American Water Works Springs a Leak

May.15.08 | About: American Water (AWK)

American Water Works Company, Inc. (NYSE:AWK) reported for the quarter, which includes a nonrecurring, non cash impairment charge, a net loss of $732.5 million, or $4.58 per share. That’s quite the initial first quarter for a company that went public and started trading on the NYSE on April 23! The impairment charge was some $750 million to kick things off.

The press release included this paragraph on the impairment charge:

As a result of the company’s initial public offering [IPO] and subsequent trading in the stock price, the company recorded an event-driven impairment charge to goodwill related to its Regulated Businesses in the amount of $750.0 million. The impairment charge was due to the market price of the company’s common stock (both as of the IPO date as well as the market price during subsequent trading) being less than what was anticipated at the completion of the 2007 annual test. On May 13, 2008, RWE transferred $245.0 million to the company to ensure that the regulatory requirements were met.

I suppose if you have been following the stock closely you would know who RWE is. If not, it’s the ultimate parent; based in Europe and publicly traded over there. For a supposed water utility this sure is complicated. Most investors are thinking the consumer turns on the kitchen faucet and the company makes some money. This impairment charge, coming after about one month's worth of public trading, is on the scary side. We are talking hundreds of millions of dollars that needed to be moved around in the last few days.

Complicated affairs and difficult to understand circumstances should give rise to extraordinary investor caution. Whose interests are being served AWK or RWE which trades in Europe under a different governance regime?