American Water Works Company, Inc. - 8-K Summary
Business Context and Reporting Period
This Form 8-K, dated January 16, 2018, reports on the estimated impacts of the Tax Cuts and Jobs Act (TCJA) on American Water Works Company, Inc. (American Water). The filing updates guidance previously issued on December 11, 2017, regarding the fiscal year ended December 31, 2017, and provides long-term outlooks through 2022.
Key Financial Metrics and Guidance
The filing focuses on earnings per share (EPS) guidance and long-term projections adjusted for the TCJA. Specific revenue, profit, cash flow, debt, and liquidity figures for the period are not provided in this text; the document references incorporated exhibits for detailed financial statements.
- 2017 GAAP EPS Guidance: Updated to a range of $1.93 to $2.55 per diluted share.
- 2017 Adjusted EPS Guidance: Affirmed at a range of $3.00 to $3.06 per diluted share.
- 2018 GAAP EPS Guidance: Affirmed at a range of $3.22 to $3.32 per diluted share.
- Long-Term Guidance (2018-2022):
- Adjusted EPS Compound Annual Growth Rate (CAGR): 7% to 10%.
- Projected Capital Expenditures: $8.0 billion to $8.6 billion (with $7.2 billion for regulated system investments).
- Dividend Growth: Forecast at the high end of the long-term adjusted EPS CAGR target.
Material Changes and Unusual Items
The primary material change is the revision of the 2017 GAAP EPS guidance to reflect the TCJA. The Adjusted EPS guidance excludes specific non-recurring or non-cash items:
- A $0.07 per share benefit from an insurance settlement related to the Freedom Industries, Inc. chemical spill.
- A $0.02 per share charge from the early extinguishment of debt at the parent company.
- A non-cash charge ranging from $0.56 to $1.12 per share resulting from the revaluation of deferred tax assets and liabilities due to the TCJA's reduction of the U.S. federal corporate income tax rate to 21%.
Management expects the TCJA to be accretive to consolidated earnings through rate base growth and increased earnings in market-based businesses, partially offset by the impact of increased debt due to lower cash flows from operations.
Outlook, Risks, and Contingencies
Management does not plan to issue additional equity during the 2018-2022 period under normal operating conditions. The guidance is subject to significant assumptions and risks:
- Regulatory Uncertainty: The impact of the TCJA is subject to regulatory action in 14 jurisdictions. The company assumes regulatory decisions will align with TCJA normalization provisions.
- Tax Law Interpretations: Estimates rely on current interpretations of the TCJA and assume the company can deduct substantially all interest expense at the 21% rate.
- State and Local Taxes: Guidance does not reflect potential future changes to state and local tax laws resulting from the TCJA.
- Forward-Looking Statements: Actual results may differ materially due to risks described in the company's Form 10-K and other SEC filings.
Investor Verification Checklist
- Verify the final regulatory outcomes in the company's 14 jurisdictions regarding the TCJA and normalization provisions.
- Confirm the actual impact of the TCJA on the revaluation of deferred tax assets and liabilities once final tax returns are filed.
- Monitor the company's ability to deduct interest expense as assumed in the guidance.
- Review the detailed financial statements in the referenced exhibits (99.1 and 99.2) for specific revenue, debt, and cash flow data not included in this summary.
- Assess the potential for changes in state and local tax laws that could alter the projected benefits of the TCJA.