01—Abstract
Summary
Summary of the 10-K filed March 1, 2010. Cited figures are marked; the original filing is the authoritative source.
American Water Works Company, Inc. (AWK) filed its 2009 10-K on March 1, 2010, reporting on a challenging year marked by significant goodwill impairments, a net loss of $233.1 milliona, and operating revenues of $2.44 billion.
The company's results were heavily impacted by the broader economic environment and specific industry challenges. Despite a substantial impairment charge of $450 millionb related to goodwill, the company's regulated operations, which constitute the majority of its business, continued to provide a stable revenue stream, supported by rate increases and infrastructure surcharges in several states. Looking ahead, AWK continues to focus on its core regulated utility business, emphasizing infrastructure investment to maintain and upgrade its systems.
The company is also navigating the complexities of extensive environmental regulations and capital expenditure needs. Financial highlights include a substantial debt load of over $5.4 billionc, but the company maintains access to credit facilities. Investors should note the ongoing impact of regulatory decisions on earnings, the need for continued capital investment, and the significant goodwill balance which remains a key area of scrutiny for future performance.
02—Key points
Key Highlights
- Net loss of $233.1 million for the year ended December 31, 2009, contrasted with a net loss of $562.4 million in 2008.
- Goodwill impairment charges totaled $450 million in 2009, following a $750 million charge in 2008, indicating significant write-downs of acquired asset values.
- Operating revenues increased by 4.4% to $2.44 billion in 2009, primarily driven by rate increases in the Regulated Businesses segment.
- Capital expenditures were $785 million in 2009, down from $1.0 billion in 2008, reflecting a cautious approach due to market conditions.
- Long-term debt stood at $5.28 billion at the end of 2009, with a debt-to-capitalization ratio of 0.58, demonstrating a significant leverage.
- The company's Regulated Businesses accounted for approximately 90.4% of consolidated operating revenue in 2009.
- Substantial focus on regulatory matters, with $80.9 million in additional annualized revenues authorized through general rate cases in 2009.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 1, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $2.29B$2.34B | −2.0% |
| Operating Expenses | $2.11B$2.52B | −16.5% |
| Operating Income | $183.84M-$186.90M | +198.4% |
| Interest Expense | $296.62M$285.15M | +4.0% |
| Net Income | -$233.08M-$562.42M | +58.6% |
| EPS (Basic) | $-1.39$-3.52 | +60.5% |
| EPS (Diluted) | $-1.39$-3.52 | +60.5% |
| Shares Outstanding (Basic) | 168.16M159.97M | +5.1% |
| Shares Outstanding (Diluted) | 168.16M159.97M | +5.1% |
05—Questions
Frequently Asked Questions
What were the primary drivers of American Water's financial performance in 2009?
American Water's financial performance in 2009 was primarily driven by a challenging economic environment that led to increased operating costs and customer demand fluctuations. The company recorded significant goodwill impairment charges ($450 million) due to declining asset valuations. However, its regulated operations provided a more stable revenue base, supported by rate increases granted by state Public Utility Commissions (PUCs). Capital expenditures were managed more conservatively compared to 2008 due to market disruptions.
How is American Water exposed to regulatory risks?
American Water's regulated operations are subject to extensive economic regulation by state PUCs. These bodies determine the rates the company can charge, which directly impacts its ability to recover operating expenses, finance infrastructure investments, and earn an appropriate rate of return. Risks include lengthy and costly rate case processes, potential delays in rate approvals, and the possibility that authorized rates may not be sufficient to cover expenses or provide an adequate return. Environmental regulations also pose significant compliance costs and potential liabilities.
What is the company's strategy for managing its significant capital expenditure requirements?
American Water's business is capital-intensive, requiring substantial investment in infrastructure renewal and new facilities. The company funds these expenditures through internally generated cash flows, debt issuance, and equity offerings. They anticipate spending between $800 million and $1 billion annually on capital investments. The company also utilizes mechanisms like infrastructure surcharges and pass-through provisions to mitigate regulatory lag in recovering these costs and investments.
What is the significance of the large goodwill balance and the related impairment charges?
The company recorded substantial goodwill impairment charges in 2008 and 2009 ($750 million and $450 million, respectively), totaling $1.2 billion. This indicates that the value of the acquired businesses, as represented by goodwill on the balance sheet, has significantly diminished. These impairments reflect a reassessment of future earnings potential of acquired assets, likely influenced by economic conditions and regulatory uncertainties. Investors should monitor future goodwill impairment tests, as further declines in market value or earnings forecasts could lead to additional charges.
06—Continue