American Water Works (AWK)

AWK 
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American Water Works Company, Inc. (AWK)

2012 Earnings Guidance Conference Call

January 18, 2012, 9:01 a.m. ET

Executives

Edward Vallejo - Vice President Investor Relations

Jeffry Sterba - President and Chief Executive Officer

Ellen Wolf – Senior Vice President and Chief Financial Officer

Analysts

Kevin Cole - Credit Suisse

Ryan Connors - Janney Montgomery Scott

Steve Fleishman - Bank of America

Jonathan Reeder - Wells Fargo

Neil Mehta - Goldman Sachs

Heike Doerr - Robert W. Baird

Michael Roomberg - Ladenburg Thalmann Financial

Garik Shmois - Longbow Research

Presentation

Operator

Good morning and welcome to American Water's 2012 Guidance Conference Call. As a reminder, this call is being recorded and also being webcast with an accompanying slide presentation through the company's website, www.amwater.com.

Following the earnings conference call, an audio archive of the call will be available through January 25th, 2012, by dialing 303-590-3030 for U.S. and international callers. The access code for replay is 4498174. The online archive of the webcast will be available through February 17th, 2012 by accessing the Investor Relations page of the company's website located at www.amwater.com. (Operator Instructions)

I would now like to introduce your host for today's call, Ed Vallejo, Vice President of Investor Relations. Mr. Vallejo you may now begin.

Edward Vallejo

Thank you. Good morning everyone, and welcome to American Water’s Guidance Conference Call. As usual, we’ll keep our call to about an hour. At the end of our prepared remarks, we will have time for questions.

Before we begin, I would like to remind everyone that during the course of this conference call, both in our prepared remarks and answers to your questions, we may make statements related to future performance. Our statements represent our most reasonable estimates. However, since these statements deal with future events, they are subject to numerous risks, uncertainties, and other factors that may cause the actual performance of American Water to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company's SEC filings.

Now I would like to turn the call over to Jeff Sterba, our President and CEO.

Jeffry Sterba

Thanks, Ed and good morning to all of you. Thanks for joining us. I have with me Ellen Wolf, our Chief Financial Officer. We will go through a fairly short presentation and then open up for questions. It is good and a real pleasure to be able to once again talk about a strong growth set of results, as well as forecast. I am sure you have seen the release that we made yesterday afternoon or evening indicating that we expect to finish the 2011 year at the middle of the current range of our guidance for adjusted earnings per share of $1.75 to $1.82 and that we also announced the forecast that we look forward to for 2012 which I think is another strong year of growth where we have provided a range for ongoing earnings of $1.90 to $2.00 per share.

If you flip to page 3, let me provide just a quick framework for everyone regarding 2011. Obviously, we are not announcing earnings yet, we are still in the process of closing and going through the audit, but we have given the indication of being in the middle of the range which would reflect strong growth over the year prior 2010. And let me just touch briefly on a couple of the four buckets that we have shown on page 3 that really helped to drive 2011.

First, relative to operating efficiency, we have continued to see as we have talked about in each of our quarterly calls good improvement in our operating efficiency ratio and our expense controls. A lot of this is focused on process improvement initiatives. Obviously, the major process improvement that we have got on the drawing board is the business transformation effort which is on schedule and continues to be on budget for being completed by 2014. The first phase of that will go into service later this year.

But we are seeing good response by all of our folks as we faced a number of challenges in 2011 whether it would be the unprecedented moisture and rain and storms that we received in the east and mid Atlantic, the tornado in Joplin, or any of those other areas, as well as a lot of focus on our rate case initiatives. And moving over there you can see that we effectively brought to conclusion eight rate proceedings worth about almost $160 million on an annualized basis and in addition received infrastructure charges of about $10.5 million. Now just remember that that does not include the proceeds that we received in Pennsylvania from the DISC because those are included as part of the rate case in the $160 million. But I think more important is the way in which we have really focused on addressing regulatory lag issues and particularly getting an infrastructure charge moving in New Jersey getting it expanded in Illinois and addressing declining usage. So those things I think we did really good progress on.

On the portfolio optimization and on our investment front for growth, we invested a little over $900 million last year compared to just under $800 million in 2010. The largest single component of the difference is the acceleration or the more rapid deployment of business transformation as we moved probably an $80 million to $85 million increase in spend as we are getting closer to having the waves of business transformation start to go into effect. Now that obviously that drives rate base and as we have talked about before that is a major locomotion behind sustainable earnings growth.

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