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

August 07, 2009 | About:

American States Water Company (AWR) filed Quarterly Report for the period ended 2009-06-30.

American States is a public utility company engaged principally in thepurchase production distribution and sale of water. The company alsodistributes electricity in some communities. In the customer service areas for both water and electric rates and operations are subject to the jurisdiction of the California Public Utilities Commission. American States Water Company has a market cap of $636.7 million; its shares were traded at around $34.74 with a P/E ratio of 21.6 and P/S ratio of 1.9. The dividend yield of American States Water Company stocks is 2.9%. American States Water Company had an annual average earning growth of 5.4% over the past 10 years. GuruFocus rated American States Water Company the business predictability rank of 5-star.

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For the three months ended June 30, 2009, net income was $11.5 million compared to $9.3 million in the same period of 2008, an increase of 23.9%. Diluted earnings per share for the three months ended June 30, 2009 were $0.64 compared to $0.53 in the same period of 2008, an increase of $0.11 per share. Impacting the comparability in the results of the two periods on a diluted per share basis are the following significant items, all of which are more fully discussed later: (i) a $1.7 million pretax unrealized gain on purchased power contracts, or $0.06 per share, for the three months ended June 30, 2008 with no corresponding gain in 2009; (ii) an increase in the dollar water margin of $5.7 million, or $0.19 per share, partially offset by a decrease in the dollar electric margin of $270,000, or $0.01 per share; (iii) an increase in other operating expenses, including higher pension costs, at GSWC of $1.3 million, or $0.04 per share; (iv) the improved financial performance of the Military Utility Privatization Subsidiaries resulting in an increase in ASUS pretax operating income of $1.6 million, or $0.05 per share; (v) a settlement agreement reached with Mirant Energy Trading LLC (Mirant Trading) and the recording of $1.0 million in proceeds received in the settlement which reduced previously incurred legal costs, or $0.03 per share; (vi) an increase in interest expense of $365,000, or $0.01 per share; (vii) a decrease in interest income resulting from GSWCs recording of $480,000 interest income, or $0.02 per share, during the second quarter of 2008 in connection with the Internal Revenue Services (IRSs) examination of AWRs 2002 income tax return, and (viii) an overall increase in the effective income tax rate, or $0.02 per share.

For the six months ended June 30, 2009, net income was $16.4 million compared to $14.6 million in the same period of 2008, an increase of 12.6%. Diluted earnings per share for the six months ended June 30, 2009 were $0.92 compared to $0.84 in the same period of 2008, an increase of $0.08 per share. Impacting the comparability in the results of the two periods on a diluted per share basis are the following significant items, all of which are more fully discussed later: (i) a $4.5 million pretax unrealized gain on purchased power contracts, or $0.15 per share, for the six months ended June 30, 2008 with no corresponding gain in 2009; (ii) an increase in the dollar water margin of $6.5 million, or $0.22 per share, partially offset by a decrease in the dollar electric margin of $260,000, or $0.01 per share; (iii) an increase in other operating expenses at GSWC of $3.8 million, or $0.13 per share, as well as higher operating expenses of $234,000, or $0.01 per share, at CCWC; (iv) the improved financial performance of the Military Utility Privatization Subsidiaries resulting in an increase in ASUS pretax operating income of $3.2 million, or $0.11 per share; (v) a settlement agreement reached with Mirant Trading and the recording of $1.0 million in proceeds, or $0.03 per share; (vi) an increase in interest expense of $281,000, or $0.01 per share; (vii) a decrease in interest income resulting from GSWCs recording of $480,000 interest income, or $0.02 per share, during the second quarter of 2008 in connection with the IRSs examination of AWRs 2002 income tax return, and (viii) a tax benefit of $918,000, or $0.05 per share, recorded during the first quarter of 2009 due to changes in state apportionment laws.

In May 2009, the CPUC issued a final decision approving the new purchase power contract and authorizing GSWC to establish the memorandum account to track unrealized gains and losses on the new contract throughout the term of the contract. Accordingly, at June 30, 2009 there was an $8.5 million cumulative unrealized loss which has been included in the memorandum account, therefore not impacting GSWCs earnings. There were $1.7 million and $4.5 million of pretax unrealized gains on purchased power contracts included in earnings for the three and six months ended June 30, 2008, respectively. Diluted earnings for the three months ended June 30, 2008 were $0.53 per share, and diluted earnings for the six months ended June 30, 2009 were $0.84 per share. Eliminating the effects of the unrealized derivative gains, adjusted diluted earnings per share for the three and six months ended June 30, 2008 would have decreased by $0.06 and $0.15 per share, respectively, to $0.47 and $0.69 per share, respectively.

The CPUC also approved an advice letter filing in a separate proceeding to allow GSWC to create and implement a Water Conservation Memorandum Account (WCMA) to track the extraordinary expenses and revenue shortfall associated with conservation measures in conjunction with the declared drought in California. The WCMA was effective August 18, 2008 and was used to track the revenue shortfall until the WRAM was implemented for Regions II and III on November 25, 2008. At November 24, 2008, approximately $2.0 million of net under-collections was included in the WCMA for Regions II and III prior to the implementation of the WRAM. On April 16, 2009, the CPUC approved the advice letter filed by GSWC to recover the $2.0 million included in the WCMA for Regions II and III and authorized GSWC to establish a 12-month surcharge to customers bills. The surcharge went into effect on April 21, 2009. Accordingly, GSWC established a $2.0 million regulatory asset, which was recorded as additional water revenues during the second quarter of 2009. In addition, GSWC established an $852,000 regulatory asset for Region Is WCMA balance incurred during the period of August 18, 2008 through June 30, 2009 which is also now probable of recovery. GSWC will file an advice letter for

Electric For the three months ended June 30, 2009, pretax operating income from electric operations decreased by $1.6 million due in large part to a decrease of $1.7 million in the pretax unrealized gain on purchased power contracts. The unrealized gain on purchased power contracts increased operating income by approximately $1.7 million during the second quarter of 2008, or $0.06 per share, with no corresponding gain in 2009. As previously discussed, the purchased power contract that resulted in unrealized gains and losses to BVES earnings terminated at December 31, 2008. There were also increases in operating expenses including higher outside consulting and legal costs related to the purchased power contract. However, these increases were offset by the recording of the $1.0 million in proceeds received in the settlement agreement with Mirant Trading in May 2009, which reduced previously incurred legal costs during the second quarter of 2009.

Contracted Services - For the three months ended June 30, 2009, pretax operating income for contracted services increased by $1.6 million, or $0.05 per share. This was primarily due to an interim increase in operations and maintenance revenues at Fort Bliss and construction project revenues at Fort Bliss and the military bases in Virginia coupled with lower operating expenses. As a result, pretax operating income increased $835,000 at these bases. During the three months ended June 30, 2009, Fort Jackson continued to operate at a loss; however, the losses decreased by $678,000 as compared to the same period in 2008 due primarily to excess transition costs included in the prior year that did not recur in 2009, as well as lower maintenance and other operating costs. During the three months ended June 30, 2009, Fort Bragg also had an increase of $336,000 to pretax operating income. These increases were partially offset by lower pretax income of $163,000 at Andrews Air Force base due to lower construction activities.

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