01—Abstract
Summary
Summary of the 10-Q filed August 6, 2014. Cited figures are marked; the original filing is the authoritative source.
American Water Works Company, Inc. (AWK) reported increased net income and diluted EPS for both the three and six months ended June 30, 2014, compared to the prior year.
This growth was driven by favorable operating results from its Regulated Businesses segment, despite higher costs related to the West Virginia chemical spill and increased uncollectible expenses. The Market-Based Operations segment also contributed positively, alongside lower interest expenses. The company continues to focus on regulatory lag management, O&M efficiency, capital deployment, and strategic acquisitions within its Regulated Businesses, while also seeking growth in its Market-Based Operations.
AWK is actively managing rate case proceedings, infrastructure surcharges, and cost pass-through mechanisms to support its revenue growth. Investments in infrastructure upgrades remain a priority, with a significant capital plan for 2014.
02—Key points
Key Highlights
- Net income increased by $8.0 million to $109.3 million for the three months ended June 30, 2014, compared to $101.3 million in the prior year.
- Diluted earnings per share (EPS) rose to $0.61 for the three months ended June 30, 2014, from $0.57 in the same period of 2013.
- For the six months ended June 30, 2014, net income grew by $18.5 million to $177.4 million, with diluted EPS increasing to $0.99 from $0.89 in the prior year.
- Operating revenues for the three months ended June 30, 2014, increased by $34.9 million (4.8%) to $759.2 million, driven by rate increases and acquisitions in the Regulated Businesses segment.
- The company is actively pursuing regulatory approvals for rate increases, with several state general rate cases and infrastructure charges contributing to annualized revenue growth.
- Capital expenditures for the first six months of 2014 totaled $401.8 million, primarily for infrastructure upgrades, with a full-year capital plan estimated up to $1.1 billion.
- The company faced headwinds from the West Virginia Freedom Industries chemical spill, which reduced income before taxes by $5.0 million and $10.9 million for the three and six months ended June 30, 2014, respectively.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2014filed August 6, 2014Financial Statements
Q2 FY2014 against Q2 FY2013
| Line item | Q2 FY2014Q2 FY2013 | Change |
|---|---|---|
| Revenue | $754.78M$718.57M | +5.0% |
| Operating Expenses | $499.99M$482.38M | +3.7% |
| Operating Income | $255.00M$242.03M | +5.4% |
| Interest Expense | $73.67M$77.76M | −5.3% |
| Net Income | $109.00M$101.26M | +7.6% |
| EPS (Basic) | $0.61$0.57 | +7.0% |
| EPS (Diluted) | $0.61$0.57 | +7.0% |
| Shares Outstanding (Basic) | 178.86M177.72M | +0.6% |
| Shares Outstanding (Diluted) | 179.69M178.91M | +0.4% |
05—Questions
Frequently Asked Questions
What are the primary drivers for the increase in net income and EPS in the second quarter of 2014?
The increase in net income and EPS was primarily driven by favorable operating results from the Regulated Businesses segment, which benefited from rate increases and acquisitions. Lower interest expenses and contributions from the Market-Based Operations segment also supported the improved financial performance.
How did the West Virginia chemical spill impact the company's financial results?
The West Virginia Freedom Industries chemical spill negatively impacted income before income taxes. For the three months ended June 30, 2014, this impact was $5.0 million, and for the six months ended June 30, 2014, it was $10.9 million. The company believes it responded appropriately and is contesting related lawsuits.
What is the company's strategy for growth and capital investment?
AWK's strategy includes actively addressing regulatory lag, improving operational efficiency, making efficient use of capital, and expanding its Regulated Businesses through acquisitions and organic growth. The company also aims to grow its Market-Based Operations segment through core growth and new offerings. A significant capital plan of up to $1.1 billion is allocated for 2014, primarily for infrastructure upgrades and strategic investments.
What is the status of the labor dispute regarding the national benefits agreement?
The company is appealing a National Labor Relations Board (NLRB) ruling that found it violated labor laws by implementing a new benefits offer without sufficient notice. The NLRB's order, if upheld on appeal, could require back pay and tax reimbursement, estimated to cost between $3.5 million to $4.5 million annually.
06—Continue