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American States Water Company Reports Operating Results (10-Q)

November 09, 2010 | About:
10qk

10qk

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American States Water Company (AWR) filed Quarterly Report for the period ended 2010-09-30.

American States Water Company has a market cap of $693.2 million; its shares were traded at around $37.28 with a P/E ratio of 22.6 and P/S ratio of 1.9. The dividend yield of American States Water Company stocks is 2.8%. American States Water Company had an annual average earning growth of 5.1% over the past 10 years. GuruFocus rated American States Water Company the business predictability rank of 3.5-star.AWR is in the portfolios of Mario Gabelli of GAMCO Investors, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

For the three months ended September 30, 2010, income from continuing operations was $5.7 million compared to $9.9 million in the same period of 2009, a decrease of 42.7%. Diluted earnings per share from continuing operations for the three months ended September 30, 2010 were $0.30 compared to $0.53 in the same period of 2009, a decrease of $0.23 per share due largely to a one-time pretax charge of $9.0 million, or $0.32 per share, recorded at GSWC during the third quarter of 2010 for the impairment of assets and loss contingencies resulting from pending regulatory matters, which may be adjusted as additional information becomes known.

Excluding the effect of the $0.32 per share one-time pretax charge for the impairment of assets and loss contingencies discussed above, adjusted fully diluted earnings from continuing operations (a non-GAAP financial measure) would be $0.62 per share for the third quarter ended September 30, 2010, a $0.09 per share increase, as compared to the same period of 2009 due to the following significant items, all of which are more fully discussed later: (i) an increase in the dollar water margin of GSWCs water operations of $2.6 million, or $0.08 per share; (ii) an increase in the dollar electric margin of $1.5 million, or $0.05 per share; (iii) an increase in other operating expenses (other than supply costs) at GSWC of $1.5 million, or $0.05 per share; (iv) an increase in ASUS pretax operating income of $703,000, or $0.02 per share; (v) a decrease in other income of $591,000 or $0.02 per share related to losses incurred at one of AWRs investments in a partially-owned affiliate accounted for by the equity method; (vi) an increase in the effective income tax rate, negatively impacting earnings by $0.02 per share, due primarily to changes between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements and other non-deductible items; and (vii) a decrease in interest expense, net of interest income of $789,000, or $0.03 per share.

For the nine months ended September 30, 2010, income from continuing operations decreased to $22.8 million compared to $26.3 million in the same period of 2009. Reported diluted earnings from continuing operations for the nine months ended September 30, 2010 were $1.21 per share compared to $1.46 per share for the nine months ended September 30, 2009. Excluding the effect of the $0.32 per share one-time pretax charge for the impairment of assets and loss contingencies discussed above, adjusted fully diluted earnings from continuing operations (a non-GAAP financial measure) would be $1.53, a $0.07 per share increase, as compared to the same period of 2009 due to the following significant items, all of which are more fully discussed later: (i) an increase in GSWCs dollar water and electric margin of $6.9 million, or $0.22 per share; (ii) an increase in other operating expenses at GSWC (other than supply costs), of $7.1 million, or $0.23 per share; (iii) an increase in operating income of $8.1 million, or $0.26 per share for contracted services due primarily to the receipt of retroactive and prospective equitable adjustments and other improved financial performance at the Military Utility Privatization Subsidiaries; (iv) a decrease in other income of $648,000, or $0.02 per share, due to losses incurred at one of AWRs investments, accounted for by the equity method; (v) a change in enacted state tax law during the first quarter of 2009 which resulted in a tax benefit of $918,000, or $0.05 per share which did not recur in 2010; (vi) an overall increase in the effective income tax rate (excluding the tax benefit mentioned previously) decreasing earnings by approximately $0.06 per share, due primarily to changes between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements and other nondeductible permanent items; and (vii) a decrease of $0.05 per share due to an increase in the weighted average number of common shares outstanding resulting from the issuance of 1.15 million shares of AWRs Common Shares in a public offering in May 2009.

As previously discussed, on June 7, 2010, Registrant entered into a stock purchase agreement to sell all of the common shares of CCWC for a total purchase price of $35 million, including the assumption of approximately $6 million of long-term debt. Approximately $29 million in cash will be paid to AWR at closing. The purchase price is subject to certain adjustments for changes in retained earnings. The consummation of the transaction contemplated by the agreement is subject to customary conditions, including among other things, regulatory approval by the ACC, which is anticipated to be received in 2011. Therefore, no gain on disposal of CCWC has been recorded during the three and nine months ended September 30, 2010. Had the transaction closed as of September 30, 2010, AWR would have recognized a pretax gain on disposal of approximately $6.0 million, net of

transaction costs of $708,000. The results of operations of CCWC for the three and nine months ended September 30, 2010 and 2009 have been presented as a discontinued operation. For the three and nine months ended September 30, 2010, income from discontinued operations increased by $1.2 million or $0.06 per share, and $1.5 million or $0.08 per share, respectively, compared to the same periods of 2009 due to improved financial performance at CCWC.

Water - For the three months ended September 30, 2010, pretax operating income for water decreased by $8.3 million, or 39.2%, primarily due to a pretax charge of $9.0 million, or $0.32 per share, for impairment of assets and loss contingencies resulting from pending regulatory matters, as discussed further in Regulatory Matters. This was partially offset by a $2.6 million increase in the dollar water margin. This increase in water margin was largely due to the implementation of the Water Revenue Adjustment Mechanism (WRAM) account and the Modified Cost Balancing Account (MCBA) for Region I, both implemented in September 2009. Due to the delay in the Region II, Region III and general office rate case, GSWCs revenues and supply costs for Regions II and III for the third quarter of 2010 have been recorded using 2009 adopted sales levels pending resolution of this general rate case, which is expected in the fourth quarter of 2010. New rates, once approved by the CPUC, are expected to be retroactive to January 1, 2010.

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