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| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| ¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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(IRS Employer Identification No.)California95-4676679California 95-4676679 (State or Other Jurisdiction of Incorporation or Organization)
630 E. Foothill Blvd, San Dimas, CA | 91773-1212 | |
(Address of Principal Executive Offices) | (Zip Code) |
(IRS Employer Identification No.) 630 E. Foothill Blvd, San Dimas, CA 91773-1212 (Address of Principal Executive Offices) (Zip Code) Golden State Water Company Golden State Water Company Golden State Water Company Information (in thousands) September 30, December 31, Property, Plant and Equipment Regulated utility plant, at cost $ 1,346,064 $ 1,302,589 Non utility property, at cost 8,687 7,747 Total 1,354,751 1,310,336 Less - Accumulated depreciation (442,724 ) (413,836 ) Net property, plant and equipment 912,027 896,500 Other Property and Investments Goodwill 1,116 1,116 Other property and investments 13,636 11,803 Total other property and investments 14,752 12,919 Current Assets Cash and cash equivalents 43,066 1,315 Accounts receivable — customers (less allowance for doubtful accounts of $769 in 2012 and $715 in 2011) 28,792 20,399 Unbilled revenue 21,826 16,188 Receivable from the U.S. government (less allowance for doubtful accounts of $8 in 2012 and $0 in 2011) 4,287 7,584 Other accounts receivable (less allowance for doubtful accounts of $334 in 2012 and $333 in 2011) 7,920 12,181 Income taxes receivable 637 20,537 Materials and supplies, at average cost 6,578 3,070 Regulatory assets — current 25,525 36,362 Prepayments and other current assets 5,380 3,959 Costs and estimated earnings in excess of billings on uncompleted contracts 32,787 34,466 Deferred income taxes — current 10,292 9,540 Total current assets 187,090 165,601 Regulatory and Other Assets Regulatory assets 151,195 143,595 Costs and estimated earnings in excess of billings on uncompleted contracts 4,323 598 Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2012 and 2011) 4,427 6,660 Deferred income taxes 11 15 Other 15,813 12,474 Total regulatory and other assets 175,769 163,342 Total Assets $ 1,289,638 $ 1,238,362 (in thousands) September 30, December 31, Capitalization Common shares, no par value $ 247,030 $ 233,306 Earnings reinvested in the business 201,822 175,360 Total common shareholders’ equity 448,852 408,666 Long-term debt 344,248 340,395 Total capitalization 793,100 749,061 Current Liabilities Notes payable to banks — 2,000 Long-term debt — current 178 291 Accounts payable 52,081 37,873 Income taxes payable 1,726 332 Accrued employee expenses 9,710 8,659 Accrued interest 6,423 3,938 Unrealized loss on purchased power contracts 2,719 7,611 Billings in excess of costs and estimated earnings on uncompleted contracts 19,346 26,973 Other 17,062 16,693 Total current liabilities 109,245 104,370 Other Credits Advances for construction 73,451 75,353 Contributions in aid of construction - net 102,719 100,037 Deferred income taxes 133,651 128,963 Unamortized investment tax credits 1,904 1,972 Accrued pension and other postretirement benefits 68,550 68,353 Billings in excess of costs and estimated earnings on uncompleted contracts — 3,272 Other 7,018 6,981 Total other credits 387,293 384,931 Commitments and Contingencies (Note 8) — — Total Capitalization and Liabilities $ 1,289,638 $ 1,238,362 2012 Three Months Ended (in thousands, except per share amounts) 2012 2011 Operating Revenues Water $ 90,604 $ 89,570 Electric 8,549 8,744 Contracted services 34,368 21,395 Total operating revenues 133,521 119,709 Operating Expenses Water purchased 18,874 16,094 Power purchased for pumping 3,067 3,141 Groundwater production assessment 3,923 3,795 Power purchased for resale 2,854 3,038 Supply cost balancing accounts 1,960 5,050 Other operation expenses 7,394 7,398 Administrative and general expenses 17,362 18,022 Depreciation and amortization 10,230 9,554 Maintenance 4,232 4,346 Property and other taxes 3,878 3,682 ASUS construction expenses 23,332 13,169 Net gain on sale of property (65 ) — Total operating expenses 97,041 87,289 Operating Income 36,480 32,420 Other Income and Expenses Interest expense (6,018 ) (6,194 ) Interest income 419 202 Other 219 (170 ) Total other income and expenses (5,380 ) (6,162 ) Income from continuing operations before income tax expense 31,100 26,258 Income tax expense 12,436 10,641 Income from continuing operations 18,664 15,617 Loss from discontinued operations, net of tax — (18 ) Net Income $ 18,664 $ 15,599 Basic Earnings Per Common Share Income from continuing operations $ 0.97 $ 0.83 Income (loss) from discontinued operations — — Net Income $ 0.97 $ 0.83 Fully Diluted Earnings Per Share Income from continuing operations $ 0.97 $ 0.83 Income (loss) from discontinued operations — — Net Income $ 0.97 $ 0.83 Weighted Average Number of Shares Outstanding 19,059 18,701 Weighted Average Number of Diluted Shares 19,103 18,852 Dividends Declared Per Common Share $ 0.355 $ 0.280 2012 Nine Months Ended (in thousands, except per share amounts) 2012 2011 Operating Revenues Water $ 237,447 $ 234,047 Electric 27,735 27,178 Contracted services 89,298 62,620 Total operating revenues 354,480 323,845 Operating Expenses Water purchased 42,257 37,679 Power purchased for pumping 6,642 6,842 Groundwater production assessment 11,228 10,307 Power purchased for resale 8,725 9,767 Supply cost balancing accounts 9,560 14,374 Other operation expenses 21,671 21,261 Administrative and general expenses 51,739 54,181 Depreciation and amortization 31,127 28,829 Maintenance 11,415 12,695 Property and other taxes 11,699 10,640 ASUS construction expenses 58,513 37,844 Net gain on sale of property (68 ) (128 ) Total operating expenses 264,508 244,291 Operating Income 89,972 79,554 Other Income and Expenses Interest expense (17,808 ) (18,807 ) Interest income 1,129 500 Other 435 (379 ) Total other income and expenses (16,244 ) (18,686 ) Income from continuing operations before income tax expense 73,728 60,868 Income tax expense 29,871 25,568 Income from continuing operations 43,857 35,300 Income from discontinued operations, net of tax — 3,850 Net Income $ 43,857 $ 39,150 Basic Earnings Per Common Share Income from continuing operations $ 2.30 $ 1.88 Income from discontinued operations — 0.20 Net Income $ 2.30 $ 2.08 Fully Diluted Earnings Per Share Income from continuing operations $ 2.30 $ 1.88 Income from discontinued operations — 0.20 Net Income $ 2.30 $ 2.08 Weighted Average Number of Shares Outstanding 18,924 18,672 Weighted Average Number of Diluted Shares 19,038 18,816 Dividends Declared Per Common Share $ 0.915 $ 0.820 2012 Nine Months Ended (in thousands) 2012 2011 Cash Flows From Operating Activities: Net income $ 43,857 $ 39,150 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of CCWC, net of taxes, included in discontinued operations — (2,454 ) Depreciation and amortization 31,127 28,829 Provision for doubtful accounts 1,313 776 Deferred income taxes and investment tax credits 4,735 4,317 Stock-based compensation expense 1,477 1,245 Other — net (359 ) 1,179 Changes in assets and liabilities: Accounts receivable — customers (9,664 ) (8,241 ) Unbilled revenue (5,638 ) (1,844 ) Other accounts receivable 3,967 (3,354 ) Receivable from the U.S. government 5,530 (6,732 ) Materials and supplies (3,508 ) (656 ) Prepayments and other current assets (1,421 ) 1,261 Regulatory assets — supply cost balancing accounts 9,560 14,374 Costs and estimated earnings in excess of billings on uncompleted contracts (2,046 ) 4,163 Other assets (including other regulatory assets) (17,698 ) (16,545 ) Accounts payable 12,981 2,075 Income taxes receivable/payable 21,294 (2,816 ) Billings in excess of costs and estimated earnings on uncompleted contracts (10,899 ) 4,569 Accrued pension and other postretirement benefits 3,079 (2,351 ) Other liabilities 3,892 5,692 Net cash provided 91,579 62,637 Cash Flows From Investing Activities: Construction expenditures (48,169 ) (63,574 ) Proceeds from the sale of CCWC — 29,603 Other 69 (72 ) Net cash used (48,100 ) (34,043 ) Cash Flows From Financing Activities: Proceeds from issuance of Common Shares and stock option exercises 12,434 2,350 Receipt of advances for and contributions in aid of construction 5,101 6,149 Refunds on advances for construction (3,216 ) (3,843 ) Repayments of long-term debt (294 ) (22,304 ) Proceeds from issuance of long-term debt, net of issuance costs 4,034 61,911 Net change in notes payable to banks (2,000 ) (56,400 ) Dividends paid (17,307 ) (15,306 ) Other — net (480 ) (133 ) Net cash used (1,728 ) (27,576 ) Net increase in cash and cash equivalents 41,751 1,018 Cash and cash equivalents, beginning of period 1,315 4,197 Cash and cash equivalents, end of period $ 43,066 $ 5,215 (in thousands) September 30, December 31, Utility Plant Utility plant, at cost $ 1,346,064 $ 1,302,589 Less - Accumulated depreciation (438,697 ) (410,644 ) Net utility plant 907,367 891,945 Other Property and Investments 11,468 9,626 Current Assets Cash and cash equivalents 25,552 — Accounts receivable-customers (less allowance for doubtful accounts of $769 in 2012 and $715 in 2011) 28,792 20,399 Unbilled revenue 21,826 16,188 Inter-company receivable 1,330 785 Other accounts receivable (less allowance for doubtful accounts of $257 in 2012 and $290 in 2011) 6,281 7,755 Income taxes receivable from Parent — 19,914 Materials and supplies, at average cost 2,457 1,926 Regulatory assets — current 25,525 36,362 Prepayments and other current assets 5,058 3,710 Deferred income taxes — current 9,255 8,497 Total current assets 126,076 115,536 Regulatory and Other Assets Regulatory assets 151,195 143,595 Other accounts receivable 2,090 1,838 Other 13,877 10,843 Total regulatory and other assets 167,162 156,276 Total Assets $ 1,212,073 $ 1,173,383 (in thousands) September 30, December 31, Capitalization Common shares, no par value $ 230,074 $ 228,936 Earnings reinvested in the business 178,904 155,870 Total common shareholder’s equity 408,978 384,806 Long-term debt 344,248 340,395 Total capitalization 753,226 725,201 Current Liabilities Long-term debt — current 178 291 Accounts payable 36,399 31,227 Income taxes payable to Parent 868 — Accrued employee expenses 8,648 7,544 Accrued interest 6,423 3,938 Unrealized loss on purchased power contracts 2,719 7,611 Other 16,554 16,162 Total current liabilities 71,789 66,773 Other Credits Advances for construction 73,451 75,353 Contributions in aid of construction — net 102,719 100,037 Deferred income taxes 133,503 128,815 Unamortized investment tax credits 1,904 1,972 Accrued pension and other postretirement benefits 68,550 68,353 Other 6,931 6,879 Total other credits 387,058 381,409 Commitments and Contingencies (Note 8) — — Total Capitalization and Liabilities $ 1,212,073 $ 1,173,383 2012 Three Months Ended (in thousands) 2012 2011 Operating Revenues Water $ 90,604 $ 89,570 Electric 8,549 8,744 Total operating revenues 99,153 98,314 Operating Expenses Water purchased 18,874 16,094 Power purchased for pumping 3,067 3,141 Groundwater production assessment 3,923 3,795 Power purchased for resale 2,854 3,038 Supply cost balancing accounts 1,960 5,050 Other operation expenses 6,859 6,933 Administrative and general expenses 14,621 15,398 Depreciation and amortization 9,941 9,334 Maintenance 3,801 3,765 Property and other taxes 3,357 3,366 Net gain on sale of property (65 ) — Total operating expenses 69,192 69,914 Operating Income 29,961 28,400 Other Income and Expenses Interest expense (5,959 ) (6,138 ) Interest income 384 149 Other 219 (171 ) Total other income and expenses (5,356 ) (6,160 ) Income from operations before income tax expense 24,605 22,240 Income tax expense 10,030 9,212 Net Income $ 14,575 $ 13,028 California95-1243678California 95-1243678 (State or Other Jurisdiction of Incorporation or Organization) American States Water Company o¨o¨American States Water Company o¨o¨oxx¨o¨o¨o¨o¨o¨American States Water Company November 2, 2012,August 6, 2013, the number of Common Shares outstanding, of American States Water Company was 19,216,42719,344,402 shares. As of November 2, 2012,August 6, 2013, all of the 146 outstanding Common Shares of Golden State Water Company were owned by American States Water Company.Table of Contentstoof the Notes to Consolidated Financial Statements and the heading entitled General in Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. References in this report to “Registrant” are to AWR and GSWC collectively, unless otherwise specified. GSWC makes no representations as to the information contained in this report relating to AWR and its subsidiaries, other than GSWC.Statementsthatthose actual results may differ materially from those in our forward-looking statements. Some of the factors that could cause future results to differ materially from those expressed or implied by our forward-looking statements, or from historical results, include, but are not limited to:· pending and future regulatory, legislative or other proceedings, investigations or audits, including decisions in our general rate cases and the results of independent audits of our construction contracting procurement practices or other independent audits of our costs······Our ability to recover increases in permitting costs and in costs associated with negotiating and complying with the terms of our franchise agreements with cities and counties and other demands made upon us by the cities and counties in which GSWC operates·changesthose resulting from changes in our assessment of anticipated recovery of regulatory assets, liabilities and revenues subject to refund or regulatory disallowances·········ASUS’ASUS’s revenue recognition under the percentage of completion method of accounting for our construction activities at our contracted services business··········a water and electric systemsystems in California or operating and maintaining water and wastewater systems on military bases under varying geographic conditions·The impact of storms, earthquakes, floods, mudslides, drought, wildfires, disease and similar natural disasters, or acts of terrorism or vandalism, that affect customer demand or that damage or disrupt facilities, operations or information technology systems owned by us, our customers or third parties on whom we rely··20112012 Annual Report on Form 10-K) as you read this Form 10-Q. We qualify all of our forward-looking statementstatements by these cautionary statements.
2012
2011(in thousands) June 30, 2013 December 31, 2012 Property, Plant and Equipment Regulated utility plant, at cost $ 1,393,711 $ 1,351,086 Non utility property, at cost 9,121 9,021 Total 1,402,832 1,360,107 Less - Accumulated depreciation (456,092 ) (442,316 ) Net property, plant and equipment 946,740 917,791 Other Property and Investments Goodwill 1,116 1,116 Other property and investments 14,005 13,755 Total other property and investments 15,121 14,871 Current Assets Cash and cash equivalents 8,525 23,486 Accounts receivable — customers (less allowance for doubtful accounts of $742 in 2013 and $797 in 2012) 27,401 19,491 Unbilled revenue 20,131 16,147 Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2013 and $8 in 2012) 7,369 12,905 Other accounts receivable (less allowance for doubtful accounts of $372 in 2013 and $423 in 2012) 7,275 7,062 Income taxes receivable 2,001 16,547 Materials and supplies, at average cost 6,120 5,348 Regulatory assets — current 35,364 32,336 Prepayments and other current assets 4,189 4,391 Costs and estimated earnings in excess of billings on uncompleted contracts 52,843 37,703 Deferred income taxes — current 9,902 8,617 Total current assets 181,120 184,033 Regulatory and Other Assets Regulatory assets 149,529 143,679 Costs and estimated earnings in excess of billings on uncompleted contracts 2,151 436 Receivable from the U.S. government (less allowance for doubtful accounts of $0 in 2013 and 2012) 2,827 4,535 Deferred income taxes 11 11 Other 15,487 15,587 Total regulatory and other assets 170,005 164,248 Total Assets $ 1,312,986 $ 1,280,943
2012
2011(in thousands) June 30, 2013 December 31, 2012 Capitalization Common shares, no par value $ 251,627 $ 249,322 Earnings reinvested in the business 213,758 205,257 Total common shareholders’ equity 465,385 454,579 Long-term debt 332,359 332,463 Total capitalization 797,744 787,042 Current Liabilities Long-term debt — current 3,383 3,328 Accounts payable 55,216 40,569 Income taxes payable 437 511 Accrued other taxes 6,599 8,167 Accrued employee expenses 9,202 9,919 Accrued interest 3,916 3,909 Unrealized loss on purchased power contracts 1,147 3,060 Billings in excess of costs and estimated earnings on uncompleted contracts 2,299 12,572 Dividends payable 7,811 — Other 12,438 11,662 Total current liabilities 102,448 93,697 Other Credits Advances for construction 68,831 70,781 Contributions in aid of construction - net 113,187 106,450 Deferred income taxes 148,641 142,597 Unamortized investment tax credits 1,836 1,881 Accrued pension and other postretirement benefits 73,493 71,618 Other 6,806 6,877 Total other credits 412,794 400,204 Commitments and Contingencies (Note 8) — — Total Capitalization and Liabilities $ 1,312,986 $ 1,280,943 SEPTEMBERJUNE 30, 20122013 AND 2011
September 30, Three Months Ended
June 30,(in thousands, except per share amounts) 2013 2012 Operating Revenues Water $ 84,069 $ 81,157 Electric 8,397 8,373 Contracted services 28,229 25,052 Total operating revenues 120,695 114,582 Operating Expenses Water purchased 16,670 13,831 Power purchased for pumping 2,332 2,019 Groundwater production assessment 3,823 3,982 Power purchased for resale 2,828 2,680 Supply cost balancing accounts (377 ) 4,163 Other operation expenses 6,519 6,851 Administrative and general expenses 18,113 18,063 Depreciation and amortization 9,768 10,407 Maintenance 4,913 3,852 Property and other taxes 3,748 3,716 ASUS construction expenses 19,064 14,896 Net gain on sale of property — (3 ) Total operating expenses 87,401 84,457 Operating Income 33,294 30,125 Other Income and Expenses Interest expense (5,768 ) (5,720 ) Interest income 140 495 Other, net 84 (13 ) Total other income and expenses (5,544 ) (5,238 ) Income from operations before income tax expense 27,750 24,887 Income tax expense 11,148 9,809 Net Income $ 16,602 $ 15,078 Weighted Average Number of Common Shares Outstanding 19,306 18,882 Basic Earnings Per Common Share $ 0.85 $ 0.79 Weighted Average Number of Diluted Shares 19,346 18,945 Fully Diluted Earnings Per Common Share $ 0.85 $ 0.79 Dividends Paid Per Common Share $ 0.355 $ 0.280 NINESIX MONTHSSEPTEMBERJUNE 30, 20122013 AND 2011
September 30, Six Months Ended
June 30,(in thousands, except per share amounts) 2013 2012 Operating Revenues Water $ 153,302 $ 147,358 Electric 19,131 19,186 Contracted services 58,814 54,930 Total operating revenues 231,247 221,474 Operating Expenses Water purchased 27,402 23,383 Power purchased for pumping 3,971 3,575 Groundwater production assessment 7,010 7,305 Power purchased for resale 6,508 5,871 Supply cost balancing accounts 994 7,600 Other operation expenses 11,973 14,277 Administrative and general expenses 36,020 34,892 Depreciation and amortization 19,584 20,897 Maintenance 8,847 7,183 Property and other taxes 7,896 7,821 ASUS construction expenses 39,797 35,181 Net gain on sale of property (12 ) (3 ) Total operating expenses 169,990 167,982 Operating Income 61,257 53,492 Other Income and Expenses Interest expense (11,546 ) (11,790 ) Interest income 327 710 Other, net 426 216 Total other income and expenses (10,793 ) (10,864 ) Income from operations before income tax expense 50,464 42,628 Income tax expense 20,397 17,435 Net Income $ 30,067 $ 25,193 Weighted Average Number of Common Shares Outstanding 19,285 18,857 Basic Earnings Per Common Share $ 1.54 $ 1.33 Weighted Average Number of Diluted Shares 19,324 18,988 Fully Diluted Earnings Per Common Share $ 1.54 $ 1.32 Dividends Paid Per Common Share $ 0.71 $ 0.56 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20122013 AND 2011
September 30, Six Months Ended
June 30,(in thousands) 2013 2012 Cash Flows From Operating Activities: Net income $ 30,067 $ 25,193 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,052 22,046 Provision for doubtful accounts 437 959 Deferred income taxes and investment tax credits 5,789 2,361 Stock-based compensation expense 1,135 1,170 Other — net (159 ) (260 ) Changes in assets and liabilities: Accounts receivable — customers (8,339 ) (2,978 ) Unbilled revenue (3,984 ) (9,527 ) Other accounts receivable (221 ) 4,306 Receivable from the U.S. government 7,244 (346 ) Materials and supplies (772 ) (1,888 ) Prepayments and other current assets 202 (1,863 ) Regulatory assets — supply cost balancing accounts 994 7,600 Costs and estimated earnings in excess of billings on uncompleted contracts (16,855 ) 9,732 Other assets (including other regulatory assets) (14,307 ) (9,620 ) Accounts payable 5,979 4,428 Income taxes receivable/payable 14,472 13,677 Billings in excess of costs and estimated earnings on uncompleted contracts (10,273 ) (4,358 ) Accrued pension and other postretirement benefits 3,733 4,379 Other liabilities (1,574 ) (1,074 ) Net cash provided 33,620 63,937 Cash Flows From Investing Activities: Construction expenditures (41,189 ) (29,447 ) Other investments (200 ) — Proceed from sale of property 12 4 Net cash used (41,377 ) (29,443 ) Cash Flows From Financing Activities: Proceeds from issuance of common shares and stock option exercises 1,832 2,748 Receipt of advances for and contributions in aid of construction 8,283 2,049 Refunds on advances for construction (2,712 ) (2,684 ) Repayments of long-term debt (109 ) (234 ) Proceeds from issuance of long-term debt 60 1,266 Net change in notes payable to banks — (2,000 ) Dividends paid (13,684 ) (10,559 ) Other — net (874 ) (480 ) Net cash used (7,204 ) (9,894 ) Net (decrease) increase in cash and cash equivalents (14,961 ) 24,600 Cash and cash equivalents, beginning of period 23,486 1,315 Cash and cash equivalents, end of period $ 8,525 $ 25,915
2012
2011(in thousands) June 30, 2013 December 31, 2012 Utility Plant Utility plant, at cost $ 1,393,711 $ 1,351,086 Less - Accumulated depreciation (451,213 ) (437,949 ) Net utility plant 942,498 913,137 Other Property and Investments 11,846 11,590 Current Assets Cash and cash equivalents 7,989 22,578 Accounts receivable-customers (less allowance for doubtful accounts of $742 in 2013 and $797 in 2012) 27,401 19,491 Unbilled revenue 20,131 16,147 Inter-company receivable 5,145 2,508 Other accounts receivable (less allowance for doubtful accounts of $362 in 2013 and $380 in 2012) 5,209 6,377 Income taxes receivable from Parent 3,947 16,442 Note receivable from Parent 9,200 — Materials and supplies, at average cost 2,277 2,244 Regulatory assets — current 35,364 32,336 Prepayments and other current assets 3,595 4,162 Deferred income taxes — current 8,856 7,577 Total current assets 129,114 129,862 Regulatory and Other Assets Regulatory assets 149,529 143,679 Other accounts receivable 1,445 1,445 Other 14,057 14,339 Total regulatory and other assets 165,031 159,463 Total Assets $ 1,248,489 $ 1,214,052
2012
2011(in thousands) June 30, 2013 December 31, 2012 Capitalization Common shares, no par value $ 231,814 $ 231,480 Earnings reinvested in the business 195,631 184,777 Total common shareholder’s equity 427,445 416,257 Long-term debt 332,359 332,463 Total capitalization 759,804 748,720 Current Liabilities Long-term debt — current 3,383 3,328 Accounts payable 41,126 27,292 Accrued other taxes 6,276 7,720 Accrued employee expenses 8,175 8,786 Accrued interest 3,916 3,909 Unrealized loss on purchased power contracts 1,147 3,060 Other 12,371 11,606 Total current liabilities 76,394 65,701 Other Credits Advances for construction 68,831 70,781 Contributions in aid of construction — net 113,187 106,450 Deferred income taxes 148,200 142,082 Unamortized investment tax credits 1,836 1,881 Accrued pension and other postretirement benefits 73,493 71,618 Other 6,744 6,819 Total other credits 412,291 399,631 Commitments and Contingencies (Note 8) — — Total Capitalization and Liabilities $ 1,248,489 $ 1,214,052 SEPTEMBERJUNE 30, 20122013 AND 2011
September 30, Three Months Ended
June 30,(in thousands) 2013 2012 Operating Revenues Water $ 84,069 $ 81,157 Electric 8,397 8,373 Total operating revenues 92,466 89,530 Operating Expenses Water purchased 16,670 13,831 Power purchased for pumping 2,332 2,019 Groundwater production assessment 3,823 3,982 Power purchased for resale 2,828 2,680 Supply cost balancing accounts (377 ) 4,163 Other operation expenses 5,842 6,202 Administrative and general expenses 15,166 15,670 Depreciation and amortization 9,484 10,122 Maintenance 4,365 3,357 Property and other taxes 3,375 3,354 Total operating expenses 63,508 65,380 Operating Income 28,958 24,150 Other Income and Expenses Interest expense (5,726 ) (5,680 ) Interest income 140 469 Other, net 85 (14 ) Total other income and expenses (5,501 ) (5,225 ) Income from operations before income tax expense 23,457 18,925 Income tax expense 9,643 7,567 Net Income $ 13,814 $ 11,358 NINESIX MONTHSSEPTEMBERJUNE 30, 20122013 AND 20112012(Unaudited)
|
| Nine Months Ended |
| ||||
(in thousands) |
| 2012 |
| 2011 |
| ||
Operating Revenues |
|
|
|
|
| ||
Water |
| $ | 237,447 |
| $ | 234,047 |
|
Electric |
| 27,735 |
| 27,178 |
| ||
Total operating revenues |
| 265,182 |
| 261,225 |
| ||
|
|
|
|
|
| ||
Operating Expenses |
|
|
|
|
| ||
Water purchased |
| 42,257 |
| 37,679 |
| ||
Power purchased for pumping |
| 6,642 |
| 6,842 |
| ||
Groundwater production assessment |
| 11,228 |
| 10,307 |
| ||
Power purchased for resale |
| 8,725 |
| 9,767 |
| ||
Supply cost balancing accounts |
| 9,560 |
| 14,374 |
| ||
Other operation expenses |
| 19,710 |
| 18,489 |
| ||
Administrative and general expenses |
| 43,472 |
| 45,182 |
| ||
Depreciation and amortization |
| 30,283 |
| 28,171 |
| ||
Maintenance |
| 10,098 |
| 10,755 |
| ||
Property and other taxes |
| 10,454 |
| 9,638 |
| ||
Net gain on sale of property |
| (65 | ) | (128 | ) | ||
Total operating expenses |
| 192,364 |
| 191,076 |
| ||
|
|
|
|
|
| ||
Operating Income |
| 72,818 |
| 70,149 |
| ||
|
|
|
|
|
| ||
Other Income and Expenses |
|
|
|
|
| ||
Interest expense |
| (17,648 | ) | (18,436 | ) | ||
Interest income |
| 1,063 |
| 439 |
| ||
Other |
| 434 |
| (570 | ) | ||
Total other income and expenses |
| (16,151 | ) | (18,567 | ) | ||
|
|
|
|
|
| ||
Income from operations before income tax expense |
| 56,667 |
| 51,582 |
| ||
|
|
|
|
|
| ||
Income tax expense |
| 23,352 |
| 22,147 |
| ||
|
|
|
|
|
| ||
Net Income |
| $ | 33,315 |
| $ | 29,435 |
|
2012 Nine Months Ended (in thousands) 2012 2011 Cash Flows From Operating Activities: Net income $ 33,315 $ 29,435 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 30,283 28,171 Provision for doubtful accounts 1,271 697 Deferred income taxes and investment tax credits 4,725 4,460 Stock-based compensation expense 1,241 1,099 Other — net (389 ) 800 Changes in assets and liabilities: Accounts receivable — customers (9,664 ) (8,241 ) Unbilled revenue (5,638 ) (1,844 ) Other accounts receivable 1,222 111 Materials and supplies (531 ) (197 ) Prepayments and other current assets (1,348 ) 995 Regulatory assets — supply cost balancing accounts 9,560 14,374 Other assets (including other regulatory assets) (17,612 ) (16,571 ) Accounts payable 3,945 3,752 Inter-company receivable/payable (545 ) 452 Income taxes receivable/payable from/to Parent 20,782 (1,977 ) Accrued pension and other postretirement benefits 3,079 (2,351 ) Other liabilities 3,985 5,798 Net cash provided 77,681 58,963 Cash Flows From Investing Activities: Construction expenditures (47,230 ) (62,089 ) Proceeds from sale of property 65 144 Net cash used (47,165 ) (61,945 ) Cash Flows From Financing Activities: Receipt of advances for and contributions in aid of construction 5,101 6,149 Refunds on advances for construction (3,216 ) (3,843 ) Proceeds from the issuance of long-term debt, net of issuance costs 4,034 61,911 Repayments of long-term debt (294 ) (22,304 ) Net change in inter-company borrowings — (23,381 ) Dividends paid (10,200 ) (15,000 ) Other — net (389 ) (78 ) Net cash (used) provided (4,964 ) 3,454 Net increase in cash and cash equivalents 25,552 472 Cash and cash equivalents, beginning of period — 1,541 Cash and cash equivalents, end of period $ 25,552 $ 2,013 Six Months Ended
June 30,(in thousands) 2013 2012 Operating Revenues Water $ 153,302 $ 147,358 Electric 19,131 19,186 Total operating revenues 172,433 166,544 Operating Expenses Water purchased 27,402 23,383 Power purchased for pumping 3,971 3,575 Groundwater production assessment 7,010 7,305 Power purchased for resale 6,508 5,871 Supply cost balancing accounts 994 7,600 Other operation expenses 10,639 12,851 Administrative and general expenses 29,400 29,366 Depreciation and amortization 19,006 20,342 Maintenance 7,858 6,297 Property and other taxes 7,091 7,097 Total operating expenses 119,879 123,687 Operating Income 52,554 42,857 Other Income and Expenses Interest expense (11,474 ) (11,689 ) Interest income 318 679 Other, net 427 215 Total other income and expenses (10,729 ) (10,795 ) Income from operations before income tax expense 41,825 32,062 Income tax expense 17,306 13,322 Net Income $ 24,519 $ 18,740 NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20122013 AND 2011
September 30, Six Months Ended
June 30,(in thousands) 2013 2012 Cash Flows From Operating Activities: Net income $ 24,519 $ 18,740 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,474 21,491 Provision for doubtful accounts 411 925 Deferred income taxes and investment tax credits 5,868 2,351 Stock-based compensation expense 835 961 Other — net (17 ) (323 ) Changes in assets and liabilities: Accounts receivable — customers (8,339 ) (2,978 ) Unbilled revenue (3,984 ) (9,527 ) Other accounts receivable 1,186 1,075 Materials and supplies (33 ) (179 ) Prepayments and other current assets 567 (1,764 ) Regulatory assets — supply cost balancing accounts 994 7,600 Other assets (including other regulatory assets) (14,262 ) (9,532 ) Accounts payable 5,166 (25 ) Inter-company receivable/payable (2,637 ) (352 ) Income taxes receivable/payable from/to Parent 12,495 13,599 Accrued pension and other postretirement benefits 3,733 4,379 Other liabilities (1,358 ) (722 ) Net cash provided 44,618 45,719 Cash Flows From Investing Activities: Construction expenditures (41,021 ) (28,728 ) Note receivable from AWR parent (9,200 ) — Other investments (200 ) — Net cash used (50,421 ) (28,728 ) Cash Flows From Financing Activities: Receipt of advances for and contributions in aid of construction 8,283 2,049 Refunds on advances for construction (2,712 ) (2,684 ) Proceeds from the issuance of long-term debt 60 1,266 Repayments of long-term debt (109 ) (234 ) Dividends paid (13,600 ) (10,200 ) Other — net (708 ) (389 ) Net cash used (8,786 ) (10,192 ) Net (decrease) increase in cash and cash equivalents (14,589 ) 6,799 Cash and cash equivalents, beginning of period 22,578 — Cash and cash equivalents, end of period $ 7,989 $ 6,799
(Unaudited)
Note 3 $50.0 million. As of June 30, 2013, there are no outstanding borrowings under this credit facility. AWR was also the parent company of Chaparral City Water Company (“CCWC”) until the sale of CCWC on May 31, 2011.255,000256,000 customers. GSWC also distributes electricity in several San Bernardino MountainCounty mountain communities in California serving approximately 23,000 customers. customers through its Bear Valley Electric Service (“BVES”) division. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric businesses, including properties, rates, services, facilities and other matters, and transactions by GSWC with its affiliates. AWR’s assets and operating income are primarily those of GSWC.50-year50-year firm, fixed-price contracts, which are subject to periodic price redeterminations and modifications for changes in circumstances, and changes in laws and regulations. There is no direct regulatory oversight by the CPUC over AWR or the operation, rates or services provided by ASUS or any of its wholly owned subsidiaries.20122013 financial statement presentation. The operational resultsCCWCDirectors also approved a two-for-one stock split of the Company's common shares. On or about September 3, 2013, shareholders of record will receive one additional share for the periodseach AWR common share they own. Pro forma per share data on a post-split basis are presented are reported in discontinued operations, net of transaction costs.20112012 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal, recurring items and estimates necessary for a fair statement of the results for the interim periods, have been made. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Form 10-K for the year ended December 31, 20112012 filed with the SEC.GSWC’sGSWC's Related Party Transactions: In May 2013, AWR issued an interest bearing promissory note (the "Note") to GSWC for $20.0 million which expires on May 23, 2018. Under the terms of the Note, AWR may borrow from GSWC amounts up to $20.0 million for working capital purposes. AWR agrees to pay any unpaid principal amounts outstanding under the Note, plus accrued interest. As of June 30, 2013, AWR has borrowed $9.2 million from GSWC under this Note, which GSWC has reflected as a current note receivable on its June 30, 2013 balance sheet. This Note is expected to be repaid by AWR within one year.AWR. Any transactions between GSWCAWR, and AWR or ASUS are governed by the CPUC’s affiliate transaction rules.among themselves. In addition, AWR has a $100.0$100.0 million syndicated credit facility. AWR borrows under this facility and provides funds to its subsidiaries, including GSWC, in support of their operations. Any amounts owed to AWR for borrowings under this facility are included in inter-company payables on GSWC’s balance sheet. The interest rate charged to GSWC and other affiliatesASUS is sufficient to cover AWR’s interest cost under the credit facility. GSWC also allocates certain corporate office administrative and general costs to its affiliate, ASUS, using allocation factors mandatedapproved by the CPUC. ThroughAmounts owed to GSWC by its parent, AWR, or for allocated expenses are included in inter-company receivables as of June 30, 2013 and December 31, 2012.31, 2011, GSWC also allocated costs23, 2013, AWR entered into a fourth amendment to CCWC.Long-Term Debt: On October 1, 2012, GSWC redeemed its $8,000,000, 7.55% Medium-Term Notes, Series B. The Notes, which were due 2025, were redeemed at a price of 101.133%revolving credit agreement to, among other things, extend the expiration date of the outstanding principalsyndicated credit facility to May 23, 2018, reduce the amount of interest and fees paid by the Notes, plus accruedCompany, and unpaid interest through October 1, 2012, for a total redemption priceupdate certain representations and covenants in the credit agreement. The aggregate amount that may be borrowed under this facility is unchanged at $100.0 million. The Company may, under the terms of $8.3 million.the fourth amendment, elect to increase the aggregate commitment by up to an additional $966,000$947,000 and $942,000$850,000 for the three months ended SeptemberJune 30, 20122013 and 2011,2012, respectively, and $2,600,000$1.8 million and $2,423,000$1.6 million for the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, respectively. When GSWC acts as an agent, and the tax is not required to be remitted if it is not collected from the customer, the taxes are accounted for on a net basis.50-year50-year contracts with the U.S. government. The non-income tax assessments are accounted for on a gross basis and totaled $222,000$169,000 and $168,000$186,000 during the three months ended SeptemberJune 30, 20122013 and 2011,2012, respectively, and $563,000$331,000 and $533,000$341,000 for the ninesix months ended SeptemberJune 30, 20122013 and 2011, respectively.Recently Adopted Accounting Pronouncements2012: The following accounting standards did not or are not expected to have any impact on Registrant’s consolidated financial statements:Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). Under ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity will be required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 is effective for fiscal years beginning on or after December 15, 2011 and did not have a material impact on Registrant’s consolidated financial statements.respectively. Standards Update No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment (“ASU 2011-08”). Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, performing the two-step impairment test is not required. The guidance does not change how an entity measures a goodwill impairment loss, and is therefore not expected to affect the information reported to users of an entity’s financial statements. The adoption of this update is not expected to have a significant impact on its results of operations, financial position or cash flows.In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). The ASU 2011-11 amendments require companies to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is required to be applied retrospectively for all prior periods presented and is effective for annual periods for fiscal years beginning on or after January 1, 2013, and interim periods within those annual fiscal years. Registrant does not expect adoption of this standard to have a material impact on its consolidated results of operations and financial condition.Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on Registrant’s consolidated financial statements upon adoption.15
Note 2 — Regulatory Matters:
(dollars in thousands) |
| September 30, |
| December 31, |
| ||
GSWC |
|
|
|
|
| ||
Electric supply cost balancing account |
| $ | 5,937 |
| $ | 8,347 |
|
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account |
| 43,638 |
| 39,112 |
| ||
Base Revenue Requirement Adjustment Mechanism |
| 6,171 |
| 4,053 |
| ||
Costs deferred for future recovery on Aerojet case |
| 16,310 |
| 17,173 |
| ||
Pensions and other post-retirement obligations |
| 55,780 |
| 56,960 |
| ||
Derivative unrealized loss (Note 4) |
| 2,719 |
| 7,611 |
| ||
Flow-through taxes, net (Note 6) |
| 16,169 |
| 17,032 |
| ||
Electric transmission line abandonment costs |
| 2,257 |
| 2,428 |
| ||
Asset retirement obligations |
| 2,869 |
| 2,793 |
| ||
Low income rate assistance balancing accounts |
| 8,305 |
| 6,194 |
| ||
General rate case memorandum accounts |
| 6,610 |
| 12,922 |
| ||
Santa Maria adjudication memorandum accounts |
| 3,561 |
| 3,662 |
| ||
Bay Point balancing accounts |
| 5,242 |
| 5,752 |
| ||
Other regulatory assets, net |
| 9,756 |
| 8,409 |
| ||
Various refunds to customers |
| (8,604 | ) | (12,491 | ) | ||
Total |
| $ | 176,720 |
| $ | 179,957 |
|
| (dollars in thousands) | June 30, 2013 | December 31, 2012 | ||||||
| GSWC | ||||||||
| Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account | $ | 38,003 | $ | 42,574 | ||||
| Base Revenue Requirement Adjustment Mechanism | 8,265 | 6,833 | ||||||
| Costs deferred for future recovery on Aerojet case | 15,577 | 16,030 | ||||||
| Pensions and other post-retirement obligations (Note 7) | 55,836 | 56,894 | ||||||
| Flow-through taxes, net (Note 6) | 15,340 | 16,415 | ||||||
| General rate case memorandum accounts | 17,239 | 4,495 | ||||||
| Other regulatory assets | 40,393 | 40,332 | ||||||
| Various refunds to customers | (5,760 | ) | (7,558 | ) | ||||
| Total | $ | 184,893 | $ | 176,015 | ||||
2012
.In addition to adopting a new amortization schedule, the final decision sets a cap on total net WRAM/MCBA surcharges in any given calendar year of 10% of the last authorized revenue requirement. The cap is effective following the first test year of each applicant’s pending or next general rate case. For GSWC, the cap will be applied to its 2013 WRAM balances to be filed for recovery in early 2014. The cap requirement set forth in the final decision willdoes not impact GSWC’s 2012 and prior year WRAM/MCBA balances.
Matter
In November 2010, as part of GSWC’s Region II, Region III and general office rate case decision, the CPUC disallowed a portion of the La Serena plant improvement project costs from utility customer rates.. As a result of the CPUC’s decision in November 2010, GSWC had recorded a pretax charge of $2.2$2.2 million during 2010, which included the disallowance of thesea portion of the La Serena capital costs and the related revenues earned on those capital costs that willto be refunded to customers.
In December 2010, DRAMarch 2013, GSWC and the Division of Ratepayer Advocates ("DRA") reached a settlement agreement, subject to CPUC approval, to resolve all the issues in the rehearing. In March 2013, GSWC filed a motion for rehearing on this matter, contending that the CPUC erred in assigning a portionapproval of the La Serena plant improvement costs tosettlement agreement. In anticipation of this settlement, GSWC utility customers and requested that allrecorded an additional pretax charge of the capital costs related to the La Serena$416,000 in 2012, representing disallowed plant improvement project be disallowed. In July 2011, the CPUC granted DRA’s request for rehearing. Hearings on these matters are expected in the fourth quarter of 2012. A proposed decision is expected in June 2013. In addition to granting a rehearing, the CPUC also directed the Division of Water and Audits (“DWA”) to undertake an audit of the La Serena project costs and to provide a confidential report to the CPUC with recommendations on whether an investigation should be conducted to determine whether any laws were broken related to the La Serena project. Management does not believe it has violated any laws in regards to the La Serena project. DWA issued its independent audit report, which found cost overruns for the La Serena plant improvement project to be lower than the amount of costs for rate recovery previously disallowed by the CPUC.
In October 2012, DRA issued a report on this matter recommending further disallowances of costs and refund of revenues earned on those costs. DRA’s recommendation is inconsistent with the independent audit report issued by DWA. In addition, GSWC believes DRA’s recommendations are without merit and inconsistent with previous CPUC decisions on this matter. However, if DRA prevails, GSWC may be required to write-off additional capital costs and provide refunds to customers of the revenues earned on those costs. Based on DRA’s recommendation, additional disallowed costs and revenues earned on those costs through September 30, 2012 totaled approximately $2.5 million. GSWC intendsthat it expects will be refunded to vigorously defend its position. However, at this time, management cannot predictcustomers based upon the outcometerms of the rehearing, DWA’s and DRA’s recommendations, or determinesettlement being discussed. The settlement agreement, if approved, would resolve all issues arising from the estimated additional loss or range of loss, if any.
Deferred rate case costsrehearing.:
The rehearing is also re-addressing deferred rate case costs, which are direct costs consisting primarily of outside consulting services which have been incurred in connection with the preparation and processing of a general rate case. Historically, GSWC has deferred these costs as a regulatory asset which are then recovered in rates and amortized over the term of a rate case cycle once the new rates go into effect. In the rehearing proceeding, DRA is again challenging GSWC’s historical practice of deferring these costs with subsequent recovery upon the effective date of the new rates. Instead, DRA believes that rate case costs should be projected for future periods and recovered prospectively. Management believes that DRA’s rationale and recommendations are inconsistent with previous CPUC decisions on this matter and also with GSWC’s historical practice of deferring and recovering rate case expenses associated with the current general rate case, and continues to believe that the costs are probable for recovery. However, if DRA prevails, GSWC may be required to write-off deferred rate case costs related to its current pending rate case, which total approximately $1.9 million as of September 30, 2012. At this time, GSWC is unable to predict the outcome of this matter.
GSWC’s BVES division has been regularly filing compliance reports with the CPUC regarding its purchases of energy from renewable energy resources to meet California’s
2013
.In November 2011, GSWC filed for CPUC approval for the purchase of these RECs. In July 2012, the CPUC approved the purchase.District. BVES intends to apply these RECsRECS towards either its pre-2011 renewable energyRPS requirements or its 2011-20132011 through 2013 requirements. The REC’s were purchased for approximately $325,000 during the third quarter of 2012 as an asset andRECs will be included as part of BVES’the electric supply cost balancing account when the RECs are applied towards the RPS requirements.
requirements during the fourth quarter of 2013.
Other Regulatory Matters:2011.
Cost of Capital Proceeding for Water Regions:
In July 2012, the CPUC issued a final decision on GSWC’s water cost of capital proceeding filed in May 2011. The decision approves the settlement agreement entered into between GSWC, along with three other California water utilities, and DRA in November 2011. The approved settlement authorizes a Return on Equity (“ROE”) of 9.99% and a rate-making capital structure for GSWC of 55% equity and 45% debt. The weighted cost of capital (return on rate base), with an updated embedded debt cost and the settlement ROE, is 8.64%. The new rate of return authorized by the CPUC’s final decision was implemented into water rates retroactive to January 1, 2012.
18
Among other things, the final decision required GSWC to refund to customers approximately $408,000, representing the settled amount included in the interest rate balancing account. During the three months ended September 30, 2012, GSWC refunded the majority of this to customers through a one-time surcredit.
The CPUC decision also authorized GSWC to continue the Water Cost of Capital Mechanism (“WCCM”). The WCCM adjusts ROE and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of Moody’s Aa utility bond rate as measured over the period October 1 through September 30. If the average Moody’s rate for this period changes by over 100 basis points from the benchmark, the ROE will be adjusted by one half of the difference. For the period October 1, 2011 through September 30, 2012, Moody’s rate declined by 112 basis points from the benchmark. As a result, in October 2012, GSWC filed an advice letter to lower its water ROE by 56 basis points, from 9.99% to 9.43%, which will be incorporated in the new 2013 water rates.
Changes in Tax Law
The Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Tax Relief Acts”) extended 50% bonus depreciation for qualifying property through 2012 and created 100% bonus depreciation for qualifying property placed in service between September 9, 2010 and December 31, 2011.
In June 2011, the CPUC adopted a resolution that requires water utilities to file advice letters implementing a one-way memorandum account to track the revenue effects associated with the Tax Relief Acts. This may result in a reduction in revenue requirements in future rate case proceedings. The effective date of the memorandum account established by the resolution was April 14, 2011. More specifically, the memorandum account established by the resolution tracks on a CPUC-jurisdictional, revenue-requirement basis: (a) decreases in each impacted utility’s revenue requirement resulting from increases in its deferred tax reserve; and (b) other direct changes in the revenue requirement resulting from taking advantage of the Tax Relief Acts. This resolution also authorizes impacted utilities to use savings from this new tax law to invest in certain additional, needed utility infrastructure, not otherwise funded in rates, within a time frame shorter than would be practicable through the formal application or advice letter processes. The establishment of a memorandum account does not change rates, nor guarantee that rates will be changed in the future. This mechanism simply allows the CPUC to determine at a future date whether rates should be changed. GSWC has evaluated the potential impact of this resolution and does not expect it to have a material impact on its consolidated financial statements. However, at this time, GSWC cannot predict the outcome of this resolution or determine its potential impact, if any, on future rates.
CPUC Subpoena
On December 15, 2011, the CPUC approved a settlement agreement reached between GSWC and DWA to resolve an investigation of certain work orders and charges paid to a specific contractor used previously for numerous construction projects over a period of 14 years. The settlement provides for refunds to customers totaling $9.5 million to be made over a period of 12-36 months, as well as a reduction in rate-base and other rate adjustments totaling $3.0 million. As a result of the settlement, management does not expect future increases in the reserve related to this specific contractor. Refunds totaling $1.1 million and $2.2 million were made to customers during the three and nine months ended September 30, 2012, respectively.
As part of the settlement agreement, GSWC agreed to be subject to three separate independent audits of its procurement practices over a period of ten years from the date the settlement was approved by the CPUC. The audits will cover GSWC’s procurement practices from 1994 forward and could result in further disallowances of costs. The cost of the audits will be borne by shareholders and may not be recovered by GSWC in rates to customers. At this time, management cannot predict the outcome of these audits or determine the estimated loss or range of loss, if any, resulting from these audits.
Note 3 — Earnings per Share/Capital Stock:
Basic |
| For The Three Months |
| For The Nine Months |
| |||||||||
(in thousands, except per share amounts) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| |||||
Net income from continuing operations |
| $ | 18,664 |
| $ | 15,617 |
| $ | 43,857 |
| $ | 35,300 |
| |
Net income (loss) from discontinued operations |
| — |
| (18 | ) | — |
| 3,850 |
| |||||
Total net income |
| 18,664 |
| 15,599 |
| 43,857 |
| 39,150 |
| |||||
Less: (a) Distributed earnings to common shareholders |
| 6,766 |
| 5,236 |
| 17,316 |
| 15,311 |
| |||||
Distributed earnings to participating securities |
| 52 |
| 38 |
| 119 |
| 102 |
| |||||
Undistributed earnings |
| 11,846 |
| 10,325 |
| 26,422 |
| 23,737 |
| |||||
|
|
|
|
|
|
|
|
|
| |||||
(b) | Undistributed earnings allocated to common shareholders |
| 11,755 |
| 10,250 |
| 26,242 |
| 23,580 |
| ||||
| Undistributed earnings allocated to participating securities |
| 91 |
| 75 |
| 180 |
| 157 |
| ||||
|
|
|
|
|
|
|
|
|
| |||||
Total income available to common shareholders, basic (a)+(b) |
| $ | 18,521 |
| $ | 15,486 |
| $ | 43,558 |
| $ | 38,891 |
| |
|
|
|
|
|
|
|
|
|
| |||||
Weighted average Common Shares outstanding, basic |
| 19,059 |
| 18,701 |
| 18,924 |
| 18,672 |
| |||||
|
|
|
|
|
|
|
|
|
| |||||
Basic earnings per Common Share: |
|
|
|
|
|
|
|
|
| |||||
Income from continuing operations |
| $ | 0.97 |
| $ | 0.83 |
| $ | 2.30 |
| $ | 1.88 |
| |
Income from discontinued operations |
| — |
| — |
| — |
| 0.20 |
| |||||
Net Income |
| $ | 0.97 |
| $ | 0.83 |
| $ | 2.30 |
| $ | 2.08 |
| |
| Basic: | For The Three Months Ended June 30, | For The Six Months Ended June 30, | ||||||||||||||||
| (in thousands, except per share amounts) | 2013 | 2012 | 2013 | 2012 | ||||||||||||||
| Net income | $ | 16,602 | 15,078 | 30,067 | 25,193 | |||||||||||||
| Less: (a) | Distributed earnings to common shareholders | 6,854 | 5,287 | 13,693 | 10,560 | |||||||||||||
| Distributed earnings to participating securities | 95 | 38 | 181 | 68 | ||||||||||||||
| Undistributed earnings | 9,653 | 9,753 | 16,193 | 14,565 | ||||||||||||||
| (b) | Undistributed earnings allocated to common shareholders | 9,522 | 9,683 | 15,982 | 14,472 | |||||||||||||
| Undistributed earnings allocated to participating securities | 131 | 70 | 211 | 93 | ||||||||||||||
| Total income available to common shareholders, basic (a)+(b) | $ | 16,376 | $ | 14,970 | $ | 29,675 | $ | 25,032 | ||||||||||
| Weighted average Common Shares outstanding, basic | 19,306 | 18,882 | 19,285 | 18,857 | ||||||||||||||
| Basic earnings per Common Share | $ | 0.85 | $ | 0.79 | $ | 1.54 | $ | 1.33 | ||||||||||
Diluted |
| For The Three Months |
| For The Nine Months |
| ||||||||
(in thousands, except per share amounts) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Common shareholders earnings, basic |
| $ | 18,521 |
| $ | 15,486 |
| $ | 43,558 |
| $ | 38,891 |
|
Undistributed earnings for dilutive stock options |
| — |
| 75 |
| 180 |
| 157 |
| ||||
Total common shareholders earnings, diluted |
| $ | 18,521 |
| $ | 15,561 |
| $ | 43,738 |
| $ | 39,048 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding, basic |
| 19,059 |
| 18,701 |
| 18,924 |
| 18,672 |
| ||||
Stock-based compensation (1) |
| 44 |
| 151 |
| 114 |
| 144 |
| ||||
Weighted average common shares outstanding, diluted |
| 19,103 |
| 18,852 |
| 19,038 |
| 18,816 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Diluted earnings per Common Share: |
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.97 |
| $ | 0.83 |
| $ | 2.30 |
| $ | 1.88 |
|
Income from discontinued operations |
| — |
| — |
| — |
| 0.20 |
| ||||
Net Income |
| $ | 0.97 |
| $ | 0.83 |
| $ | 2.30 |
| $ | 2.08 |
|
| Diluted: | For The Three Months Ended June 30, | For The Six Months Ended June 30, | ||||||||||||||
| (in thousands, except per share amounts) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
| Common shareholders earnings, basic | $ | 16,376 | $ | 14,970 | $ | 29,675 | $ | 25,032 | ||||||||
| Undistributed earnings for dilutive stock options | — | — | — | 93 | ||||||||||||
| Total common shareholders earnings, diluted | $ | 16,376 | $ | 14,970 | $ | 29,675 | $ | 25,125 | ||||||||
| Weighted average common shares outstanding, basic | 19,306 | 18,882 | 19,285 | 18,857 | ||||||||||||
| Stock-based compensation (1) | 40 | 63 | 39 | 131 | ||||||||||||
| Weighted average common shares outstanding, diluted | 19,346 | 18,945 | 19,324 | 18,988 | ||||||||||||
| Diluted earnings per Common Share | $ | 0.85 | $ | 0.79 | $ | 1.54 | $ | 1.32 | ||||||||
All of the 148,176130,453 and 136,703147,109 restricted stock units at SeptemberJune 30, 20122013 and 2011,2012, respectively, were included in the calculation of diluted EPS for the ninesix months ended SeptemberJune 30, 20122013 and 2011.
Stock2012.
There were
no stock options outstanding at June 30, 2013 that were anti-dilutive.| Earnings per share | For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||
| As reported: | |||||||||||||||
Basic weighted average shares outstanding (in 000's) | 19,306 | 18,882 | 19,285 | 18,857 | |||||||||||
| Basic earnings per share | $ | 0.85 | $ | 0.79 | $ | 1.54 | $ | 1.33 | |||||||
Diluted weighted average shares outstanding (in 000's) | 19,346 | 18,945 | 19,324 | 18,988 | |||||||||||
| Diluted earnings per share | $ | 0.85 | $ | 0.79 | $ | 1.54 | $ | 1.32 | |||||||
| Pro forma two-for-one split adjusted: | |||||||||||||||
Basic weighted average shares outstanding (in 000's) | 38,612 | 37,764 | 38,570 | 37,714 | |||||||||||
| Basic earnings per share | $ | 0.425 | $ | 0.395 | $ | 0.770 | $ | 0.665 | |||||||
Diluted weighted average shares outstanding (in 000's) | 38,692 | 37,890 | 38,648 | 37,976 | |||||||||||
| Diluted earnings per share | $ | 0.425 | $ | 0.395 | $ | 0.770 | $ | 0.660 | |||||||
The CPUC has authorized GSWC to establish a regulatory asset and liability memorandum account to offset the entries required by the accounting guidance. Accordingly, all unrealized gains and losses generated from the purchased power contract are deferred on a monthly basis into a non-interest bearing regulatory memorandum account that tracks the changes in fair value of the derivative throughout the term of the contract, having no impact on GSWC’s earnings. Upon expiration of the purchased power contract, the balance in this regulatory memorandum account will be zero.
On January 12, 2012,
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
(dollars in thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||
Balance, at beginning of the period |
| $ | (5,176 | ) | $ | (7,475 | ) | $ | (7,611 | ) | $ | (6,850 | ) |
Unrealized gain (loss) on purchased power contracts |
| 2,457 |
| (101 | ) | 4,892 |
| (726 | ) | ||||
Balance, at end of the period |
| $ | (2,719 | ) | $ | (7,576 | ) | $ | (2,719 | ) | $ | (7,576 | ) |
2012.
| For The Three Months Ended June 30, | For The Six Months Ended June 30, | |||||||||||||||
| (dollars in thousands) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
| Balance, at beginning of the period | $ | (1,540 | ) | $ | (7,506 | ) | $ | (3,060 | ) | $ | (7,611 | ) | ||||
| Unrealized gain on purchased power contracts | 393 | 2,330 | 1,913 | 2,435 | ||||||||||||
| Balance, at end of the period | $ | (1,147 | ) | $ | (5,176 | ) | $ | (1,147 | ) | $ | (5,176 | ) | ||||
|
| September 30, 2012 |
| December 31, 2011 |
| ||||||||
(dollars in thousands) |
| Carrying Amount |
| Fair Value |
| Carrying Amount |
| Fair Value |
| ||||
Financial liabilities: |
|
|
|
|
|
|
|
|
| ||||
Long-term debt—GSWC |
| $ | 344,426 |
| $ | 469,065 |
| $ | 340,686 |
| $ | 437,275 |
|
| June 30, 2013 | December 31, 2012 | |||||||||||||||
| (dollars in thousands) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
| Financial liabilities: | ||||||||||||||||
| Long-term debt—GSWC | $ | 335,742 | $ | 411,505 | $ | 335,791 | $ | 456,792 | ||||||||
(dollars in thousands) |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| |||
Long-term debt—GSWC |
| $ | 295,778 |
| $ | 173,287 |
| — |
| $ | 469,065 |
|
2013
:| (dollars in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||
| Long-term debt—GSWC | — | $ | 411,505 | — | $ | 411,505 | ||||||||
, as well as permanent items.
The Tax:
In December 2011, the U.S. Treasury Department issued temporary regulations related to the tax treatment of tangible property, including guidance on expensing certain repairs and maintenance expenditures for which separate guidance has not been issued. These regulations are effective for tax years beginning on or after January 1, 2012. The majority of GSWC’s assets consist of water pipelines. For these assets the regulations did not provide any new guidance. Registrant is evaluating its water-pipeline tax repair-cost method. Registrant is also evaluating other tax-method changes provided for under the regulations; however, the effects on its tax expense and tax balances are not anticipated to be significant. Although these temporary regulations are expected to reduce AWR’s current taxes payable, they do not reduce its total effective income tax rate.
|
| For The Three Months Ended September 30, |
| ||||||||||||||||
|
| Pension Benefits |
| Other |
| SERP |
| ||||||||||||
(dollars in thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||||
Components of Net Periodic Benefits Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Service cost |
| $ | 1,670 |
| $ | 1,406 |
| $ | 112 |
| $ | 107 |
| $ | 183 |
| $ | 150 |
|
Interest cost |
| 1,663 |
| 1,631 |
| 136 |
| 153 |
| 122 |
| 116 |
| ||||||
Expected return on plan assets |
| (1,634 | ) | (1,587 | ) | (90 | ) | (74 | ) | — |
| — |
| ||||||
Amortization of transition |
| — |
| — |
| 105 |
| 105 |
| — |
| — |
| ||||||
Amortization of prior service cost (benefit) |
| 31 |
| 30 |
| (50 | ) | (50 | ) | 40 |
| 40 |
| ||||||
Amortization of actuarial loss |
| 759 |
| 310 |
| — |
| — |
| 77 |
| 34 |
| ||||||
Net periodic pension cost under accounting standards |
| 2,489 |
| 1,790 |
| 213 |
| 241 |
| 422 |
| 340 |
| ||||||
Regulatory adjustment — deferred (1) |
| (596 | ) | (127 | ) | — |
| — |
| — |
| — |
| ||||||
Total expense recognized, before allocation to overhead pool |
| $ | 1,893 |
| $ | 1,663 |
| $ | 213 |
| $ | 241 |
| $ | 422 |
| $ | 340 |
|
|
| For The Nine Months Ended September 30, |
| ||||||||||||||||
|
| Pension Benefits |
| Other |
| SERP |
| ||||||||||||
(dollars in thousands) |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| ||||||
Components of Net Periodic Benefits Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Service cost |
| $ | 5,007 |
| $ | 4,218 |
| $ | 336 |
| $ | 321 |
| $ | 549 |
| $ | 450 |
|
Interest cost |
| 4,992 |
| 4,893 |
| 408 |
| 459 |
| 366 |
| 348 |
| ||||||
Expected return on plan assets |
| (4,905 | ) | (4,761 | ) | (270 | ) | (221 | ) | — |
| — |
| ||||||
Amortization of transition |
| — |
| — |
| 315 |
| 315 |
| — |
| — |
| ||||||
Amortization of prior service cost (benefit) |
| 90 |
| 89 |
| (150 | ) | (150 | ) | 120 |
| 121 |
| ||||||
Amortization of actuarial loss |
| 2,277 |
| 931 |
| — |
| — |
| 231 |
| 101 |
| ||||||
Net periodic pension cost under accounting standards |
| 7,461 |
| 5,370 |
| 639 |
| 724 |
| 1,266 |
| 1,020 |
| ||||||
Regulatory adjustment — deferred (1) |
| (1,794 | ) | (380 | ) | — |
| — |
| — |
| — |
| ||||||
Total expense recognized, before allocation to overhead pool |
| $ | 5,667 |
| $ | 4,990 |
| $ | 639 |
| $ | 724 |
| $ | 1,266 |
| $ | 1,020 |
|
| For The Three Months Ended June 30, | ||||||||||||||||||||||||
| Pension Benefits | Other Postretirement Benefits | SERP | ||||||||||||||||||||||
| (dollars in thousands) | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
| Components of Net Periodic Benefits Cost: | ||||||||||||||||||||||||
| Service cost | $ | 1,620 | $ | 1,618 | $ | 106 | $ | 112 | $ | 201 | $ | 183 | ||||||||||||
| Interest cost | 1,723 | 1,653 | 113 | 136 | 129 | 122 | ||||||||||||||||||
| Expected return on plan assets | (1,895 | ) | (1,635 | ) | (95 | ) | (90 | ) | — | — | ||||||||||||||
| Amortization of transition | — | — | 105 | 105 | — | — | ||||||||||||||||||
| Amortization of prior service cost (benefit) | 30 | 29 | (50 | ) | (50 | ) | 40 | 40 | ||||||||||||||||
| Amortization of actuarial loss | 729 | 740 | — | — | 85 | 77 | ||||||||||||||||||
| Net periodic pension cost under accounting standards | 2,207 | 2,405 | 179 | 213 | 455 | 422 | ||||||||||||||||||
| Regulatory adjustment — deferred | (409 | ) | (632 | ) | — | — | — | — | ||||||||||||||||
| Total expense recognized, before allocation to overhead pool | $ | 1,798 | $ | 1,773 | $ | 179 | $ | 213 | $ | 455 | $ | 422 | ||||||||||||
| For The Six Months Ended June 30, | ||||||||||||||||||||||||
| Pension Benefits | Other Postretirement Benefits | SERP | ||||||||||||||||||||||
| (dollars in thousands) | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
| Components of Net Periodic Benefits Cost: | ||||||||||||||||||||||||
| Service cost | $ | 3,484 | $ | 3,337 | $ | 212 | $ | 224 | $ | 402 | $ | 366 | ||||||||||||
| Interest cost | 3,454 | 3,329 | 226 | 272 | 258 | 244 | ||||||||||||||||||
| Expected return on plan assets | (3,788 | ) | (3,271 | ) | (190 | ) | (180 | ) | — | — | ||||||||||||||
| Amortization of transition | — | — | 210 | 210 | — | — | ||||||||||||||||||
| Amortization of prior service cost (benefit) | 60 | 59 | (100 | ) | (100 | ) | 80 | 80 | ||||||||||||||||
| Amortization of actuarial loss | 1,440 | 1,518 | — | — | 170 | 154 | ||||||||||||||||||
| Net periodic pension cost under accounting standards | 4,650 | 4,972 | 358 | 426 | 910 | 844 | ||||||||||||||||||
| Regulatory adjustment — deferred | (919 | ) | (1,198 | ) | — | — | — | — | ||||||||||||||||
| Total expense recognized, before allocation to overhead pool | $ | 3,731 | $ | 3,774 | $ | 358 | $ | 426 | $ | 910 | $ | 844 | ||||||||||||
During the three and nine months ended September 30, 2012, Registrant contributed $4.3 million and $6.1 million to the pension plan, respectively. Registrant expects to contribute approximately $500,000 to the postretirement medical plan during the fourth quarter
Water Quality-Related Litigation:
GSWC has amended its suit to claim certain affirmative defenses as an “innocent” party under CERCLA.compensatory damages. GSWC is presentlythe only named defendant in all four lawsuits. GSWC believes that these lawsuits are without merit and intends to vigorously defend itself in this matter. At this time, management is unable to estimate a loss or range of loss, if any, in the event that GSWCresulting from these pending lawsuits, and does not believe a loss is deemed to be a PRP, or on GSWC’s ability to fully recover from the PRPs, past and future costs associated with the treatment of these wells.
On August 29, 2003, the US Environmental Protection Agency (“EPA”) issued Unilateral Administrative Orders (“UAO”) against 41 parties deemed responsible for polluting the groundwater in portions of the San Gabriel Valley from which those impacted GSWC wells draw water. GSWC was not named as a party to the UAO. The UAO requires these parties to remediate the contamination.
On October 12, 2004, the judge in the lawsuit stayed the matter in order to allow the parties to explore settlement and appointed a special master to oversee mandatory settlement discussions between the PRPs and the Water Entities. EPA has also conducted settlement discussions with several PRPs regarding the UAO. The Water Entities and EPA have worked closely to coordinate their settlement discussions under the auspices of the special master in order to arrive at a complete resolution of all issues affecting the lawsuit and the UAO. Settlements have been reached with a majority of the PRPs.
On March 28, 2011, the Court lifted the stay and the matter has proceeded in litigation. The EPA filed a separate complaint against the remaining PRPs and this matter was consolidated with those filed by the Water Entities. Since October 17, 2011 several 30-day stays were granted to continue settlement discussions. During these 30-day stays, EPA and the Water Entities have successfully reached settlements with most of the remaining PRPs. On January 15, 2012, the stay was lifted and the case entered the discovery phase as settlement negotiations with the remaining few PRPs continued. Registrant believes it will reach settlements with all the PRPs. However, Registrant is presently unable to predict the ultimate outcome of this matter.
probable.
The Town of Apple Valley (the “Town”) had abandoned its activities related to a potential condemnation of GSWC’s water system serving the Town in 2007. However, in January 2011, the Town Council directed staff to update the previously prepared financial feasibility study for the acquisition of GSWC’s water systems. The Town also created a Blue Ribbon Water Commission (“BRWC”) to provide recommendations on the items pending before the CPUC associated with the water companies (including GSWC) serving the Town. The BRWC recommended against acquisition at this time based on current economic conditions. The Town has not yet made a decision based on the recommendation. GSWC’s Apple Valley water systems serve approximately 2,900 customers.
Santa Maria Groundwater Basin Adjudication:
On February 11, 2008, the court issued its final judgment which approved and incorporated the stipulation. The judgmentalso awarded GSWC prescriptive rights to groundwater against the non-stipulating parties. In addition, the judgmentparties and granted GSWC the right to use the Basin for temporary storage and to recapture
Appellate Court findings. In February 2013, the California Supreme Court denied the parties’ request for review of the Appellate Court findings. In May 2013, the non-stipulating parties filed a request with the U.S. Supreme Court for a review of the Appellate Court findings.
CPUC.
On May 31, 2011, AWR sold CCWC to EPCOR Water (USA) Inc. for a total purchase price of $35.2 million, including the assumption of approximately $5.6 million of long-term debt. AWR received approximately $29.6 million in cash, which was primarily used to pay down short-term borrowings. The completion of the sale generated a gain (net of taxes and transaction costs) of approximately $2.2 million during 2011. A summary of discontinued operations presented in the consolidated statements of income for the three and nine months ended September 30, 2011 are as follows:
(dollars in thousands) |
| Three Months |
| Nine Months |
| ||
Operating revenues |
| $ | — |
| $ | 3,492 |
|
Operating expenses |
| — |
| 660 |
| ||
Operating income |
| — |
| 2,832 |
| ||
Interest expense, net |
| — |
| (142 | ) | ||
Income before income taxes |
| — |
| 2,690 |
| ||
Income tax expense |
| — |
| 1,078 |
| ||
Income from the operations, net of tax |
| — |
| 1,612 |
| ||
|
|
|
|
|
| ||
Gain on sale of business, net of tax |
| — |
| 2,454 |
| ||
Transaction costs, net of tax |
| (18 | ) | (216 | ) | ||
Net gain on sale and transaction costs |
| (18 | ) | 2,238 |
| ||
|
|
|
|
|
| ||
Income (loss) from discontinued operations (1) |
| $ | (18 | ) | $ | 3,850 |
|
(1)Corporate overhead costs allocated to CCWC have been excluded from discontinued operations and have been included in other operating expenses and administrative and general expenses as part of continuing operations as they continue to be incurred, primarily at GSWC.
Note 10 — Business Segments:
All activities of GSWC are geographically located within California. The operating activities of CCWC have been included in discontinued operations as described in Note 9. All activities of CCWC were located in the state of Arizona. GSWC is, and CCWC was, a rate-regulated utility.
|
| As Of And For The Three Months Ended September 30, 2012 |
| |||||||||||||
|
| GSWC |
| ASUS |
| AWR |
| Consolidated |
| |||||||
(dollars in thousands) |
| Water |
| Electric |
| Contracts |
| Parent |
| AWR |
| |||||
Operating revenues |
| $ | 90,604 |
| $ | 8,549 |
| $ | 34,368 |
| $ | — |
| $ | 133,521 |
|
Operating income (loss) |
| 28,355 |
| 1,606 |
| 6,545 |
| (26 | ) | 36,480 |
| |||||
Interest expense, net |
| 5,178 |
| 397 |
| 24 |
| — |
| 5,599 |
| |||||
Utility plant |
| 867,310 |
| 40,057 |
| 4,660 |
| — |
| 912,027 |
| |||||
Depreciation and amortization expense |
| 9,405 |
| 536 |
| 289 |
| — |
| 10,230 |
| |||||
Capital additions |
| 17,347 |
| 1,155 |
| 220 |
| — |
| 18,722 |
| |||||
| As Of And For The Three Months Ended June 30, 2013 | ||||||||||||||||||
| GSWC | ASUS | AWR | Consolidated | |||||||||||||||
| (dollars in thousands) | Water | Electric | Contracts | Parent | AWR | |||||||||||||
| Operating revenues | $ | 84,069 | 8,397 | 28,229 | $ | — | $ | 120,695 | ||||||||||
| Operating income (loss) | 26,772 | 2,186 | 4,343 | (7 | ) | 33,294 | ||||||||||||
| Interest expense, net | 5,208 | 378 | 93 | (51 | ) | 5,628 | ||||||||||||
| Utility plant | 901,505 | 40,993 | 4,242 | — | 946,740 | |||||||||||||
Depreciation and amortization expense (1) | 8,909 | 575 | 284 | — | 9,768 | |||||||||||||
| Income tax expense (benefit) | 8,821 | 822 | 1,628 | (123 | ) | 11,148 | ||||||||||||
| Capital additions | 22,263 | 647 | — | — | 22,910 | |||||||||||||
| As Of And For The Three Months Ended June 30, 2012 | ||||||||||||||||||||
| GSWC | ASUS | AWR | Consolidated | |||||||||||||||||
| (dollars in thousands) | Water | Electric | Contracts | Parent | AWR | |||||||||||||||
| Operating revenues | $ | 81,157 | $ | 8,373 | $ | 25,052 | $ | — | $ | 114,582 | ||||||||||
| Operating income (loss) | 22,666 | 1,484 | 5,989 | (14 | ) | 30,125 | ||||||||||||||
| Interest expense, net | 4,815 | 396 | 40 | (26 | ) | 5,225 | ||||||||||||||
| Utility plant | 855,742 | 39,541 | 4,726 | — | 900,009 | |||||||||||||||
Depreciation and amortization expense (1) | 9,525 | 597 | 285 | — | 10,407 | |||||||||||||||
| Income tax expense (benefit) | 7,208 | 359 | 2,313 | (71 | ) | 9,809 | ||||||||||||||
| Capital additions | 13,544 | 705 | 231 | — | 14,480 | |||||||||||||||
| As Of And For The Six Months Ended June 30, 2013 | ||||||||||||||||||
| GSWC | ASUS | AWR | Consolidated | |||||||||||||||
| (dollars in thousands) | Water | Electric | Contracts | Parent | AWR | |||||||||||||
| Operating revenues | $ | 153,302 | 19,131 | 58,814 | $ | — | $ | 231,247 | ||||||||||
| Operating income (loss) | 48,535 | 4,019 | 8,710 | (7 | ) | 61,257 | ||||||||||||
| Interest expense, net | 10,402 | 754 | 153 | (90 | ) | 11,219 | ||||||||||||
| Utility plant | 901,505 | 40,993 | 4,242 | — | 946,740 | |||||||||||||
Depreciation and amortization expense (1) | 17,839 | 1,167 | 578 | — | 19,584 | |||||||||||||
| Income tax expense (benefit) | 15,762 | 1,544 | 3,294 | (203 | ) | 20,397 | ||||||||||||
| Capital additions | 40,141 | 880 | 168 | — | 41,189 | |||||||||||||
| As Of And For The Six Months Ended June 30, 2012 | |||||||||||||||||||
| GSWC | ASUS | AWR | Consolidated | ||||||||||||||||
| (dollars in thousands) | Water | Electric | Contracts | Parent | AWR | ||||||||||||||
| Operating revenues | $ | 147,358 | 19,186 | $ | 54,930 | $ | — | $ | 221,474 | ||||||||||
| Operating income (loss) | 37,517 | 5,340 | 10,730 | (95 | ) | 53,492 | |||||||||||||
| Interest expense, net | 10,221 | 789 | 94 | (24 | ) | 11,080 | |||||||||||||
| Utility plant | 855,742 | 39,541 | 4,726 | — | 900,009 | ||||||||||||||
Depreciation and amortization expense (1) | 19,122 | 1,220 | 555 | — | 20,897 | ||||||||||||||
| Income tax expense (benefit) | 11,563 | 1,759 | 4,143 | (30 | ) | 17,435 | |||||||||||||
| Capital additions | 27,484 | 1,244 | 719 | — | 29,447 | ||||||||||||||
|
| As Of And For The Three Months Ended September 30, 2011 |
| ||||||||||||||||
|
| GSWC |
| CCWC |
| ASUS |
| AWR |
| Consolidated |
| ||||||||
(dollars in thousands) |
| Water |
| Electric |
| Water |
| Contracts |
| Parent |
| AWR |
| ||||||
Operating revenues |
| $ | 89,570 |
| $ | 8,744 |
| $ | — |
| $ | 21,395 |
| $ | — |
| $ | 119,709 |
|
Operating income (loss) |
| 26,752 |
| 1,648 |
| — |
| 4,025 |
| (5 | ) | 32,420 |
| ||||||
Interest expense, net |
| 5,588 |
| 401 |
| — |
| 84 |
| (81 | ) | 5,992 |
| ||||||
Utility plant |
| 848,647 |
| 38,063 |
| — |
| 4,424 |
| — |
| 891,134 |
| ||||||
Depreciation and amortization expense |
| 8,832 |
| 502 |
| — |
| 220 |
| — |
| 9,554 |
| ||||||
Loss from discontinued operations, net of tax (2) |
| — |
| — |
|
|
| — |
| (18 | ) | (18 | ) | ||||||
Capital additions |
| 24,690 |
| 684 |
| — |
| 905 |
| — |
| 26,279 |
| ||||||
|
| As Of And For The Nine Months Ended September 30, 2012 |
| |||||||||||||
|
| GSWC |
| ASUS |
| AWR |
| Consolidated |
| |||||||
(dollars in thousands) |
| Water |
| Electric |
| Contracts |
| Parent |
| AWR |
| |||||
Operating revenues |
| $ | 237,447 |
| $ | 27,735 |
| $ | 89,298 |
| $ | — |
| $ | 354,480 |
|
Operating income (loss) |
| 65,872 |
| 6,946 |
| 17,275 |
| (121 | ) | 89,972 |
| |||||
Interest expense, net |
| 15,399 |
| 1,186 |
| 118 |
| (24 | ) | 16,679 |
| |||||
Utility plant |
| 867,310 |
| 40,057 |
| 4,660 |
| — |
| 912,027 |
| |||||
Depreciation and amortization expense |
| 28,527 |
| 1,756 |
| 844 |
| — |
| 31,127 |
| |||||
Capital additions |
| 44,831 |
| 2,399 |
| 939 |
| — |
| 48,169 |
| |||||
|
| As Of And For The Nine Months Ended September 30, 2011 |
| ||||||||||||||||
|
| GSWC |
| CCWC |
| ASUS |
| AWR |
| Consolidated |
| ||||||||
(dollars in thousands) |
| Water |
| Electric |
| Water |
| Contracts |
| Parent |
| AWR |
| ||||||
Operating revenues |
| $ | 234,047 |
| $ | 27,178 |
| $ | — |
| $ | 62,620 |
| $ | — |
| $ | 323,845 |
|
Operating income (loss) (1) |
| 65,320 |
| 4,829 |
| (356 | ) | 9,820 |
| (59 | ) | 79,554 |
| ||||||
Interest expense, net |
| 16,780 |
| 1,217 |
| — |
| 309 |
| 1 |
| 18,307 |
| ||||||
Utility plant |
| 848,647 |
| 38,063 |
| — |
| 4,424 |
| — |
| 891,134 |
| ||||||
Depreciation and amortization expense |
| 26,662 |
| 1,509 |
| — |
| 658 |
| — |
| 28,829 |
| ||||||
Income from discontinued operations, net of tax (2) |
| — |
| — |
| 1,612 |
| — |
| 2,238 |
| 3,850 |
| ||||||
Capital additions |
| 59,776 |
| 2,313 |
| — |
| 1,485 |
| — |
| 63,574 |
| ||||||
Depreciation computed on GSWC’s transportation equipment of $218,000 and $572,000 for the three months ended June 30, 2013 and 2012, respectively, and $468,000 and $1,149,000 for the six months ended June 30, 2013 and 2012, respectively, is recorded in administrative and general expenses.
|
| September 30, |
| ||||
|
| 2012 |
| 2011 |
| ||
Total utility plant |
| $ | 912,027 |
| 891,134 |
| |
Other assets |
| 377,611 |
| 304,714 |
| ||
Total consolidated assets |
| $ | 1,289,638 |
| $ | 1,195,848 |
|
(1)Operating income (loss) include CCWC’s allocated corporate overhead costs that are now primarily at GSWC.
(2)In accordance with the accounting guidance relating to assets held for sale, Registrant did not record depreciation expense for CCWC in 2011.
| June 30, | ||||||||
| 2013 | 2012 | |||||||
| Total utility plant | $ | 946,740 | $ | 900,009 | ||||
| Other assets | 366,246 | 352,751 | ||||||
| Total consolidated assets | $ | 1,312,986 | $ | 1,252,760 | ||||
"Summary of Year-to-Date Results by Segment." certain operating expenses related to the approval of these memorandum accounts in the final decision. Diluted Earnings per Share 3 Months Ended 9/30/2012 9/30/2011 CHANGE Water $ 0.71 $ 0.64 $ 0.07 Electric 0.05 0.05 — Contracted services 0.21 0.13 0.08 AWR (parent) — 0.01 (0.01 ) Totals from continuing operations, as reported $ 0.97 $ 0.83 $ 0.14 For the three months ended Operating Revenues Pretax Operating Income 3 Months 3 Months 3 Months 3 Months Ended Ended $ % Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE 9/30/2012 9/30/2011 CHANGE CHANGE Water $ 90,604 $ 89,570 $ 1,034 1.2 % $ 28,355 $ 26,752 $ 1,603 6.0 % Electric 8,549 8,744 (195 ) -2.2 % 1,606 1,648 (42 ) -2.5 % Contracted services 34,368 21,395 12,973 60.6 % 6,545 4,025 2,520 62.6 % AWR (parent) — — — — (26 ) (5 ) (21 ) 420.0 % Totals from continuing operations $ 133,521 $ 119,709 $ 13,812 11.5 % $ 36,480 $ 32,420 $ 4,060 12.5 % Diluted Earnings per Share 9 Months Ended 9/30/2012 9/30/2011 CHANGE Water $ 1.55 $ 1.44 $ 0.11 Electric 0.20 0.12 0.08 Contracted services 0.55 0.31 0.24 AWR (parent) — 0.01 (0.01 ) Totals from continuing operations, as reported $ 2.30 $ 1.88 $ 0.42 Operating Revenues Pretax Operating Income 9 Months 9 Months 9 Months 9 Months Ended Ended $ % Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE 9/30/2012 9/30/2011 CHANGE CHANGE Water $ 237,447 $ 234,047 $ 3,400 1.5 % $ 65,872 $ 64,964 $ 908 1.4 % Electric 27,735 27,178 557 2.0 % 6,946 4,829 2,117 43.8 % Contracted services 89,298 62,620 26,678 42.6 % 17,275 9,820 7,455 75.9 % AWR (parent) — — — — (121 ) (59 ) (62 ) 105.1 % Totals from continuing operations $ 354,480 $ 323,845 $ 30,635 9.5 % $ 89,972 $ 79,554 $ 10,418 13.1 % U.S. government. 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE OPERATING REVENUES Water $ 90,604 $ 89,570 $ 1,034 1.2 % Electric 8,549 8,744 (195 ) -2.2 % Contracted services 34,368 21,395 12,973 60.6 % Total operating revenues 133,521 119,709 13,812 11.5 % OPERATING EXPENSES Water purchased 18,874 16,094 2,780 17.3 % Power purchased for pumping 3,067 3,141 (74 ) -2.4 % Groundwater production assessment 3,923 3,795 128 3.4 % Power purchased for resale 2,854 3,038 (184 ) -6.1 % Supply cost balancing accounts 1,960 5,050 (3,090 ) -61.2 % Other operation expenses 7,394 7,398 (4 ) -0.1 % Administrative and general expenses 17,362 18,022 (660 ) -3.7 % Depreciation and amortization 10,230 9,554 676 7.1 % Maintenance 4,232 4,346 (114 ) -2.6 % Property and other taxes 3,878 3,682 196 5.3 % ASUS construction expenses 23,332 13,169 10,163 77.2 % Net gain on sale of property (65 ) — (65 ) 100.0 % Total operating expenses 97,041 87,289 9,752 11.2 % OPERATING INCOME 36,480 32,420 4,060 12.5 % OTHER INCOME AND EXPENSES Interest expense (6,018 ) (6,194 ) 176 -2.8 % Interest income 419 202 217 107.4 % Other 219 (170 ) 389 -228.8 % Total other income and expenses (5,380 ) (6,162 ) 782 -12.7 % INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE 31,100 26,258 4,842 18.4 % Income tax expense 12,436 10,641 1,795 16.9 % INCOME FROM CONTINUING OPERATIONS 18,664 15,617 3,047 19.5 % LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX — (18 ) 18 -100.0 % NET INCOME $ 18,664 $ 15,599 $ 3,065 19.6 % Basic earnings from continuing operations $ 0.97 $ 0.83 $ 0.14 16.9 % Basic earnings from discontinued operations — — — — $ 0.97 $ 0.83 $ 0.14 16.9 % Diluted earnings from continuing operations $ 0.97 $ 0.83 $ 0.14 16.9 % Diluted earnings from discontinued operations — — — — $ 0.97 $ 0.83 $ 0.14 16.9 % Revenues: For the three months ended accounts as regulatory assets or liabilities. 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE WATER OPERATING REVENUES (1) $ 90,604 $ 89,570 $ 1,034 1.2 % WATER SUPPLY COSTS: Water purchased (1) $ 18,874 $ 16,094 $ 2,780 17.3 % Power purchased for pumping (1) 3,067 3,141 (74 ) -2.4 % Groundwater production assessment (1) 3,923 3,795 128 3.4 % Water supply cost balancing accounts (1) 1,364 4,500 (3,136 ) -69.7 % TOTAL WATER SUPPLY COSTS $ 27,228 $ 27,530 $ (302 ) -1.1 % WATER MARGIN (2) $ 63,376 $ 62,040 $ 1,336 2.2 % PERCENT MARGIN - WATER 69.9 % 69.3 % ELECTRIC OPERATING REVENUES (1) $ 8,549 $ 8,744 $ (195 ) -2.2 % ELECTRIC SUPPLY COSTS: Power purchased for resale (1) $ 2,854 $ 3,038 $ (184 ) -6.1 % Electric supply cost balancing accounts (1) 596 550 46 8.4 % TOTAL ELECTRIC SUPPLY COSTS $ 3,450 $ 3,588 $ (138 ) -3.8 % ELECTRIC MARGIN (2) $ 5,099 $ 5,156 $ (57 ) -1.1 % PERCENT MARGIN - ELECTRIC 59.6 % 59.0 % $(377,000) and $4,163,000 for the three months ended June 30,2013 and 2012, respectively. consumption, as well as several wells being out of service for maintenance, resulting in an increased need to purchase water. In addition, wholesale water costs were higher as compared to the three months ended discussed above. due to the increase in average price per MWh. 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 6,244 $ 6,379 $ (135 ) -2.1 % Electric Services 615 554 61 11.0 % Contracted Services 535 465 70 15.1 % Total other operation expenses $ 7,394 $ 7,398 $ (4 ) -0.1 % For the three months ended miscellaneous other operation expenses. 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 12,741 $ 13,393 $ (652 ) -4.9 % Electric Services 1,880 2,004 (124 ) -6.2 % Contracted Services 2,715 2,620 95 3.6 % AWR (parent) 26 5 21 420.0 % Total administrative and general expenses $ 17,362 $ 18,022 $ (660 ) -3.7 % Amortization For the three months ended 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 9,405 $ 8,832 $ 573 6.5 % Electric Services 536 502 34 6.8 % Contracted Services 289 220 69 31.4 % Total depreciation and amortization $ 10,230 $ 9,554 $ 676 7.1 % 2012. For the three months ended 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 3,590 $ 3,530 $ 60 1.7 % Electric Services 211 235 (24 ) -10.2 % Contracted Services 431 581 (150 ) -25.8 % Total maintenance $ 4,232 $ 4,346 $ (114 ) -2.6 % 2013. 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 3,108 $ 3,153 $ (45 ) -1.4 % Electric Services 249 213 36 16.9 % Contracted Services 521 316 205 64.9 % Total property and other taxes $ 3,878 $ 3,682 $ 196 5.3 % Texas. There was also an increase in indirect expenses allocated to construction activities. 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 5,548 $ 5,737 $ (189 ) -3.3 % Electric Services 411 401 10 2.5 % Contracted Services 56 85 (29 ) -34.1 % AWR (parent) 3 (29 ) 32 -110.3 % Total interest expense $ 6,018 $ 6,194 $ (176 ) -2.8 % 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 370 $ 149 $ 221 148.3 % Electric Services 14 — 14 100 % Contracted Services 32 1 31 3100.0 % AWR (parent) 3 52 (49 ) -94.2 % Total interest income $ 419 $ 202 $ 217 107.4 % 3 Months 3 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 9,795 $ 8,825 $ 970 11.0 % Electric Services 235 387 (152 ) -39.3 % Contracted Services 2,493 1,508 985 65.3 % AWR (parent) (87 ) (79 ) (8 ) 10.1 % Total income tax expense $ 12,436 $ 10,641 $ 1,795 16.9 % 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE OPERATING REVENUES Water $ 237,447 $ 234,047 $ 3,400 1.5 % Electric 27,735 27,178 557 2.0 % Contracted services 89,298 62,620 26,678 42.6 % Total operating revenues 354,480 323,845 30,635 9.5 % OPERATING EXPENSES Water purchased 42,257 37,679 4,578 12.2 % Power purchased for pumping 6,642 6,842 (200 ) -2.9 % Groundwater production assessment 11,228 10,307 921 8.9 % Power purchased for resale 8,725 9,767 (1,042 ) -10.7 % Supply cost balancing accounts 9,560 14,374 (4,814 ) -33.5 % Other operation expenses 21,671 21,261 410 1.9 % Administrative and general expenses 51,739 54,181 (2,442 ) -4.5 % Depreciation and amortization 31,127 28,829 2,298 8.0 % Maintenance 11,415 12,695 (1,280 ) -10.1 % Property and other taxes 11,699 10,640 1,059 10.0 % ASUS construction expenses 58,513 37,844 20,669 54.6 % Gain on sale of property (68 ) (128 ) 60 -46.9 % Total operating expenses 264,508 244,291 20,217 8.3 % OPERATING INCOME 89,972 79,554 10,418 13.1 % OTHER INCOME AND EXPENSES Interest expense (17,808 ) (18,807 ) 999 -5.3 % Interest income 1,129 500 629 125.8 % Other 435 (379 ) 814 -214.8 % Total other income and expenses (16,244 ) (18,686 ) 2,442 -13.1 % INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE 73,728 60,868 12,860 21.1 % Income tax expense 29,871 25,568 4,303 16.8 % INCOME FROM CONTINUING OPERATIONS 43,857 35,300 8,557 24.2 % INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX — 3,850 (3,850 ) -100.0 % NET INCOME $ 43,857 $ 39,150 $ 4,707 12.0 % Basic earnings from continuing operations $ 2.30 $ 1.88 $ 0.42 22.3 % Basic earnings from discontinued operations — 0.20 (0.20 ) -100.0 % $ 2.30 $ 2.08 $ 0.22 10.6 % Diluted earnings from continuing operations $ 2.30 $ 1.88 $ 0.42 22.3 % Diluted earnings from discontinued operations — 0.20 (0.20 ) -100.0 % $ 2.30 $ 2.08 $ 0.22 10.6 % Revenues: For the accounts as regulatory assets or liabilities. For the annual revenues. DRA has opposed this revenue increase. Alternative dispute resolution meetings for this GRC are scheduled to be held in September 2013 and a proposed decision is expected later in 2013. 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE WATER OPERATING REVENUES (1) $ 237,447 $ 234,047 $ 3,400 1.5 % WATER SUPPLY COSTS: Water purchased (1) $ 42,257 $ 37,679 $ 4,578 12.2 % Power purchased for pumping (1) 6,642 6,842 (200 ) -2.9 % Groundwater production assessment (1) 11,228 10,307 921 8.9 % Water supply cost balancing accounts (1) 6,969 12,323 (5,354 ) -43.4 % TOTAL WATER SUPPLY COSTS $ 67,096 $ 67,151 $ (55 ) -0.1 % WATER MARGIN (2) $ 170,351 $ 166,896 $ 3,455 2.1 % PERCENT MARGIN - WATER 71.7 % 71.3 % ELECTRIC OPERATING REVENUES (1) $ 27,735 $ 27,178 $ 557 2.0 % ELECTRIC SUPPLY COSTS: Power purchased for resale (1) $ 8,725 $ 9,767 $ (1,042 ) -10.7 % Electric supply cost balancing accounts (1) 2,591 2,051 540 26.3 % TOTAL ELECTRIC SUPPLY COSTS $ 11,316 $ 11,818 $ (502 ) -4.2 % ELECTRIC MARGIN (2) $ 16,419 $ 15,360 $ 1,059 6.9 % PERCENT MARGIN - ELECTRIC 59.2 % 56.5 % costs were higher as compared to the MCBA. account decreased by 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 17,932 $ 16,850 $ 1,082 6.4 % Electric Services 1,778 1,659 119 7.2 % Contracted Services 1,961 2,752 (791 ) -28.7 % Total other operation expenses $ 21,671 $ 21,261 $ 410 1.9 % (iii) conservation costs of $343,000. other miscellaneous operations expenses. 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 38,772 $ 39,452 $ (680 ) -1.7 % Electric Services 4,700 6,066 (1,366 ) -22.5 % Contracted Services 8,146 8,605 (459 ) -5.3 % AWR (parent) 121 58 63 108.6 % Total administrative and general expenses $ 51,739 $ 54,181 $ (2,442 ) -4.5 % 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 28,527 $ 26,662 $ 1,865 7.0 % Electric Services 1,756 1,509 247 16.4 % Contracted Services 844 658 186 28.3 % Total depreciation and amortization $ 31,127 $ 28,829 $ 2,298 8.0 % 2012. For the 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 9,567 $ 10,087 $ (520 ) -5.2 % Electric Services 531 669 (138 ) -20.6 % Contracted Services 1,317 1,939 (622 ) -32.1 % Total maintenance $ 11,415 $ 12,695 $ (1,280 ) -10.1 % expenses. 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 9,745 $ 9,010 $ 735 8.2 % Electric Services 709 628 81 12.9 % Contracted Services 1,245 1,002 243 24.3 % Total property and other taxes $ 11,699 $ 10,640 $ 1,059 10.0 % 2012. Interest Expense 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 16,425 $ 17,219 $ (794 ) -4.6 % Electric Services 1,223 1,217 6 0.5 % Contracted Services 155 312 (157 ) -50.3 % AWR (parent) 5 59 (54 ) -91.5 % Total interest expense $ 17,808 $ 18,807 $ (999 ) -5.3 % 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 1,026 $ 439 $ 587 133.7 % Electric Services 37 — 37 100.0 % Contracted Services 37 3 34 1133.3 % AWR (parent) 29 58 (29 ) -50.0 % Total interest income $ 1,129 $ 500 $ 629 125.8 % 9 Months 9 Months Ended Ended $ % 9/30/2012 9/30/2011 CHANGE CHANGE Water Services $ 21,358 $ 20,566 $ 792 3.9 % Electric Services 1,994 1,436 558 38.9 % Contracted Services 6,635 3,674 2,961 80.6 % AWR (parent) (116 ) (108 ) (8 ) 7.4 % Total income tax expense $ 29,871 $ 25,568 $ 4,303 16.8 % 2012, respectively.subsidiaries, and AWR’s former subsidiary, CCWC.subsidiaries. Included in the following analysis is a discussion of water and electric gross margins. Water and electric gross margins are computed by taking total revenues, less total supply costs. Registrant uses these gross margins and related percentages as important measures in evaluating its operating results. Registrant believes these measures are useful internal benchmarks in evaluating the performance of GSWC.discussiondiscussions and tables included in the following analysis also present Registrant’s operations in terms of earnings per share by business segment. Registrant believes that the disclosure of earnings per share by business segment provides investors with clarity surrounding the performance of its differing services and information that could be indicative of future performance for each business segment. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget as approved.areis included in the table under the sectionsections titled “Operating Expenses: Supply Costs.” Reconciliations to AWR’s diluted earnings per share are included in the discussions under the sectionssection titled “Summary of Second Quarter Results by Segment.Segment” and primarily: (i)primarily through delivering potable water to homes and businesses in various parts of California (ii) through its contracted services business for the operation and maintenance and renewal and replacement of water and/or wastewater systems for the U.S. government at various military bases, and (iii) through the delivery of electricity in the Big Bear area of San Bernardino County, California.County. Rates charged to GSWC customers are determined by the CPUC. These rates are intended to allow recovery of operating costs and a reasonable rate of return on capital. Registrant plans to continue to seek additional rate increases in future years from the CPUC to recover increasing operating and supply costs and receive reasonable returns on invested capital.costs. Capital expenditures in future years at GSWC are expected to remain at much higher levels than depreciation expense. When necessary, Registrant obtains funds from external sources in the debt and equity capital markets and through bank borrowings.Allcurrent operation and maintenance contracts with the U.S. government arewater and/or wastewater systems, at various military installations pursuant to 50-year firm, fixed-price contracts. The contract price for each of these contracts withis subject to prospective price redeterminations. Additional revenues generated by contract operations are primarily dependent on new construction activities under contract modifications. As a result, ASUS is subject to risks that are different than those of GSWC.Somefactorsoperating assets of Rural Water Company (“Rural”). The transaction is subject to CPUC approval, which GSWC will file for with the CPUC later this year. Rural serves over 900 customers in the county of San Luis Obispo, California, which is near GSWC's Santa Maria water system.affect Registrant’s financial performance are describedwere previously expensed as incurred. As a result, during the first quarter of 2013, GSWC recorded a decrease of approximately $3.0 million in Item 1. Financial Statements, Forward-Looking Statements.ThirdSecond Quarter Results by Segmentthirdsecond quarter diluted earnings per share by business segment from continuing operations: Diluted Earnings per Share 3 Months Ended 6/30/2013 6/30/2012 CHANGE Water $ 0.66 $ 0.56 $ 0.10 Electric 0.05 0.04 0.01 Contracted services 0.14 0.19 (0.05 ) Consolidated diluted earnings per share, as reported $ 0.85 $ 0.79 $ 0.06 Table of ContentsSeptemberJune 30, 2012,2013, diluted earnings per share from the water operationssegment increased $0.07by $0.10 to $0.71$0.66 per share, as compared to $0.64$0.56 per share for the three months ended September 30, 2011.same period of 2012. Impacting the comparability of the two periods were the following items:·An increase in the water gross margin of approximately $1.3$4.3 million, or $0.04$0.13 per share, during the three months ended SeptemberJune 30, 20122013 as compared to the same period in 20112012, due primarily to rate increases innew rates and a new adopted gross margin effective January 1, 2013 approved by the CPUC on May 9, 2013, as discussed previously. The new rates are expected to increase the 2013 adopted water gross margin by approximately $14 million, or 6.6%, as compared to the 2012 adopted water gross margin. There were also new surcharges approved by the CPUC to recover infrastructure improvements and operating costs.previously incurred costs as compared to the same period in 2012.· A decreaseAn increase in operating expenses (other than supply costs) of $168,000, or $0.01 per share, during the three months ended June 30, 2013, due to an increase in maintenance expense for planned maintenance work, largely offset by approximately $268,000,lower depreciation expense as a result of a decrease in composite rates approved in the water rate case.decreaseresult, GSWC recorded an $834,000 reduction in administrative and generalother operating expenses, resulting from lower outside service costs, labor and other employee related costs. These decreases wereincreasing earnings by $0.03 per share. This was partially offset by an increase in depreciation expense resulting from additions to utility plant.· An overall decrease in interest expense (net of interestadministrative and general expenses and the electric effective income and other non-operating items) of $800,000, ortax rate, which decreased earnings by $0.02 per share as compared to the three months ended June 30, 2012. The change in the tax rate is primarily due primarily to: (i) a decreaseto changes between book and taxable income that are treated as flow-through adjustments in short-term bank borrowings; (ii) higher interest income earned onaccordance with regulatory assets and a refund claim currently under review by the Internal Revenue Service; and (iii) gains recorded on one of GSWC’s investments.requirements.SeptemberJune 30, 2012 and 2011, diluted earnings from electric operations remained flat at $0.05 per share.For the three months ended September 30, 2012, fully2013increaseddecreased by $0.08 per share to $0.21$0.05 per share as compared to the same period in 20112012. This decrease was due, primarilyin large part, to a higher construction dollar margincontract modification received in April 2012 for a major water and wastewater pipeline replacement project at the Fort Bragg military base in North Carolina, andresulting in additional pretax operating income of $820,000, or $0.03 per share for the military basesthree months ended June 30, 2012. There was no similar contract modification received during the second quarter of 2013. There was a further decrease in Virginia resulting fromdiluted earnings for contracted services due to: (i) an increase in administrative expenses primarily related to labor and other employee related benefits, in part, to prepare for new military base utility privatization opportunities, and (ii) a lower profit margin on construction activities at these bases.The tables below set forth summaries ofprojects during the third quarter results of operations by business segment (dollarsthree months ended June 30, 2013 as compared to the same period in thousands):from continuing operations, as reported: Diluted Earnings per Share 6 Months Ended 6/30/2013 6/30/2012 CHANGE Water $ 1.17 $ 0.83 $ 0.34 Electric 0.09 0.15 (0.06 ) Contracted services 0.27 0.34 (0.07 ) AWR parent 0.01 — 0.01 Consolidated diluted earnings per share, as reported $ 1.54 $ 1.32 $ 0.22 ninesix months ended SeptemberJune 30, 2012,2013, diluted earnings per share contributed by the water segment were $1.55$1.17 per share as compared to $1.44$0.83 per share for the same period in 2011.2012. The significant items in the water segment between the two periods were:·$3.5$8.0 million, or $0.10$0.24 per share, during the ninesix months ended SeptemberJune 30, 20122013 primarily as the result of CPUC-approved third year rate increases effective January 1, 2012new rates and adopted water gross margin approved in May 2013 by the CPUC, as previously discussed. There were also new surcharges approved by the CPUC to recover infrastructure improvements and operating costs.· An increase in operating expenses (other than supply costs) by approximately $2.5 million, or $0.08 per share, due primarily to increases in: (i) depreciation expense resulting from additions to utility plant; (ii) other operation expenses due, in large part, to higher labor and other employee benefits, conservationpreviously incurred costs and bad debt expense; and (iii) property and other taxes related to franchise fees. These increases were partially offset by a decrease in administrative and general expenses resulting primarily from lower outside service costs.· An overall decrease in interest expense (net of interest income and other non-operating items) of approximately $2.4 million, or $0.07 per share, primarily due to lower short-term bank borrowing and the recording of a $381,000 reduction in interest expense in connection with the CPUC’s final decision issued in July 2012 on the water cost of capital proceeding. In addition, included in the nine months ended September 30, 2011 results was an interest charge of $553,000 related to the redemption of $22.0 million of GSWC’s 7.65% Medium-Term Notes that did not recur in 2012. This charge was reversed in the fourth quarter of 2011 and was capitalized to be amortized over the life of new notes pursuant to the cost of capital settlement at the time.·A decrease in the effective income tax rate during the nine months ended September 30, 2012 as compared to the same period in 2011,2012.approximately$0.01 per share. The change in the tax rate is primarily due to changes between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements.duringresulting from higher legal and consulting expenses in connection with the first nine months ofpending general rate case, and (iii) an increase in the electric effective income tax rate as compared to 2012, negatively impacting earnings by $0.02 per share, primarily resulting from changes between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements.ninesix months ended SeptemberJune 30, 2012, fully2013, diluted earnings from GSWC’s electric operations increasedcontracted services decreased by $0.08$0.07 per share as compared to the same period in 2011,2012 due primarily to: (i) the CPUC’s approval of GSWC’s application to recover $1.2 million, or $0.04 per share,a contract modification received in legal and outside service costs previously incurred in connection with our efforts to procure renewable energy resources; (ii) an increase in the electric gross margin of $1.1 million, or $0.03 per share; and (iii) a decrease in the effective income tax rate increasing earnings by approximately $0.02 per share. These increases were partially offset by an increase in other operating expenses (excluding the $1.2 million recovery of legal costs discussed above), which decreased earnings by $0.01 per share.For the nine months ended September 30,April 2012 fully diluted earnings from contracted services increased by $0.24 per share as compared to the same period in 2011 due primarily to a higher construction dollar margin at the Fort Bragg military base in North Carolina, the military bases in Virginia and at Andrews Air Force Base in Maryland resulting from an increase in construction activities at these bases. At Fort Bragg, there continues to be significant progress made onfor a major water and wastewater pipeline replacement project estimatedat Fort Bragg resulting in additional pretax operating income of $820,000, or approximately $0.03 per share, for the six months ended June 30, 2012, with no similar contract modification received during 2013; (ii) an increase in administrative expenses related to employee related costs and consulting and other outside services costs, in part, to prepare for new military base utility privatization opportunities, and (iii) a lower profit margin on construction projects during the six months ended June 30, 2013 as compared to the same period in 2012. There was also a decrease in construction activities on the major pipeline replacement project at Fort Bragg in North Carolina due to less favorable weather conditions as compared to the first six months of 2012. As a result, this pipeline project is now expected to be substantially completed in early 2014. The decreases to diluted earnings were partially offset by an increase in renewal and replacement work at Fort Bliss in Texas and Fort Jackson in South Carolina under the endrespective terms of 2013.The table below sets forth the year-to-date results by business segment for continuing operations (dollars in thousands):Discontinued Operations:Net income from discontinued operations for50-year contracts with the nine months ended September 30, 2011 was $3.9 million, due primarily to the gain on sale of CCWC of $2.2 million, net of taxes and transaction costs, or $0.12 per share. Excluding the gain on sale, there was also net income of $1.6 million from CCWC’s operations for the first five months of 2011.providesprovide information on AWR’s consolidated operations and where necessary, includes specific references to AWR’s individual segments and/or other continuing subsidiaries: GSWC and ASUS and its subsidiaries, and the discontinued operations of CCWC.subsidiaries.SeptemberJune 30, 20122013 and 2011 (dollars2012 (amounts in thousands, except per share amounts): Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 OPERATING REVENUES Water $ 84,069 $ 81,157 $ 2,912 3.6 % Electric 8,397 8,373 24 0.3 % Contracted services 28,229 25,052 3,177 12.7 % Total operating revenues 120,695 114,582 6,113 5.3 % OPERATING EXPENSES Water purchased 16,670 13,831 2,839 20.5 % Power purchased for pumping 2,332 2,019 313 15.5 % Groundwater production assessment 3,823 3,982 (159 ) (4.0 )% Power purchased for resale 2,828 2,680 148 5.5 % Supply cost balancing accounts (377 ) 4,163 (4,540 ) (109.1 )% Other operation expenses 6,519 6,851 (332 ) (4.8 )% Administrative and general expenses 18,113 18,063 50 0.3 % Depreciation and amortization 9,768 10,407 (639 ) (6.1 )% Maintenance 4,913 3,852 1,061 27.5 % Property and other taxes 3,748 3,716 32 0.9 % ASUS construction expenses 19,064 14,896 4,168 28.0 % Gain on sale of property — (3 ) 3 (100 )% Total operating expenses 87,401 84,457 2,944 3.5 % OPERATING INCOME 33,294 30,125 3,169 10.5 % OTHER INCOME AND EXPENSES Interest expense (5,768 ) (5,720 ) (48 ) 0.8 % Interest income 140 495 (355 ) (71.7 )% Other, net 84 (13 ) 97 (746.2 )% (5,544 ) (5,238 ) (306 ) 5.8 % INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 27,750 24,887 2,863 11.5 % Income tax expense 11,148 9,809 1,339 13.7 % NET INCOME $ 16,602 $ 15,078 $ 1,524 10.1 % Basic earnings per common share $ 0.85 $ 0.79 $ 0.06 7.6 % Fully diluted earnings per common share $ 0.85 $ 0.79 $ 0.06 7.6 % RevenuesASUS filesRegistrant relies on price redeterminations and equitable adjustments withby the U.S. government in order to recover operating expenses and provide a profit margin for contracted services.ASUS. If adequate rate relief and price redeterminations and adjustments are not granted in a timely manner, operating revenues and earnings can be negatively impacted. ASUS’s earnings canhave also bebeen positively impacted by additional construction projects at each of the Military Utility Privatization Subsidiaries.WaterSeptember��June 30, 2012,2013, revenues from water operations increased $2.9 millionto $90.6$84.1 million, as compared to $89.6$81.2 million for the three months ended SeptemberJune 30, 2011.2012. The increase in water revenues is primarily due to CPUC-approved third year rate increases for Regions II and IIIhigher water rates approved by the CPUC effective January 1, 2012 to recover infrastructure improvements and operating costs.GSWC’s revenue requirement and volumetric revenues are adopted as part of a2013 in connection with the general rate case (“GRC”) every three years. GSWC filed a GRC for all three water regions and the general office, as previously discussed. The revenue increase adopted by the CPUC for 2013 is approximately $10 million over 2012. In addition, there were also new surcharges in Julyplace during the three months ended June 30, 2013 to recover previously incurred costs approved by the CPUC. The increase in revenues from these surcharges is offset by a corresponding increase in operating expenses resulting in no impact to pretax operating income.2011 with rates expected to be effective January 2013. As further discussed in the Regulatory Matters section, in June 2012, GSWC filed a motion to adopt a settlement agreement resolving most issues between GSWC, the CPUC’s Division of Ratepayer Advocates and The Utility Reform Network in connection with this GRC. The CPUC has not yet acted on this motion.GSWC’s billed customer water usage2013 increased by approximately 2.8%8.5% as compared to the third quarter of 2011 but was lower than adopted consumption. Changessame period in 2012. A change in consumption dodoes not have a significant impact on earnings due to the CPUC-approved Water Revenue Adjustment Mechanism (“WRAM”) account in place in all three water regions. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts.SeptemberJune 30, 2013 and 2012, revenues from electric operations decreased slightlywere $8.4 million. In February 2012, GSWC filed its BVES rate case for rates in years 2013 through 2016. If rates are approved as filed, the rate increases are expected to $8.5generate approximately $1.3 million comparedin annual revenues. The CPUC's Division of Ratepayer Advocates ("DRA") has opposed this revenue increase. Alternative dispute resolution meetings for this GRC are scheduled to $8.7 million for the same periodbe held in 2011 due toSeptember 2013 and a decreaseproposed decision is expected later in 2013.and a decrease in electric supply costs of $138,000decreased by 1.0% during the three months ended SeptemberJune 30, 2012, which resulted in a corresponding decrease in electric revenues.Billed electric usage decreased 2013by 2.3% during the three months ended September 30, 2012 as compared to the three months ended SeptemberJune 30, 2011.2012. Due to the CPUC-approvedCPUC approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, changesthis change in usage did not have a significant impact on earnings.SeptemberJune 30, 2012,2013, revenues from contracted services increased by $13.0were $28.2 million or 61%, to $34.4 million as compared to $21.4$25.1 million for the three months ended SeptemberJune 30, 2011. This is due primarily to2012. There was an increase in new construction activities related to various projectsactivity performed at all military bases, particularly atFort Bliss in Texas and Fort Bragg in North Carolina, where a major water and wastewater pipeline replacement project is underway. This project is estimated to be substantially completed by the end of 2013.Contracted services continues to receive U.S. government awarded contract modifications and agreements with third-party prime contractors for new construction projects at the Military Utility Privatization Subsidiaries. The majority of new construction activity is expected to be performed during the next twelve months. Earnings and cash flows from amendments and modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue in future periods.(including the cost of natural gas used by BVES’sBVES’ generating unit)unit and the electric supply cost balancing account. Water and electric gross margins are computed by taking total revenues, less total supply costs. Registrant uses these gross margins and related percentages as an important measuresmeasure in evaluating its operating results. Registrant believes these measures arethis measure is a useful internal benchmarksbenchmark in evaluating the utility business performance within its water and electric segments. Registrant reviews these measurements regularly and compares them to historical periods and to its operating budget.budget as approved. However, these measures,this measure, which areis not presented in accordance with Generally Accepted Accounting Principles (“GAAP”),GAAP, may not be comparable to similarly titled measures used by other entities and should not be considered as alternativesan alternative to operating income, which is determined in accordance with GAAP.31.6%approximately 28.9% and 35.7%31.6% of total operating expenses for the three months ended SeptemberJune 30, 20122013 and 2011,2012, respectively.gross margins during the three months ended SeptemberJune 30, 20122013 and 2011 (dollars2012 (dollar amounts in thousands): Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 $ 84,069 $ 81,157 $ 2,912 3.6 % WATER SUPPLY COSTS: $ 16,670 $ 13,831 $ 2,839 20.5 % 2,332 2,019 313 15.5 % 3,823 3,982 (159 ) (4.0 )% (764 ) 3,587 (4,351 ) (121.3 )% TOTAL WATER SUPPLY COSTS $ 22,061 $ 23,419 $ (1,358 ) (5.8 )% $ 62,008 $ 57,738 $ 4,270 7.4 % PERCENT MARGIN - WATER 73.8 % 71.1 % $ 8,397 $ 8,373 $ 24 0.3 % ELECTRIC SUPPLY COSTS: $ 2,828 $ 2,680 $ 148 5.5 % 387 576 (189 ) (32.8 )% TOTAL ELECTRIC SUPPLY COSTS $ 3,215 $ 3,256 $ (41 ) (1.3 )% $ 5,182 $ 5,117 $ 65 1.3 % PERCENT MARGIN - ELECTRIC 61.7 % 61.1 % (1)As reported on AWR’s Consolidated Statements of Income, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled $1,960,000 and $5,050,000 for the three months ended September 30, 2012 and 2011, respectively.(2)Water and electric margins do not include any depreciation and amortization, maintenance, administrative and general, property and other taxes, or other operation expenses.Table(1)As reported on AWR’s Consolidated Statements of ContentsIncome, except for supply cost balancing accounts. The sum of water and electric supply cost balancing accounts in the table above are shown on AWR’s Consolidated Statements of Income and totaled modified cost balancing accountModified Cost Balancing Account (“MCBA”), GSWC tracks adopted and actual expense levels for purchased water, power purchased powerfor pumping and pump taxes, as established by the CPUC. GSWC records the variances (which include the effects of changes in both rate and volume) between adopted and actual purchased water, purchased power, and pump tax expenses. GSWC recovers from or refunds to customers the amount of such variances. GSWC tracks these variances individually for each water ratemaking area.For the three months ended September 30, 2012, 39.2%adoptedactual percentages of purchased water for the three months ended SeptemberJune 30,2013 and 2012 was approximately 43.8% were 36.6% and 35.0%, respectively, as compared to the overall actual purchased wateradopted percentages of 39.2% as stated above.approximately 36.1% and 42.7%, respectively. The overall water gross margin percent was 69.9%approximately 73.8% in the thirdsecond quarter of 20122013 as compared to 69.3%71.1% in the same period of 2011.2012. This increase is due to higher water rates and a new adopted water gross margin.SeptemberJune 30, 20122013 increased to $18.9$16.7 million as compared to $16.1$13.8 million in for the same period of 2011.in 2012. This increase was primarily due to higher water rates charged by wholesale suppliers and an increase in the amount of water purchased in all regions due to an 8.5% increase in customers’billed water consumption.SeptemberJune 30,2013 and 2012, the cost of power purchased for pumping was consistent with the amount incurred for the third quarter of 2011. Although there was anapproximately $2.3 million and $2.0 million, respectively. An increase in average electric power used as compared to the third quarter of 2011, these increases werecosts was mostly offset by a decrease in rates charged by power suppliers.Forpumping activity for the three months ended September 2012, groundwater 2013. Groundwater production assessments increased by $128,000decreased $159,000 due to an increasethe decrease in pump tax rates levied against groundwater production effective July 2012.A decrease of $3.1 million in thepumped water.provisiondecreased $4.4 million during the three months ended SeptemberJune 30, 20122013 as compared to the same period in 2011 was primarily2012, due to an overall lower total adopted water supply cost for 2013 and an increase in the actual purchased water supply mix, causing a decrease in the MCBA account as compared to the third quarter of 2011. In addition, certain surcharges related to supply cost balancing accounts in effect during the three months ended September 30, 2011, expired in early 2012.SeptemberJune 30, 2012,2013, the cost of power purchased for resale to customers in GSWC’s BVES division decreasedincreased slightly to $2.9$2.8 million as compared to $3.0$2.7 million for the three months ended June 30,2012, due largely to an increase in the average price per megawatt-hour (“MWh”) from $65.25 per MWh for the three months ended June 30,2012 to $67.78 for the same period in 2011. In addition2013. This increase was mostly offset by a 1.0% decrease in usage as compared to lower customer usage, for the three months ended SeptemberJune 30, 2012, BVES purchased seasonal energy in the spot market at an average price of $39.29 per megawatt hour (“MWh”), as compared to an average price of $44.56 in the spot market for the same period of 2011. BVES also purchases power at $67.90 per MWh under an existing purchased power contract.2012. The difference between the price of purchased power and $77 per MWh as authorized by the CPUC is reflected in the electric supply cost balancing account decreased by .$189,000forof operating the regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operationoperations of district offices. Registrant’s electric and contracted services operations incur many of the same types of costsexpenses as well. For the three months ended SeptemberJune 30, 20122013 and 2011,2012, other operation expenses by business segment consisted of the following (dollars(dollar amounts in thousands): Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 Water Services $ 5,282 $ 5,600 $ (318 ) (5.7 )% Electric Services 560 603 (43 ) (7.1 )% Contracted Services 677 648 29 4.5 % Total other operation expenses $ 6,519 $ 6,851 $ (332 ) (4.8 )% Table of ContentsSeptemberJune 30, 2012,2013, other operation expenses for water services decreased by $135,000 primarily$318,000. This decrease was due to a $117,000$277,000 decrease in costs related to conservation programs, a $235,000 decrease in water treatment costs and a $21,000$161,000 decrease in miscellaneous other operation expenses. These decreases were partially offset by an increase in bad debt expense of $150,000 and increases in labor and other employee related benefits of $88,000.The increase in other operation expenses during the three months ended September 30, 2012 for electric services was primarily due to an increase in outside service costs as compared to the same period in 2011.Other operation expenses for contracted services increased by $70,000 primarily due to an increase in labor costsfewer employees. These decreases were partially offset by lower water treatment costs incurred at Fort Bragga $120,000 increase in North Carolina. charged to expense accounts, insurance expenses, outside legal and consulting fees, regulatory utility commission expenses, expenses associated with being a public company, and general corporate expenses.expenses charged to expense accounts. For the three months ended SeptemberJune 30, 20122013 and 2011,2012, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollars(dollar amounts in thousands): Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 Water Services $ 13,701 $ 13,630 $ 71 0.5 % Electric Services 1,465 2,039 (574 ) (28.2 )% Contracted Services 2,940 2,378 562 23.6 % AWR (parent) 7 16 (9 ) (56.3 )% Total administrative and general expenses $ 18,113 $ 18,063 $ 50 0.3 % September June 30, 2012,2013, administrative and general expenses decreased by $652,000 infor water services increased slightly to $13.7 million as compared to $13.6 million for the three months ended September 30, 2011 due to decreasessame period in 2012. Increases of $460,000 in legal and outside serviceservices costs were mostly offset by decreases of $252,000, data transmission line costs of $152,000, labor costs and other employee related benefits of $133,000, and$210,000 in other miscellaneous administrative and general expenses consisting primarily of $115,000.a decrease in transportation expenses of $179,000 as a result of lower composite depreciation rates for GSWC's vehicles. Depreciation on vehicles is included in transportation expense in accordance with CPUC guidelines.SeptemberJune 30, 2012,2013, administrative and general expenses for electric services decreased by $124,000$574,000 as compared to the three months ended June 30,2012 due to lowerthe CPUC’s approval in May 2013 for the recovery of $834,000 of previously incurred legal and outside service costs in connection with BVES' efforts to procure renewable energy resources. Excluding this reduction, administrative and general expenses increased by $260,000 due to increases of $311,000 as compared to$194,000 in general office expense allocation in accordance with the same periodapproved water rate case and $139,000 in 2011. This decrease wasadditional legal and other outside services incurred primarily for the pending general rate case. These increases were partially offset by andecreases of $32,000 in labor and related employee benefits and $41,000 in miscellaneous other administrative and general expenses. of $154,000 and a $217,000 increase in insurance costs. There was an increase of $33,000 in other miscellaneous administrativeheadcount in connection with pursuing new military utility privatization opportunities.general expenses.SeptemberJune 30, 2012, a2013dministrative and general expenses for contracted services increased2012 depreciation and amortization by $95,000 due primarily to an increasebusiness segment consisted of the following (dollar amounts in outside services, primarily at Fort Bliss in Texas.thousands): Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 Water Services $ 8,909 $ 9,525 $ (616 ) (6.5 )% Electric Services 575 597 (22 ) (3.7 )% Contracted Services 284 285 (1 ) (0.4 )% Total depreciation and amortization $ 9,768 $ 10,407 $ (639 ) (6.1 )% Table of ContentsDepreciation and AmortizationSeptemberJune 30, 2012 and 2011 depreciation and amortization expense by segment consisted of the following (dollars in thousands):For the three months ended September 30, 2012,2013, depreciation and amortization expense for water and electric services increaseddecreased by $607,000$638,000 to $9.9$9.5 million compared to $9.3$10.1 million for the same period in 2011three months ended June 30,2012 due primarily to lower depreciation composite rates approved by the CPUC in the water rate case finalized in May 2013. Overall, composite rates for the water services segment decreased from 3.7% in 2012 to 3.4% for 2013. The decrease resulting from lower depreciation rates was partially offset by approximately $93.1$61.0 million of additions to utility plant during 2011. Registrant believes that depreciation expense related to property additions approved by the CPUC will be recovered through rates.MaintenanceSeptemberJune 30, 20122013 and 2011,2012, maintenance expense by business segment consisted of the following (dollars(dollar amounts in thousands): Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 Water Services $ 4,182 $ 3,173 $ 1,009 31.8 % Electric Services 183 183 — — % Contracted Services 548 496 52 10.5 % Total maintenance $ 4,913 $ 3,852 $ 1,061 27.5 % contractedwater services decreasedincreased by $150,000$1.0 million due primarily to planned maintenance work performed in GSWC’s Region II and Region III. Maintenance expense for water services is expected to increase for the need to perform capital work to renew and replace infrastructure in lieuremainder of routine maintenance service. Such activity is reflected under construction expense.SeptemberJune 30, 20122013 and 2011,2012, property and other taxes by business segment consisted of the following (dollars(dollar amounts in thousands):Property and other taxes overall for contracted services increased by $205,000 for the three months ended September 30, 2012 due to an increase in payroll taxes. Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 Water Services $ 3,161 $ 3,143 $ 18 0.6 % Electric Services 214 212 2 0.9 % Contracted Services 373 361 12 3.3 % Total property and other taxes $ 3,748 $ 3,716 $ 32 0.9 % SeptemberJune 30, 2012,2013, construction expenses for contracted services were $23.3$19.1 million, increasing $10.2$4.2 million compared to the same period in 2011,2012 due primarily to additionalan increase in new capital upgrade construction activity at all military bases, particularlyprojects at Fort Bragg in North Carolina and the military basesFort Bliss in Virginia.SeptemberJune 30, 20122013 and 2011,2012, interest expense by business segment, including AWR (parent) consisted of the following (dollars(dollar amounts in thousands):Overall, interest expense decreased by $176,000 during the third quarter of 2012 as compared to the same period in 2011 due, in part, to a decrease in short term borrowings under the Registrant’s revolving credit facility. There were no borrowings under the facility during the three months ended September 30, 2012. The average bank loan balance outstanding under the facility was $9.5 million during the same period of 2011. The average interest rate on short-term borrowings for the three months ended September 30, 2011 was approximately 1.5%. Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 Water Services $ 5,359 $ 5,273 $ 86 1.6 % Electric Services 367 407 (40 ) (9.8 )% Contracted Services 93 40 53 132.5 % AWR (parent) (51 ) — (51 ) 100.0 % Total interest expense $ 5,768 $ 5,720 $ 48 0.8 % SeptemberJune 30, 20122013 and 2011,2012, interest income by segment, including AWR (parent) consisted of the following (dollars in thousands):Interest income increased by $221,000 for water services during the three months ended September 30, 2012 primarily as a result of changes in the settlement of refund claims currently under review by the Internal Revenue Service. In addition, there was an increase in interest income related to regulatory assets as compared to the same period in 2011.Income Tax ExpenseFor the three months ended September 30, 2012 and 2011, income tax expense bybusiness segment, including AWR (parent), consisted of the following (dollars(dollar amounts in thousands): Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 Water Services $ 151 $ 458 $ (307 ) (67.0 )% Electric Services (11 ) 11 (22 ) (200.0 )% Contracted Services — — — — % AWR (parent) — 26 (26 ) (100.0 )% Total interest income $ 140 $ 495 $ (355 ) (71.7 )% SeptemberJune 30,2013 and 2012, income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands): Three Months Ended
June 30, 2013 Three Months Ended
June 30, 2012 Water Services $ 8,821 $ 7,208 $ 1,613 22.4 % Electric Services 822 359 463 129.0 % Contracted Services 1,628 2,313 (685 ) (29.6 )% AWR (parent) (123 ) (71 ) (52 ) 73.2 % Total income tax expense $ 11,148 $ 9,809 $ 1,339 13.7 % $10.0$9.6 million compared to $9.2$7.6 million for the three months ended SeptemberJune 30, 20112012 due primarily to an increase in pretax income, partially offset by a decrease in the effective tax rate.income. The effective income tax rate (“ETR”) for GSWC was 40.8%41.1% for the three months ended SeptemberJune 30, 20122013 as compared to 41.4%40.0% applicable to the three months ended SeptemberJune 30, 2011.2012. The ETR deviates from the federal statutory rate primarily due to state taxes and differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items), and changes in permanent items.. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period.SeptemberJune 30, 2012,2013, income tax expense for contracted services increaseddecreased to $2.5$1.6 million as compared to $1.5$2.3 million for the three months ended SeptemberJune 30, 20112012 due to an increasea decrease in pretax income. The ETR was 38.2%approximately 38.3% and 38.9% for the three months ended SeptemberJune 30, 20122013 and 2011.392012, respectively.Nine months ended SeptemberSix Months EndedJune 30, 20122013 and 2011 (dollars2012 (amounts in thousands, except per share amounts): Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 OPERATING REVENUES Water $ 153,302 $ 147,358 $ 5,944 4.0 % Electric 19,131 19,186 (55 ) (0.3 )% Contracted services 58,814 54,930 3,884 7.1 % Total operating revenues 231,247 221,474 9,773 4.4 % OPERATING EXPENSES Water purchased 27,402 23,383 4,019 17.2 % Power purchased for pumping 3,971 3,575 396 11.1 % Groundwater production assessment 7,010 7,305 (295 ) (4.0 )% Power purchased for resale 6,508 5,871 637 10.8 % Supply cost balancing accounts 994 7,600 (6,606 ) (86.9 )% Other operation expenses 11,973 14,277 (2,304 ) (16.1 )% Administrative and general expenses 36,020 34,892 1,128 3.2 % Depreciation and amortization 19,584 20,897 (1,313 ) (6.3 )% Maintenance 8,847 7,183 1,664 23.2 % Property and other taxes 7,896 7,821 75 1.0 % ASUS construction expenses 39,797 35,181 4,616 13.1 % Gain on sale of property (12 ) (3 ) (9 ) 300.0 % Total operating expenses 169,990 167,982 2,008 1.2 % OPERATING INCOME 61,257 53,492 7,765 14.5 % OTHER INCOME AND EXPENSES Interest expense (11,546 ) (11,790 ) 244 (2.1 )% Interest income 327 710 (383 ) (53.9 )% Other, net 426 216 210 97.2 % (10,793 ) (10,864 ) 71 (0.7 )% INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE 50,464 42,628 7,836 18.4 % Income tax expense 20,397 17,435 2,962 17.0 % NET INCOME $ 30,067 $ 25,193 $ 4,874 19.3 % Basic earnings per common share $ 1.54 $ 1.33 $ 0.21 15.8 % Fully diluted earnings per common share $ 1.54 $ 1.32 $ 0.22 16.7 % RevenuesGeneralRegistrant relies upon rate approvals by the CPUC to provide for a return on invested and borrowed capital used to fund utility plant, and price redeterminations and equitable adjustments by the U.S. government in order to recover operating expenses and profit margin. If adequate rate relief and price redeterminations and adjustments are not granted in a timely manner, operating revenues and earnings can be negatively impacted. ASUS’ earnings can also be positively impacted by additional construction projects at the Military Utility Privatization Subsidiaries.Waterninesix months ended SeptemberJune 30, 2012,2013, revenues from water operations increased by $3.4$5.9 million to $237.4$153.3 million, as compared to $234.0$147.4 million for the ninesix months ended SeptemberJune 30, 2011.2012. The increase in water revenues is primarily due to CPUC-approved third year rate increases for Regions II and IIIhigher water rates approved by the CPUC effective January 1, 2012 to recover infrastructure improvements and operating costs.GSWC’s revenue requirement and volumetric revenues are adopted as part of a2013 in connection with the general rate case (“GRC”) every three years. GSWC filed a GRC for all three water regions and the general office, as previously discussed. The revenue increase adopted by the CPUC for 2013 is approximately $10 million over 2012. In addition, there were also new surcharges in Julyplace during the six months ended June 30, 2013 to recover previously incurred costs approved by the CPUC. The increase in revenues from these surcharges is offset by a corresponding increase in operating expenses resulting in no impact to pretax operating income.2011 with rates expected to be effective January 2013. As further discussed in the Regulatory Matters section, in June 2012, GSWC filed a motion to adopt a settlement agreement resolving most issues between GSWC, the CPUC’s Division of Ratepayer Advocates and The Utility Reform Network in connection with this GRC. The CPUC has not yet acted on this motion.GSWC’s billed customer water usage2013 increased by approximately 4.5%3.6% as compared to the same period in 2011, but was lower than adopted consumption. Changes2012. A change in consumption dodoes not have a significant impact on earnings due to the CPUC-approved Water Revenue Adjustment Mechanism (“WRAM”)WRAM account in place in all three water regions. GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC in the WRAM accounts.Electricninesix months ended SeptemberJune 30, 2012,2013, revenues from electric operations increased by 2.0%decreased slightly to $27.7$19.1 million compared to $27.2$19.2 million for the same period in 2011 due primarily2012. In February 2012, GSWC filed its BVES rate case for rates in years 2013 through 2016. If rates are approved as filed, the rate increases are expected to increasesgenerate approximately $1.3 million in electric base rates approved by the CPUC effective January 1, 2012.forincreased by 2.3% during the ninesix months ended SeptemberJune 30, 2012 decreased 3.1%2013 as compared to the same period in 2011.six months ended June 30, 2012. Due to the CPUC approvedCPUC-approved Base Revenue Requirement Adjustment Mechanism, which adjusts certain revenues to adopted levels authorized by the CPUC, this change in usage did not have a significant impact on earnings.Revenues from contracted services are composed of construction revenues (including renewals and replacements) and management fees for operating and maintaining the water and/or wastewater systems at military bases. ninesix months ended SeptemberJune 30, 2012,2013, revenues from contracted services increased by $26.7were $58.8 million or 42.6%, to $89.3 million as compared to $62.6$54.9 million for the ninesix months ended SeptemberJune 30, 2011 primarily due to2012. There was an increase in construction activities particularlynew capital upgrade projects at Fort Bragg in North Carolina Andrews Air Force Baseand Fort Bliss in MarylandTexas, as well as an increase in renewal and replacement work primarily at Fort Bliss and Fort Jackson in South Carolina under the military basesrespective terms of the 50-year contracts with the U.S. government. These increases were partially offset by a decrease in Virginia. At Fort Bragg, there is a majorconstruction activity on the water and wastewater pipeline replacement project estimatedat Fort Bragg, largely due to be substantially completed by the end of 2013. The increase in construction activities was partially offset by a $2.9 million increase in revenues recordedfavorable weather conditions experienced during the second quarterfirst several months of 2011 due to a change in estimated costs related to the pipeline project at Fort Bragg. Contracted services continues to receive contract modifications from the U.S. government and agreements with third-party prime contractors2012, which allowed for newmore construction projects at the Military Utility Privatization Subsidiaries. The majority of new construction activity is expected to be performed during the next twelve months. Earnings and cash flows from amendments and modifications to the original 50-year contracts with the U.S. government and agreements with third-party prime contractors for additional construction projects may or may not continue in future periods.29.6%27.0% and 32.3%28.4% of total operating expenses for the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, respectively.gross margins during the ninesix months ended SeptemberJune 30, 20122013 and 2011 (dollars2012 (amounts in thousands): Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 $ 153,302 $ 147,358 $ 5,944 4.0 % WATER SUPPLY COSTS: $ 27,402 $ 23,383 $ 4,019 17.2 % 3,971 3,575 396 11.1 % 7,010 7,305 (295 ) (4.0 )% (561 ) 5,605 (6,166 ) (110.0 )% TOTAL WATER SUPPLY COSTS $ 37,822 $ 39,868 $ (2,046 ) (5.1 )% $ 115,480 $ 107,490 $ 7,990 7.4 % PERCENT MARGIN - WATER 75.3 % 72.9 % $ 19,131 $ 19,186 $ (55 ) (0.3 )% ELECTRIC SUPPLY COSTS: $ 6,508 $ 5,871 $ 637 10.8 % 1,555 1,995 (440 ) (22.1 )% TOTAL ELECTRIC SUPPLY COSTS $ 8,063 $ 7,866 $ 197 2.5 % $ 11,068 $ 11,320 $ (252 ) (2.2 )% PERCENT MARGIN - ELECTRIC 57.9 % 59.0 % $9,560,000$994,000 and $14,374,000$7.6 million for the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, respectively.andor other taxes, or other operation expenses.For the nine months ended September 30, 2012, 35.5% of GSWC’s water supply mix was purchased as compared to 35.2% purchased for the nine months ended September 30, 2011. However, GSWC implemented the MCBA for all its water regions which eliminates the effects of changes in the water supply mix on earnings. adoptedactual percentages of purchased water for the ninesix months ended SeptemberJune 30,2013 and 2012 was approximately 42.1% were 35.1% and 34.6%, respectively, as compared to overall actual purchased wateradopted percentages of 35.5%. The difference in actual mix compared to the mix approved by the CPUC resulted in an over-collection in the MCBA account.34.4% and 40.8%, respectively. The overall water gross margin percent was 71.7%approximately 75.3% for the ninesix months ended SeptemberJune 30, 20122013 as compared to 71.3%72.9% in the same period of 2011.2012 resulting primarily from higher water rates and the new adopted water gross margin.ninesix months ended SeptemberJune 30, 20122013 increased to $42.3$27.4 million as compared to $37.7$23.4 million in for the same period of 2011 primarilyin 2012. This increase was due to higher water rates charged by wholesale suppliers and an overall increase in the amount of water purchased as a result of an increase in customers’customer consumption as well as several wells being out of service for maintenance at various times during the year, resulting in an increased need to purchase water. In addition, wholesale water consumption.ninesix months ended SeptemberJune 30,2013 and 2012, the cost of power purchased for pumping was approximately $4.0 million and $3.6 million, respectively. This increase was due primarily to an increase in average electric rates, partially offset by a decrease in pumping activity during the six months ended June 30, 2013. Groundwater production assessments decreased slightly to $6.6 million as compared to $6.8 million for the same period of 2011. This was primarily$295,000 due to lower electric supply rates and improved energy efficiency at GSWC’s pumping facilities.For the nine months ended September 30, 2012, groundwater production assessments were $921,000 higher when compared to the same period in 2011 due to additional assessment rates levied. Due to the MCBA account, these additional assessments do not impact the dollar water margin. MCBA tracks the increases in pump tax rates for future recovery in water rates.A decrease of $5.4 million in the water supply cost balancing account provisiondecreased ninesix months ended SeptemberJune 30, 20122013 as compared to the same period in 2011 was primarily2012, due to an overall lower total adopted water supply cost for 2013 and an increase in purchased water as discussed above, resulting in a decreaselower over-collection tracked in the over-collection in the MCBA account from higher water supply rates and an overall increase in customer demand.ninesix months ended SeptemberJune 30, 2012,2013, the cost of power purchased for resale to customers in GSWC’s BVES division decreased 10.7%increased to $8.7$6.5 million as compared $9.8to $5.9 million for the six months ended June 30,2012, due to an increase in customer usage, as well as an increase in the average price per MWh from $60.15 per MWh for the six months ended June 30,2012 to $63.93 for the same period of 2011 due primarily to lower energy prices purchased in the spot market in 2012 as compared to the same period of 2011.2013. The difference between the price of purchased power and $77 per MWh as authorized by the CPUC is reflected in the electric supply cost balancing account. continuing regulated water systems, including the costs associated with water transmission and distribution, pumping, water quality, meter reading, billing, and operationoperations of district offices. Registrant’s electric and contracted services operations incur many of the same types of costsexpenses as well. For the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, other operation expenses by business segment consisted of the following (dollars(dollar amounts in thousands): Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 Water Services $ 9,493 $ 11,689 $ (2,196 ) (18.8 )% Electric Services 1,146 1,162 (16 ) (1.4 )% Contracted Services 1,334 1,426 (92 ) (6.5 )% Total other operation expenses $ 11,973 $ 14,277 $ (2,304 ) (16.1 )% ninesix months ended SeptemberJune 30, 2012,2013, other operation expenses for water services increaseddecreased by $1.1$2.2 million as compared. This decrease was partially due to the same periodCPUC's final decision issued in 2011 primarily due to: (i) an increaseMay 2013 on the water rate case, which approved among other things, the recovery of $270,000$1.0 million of certain other operation costs that were being tracked in costs related to conservation programsmemorandum accounts and which had previously approved bybeen expensed as incurred. As a result of the CPUC and includedfinal decision, GSWC recorded additional regulatory assets with a corresponding reduction in rates; (ii) an increase of $576,000 in bad debt expense; (iii) a $400,000 increase in labor and related benefits costs; and (iv) an $87,000 increase in other miscellaneous operation expenses. These increases were partially offset by a $251,000 decrease in water treatment expenses.For the nine months ended September 30, 2012, other operation expenses for electric services increased by $119,000 primarilythe an increase in laborfewer employees; (ii) bad debt expense of $511,000, and related benefit costs.ninesix months ended SeptemberJune 30, 2012,2013, other operation expenses for contracted services decreased by $791,000 as compared$92,000 due primarily to the same perioddecreases in 2011, due largelylabor and related employee expenses charged to operating expenses and a decrease in precontract costs for design and engineering labor incurred for potential new construction projects primarily at Fort Bragg in North Carolina and Fort Bliss in Texas.allthe related employee benefits, charged to expense accounts, insurance expenses, outside legal and consulting fees, regulatory utility commission expenses, expenses associated with being a public company, and general corporate expenses.expenses charged to expense accounts. For the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, administrative and general expenses by business segment, including AWR (parent), consisted of the following (dollars(dollar amounts in thousands): Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 Water Services $ 25,580 $ 26,547 $ (967 ) (3.6 )% Electric Services 3,820 2,819 1,001 35.5 % Contracted Services 6,613 5,431 1,182 21.8 % AWR (parent) 7 95 (88 ) (92.6 )% Total administrative and general expenses $ 36,020 $ 34,892 $ 1,128 3.2 % ninesix months ended SeptemberJune 30,2013, administrative and general expenses decreased by $967,000 in water services compared to the six months ended June 30,2012. As part of the CPUC’s final decision on the water rate case, the CPUC also approved the recovery of $1.7 million in certain administrative and general costs that were being tracked in memorandum accounts and which had previously been expensed as incurred. As a result of the final decision, GSWC recorded additional regulatory assets with a corresponding reduction to administrative and general expenses during the first quarter of 2013. In addition, the CPUC’s final decision also decreased transportation expenses by approximately $438,000 as a result of a lower composite depreciation rate used for GSWC’s vehicles. Depreciation expense on vehicles is included in transportation expenses in accordance with CPUC guidelines.decreasedincreased by $680,000approximately $1.2 million due primarily to an increase in legal, regulatory and other outside services costs totaling $1.2 million and an increase of $504,000 in workers compensation costs, partially offset by decreases of $338,000 in labor and employee related expenses and $166,000 in miscellaneous other administrative and general expenses.decrease$788,000 increase in legallabor and other employee related benefits charged to administrative and general activities, and a $309,000 increase in consulting and other outside consulting costs. Theseservices costs associated, in part, with the preparation of responses to requests for proposals issued by the U.S. government for new military base utility privatizations. Legal and outside services tend to fluctuate year-to-year and are expected to continue to fluctuate.For the nine months ended September 30, 2012, administrative and general expenses for electric services decreased by $1.4 million compared to the nine months ended September 30, 2011 primarily due to the CPUC’s approval in March 2012 for BVES to recover $1.2 million of previously incurred legal and outside service costs in connection with its efforts to procure renewable energy resources. As a result, in March 2012 BVES recorded a $1.2 million reduction in legal and outside service costs, which had previously been expensed as incurred.Administrative and general expenses for contracted services decreased by $459,000 due primarily to an increase in the allocation of overhead expenses to construction costs as compared to the same period in 2011 as a result of increased construction activities primarily at Fort Bragg in North Carolina, Andrews Air Force Base in Maryland and the military bases in Virginia, partially offset by an increase in labor and related benefit costs and outside service costs.ninesix months ended SeptemberJune 30, 20122013 and 2011,2012 depreciation and amortization by business segment consisted of the following (dollars(dollar amounts in thousands): Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 Water Services $ 17,839 $ 19,122 $ (1,283 ) (6.7 )% Electric Services 1,167 1,220 (53 ) (4.3 )% Contracted Services 578 555 23 4.1 % Total depreciation and amortization $ 19,584 $ 20,897 $ (1,313 ) (6.3 )% ninesix months ended SeptemberJune 30, 2012,2013, depreciation and amortization expense for water and electric services increaseddecreased by $2.1$1.3 million to $30.3$19.0 million compared to $28.2$20.3 million for the ninesix months ended SeptemberJune 30, 20112012 due primarily due to lower depreciation composite rates as approved by the CPUC in the water rate case finalized in May 2013. Overall, composite rates for the water services segment decreased from 3.7% in 2012 to 3.4% for 2013. The decrease resulting from lower depreciation rates was partially offset by approximately $93.1$61.0 million of additions to utility plant during 2011. Registrant believes that depreciation expense related to property additions approved by the CPUC will be recovered through rates.There was also an increase in depreciation and amortization expense for contracted services due to the addition of fixed assets.Maintenanceninesix months ended SeptemberJune 30, 20122013 and 2011,2012, maintenance expense by business segment consisted of the following (dollars(dollar amounts in thousands):For the nine months ended September 30, 2012, maintenance Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 Water Services $ 7,434 $ 5,977 $ 1,457 24.4 % Electric Services 424 319 105 32.9 % Contracted Services 989 887 102 11.5 % Total maintenance $ 8,847 $ 7,183 $ 1,664 23.2 % decreased $520,000increased by $1.5 million due primarily to $9.6 million compared to $10.1 million for the nine months ended September 30, 2011 primarily due to a decreaseplanned maintenance work performed in both planned and unplanned maintenance at GSWC’s water facilities in Region II and Region III.For Maintenance expense for water services is expected to increase for the nine months ended September 30, 2012, maintenanceremainder of 2013.decreased by $138,000 due primarily to a decrease in tree trimming maintenanceincreased during the six months ended June 30,2013 as compared to the same period of 2012in 2011.Forconnection with expenses for tree trimming required by the nine months ended September 30, 2012, maintenanceCPUC.decreasedincreased during the six months ended June 30, 2013 primarily due to increases in outside services costs, partially offset by $622,000 due primarilya decrease in labor and related employee expenses charged to the need to perform capital work to renew and replace infrastructure in lieu of routine maintenance service. Such activity is reflected under construction expense.ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, property and other taxes by business segment consisted of the following (dollars(dollar amounts in thousands):For the nine months ended September 30, 2012, property Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 Water Services $ 6,598 $ 6,638 $ (40 ) (0.6 )% Electric Services 493 460 33 7.2 % Contracted Services 805 723 82 11.3 % Total property and other taxes $ 7,896 $ 7,821 $ 75 1.0 % water services increased by $735,000 primarily due to increases in franchise fees and property taxes.For the nineSeptemberJune 30, 2012, property and other taxes for contracted services increased by $243,000 primarily due2013 compared to an increasethe same period in payroll taxes.ninesix months ended SeptemberJune 30, 2012,2013, construction expenses for contracted services were $58.5$39.8 million, increasing by $20.7$4.6 million compared to the same period in 2011,2012 due primarily to increased construction activity particularlyan increase in new capital upgrade projects at Fort Bragg Andrewsand Fort Bliss, as well as an increase in renewal and replacement work at Fort Bliss and Fort Jackson in South Carolina under the respective terms of the 50-year contracts with the U.S. government. These increases were partially offset by a decrease in construction activity on the water and wastewater pipeline replacement program at Fort Bragg in North Carolina primarily due to less favorable weather conditions for the Air Force andsix months ended June 30,2013 compared to the military basessame period in Virginia., as previously discussed.ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, interest expense by business segment, including AWR (parent) consisted of the following (dollars(dollar amounts in thousands): Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 Water Services $ 10,724 $ 10,877 $ (153 ) (1.4 )% Electric Services 750 812 (62 ) (7.6 )% Contracted Services 155 99 56 56.6 % AWR (parent) (83 ) 2 (85 ) (4,250.0 )% Total interest expense $ 11,546 $ 11,790 $ (244 ) (2.1 )% $999,000$244,000 due primarily to costs totaling $553,000 incurredGSWC’s redemption of $8.0 million of its 7.55% notes in October 2012. In addition, there were lower short-term bank loan balances during the ninefirst six months ended September 30, 2011 related to the redemption of $22.0 million of GSWC’s 7.65% Medium-Term Notes. No such costs were incurred during 2012. Also, in 2012 GSWC recorded a $381,000 reduction to interest expense in connection with the CPUC’s final decision on the water cost of capital proceeding. The decision ordered GSWC to refund $408,000 to customers, as compared to the $789,000 GSWC had estimated in its interest rate balancing account. Finally, there was also a decrease in borrowings under Registrant’s revolving credit facility2013 as compared to the same period in 2011. These decreases2012. There were partially offset by additional interest expense related to $62.0 million of 6% senior notes issued in April 2011. Averageno bank loan balances outstanding under Registrant’s revolvingthe credit facility for the ninesix months ended SeptemberJune 30, 2012 were approximately $1.2 million,2013, as compared to an average of $33.4$1.8 million during the same period of 2011. The average interest rates on short-term borrowings for2012.ninesix months ended SeptemberJune 30, 20122013 and 2011 were approximately 1.5%.Interest Income2012For the nine months ended September 30, 2012 and 2011,, interest income by segment, including AWR (parent) consisted of the following (dollars in thousands):Interest income increased by $629,000 for the nine months ended September 30, 2012 primarily as a result of changes in the settlement of refund claims currently under review by the Internal Revenue Service. In addition, there was an increase in interest income related to regulatory assets as compared to the same period in 2011.Other Income and ExpensesFor the nine months ended September 30, 2012, Registrant recorded a gain of $435,000 on one of GSWC’s investments. For the nine months ended September 30, 2011, Registrant recorded other expenses of $379,000 primarily related to a loss incurred on the same GSWC investment.Income Tax ExpenseFor the nine months ended September 30, 2012 and 2011, income tax expense bybusiness segment, including AWR (parent), consisted of the following (dollars(dollar amounts in thousands): Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 Water Services $ 322 $ 656 $ (334 ) (50.9 )% Electric Services (4 ) 23 (27 ) (117.4 )% Contracted Services 2 5 (3 ) (60.0 )% AWR (parent) 7 26 (19 ) (73.1 )% Total interest income $ 327 $ 710 $ (383 ) (53.9 )% ninesix months ended SeptemberJune 30,2013, Registrant recorded other income of $426,000 primarily related to gains recorded on investments held in a Rabbi Trust for the Supplemental Executive Retirement Plan and accrued interest related to GSWC's allowance for funds used during construction. Six Months Ended
June 30, 2013 Six Months Ended
June 30, 2012 Water Services $ 15,762 $ 11,563 $ 4,199 36.3 % Electric Services 1,544 1,759 (215 ) (12.2 )% Contracted Services 3,294 4,143 (849 ) (20.5 )% AWR (parent) (203 ) (30 ) (173 ) 576.7 % Total income tax expense $ 20,397 $ 17,435 $ 2,962 17.0 % $23.4$17.3 million compared to $22.0$13.3 million for the ninesix months ended SeptemberJune 30, 20112012 due primarily to an increase in pretax income, partially offset by a decrease in the effective tax rate.income. The effective income tax rate (“ETR”) for GSWC was 41.4%for the ninesix months ended SeptemberJune 30, 2012 was 41.2%2013 as compared to a 42.9% ETR41.6% applicable to the ninesix months ended SeptemberJune 30, 2011.2012. The ETR deviates from the federal statutory rate primarily due to state taxes and changesdifferences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items), and changes in permanent items.. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period.Incomeincreased $2.9decreased to $3.3 million to $6.6 million as compared to $3.7$4.1 million for the ninesix months ended SeptemberJune 30, 20112012 due primarily to an increasea decrease in pretax income. The ETR for contracted serviceswas approximately 38.5% and 38.9% for the ninesix months ended SeptemberJune 30, 2012 was 38.7% as compared to 38.6% for the same period in 2011.Income from Discontinued Operations2013Net income from discontinued operations for the nine months ended September 30, 2011 was $3.9 million, due primarily to the gain on sale of CCWC of $2.2 million, net of taxes and transaction costs, or $0.12 per share. Excluding the gain on sale, there was also net income of $1.6 million from CCWC’s operations from the five months of operations in 2011 until the completion of the sale on May 31, 2011.Registrant’sAWR’s financial condition, results of operations and cash flows, and require the most difficult, subjective or complex judgments of Registrant’sAWR’s management. The need to make estimates about the effect of items that are uncertain is what makes these judgments difficult, subjective and/or complex. Management makes subjective judgments about the accounting and regulatory treatment of many items. These judgments are based on Registrant’sAWR’s historical experience, terms of existing contracts, Registrant’sAWR’s observance of trends in the industry, and information available from other outside sources, as appropriate. Actual results may differ from these estimates under different assumptions or conditions.Operation”Operations” included in Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011.2012. There have been no material changes to Registrant’s critical accounting policies.47
Registrant’s regulated business is capital intensive and requires considerable capital resources. A portion of these capital resources are provided by internally generated cash flows from operations. When necessary, Registrant obtains funds from external sources in the capital markets and through bank borrowings. Access to external financing on reasonable terms depends on the credit ratings of AWR and GSWC and current business conditions, including that of the water utility industry in general as well as conditions in the debt or equity capital markets. Registrant also has accessOn May 23, 2013, AWR entered into a fourth amendment to aits revolving credit agreement to, among other things, extend the expiration date of the syndicated credit facility that may be utilized to support operations. UnderMay 23, 2018, reduce the Third Amendment toamount of interest and fees paid by the AmendedCompany, and Restated Credit Agreement, which expires on May 27, 2013,update certain representations and covenants in the maximumagreement. The aggregate amount that may be borrowed under this facility is unchanged at $100.0 million. AWRThe Company may, under the terms of the Amended and Restated Credit Agreement,fourth amendment, elect to increase the aggregate bank commitmentscommitment by up to $40.0an additional $50.0 million. AWR borrows under this facility and provides funds to its subsidiaries, including GSWC, in support of their operations. Any amounts owed to AWR for borrowings under this facility are included in inter-company payables on GSWC’s balance sheet. The aggregate effective amount that may be outstandinginterest rate charged to GSWC and other affiliates is sufficient to cover AWR’s interest cost under letters ofthe credit is $25.0 million.facility. As of SeptemberJune 30, 2012,2013, there were no borrowings under this facility and $18.2$18.1 million of letters of credit were outstanding. As of SeptemberJune 30, 2012,2013, AWR had $81.8$81.9 million available to borrow under the credit facility.
over the next three years, consistent with the CPUC-approved water general rate case.
Cash flows from operating activities are primarily generated by net income, adjusted for non-cash expenses such as depreciation and amortization, and deferred income taxes. Net cash provided by operating activities was $91.6$33.6 million for the ninesix months ended SeptemberJune 30, 20122013 as compared to $62.6$63.9 million for the ninesix months ended SeptemberJune 30, 2011. There has been an increase2012. The decrease in operating cash flows from operationsflow was primarily due to lower tax payments resulting from accelerated depreciation taken in 2011 and 2012 in connection with tax law changes. There was also an increase in cash flows from operatingto subcontractors for construction activities at ASUS due primarilyduring the six months ended June 30, 2013. The billings (and cash receipts) for this construction work generally occur at completion of the work or based on a billing schedule contractually agreed to higher construction activity at Fort Braggwith the U.S. government. Thus, cash flow from construction-related activities may fluctuate from period to period with such fluctuations representing timing differences of when the work is being performed and when the timely collectioncash is received for payment of amounts billed for constructionthe work. There was also an increase in GSWC’s operating cash flows due to rate increases approved by the CPUC, including surcharges to recover previously recorded regulatory assets. GSWC currently has surcharges in place to recover approximately $24.9 million included in its WRAM, net of MCBA accounts, as of September 30, 2012. The timing of cash receipts and disbursements related to other working capital items also affected the changes in net cash provided by operating activities.
GSWC’s 2013 capital investment program.
shareholders of approximately
$13.7 million as compared to $10.6 million for the same period in 2012.Generally, GSWC depreciates contributed property and amortizes contributions in aid of construction at the composite rate of the related property.
There was also the issuance of an interest bearing note receivable to AWR totaling $9.2 million during 2013. This note is expected to be repaid by AWR within one year.
during both periods.
In October 2009, GSWC entered into an agreement with the California Department
50
Contracted Services
Department of Defense utility privatization program.
audits or upon mutual agreement with the U.S. government.
·
·government in January 2013.
·
·
·2013.
2013.
51
In July 2012,2013:
2013 and are expected to generate approximately $10 million in additional annual revenues starting in 2013 as compared to 2012 adopted revenues. The CPUCrate increases for 2014 and 2015 are subject to an earnings test and fluctuations in market indices. While the increase in 2013 revenues is projected to be approximately $10 million, the increase in the adopted water gross margin is forecasted to be approximately $14 million, or 6.6%, when compared to the 2012 CPUC-adopted water gross margin. The final decision also authorized GSWC to continueapproves the Water Costrecovery of Capital Mechanism (“WCCM”). The WCCM adjusts ROE and rate of return on rate base between the three-year cost of capital proceedings only if there is a positive or negative change of more than 100 basis points in the average of the Moody’s Aa utility bond ratevarious memorandum accounts which tracked certain costs that had previously been expensed as measured over the period October 1 through September 30. If the average Moody’s rate for this period changes by over 100 basis points from the benchmark, the ROE will be adjusted by one half of the difference. For the period October 1, 2011 through September 30, 2012, the Moody’s rate declined by 112 basis points from the benchmark.incurred. As a result, for the
2012:
Rate changes in 2011:
In January 2011, GSWC implemented the rates previously approved by the CPUC in its last general rate case. The authorized rate increases represented increases of approximately $1.6 million for Region II, and approximately $2.4 million for Region III as compared to 2010 adopted revenues. These additional revenues were based upon normalized sales levels approved by the CPUC, effective January 1, 2011.
In January 2011, BVES implemented the rates previously approved by the CPUC in its last general rate case. The authorized rate increase provided BVES with additional annual revenues of approximately $209,000. In addition, the CPUC authorized rate increases to cover higher general office costs allocated to BVES. This added additional revenues to BVES of $1.4 million in 2011 as compared to 2010.
In December 2010, the CPUC issued a final decision on GSWC’s Region I rate case, approving revenue increases for 2011 and 2012. On a year to year basis, the increase in 2011 revenues represented an increase of approximately $3.6 million over 2010 adopted revenues. The CPUC also authorized approximately $18.5 million of capital projects to be filed for revenue recovery with advice letters when those projects are completed. During the time that such projects are under development and construction, GSWC may accrue an allowance for funds used during construction on the accrued expenditures to offset the cost of financing project construction. A portion of these projects was completed in 2011. The remaining projects are expected to be completed during 2012 and 2013.
GSWC
On June 21, 2012, GSWC filed a motion to adopt a settlement agreement between GSWC, the DRA, and The Utility Reform Network (“TURN”) in connection with the water General Rate Case (“GRC”) filing made in July 2011. The proposed settlement, if approved by the CPUC, resolves almost all of the issues in the GRC application and would generate approximately $9.9 million in additional annual revenues starting in 2013 as compared to 2012 adopted revenues. The proposed rate increases for 2014 over 2013 are $8.1 million or 3%, and the 2015 proposed rate increases over 2014 amount to $7.2 million, or 2%, subject to an earnings test and fluctuations in market indices. While the increase in 2013 revenues would be $9.9 million pursuant to the settlement agreement, the increase in the adopted water gross margin is approximately $13.4 million, or 6.2%, when compared to the 2012 adopted water gross margin.
In addition, the CPUC requested GSWC, DRA, and TURN to file additional testimony to justify the reasonableness of the Water Revenue Adjustment Mechanism (“WRAM”) and address the CPUC’s questions regarding the WRAM. In July 2012, all three parties filed additional testimony addressing the WRAM. The settlement agreement for the GRC is subject to an acceptable resolution regarding the WRAM matter. Hearings on the WRAM were held in October 2012.
In February 2012, GSWC filed its BVES rate case for rates in years 2013 through 2016. If rates are approved as filed, the rate increases are expected to generate approximately $1.3 million in annual revenues startingrevenues. DRA has opposed this revenue increase. Alternative dispute resolution meetings for this GRC are scheduled to be held in 2013. TheSeptember 2013 and a proposed rate increasesdecision is expected later in 2013.
year-ended December 31, 2012 for a detailed discussion of other regulatory matters.
La Serena Plant Improvement Project:
In November 2010, as part of GSWC’s Region II, Region III and general office rate case decision, the CPUC disallowed a portion of the La Serena plant improvement project costs from utility customer rates.million. As a result of the CPUC’s decision in November 2010, GSWC recorded a pretax charge of $2.2 million during 2010, which included the disallowance of thesea portion of the La Serena capital costs and the related revenues earned on those capital costs that willto be refunded to customers.
In December 2010,March 2013, GSWC and DRA reached a settlement agreement, subject to CPUC approval, to resolve all the issues in the rehearing. In March 2013, GSWC filed a motion for rehearing on this matter, contending that the CPUC erred in assigning a portionapproval of the La Serena plant improvement costs toagreement. In anticipation of this settlement, GSWC utility customers and requested that allrecorded an additional pretax charge of the capital costs related to the La Serena$416,000 in 2012, representing disallowed plant improvement project be disallowed. In July 2011, the CPUC granted DRA’s request for rehearing. Hearings on these matters are expected in the fourth quarter of 2012. A proposed decision is expected in June 2013. In addition to granting a rehearing, the CPUC also directed the Division of Water and Audits (“DWA”) to undertake an audit of the La Serena project costs and to provide a confidential report to the CPUC with recommendations on whether an investigation should be conducted to determine whether any laws were broken related to the La Serena project. Management does not believe it has violated any laws in regards to the La Serena project. DWA issued its independent audit report, which found cost overruns for the La Serena plant improvement project to be lower than the amount of costs for rate recovery previously disallowed by the CPUC.
In October 2012, DRA issued a report on this matter recommending further disallowances of costs and refund of revenues earned on those costs. DRA’s recommendation is inconsistent with the independent audit report issued by DWA. In addition, GSWC believes DRA’s recommendations are without merit and inconsistent with previous CPUC decisions on this matter. However, if DRA prevails, GSWC may be required to write-off additional capital costs and provide refunds to customers of the revenues earned on those costs. Based on DRA’s recommendation, additional disallowed costs and revenues earned on those costs through September 30, 2012 totaled approximately $2.5 million. GSWC intendsthat it expects will be refunded to vigorously defend its position. However, at this time, management cannot predictcustomers based upon the outcometerms of the rehearing, DWA’s and DRA’s recommendations, or determine the estimated additional loss or range of loss,settlement being discussed. The settlement, if any.
Deferred rate case costs:
The rehearing granted by the CPUC in July of 2011 is also re-addressing deferred rate case costs, which are direct costs consisting primarily of outside consulting and legal services which have been incurred in connection with the preparation and processing of a general rate case. Historically, GSWC has deferred these costs as a regulatory asset which are then recovered in rates and amortized over the term of a rate case cycle once the new rates go into effect. In the rehearing proceeding, DRA is again challenging GSWC’s historical practice of deferring these costs with subsequent recovery upon the effective date of the new rates. Instead, DRA believes that rate case costs should be projected for future periods and recovered prospectively. Management believes that DRA’s rationale and recommendations are inconsistent with previous CPUC decisions on this matter and also with GSWC’s historical practice of deferring and recovering rate case expenses associated with the current general rate case. However, if DRA prevails, GSWC may be required to write-off deferred rate case costs related to its current pending rate case, which total approximately $1.9 million as of September 30, 2012. At this time, GSWC is unable to predict the outcome of this matter.
Other Regulatory Matters
See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Regulatory Matters” section of the Registrant’s Form 10-K for the year-ended December 31, 2011 for a detailed discussion of other regulatory matters.
Finance Application
In July 2012, GSWC filed with the CPUC an application requesting authorization for it to issue, sell and deliver, by public offering or private placement, securities not exceeding $225.0 million in aggregate offering amount, consisting of, but not limited to, common shares and preferred shares, bonds, debentures, medium-term notes, loans and tax exempt debt. GSWC expects to use the net proceedsapproved, would resolve all issues arising from the issuance of securities to first pay down all or a portion of its then outstanding short-term debt and fund its construction expenditures.GSWC expects the CPUC will approve this application in 2012 or early 2013.
rehearing.
Mechanisms
In May 2013, the CPUC approved recovery of GSWC's 2012 net WRAM, totaling $23.8 million, to be collected in 12 to 18 months.
In June 2012, the CPUC approved surcharges for recovery of BVES’ 2011 Base Revenue Requirement Adjustment Mechanism (“BRRAM”) balance. The CPUC approved a 36-month surcharge to recover BVES’ 2012 BRRAM balance, with the amounts collected through December 20132014 to be applied to the 20112012 BRRAM under-collection.under-collection of
However, atAt this time, GSWC is unable to predict the final outcome of these matters which are expected to be resolved in the pending rate case.
GSWC’s BVES division has been regularly filing compliance reports with the CPUC regarding its purchases2013.
next ten years and any shortfalls to date.
In September 2009, GSWC negotiatedand a ten-year contract with the Los Angeles County Sanitation District (“LACSD”)corresponding decrease to purchase renewable energy created from landfill gas. In February 2011, LACSD notified GSWC that it intended to shut down the landfill gas generator.In August 2011, GSWClegal and LACSD negotiated a settlement to resolve a dispute between the parties regarding certain terms of the contract. Under the terms of the settlement, GSWC agreed to waive its right to a 14 month termination notice and LACSD agreed to sell renewable energy credits (“RECs”) to GSWC.
In November 2011, GSWC filed for CPUC approval for the purchase of these RECs. In July 2012, the CPUC approved the purchase of these RECs, which BVES intends to apply towards either its pre-2011 renewable energy requirements or its 2011-2013 requirements. The REC’s were purchased for approximately $325,000outside services costs during the thirdsecond quarter of 2012 as an asset and2013. The amount will be included as part of the supply cost balancing account when the RECs are applied towards the RPS requirements.
Changes in Tax Law:
The Small Business Jobs Act of 2010 and the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Tax Relief Acts”) extended 50% bonus depreciation for qualifying propertyrecovered through 2012 and created a 100% bonus depreciation for qualifying property placed in service between September 9, 2010 and December 31, 2011.
In June 2011, the CPUC adopted a resolution that requires water utilities to file advice letters implementing a one-way memorandum account to track the revenue effects associated with the Tax Relief Acts, which may reduce revenue requirements in future rate case proceedings. The effective date of the memorandum account established by the resolution was April 14, 2011. More specifically, the memorandum account established by the resolution will track on a CPUC-jurisdictional, revenue requirement basis: (a) decreases in each impacted utility’s revenue requirement resulting from increases in its deferred tax reserve; and (b) other direct changes in the revenue requirement resulting from taking advantage of the Tax Relief Acts. This resolution also authorizes impacted utilities to use savings from this new tax law to invest in certain additional, needed utility infrastructure, not otherwise funded in rates, within a time frame shorter than would be practicable through the formal application or advice letter processes. The establishment of a memorandum account does not change rates, nor guarantee that rates will be changed in the future. This mechanism simply allows the CPUC to determine at a future date whether rates should be changed.
5512-month surcharge.
GSWC has evaluated the potential impact of this resolution and does not expect it to have a material impact on its consolidated financial statements. However, at this time, GSWC cannot predict the outcome of this resolution or determine its potential impact, if any, on future rates.
CPUC Subpoena:
On December 15, 2011, the CPUC approved a settlement agreement reached between GSWC and DWA to resolve an investigation of certain work orders and charges paid to a specific contractor used previously for numerous construction projects over a period of 14 years. The settlement provides for refunds to customers totaling $9.5 million to be made over a period of 12-36 months, as well as a reduction in rate-base and other rate adjustments totaling $3.0 million. As a result of the settlement, management does not expect future increases in the reserve related to this specific contractor. Refunds totaling $1.1 million and $2.2 million were made to customers during the three and nine months ended September 30, 2012, respectively.
Finally, as part of the settlement agreement, GSWC agreed to be subject to three separate independent audits of its procurement practices over a period of ten years from the date the settlement was approved by the CPUC. The audits will cover GSWC’s procurement practices from 1994 forward and could result in further disallowances of costs. The cost of the audits will be borne by shareholders and may not be recovered by GSWC in rates to customers. At this time, management cannot predict the outcome of these audits or determine the estimated loss or range of loss, if any.
Environmental Matters
2012.
Low Precipitation on Groundwater Supplies
Period Total Number of Average Price Paid Total Number of Maximum Number July 1 - 31, 2012 13,473 $ 40.78 — NA August 1 - 31, 2012 65,167 $ 41.07 — NA September 1 - 30, 2012 84,050 $ 43.57 — NA Total 162,690 (2) $ 42.79 — NA (3) 3.2 By-laws of Golden State Water Company incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed May 13, 2011 3.3 Amended and Restated Articles of Incorporation of American States Water Company, as amended, incorporated by reference to Exhibit 3.4 Restated Articles of Incorporation of Golden State Water Company, as amended, incorporated herein by reference to Exhibit 3.1 of Registrant’s Form 10-Q for the quarter ended September 30, 2005 4.1 Indenture, dated September 1, 1993 between Golden State Water Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee, as supplemented, incorporated herein by reference to Exhibit 4.01 of Golden State Water Company Form S-3 filed December 12, 2008 4.2 Note Purchase Agreement dated as of October 11, 2005 between Golden State Water Company and Co-Bank, ACB incorporated by reference to Exhibit 4.1 of Registrant’s Form 8-K filed October 13, 2005 4.3 Note Purchase Agreement dated as of March 10, 2009 between Golden State Water Company and Co-Bank, ACB, incorporated herein by reference to Exhibit 10.16 to Registrant’s Form 10-K filed on March 13, 2009 4.4 Indenture dated as of December 1, 1998 between American States Water Company and The Bank of New York Mellon Trust Company, N.A., as supplemented by the First Supplemental Indenture dated as of July 31, 2009 incorporated herein by reference to Exhibit 4.1 of American States Water Company’s Form 10-Q for the quarter ended June 30, 2009 10.1 Deferred Compensation Plan for Directors and Executives incorporated herein by reference to Registrant’s Registration Statement on Form S-2, Registration No. 33-5151 (2) 10.2 Second Sublease dated October 5, 1984 between Golden State Water Company and Three Valleys Municipal Water District incorporated herein by reference to Registrant’s Registration Statement on Form S-2, Registration No. 33-5151 10.3 Note Agreement dated as of May 15, 1991 between Golden State Water Company and Transamerica Occidental Life Insurance Company incorporated herein by reference to Registrant’s Form 10-Q with respect to the quarter ended June 30, 1991 10.4 Schedule of omitted Note Agreements, dated May 15, 1991, between Golden State Water Company and Transamerica Annuity Life Insurance Company, and Golden State Water Company and First Colony Life Insurance Company incorporated herein by reference to Registrant’s Form 10-Q with respect to the quarter ended June 30, 1991 10.5 Loan Agreement between California Pollution Control Financing Authority and Golden State Water Company, dated as of December 1, 1996 incorporated by reference to Exhibit 10.7 of Registrant’s Form 10-K for the year ended December 31, 1998 10.6 Agreement for Financing Capital Improvement dated as of June 2, 1992 between Golden State Water Company and Three Valleys Municipal Water District incorporated herein by reference to Registrant’s Form 10-K with respect to the year ended December 31, 1992 10.7 Water Supply Agreement dated as of June 1, 1994 between Golden State Water Company and Central Coast Water Authority incorporated herein by reference to Exhibit 10.15 of Registrant’s Form 10-K with respect to the year ended December 31, 1994 10.8 2003 Non-Employee Directors Stock Purchase Plan, as amended, incorporated herein by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on January 30, 2009 (2) 10.9 Dividend Reinvestment and Common Share Purchase Plan incorporated herein by reference to American States Water Company Registrant’s Form S-3D filed November 12, 2008 10.11 Golden State Water Company Pension Restoration Plan, as amended, incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on May 21, 10.12 American States Water Company 2000 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed May 23, 2008 (2) 10.13 Loan and Trust Agreement between The Industrial Development Authority of The County of Maricopa, Chaparral City Water Company and Bank One, Arizona, NA, dated as of December 1, 1997 incorporated by reference to Exhibit 10.19 of Registrant’s Form 10-K with respect to the year ended December 31, 2000 Form of Indemnification Agreement for executive officers Form of Non-Qualified Stock Option Plan Agreement for officers and key employees for the 2000 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on January 7, 2005 (2) Form of Non-Qualified Stock Option Plan Agreement for officers and key employees for the 2000 Stock Incentive Plan incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the period ended March 31, 2006 (2) Form of Director’s Non-Qualified Stock Option Agreement incorporated by reference to Exhibit 10.1 to Registrant’s Form 10-Q for the period ended September 30, 2006 (2) Water Sale Agreement dated as of January 31, 2006 between Natomas Central Mutual Water Company and American States Utility Services, Inc. incorporated by reference to Exhibit 9.01 to Registrant’s Form 8-K filed February 3, 2006 Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2000 Stock Incentive Plan incorporated by reference to Exhibit 10.3 of Registrant’s Form 8-K filed November 5, 2008 (2) Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2008 Stock Incentive Plan for restricted stock unit awards prior to January 1, 2011 incorporated by reference to Exhibit 10.4 of Registrant’s Form 8-K filed on November 5, 2008 (2) Form of Amendment to Change in Control Agreement between American States Water Company or a subsidiary and certain executives incorporated herein by reference to Exhibit 10.6 to Registrant’s Form 8-K filed November 5, 2008 (2) Form of Nonqualified Stock Option Agreement for officers and key employees for the 2008 Stock Incentive Plan incorporated for stock options granted prior to January 1, 2011 herein by reference to Exhibit 10.3 to Registrant’s Form 8-K filed May 23, 2008 (2) Form of Award Agreement for Awards under the Policy Regarding the Recoupment of Certain Performance-Based Compensation Payments incorporated herein by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on July 31, 2009(2) Performance Incentive Plan incorporated herein by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed on July 31, 2009(2) Officer Relocation Policy incorporated herein by reference to Exhibit 10.5 to the Registrant’s Form 8-K filed on July 31, 2009(2) Form of Non-Qualified Stock Option Award Agreement for officers and key employees under the 2008 Stock Incentive Plan for stock options granted after December 31, 2010 incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed on February 4, 2011 (2) Form of Performance Award Agreement Form of 2013 Performance Award Agreement incorporated by reference herein to Exhibit 10.1 to the Registrant’s Form 8-K filed on March 15, 2013 (2) 31.1.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1) 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1) 31.2.1 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for GSWC (1) 32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) 101.INS XBRL Instance Document (3) 101.SCH XBRL Taxonomy Extension Schema (3) 101.CAL XBRL Taxonomy Extension Calculation Linkbase (3) 101.DEF XBRL Taxonomy Extension Definition Linkbase (3) 101.LAB XBRL Taxonomy Extension Label Linkbase (3) 101.PRE XBRL Taxonomy Extension Presentation Linkbase (3) By: By: There have been no other material changes regarding Registrant’s market risk position from the information provided in its Annual Report on Form 10-K for the year ended December 31, 2011. The quantitative and qualitative disclosures about market risk are discussed in Item 7A-Quantitative and Qualitative Disclosures About Market Risk, contained in Registrant’s Annual Report on Form 10-K.Registrant haswe have carried out an evaluation, under the supervision and with the participation of itsour management, including Registrant’sour Chief Executive Officer (“CEO”) and itsour Chief Financial Officer (“CFO”), of the effectiveness, as of the end of the fiscal quarter covered by this report, of the design and operation of itsour “disclosure controls and procedures” as defined in Rule 13a-15(e) and 15d-15(e) promulgated by the Securities and Exchange Commission (“SEC”) under the Exchange Act. Based upon that evaluation, the CEO and the CFO concluded that disclosure controls and procedures, as of the end of such fiscal quarter, were adequate and effective to ensure that information required to be disclosed by Registrantus in the reports that it fileswe file or submitssubmit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to Registrant’sour management, including itsour CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.Registrant’sour internal control over financial reporting during the quarter ended SeptemberJune 30, 2012,2013, that has materially affected or is reasonably likely to materially affect itsour internal control over financial reporting.anythe Superior Court of San Bernardino: Rachel Alford et al vs. Golden State Water Company (case number CIVBS #1200612), Lorraine Gardner et al vs. Golden State Water Company (case number CIVBS #1200613), Clarice Matthews et al vs. Golden State Water Company (case number CIVBS #1200615), and Amy Dixon, et al vs. Golden State Water Company (case number CIVBS #1200616) arising out of the November 19, 2010 detection of perchlorate in one of GSWC’s active production wells in the Barstow service area. The lawsuits claim negligence by GSWC and seek, among other things, punitive and compensatory damages. GSWC is the only named defendant in all four lawsuits. GSWC believes that these lawsuits are without merit and intends to vigorously defend itself in this matter. However, at this time management is unable to estimate a loss or range of loss, if any, resulting from these pending lawsuits, and does not believe a loss is probable.proceedings describedmatters are discussed in our 2011Item 3 - Legal Proceedings, contained in Registrant's Annual Report on Form 10-K.2011,2012, no other legal proceedings are pending, which are believed to be material. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against property, general liability and workers’ compensation claims incurred in the ordinary course of business.20112012 Annual Report on Form 10-K.thirdsecond quarter of 2012.2013. The following table provides information about repurchases of common shares by AWR during the thirdsecond quarter of 2012:
Shares
Purchased
per Share
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
of Shares That May
Yet Be Purchased
under the Plans or
ProgramsPeriod April 1 - 30, 2013 73,344 $ 55.75 — NA May 1 – 31, 2013 65,203 $ 54.50 — NA June 1 - 30, 2013 59,468 $ 53.55 — NA Total 198,015 (2) $ 54.68 — NA (3) (1)None of the common shares were purchased pursuant to any publicly announced stock repurchase program.(2)Of this amount, 156,400 Common Shares were acquired on the open market for employees pursuant to the Company’s 401(k) Plan. The remainder of the Common Shares were acquired on the open market for participants in the Company’s Common Share Purchase and Dividend Reinvestment Plan.(3)None of these plans contain a maximum number of common shares that may be purchased in the open market under the plans.None(a)On October 30, 2012, the Board of Directors of AWR declared a regular quarterly dividend of $0.355 per Common Share. The dividend will be paid on or about December 1, 2012 to shareholders of record as of the close of business on November 12, 2012.(b)There have been no material changes during the third quarter of 2012 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR.3.13.1 By-Laws of American States Water Company incorporated by reference to Exhibit 10.13.1 of Registrant’s Form 10-Q for the quarter ended June 30, 20128-K, filed May 13, 20113.33.1 of Registrant’s Form 10-K/A for the year ended December 31, 200310.1010.10 Form of Amended and Restated Change in Control Agreement between American States Water Company or a subsidiary and certain executives incorporated herein by reference to Exhibit 10.5 to Registrant’s Form 8-K filed on November 5, 2008(2) 2009 (2)10.14 Subcontract among the United States, Central Arizona Water Conservation District and Chaparral City Water Company providing for water service, dated as of December 6, 1984 incorporated by reference to Exhibit 10.20 to Registrant’s Form 10-K with respect to the year ended December 31, 2000 10.15 Contract between the United States and Chaparral City Water Company service, dated as of December 6, 1984 for construction of a water distribution system incorporated by reference to Exhibit 10.21 Registrant’s Form 10-K with respect to the year ended December 31, 2000 10.16 Amended and Restated Credit Agreement between American States Water Company dated June 3, 2005 with Wells Fargo Bank, N.A., as Administrative Agent, as amended, incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed June 10, 2010May 28, 201310.14 and directors incorporated by reference to Exhibit 10.21 to Registrant’s Form 10-K for the year ended December 31, 2006 (2)10.1510.1610.1710.1810.1910.2010.2110.22Amended and Restated 2008 Stock Incentive Plan incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed May 24, 201223, 2008 (2)10.2310.2420112012 Short-Term Incentive Program incorporated herein by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on April 1, 2011(2)10.2520112012 Short-Term Incentive Program incorporated herein by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on April 1, 2011(2)10.2610.2710.2810.2910.3010.33 Form of Restricted Stock Unit Award Agreement for officers and key employees under the 2008 Stock Incentive Plan for restricted stock unit awards after December 31, 2010 incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed on February 4, 2011 (2) 10.3120122013 Short-Term Incentive Program incorporated by reference herein to Exhibit 10.31 of10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 20128-K filed on March 28, 2013 (2)10.3220122013 Short-Term Incentive Award Agreement incorporated by reference herein to Exhibit 10.32 of10.2 to the Registrant’s Form 10-Q for the quarter ended June 30, 20128-K filed on March 28, 2013 (2)10.33for award of Performance Shares tobetween Registrant and Robert J. Sprowls dated May 29, 2012 incorporated by reference herein to Exhibit 10.1 ofto the Registrant’s Form 8-K filed on June 4, 2012 (2)31.110.38 Form of Indemnification Agreement for directors incorporated by reference herein to Exhibit 10.35 to the Registrant’s Form 10-K for the period ended December 31, 2012 (2) 10.39 2013 Non-Employee Directors Plan incorporated by reference herein to Exhibit 10.1 to the Registrant's Form 8-K filed on May 24, 2013 (2) 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1) (1)Filed concurrently herewith(2)Management contract or compensatory arrangement(3)Furnished concurrently herewithAMERICAN STATES WATER COMPANY (“AWR”): By:/s/ EVA G. TANG Senior Vice President-Finance, Chief Financial Officer, Corporate Secretary and Treasurer GOLDEN STATE WATER COMPANY (“GSWC”): By:/s/ EVA G. TANG Senior Vice President-Finance, Chief Financial Officer and Secretary Date:November 5, 2012August 8, 2013