01—Abstract
Summary
Summary of the 10-Q filed October 31, 2018. Cited figures are marked; the original filing is the authoritative source.
American Water Works Company, Inc. (AWK) reported its third-quarter 2018 financial results, demonstrating resilience and strategic progress.
For the nine months ended September 30, 2018, total operating revenues increased to $2.59 billiona, up 2.1% year-over-year, primarily driven by growth in its Regulated Businesses driven by authorized rate increases and acquisitions, as well as expansion in its Market-Based Businesses through the acquisition of Pivotal Home Solutions. Net income attributable to common stockholders was $455 million for the nine-month period, a 6.6% increase compared to the prior year, reflecting the benefit of lower federal income tax rates enacted by the Tax Cuts and Jobs Act (TCJA). Key strategic initiatives included significant capital investments totaling $1.5 billion for infrastructure improvements and acquisitions, underscoring the company's commitment to long-term growth and operational efficiency.
Despite a notable non-cash goodwill and intangible asset impairment charge of $57 millionb related to the Keystone business, the company maintained a strong financial position with $116 million in cash and cash equivalents and restricted funds and a consolidated debt to capitalization ratio of 0.59 to 1.00. AWK continues to focus on its five central themes: safety, customers, people, growth, and technology, positioning itself for continued value creation for its shareholders.
02—Key points
Key Highlights
- Operating revenues for the nine months ended September 30, 2018, increased to $2.59 billion, up 2.1% from the prior year, driven by rate increases and acquisitions in Regulated Businesses and growth in Market-Based Businesses.
- Net income attributable to common stockholders for the nine months ended September 30, 2018, rose to $455 million, an increase of 6.6%, benefiting from the lower federal corporate income tax rate.
- Capital expenditures for the first nine months of 2018 were $1.5 billion, allocated to infrastructure improvements, the acquisition of Pivotal, and smaller regulated business acquisitions.
- The company recorded a $57 million non-cash, pre-tax impairment charge related to goodwill and intangible assets for its Keystone business, stemming from operational and financial challenges.
- AWK completed a significant debt offering of $1.325 billion to fund operations, repay debt, and for general corporate purposes.
- Adjusted diluted earnings per share (non-GAAP) increased by 11.5% for the nine months ended September 30, 2018, compared to the prior year, reflecting operational growth and integration efficiencies.
- The company received rate authorizations for annualized revenues totaling $100 million from general rate cases and $15 million from infrastructure surcharges in various states during the first nine months of 2018.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2018filed October 31, 2018Financial Statements
Q3 FY2018 against Q3 FY2017
| Line item | Q3 FY2018Q3 FY2017 | Change |
|---|---|---|
| Revenue | $955.00M— | — |
| Operating Expenses | $641.00M$504.00M | +27.2% |
| Operating Income | $335.00M$432.00M | −22.5% |
| Net Income | $187.00M$203.00M | −7.9% |
| EPS (Basic) | $1.04$1.14 | −8.8% |
| EPS (Diluted) | $1.04$1.13 | −8.0% |
| Shares Outstanding (Basic) | 181.00M178.00M | +1.7% |
| Shares Outstanding (Diluted) | 181.00M179.00M | +1.1% |
05—Questions
Frequently Asked Questions
What was the impact of the Tax Cuts and Jobs Act (TCJA) on American Water's financial performance?
The TCJA, which reduced the federal corporate income tax rate from 35% to 21%, significantly lowered American Water's effective income tax rate. For the nine months ended September 30, 2018, this reduction contributed to a decrease in the provision for income taxes and an increase in net income. The company is also working with its regulators to pass on a portion of these tax savings to customers through rate adjustments.
How did the acquisition of Pivotal Home Solutions affect the company's financial results?
The acquisition of Pivotal Home Solutions on June 4, 2018, contributed to the growth in the Market-Based Businesses segment. It increased operating revenues and, while incurring integration expenses, these were lower than projected in the third quarter, positively impacting adjusted diluted earnings per share.
What led to the goodwill and intangible asset impairment charge for Keystone?
The impairment charge of $57 million for Keystone was due to operational and financial challenges encountered in its construction business. The company decided to narrow the scope of Keystone's operations to focus solely on water transfer services, which necessitated the impairment testing and subsequent write-down of goodwill and intangible assets.
What is the company's outlook on capital expenditures and growth initiatives?
American Water plans to invest between $2.0 billion and $2.1 billion for the full year 2018, encompassing capital expenditures for infrastructure improvements and acquisitions. The company continues to pursue growth through strategic acquisitions and investments in its regulated utility infrastructure, aiming to enhance service reliability and expand its customer base.
06—Continue