10-QPeriod: Q2 FY2014

American Water Works Company, Inc. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 6, 2014For Securities:AWK

Summary

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.

Financial Highlights

48 data points
Beta

Revenue

$754.78M

Net Income

$109.00M

14.4% Net Margin

EPS (Diluted)

$0.61

Total Assets

$15.43B

Cash & Equivalents

$32.13M

Free Cash Flow

-$3.57M

Financial Statements
Beta
Revenue$754.78M
Operating Expenses$499.99M
Operating Income$255.00M
Interest Expense$73.67M
Net Income$109.00M
EPS (Basic)$0.61
EPS (Diluted)$0.61
Shares Outstanding (Basic)178.86M
Shares Outstanding (Diluted)179.69M

Key Highlights

  • 1Net 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.
  • 2Diluted 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.
  • 3For 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.
  • 4Operating 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.
  • 5The company is actively pursuing regulatory approvals for rate increases, with several state general rate cases and infrastructure charges contributing to annualized revenue growth.
  • 6Capital 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.
  • 7The 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.

Frequently Asked Questions

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.

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.

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.

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.