76 ) (76 )
Total outstanding (1,141 ) (76 ) (1,217 )
Remaining availability as of March 31, 2020 $ 959
$ 74
$ 1,033
(a)Total remaining availability of $1.39 billion as of December 31, 2020 may be accessed through revolver draws.

Presented in the table below is the Company’s total available liquidity as of March 31, ~~2020:~~2021 and December 31, 2020, respectively:

The Company believes 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 the Company’s 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 more severe and/or 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 7—9—Short-Term Debt in 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~~

Table 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. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of $989 million. AWCC will use the net proceeds of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to fund sinking fund payments for, and to repay at maturity, $28 million in aggregate principal amount of outstanding long-term debt of AWCC and certain of the Company’s regulated subsidiaries; (iii) to repay AWCC’s commercial paper obligations; and (iv) for general corporate purposes, including potentially to repay outstanding short-term indebtedness under AWCC’s $750 million term loan facility and its $2.25 billion unsecured revolving credit facility. In connection with the debt offering, the Company entered into four 10-year treasury lock agreements during March 2020, each with a notional amount of $100 million, to reduce interest rate exposure on debt. These treasury lock agreements had an average fixed rate of 0.94% and were terminated on April 8, 2020. See Note 6—Long-Term Debt in the Notes to Consolidated Financial Statements for additional information.Contents

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 Three Months Ended March 31,
	2021		2020
(In millions)
Net income	$	133	$	124
Add (less):
Depreciation and amortization	157		145
Deferred income taxes and amortization of investment tax credits	26		38
Other non-cash activities (a)	(40)		(13)
Changes in working capital (b)	(88)		(104)
Pension and postretirement healthcare contributions	(9)		(10)
Net cash flows provided by operating activities	$	179	$	180

For the Three Months Ended March 31,
2020 2019
(In millions)
Net income $ 124
$ 113
Add (less):
Depreciation and amortization 145
144
Deferred income taxes and amortization of investment tax credits 38
35
Other non-cash activities (a)
(13 ) (22 )
Changes in working capital (b)
(104 ) (95 )
Pension and postretirement healthcare contributions (10 ) (7 )
Net cash flows provided by operations $ 180
$ 168
(a)Includes provision for losses on accounts receivable, 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.~~

(b)Changes in working capital include changes to receivables and unbilled revenues, accounts payable and accrued liabilities, and other current assets and liabilities, net.

For the three months ended March 31, ~~2020,~~2021, cash flows provided by operating activities ~~increased $12~~decreased $1 million, primarily due to the change in other non-cash activities including activity in regulatory accounts, partially offset by an increase in net ~~income. The main factors contributing~~income and change in working capital due to ~~the increase in net income are described in “Consolidated Results of Operations” and “Segment Results of Operations” above.~~decreased accounts receivable resulting from increased collections.

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 Three Months Ended March 31,
	2021		2020
(In millions)
Net capital expenditures	$	(342)	$	(408)
Acquisitions	(3)		(21)
Other investing activities, net (a)	(18)		(21)
Net cash flows used in investing activities	$	(363)	$	(450)

For the Three Months Ended March 31,
2020 2019
(In millions)
Net capital expenditures $ (408 ) $ (326 )
Acquisitions (21 ) (22 )
Other investing activities, net (a)
(21 ) (3 )
Net cash flows used in investing activities $ (450 ) $ (351 )
(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 three months ended March 31, ~~2020,~~2021, cash used in ~~investing~~investing activities ~~increased $99~~decreased $87 million, primarily due to ~~continued investment across all infrastructure categories, mainly replacement~~the timing of payments for capital expenditures and ~~renewal~~the timing of ~~transmission and distribution infrastructure in the Company’s Regulated Businesses. Additionally, proceeds from the sale of assets were higher in 2019 compared~~acquisitions. The Company plans to ~~2020. For the full year of 2020, capital investments, including acquisitions, are expected to be~~invest approximately $1.9 ~~billion.~~billion across its footprint in 2021.

Table of Contents

Cash Flows ~~Provided by~~from 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 Three Months Ended March 31,
	2021		2020
(In millions)
Proceeds from long-term debt	$	2	$	8
Repayments of long-term debt	(25)		(6)
(Repayments of) proceeds from term loan	(500)		500
Net proceeds from revolving credit facility borrowings	—		215
Net proceeds from short-term borrowings	334		139
Dividends paid	(100)		(90)
Other financing activities, net (a)	(4)		2
Net cash flows (used in) provided by financing activities	$	(293)	$	768

For the Three Months Ended March 31,
2020 2019
(In millions)
Proceeds from long-term debt $ 8
$ 2
Repayments of long-term debt (6 ) (12 )
Proceeds from term loan 500
—
Net proceeds from revolving credit facility borrowings 215
—
Net proceeds from short-term borrowings 139
237
Dividends paid (90 ) (82 )
Anti-dilutive stock repurchases —
(36 )
Other financing activities, net (a)
2
1
Net cash flows provided by financing activities $ 768
$ 110
(a)Includes proceeds from issuances of common stock under various employee stock plans and the Company’s dividend reinvestment plan, net of taxes paid, and advances and contributions in aid of 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, and advances and contributions for construction, net of refunds.

For the three months ended March 31, ~~2020,~~2021, cash flows provided by financing activities ~~increased $658~~decreased $1,061 million, primarily due to the $500 million borrowed under the ~~term loan facility~~Term Loan Facility during the first quarter of 2020 which was repaid in full at maturity in 2021 and $215 million net borrowings under the revolving credit facility during the first quarter of 2020, ~~as described above,~~ partially offset by ~~lower~~increased proceeds from commercial paper ~~and no anti-dilutive stock repurchases in 2020.~~borrowings.

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 March 31, ~~2020,~~2021, the Company’s ratio was 0.62 to 1.00 and therefore the Company was in compliance with the covenants.

Security Ratings

Presented in the table below are long-term and short-term credit ratings and rating outlooks as of May ~~6, 2020~~3, 2021 as issued by the following rating agencies:

Securities

Moody's Investors Service

Standard & Poor's Ratings Service

Rating ~~Outlook~~outlook

Stable

Senior unsecured debt

Baa1

Commercial paper

P-2

A-1

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.

Table of Contents

As part of its 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 must 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—7—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, if any, 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~~There have been no significant changes to the Company’s exposure to market risk since December 31, ~~2019.~~2020.

~~During March 2020, the~~The Company ~~entered into four 10-year treasury lock agreements, each with a notional amount~~had no significant derivative instruments outstanding as 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%. A hypothetical 1% adverse change in interest rates would result in a decrease in the fair value of the treasury lock agreements of approximately $29 million at March 31, ~~2020. On April 8, 2020, the Company terminated these four treasury lock agreements.~~2021.

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 March 31, ~~2020.~~2021.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, ~~2020,~~2021, the Company’s disclosure controls and procedures were effective at a reasonable level of assurance.

Table of Contents

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 March 31, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

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. 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 Litigation~~

~~Cal Am’s Action for Damages Following RDP Termination~~

On March 10, 2020, the parties to the lawsuit seeking damages associated with the failure of the RDP, executed a settlement agreement to resolve the litigation in part without trial. Under the terms of the settlement agreement, MCWD and RMC are to pay Cal Am an aggregate of $5.2 million in settlement of Cal Am’s contract claims against MCWD and all claims against RMC relating to the RDP. Under this agreement, Cal Am’s and MCWRA’s right to appeal the dismissal of their tort claims against MCWD are expressly reserved.

Monterey Peninsula Water Supply Project

Coastal Development Permit Application

~~On April 16, 2020, due~~In March 2021, Cal Am provided responses to ~~the 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~~notice of incomplete application. The original jurisdiction application ~~from July 24, 2020 to September 22, 2020.~~

~~Desalination Plant Development Permit~~

On April 20, 2020, due to the COVID-19 pandemic, the Monterey County Superior Court vacated a case management conference related to the challenge by MCWD of Monterey County’s approval of the desalination plant combined development permit. The court did not address the stay on physical construction, which had been continued until April 21, 2020. The court set a briefing schedule and a hearing on MCWD’s petition for October 6, 2020.remains pending.

Water Supply Project Land Acquisition and Slant Well Site Use

On ~~December 30, 2019,~~February 16, 2021, the City ~~of Marina~~ filed a ~~lawsuit~~ separate but related in ~~the Supreme Court of California~~rem reverse validation complaint challenging the ~~County’s filing, and SDWR’s acceptance~~adoption by the County of ~~the filing, as the exclusive GSA~~Monterey of a GSP for the CEMEX site. ~~To protect~~This complaint remains pending.

Other Matters

On April 2, 2021, American Water Resources, LLC (“AWR”), an indirect, wholly owned subsidiary of the parent company, received a grand jury subpoena for certain of its ~~interest in the matter, Cal Am filed an application to intervene in this lawsuit, which was approved on February 18, 2020.~~

~~Cal Am continues to work constructively with all appropriate agencies to provide necessary information~~records in connection with ~~obtaining required approvals~~an investigation by the U.S. Attorney’s Office for the ~~Water Supply Project. However, based~~Eastern District of New York (the “EDNY”). A portion of HOS, which provides warranty protection programs and other home services to residential customers, is conducted through AWR. The subpoena seeks information about AWR’s operations and its contractor network in the New York City metropolitan area. Based on the ~~matters discussed~~subpoena and discussions with the EDNY, the investigation does not appear to be focused on the parent company or the operations of any of its other subsidiaries. AWR is fully cooperating with the investigation. While it is not possible at this time to predict the outcome of the investigation or determine the amount, if any, of fines, penalties or other liabilities that may be incurred in ~~Part I, Item 3—Legal Proceedings—Alternative Water Supply in Lieu of Carmel River Diversions—Monterey Peninsula Water Supply Project in~~connection with it, the Company does not currently believe that the investigation will have a material adverse effect on the Company’s Form 10-K, as amended above, there can be no assurance that the Water Supply Project in its current configuration will be completed on a timely basis, if ever. Due to the delay in the approval schedule, Cal Am currently does not believe that it will be able to fully comply with the diversion reduction requirements and other remaining requirements under the 2009 Order and the 2016 Order, including the 2021 Deadline. The CPUC’s final decision approving the Water Supply Project permits recoveryresults 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,operations, financial condition or ~~the 2021 Deadline, may result in material additional costs or obligations to Cal Am, and failure to comply could lead to fines and penalties against Cal Am.~~liquidity.

~~Dunbar, West Virginia Water Main Break Class Action Litigation~~

~~On February 4, 2020, the~~ ~~Jeffries~~ plaintiffs filed a motion seeking class certification on the issues of breach of contract and negligence, and to determine the applicability of punitive damages and a multiplier for those damages, if imposed. On February 25, 2020, WVAWC filed a response to the motion, claiming that the ~~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. The class certification motion remains pending.

~~Chattanooga, Tennessee Water Main Break Class Action Litigation~~

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

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, readers should carefully consider the factors discussed in Part I, Item 1A—Risk Factors in the Form 10-K, and in the Company’s other 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 Form ~~10-K, other than as set forth below.~~

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

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

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

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

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

~~enable us to recover our investment; and~~

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company did not repurchase shares of common stock during the three months ended March 31, ~~2020.~~2021. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through March 31, ~~2020,~~2021, the Company repurchased an aggregate of 4,860,000 shares of common stock under the program, leaving an aggregate of 5,140,000 shares available for repurchase under this program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

Table of Contents

ITEM 6. EXHIBITS



Exhibit Number		Exhibit Description
~~3.1~~#2.1		Stock Purchase Agreement, dated November 20, 2019, by and among American Water Works Company, Inc., New York American Water Company, Inc. and Liberty Utilities Co. (incorporated by reference to Exhibit 2.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed November 20, 2019).
3.1		Restated Certificate of Incorporation of American Water Works Company, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34028, filed November 6, 2008).
3.2		Amended and Restated Bylaws of American Water Works Company, Inc. (incorporated by reference to Exhibit ~~3.2 to the Company’s Quarterly Report on Form 10-Q, File No. 001-34028, filed August 5, 2015).~~
~~4.1~~	Indenture, dated as of December 4, 2009, between American Water Capital Corp. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed December 3, 2010).
~~4.2~~	Officers’ Certificate of AWCC, dated April 14, 2020, establishing the terms and authorizing the issuance of the 2.80% Senior Notes due 2030 (incorporated by reference to Exhibit 4.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed April 14, 2020).
~~4.3~~	Officers’ Certificate of AWCC, dated April 14, 2020, establishing the terms and authorizing the issuance of the 3.45% Senior Notes due 2050 (incorporated by reference to Exhibit 4.2 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed April 14, 2020).
~~10.1.1~~	Second Amended and Restated Credit Agreement, dated as of March 21, 2018, by and among American Water Works Company, Inc., American Water Capital Corp., each of the Lenders party thereto, Wells Fargo Bank, National Association, as administrative agent, JPMorgan Chase Bank, N.A., as syndication agent, and Mizuho Bank, Ltd., PNC Bank, National Association, and U.S. Bank National Association, as co-documentation agents (incorporated by reference to Exhibit 10.1 to American Water Works Company, Inc.’s Current Report on Form 8-K, File No. 001-34028, filed on March 21, 2018).
~~10.1.2~~	Extension Agreement, dated as of April 9, 2019, among American Water Works Company, Inc., American Water Capital Corp., each of the Lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent (incorporated by reference to Exhibit 10.17.2 to American Water Works Company, Inc.’s Quarterly Report on Form 10-Q, File No. 001-34028, filed on May 1, 2019).
*10.1.3	Extension Agreement, dated as 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.
~~10.2~~	Term Loan Credit Agreement, dated as of March 20, 2020, by and among American Water, AWCC, Wells Fargo Bank, National Association, as administrative agent and as a lender, Wells Fargo Securities LLC, as a joint lead arranger and joint bookrunner, and each of Mizuho Bank, Ltd. and U.S. Bank National Association, as a joint lead arranger and joint bookrunner, and as a lender (incorporated by reference to Exhibit 10.13.1 to the Company’s Current Report on Form 8-K, File No. 001-34028, filed ~~March 20,~~December 10, 2020).
*~~10.3~~10.1		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Restricted Stock Unit Grant.
*~~10.4~~10.2		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Restricted Stock Unit Grant (for ~~Chief Executive Officer and Chief Operating Officer)~~Walter J. Lynch).
*~~10.5~~10.3		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Restricted Stock Unit Grant (for M. Susan Hardwick).
*~~10.6~~10.4		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Restricted Stock Unit Grant (for Michael A. Sgro).
*~~10.7~~10.5		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020 Restricted~~2021 Performance Stock Unit Grant ~~(for Loyd~~Form A. ~~Warnock).~~
*~~10.8~~10.6		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Performance Stock Unit Grant Form ~~A-1.~~A (for Walter J. Lynch).
*~~10.9~~10.7		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Performance Stock Unit Grant Form ~~A-2.~~A (for M. Susan Hardwick).
*~~10.10~~10.8		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Performance Stock Unit Grant Form A (for ~~M. Susan Hardwick)~~Michael A. Sgro).
*~~10.11~~10.9		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Performance Stock Unit Grant Form ~~A (for Michael A. Sgro).~~B.
*~~10.12~~10.10		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Performance Stock Unit Grant Form AB (for ~~Loyd A. Warnock)~~Walter J. Lynch).
*~~10.13~~10.11		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020~~2021 Performance Stock Unit Grant Form ~~B-1.~~B (for M. Susan Hardwick).
*~~10.14~~10.12		American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan ~~2020 Performance Stock Unit Grant Form B-2.~~
*10.15	~~American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form B (for M. Susan Hardwick).~~



~~Exhibit Number~~	~~Exhibit Description~~
*10.16	~~American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020~~2021 Performance Stock Unit Grant Form B (for Michael A. Sgro).
*~~10.17~~10.13		~~American Water Works Company, Inc. 2017 Omnibus Equity Compensation Plan 2020 Performance Stock Unit Grant Form B (for Loyd A. Warnock).~~
*10.18	Offer Letter for Employment, dated February ~~12,~~16, 2021, between American Water Works Company, Inc. and Cheryl Norton.
*10.14		Separation Agreement and General Release, dated as of November 5, 2020, between American Water Works Company, Inc. and ~~Walter J. Lynch.~~Brian Chin.
*~~31.1~~10.15		Separation Agreement and General Release, dated as of March 9, 2021, between American Water Works Company, Inc. and Bruce Hauk.
*31.1		Certification of Walter J. Lynch, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.2		Certification of M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act.
**32.1		Certification of Walter J. Lynch, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
**32.2		Certification of M. Susan Hardwick, Executive Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema ~~Document~~Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).


*	~~Filed herewith.~~


**	~~Furnished herewith.~~

Table of Contents

# Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish the omitted schedules and exhibits to the SEC upon request.

* Filed herewith.

** Furnished herewith

The Stock Purchase Agreement filed as Exhibit 2.1 hereto has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the parties thereto, or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Stock Purchase Agreement (i) were made by the parties thereto only for purposes of that agreement and as of specific dates; (ii) were made solely for the benefit of the parties to the Stock Purchase Agreement; (iii) may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Stock Purchase Agreement (such disclosures include information that has been included in public disclosures, as well as additional non-public information); (iv) may have been made for the purposes of allocating contractual risk between the parties to the Stock Purchase Agreement instead of establishing these matters as facts; and (v) may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors.

Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto, or any of their respective subsidiaries or affiliates. Additionally, the representations, warranties, covenants, conditions and other terms of the Stock Purchase Agreement may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Stock Purchase Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. The Stock Purchase Agreement should not be read alone, but should instead be read in conjunction with the other information regarding the Company and its New York subsidiary that is or will be contained in, or incorporated by reference into, the reports and other documents that are filed by the Company with the SEC.

Table of Contents

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 ~~6th~~3rd day of May, ~~2020.~~

2021.



			AMERICAN WATER WORKS COMPANY, INC.
			(REGISTRANT)
By			/s/ WALTER J. LYNCH
			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)

4446



		Page
Forward-Looking Statements		1
	Part I. Financial Information
Item 1.	Consolidated Financial Statements	34
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2127
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3441
Item 4.	Controls and Procedures	3441
	Part II. Other Information
Item 1.	Legal Proceedings	3643
Item 1A.	Risk Factors	3743
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4143
Item 3.	Defaults Upon Senior Securities	4143
Item 4.	Mine Safety Disclosures	4143
Item 5.	Other Information	4143
Item 6.	Exhibits	4244

Signatures		4446


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



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

Balance as of December 31, 2018	$	(102	)	$	1	$	56	$	1	$	10		$	(34	)
Other comprehensive loss before reclassifications	—			—		—		—		(14		)	(14		)
Amounts reclassified from accumulated other comprehensive loss	—			—		1		—		—			1
Net other comprehensive income (loss)	—			—		1		—		(14		)	(13		)
Balance as of March 31, 2019	$	(102	)	$	1	$	57	$	1	$	(4	)	$	(47	)



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

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



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



	Amount
2020	$	11
2021	13
2022	11
2023	7
2024	7
Thereafter	100
Total lease payments	149
Imputed interest	(52		)
Total	$	97



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



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


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


	Cash and Cash Equivalents		Availability on Revolving Credit Facility		Availability on Term Loan Credit Facility		Total Available Liquidity			Cash and Cash Equivalents		Availability on Revolving Credit Facility		Total Available Liquidity
(In millions)									(In millions)
Available Liquidity as of March 31, 2020	$	556	$	1,033	$	250	$	1,839
Available liquidity as of March 31, 2021									Available liquidity as of March 31, 2021	$	69	$	1,059	$	1,128
Available liquidity as of December 31, 2020									Available liquidity as of December 31, 2020	$	547	$	1,388	$	1,935