10-KPeriod: FY2012

American Water Works Company, Inc. Annual Report, Year Ended Dec 31, 2012

Filed March 1, 2013For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported revenues of $2.88 billion for the year ended December 31, 2012, a notable increase driven by rate increases and higher customer usage, particularly in the Regulated Businesses segment which constitutes the majority of the company's revenue. The company is focused on operational excellence, portfolio optimization, and efficient capital deployment, investing approximately $929 million in capital improvements in 2012. AWK is navigating a complex regulatory environment, with rate case filings and infrastructure surcharges being key mechanisms for cost recovery and return on investment. The company's financial health is supported by a robust credit facility and strong cash flow from operations, although it faces ongoing challenges related to regulatory lag, declining water usage trends, and the need for significant capital investment to maintain and upgrade its extensive infrastructure. The company also highlighted its business transformation project, aimed at improving IT systems and operational processes, with Phase II expected to be completed by the end of 2013. AWK is managing its capital structure prudently, maintaining compliance with debt covenants, and has seen positive rating outlook revisions from Moody's and S&P. Key risks include extensive economic regulation, environmental compliance, potential weather impacts, and capital market access. Despite these, AWK continues to focus on growth through targeted acquisitions and operational efficiencies to deliver shareholder value.

Financial Highlights

49 data points
Beta

Revenue

$2.85B

Net Income

$358.07M

12.5% Net Margin

EPS (Diluted)

$2.01

Total Assets

$14.72B

Cash & Equivalents

$24.00M

Free Cash Flow

$27.02M

Financial Statements
Beta
Revenue$2.85B
Operating Expenses$1.93B
Operating Income$924.10M
Interest Expense$310.79M
Net Income$358.07M
EPS (Basic)$2.03
EPS (Diluted)$2.01
Shares Outstanding (Basic)176.44M
Shares Outstanding (Diluted)177.67M

Key Highlights

  • 1Generated $2.88 billion in operating revenues for the year ended December 31, 2012, an increase driven by rate increases and higher customer usage.
  • 2Invested approximately $929 million in capital improvements in 2012, with plans to invest $950 million in 2013, focusing on infrastructure upgrades and its business transformation project.
  • 3Successfully completed the sale of its Arizona, New Mexico, and Ohio regulated subsidiaries as part of its portfolio optimization strategy.
  • 4Received regulatory authorizations for $123.1 million in additional annualized revenues from general rate cases across several subsidiaries in 2012.
  • 5The O&M efficiency ratio for Regulated Businesses improved to 40.1% in 2012 from 42.4% in 2011, indicating progress in operational efficiency.
  • 6Secured a new $1 billion revolving credit facility in October 2012, maturing in October 2017, enhancing liquidity and financial flexibility.
  • 7Experienced positive rating outlook revisions from Moody's (positive from stable) and S&P (positive from stable) during 2012.

Frequently Asked Questions

American Water Works Company, Inc. (AWK) is the largest investor-owned water and wastewater utility company in the United States. Its primary business involves owning and operating water and wastewater utilities that serve residential, commercial, industrial, and other customers. These regulated operations are subject to extensive economic regulation by state Public Utility Commissions (PUCs) and other regulatory agencies, which determine the rates charged to customers, allowing for the recovery of prudently incurred operating expenses and a return on invested capital.

For the year ended December 31, 2012, AWK reported operating revenues of $2.88 billion, an increase of 7.9% compared to 2011. Net income from continuing operations was $374.3 million, resulting in diluted earnings per share of $2.11, up from $1.73 in 2011. The company invested approximately $929 million in capital improvements and successfully completed the sale of its Arizona, New Mexico, and Ohio subsidiaries.

AWK faces several key risks, including extensive economic regulation which can impact rate recovery and profitability; extensive environmental, water quality, and health and safety laws and regulations that can increase operating costs; regulatory lag, which is the delay between incurring costs and recovering them through rates; potential impacts from weather conditions, natural hazards, and climate variability; the need for significant capital expenditures to maintain and upgrade infrastructure; and risks associated with accessing capital markets and managing its indebtedness. Additionally, the company is undertaking a significant business transformation project which carries risks related to cost overruns and implementation delays.

AWK is actively addressing declining water usage per customer through various strategies. These include seeking appropriate pass-through mechanisms and forward-looking adjustments in rate case filings, promoting conservation programs, and working with regulators to implement mechanisms that allow for the recovery of costs and a return on investment despite lower customer usage. The company also aims to recover certain cost increases beyond the utility's control through surcharges to mitigate regulatory lag.