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

November 05, 2009 | About:
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10qk

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American States Water Company (AWR) filed Quarterly Report for the period ended 2009-09-30.

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 $607.5 million; its shares were traded at around $32.84 with a P/E ratio of 19.3 and P/S ratio of 1.9. The dividend yield of American States Water Company stocks is 3.1%. 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.

Highlight of Business Operations:

Net income for the three months ended September 30, 2009 was $9.7 million compared to $4.6 million in the same period of 2008, an increase of 113.0%. Diluted earnings per share for the three months ended September 30, 2009 were $0.52 compared to $0.26 in the same period of 2008, an increase of $0.26 per share. Increasing diluted earnings per share were the following items, all of which are more fully discussed later: (i) a $3.7 million pretax unrealized loss on purchased power contracts, or $0.13 per share, for the three months ended September 30, 2008 with no corresponding loss in 2009; (ii) an increase in the dollar water margin of $4.7 million, or $0.15 per share; and (iii) the improved financial performance of the Military Utility Privatization Subsidiaries resulting in an increase in ASUS pretax operating income of $3.9 million, or $0.12 per share (including a $1.1 million contract modification approved in September 2009 in connection with a request for equitable adjustment filed by PSUS in 2008). These increases to diluted earnings per share were partially offset by: (i) an increase in operating expenses, other than supply costs, at the Companys water and electric utilities of $2.2 million, or $0.07 per share; (ii) an increase in interest expense, net of interest income of $553,000, or $0.02 per share; (iii) the recording of a loss on settlement for removal of wells at CCWC of $760,000, or $0.02 per share; and (iv) a decrease of $0.03 per share due to an increase in the weighted average number of common shares outstanding resulting from the issuance of 1.1 million shares of AWRs Common Shares in a public offering completed in May 2009.

Net income for the nine months ended September 30, 2009 was $26.1 million compared to $19.1 million in the same period of 2008, an increase of 36.5%. Diluted earnings per share for the nine months ended September 30, 2009 were $1.45 compared to $1.10 in the same period of 2008, an increase of $0.35 per share. Increasing diluted earnings per share were the following items, all of which are more fully discussed later: (i) an increase in the water dollar water margin of $11.2 million, or $0.37 per share, during the nine months ended September 30, 2009 compared to the same period of 2008; (ii) a settlement agreement reached with Mirant Energy Trading, LLC and the recording of the $1.0 million proceeds received, or $0.03 per share, as a reduction in legal expenses; (iii) the improved financial performance of the Military Utility Privatization Subsidiaries resulting in an increase in ASUSs pretax operating income of $7.1 million, or $0.23 per share (including the $1.1 million modification mentioned above); and (iv) a decrease in the effective tax rate (ETR) and a tax benefit of $918,000 recorded in the first quarter of 2009 resulting from new California apportionment laws as well as refining certain related estimates, which favorably impacted earnings by $0.07 per share. These increases to diluted earnings per share were partially offset by: (i) a $766,000 pretax unrealized gain on purchased power contracts in 2008, or $0.03 per share, for the nine months ended September 30, 2008 with no corresponding gain in 2009; (ii) an increase in operating expenses, other than supply costs, at the Companys water and electric utilities of $6.3 million, or $0.21 per share (excluding the Mirant settlement discussed above), (iii) the recording of a $760,000 loss on settlement for the removal of wells at CCWC, or $0.02 per share; (iv) an increase in interest expenses net of interest income of $1.5 million, or $0.05 per share; and (v) a decrease of $0.04 per share due to an increase in the weighted average number of common shares outstanding resulting from the issuance of 1.1 million shares of AWRs Common Shares in a public offering completed in May 2009.

Unrealized gains and losses on previous purchased power contracts impacted GSWCs earnings since the contracts qualified as derivative instruments under the accounting guidance for derivatives. Historical purchased power contracts that impacted earnings terminated at December 31, 2008. GSWC entered into a new purchased power contract effective January 1, 2009 which is also subject to derivative accounting treatment. In May 2009, the CPUC issued a final decision approving the new purchased 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 September 30, 2009 there was a $7.0 million cumulative unrealized loss which has been included in the memorandum account, therefore not impacting GSWCs earnings. There were $3.7 million of pretax unrealized losses and $766,000 of pretax unrealized gains on purchased power contracts included in earnings for the three and nine months ended September 30, 2008, respectively. Diluted earnings for the three and nine months ended September 30, 2008 were $0.26 per share and $1.10 per share, respectively. Eliminating the effects of the unrealized derivative loss and gains, adjusted diluted earnings per share for the three and nine months ended September 30, 2008 would have increased by $0.13 and decreased by $0.03 per share, respectively, to $0.39 and $1.07 per share, respectively.

Water - For the three months ended September 30, 2009, pretax operating income for water increased by $2.1 million, or 11.3%, primarily due to a $4.7 million increase in the water dollar margin as compared to the same period in 2008, partially offset by an increase in operating expenses, including higher pension costs. The dollar water margin increased due to higher water rates approved by the CPUC subsequent to September 30, 2008. These higher water rates increased water revenue by $2.9 million, partially offset by lower actual consumption. In addition, as a result of implementing the Water Revenue Adjustment Mechanism (WRAM) accounts in Regions II and III in late November 2008 and in Region I in September 2009, GSWC recorded $8.6 million of additional revenues for the three months ended September 30, 2009. The revenue requirement and volumetric revenues are adopted as part of a General Rate Case (GRC) every three years. We expect to file Region Is next GRC in January 2010, with rates effective January 2011 and 2012, and a GRC for all three water regions in July of 2011 with rates effective January 2013. As part of future GRCs, the CPUC is expected to adopt new volumetric revenues based on historical usage patterns and the revenue requirement adopted in these GRCs.

Electric For the three months ended September 30, 2009 as compared to the same period in 2008, pretax operating income from electric operations increased by $3.3 million due in large part to a $3.7 million pretax unrealized loss on purchased power contracts recorded in 2008. This unrealized loss on purchased power contracts decreased operating income by approximately $3.7 million during the third quarter of 2008, or $0.13 per share, with no corresponding loss in 2009. As previously discussed, the purchased power contract that resulted in unrealized gains and losses to BVES earnings terminated at December 31, 2008. Excluding the effects of the unrealized loss in 2008, BVES pretax operating loss increased by approximately $400,000 from $270,000 for the three months ended September 30, 2008 to $669,000 for the same period of 2009. This was primarily due to an increase in administrative and general expenses resulting from higher outside legal and consulting costs associated with the general rate case.

Contracted Services - For the three months ended September 30, 2009, pretax operating income for contracted services increased by $3.9 million, or $0.12 per share. This was primarily due to an interim increase in operations and maintenance revenues at FBWS, an increase in construction revenues at FBWS and ODUS, and lower overall operating expenses. In addition, on September 30, 2009, the U.S. government approved $1.1 million in revenues for a Request for Equitable Adjustment (REA) filed by PSUS for emergency construction costs mostly incurred in 2008. As a result of the approved REA, ASUS recorded $1.1 million in additional construction revenues and operating income for the three months ended September 30, 2009. ONUS also had an increase of $273,000 in pretax operating income for the three months ended September 30, 2009 due to lower operating expenses.

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