10-QPeriod: Q3 FY2011

American Water Works Company, Inc. Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 2, 2011For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported a solid third quarter and a strong nine-month performance for the period ending September 30, 2011. Net income increased significantly year-over-year, driven by growth in both regulated and market-based operations, as well as favorable impacts from the classification of certain businesses as discontinued operations. The company's strategic portfolio optimization initiative is progressing, with several divestitures and acquisitions underway, aimed at focusing on core regulated utility businesses. Rate increases granted in various states provided a significant boost to regulated revenues, while market-based operations, particularly contract services, also showed robust growth. Despite some challenges like adverse weather conditions impacting water usage in certain regions, AWK demonstrated resilience and effective cost management.

Financial Highlights

49 data points
Beta

Revenue

$760.87M

Net Income

$137.42M

18.1% Net Margin

EPS (Diluted)

$0.78

Total Assets

$14.51B

Cash & Equivalents

$15.62M

Free Cash Flow

$83.50M

Financial Statements
Beta
Revenue$760.87M
Operating Expenses$479.46M
Operating Income$281.41M
Interest Expense$78.56M
Net Income$137.42M
EPS (Basic)$0.78
EPS (Diluted)$0.78
Shares Outstanding (Basic)175.55M
Shares Outstanding (Diluted)176.59M

Key Highlights

  • 1Net income for the nine months ended September 30, 2011, was $269.3 million, a substantial increase from $227.7 million in the prior year.
  • 2Diluted earnings per share for the nine months rose to $1.53 from $1.30 in the comparable period of 2010.
  • 3The company is actively executing its portfolio optimization strategy, including the sale of non-core assets and strategic acquisitions to expand its regulated footprint.
  • 4Rate increases granted in various states contributed positively to operating revenues for both regulated and market-based segments.
  • 5Operation and maintenance expenses were managed effectively, showing a slight decrease in the three-month period and a controlled increase in the nine-month period, demonstrating improved efficiency.
  • 6Cash flows from operating activities remained strong, though slightly lower than the prior year, due to increased pension contributions and the absence of a prior year tax refund.
  • 7The company maintained its financial flexibility with ample availability under its committed revolving credit facilities.

Frequently Asked Questions

The increase in net income for the nine months ended September 30, 2011, was driven by several factors, including higher revenues from rate increases in regulated businesses, growth in market-based operations, and a benefit from the cessation of depreciation on assets classified as discontinued operations. These positive factors were partially offset by increased operation and maintenance expenses and general taxes.

The company is making significant progress on its portfolio optimization. This includes the completion of the sale of its Texas regulated subsidiary's assets, the ongoing divestiture of its Arizona and New Mexico subsidiaries, and the planned acquisition of water systems in New York and sale of its Ohio subsidiary. These actions are aimed at refining the company's business mix.

Adverse weather conditions, particularly wet weather in the Northeast including the impact of Hurricane Irene, affected water usage in certain regions during the third quarter. This led to decreased water sales volumes for residential and commercial customers in affected areas, though the company's geographic diversification helped mitigate the overall impact on consolidated revenues. Claims are being evaluated for submission to insurance carriers for business interruption losses.

American Water Works continues to invest in capital expenditures, with an increase noted in the nine-month period for treatment facilities and infrastructure projects. The company primarily funds its liquidity needs through cash flows from operations, debt offerings, commercial paper, and credit facilities. The proceeds from the sale of subsidiaries are expected to be used to reduce debt.