American Water Works Company, Inc. (AWK)
Q2 2008 Earnings Call
August 12, 2008 9:00 am ET
Edward Vallejo – VP IR
Donald Correll – President & CEO
Ellen Wolf – Sr. VP & CFO
Elizabeth Parrella – Merrill Lynch
Maria Karahalis - Goldman Sachs
Ryan Conners - Boenning & Scattergood
Heike Doerr – Janney Montgomery Scott
Timothy Winter - Smith, Moore & Co.
Faisel Khan – Citigroup
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Good morning and welcome to American Water’s 2008 second quarter earnings conference call. If you did not receive a copy of the earnings release you can find it by visiting American Water’s Investor Relations page of the company’s website at www.amwater.com. The slides used in this morning’s conference call will also be available to download following the call.
Before we begin let me remind you that in accordance with the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995, the company notes certain matters to be discussed by members of management during this call may constitute forward-looking statements. Such statements 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. Today, American Water’s President and Chief Executive Officer, Donald Correll, and Ellen Wolf, American Water’s Senior Vice President and Chief Financial Officer, will be discussing our second quarter and year to day results.
Following their presentation we will be accepting questions. Now I’d like to turn the call over to Donald Correll.
Thank you Edward, good morning everyone. Today we will be commenting on our second quarter as well as our year to day results, reviewing some of the highlights and how they all relate to our business strategies. Ellen will go into further detail regarding our second quarter, but first I’d like to give a brief overview of our key financial results.
For the quarter the company reported an operating revenue increase of 5.5% to approximately $589.4 million. Net income was $45.5 million compared with $49.2 million in the second quarter of 2007. Ellen will detail the changes in net income during her portion of the call.
The substantial increase in operating revenues is a result of our successful rate cases. Earning an appropriate rate of return is a core strategy for American Water, and a critical competency of any regulated utility.
In the second three months of 2008 we received authorizations for additional annualized revenues from general rate cases of $19.2 million which brings the total for the first half of the year to $47.2 million. At present, we have 11 rate cases pending across the country.
A main driver of increasing rates is our capital investment. Company-wide year-to-date, American Water has invested approximately $426 million on infrastructure improvements. This prudent investment, also a core strategy, is needed to ensure the reliability of our services and is on target with our anticipated annual capital investment plan.
We expect to invest in the billion dollar range per year for the foreseeable future. These investments include both infrastructure renewal programs and construction to meet new customer growth and help to ensure our continued compliance with water quality standards.
American Water takes great pride in meeting our surpassing water quality standards and in fact during this past quarter we earned nine more Director’s Awards from the Partnership for Safe Water. This is the environmental protection agency’s voluntary program to meet more stringent water quality goals than is required.
In total American Water has earned 70 Director’s Awards across our business since the inception of the program.
American Water continues to look for opportunities to grow our regulated business and pursue public private partnerships. The evolving needs in the marketplace for water and wastewater solutions create a wide range of growth possibilities. Currently we are pursuing numerous regulated or regulated-like opportunities that range in size and include many tuck-ins.
Growing our regulated business through tuck-ins allows us to integrate systems, operations and management as well as achieve efficiencies. A recent example of this was the June acquisition of a small system in Eastern Pennsylvania called Mountain Top Estates. Our subsidiary in Pennsylvania already provided water and wastewater services in a number of nearby communities and as such this acquisition was a great fit for Pennsylvania American Water and were able to meet a 100 person community water needs.
In additional Pennsylvania American Water acquired the assets of [inaudible] joint Municipal authority, water and wastewater systems. The purchase price is approximately $2 million. The newly acquired systems provide drinking water to approximately 550 customers as well as wastewater treatment services to nearly 500 customers. The transaction represents Pennsylvania American Water’s first wastewater acquisition in Western Pennsylvania.
And just this past weekend, the residents of Fayetteville, West Virginia voted overwhelmingly to sell the towns water and sewer systems to West Virginia American Water. The town has been purchasing water from West Virginia American Water since January. With the sale now approved by voters the company awaits final closure on the $3.9 million purchase agreement likely to occur at the end of September.