10-QPeriod: Q1 FY2009

American Water Works Company, Inc. Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 6, 2009For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported a net loss of $413.1 million for the first quarter of 2009, a significant improvement from the $732.5 million net loss in the same period of 2008. This improvement was primarily driven by a substantial reduction in goodwill impairment charges, which stood at $450 million in Q1 2009 compared to $750 million in Q1 2008. Operating revenues increased by 8.6% to $550.2 million, mainly due to rate increases in its Regulated Businesses segment. However, the company's financial statements also reveal a substantial amount of goodwill ($1.25 billion), with ongoing risks of future impairment given market volatility and the company's market capitalization falling below its carrying value. Despite the reported net loss, the company maintained its quarterly dividend of $0.20 per share and is actively managing its liquidity through credit facilities and commercial paper, while also pursuing new financing opportunities. Investors should note the significant goodwill balance and the recurring goodwill impairment charges as a key risk factor. While revenues are growing, driven by regulated rate increases, the company's profitability is heavily impacted by these non-cash impairment charges. The company's liquidity position appears stable, supported by credit facilities, but its dependence on capital markets for funding remains a consideration. The ongoing legal proceedings in New Jersey regarding an asset acquisition also present an uncertainty.

Key Highlights

  • 1Reported a net loss of $413.1 million for Q1 2009, an improvement from $732.5 million in Q1 2008, largely due to reduced goodwill impairment charges.
  • 2Operating revenues increased by 8.6% to $550.2 million, primarily driven by rate increases in the Regulated Businesses segment.
  • 3Goodwill balance remains significant at $1.25 billion, with a recorded goodwill impairment charge of $450 million in Q1 2009.
  • 4The company paid a quarterly dividend of $0.20 per share, demonstrating a commitment to returning value to shareholders.
  • 5Liquidity is supported by credit facilities and commercial paper, with available capacity of $433.5 million as of April 30, 2009.
  • 6Active pursuit of financing, including a universal shelf registration statement and plans for tax-exempt bond offerings, to fund capital expenditures.
  • 7Ongoing legal proceedings in New Jersey related to the acquisition of the City of Trenton's water system assets introduce an element of uncertainty.

Frequently Asked Questions

The primary reason for the reported net loss is the substantial goodwill impairment charge. For the three months ended March 31, 2009, American Water Works Company, Inc. recorded a goodwill impairment charge of $450 million. While this is an improvement from the $750 million impairment charge in the same period of 2008, it still represents a significant non-cash expense that contributes to the net loss. Despite the net loss, the company's operating revenues increased, and the overall net loss improved year-over-year due to the reduced impairment.

American Water Works Company, Inc. maintains liquidity through cash flows from operations, commercial paper, and revolving credit facilities. As of April 30, 2009, they had $433.5 million available from their credit facilities. They are also actively pursuing long-term financing, including a universal shelf registration statement and plans for tax-exempt bond offerings, to fund their capital expenditure program. Advances and contributions from customers also contribute to funding construction projects.

A significant risk highlighted is the substantial goodwill balance of $1.25 billion and the ongoing risk of future goodwill impairment charges. The company's market capitalization has been below its carrying value, triggering interim impairment tests. Other risks include potential challenges in accessing capital markets, ongoing legal proceedings in New Jersey concerning an asset acquisition, and the potential impact of economic recession on customer payment ability and regulatory rate approvals.

The company paid a quarterly cash dividend of $0.20 per share in March 2009 and declared another $0.20 per share dividend for June 2009. This demonstrates a commitment to returning value to shareholders, with a stated policy to distribute 50% to 70% of net income, adjusted for non-cash items, as dividends.