01—Abstract
Summary
Summary of the 10-Q filed November 6, 2013. Cited figures are marked; the original filing is the authoritative source.
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 milliona, 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.
02—Key points
Key Highlights
- Net 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.
- Operating 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.
- The company made significant investments in capital expenditures, totaling $665.3 million for the nine months ended September 30, 2013, including business transformation projects.
- AWK 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.
- The 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.
- Slower cash collections on accounts receivable were noted, attributed to the implementation of a new Customer Information System (CIS) in regulated subsidiaries.
- The company continued to return value to shareholders, declaring a quarterly cash dividend of $0.28 per share.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2013filed November 6, 2013Financial Statements
Q3 FY2013 against Q3 FY2012
| Line item | Q3 FY2013Q3 FY2012 | Change |
|---|---|---|
| Revenue | $822.19M$831.82M | −1.2% |
| Operating Expenses | $499.02M$504.18M | −1.0% |
| Operating Income | $323.17M$327.64M | −1.4% |
| Interest Expense | $77.39M$76.62M | +1.0% |
| Net Income | $150.66M$153.81M | −2.0% |
| EPS (Basic) | $0.85$0.87 | −2.3% |
| EPS (Diluted) | $0.84$0.86 | −2.3% |
| Shares Outstanding (Basic) | 177.97M176.62M | +0.8% |
| Shares Outstanding (Diluted) | 179.15M177.84M | +0.7% |
05—Questions
Frequently Asked Questions
What was the primary driver for the decrease in income from continuing operations for the nine months ended September 30, 2013?
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.
How is American Water addressing the slower cash collections on accounts receivable?
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.
What was the impact of the debt tender offer on American Water's financial results?
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.
Has the company made progress in securing rate increases from regulatory bodies?
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.
06—Continue