10-QPeriod: Q3 FY2013

American Water Works Company, Inc. Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 6, 2013For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported mixed financial results for the nine months ended September 30, 2013, compared to the same period in 2012. While net income saw a slight increase to $309.6 million, income from continuing operations decreased to $309.6 million from $320.0 million, primarily due to higher depreciation and lower regulated revenues driven by reduced water usage. The company demonstrated progress in addressing regulatory lag, securing rate increases and infrastructure surcharges in various states. Efforts to improve operational efficiency are ongoing, with the O&M efficiency ratio showing slight fluctuations. Capital expenditures remained significant, with a substantial investment in business transformation projects. The company also successfully executed a tender offer to retire a portion of its long-term debt, although this resulted in a reported loss on extinguishment. Liquidity remains a focus, with slower cash collections on accounts receivable noted, partly attributed to the implementation of a new Customer Information System (CIS). Despite this, AWK maintains access to credit markets and has expanded its revolving credit facility. The company continued its practice of returning capital to shareholders through regular quarterly dividends.

Financial Highlights

49 data points
Beta

Revenue

$822.19M

Net Income

$150.66M

18.3% Net Margin

EPS (Diluted)

$0.84

Total Assets

$15.25B

Cash & Equivalents

$32.45M

Free Cash Flow

$163.05M

Financial Statements
Beta
Revenue$822.19M
Operating Expenses$499.02M
Operating Income$323.17M
Interest Expense$77.39M
Net Income$150.66M
EPS (Basic)$0.85
EPS (Diluted)$0.84
Shares Outstanding (Basic)177.97M
Shares Outstanding (Diluted)179.15M

Key Highlights

  • 1Net income for the first nine months of 2013 increased to $309.6 million, up from $302.6 million in the prior year, though income from continuing operations declined.
  • 2Operating revenues slightly decreased by 0.3% for the nine months ended September 30, 2013, primarily due to lower demand in Regulated Businesses and reduced Contract Operations Group revenues.
  • 3The company made significant investments in capital expenditures, totaling $665.3 million for the nine months ended September 30, 2013, including business transformation projects.
  • 4AWK successfully completed a tender offer to repurchase $225.8 million of its 6.085% Senior Notes due 2017, incurring a $40.6 million loss on debt extinguishment.
  • 5The company's credit rating outlook was stable, with Standard & Poor's upgrading AWCC and American Water's corporate credit rating to A- and Moody's upgrading its outlook to stable.
  • 6Slower cash collections on accounts receivable were noted, attributed to the implementation of a new Customer Information System (CIS) in regulated subsidiaries.
  • 7The company continued to return value to shareholders, declaring a quarterly cash dividend of $0.28 per share.

Frequently Asked Questions

The primary drivers for the decrease in income from continuing operations for the nine months ended September 30, 2013, compared to the same period in 2012, were higher depreciation expense due to increased utility plant in service and lower regulated revenues, mainly attributed to a decrease in customer demand. The company also noted an increase in general taxes.

American Water attributes the slower cash collections to the implementation of a new Customer Information System (CIS) in certain regulated subsidiaries, which led to increased scrutiny and validation of bills. The company expects this situation to be temporary but anticipates similar collection patterns in other subsidiaries where CIS is being implemented. They are monitoring the situation closely and believe collections will eventually return to historical patterns.

American Water repurchased $225.8 million of its 6.085% Senior Notes due 2017 through a tender offer. This resulted in a reported loss on debt extinguishment of $40.6 million in October 2013, which included a repurchase premium, transaction fees, and the write-off of unamortized debt issuance costs. The company expects this action to result in pre-tax interest expense savings of approximately $13 million in 2014.

Yes, the company has made progress in addressing regulatory lag by filing for and receiving rate increases and infrastructure surcharges in several states, including Pennsylvania, New Jersey, West Virginia, and California. They are also awaiting final decisions on other pending requests.