10-QPeriod: Q1 FY2011

American Water Works Company, Inc. Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 4, 2011For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported a strong first quarter for 2011, with net income increasing to $47.3 million from $30.8 million in the prior year's comparable period. This growth was primarily driven by increased operating revenues from rate increases in its Regulated Businesses segment and higher revenues from its Market-Based Operations. Income from continuing operations also saw a significant rise, more than doubling to $41.5 million from $29.7 million, with diluted earnings per share from continuing operations reaching $0.24 compared to $0.17 in the prior year. The company is actively executing a portfolio optimization strategy, including the planned divestiture of its Arizona and New Mexico subsidiaries and the sale of its Texas subsidiary's assets. Simultaneously, AWK is pursuing rate case resolutions and filed for significant annualized revenue increases in several states. Management is focused on improving operating efficiency and achieving authorized rates of return. Despite increased operating expenses, particularly in operation and maintenance, the company's financial performance demonstrates resilience and strategic progress.

Financial Highlights

48 data points
Beta

Revenue

$596.72M

Net Income

$26.23M

4.4% Net Margin

EPS (Diluted)

$0.15

Total Assets

$14.11B

Cash & Equivalents

$13.53M

Free Cash Flow

-$14.88M

Financial Statements
Beta
Revenue$596.72M
Operating Expenses$453.46M
Operating Income$143.25M
Interest Expense$76.19M
Net Income$26.23M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)175.26M
Shares Outstanding (Diluted)176.05M

Key Highlights

  • 1Net income increased by 53.6% to $47.3 million for the three months ended March 31, 2011, compared to $30.8 million for the same period in 2010.
  • 2Income from continuing operations increased by 40.0% to $41.5 million, with diluted EPS from continuing operations rising to $0.24 from $0.17.
  • 3Total operating revenues grew by 7.8% to $610.9 million, driven by rate increases in Regulated Businesses and growth in Market-Based Operations.
  • 4The company is progressing with its portfolio optimization by planning to sell its Arizona, New Mexico, and Texas subsidiaries.
  • 5Operating efficiency ratio for Regulated Businesses improved to 48.2% from 49.4% year-over-year.
  • 6Capital expenditures increased significantly to $176.4 million from $142.7 million in the prior year's comparable period.
  • 7The company declared a quarterly dividend of $0.22 per share, consistent with the previous quarter.

Frequently Asked Questions

The primary drivers for the increase in net income were higher operating revenues, largely due to rate increases approved for its Regulated Businesses, and growth in its Market-Based Operations. Additionally, the cessation of depreciation on assets held by discontinued operations contributed to the higher reported net income under GAAP.

The company is actively pursuing its portfolio optimization initiative, which includes agreements to sell its regulated water and wastewater systems in Arizona and New Mexico, and the sale of assets of its Texas subsidiary. The Missouri acquisition is also progressing and expected to close in Q2 2011. The divestitures of Arizona and New Mexico are anticipated by late 2011 or early 2012, while the Texas sale is expected in Q2 or Q3 2011.

Consolidated operation and maintenance expense increased by 4.9% due to higher costs in both Regulated Businesses and Market-Based Operations. However, the operating efficiency ratio for Regulated Businesses improved to 48.2% from 49.4% in the prior year, indicating better efficiency in managing operational costs relative to revenues. The company is also actively pursuing rate case resolutions to improve its earned rate of return.

American Water significantly increased its capital expenditures to $176.4 million in Q1 2011, up from $142.7 million in the prior year, reflecting investment in utility plant. The company funds its liquidity needs through operating cash flows, debt offerings, commercial paper, and credit facilities, maintaining a stable capital structure with approximately 55% long-term debt.