10-QPeriod: Q3 FY2016

American Water Works Company, Inc. Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 2, 2016For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported third-quarter 2016 results with net income attributable to common stockholders of $148 million, or $0.83 per diluted share, a decrease from $174 million, or $0.97 per diluted share, in the prior year period. For the first nine months of 2016, net income was $367 million, or $2.05 per diluted share, down from $377 million, or $2.10 per diluted share, in the comparable 2015 period. This decline was largely due to a significant after-tax charge of $39 million ($0.22 per diluted share) related to the binding global agreement in principle to settle claims arising from the 2014 Freedom Industries chemical spill in West Virginia. Excluding this charge, the company demonstrated continued growth in its Regulated Businesses segment, driven by infrastructure investments and acquisitions, while its Market-Based Businesses experienced lower net income due to reduced capital upgrade revenue in the Military Services Group. The company continued to invest in its infrastructure, with capital expenditures of $905 million in the first nine months of 2016, primarily focused on its Regulated Businesses. AWK also pursued strategic acquisitions, adding approximately 7,600 water and wastewater customers. Management remains focused on its five central themes: Safety, Customers, People, Growth, and Technology and Operational Efficiency, aiming to deliver long-term value to stockholders through responsible operations and strategic capital investments.

Financial Highlights

47 data points
Beta

Net Income

$148.00M

EPS (Diluted)

$0.83

Total Assets

$17.97B

Cash & Equivalents

$46.00M

Free Cash Flow

$78.00M

Financial Statements
Beta
Operating Expenses$611.00M
Operating Income$319.00M
Net Income$148.00M
EPS (Basic)$0.83
EPS (Diluted)$0.83
Shares Outstanding (Basic)178.00M
Shares Outstanding (Diluted)178.00M

Key Highlights

  • 1Net income attributable to common stockholders for Q3 2016 was $148 million, a decrease from $174 million in Q3 2015, impacted by a significant charge related to the Freedom Industries chemical spill settlement.
  • 2Year-to-date net income for the nine months ended September 30, 2016, was $367 million, down from $377 million in the prior year, also impacted by the chemical spill settlement charge.
  • 3Excluding the $39 million after-tax charge for the chemical spill settlement, the company saw growth in its Regulated Businesses segment due to infrastructure investments and acquisitions.
  • 4Capital expenditures totaled $905 million in the first nine months of 2016, with the majority directed towards infrastructure improvements in the Regulated Businesses segment.
  • 5The company successfully completed ten acquisitions in the first nine months of 2016, adding approximately 7,600 water and wastewater customers.
  • 6The adjusted O&M efficiency ratio for the Regulated Businesses improved to 34.9% for the twelve months ended September 30, 2016, from 35.8% in the prior year period.
  • 7AWK's credit facility capacity was increased to $1.75 billion in March 2016, and the commercial paper program was increased to $1.6 billion, providing ample liquidity.

Frequently Asked Questions

The primary reason for the decline in net income for both the third quarter and the nine months ended September 30, 2016, was a significant after-tax charge of $39 million ($0.22 per diluted share) related to the binding global agreement in principle to settle claims arising from the 2014 Freedom Industries chemical spill in West Virginia.

American Water Works is investing in its future growth through significant capital expenditures focused on infrastructure improvements in its Regulated Businesses, totaling $905 million in the first nine months of 2016. Additionally, the company is actively pursuing strategic acquisitions to expand its customer base and service offerings.

As of October 31, 2016, the company reached a binding global agreement in principle to settle claims related to the Freedom Industries chemical spill. The settlement includes a pre-tax amount of $126 million, of which $65 million was recorded as a charge in the third quarter of 2016. The company has also been dismissed as a defendant in federal court litigation concerning the spill due to lack of personal jurisdiction.

The company is focused on improving its operational efficiency, as demonstrated by the improvement in its adjusted O&M efficiency ratio for the Regulated Businesses. For the twelve months ended September 30, 2016, this ratio was 34.9%, an improvement from 35.8% in the prior year period. This improvement is attributed to revenue increases and the timing of O&M expenses.