- Third quarter 2016 GAAP diluted
earnings per share was $0.83; adjusted diluted earnings per share
was $1.05 (a non-GAAP measure), excluding the $0.22 per share
impact of the Freedom Industries chemical spill binding global
agreement in principle (the “Settlement”)
- Revenue increased 3.8 percent to
$930 million for the quarter
- Closed and pending regulated
acquisitions represent the addition of 78,500 customers
- Narrowing and raising 2016 non-GAAP
earnings guidance
American Water Works Company, Inc. (NYSE: AWK) today reported
results for the quarter and nine months ended Sept. 30, 2016.
“American Water’s employees delivered a strong quarter of
business results,” said Susan Story, President and CEO of American
Water. “We continued to invest in our customers’ critical water and
wastewater infrastructure while improving operational efficiency to
keep costs down. We continued our path to growth, with our closed
and pending acquisitions representing the addition of 78,500
customers and we continued to provide solutions for local
communities dealing with distressed water and wastewater
systems.
“Also this week we reached a binding global agreement in
principle for all consolidated claims arising from the 2014 Freedom
Industries chemical spill in West Virginia, which we refer to as
the Settlement. We firmly believe the suits brought against us are
without merit and the Settlement is not an admission of liability
or fault. It is in the best interests of our customers, our
company, and especially our West Virginia employees, as it allows
us to focus on serving our customers while reducing uncertainties
and eliminating the distractions and potentially significant
on-going expenses of federal and state litigation over the next
several years.
“As a result of our performance to date, we are narrowing and
raising our 2016 non-GAAP earnings guidance. If the Settlement
charge of $0.22 per share is included in the range, our revised
GAAP guidance is $2.59 - $2.64 per share. Our revised adjusted
guidance without the Settlement is $2.81 - $2.86 per share, which
is the upper end of our prior range, plus a penny.”
Consolidated Results
The company’s three and nine months ended results are included
in the table below.
For the Three Months
EndedSeptember 30,
For the Nine Months
EndedSeptember 30,
2016 2015 % Change 2016
2015 % Change Diluted
earnings per share: Net income attributable to common stockholders
$ 0.83 $ 0.96
(13.5
%)
$ 2.05 $ 2.09
(1.9
%)
Plus Impact of Settlement
0.36
-
0.36
- Tax Impact
(0.14
) -
(0.14
) -
Net Adjustment
0.22 - 0.22 - Adjusted
diluted earnings per share: $ 1.05 $ 0.96 9.4 % $ 2.27
$ 2.09 8.6 %
Both the quarter and nine months’ results were driven by
continued growth in the Regulated Businesses from additional
authorized revenue from investments, acquisitions and organic
growth. Partially offsetting this was lower results in our
Market-Based Businesses, mainly from lower capital upgrade revenue
in the Military Services Group. On a GAAP basis, these results were
partially offset by the $0.22 per diluted common share (“per
share”) net impact from the Settlement.
For the first nine months of 2016, the company made capital
investments of approximately $905 million, which included $24
million for regulated acquisitions. The majority of the remaining
$881 million was in regulated operations, primarily for pipes,
plants, and other needed investments related to reliable
service.
American Water plans to invest $1.4 billion to $1.5 billion
across its footprint in 2016, with the majority to improve its
water and wastewater systems. Included in this range for the full
year 2016 are the acquisitions expected to close this year. Closed
and pending acquisitions represent the addition of approximately
78,500 new customers to the American Water footprint. This includes
the 10,700 customers already acquired in 2016. Pending acquisitions
include the wastewater system of the Municipal Authority of the
City of McKeesport, Pa. which represents some 22,000 customers,
including customers served through bulk contracts. Pending
acquisitions also include the wastewater collection and treatment
assets of the Sewer Authority of the City of Scranton, Pa. with
approximately 31,000 wastewater customers, and the acquisition of
Shorelands Water Company in New Jersey with approximately 11,000
customers. This acquisition activity is in addition to organic
growth of 10,000 customers as of Sept. 30, 2016.
On Oct. 31, 2016, a federal court in West Virginia approved the
Settlement for all consolidated claims in both federal and state
courts arising from the Freedom Industries chemical spill on Jan.
9, 2014. The Settlement is not an admission of any liability or
fault on the part of our company or employees. The Settlement
resulted in $65 million in expense that was recognized in the third
quarter and impacted earnings per share, after tax, by $0.22. The
federal court has given the parties 30 days to finalize the terms
of the Settlement and to obtain that court’s preliminary
approval.
American Water has general liability insurance under a series of
policies underwritten by a number of individual carriers. Two of
these insurance carriers, which provide an aggregate of $50 million
in insurance coverage, were requested, but presently have not
agreed, to participate in the Settlement. The company and West
Virginia American Water will vigorously pursue their rights to
insurance coverage from these non-participating carriers for any
contributions by West Virginia American Water to the Settlement. In
this regard, West Virginia American Water has filed a lawsuit
against one of these carriers alleging that the carrier’s failure
to agree to participate in the Settlement constitutes a breach of
contract, and the company will pursue mandatory arbitration against
the other non-participating carrier.
Regulated Businesses
For the third quarter 2016, net income for the Regulated
Businesses was $152 million, compared to $174 million for the same
period in 2015. Excluding the impact of the Settlement, adjusted
net income (a non-GAAP financial measure) was $191 million,
compared to $174 million for the same period in 2015. These results
were driven by additional authorized revenue and surcharges to
support infrastructure investments, acquisitions and organic
growth. Partially offsetting increased revenue was higher
operations and maintenance (O&M) expense of $8 million (not
including the Settlement), and higher depreciation and amortization
expense of $7 million from infrastructure investments. On a GAAP
basis, these results were partially offset by the $65 million
pre-tax expense impact of the Settlement.
For the nine months ended Sept. 30, 2016, net income was $374
million, compared to $377 million for the same period in 2015.
Excluding the impact of the Settlement, net income is $413 million,
compared to $377 million for the same period in 2015. These results
were primarily attributable to revenue growth of $93 million, or
4.5 percent, resulting from infrastructure investments,
acquisitions and organic growth, partially offset by higher
depreciation and amortization expense of $22 million from
infrastructure investments. On a GAAP basis, these results were
partially offset by the $65 million pre-tax expense impact of the
Settlement.
For the first nine months of 2016, the company received
approximately $74 million in additional annualized authorized
revenues from general rate cases, step increases, and
infrastructure charges. Following the close of the third quarter,
additional annualized revenue of $9 million resulting from
infrastructure surcharges in our Pennsylvania subsidiary became
effective on Oct. 1, 2016. As of Nov. 2, 2016, the company was
awaiting final orders or proposed settlements for general rate
cases in five states, requesting approximately $97 million in total
additional revenues, and $13 million in infrastructure charges. The
extent to which requested rate increases will be granted by the
applicable regulatory agencies will vary.
For the 12-month period ended Sept. 30, 2016, the adjusted
O&M efficiency ratio (a non-GAAP financial measure) improved to
34.9 percent, compared to 35.8 percent for the 12-month period
ended Sept. 30, 2015. By reducing O&M expense as a proportion
of revenue, American Water is able to make investments in needed
capital improvements without significantly impacting customer
bills.
Market-based Businesses
For the third quarter of 2016, the Market-based Businesses
reported $7 million in net income, down $5 million compared to the
$12 million reported for the third quarter of 2015. Likewise, for
the first nine months of the year, the Market-based businesses
reported $26 million in net income, down $5 million compared to the
$31 million reported for the first nine months of 2015. The
majority of this decrease was from lower earnings associated with
capital upgrades in the Military Services Group compared to the
prior year, due to completion of certain large projects in mid-2016
and reduced military base infrastructure budgets in 2016.
Dividend Declared
On Oct. 28, 2016, American Water’s board of directors declared a
quarterly cash dividend payment of 37.5 cents per share of common
stock, payable on Dec. 1, 2016, to all stockholders of record as of
Nov. 9, 2016.
2016 Earnings Guidance
American Water is narrowing and raising its 2016 non-GAAP
earnings guidance. If the Settlement charge of $0.22 per share is
included in the range, the revised GAAP guidance is $2.59 - $2.64
per share. The revised adjusted guidance without the Settlement is
$2.81 - $2.86 per share (a non-GAAP measure), which is the upper
end of the prior range, plus a penny. The company’s earnings
forecasts are subject to numerous risks and uncertainties,
including, without limitation, those described under
“Forward-Looking Statements” below and under “Risk Factors” in its
annual and quarterly reports filed with the Securities and Exchange
Commission (SEC).
Non-GAAP Financial Measures
This press release includes a presentation of adjusted earnings
per share from continuing operations (“Adjusted EPS”), both as
historical financial information and as earnings guidance. These
items constitute “non-GAAP financial measures” under SEC rules.
These non-GAAP financial measures are derived from American Water’s
consolidated financial information but are not presented in its
financial statements prepared in accordance with GAAP. Adjusted EPS
is defined as GAAP diluted earnings per common share from
continuing operations excluding the impact in the third quarter of
2016 of the Settlement. These non-GAAP financial measures
supplement the company’s GAAP disclosures and should not be
considered an alternative to the GAAP measure.
Management believes that the presentation of these non-GAAP
financial measures are useful to the company’s investors because
they provide an indication of the company’s baseline performance
excluding items that are not considered to be reflective of ongoing
results. Management does not intend results excluding the
adjustment to represent results as defined by GAAP, and the reader
should not consider them as indicators of the company’s
performance. These items are derived from the company’s
consolidated financial information but are not presented in its
financial statements prepared in accordance with GAAP. The
company’s definition of Adjusted EPS may not be comparable to the
same or similar measures used by other companies, and, accordingly,
these non-GAAP financial measures may have significant limitations
on their use.
This press release includes a presentation of adjusted O&M
efficiency ratio, which excludes from its calculation estimated
purchased water revenues and purchased water expenses, the impact
of the Settlement, and the allocable portion of non-O&M support
services costs, mainly depreciation and general taxes. This item
constitutes a “non-GAAP financial measure” under SEC rules. This
item is derived from American Water’s consolidated financial
information but is not presented in its financial statements
prepared in accordance with GAAP. This non-GAAP financial measure
supplements and should be read in conjunction with the company’s
GAAP disclosures and should not be considered an alternative to
GAAP measure.
Management believes that the presentation of this measure is
useful to investors because it provides a means of evaluating the
company’s operating performance without giving effect to items that
are not reflective of management’s ability to increase efficiency
of the company’s regulated operations. In preparing operating
plans, budgets and forecasts, and in assessing historical
performance, management relies, in part, on trends in the company’s
historical results, exclusive of estimated revenues and expenses
related to purchased water and the allocable portion of non-O&M
support services costs. The company’s definition of this metric may
not be comparable to the same or similar measures used by other
companies, and, accordingly, this non-GAAP financial measure may
have significant limitations on its use.
Set forth at the end of this release are tables that reconcile
each non-GAAP financial measure to the most directly comparable
GAAP financial measure.
Third Quarter 2016 Earnings Conference Call
The third quarter earnings 2016 conference call will take place
on Thursday, Nov. 3, 2016, at 9 a.m. Eastern Daylight Time.
Interested parties may listen to the conference call over the
Internet by logging on to the Investor Relations page of the
company’s website at www.amwater.com. Presentation slides that will
be used in conjunction with the earnings conference call will also
be made available online. The company recognizes its website as a
key channel of distribution to reach public investors and as a
means of disclosing material non-public information to comply with
its obligations under SEC Regulation FD.
Following the earnings conference call, an audio archive of the
call will be available through Nov. 10, 2016. U.S. callers may
access the audio archive toll-free by dialing 1-877-344-7529.
International callers may listen by dialing 1-412-317-0088. The
access code for replay is 10094124. The online webcast will be
available at American Water’s investor relations homepage at
http://ir.amwater.com through Dec. 3, 2016. After that, the
archived webcast will be available for one year at
http://ir.amwater.com.
About American Water
American Water is the largest and most geographically diverse
publicly traded U.S. water and wastewater utility company. Marking
its 130th anniversary this year, the company employs more than
6,700 dedicated professionals who provide regulated and
market-based drinking water, wastewater and other related services
to an estimated 15 million people in 47 states and Ontario, Canada.
More information can be found by visiting www.amwater.com.
Cautionary Statement Concerning Forward-Looking
Statements
Certain statements in this press release including, without
limitation, 2016 earnings guidance, the outcome of pending
acquisition activity, the amount of future capital investments, and
estimated revenues from rate cases and other government agency
authorizations, are forward-looking statements within the meaning
of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and the Federal securities laws. In some cases,
these forward-looking statements can be identified by words with
prospective meanings such as “intend,” “plan,” “estimate,”
“believe,” “anticipate,” “expect,” “predict,” “project,” “assume,”
“forecast,” “outlook,” “future,” “pending,” “goal,” “objective,”
“potential,” “continue,” “seek to,” “may,” “can,” “will,” “should”
and “could” and or the negative of such terms or other variations
or similar expressions. These forward-looking statements are
predictions based on American Water’s current expectations and
assumptions regarding future events. They are not guarantees or
assurances of any outcomes, financial results of levels of
activity, performance or achievements, and readers are cautioned
not to place undue reliance upon them. The forward-looking
statements are subject to a number of estimates and assumptions,
and known and unknown risks, uncertainties and other factors.
Actual results may differ materially from those discussed in the
forward-looking statements included in this press release as a
result of the factors discussed in the Company’s Annual Report on
Form 10-K for the year ended Dec. 31, 2015, and subsequent filings
with the SEC, and because of factors such as: the decisions of
governmental and regulatory bodies, including decisions to raise or
lower rates; the timeliness of regulatory commissions’ actions
concerning rates and other matters; changes in laws, governmental
regulations and policies, including environmental, health and
safety, water quality, and public utility regulations and policies;
potential costs and liabilities of American Water for environmental
and similar matters resulting from, among other things, the
provision of water services to customers in the natural gas
exploration and production market; the outcome of litigation and
government action related to the Freedom Industries chemical spill
in West Virginia, including matters pertaining to the Settlement;
weather conditions, patterns or events or natural disasters,
including drought or abnormally high rainfall, strong winds,
coastal and intercoastal flooding, earthquakes, landslides,
hurricanes and tornadoes, and cooler than normal temperatures;
changes in customer demand for, and patterns of use of, water, such
as may result from conservation efforts; its ability to
appropriately maintain current infrastructure, including its
technology systems, and manage the expansion of its business; its
ability to obtain permits and other approvals for projects; changes
in its capital requirements; its ability to control operating
expenses and to achieve efficiencies in its operations; the
intentional or unintentional acts of a third party, including
contamination of its water supplies or water provided to its
customers and attacks on, or infiltration of, its computer systems
or other critical infrastructure; its ability to obtain adequate
and cost-effective supplies of chemicals, electricity, fuel, water
and other raw materials that are needed for its operations; its
ability to successfully meet growth projections and capitalize on
growth opportunities, including its ability to, among other things,
acquire and integrate water and wastewater systems into its
regulated operations and enter into contracts and other agreements
with, or otherwise acquire, new customers in its Market-based
Businesses, including with respect to the provision of water
services to customers in the natural gas exploration and production
market; cost overruns relating to improvements in or the expansion
of its operations; our ability to maintain safe work sites; changes
in general economic, business and financial market conditions;
access to sufficient capital on satisfactory terms and when and as
needed to support operations and capital expenditures; fluctuations
in interest rates; restrictive covenants in or changes to the
credit ratings on its current or future debt that could increase
its financing costs or affect its ability to borrow, make payments
on debt or pay dividends; fluctuations in the value of benefit plan
assets and liabilities that could increase its financing costs and
funding requirements; changes in Federal or state income tax laws,
including tax reform, the availability of tax credits and tax
abatement programs, and the ability to utilize its U.S. and state
net operating loss carryforwards; migration of customers into or
out of its service territories; the use by municipalities of the
power of eminent domain or other authority to condemn its systems;
difficulty in obtaining, or the inability to obtain, insurance at
acceptable rates and on acceptable terms and conditions; its
ability to retain and attract qualified employees; labor actions
including work stoppages and strikes; the incurrence of impairment
charges related to American Water’s goodwill or other assets; and
civil disturbances, terrorist threats or acts, or public
apprehension about future disturbances or terrorist threats or
acts.
These forward-looking statements are qualified by, and should be
read together with, the risks and uncertainties set forth above and
the risk factors included in the company’s annual and quarterly SEC
filings, and readers should refer to such risks, uncertainties and
risk factors in evaluating such forward-looking statements. Any
forward-looking statements speak only as of the date of this press
release. The company does not have any obligation or intention to
update or revise any forward-looking statement, whether as a result
of new information, future events, changed circumstances or
otherwise, except as otherwise required by the Federal securities
laws. Furthermore, it may not be possible to assess the impact of
any such factor on the company’s businesses, either viewed
independently or together, or the extent to which any factor, or
combination of factors, may cause results to differ materially from
those contained in any forward-looking statement. The foregoing
factors should not be construed as exhaustive.
American Water Works Company, Inc. and
Subsidiary Companies
Consolidated Statements of Operations
(Unaudited)
In millions except per share data
For the Three Months
EndedSeptember 30,
For the Nine Months
EndedSeptember 30,
2016 2015 2016 2015
Operating revenues $ 930 $ 896 $ 2,500 $ 2,376
Operating expenses: Operation and maintenance 432 364 1,131
1,024 Depreciation and amortization 119 111 350 327 General taxes
65 60 195 184 Gain on asset dispositions and purchases (5
)
- (8 ) (2 ) Total operating expenses,
net 611 535 1,668
1,533 Operating income 319 361
832 843 Other income (expenses):
Interest, net (81 ) (77 ) (242 ) (228 ) Other, net 5
3 14 9 Total other income
(expenses) (76 ) (74 ) (228 ) (219 )
Income from continuing operations before income taxes 243 287 604
624 Provision for income taxes 95 113
237 247 Net income attributable to
common stockholders $ 148 $ 174 $ 367 $ 377
Basic earnings per share: Net income attributable to
common stockholders $ 0.83 $ 0.97 $ 2.06 $
2.10 Diluted earnings per share: Net income attributable to
common stockholders $ 0.83 $ 0.96 $ 2.05 $
2.09 Weighted average common shares outstanding Basic
178 179 178 179
Diluted 178 180 179
180 Dividends declared per common share $
0.375 $ 0.34 $ 0.75 $ 0.68
American Water Works Company, Inc. and
Subsidiary Companies
Condensed Consolidated Balance Sheets
Information (Unaudited)
In millions
September 30, 2016 December 31, 2015
Cash and cash equivalents $ 46 $ 45 Other current assets 755 612
Property, plant and equipment, net 14,559 13,933 Total regulatory
and other long-term assets 2,611 2,651 Total Assets $
17,971 $ 17,241 Short-term debt $ 951 $ 628 Current portion
of long-term debt 53 54 Other current liabilities 924 851 Total
long-term debt 5,853 5,874 Total regulatory and other long-term
liabilities 3,754 3,664 Contributions in aid of construction 1,198
1,121 Total common stockholders' equity 5,238 5,049
Total Capitalization and Liabilities $ 17,971 $ 17,241
American Water Works Company, Inc. and
Subsidiary Companies
Adjusted Regulated Operation and
Maintenance Efficiency Ratio (A Non-GAAP, unaudited
measure)
In millions
For the Twelve Months Ended September
30,
2016 2015 Total operation and
maintenance expenses $ 1,511 $ 1,369 Less: Operation and
maintenance expenses—Market-Based Businesses 391 337 Operation and
maintenance expenses—Other (42 ) (53 ) Total
operation and maintenance expenses—Regulated Businesses 1,162 1,085
Less: Regulated purchased water expenses 120 118 Allocation of
non-operation and maintenance expenses 29 37 Impact of Settlement
65 - Adjusted operation and maintenance
expenses—Regulated Businesses (a) $ 948 $ 930
Total operating revenues $ 3,283 $ 3,108 Less: Operating
revenues—Market-Based Businesses 464 409 Operating revenues—Other
(17 ) (19 ) Total operating revenues—Regulated
Businesses 2,836 2,718 Less: Regulated purchased water revenues*
120 118 Adjusted operating
revenues—Regulated Businesses (b) $ 2,716 $ 2,600
Adjusted operation and maintenance efficiency
ratio—Regulated Businesses (a)/(b) 34.9 % 35.8 % *
Calculation assumes purchased water revenues approximate purchased
water expenses.
American Water Works Company, Inc.
and Subsidiary Companies Adjusted Earnings Per Share (A
Non-GAAP, unaudited measure)
For the Three Months
EndedSeptember 30,
For the Nine Months
EndedSeptember 30,
2016 2015 % Change 2016
2015 % Change Diluted earnings
per share: Net income attributable to common stockholders $ 0.83 $
0.96 (13.5 %) $ 2.05 $ 2.09 (1.9 %) Plus Impact of Settlement
0.36
-
0.36
- Tax Impact
(0.14
) -
(0.14
) -
Net Adjustment
0.22 - 0.22 - Adjusted
diluted earnings per share: $ 1.05 $ 0.96 9.4 % $ 2.27
$ 2.09 8.6 %
American Water Works Company,
Inc. and Subsidiary Companies Revised Adjusted Earnings
Guidance (A Non-GAAP, unaudited measure) 2016
Low End High End Revised Earnings
Guidance, GAAP $ 2.59 $ 2.64 Plus Impact of the Settlement
0.36
0.36
Tax Impact
(0.14
)
(0.14
) Revised Adjusted Earnings Guidance $ 2.81 $ 2.86
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version on businesswire.com: http://www.businesswire.com/news/home/20161102006772/en/
American Water Works Company, Inc.Edward VallejoVice President,
Financial Planning and Investor
Relations856-566-4005edward.vallejo@amwater.comorMaureen DuffyVice
President, Communications and External
Affairs856-309-4546maureen.duffy@amwater.com
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