10-KPeriod: FY2017

American Water Works Company, Inc. Annual Report, Year Ended Dec 31, 2017

Filed February 20, 2018For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) is the largest publicly-traded water and wastewater utility company in the United States, serving approximately 15 million people across 46 states and Canada. In 2017, the company reported operating revenues of $3.36 billion, a slight increase from the previous year, driven primarily by growth in its Regulated Businesses segment due to infrastructure investments and acquisitions. The company's strategic focus remains on infrastructure investment, aiming to invest $7.2 billion over the next five years in its Regulated Businesses. This significant capital expenditure is targeted at replacing aging infrastructure and upgrading treatment facilities, addressing the substantial needs identified by industry reports. While the company faces challenges such as regulatory lag and the need for continuous infrastructure investment, its diversified geographic footprint and regulatory mechanisms for cost recovery provide a stable operating environment. The company also continues to expand its Market-Based Businesses, contributing to overall revenue diversity. For investors, AWK presents a stable, regulated utility with a clear growth strategy centered on capital investment in its core regulated assets and strategic acquisitions. The company's commitment to infrastructure renewal and operational efficiency, supported by favorable regulatory practices in many states, positions it for continued steady performance. Investors should monitor regulatory proceedings, capital expenditure execution, and the impact of interest rate changes on the company's debt.

Financial Highlights

50 data points
Beta

Net Income

$426.00M

EPS (Diluted)

$2.38

Total Assets

$19.48B

Cash & Equivalents

$55.00M

Free Cash Flow

$15.00M

Financial Statements
Beta
Operating Expenses$2.10B
Operating Income$1.25B
Net Income$426.00M
EPS (Basic)$2.39
EPS (Diluted)$2.38
Shares Outstanding (Basic)178.00M
Shares Outstanding (Diluted)179.00M

Key Highlights

  • 1AWK is the largest U.S. water and wastewater utility by revenue and population served, operating in 46 states and Canada.
  • 2In 2017, operating revenues were $3.36 billion, a 1.7% increase from 2016, driven by the Regulated Businesses segment.
  • 3The company plans significant capital investments totaling $7.2 billion over the next five years, primarily for infrastructure replacement and upgrades in its Regulated Businesses.
  • 4AWK completed several acquisitions in 2017, adding approximately 40,000 customers, including the significant McKeesport system acquisition in Pennsylvania.
  • 5The company's adjusted O&M efficiency ratio for Regulated Businesses improved to 33.8% in 2017, reflecting operational improvements.
  • 6The Tax Cuts and Jobs Act (TCJA) enacted in late 2017 led to a re-measurement of deferred income taxes, resulting in a $0.70 per diluted share charge but is expected to be accretive to earnings over time as regulatory jurisdictions address its impacts.
  • 7The company's financial position remains solid, with a debt-to-capitalization ratio of 0.59 to 1.00 as of December 31, 2017, demonstrating compliance with debt covenants.

Frequently Asked Questions

American Water Works Company's core business is the ownership and operation of water and wastewater utilities. Its primary revenue driver is its Regulated Businesses segment, which accounted for approximately 88% of total operating revenues in 2017. This segment provides water and wastewater services to residential, commercial, industrial, and other customers across 16 states.

The company plans to invest approximately $7.2 billion over the next five years in capital improvements for its Regulated Businesses' water and wastewater infrastructure. This investment is primarily targeted at pipe replacement, upgrading aging water and wastewater treatment facilities, and addressing system resiliency and regulatory compliance needs. For 2018 specifically, AWK planned capital expenditures of $1.4 billion to $1.5 billion for these purposes.

The TCJA, enacted in December 2017, significantly reduced the U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. This led to a non-cash, after-tax re-measurement charge of $125 million ($0.70 per diluted share) in the fourth quarter of 2017 due to its impact on deferred income taxes. While this charge negatively impacted reported net income, the company expects the TCJA to be accretive to consolidated earnings over time through the benefits of lower tax rates and adjustments to regulatory liabilities and assets, although the timing and extent of these benefits will depend on regulatory proceedings in each jurisdiction.

American Water's growth strategy is driven by continued investment in infrastructure within its Regulated Businesses to serve existing and new customers, alongside regulated acquisitions to expand its customer base. Additionally, the company pursues growth opportunities in its Market-Based Businesses, which leverage its core competencies in water and wastewater services.