Business Context and Reporting Period
Company: American Water Works Company, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: January 2, 2018
Context: This filing addresses the impact of the enactment of the Tax Cuts and Jobs Act (TCJA) on the Company's previously issued financial guidance and results of operations for the fiscal year ended December 31, 2017.
Key Financial Metrics
The filing does not provide specific numerical values for revenue, profit, cash flow, margins, debt, or liquidity. Instead, it focuses on the qualitative impact of new tax legislation on financial reporting and guidance.
Material Changes Versus Prior Period
- TCJA Enactment: On December 22, 2017, the TCJA was signed into law, reducing the maximum U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018.
- Guidance Obsolescence: The Company's guidance issued on December 11, 2017, did not reflect the TCJA. The filing states that the TCJA may materially impact the Company's guidance and results of operations for fiscal 2017 and future expectations.
- Deferred Tax Revaluation: The Company must revalue deferred tax assets and liabilities at the new rate as of December 22, 2017.
Guidance, Outlook, and Risks
- Impact on Utility Subsidiaries: Due to normalization accounting methods, the revaluation of net deferred taxes at utility subsidiaries is expected to result in a regulatory liability returned to customers over time, with no material impact on results of operations.
- Impact on Parent and Non-Utility Subsidiaries: Revaluation of deferred tax assets and net operating losses at the parent and non-utility subsidiaries is expected to result in a potentially material charge to fiscal 2017 results of operations.
- Quantification Status: The Company cannot currently estimate or quantify the impact of the TCJA on its guidance.
- Future Disclosure: An estimate of the TCJA impacts is expected to be provided in the Annual Report on Form 10-K for the year ended December 31, 2017, expected in February 2018.
- Risks: Forward-looking statements regarding the TCJA impact are subject to uncertainties, including the issuance of further rules and interpretations by the U.S. Department of the Treasury.
Investor Verification Checklist
- Verify the specific magnitude of the "potentially material charge" to fiscal 2017 results once the Form 10-K is filed in February 2018.
- Monitor regulatory rulings in the Company's 16 regulatory jurisdictions regarding the treatment of the TCJA.
- Review the updated GAAP and adjusted earnings per share guidance once the TCJA impact is quantified.
- Assess the impact of the 100% expensing exclusion for capital investments on future capital planning.