10-QPeriod: Q1 FY2008

American Water Works Company, Inc. Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 14, 2008For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported a significant net loss of $732.5 million for the first quarter ended March 31, 2008, a stark contrast to the $2.7 million net income in the same period of the prior year. This substantial loss was primarily driven by a $750 million goodwill impairment charge. While operating revenues saw a modest increase of 8.2% to $506.8 million, largely due to rate increases in regulated businesses and growth in non-regulated segments, operating expenses surged dramatically, mainly due to the aforementioned impairment charge. Operationally, the company continues to invest in its infrastructure, with construction expenditures increasing. Regulatory developments indicate ongoing efforts to secure rate increases, with several cases pending. A major event subsequent to the quarter-end was the company's Initial Public Offering (IPO) on April 28, 2008, which involved RWE Aqua Holdings GmbH selling a significant portion of its stake, transitioning AWK from a wholly-owned subsidiary to a publicly traded entity. The goodwill impairment charge is directly linked to the IPO pricing, reflecting a decline in market valuation compared to prior assessments.

Key Highlights

  • 1Reported a net loss of $732.5 million for Q1 2008, a significant decrease from a $2.7 million profit in Q1 2007.
  • 2Recorded a substantial goodwill impairment charge of $750 million, primarily due to the market price and trading levels of its common stock post-IPO.
  • 3Operating revenues increased by 8.2% to $506.8 million, driven by rate increases in regulated businesses and growth in non-regulated segments.
  • 4Despite revenue growth, operating expenses increased significantly, largely due to the goodwill impairment.
  • 5Construction expenditures increased by $22.3 million to $188.4 million, indicating continued investment in utility plant projects.
  • 6The company completed its Initial Public Offering (IPO) on April 28, 2008, marking its transition to a publicly traded company.
  • 7Short-term debt increased significantly to $368.1 million, from $220.5 million at the end of 2007.

Frequently Asked Questions

The primary reason for the substantial net loss of $732.5 million in the first quarter of 2008 was a significant goodwill impairment charge of $750 million. This charge was recognized because the market price and trading levels of the company's common stock, particularly in relation to its initial public offering price, indicated that the carrying value of goodwill was impaired.

Operating revenues increased by 8.2% to $506.8 million for the first quarter of 2008, compared to $468.5 million in the same period of 2007. This growth was primarily driven by rate increases in the Regulated Businesses segment and increased revenues in the Non-regulated Businesses segment.

Shortly after the quarter ended, on April 28, 2008, American Water Works Company, Inc. completed its Initial Public Offering (IPO). This event marked the company's transition from being a wholly-owned subsidiary of RWE to a publicly traded company on the New York Stock Exchange.

The company's short-term debt increased significantly to $368.1 million as of March 31, 2008, compared to $220.5 million at the end of 2007. This reflects increased reliance on short-term borrowings. Subsequent events indicate plans to issue additional senior notes to repay outstanding short-term indebtedness.