01—Abstract
Summary
Summary of the 10-Q filed November 3, 2010. Cited figures are marked; the original filing is the authoritative source.
American Water Works Company, Inc. (AWK) reported a strong recovery in its financial performance for the nine months ended September 30, 2010, compared to the same period in 2009.
Net income swung from a significant loss of $269.5 milliona in 2009 to a profit of $227.7 million in 2010. This turnaround was largely driven by the absence of a substantial $450 million goodwill impairment charge recorded in the prior year, alongside solid revenue growth in both regulated and non-regulated segments. The company experienced a notable increase in operating revenues, up 11.0% to $2.05 billion for the nine months, primarily due to rate increases and higher consumption in its regulated businesses, complemented by growth in its non-regulated Contract Operations Group following an acquisition.
Operating expenses also saw an increase, but excluding the prior year's impairment, the rise was manageable and largely corresponded to revenue growth and operational expansions. The company maintained its capital expenditure program, investing significantly in infrastructure, while managing its debt structure through various refinancing and issuance activities. Overall, AWK demonstrated a return to profitability and operational growth, positioning itself for continued investment in its utility assets.
02—Key points
Key Highlights
- Significant Profitability Turnaround: Net income increased from a loss of $269.5 million in the first nine months of 2009 to a profit of $227.7 million in the same period of 2010, largely due to the absence of a prior year goodwill impairment charge.
- Revenue Growth Across Segments: Total operating revenues increased by 11.0% to $2.05 billion for the nine months ended September 30, 2010, driven by rate increases and higher consumption in regulated businesses, and by acquisitions and new contracts in non-regulated businesses.
- Strong Performance in Regulated Businesses: The Regulated Businesses segment saw a substantial increase in operating revenues and Adjusted EBIT, reflecting successful rate adjustments and increased customer demand.
- Acquisition Integration Driving Non-Regulated Growth: The Non-Regulated segment's revenue growth was significantly boosted by the Contract Operations' Acquisition and increased military contract revenues.
- Consistent Capital Investment: The company continued to invest in its infrastructure, with capital expenditures of $522.1 million for the nine months ended September 30, 2010, although slightly lower than the prior year.
- Debt Management and Refinancing: AWK actively managed its long-term debt, issuing new debt and retiring existing issues, including a significant refinancing of $150 million by its New Jersey subsidiary to reduce interest costs.
- Return to Positive EPS: Diluted earnings per share improved from a loss of ($1.62) in the first nine months of 2009 to $1.30 in the same period of 2010.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2010filed November 3, 2010Financial Statements
Q3 FY2010 against Q3 FY2009
| Line item | Q3 FY2010Q3 FY2009 | Change |
|---|---|---|
| Revenue | $744.30M$679.96M | +9.5% |
| Operating Expenses | $482.43M$465.55M | +3.6% |
| Operating Income | $266.48M$214.41M | +24.3% |
| Interest Expense | $74.57M$74.12M | +0.6% |
| Net Income | $124.11M$91.64M | +35.4% |
| EPS (Basic) | $0.71$0.52 | +36.5% |
| EPS (Diluted) | $0.71$0.52 | +36.5% |
| Shares Outstanding (Basic) | 174.86M174.59M | +0.2% |
| Shares Outstanding (Diluted) | 175.06M174.69M | +0.2% |
05—Questions
Frequently Asked Questions
What was the primary driver for the significant improvement in net income from 2009 to 2010?
The primary driver for the significant improvement in net income was the absence of a $450 million goodwill impairment charge recorded in the nine months ended September 30, 2009. This charge was not present in the comparable period of 2010, allowing the company's operational improvements and revenue growth to positively impact the bottom line.
How did the company's regulated and non-regulated businesses perform during this period?
Both segments showed growth. Regulated Businesses saw increased revenues due to rate increases and higher consumption, while non-regulated businesses experienced significant revenue growth driven by an acquisition (Contract Operations Group) and increased military contracts. Adjusted EBIT, a key performance measure for segments, also increased for both.
What is the company's strategy for funding its capital expenditures and managing its debt?
AWK funds its capital-intensive operations through a combination of internally generated cash flows from operations and external sources, including debt and equity markets, and bank borrowings. The company actively manages its debt structure through issuances and refinancing to optimize costs and maintain liquidity. They also utilize customer advances and contributions for infrastructure projects.
Are there any significant risks or challenges highlighted in the report?
Key risks include those discussed in the 'Risk Factors' section of their 10-K, such as potential disruptions in credit markets, regulatory environments, and commodity price volatility. The company also manages market risks related to interest rates and has a diversified customer base to mitigate credit risk. They are also navigating labor union negotiations for their national benefits agreement.
06—Continue