- 2016 GAAP diluted earnings per share
were $2.62; adjusted diluted earnings per share were $2.84 (a
non-GAAP measure), excluding the $0.22 per share impact of the
Freedom Industries chemical spill binding global agreement in
principle (the “Settlement”)
- Fourth quarter 2016 GAAP diluted
earnings per share were $0.57
- Company affirms 2017 earnings
guidance from continuing operations of $2.98 to $3.08 per diluted
share
- Projects 2017 dividend growth to be
at the top of long term EPS compound annual growth range of 7 to 10
percent
American Water Works Company, Inc. (NYSE: AWK) today reported
results for the fourth quarter and year ended Dec. 31, 2016.
“American Water continued our strong growth in 2016,” said Susan
Story, president and CEO of American Water. “We invested a record
$1.5 billion in 2016, the majority of which was for infrastructure
which improves our long-term service reliability and water quality
for our customers. We also added approximately 42,000 customers
through acquisitions, 13,000 through organic growth and have
pending acquisitions representing another 40,000 customers.”
“Additionally, we achieved exceptional drinking water quality
results which were 21 times better than the industry average. We
further improved our O&M efficiency ratio to 34.9 percent,
allowing us to continue to invest in our infrastructure while
keeping our services affordable for our customers,” added Story.
“Through a continued focus on engaged employees, smart investments,
safe and efficient operations and highly satisfied customers,
American Water has a pathway to sustainable growth and financial
performance.”
Consolidated Results
The company’s three months and year ended results are included
in the table below.
For the Three Months
EndedDecember 31,
For the Year EndedDecember
31,
2016 2015 % Change 2016
2015 % Change Diluted earnings
per share: Net income attributable to common stockholders $ 0.57 $
0.55 3.6 % $ 2.62 $ 2.64 (0.8 %) Plus Impact of the Settlement - -
0.36 - Tax Impact of the Settlement - - (0.14
) - Net Adjustment - - 0.22
- Adjusted diluted earnings per share: $ 0.57 $ 0.55 3.6 % $
2.84 $ 2.64 7.6 %
In the fourth quarter 2016, income from continuing operations
increased $0.02 per diluted share compared to the prior year. Net
income from the Regulated Businesses was up $0.01 per diluted share
with continued strong revenue growth partially offset by the timing
of certain operation and maintenance (O&M) expenses. Net income
from the Market-based Businesses was up $0.01 per diluted share
primarily due to price redeterminations in the Military Services
Group.
For the full year 2016, GAAP income from continuing operations
decreased $0.02 per diluted share compared to the prior year.
Included in the 2016 amount was an after-tax charge of $39 million,
or $0.22 per diluted share, related to the Settlement. Excluding
the impact of the Settlement, net income was $2.84, up 7.6 percent
mainly due to the Regulated Businesses from additional authorized
revenue from investments, acquisitions and organic growth. Although
the Military Services Group was able to offset some of the
previously discussed headwinds, net income in the Market-based
Businesses was slightly down for the year.
On Oct. 31, 2016, a federal court in West Virginia approved the
preliminary principles, terms and conditions of a binding global
agreement in principle to settle 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 the company or its
employees. The Settlement resulted in a $39 million, or $0.22 per
share, after-tax charge recognized in the third quarter.
For the full year 2016, the company made capital investments of
approximately $1.5 billion, a record level of investment, including
$1.3 billion to improve infrastructure in the Regulated Businesses
to provide safe, clean and reliable service to its customers and
over $199 million for regulated acquisitions.
Regulated Businesses
For the fourth quarter 2016, net income in the Regulated
Businesses was $98 million, compared to $96 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 O&M expense, largely due to timing of
certain maintenance, repairs, and tank painting completed in the
fourth quarter of 2016.
For the full year 2016, net income was $472 million, compared to
$473 million for the same period in 2015. Excluding the $39 million
after-tax impact of the Settlement, adjusted net income (a non-GAAP
financial measure) for 2016 was $511 million, up $38 million from
prior year. These results were primarily due to revenue growth of
$128 million to support continued infrastructure investments to
benefit customers, and acquisitions and organic growth, partially
offset by higher depreciation expense from increased infrastructure
investments.
For the full year 2016, the company received approximately $92
million in additional annualized authorized revenues from general
rate cases, step increases, and infrastructure charges. Following
the close of 2016, the company also received approximately $3
million in additional annualized revenues from infrastructure
surcharges and approximately $31 million from general rate cases.
The company is awaiting final orders or proposed settlements for
general rate cases in four states, requesting approximately $57
million in total additional revenues, $5 million step increases,
and $10 million in infrastructure surcharges. The extent to which
requested rate increases will be granted by the applicable
regulatory agencies will vary.
For the full year 2016, adjusted O&M efficiency ratio (a
non-GAAP financial measure) improved to 34.9 percent, compared to
35.9 percent for the full year of 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 fourth quarter of 2016, net income in the Market-based
Businesses was $13 million, compared to $11 million for the same
period in 2015. The Military Services Group was able to overcome
previously discussed headwinds with price redeterminations and the
2016 addition of Vandenberg Air Force Base.
For the full year 2016, net income was $39 million, compared to
$42 million for the same period in 2015. Although revenue at the
Homeowner Services Group was higher by $11 million, it was more
than offset by higher claims, marketing expenses, and costs
associated with an investment in a new customer information system.
Also, Keystone Clearwater results for the year were essentially
earnings neutral, as anticipated.
Dividends
On Dec. 9, 2016, American Water’s board of directors declared a
quarterly cash dividend payment of $0.375 per share of common
stock, payable on Mar. 1, 2017, to all stockholders of record as of
Feb. 7, 2017.
American Water’s dividend has increased at the top end of its
long-term 7 to 10 percent EPS compound annual growth range over the
last four years. As the company continues to execute on its
strategy and earnings growth, it expects 2017 dividend growth to be
at the top of the long term EPS growth range. Future dividends are
subject to approval of the American Water Board of Directors.
2017 Earnings Guidance
American Water has affirmed its 2017 earnings guidance from
continuing operations to be in the range of $2.98 - $3.08 per
diluted share. 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 net
income and adjusted diluted earnings per share. 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 net
income and adjusted earnings per share are defined as GAAP net
income attributable to common stockholders and diluted earnings per
common share, respectively, in each case excluding the impact of
the Settlement in the third quarter of 2016. These non-GAAP
financial measures supplement the company’s GAAP disclosures and
should not be considered alternatives to the GAAP measures.
Management uses adjusted earnings per share to evaluate the
company’s period-over-period performance and as a performance goal
in both the company’s annual and long-term compensation programs,
and believes that the presentation of these non-GAAP financial
measures is useful to the company’s investors because it provides
an indication of the company’s baseline performance excluding an
item that is 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. The
company’s definition of these non-GAAP financial measures may not
be comparable to the same or similar measures used by other
companies, and, accordingly, they may have significant limitations
on their use.
This press release also includes a presentation of the adjusted
Regulated O&M efficiency ratio, which excludes from its
calculation estimated purchased water revenues and purchased water
expenses, the impact of the Settlement, the impact of abnormal
weather, 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 any 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, abnormal weather, the Settlement 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 in this release are tables that reconcile adjusted
earnings per share and the components used to calculate adjusted
O&M efficiency ratio to the most directly comparable GAAP
financial measure.
2016 Year-end and Fourth Quarter Earnings Conference
Call
The 2016 year-end and fourth quarter earnings conference call
will take place on Wednesday, February 22, 2017, at 9 a.m. Eastern
Standard 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 https://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 March 1, 2017. 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 10100048. The online webcast will be
available at American Water’s investor relations homepage at
http://ir.amwater.com through March 24, 2017. After that, the
archived webcast will be available for one year at
http://ir.amwater.com.
About American Water
With a history dating back to 1886, American Water is the
largest and most geographically diverse U.S. publicly-traded water
and wastewater utility company. The company employs more than 6,800
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 amwater.com.
Cautionary Statement Concerning Forward-Looking
Statements
Certain statements in this press release including, without
limitation, 2017 earnings guidance, projected dividend growth, the
outcome of pending acquisition activity 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, 2016, 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 and outcome of regulatory commissions’
actions concerning rates, capital structure, authorized return on
equity, capital investment, permitting, and other decisions;
changes in laws, governmental regulations and policies, including
environmental, health and safety, water quality, and public utility
and tax regulations and policies, and impacts resulting from U.S.,
state and local elections; potential costs and liabilities of
American Water for environmental laws and similar matters resulting
from, among other things, water and wastewater service provided to
customers, including, for example, water management solutions
focused on 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, tornadoes, electrical storms
and solar flares; 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 operational and information technology (IT) 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; exposure or
infiltration of its critical infrastructure, operational technology
and IT systems through physical or cyber-attacks or other
disruptions; 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 obtain, new customers in its Market-based
Businesses; cost overruns relating to improvements in or the
expansion of its operations; our ability to maintain safe work
sites; risks and uncertainties associated with contracting with the
U.S. government, including ongoing compliance with applicable
government procurement and security regulations; changes in general
economic, political, 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 funding requirements 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; civil disturbances,
terrorist threats or acts, or public apprehension about future
disturbances or terrorist threats or acts; and the impact of new
accounting standards or changes to existing standards.
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 or undertake 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
In millions except per share data
Three Months EndedDecember
31,
For the YearsEnded December
31,
2016 2015 2016 2015
(Unaudited) Operating revenues $ 802 $ 783
$
3,302
$ 3,159 Operating expenses: Operation and maintenance
373 380 1,504 1,404 Depreciation and amortization 120 112 470 440
General taxes 63 59 258 243 (Gain) loss on asset dispositions and
purchases (2 ) — (10 ) (3 )
Total operating expenses, net 554 551
2,222 2,084 Operating income 248 232
1,080 1,075 Other income (expenses): Interest, net (83 ) (79 ) (325
) (308 ) Other, net 1 5 15
15 Total other income (expenses) (82 )
(74 ) (310 ) (293 ) Income before income taxes
166 158 770 782 Provision for income taxes 65
59 302 306 Net income
attributable to common stockholders $ 101 $ 99 $ 468
$ 476 Basic earnings per share Net income
attributable to common stockholders $ 0.57 $ 0.55 $
2.63 $ 2.66 Diluted earnings per share Net income
attributable to common stockholders $ 0.57 $ 0.55 $
2.62 $ 2.64 Weighted-average common shares
outstanding Basic 178 179 178
179 Diluted 178 180
179 180 Dividends declared per
common share $ 0.75 $ 0.68 $ 1.50 $ 1.36
American Water Works Company, Inc. and
Subsidiary Companies
Condensed Consolidated Balance Sheet
Information
In millions
December 31,2016
December 31,2015 Cash and cash
equivalents $ 75 $ 45 Other current assets 709 612 Total property,
plant and equipment 14,992 13,933 Total regulatory and other
long-term assets 2,706 2,651 Total Assets $ 18,482 $
17,241 Short-term debt $ 849 $ 628 Current portion of
long-term debt 574 54 Other current liabilities 969 851 Long-term
debt 5,759 5,874 Total regulatory and other long-term liabilities
3,895 3,664 Contributions in aid of construction 1,218 1,121 Total
stockholders' equity 5,218 5,049 Total Capitalization
and Liabilities $ 18,482 $ 17,241
American Water Works Company, Inc. and
Subsidiary Companies
Adjusted Regulated Operation and
Maintenance Efficiency Ratio (A Non-GAAP, unaudited
measure)
In millions
2016 2015 2014
Total operation and maintenance expenses $ 1,504 $ 1,404 $
1,350 Less: Operation and maintenance expenses—Market-Based
Businesses 372 358 289 Operation and maintenance expenses—Other
(44 ) (49 ) (51 ) Total regulated operation
and maintenance expenses 1,176 1,095 1,112 Less: Regulated
purchased water expenses 122 117 122 Allocation of non-operation
and maintenance expenses 30 35 39 Impact of Freedom Industries
chemical spill in West Virginia — — 10 Impact of binding global
agreement in principle 65 — — Estimated impact of weather —
— (2 ) Adjusted regulated operation and
maintenance expenses (a) $ 959 $ 943 $ 943
Total operating revenues $ 3,302 $ 3,159 $ 3,011 Less: Operating
revenues—Market-Based Businesses 451 434 355 Operating
revenues—Other (20 ) (18 ) (18 ) Total
regulated operating revenues 2,871 2,743 2,674 Less: Regulated
purchased water revenues* 122 117 122 Add: Impact of Freedom
Industries chemical spill in West Virginia — — 1 Estimated impact
of weather — — 17
Adjusted regulated operating revenues (b) $ 2,749 $ 2,626
$ 2,570
Adjusted O&M efficiency ratio
(a)/(b)
34.9 % 35.9 % 36.7 % * Calculation assumes purchased water
revenues approximate purchased water expenses.
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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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