American Water Works Company, Inc. · NYSE:AWK
American Water Works — Bank of America Merrill Lynch Power and Gas Leaders Conference 2011
42 slides from American Water Works's conference presentation, Sep 19, 2011
Slide 1: Institutional Presentation, BofA Merrill Lynch Power and Gas Leaders Conference
Institutional Presentation Bank of America Merrill Lynch Power and Gas Leaders Conference September 20, 2011 Exhibit 99.2
Slide 2: Forward-looking statements
2 Certain statements in this presentation are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are predictions based on our current expectations and assumptions regarding future event
Slide 3: American Water's Value Proposition
3 American Water NYSE: AWK September 2011 Regulated Businesses provide earnings stability Solid track record of Shareholder Value creation Continued growth opportunities driven by industry needs Stable Dividend Growth American Water’s Value Proposition
Slide 4: The Premier Water Services Provider in North America
Largely residential customer base promotes consistent operating results Geographic presence hedges both weather and regulatory risk Scale enables multiple growth opportunities across service areas 4 American Water: The Premier Water Services Provider in North America
Slide 5: Total Shareholder Return: American Water vs. Indices
5 Shareholder Return LTM 0.40 0.45 0.50 0.55 0.60 0.65 AWK Beta Total Shareholder Return : American Water vs. Indices (September 13, 2010 – September 13, 2011) American Water S&P 500 Dow Jones Utilities +30.9% +6.7% +10.9% 80% 90% 100% 110% 120% 130% 140% 150% 160% AWK DJ Util S&P 500 Source: Thomso
Slide 6: The US Water Industry
The US Water Industry
Slide 7: Key Water Sector Themes
7 Key Water Sector Themes The U.S. Water Industry Aging Infrastructure Fragmented Industry Increasing Environmental Requirements Capital Availability Technology
Slide 8: Increasing Public Awareness of Water and Wastewater Issues
8 There is Increasing Public Awareness of Water and Wastewater Issues
Slide 9: American Water
American Water
Slide 10: American Water's Regulated Presence
10 States where we recently expanded our Regulated Operations States we are in process of exiting Regulated Operations American Water’s Regulated Presence
Slide 11: Continuing Effort to Earn an Appropriate Rate of Return
11 Recovery Received* Rate Cases Filed • As of August 26, 2011: $314.6 million in annualized revenue requests from 9 outstanding rate cases • In 2011 American Water received average ROE of 10.1% Infrastructure Charges Rate Cases $180.1 $313.9 $158.9 $206.2 (in millions of dollars) (in millions of do
Slide 12: Regulated Operations Growth: Investing in Needed Infrastructure
12 Regulated Operations Growth: Investing in Needed Infrastructure (1) Net capex defined as gross capex less advances and contributions in aid of construction. Capital Expenditure Framework Net Capex (1) by category Ongoing Capital Expenditure program of $800 million to $1 billion per year Capital p
Slide 13: Actively Addressing Regulatory Lag
13 Pending Rate Cases Declining Usage Decoupling Distribution Surcharges Balancing/ Trackers Adjustment Clauses American Water is Actively Addressing Regulatory Lag that Impact Returns on Investments = Recognition of regulatory lag in rate cases requested, but not yet obtained • = Recognition of reg
Slide 14: Portfolio Optimization Initiatives
14 Focus on Value Drivers Drive Profitability and Returns Explore Opportunities for Long-Term Success Optimizing Long-term Value Through Proactive Management Redeploy Value Into Core Growth Markets Continue to Lower Costs American Water’s Portfolio Optimization Initiatives • Balanced Portfolio Analy
Slide 15: Portfolio Optimization: Rate Base Inflows and Outflows
AZ $265M (2) 15 TX $5.5M (2) NM $34M (2) OH $70M (3) Rate Base (1) = $8.3 Bn Proceeds of $470 mm from New Mexico and Arizona transactions will be used to lower debt or finance Capital Expenditures (1)An approximation of rate base as of December 30, 2010 , which includes Net Utility Plant not yet inc
Slide 16: Market-Based Operations Continue to Generate Growth Opportunities
16 For 2010, American Water reported $311.8 million of Market-Based Operations revenues American Water’s Market-Based Operations Continue to Generate Opportunities for Growth (1) Includes 137 AWM and 48 EMC projects (2) Includes 16 AWM projects Contract Operations Military Bases Privatization • Over
Slide 17: 2011 Guidance: Increased Earnings Guidance to $1.75-$1.82
17 The 2011 EPS Guidance, as adjusted, does not recognize the benefit to net income and earnings per share of the cessation of depreciation for discontinued operations in Arizona, New Mexico, Texas and Ohio, which is estimated to be approximately $0.09 for 2011 2011 Guidance: Solid Growth Powers Inc
Slide 18: Investment Thesis: Sustained 7-10% EPS Growth
18 Investment Thesis: Sustained 7-10% EPS Growth Future Growth New Services Regulated Investments Acquisitions Operational Excellence/ Efficiencies ROE improvement Long Term Growth Conceptual Representation
Slide 19: Financial Update
Financial Update
Slide 20: American Water: Solid 2011 Results
Cash Flow From Operations (in millions) Net Income* (in millions) Operating Revenues (in millions) $634.9 $1,192.9 $100.9 $262.4 Earnings Per Share* $72.8 $103.6 $0.42 $0.59 20 Regulated O&M Efficiency Ratio improved 220 bps for the six months ended June 30, 2011* American Water: Solid 2011 Results
Slide 21: Continues to Improve Return on Equity
21 4.73% 5.28% 6.49% 6.95% American Water Continues to Improve Return on Equity (1) to Shareholders 10 % - 10.5 % ROE (5) 1. ROE calculation excludes impairment , SOX, divestiture and other 2. 2008, 2009 and 2010 reflect net income as there was no discontinued operations in these periods 3. 2011 is
Slide 22: Past Performance and Future Growth vs Peers
2008 – 2010 EPS CAGR + Average Dividend Yield (4) Total Shareholder Return (Long Term Expected EPS Growth* and Dividend Yield**) 22 1) Water Companies Include: AWR, CTWS, CWT, MSEX, SJW, WTR, YORW. 2) Gas Companies include ATO, LG, GAS, NWN, PNY, SJI, SWX, WGL. 3) Regulated Electric Companies includ
Slide 23: P/E Compared with Total Return
P/E Compared with Total Return 23 Source: Thomson Reuters * PE data as of September 2011 American Water’s Higher Growth Expectations are not Fully Reflected in its PE Multiple Forward P/E Expected Total Return
Slide 24: Recent Dividend History
24 Recent Dividend History • Key component of American Water’s total shareholder return proposition • Dividend Growth – Board of Directors increased dividend 5% to $0.23 or $0.92 annualized • Dividend Yield – 3.19% at 9/13/11 • Growth in Dividend reflects growth in Net Income Quarterly Dividend Rate
Slide 25: American Water's Value Proposition
25 American Water NYSE: AWK Regulated Businesses provide earnings stability Solid track record of Shareholder Value creation Continued growth opportunities driven by industry needs Stable Dividend Growth American Water’s Value Proposition
Slide 26: Investor Relations Contacts
26 Investor Relations Contacts: Ed Vallejo Vice President – Investor Relations Edward.vallejo@amwater.com Muriel Lange Manager – Investor Relations Muriel.lange@amwater.com Tel: 856-566-4005 Fax: 856-782-2782
Slide 27: American Water
AMERICAN WATER
Slide 28: Water vs Other Utility Expenditures
28 Water vs Other Utility Expenditures Water Use in the Home Water Utility Expenditures
Slide 29: Rate of Return Regulation in the United States
Operating Expenses Taxes, Depr & Amortization WACC Establish Rate Base Allowed Return Allowed Return Revenue Requirement 29 American Water has experience in securing appropriate rates of return and promoting constructive regulatory frameworks Rate of Return Regulation in the United States Prudent In
Slide 30: How is Net Income Generated in Rate of Return Regulation?
Pass Through 1:1 Pass Through 1:1 30 If all assets are included in the Company’s Rate Base and all operating expenses are deemed prudent and recoverable by regulator, Company earns allowed ROE* AW Parent Company Equity Debt Equity (Capex) Operating Expenses Debt Regulatory Treatment Net Income Impac
Slide 31: General Rate Cases Awaiting Final Order
31 General Rate Cases Awaiting Final Order (as of September 2011) Rate Cases Awaiting Final Order Docket / Annualized Revenue ROE Rate Base Filing Case Number Date Filed Increase Filed Requested (Filed) Status California A 10-07-007 07/01/10 37.3 10.20% 409.6 Arizona W-01303A-10-0448 11/03/10 20.4 1
Slide 32: Rate Cases and Infrastructure Charges Awarded
32 Rate Cases and Infrastructure Charges Awarded That Will Have an Impact on 2011 Results (As of September 2011) Annualized ($ in millions) Effective Date ROE Increase to for new rates Granted Revenue General Rate Cases: Illinois 4/23/2010 10.38% 41.4 $ New Mexico (Edgewood) ** 5/10/2010 10.00% 0.5
Slide 33: Educating Consumers about Needed Infrastructure Investments
33 American Water Continues to Educate Consumers about Needed Infrastructure Investments • Open houses/tours • Speaking forums • News releases/op-eds • Media pitching • Bill inserts • Flyers • Advertising • Community events • Public official meetings • White papers
Slide 34: Infrastructure Surcharges: A Viable Mechanism to Address Regulatory Lag
34 Infrastructure Surcharges: A Viable Mechanism to Address Regulatory Lag • Infrastructure Surcharges allow companies to recover infrastructure replacement costs without necessity of filing full rate proceeding • States that currently allow use of infrastructure surcharges Pennsylvania Indiana Illi
Slide 35: Case in Point: Increased Investment in Pennsylvania's Infrastructure
35 Case in Point: Increased Investment in Pennsylvania’s Infrastructure
Slide 36: Marcellus Shale: Possible Opportunities for Growth
36 Realizing additional revenues from water sales to drilling companies while remaining vigilant in protecting our water sources Marcellus Shale: Possible Opportunities for Growth • Marcellus Shale formation covers 2/3 of Pennsylvania • 363 trillion cubic feet of natural gas is estimated to be captu
Slide 37: Debt Maturities
37 $100 million of Parent Company debt swapped from 6.085% to 6 month LIBOR + 3.422% Debt Maturities (as of 6/30/2011) $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 2011 - 2015 2016 - 2020 2021 - 2025 2026 - 2030 2031 - 2035 2036 - 2040 * Excludes Preferred Stock with Mandatory Re
Slide 38: Financial Tables: GAAP and Non-GAAP Measures, Rate Base
Rate Base as of June 30, 2011 (1) Rate Base TOTAL $7,931,900 38 Net Income (Loss) – Earnings per Share Excluding Impairment Charge (A Non-GAAP Unaudited Number)* Historical Net income excluding impairment charge $176,054 $209,941 $267,827 Net income excluding impairment charge $1.10 $1.25 $1.53 Net
Slide 39: Income Statement
Three Months Ended June 30, Six Months Ended June 30, Net income $ 84,566 $ 72,751 $ 131,898 $ 103,559 Net income $ 0.48 $ 0.42 $ 0.75 $ 0.59 Dividends per common share $ 0.45 $ 0.21 $ 0.67 $ 0.42 39 Income Statement 2011 2010 2011 2010 Operating revenues $ 674,248 $ 634,910 $ 1,276,070 $ 1,192,930
Slide 40: Regulated O&M Efficiency Ratio Reconciliation
In thousands Regulated Operations and Maintenance Efficiency Ratio (A Non-GAAP, unaudited measure)* 40 Reconciliation Tables 2011 2010 2011 2010 Total Regulated Operation and Maintenance Expenses 271,383 $ 261,711 $ 536,336 $ 512,964 $ Less: Regulated Purchased Water Expenses 25,565 26,063 46,380 46
Slide 41: Net Income Reconciliation Tables
41 In thousands Net income, exclusive of the cessation of depreciation associated with assets of discontinued operations (a Non-GAAP, unaudited measure)* Reconciliation Tables * Net Income and EPS include the cessation of depreciation worth $3.2 million after tax, or $0.02 per share and $7.9 million
Slide 42: Balance Sheet Reconciliation for ROE
Return on Equity* In thousands LTM Ended 6/30/11 LTM Adjusted ROE % = (a)/(b) 6.95% 42 Balance Sheet Reconciliation for ROE Total LTM Net income $ 296,166 Less: Cessation of depreciation, net of tax 7,888 LTM net income, exclusive of the cessation of depreciation associated with assets of discontinu