SAN DIMAS, Calif.--(BUSINESS WIRE)--American States Water Company (NYSE: AWR) today reported basic and fully diluted earnings per share of $0.35 and $0.34, respectively, for the quarter ended March 31, 2017, as compared to basic and fully diluted earnings per share of $0.28 for the quarter ended March 31, 2016.
First Quarter 2017 Results
The table below sets forth a
comparison of the first quarter diluted earnings per share by business
segment, as reported:
Diluted Earnings per Share | ||||||||||||||||
Three Months Ended | ||||||||||||||||
3/31/2017 | 3/31/2016 | CHANGE | ||||||||||||||
Water | $ | 0.25 | $ | 0.22 | $ | 0.03 | ||||||||||
Electric | 0.04 | 0.03 | 0.01 | |||||||||||||
Contracted services | 0.05 | 0.03 | 0.02 | |||||||||||||
Consolidated diluted earnings per share, as reported | $ | 0.34 | $ | 0.28 | $ | 0.06 |
Water Segment:
For the three months
ended March 31, 2017, diluted earnings per share from the water segment
of AWR’s Golden State Water Company (“GSWC”) subsidiary increased by
$0.03 to $0.25 per share as compared to the same period in 2016. The
following two items from other periods affected the results and
comparability of the three months ended March 31, 2017 and 2016, and
offset on a quarter-over-quarter basis:
- A decrease in the water gross margin of $1.5 million was not reflected in the results for the three months ended March 31, 2016 due to the delay by the California Public Utilities Commission (“CPUC”) in issuing a decision on the water general rate case. The water gross margin recorded through March 31, 2016 reflected GSWC's stipulated position in the then pending water general rate case, which assumed the CPUC would adopt GSWC’s positions in its entirety related to capital expenditure requests and executive compensation. The final decision authorized 87% of GSWC’s capital requests in customer rates, and allowed only a portion of the executive incentive programs. When the decision was issued in December 2016 with new rates retroactive to January 1, 2016, a cumulative downward adjustment of $5.2 million to the water gross margin was recorded in the fourth quarter of 2016 related to the first three quarters of 2016. Approximately $1.5 million of this amount would have lowered the water gross margin in the first quarter of 2016 had the CPUC decision been issued on time.
- A one-time recovery totaling $1.5 million related to the CPUC’s approval of GSWC’s drought memorandum account. In February 2017, the CPUC approved recovery of incremental drought-related costs, which were previously expensed in prior years and related to California's drought state of emergency. As a result of the approval by the CPUC, during the first quarter of 2017, GSWC recorded a regulatory asset and a corresponding increase to pretax earnings of approximately $1.5 million associated with drought-related items, of which approximately $1.2 million was recorded as a reduction to operation-related expenses and approximately $260,000 was recorded as additional revenue.
Excluding the two items discussed above, these major items impacted the comparability of the two periods in the water segment results:
- Overall, the water gross margin increased by approximately $685,000 due primarily to CPUC-approved second-year rate increases effective January 1, 2017, and
- Total operating expenses (excluding supply costs) decreased by approximately $1.2 million reflecting primarily lower (i) legal and other outside service costs related to condemnation matters, and (ii) maintenance expense.
Electric Segment:
For the three months
ended March 31, 2017, diluted earnings from the electric segment
increased by $0.01 per share to $0.04 per share as compared to the same
period in 2016. The increase was mostly due to a decrease in (i) overall
operating expenses (excluding supply costs) resulting primarily from
additional costs incurred in 2016 in response to power outages caused by
severe winter storms, as well as lower costs incurred in 2017 associated
with the CPUC-approved energy efficiency and solar programs, and (ii)
the effective income tax rate for the electric segment due to
differences between book and taxable income that are treated as
flow-through adjustments in accordance with regulatory requirements.
Contracted Services Segment:
For the
three months ended March 31, 2017, diluted earnings per share from
contracted services increased by $0.02 to $0.05 per share as compared to
the same period in 2016. There was an overall increase in construction
activity as well as improved cost efficiencies during the first quarter
of 2017. There was also an increase in management fee revenue due to the
successful resolution of price redeterminations, economic price
adjustments and asset transfers throughout 2016. These increases to
earnings were partially offset by higher operations and maintenance
costs mostly due to transition activities and the joint inventory study
being conducted at Eglin Air Force Base. In accordance with the 50-year
contract with the U.S. government, AWR’s contracted services subsidiary,
American States Utility Services, Inc. ("ASUS"), receives revenues to
help cover much of the costs of the transition in operations of Eglin.
ASUS is expected to assume operation of the water and wastewater systems
at Eglin Air Force Base by mid-2017. There were also increases in
outside services related to business development, compliance and
security analysis, and labor and employee-related training costs.
Regulatory Matters
In early April 2017, GSWC filed its water
cost of capital application with the CPUC. The application recommends an
overall weighted return on rate base of 9.11%, including an updated cost
of debt of 6.6% and a return on equity ("ROE") of 11%. The current
authorized return on rate base is 8.34%, including an ROE of 9.43%. A
decision on the application is scheduled to be received by the end of
2017 and to become effective January 1, 2018.
On May 1, 2017, GSWC filed its electric general rate case application with the CPUC. This rate case will determine rates for years 2018 through 2021. A final decision is scheduled for the end of 2017.
Other Matters
In April 2017, the Board of Directors of
Casitas Municipal Water District (“Casitas”) approved a settlement
agreement with GSWC, and a group of citizens referred to as Ojai Friends
of Locally Owned Water (“Ojai FLOW”) to resolve the eminent domain
action and other litigation brought by Casitas and Ojai FLOW against
GSWC. Under the terms of the settlement agreement, Casitas will acquire
the operating assets of GSWC’s 2,900-connection Ojai water system by
eminent domain for approximately $34.5 million in cash, including
payments for customer receivables and regulatory assets, subject to a
post-closing final reconciliation. Casitas and Ojai FLOW have also
agreed to dismiss all claims against GSWC, which claims sought damages
against GSWC stemming from Casitas’ proposal to issue bonds to finance
the acquisition of GSWC’s Ojai water system. The transaction is expected
to close in June 2017 following satisfaction of all closing conditions.
Upon closing, GSWC expects to recognize a pretax gain on the sale of
assets of approximately $8.0 million. The proceeds received in this
transaction are expected to temporarily lower GSWC’s short-term
borrowings. Management will evaluate the long-term use of the proceeds.
Dividends
American States Water Company has paid dividends
to shareholders every year since 1931, increasing the dividends received
by shareholders each calendar year for 62 consecutive years, which
places it in an exclusive group of companies on the New York Stock
Exchange that have achieved that result. On May 1, 2017, AWR's Board of
Directors approved a second quarter dividend of $0.242 per share on the
Common Shares of AWR. Dividends on the Common Shares will be payable on
June 1, 2017 to shareholders of record at the close of business on May
15, 2017.
Non-GAAP Financial Measures
This press release includes a
discussion on the water gross margin for various periods, which is
computed by subtracting total supply costs from total revenues. The
discussion also includes AWR’s operations in terms of diluted earnings
per share by business segment, which is each business segment’s net
income divided by the Company’s weighted average number of diluted
shares. These items are derived from consolidated financial information
but are not presented in our financial statements that are prepared in
accordance with Generally Accepted Accounting Principles (“GAAP”) in the
United States. These items constitute "non-GAAP financial measures"
under Securities and Exchange Commission rules.
The non-GAAP financial measures supplement our GAAP disclosures and should not be considered as alternatives to the GAAP measures. Furthermore, the non-GAAP financial measures may not be comparable to similarly titled non-GAAP financial measures of other registrants. The Company uses the water gross margin and earnings per share by business segment as important measures in evaluating its operating results and believes these measures are useful internal benchmarks in evaluating the performance of its operating segments. The Company reviews these measures regularly and compares them to historical periods and to the operating budget.
Forward Looking Statements
Certain matters discussed in this
news release with regard to the Company’s expectations may be
forward-looking statements that involve risks and uncertainties. The
assumptions and risk factors that could cause actual results to differ
materially include those described in the Company’s most recent Form
10-Q and Form 10-K filed with the Securities and Exchange Commission.
Conference Call
The Company will host a conference call on
May 3, 2017 at 2:00 p.m. Eastern Time (11:00 a.m. Pacific Time) to
discuss the Company and its financial results. Interested parties can
listen to the live conference call and view accompanying slides on the
Internet at www.aswater.com
by clicking the “Investors” button at the top of the page. The call will
be archived on the website and available for replay beginning Wednesday,
May 3, 2017 at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) through
May 10, 2017.
About American States Water Company
American States Water
Company is the parent of Golden State Water Company and American States
Utility Services, Inc. Through its utility subsidiary, Golden State
Water Company, AWR provides water service to approximately 261,000
customers located throughout 10 counties in Northern, Coastal and
Southern California. The Company also distributes electricity to
approximately 24,000 customers in the City of Big Bear and surrounding
areas in San Bernardino County, California. Through its contracted
services subsidiary, American States Utility Services, Inc., the Company
provides operations, maintenance and construction management services
for water and wastewater systems located on military bases throughout
the country under 50-year privatization contracts with the U.S.
government.
American States Water Company | ||||||||
Consolidated | ||||||||
Comparative Condensed Balance Sheets | ||||||||
March 31, | December 31, | |||||||
(in thousands) | 2017 | 2016 | ||||||
(Unaudited) | ||||||||
Assets | ||||||||
Utility Plant-Net | $ | 1,137,159 | $ | 1,150,926 | ||||
Goodwill | 1,116 | 1,116 | ||||||
Other Property and Investments | 21,161 | 20,836 | ||||||
Assets Held for Sale | 26,838 | - | ||||||
Other Current Assets | 165,241 | 166,875 | ||||||
Regulatory and Other Assets | 128,753 | 130,740 | ||||||
Total Assets | $ | 1,480,268 | $ | 1,470,493 | ||||
Capitalization and Liabilities | ||||||||
Capitalization | $ | 818,929 | $ | 815,278 | ||||
Liabilities Directly Associated with Assets Held for Sale | 938 | - | ||||||
Other Current Liabilities | 177,735 | 177,944 | ||||||
Other Credits | 482,666 | 477,271 | ||||||
Total Capitalization and Liabilities | $ | 1,480,268 | $ | 1,470,493 | ||||
Condensed Statements of Income | Three months ended | |||||||
(in thousands, except per share amounts) | March 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
Operating Revenues | ||||||||
Water | $ | 66,404 | $ | 66,312 | ||||
Electric | 10,502 | 10,573 | ||||||
Contracted services | 21,904 | 16,642 | ||||||
Total operating revenues | 98,810 | 93,527 | ||||||
Operating Expenses | ||||||||
Water purchased | 12,106 | 13,799 | ||||||
Power purchased for pumping | 1,597 | 1,632 | ||||||
Groundwater production assessment | 3,375 | 2,700 | ||||||
Power purchased for resale | 3,100 | 2,871 | ||||||
Supply cost balancing accounts | (1,749 | ) | (3,415 | ) | ||||
Other operation | 6,160 | 6,966 | ||||||
Administrative and general | 20,286 | 20,773 | ||||||
Depreciation and amortization | 9,683 | 9,791 | ||||||
Maintenance | 3,464 | 4,070 | ||||||
Property and other taxes | 4,566 | 4,378 | ||||||
ASUS construction | 11,484 | 8,729 | ||||||
Total operating expenses | 74,072 | 72,294 | ||||||
Operating income | 24,738 | 21,233 | ||||||
Other Income and Expenses | ||||||||
Interest expense | (5,905 | ) | (5,623 | ) | ||||
Interest income | 259 | 172 | ||||||
Other, net | 464 | 181 | ||||||
Total other income and expenses | (5,182 | ) | (5,270 | ) | ||||
Income Before Income Tax Expense | 19,556 | 15,963 | ||||||
Income tax expense | 6,855 | 5,813 | ||||||
Net Income | $ | 12,701 | $ | 10,150 | ||||
Weighted average shares outstanding | 36,590 | 36,521 | ||||||
Basic earnings per Common Share | $ | 0.35 | $ | 0.28 | ||||
Weighted average diluted shares | 36,782 | 36,697 | ||||||
Fully diluted earnings per Common Share | $ | 0.34 | $ | 0.28 | ||||
Dividends Declared Per Common Share | $ | 0.242 | $ | 0.224 | ||||