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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x

xQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended SeptemberJune 30, 2012

2013
or

or

o

¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                    to                   

Commission file number   001-14431

American States Water Company

(Exact Name of Registrant as Specified in Its Charter)

California

95-4676679

California95-4676679
(State or Other Jurisdiction of Incorporation or Organization)

(IRS Employer Identification No.)

630 E. Foothill Blvd, San Dimas, CA

91773-1212

(Address of Principal Executive Offices)

(Zip Code)

(909) 394-3600

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Commission file number   001-12008

Golden State Water Company

(Exact Name of Registrant as Specified in Its Charter)

California

95-1243678

California95-1243678
(State or Other Jurisdiction of Incorporation or Organization)

(IRS Employer Identification No.)

630 E. Foothill Blvd, San Dimas, CA

91773-1212

(Address of Principal Executive Offices)

(Zip Code)

(909) 394-3600

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

American States Water Company

Yes x No o¨

Golden State Water Company

Yes x No o¨

Indicate by check mark whether Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files).



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American States Water Company

Yes x No o¨

Golden State Water Company

Yes x No o¨


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

American States Water Company

Large accelerated filer ox

Accelerated filer x¨

Non-accelerated filer o¨

Smaller reporting company o¨

Golden State Water Company

Large accelerated filer o¨

Accelerated filer o¨

Non-accelerated filer x

Smaller reporting company o¨


Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

American States Water Company

Yes ¨ Nox

Golden State Water Company

Yes ¨ Nox

As of 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.

Golden State Water Company meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form, in part, with the reduced disclosure format for Golden State Water Company.





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AMERICAN STATES WATER COMPANY

and

GOLDEN STATE WATER COMPANY

FORM 10-Q

INDEX



28

57

57

58

58

58

58

58

58

59

62



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PART I

Item 1. Financial Statements

General

The basic financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments consisting of normal recurring items and estimates necessary for a fair statement of results for the interim period have been made.

It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto in the latest Annual Report on Form 10-K of American States Water Company and its wholly owned subsidiary, Golden State Water Company.

Filing Format

American States Water Company (hereinafter “AWR”) is the parent company of Golden State Water Company (hereinafter “GSWC”) and American States Utility Services, Inc. (hereinafter “ASUS”) and its subsidiaries.

This quarterly report on Form 10-Q is a combined report being filed by two separate Registrants: AWR and GSWC. For more information, please see Note 1 toof 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.

Forward-Looking Statements

Information

This Form 10-Q and the documents incorporated herein contain forward-looking statements intended to qualify for the “safe harbor” from liability established by the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are based on current estimates, expectations and projections about future events and assumptions regarding these events and include statements regarding management’s goals, beliefs, plans or current expectations, taking into account the information currently available to management.  Forward-looking statements are not statements of historical facts.  For example, when we use words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may” and other words that convey uncertainty of future events or outcomes, we are making forward-looking statements.  We are not able to predict all the factors that may affect future results.  We caution you that any forward-looking statements made by us are not guarantees of future performance and thatthose 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:

·

The outcome of 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

·

Changes in the policies and procedures of the California Public Utilities Commission (“CPUC”)

·

Timeliness of CPUC action on rates

·

Our ability to efficiently manage capital expenditures and operating and maintenance expenses within CPUC authorized levels and timely recovery of our costs through rates

·

The impact of increasing opposition to GSWC rate increases on our ability to recover our costs through rates and on the size of our customer base

·

Our ability to forecast the costs of maintaining GSWC’s aging water and electric infrastructure

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·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

·


1


Changes in accounting valuations and estimates, including changesthose resulting from changes in our assessment of anticipated recovery of regulatory assets, liabilities and revenues subject to refund or regulatory disallowances

·

Changes in environmental laws and water and wastewater quality requirements and increases in costs associated with complying with these laws and requirements

·

Availability of water supplies, which may be adversely affected by changes in weather patterns, contamination and court decisions or other governmental actions restricting use of water from the Colorado River, transportation of water to GSWC’s service areas through the California State Water Project or pumping of groundwater

·

Our ability to obtain adequate, reliable and cost-effective supplies of chemicals, electricity, fuel, water and other raw materials that are needed for our water and wastewater operations

·

Our ability to recover the costs associated with the contamination of GSWC’s groundwater supplies from parties responsible for the contamination or through the ratemaking process and the time and expense incurred by us in obtaining recovery of such costs

·

Adequacy of our power supplies for GSWC’s Bear Valley Electric Service division and the extent to which we can manage and respond to the volatility of electric and natural gas prices

·

Our ability to comply with the CPUC’s renewable energy procurement requirements

·

Changes in GSWC customer demand due to unanticipated population growth or decline, changes in climate conditions, general economic and financial market conditions, cost increases and conservation

·

Changes in accounting treatment for regulated utilities

·

Changes in estimates used in ASUS’ASUS’s revenue recognition under the percentage of completion method of accounting for our construction activities at our contracted services business

·

Termination, in whole or in part, of our contracts to provide water and/or wastewater services at military bases for the convenience of the U.S. government or for default

·

Delays in filing for or obtaining redetermination of prices or equitable adjustments to our prices on our contracts to provide water and/or wastewater services at military bases

·

Disallowance of costs on our contracts to provide water and/or wastewater services at military bases as a result of audits, cost review or investigations by contracting agencies

·

Inaccurate assumptions used in preparing bids in our contracted services business

·

Failure of the collection or sewage systems that we operate on military bases resulting in untreated wastewater or contaminants spilling into nearby properties, streams or rivers

·

Failure to comply with the terms of our military privatization contracts

·

Failure of any of our subcontractors to perform services for us in accordance with the terms of our military privatization contracts

·

Implementation, maintenance and upgrading of our information technology systems

·

General economic conditions which may impact our ability to recover infrastructure investments and operating costs from customers

·

Explosions, fires, accidents, mechanical breakdowns, the disruption of information technology and telecommunication systems, human error and similar events that may occur while operating and maintaining a water and electric systemsystems in California or operating and maintaining water and wastewater systems on military bases under varying geographic conditions

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·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

·


2


Potential costs, lost revenues, or other consequences resulting from misappropriation of assets or sensitive information, corruption of data, or operational disruption in connection with a cyber attack or other cyber incident
Restrictive covenants in our debt instruments or changes to our credit ratings on current or future debt that may increase our financing costs or affect our ability to borrow or make payments on our debt

·

Our ability to access capital markets and other sources of credit in a timely manner on acceptable terms

Please consider our forward-looking statements in light of these risks (which are more fully disclosed in our 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.

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AMERICAN STATES WATER COMPANY

CONSOLIDATED BALANCE SHEETS

ASSETS

(Unaudited)

(in thousands)

 

September 30,
2012

 

December 31,
2011

 

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) 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
The accompanying notes are an integral part of these consolidated financial statements

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AMERICAN STATES WATER COMPANY

CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

(Unaudited)

(in thousands)

 

September 30,
2012

 

December 31,
2011

 

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

 


(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
The accompanying notes are an integral part of these consolidated financial statements

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AMERICAN STATES WATER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS

ENDED SEPTEMBERJUNE 30, 20122013 AND 2011

2012

(Unaudited)

 

 

Three Months Ended
September 30,

 

(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

 


  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

The accompanying notes are an integral part of these consolidated financial statements

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AMERICAN STATES WATER COMPANY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINESIX MONTHS

ENDED SEPTEMBERJUNE 30, 20122013 AND 2011

2012

(Unaudited)

 

 

Nine Months Ended
September 30,

 

(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

 


  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

The accompanying notes are an integral part of these consolidated financial statements

7





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Table of Contents

AMERICAN STATES WATER COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20122013 AND 2011

2012

(Unaudited)

 

 

Nine Months Ended
September 30,

 

(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

 


  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


The accompanying notes are an integral part of these consolidated financial statements

8



8

Table of Contents

GOLDEN STATE WATER COMPANY

BALANCE SHEETS

ASSETS

(Unaudited)

(in thousands)

 

September 30,
2012

 

December 31,
2011

 

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) 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
The accompanying notes are an integral part of these financial statements

9




9

Table of Contents

GOLDEN STATE WATER COMPANY

BALANCE SHEETS

CAPITALIZATION AND LIABILITIES

(Unaudited)

(in thousands)

 

September 30,
2012

 

December 31,
2011

 

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

 


(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
The accompanying notes are an integral part of these financial statements

10



10

Table of Contents

GOLDEN STATE WATER COMPANY

STATEMENTS OF INCOME

FOR THE THREE MONTHS

ENDED SEPTEMBERJUNE 30, 20122013 AND 2011

2012

(Unaudited)

 

 

Three Months Ended
September 30,

 

(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

 



  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
The accompanying notes are an integral part of these financial statements

11







11

Table of Contents

GOLDEN STATE WATER COMPANY

STATEMENTS OF INCOME

FOR THE NINESIX MONTHS

ENDED SEPTEMBERJUNE 30, 20122013 AND 20112012
(Unaudited)

(Unaudited)

 

 

Nine Months Ended
September 30,

 

(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

 

  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

The accompanying notes are an integral part of these financial statements

12




12

Table of Contents

GOLDEN STATE WATER COMPANY

STATEMENTS OF CASH FLOW

FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20122013 AND 2011

2012

(Unaudited)

 

 

Nine Months Ended
September 30,

 

(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
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
The accompanying notes are an integral part of these financial statements

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AMERICAN STATES WATER COMPANY AND SUBSIDIARIES

AND

GOLDEN STATE WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(Unaudited)

Note 1 — Summary of Significant Accounting Policies:

Nature of Operations: American States Water Company (“AWR”) is the parent company of Golden State Water Company (“GSWC”) and American States Utility Services, Inc. (“ASUS”) (and its subsidiaries, Fort Bliss Water Services Company (“FBWS”), Terrapin Utility Services, Inc. (“TUS”), Old Dominion Utility Services, Inc. (“ODUS”), Palmetto State Utility Services, Inc. (“PSUS”) and Old North Utility Services, Inc. (“ONUS”)).  The subsidiaries of ASUS may be collectively referred to herein as the “Military Utility Privatization Subsidiaries.” AWR was also the parent company of Chaparral City Water Company (“CCWC”) until the sale of CCWC on May 31, 2011.

GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in California serving approximately 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.

ASUS performs water and wastewater services, including the operation, maintenance, renewal and replacement of water and/or wastewater systems on a contract basis. Through its wholly owned subsidiaries, ASUS operates and maintains the water and/or wastewater systems at various military bases pursuant to 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.

Basis of Presentation: The consolidated financial statements and notes thereto are being presented in a combined report being filed by two separate Registrants: AWR and GSWC. References in this report to “Registrant” are to AWR and GSWC, collectively, unless otherwise specified.  Certain prior period amounts have been reclassified to conform to the 20122013 financial statement presentation.

The consolidated financial statements of AWR include the accounts of AWR and its subsidiaries, all of which are wholly owned. These financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. Inter-company transactions and balances have been eliminated in the AWR consolidated financial statements. The operational results
On May 20, 2013, AWR's Board of CCWCDirectors 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.

Note 3 Earnings Per Share/Capital Stock.


The consolidated financial statements included herein have been prepared by Registrant, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  The December 31, 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.


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GSWC and ASUS provide and receive various services to and from their parent, 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.
Notes Payable to Banks: On May 31, 2011, GSWC also allocated costs23, 2013, AWR entered into a fourth amendment to CCWC.

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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

$50.0 million. As of June 30, 2013, there are no outstanding borrowings under this credit facility.

Sales and Use Taxes:  GSWC bills certain sales and use taxes levied by state or local governments to its customers. Included in these sales and use taxes are franchise fees, which GSWC pays to various municipalities (based on ordinances adopted by these municipalities) in order to use public right of way for utility purposes. GSWC bills these franchise fees to its customers based on a CPUC-authorized rate. These franchise fees, which are required to be paid regardless of GSWC’s ability to collect from the customer, are accounted for on a gross basis. GSWC’s franchise fees billed to customers and recorded as operating revenue were approximately $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.

Depending on the state in which the operations are conducted, ASUS and its subsidiaries are also subject to certain state non-income tax assessments generally computed on a “gross receipts” or “gross revenues” basis.  These non-income tax assessments are required to be paid regardless of whether the subsidiary is reimbursed by the U.S. government for these assessments under its 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.

Accounting 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.

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Note 2 — Regulatory Matters:

In accordance with accounting principles for rate-regulated enterprises, Registrant records regulatory assets, which represent probable future recovery of costs from customers through the ratemaking process, and regulatory liabilities, which represent probable future refunds that are to be credited to customers through the ratemaking process. At SeptemberJune 30, 2012,2013, Registrant had approximately $77.7$74.3 million of regulatory assets, net of regulatory liabilities not accruing carrying costs. Of this amount, $52.1$50.7 million relates to the underfunded positionsunderfunding of the pension and other post-retirement obligations, $16.2$15.3 million relates to deferred income taxes representing accelerated tax benefits flowed through to customers, which will be included in rates concurrently with recognition of the associated future tax expense, and $2.7$1.1 million relates to a memorandum account authorized by the CPUC to track unrealized gains and losses on GSWC’s purchase power contract over the life of the contract. The remainder relates to other items that do not provide for or incur carrying costs.
Regulatory assets represent costs incurred by GSWC for which it has received or expects to receive rate recovery in the future. In determining the probability of costs being recognized in other periods, GSWC considers regulatory rules and decisions, past practices, and other facts or circumstances that would indicate if recovery is probable. If the CPUC determined that a portion of GSWC’s assets were not recoverable in customer rates, GSWC would be required to determine if it had suffered an asset impairment that would require a write-down in the assets’ valuation. Regulatory assets, less regulatory liabilities, included in the consolidated balance sheets are as follows:

(dollars in thousands) 

 

September 30,
2012

 

December 31,
2011

 

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

 


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(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
Regulatory matters are discussed in detail in 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. The discussion below focuses on significant matters and changesdevelopments since December 31, 2011.

2012.

Alternative-Revenue Programs:

GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC using the Water Revenue Adjustment Mechanism (“WRAM”). GSWC also records the difference between adopted and actual expense levels for purchased water, purchased power and pump taxes, as established by the CPUC, using the Modified Cost Balancing AccountsAccount (“MCBA”). accounts approved by the CPUC.  GSWC has implemented surcharges to recover all of its WRAM balances, net of the MCBA.  The recovery or refund of the WRAM is netted against the MCBA over- or under-collection for the corresponding rate-making area and is interest bearing at the current 90-day commercial paper rate.  For the three months ended SeptemberJune 30, 20122013 and 2011,2012, surcharges of $6.7$7.1 million and $5.2$4.2 million, respectively, were billed to customers to decreaserecover previously incurred under-collections in the WRAM, net of MCBA accounts, and approximately $14.3$10.6 million and $10.8$7.6 million for were billed to customers during the ninesix months ended SeptemberJune 30, 2013 and 2012, respectively.  For the three and six months ended June 30, 2013, the WRAM and MCBA accounts also reflect the effects of the authorized 2013 adopted revenue and supply cost amounts approved in the CPUC’s final decision issued in May 2013 on GSWC’s water general rate case, discussed later under General Rate Case Memorandum Accounts.  In March 2013, the CPUC approved recovery of GSWC's 2012 and 2011, respectively.WRAM under-collection of $23.8 million, to be collected over 12 to 18 months. As of SeptemberJune 30, 2012,2013, GSWC has a net aggregated regulatory asset of $43.6$38.0 million which is comprised of a $64.2$51.1 million under-collection in the WRAM accounts and $20.6$13.1 million over-collection in the MCBA accounts.

Based on CPUC guidelines, recovery periods relating to the majority of GSWC’s WRAM/MCBA balances range between 1218 and 36 months, with the majority being 24 months.  As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM, net of its MCBA, within 24 months following the year in which they are recorded.  In September 2010, GSWC, along with other California water utilities, filed an application with the CPUC to modify the recovery period of its WRAM and MCBA to 18 months or less..  In April 2012, the CPUC issued a final decision which, among other things, setsset the recovery periodperiods for under-collection balances that are up to 15% of adopted annual revenues at 18 months or less.  For under-collection balances greater than 15%, the recovery period is 19 to 36 months. GSWC does not currently have any balances over 15% of adopted annual revenues.

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Table of Contents

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.

For BVES, the CPUC approved the Base Revenue Requirement Adjustment Mechanism (“BRRAM”), which adjusts certain revenues to adopted levels.  In June 2012,May 2013, the CPUC approved surcharges for recovery of BVES’ 2011 Base Revenue Requirement Adjustment Mechanism (“BRRAM”)2012 BRRAM balance. The CPUC approved a 36-month36-month surcharge, with the amounts collected through December 20132014 to be applied to the 20112012 BRRAM under-collection.under-collection of $2.3 million.  Surcharges collected during the remainder of the 36-month36-month period would be for recovery ofwill recover a $1.6$1.8 million increase in the BVES revenue requirement representing the difference between the allocated general office costs authorized by the CPUC in its November 2010, decision on the Region II, Region III and general office rate case, and what is currentlywas then in BVES’ rates for allocated general office costs.  As authorized by the CPUC, the $1.6$1.8 million was includedcombined in the BRRAM for recovery through the surcharge; however, these costs are not considered an alternative revenue program.

General Rate Case Memorandum Accounts:
The balance in the general rate case memorandum accounts represents the revenue differences between interim rates and final rates authorized by the CPUC Pendingdue to delays in receiving decisions on various general rate case applications. As of June 30, 2013, there is an aggregate $17.2 million in the general rate case memorandum accounts, the majority of which is for retroactive rate increases effective January 1, 2013, as a result of the final decision issued by the CPUC in May 2013 on GSWC’s water general rate case.

16


On May 9, 2013, the CPUC issued a final decision on GSWC’s water general rate case approving new rates for 2013 through 2015 at GSWC’s three water regions, which include recovery for costs incurred at the general office. The new rates were retroactive to January 1, 2013 and were implemented on May 22, 2013.  Accordingly, as of June 30, 2013, GSWC has a $13.1 million regulatory asset representing the difference between interim rates and the final rates authorized by the CPUC for the period January 1, 2013 through May 22, 2013. A surcharge to recover this difference is expected to be filed with the CPUC during the third quarter of 2013.
Other Regulatory Assets:
Among other things, the final CPUC decision issued in May 2013 approved the recovery of various memorandum accounts which tracked certain previously incurred costs.  As a result, during the first quarter of 2013 , GSWC recorded $3.2 million in other regulatory assets, the majority of which was reflected as a decrease in certain operating expenses related to the approval of these memorandum accounts in the final decision.
Other Regulatory Matters:
CPUC Rehearing Matter:

Matter

In July 2011, the CPUC issued an order granting the Divisionrehearing of Ratepayer Advocates (“DRA”) request to rehear certain issues from the Region II, Region III and general office rate case approved in November 2010.  Among the issues in the rehearing arewas the La Serena plant improvement project included in rate base totaling approximately $3.5$3.5 million and GSWC’s methodology for deferring rate case costs.  Final resolution of these matters is expected in 2013. The regulatory issues associated with these matters are further discussed below.

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..  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.

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Table of Contents

BVES Regulatory Matters:

BVES General Rate Case

In February 2012, GSWCBVES filed its BVES general rate case (“GRC”) for new rates in years 2013 through 2016.  In August 2012, DRA issued its report on the GRC.  Included in DRA’s recommendations iswas a $2.0$2.0 million retroactive ratemaking proposal to increase BVES’ accumulated depreciation balance to reflect adopted depreciation expense for the years 2009 through 2012 rather than actual depreciation expense as recorded in complianceaccordance with Generally Accepted Accounting Principles.  DRA also recommendsrecommended that one-half of deferred rate case costs be borne by shareholders, rather than entirely by customers, as has been authorized by the CPUC in prior rate cases.  As of SeptemberJune 30, 2012,2013, GSWC has a $2.2$2.0 million regulatory asset representing deferred rate case costs for the current BVES general rate case, which are considered probable of recovery. Hearings on the GRC, including these matters, were held in September 2012.CPUC has historically allowed utilities to recover. If DRA prevails, GSWC may be required to record a charge to adjust accumulated depreciation and to write-offwrite off half of its deferred rate case costs. GSWC believes DRA’s recommendations are without merit and intends to vigorously defend its positions.  However, atAt this time, GSWC does not believe a potential loss is probable, but is unable to predict the final outcome of these matters which are expected to be resolved in the pending rate case.

Hearings on BVES’ GRC, including the matters discussed above, were held in September 2012.  In November 2012, GSWC filed a motion to introduce new information regarding the results of a study on mandatory testing of BVES’s transmission and distribution poles to help support BVES' request for approval of additional capital expenditures. The administrative law judge assigned to this GRC re-opened the record to receive additional testimony based on this study, and to conduct additional evidentiary hearings.  DRA has challenged the results of the study, and requested that BVES provide additional information.  Alternative dispute resolution meetings for the GRC are scheduled to be held in September 2013. A proposed decision for this GRC is expected later in 2013.
Renewables Portfolio Standard

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

In December 2011, a new renewables portfolio standardsstandard (“RPS”).  Previous filings under prior RPS laws had indicated that BVES had not achieved annual target purchase levels of renewable energy resources and thus, on its face, might be subject to a potential penalty.  However, a new RPS law went into effect in December 2011 which changed, among other things, the prior RPS requirement based upon annual procurement targets to multi-year procurement targets.  Under the new RPS, law, BVES must procure sufficient RPS-eligible resources to meet: (i) any RPS procurement requirement deficit for any year prior to 2011, and (ii) RPS procurement requirements for the 2011 through 2013 compliance period by no later than December 31, 2013.  BVES’ firstlatest RPS reports under the new lawstandards were submitted to the CPUC in March 2012 and AugustDecember 2012, and did not reflect any RPS procurement deficiencies nor any potential or actual penalties.  Accordingly, no provision for loss has been recorded in the financial statements as of SeptemberJune 30, 2012.

2013.


17


In September 2009,December 2012, GSWC negotiatedentered into a ten-year contractten-year agreement with a third party to purchase renewable energy credits (“RECs”). Under the terms of the agreement, GSWC would purchase approximately 582,000 RECs over a ten-year period which would be used towards meeting the CPUC’s RPS procurement requirements.  In July 2013, the CPUC approved the agreement.
In July 2012, the CPUC also approved the purchase of REC's from the Los Angeles County Sanitation District (“LACSD”) 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, GSWC 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.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.


In June 2011, GSWC’sMarch 2013, BVES filed an application with the CPUC to recover $1.2 million$835,000 (including interest) in additional costs incurred from April 1, 2011 through December 31, 2012 in connection with its efforts to procure renewable energy resources.  In May 2013, the CPUC approved these costs and accordingly, BVES recorded a regulatory asset and a corresponding decrease to legal and outside serviceservices costs during the second quarter of 2013. The amount will be recovered through a 12-month surcharge. In March 2012, BVES had also received approval for recovery of $1.2 million of costs in its efforts to procure renewable energy resources incurred during the period September 1, 2007 through March 31, 2011 in connection with seeking to procure renewable energy resources.  In March 2012, the CPUC approved the application.  Accordingly, a regulatory asset of $1.3 million, including accrued interest, was recorded in March 2012.  A 12-month surcharge was implemented in May 2012 for recovery of these costs.

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.

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Table of Contents

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.

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Table of Contents

Note 3 — Earnings per Share/Capital Stock:

In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), AWRRegistrant uses the “two-class” method of computing EPS. The “two-class” method is an earnings allocation formula that determines EPS for each class of common stock and participating security. AWR has participating securities related to stock options and restricted stock unitsits stock-based awards that earn dividend equivalents on an equal basis with AWR’s Common Shares (the “Common Shares”) that have been issued under AWR’s 2000 Stock Incentive Plan and 2008 Stock Incentive Plan (the “2000 and 2008 Employee Plans”) and the 2003 Non-Employee Directors Plan (the “2003 Directors Plan”).  In applying the “two-class” method, undistributed earnings are allocated to both common shares and participating securities.


The following is a reconciliation of AWR’sRegistrant’s net income and weighted average Common Shares outstanding for calculating basic net income per share:

Basic

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

(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 EPS is based upon the weighted average number of Common Shares, including both outstanding shares and shares potentially issuable in connection with stock options granted under Registrant’s 2000 and 2008 Employee Plans, and the 2003 Directors Plan, and net income. At SeptemberJune 30, 20122013 and 2011,2012, there were 226,208140,834 and 668,360519,273 options outstanding, respectively, under these Plans. At SeptemberJune 30, 20122013 and 2011,2012, there were also 148,176130,453 and 136,703147,109 restricted stock units outstanding, respectively.


18


The following is a reconciliation of AWR’sRegistrant’s net income and weighted average Common Shares outstanding for calculating diluted net income per share:

Diluted

 

For The Three Months
Ended September 30,

 

For The Nine Months
Ended September 30,

 

(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
(1)In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 182,932140,834 and 425,839410,760 stock options at SeptemberJune 30, 20122013 and 2011,2012, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share.

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Table of Contents

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.

No stock options outstanding as of 43,276 and 241,921June 30, 2013 had an exercise price greater than the average market price of AWR’s Common Shares for the six months ended June 30, 2013. As of June 30, 2012, 108,013 stock options were outstanding at September 30, 2012 and 2011, respectively, but not included in the computation of diluted EPS because the related option exercise price was greater than the average market price of AWR’s Common Shares for the ninethree months ended SeptemberJune 30, 2012 and 2011.  Stock.  There were 500 stock options of 600 were outstanding at SeptemberJune 30, 2011,2012, but not included in the computation of diluted EPS because they were anti-dilutive.

There were no stock options outstanding at June 30, 2013 that were anti-dilutive.

During the ninesix months ended SeptemberJune 30, 20122013 and 2011, AWR2012, Registrant issued 423,590104,493 and 100,148131,581 Common Shares, for approximately $12,434,000$1,832,000 and $2,350,000,$2,748,000, respectively, under AWR’sRegistrant’s Common Share Purchase and Dividend Reinvestment Plan (“DRP”), the 401(k) Plan, the 2000 and 2008 Employee Plans, and the 2003 Directors Plan. In addition, Registrant purchased 571,652240,612 and 319,470408,962 Common Shares on the open market during the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, respectively, under Registrant’s 401(k) Plan and the Common Share Purchase and Dividend Reinvestment Plan.DRP. The Common Shares purchased by Registrant were used to satisfy the requirements of these plans.

During the three months ended SeptemberJune 30, 20122013 and 2011,2012, AWR paid quarterly dividends of approximately $6.7$6.8 million, or $0.355$0.355 per share, and $5.2$5.3 million, or $0.28$0.28 per share, respectively. During the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, AWR paid quarterly dividends to shareholders of approximately $17.3$13.7 million, or $0.915$0.71 per share, and $15.3$10.6 million, or $0.82$0.56 per share, respectively.


On May 20, 2013, AWR's Board of Directors approved its third quarter cash dividend of $0.405 per share on the common shares of the Company. Dividends on the common shares will be payable on September 3, 2013 to shareholders of record at the close of business on August 15, 2013. The September 3, 2013 dividend will be applied to the shares prior to the stock split discussed below.

On May 20, 2013, AWR's Board of Directors also approved a two-for-one stock split of the Company's common shares.  On or about September 3, 2013, shareholders will receive one additional share for each AWR common share they own. Common shares issued and outstanding at June 30, 2013 and December 31, 2012 were 19.3 million and 19.2 million, respectively. Given retroactive effect to the stock split, common shares issued and outstanding at June 30, 2013 and December 31, 2012, would have been approximately 38.7 million and 38.5 million, respectively. Pro forma per share data for the three and six months ended June 30, 2013 on a post-split basis are presented below:

19


Earnings per shareFor 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


Note 4 — Derivative Instruments:

GSWC purchases certain power at a fixed cost under a purchased power contract, depending on the amount of power and the period during which the power is purchased.  One of the productspurchased under this contract is an option to purchase energy of up to 15 megawatts per hour daily during winter peak months (November through March) and up to 5 megawatts per hour daily during nonpeak months (April through October).a purchased power contract.  The contract is subject to the accounting guidance for derivatives and requires mark-to-market derivative accounting.

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.zero.  As of SeptemberJune 30, 20122013 there was a $2.7$1.1 million cumulative unrealized loss which has been included in the memorandum account.

On January 12, 2012,

GSWC executed a new purchased power master agreement. The agreement which is subject to CPUC approval, which GSWC plans to file for approval by the end of 2012.approval. If approved, GSWC will be able to purchase 12 megawatts (“MWs”) of base load energy at a fixed price to be negotiated upon CPUC approval of the agreement. In June 2013, GSWC filed for approval of the agreement with the CPUC.  GSWC also intends to request CPUC approval of a regulatory asset and liability memorandum account for the new contract to offset the entries required by the accounting guidance on derivatives.

The accounting guidance for fair value measurements applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Under the accounting guidance, GSWC makes fair value measurements that are classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability, or

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Registrant’s valuation model utilizes various inputs that include quoted market prices for energy over the duration of the contract. The market prices used to determine the fair value for this derivative instrument were estimated based on independent sources such as broker quotes and publications that are not observable in or corroborated by the market.  Registrant receives one broker quote to determine the fair value of its derivative instrument.  When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. Accordingly, the valuation of the derivative on Registrant’s purchased power contract has been classified as Level 3 for all periods presented.

21



20


The following table presents changes in the fair value of the derivative for the three and ninesix months ended SeptemberJune 30, 20122013 and 2011:

 

 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

(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)
Note 5 — Fair Value of Financial Instruments:

For cash and cash equivalents, accounts receivable, accounts payable and short-term debt, the carrying amount is assumed to approximate fair value due to the short-term nature of the amounts. Investments held in a Rabbi Trust for the supplemental executive retirement plan are measured at fair value and totaled $5.0 million as of June 30, 2013. All equity investments in the Rabbi Trust are Level 1 investments in mutual funds. The investments held in the Rabbi trust are included in Other Property and Investments on Registrant's balance sheets.

The table below estimates the fair value of long-term debt held by GSWC. Rates available to GSWC at SeptemberJune 30, 20122013 and December 31, 20112012 for debt with similar terms and remaining maturities were used to estimate fair value for long-term debt. The interest rates used for the SeptemberJune 30, 20122013 valuation decreasedincreased as compared to December 31, 2011, increasing2012, decreasing the fair value of long-term debt as of SeptemberJune 30, 2012.2013. Changes in the assumptions will produce differing results.

 

 

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

As previously discussed in Note 4, the accounting guidance for fair value measurements establishes a framework for measuring fair value and requires fair value measurements to be classified and disclosed in one of three levels. Publicly issued notes are measured using current U.S. corporate bond yields available for similar financial instruments and are classified as Level 1.  Private placement notes and other long-term debt are measured using current U.S. corporate bond yields for similar debt instruments and are classified as Level 2. The following tables set forth by level, within the fair value hierarchy, GSWC’s long-term debt measured at fair value as of SeptemberJune 30, 2012:

(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
Note 6 — Income Taxes:

As a regulated utility, GSWC treats certain temporary differences as flow-through adjustments in computing its income tax provision consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period. Giving effect to these temporary differences as flow-through adjustments typically results in a greater variance between the effective income tax rate (“ETR”) and the statutory federal income tax rate in any given period than would otherwise exist if GSWC were not required to account for its income taxes as a regulated enterprise.  GSWC’s effective income tax rate deviatesThe GSWC ETRs deviated from the 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).

, as well as permanent items.

Changes in Tax Law

The Tax:

In January 2013, the American Taxpayer Relief ActsAct of 2012 extended 50% bonus depreciation for qualifying property through 2012.  As a result, Registrant’s current tax expense for 2011 and 2012 reflects benefits from the Tax Relief Acts.2013.  Although thesethis change in law changes reducereduces AWR’s current taxes payable, they doit does not reduce its total income tax expense or effective income tax rate.

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.

22

ETR.


21

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Note 7 — Employee Benefit Plans:

The components of net periodic benefit costs, before allocation to the overhead pool, for Registrant’s pension plan, postretirement plan, and Supplemental Executive Retirement Plan (“SERP”) for the three and ninesix months ended SeptemberJune 30, 20122013 and 20112012 are as follows:

 

 

For The Three Months Ended September 30,

 

 

 

Pension Benefits

 

Other
Postretirement
Benefits

 

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
Postretirement
Benefits

 

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

(1)Registrant expects to contribute approximately $6.6 million and $150,000 to the pension and postretirement medical plans in 2013, respectively.  During the three and six months ended June 30, 2013, Registrant contributed $2.1 million to the pension plan.
Regulatory Adjustment - :
In November 2010,May 2013, the CPUC issued a final decision that once again authorized GSWC to establish a two-way balancing account effective January 1, 2010,for its water regions and the general office to track differences between the forecasted annual pension expenses adopted in rates and the actual annual expense to be recorded by GSWC in accordance with the accounting guidance for pension costs.  As of SeptemberJune 30, 2012,2013, GSWC has included a $3.7$5.1 million under-collection in the two-way pension balancing account recorded as a regulatory asset (Note 2).

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



22

Table of 2012.

Contents


Note 8 — Contingencies:

Water Quality-Related Litigation:

Barstow Perchlorate and/or Volatile Organic Compounds (“VOC”) have been detectedContamination:
On March 8, 2013, the Company was served with four toxic tort lawsuits arising out of the November 19, 2010 detection of perchlorate in certain wells servicing GSWC’s South San Gabriel System. GSWC filed suit in federal court, along with two other affected water purveyors and the San Gabriel Basin Water Quality Authority, together known as the “Water Entities”, against some of those allegedly responsible for the contamination of twoone of GSWC’s active production wells in the Barstow service area. The plaintiffs assert that they were affected by the perchlorate, claim negligence by GSWC and those of theseek, among other affected water purveyors. In response to the filing of the lawsuit, the Potentially Responsible Party (“PRP”) defendants filed motions to dismiss the suit or strike certain portions of the suit. The judge issued a ruling on April 1, 2003 granting in partthings, punitive and denying in part the PRP’s motions. A key ruling of the court was that the water purveyors, including GSWC, by virtue of their ownership of wells contaminated with hazardous chemicals are themselves PRPs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).

23



Table of Contents

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.

Condemnation of Properties:

The laws of the State of California provide for the acquisition of public utility property by governmental agencies through their power of eminent domain, also known as condemnation, where doing so is necessary and in the public interest. In addition, these laws provide: (i) that the owner of utility property may contest whether the condemnation is actually necessary and in the public interest, and (ii) that the owner is entitled to receive the fair market value of its property if the property is ultimately taken.

The City of Claremont (“Claremont”) located in GSWC’s Region III, has expressed various concerns to GSWC about rates charged by GSWC and the effectiveness of the CPUC’s rate-setting procedures. On January 5, 2012, the Claremont City council members directed staff to pursue analysis required for potential acquisition of the water system and allocated funds from its general reserve for such analysis. On June 27,In November 2012, Claremont notified GSWC of its intentmade an offer to appraise the value ofacquire GSWC’s water system servingservicing Claremont. Claremont’sGSWC rejected the offer and informed the City Councilthat the system is currently reviewing its appraisalnot for sale.  Claremont continues to express a desire to potentially take the system by eminent domain; however, Claremont and GSWC have agreed to hold meetings to further discuss alternatives, rates and other concerns of GSWC’s water system in Claremont.the City. GSWC serves approximately 11,000 customers in Claremont.

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.

In April 2011, an organization called Ojai FLOW (Friends("Friends of Locally Owned Water)Water") started a local campaign for the Casitas Municipal Water District (“CMWD”) to purchase GSWC’s Ojai water system.  The Ojai City CouncilIn March 2013, the CMWD passed a resolution supporting the efforts of Ojai FLOW at their regular meeting on April 26, 2011. On July 25, 2012, the Casitas Municipal Water District hired a financial consultant to provide consulting services to the District forresolutions authorizing the establishment of a Community Facilities District (“CFD”) and, among other things, authorized a special election for the issuancepurpose of bonds withinlevying a special tax via the CFDMello-Roos Community Facilities District Act of 1982 (“Mello-Roos Act”).  The special election will be held on August 27, 2013. The special tax, if passed, would be used to provide funding for the potential acquisition of GSWC’s Ojai system.system by eminent domain. On March 26, 2013, GSWC filed a petition in the Superior Court, Ventura County which, among other things, challenges the CMWD’s ability to utilize the Mello-Roos Act to fund the acquisition.  At this time, GSWC is unable to predict the outcome of that petition. GSWC serves approximately 3,000 customers in Ojai.

Except for the City of Claremont Town of Apple Valley and the City of Ojai, Registrant is currently not involved in activities related to the potential condemnation of any of its water customer service areas or in its BVES customer service area. No formal condemnation proceedings have been filed against any of the Registrant’s service areas during the past three years.

24



Table of Contents

Santa Maria Groundwater Basin Adjudication:

In 1997, the Santa Maria Valley Water Conservation District (“plaintiff”) filed a lawsuit against multiple defendants, including GSWC, the City of Santa Maria, and several other public water purveyors. The plaintiff’s lawsuit sought an adjudication of the Santa Maria Groundwater Basin (the “Basin”). A stipulated settlement of the lawsuit has been reached subject to CPUC approval.  The settlement, amongand was approved by the courts in February 2008.  Among other things, ifthe settlement, which was also approved by the CPUC would preservein May 2013, preserves GSWC’s historical pumping rights and securesecures supplemental water rights for use in case of drought or other reductions in the natural yield of the Basin.  GSWC, under the stipulation, has a right to 10,000 acre-feet of groundwater replenishment provided by the Twitchell Project, a storage and flood control reservoir project operated by the Santa Maria Valley Conservation District.  A monitoring and annual reporting program has been established to allow the parties to responsibly manage the Basin and to respond to shortage conditions.  If severe water shortage conditions are found over a period of five years, the management area engineer will make findings and recommendations to alleviate such shortages.  If the Basin experiences severe shortage conditions, theplaintiff.
The court has the authority to limit GSWC’s groundwater production to 10,248 acre-feet per year, based on developed water in the Basin.  Over the last five years, GSWC’s average groundwater production has been 10,140 acre-feet per year.

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 45 percent of the return flows that are generated from its importation of State Water Project water.  Pursuant to this judgment, the court retained jurisdiction over all of the parties to make supplemental orders or to amend the judgment as necessary.  OnIn March 20, 2008, the non-stipulating parties filed notices of appeal.  In August 2010,November 2012, the appellantsAppellate Court upheld the Santa Maria judgment, with a remand to the trial court to clarify the narrow issue that non-stipulating parties retained their overlying rights.  There is no dispute on this clarification and the required filings will be made with the court in 2013.  In December 2012, the Appellate Court further modified the decision clarifying the basis for the overdraft finding that precipitated the prescriptive right finding.  In December 2012, the non-stipulating parties filed their opening briefs, and oral arguments were heard on September 11, 2012.  Registrant is unable to predicta request with the outcomeCalifornia Supreme Court for a review of the appeal.

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.


23


Environmental Clean-Up and Remediation:

Chadron Plant: GSWC has been involved in environmental remediation and clean-up at a plant site (“Chadron Plant”) that contained an underground storage tank which was used to store gasoline for its vehicles. This tank was removed from the ground in July 1990 along with the dispenser and ancillary piping. Since then, GSWC has been involved in various remediation activities at this site.  After many years of remediation activities, the majority of the leakedRecent monitoring results show gasoline product has been removed.  However,reduced to a sheen of gasoline still remains at theon top of the groundwater.  Additional groundwater surface. Testing has recently been conducted to determine if alternative remediation will be required before soil remediation can be commenced.  Management at this time cannot estimate when additional soil remediation will commence, due toeffective in reducing the persistence of gasoline product in the groundwater.contamination further.  As of SeptemberJune 30, 2012,2013, the total spent to clean-up and remediate GSWC’s plant facility was approximately $3.5$3.5 million, of which $1.5$1.5 million has been paid by the State of California Underground Storage Tank Fund. Amounts paid by GSWC have been included in rate-base and approved by the CPUC for recovery.

As of SeptemberJune 30, 2012,2013, GSWC has an accrued liability for the estimated additional cost of $1.2$1.2 million to complete the clean-up at the site. The ultimate cost may vary as there are many unknowns in remediation of underground gasoline spills and this is an estimate based on currently available information. Management also believes it is probable that the estimated additional costs will be approved in rate base by the CPUC and has recorded a corresponding regulatory asset.

CPUC.

Other Litigation:

Registrant is also subject to other ordinary routine litigation incidental to its business. Management believes that rate recovery, proper insurance coverage and reserves are in place to insure against property, professional and general liability and workers’ compensation claims incurred in the ordinary course of business. Registrant is unable to predict an estimate of the loss, if any, resulting from any pending suits or administrative proceedings, but does not believe the impact, if any, would be material.

25


proceedings.

24

Table of Contents


Note 9 — Discontinued Operations:

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
Ended
September 30,
2011

 

Nine Months
Ended
September 30,
2011

 

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:

AWR has three reportable segments, water, electric and contracted services, whereas GSWC has two segments, water and electric. Within the segments, AWR has two principal business units: water and electric service utility operations conducted through GSWC, and one contracted services unit conducted through ASUS and its subsidiaries. AWR has no material assets other than its investments in its subsidiaries on a stand-alone basis.

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.

Activities of ASUS and its subsidiaries are conducted in California, Georgia, Maryland, New Mexico, North Carolina, South Carolina, Texas and Virginia.  Each of ASUS’s wholly ownedwholly-owned subsidiaries is regulated by the state in which the subsidiary primarily conducts water and/or wastewater operations.  Fees charged for operations and maintenance, and renewal and replacement services are based upon the terms of the contracts with the U.S. government which have been filed with the regulatory commissions in the states in which ASUS’s subsidiaries are incorporated.

The tables below set forth information relating to GSWC’s operating segments, ASUS and its subsidiaries, and other matters. Total assets by segment are not presented below, as certain of Registrant’s assets are not tracked by segment. The identifiable assetsutility plant amounts are net of respective accumulated provisions for depreciation. Capital additions reflect capital expenditures paid in cash and exclude property installed by developers and conveyed to GSWC and through May 31, 2011 for CCWC.

 

 

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

 

26

GSWC.

  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

25


  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
(1)

 

 

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.



The following table reconciles total utility plant (a key figure for rate-making) to total consolidated assets (in thousands):

 

 

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.

27


  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

26


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis provides information on AWR’s consolidated operations and assets and where necessary, includes specific references to AWR’s individual segments and/or other subsidiaries: GSWC and ASUS and its 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.
The 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.
However, these measures, which are not presented in accordance with Generally Accepted Accounting Principles (“GAAP”), may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to operating income or earnings per share, which are determined in accordance with GAAP.  A reconciliation of water and electric gross margins to the most directly comparable GAAP measures 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

"Summary of Year-to-Date Results by Segment."

Overview

Registrant’s revenues, operating income and cash flows are earned 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.

All

Through its contracted services business, Registrant’s revenues, operating income and cash flows are earned by providing water and/or wastewater services, including the operation, maintenance, renewal and replacement of the current 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.

Some


On June 12, 2013, GSWC entered into an agreement to purchase all of the factorsoperating 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.
On May 9, 2013, the CPUC issued a final decision on GSWC’s general water rate case approving new rates for 2013 through 2015 at GSWC’s three water regions which include recovery of costs incurred at the general office.  The new rates are retroactive to January 1, 2013 and are expected to generate approximately $10 million in additional annual revenues in 2013 as compared to 2012 adopted revenues.  The 2013 adopted water gross margin is projected to increase by approximately $14 million, or 6.6%, as compared to the 2012 adopted water gross margin.  The new rates have been reflected in the results of operations for the three and six months ended June 30, 2013.  Among other things, the final decision also reduced the overall composite depreciation rates and approved the recovery of various memorandum accounts which tracked certain costs that 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.

certain operating expenses related to the approval of these memorandum accounts in the final decision.




27


Summary of ThirdSecond Quarter Results by Segment

The table below sets forth the thirdsecond quarter diluted earnings per share by business segment from continuing operations:

 

 

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

 

28

segment:


  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 Contents

For the three months ended SeptemberJune 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.
An overall decrease in interest income (net of interest expense and other non-operating items) of $292,000, or $0.01 per share, due primarily to interest income recorded in 2012 related to refund claims with the Internal Revenue Service. These refunds were collected during the first quarter of 2013.
An increase in the water effective income tax rate for the three months ended June 30, 2013 as compared to the same period in 2012, decreasing earnings by $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.

Forthe three months ended June 30, 2013, diluted earnings from the electric segment were $0.05 per share as compared to $0.04 per share for the same period in 2012. Electric revenues and gross margin for the three months ended June 30, 2013 were relatively unchanged as compared to the same period in 2012. Due to the delay in the electric rate case, electric revenues for the three months ended June 30, 2013 have been recorded at 2012 adopted levels. A decision on this rate case is expected later in 2013. In May 2013, the CPUC approved recovery of legal and outside services costs previously expensed in connection with GSWC's effort to procure renewable resources under the CPUC's renewables portfolio standard (“RPS”). As a 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.

For the three months ended 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, fully2013, diluted earnings from contracted services increaseddecreased 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):

 

 

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

%

292012.



28


Summary of Year-to-Date Results by Segment

The table below sets forth the year-to-date diluted earnings per share by business segment, from continuing operations, as reported:

 

 

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

 

  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

For the 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:

·

An increase in the water gross margin of $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.


The CPUC's approval of previously incurred operating expenses totaling $2.7 million, or $0.08 per share, in connection with the water general rate case's final decision issued in May 2013. Among other things, the final decision approved the one-time recovery of various memorandum accounts, which tracked certain costs that were previously expensed as incurred. As a result, GSWC recorded regulatory assets for these memorandum accounts with a corresponding reduction in operating expenses during the first quarter of 2013.
A decrease in operating expenses (other than supply costs and the impact of the memorandum accounts discussed above) of approximately $300,000, or $0.01 per share, due primarily to a decrease in: (i) depreciation expense of $1.3 million driven by a decrease in composite rates also approved in the water general rate case, and (ii) operation related expenses of $1.2 million resulting from lower labor and other employee related expenses, conservation costs, and bad debt expense. These decreases were partially offset by an increase in: (i) administrative and general expenses of $733,000 resulting from higher outside services and workers compensation costs, and (ii) maintenance expense of $1.5 million for planned maintenance work.
A decrease in the water effective income tax rate for the six months ended June 30, 2013 as compared to the same period in 2012, increasing earnings by 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.
For the six months ended June 30, 2013, diluted earnings from the electric segment decreased by $0.06 per share as compared to the same period in 2012 due, in part, to the CPUC's approval of the recovery of RPS costs previously expensed. The RPS recovery approved in March 2012 was $1.2 million compared to $834,000 approved in May 2013. The difference resulted in a decrease of $416,000 in pretax income, or $0.01 per share.
Excluding the impact of this RPS recovery, diluted earnings from electric operations decreased by $0.05 per share due to: (i) a decrease in the electric gross margin of $252,000, or $0.01 per share, as compared to the same period in 2012; (ii) an increase in operating expenses (excluding supply costs) of $654,000, or $0.02 per share, 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.


29


For the 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.

30



Table of Contents

The table below sets forth the year-to-date results by business segment for continuing operations (dollars in thousands):

 

 

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

%

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.

U.S. government.

The following discussion and analysis 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.

31

subsidiaries.



30


Consolidated Results of Operations — Three Months Ended SeptemberJune 30, 20122013 and 2011 (dollars2012 (amounts in thousands, except per share amounts):

 

 

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

%

32


  Three Months Ended 
 June 30, 2013
 Three Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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 %


31


Operating Revenues

Revenues:

General

Registrant relies upon rate approvals by the CPUC to recover operating expenses and to provide for a return on invested and borrowed capital used to fund utility plant for GSWC. ASUS 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.

Water
Water

For the three months ended September��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.

Billed water consumption for the second quarter of 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.

accounts as regulatory assets or liabilities.

Electric

For the three months ended 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.
Billed electric usage 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.

Contracted Services

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.  For the three months ended 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.

33Carolina.



32


Operating Expenses:

Supply Costs

Supply costs for the water segment consist of purchased water, purchased power for pumping, groundwater production assessments and water supply cost balancing accounts. Supply costs for the electric segment consist of purchased power for resale, (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.

Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for 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.

The table below provides the amount of increases (decreases), percent changes in supply costs, and gross margins during the three months ended SeptemberJune 30, 20122013 and 2011 (dollars2012 (dollar amounts in thousands):

 

 

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

%

 

 

 

 


  Three Months Ended 
 June 30, 2013
 Three Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
WATER OPERATING REVENUES (1)
 $84,069
 $81,157
 $2,912
 3.6 %
WATER SUPPLY COSTS:  
  
  
  
Water purchased (1)
 $16,670
 $13,831
 $2,839
 20.5 %
Power purchased for pumping (1)
 2,332
 2,019
 313
 15.5 %
Groundwater production assessment (1)
 3,823
 3,982
 (159) (4.0)%
Water supply cost balancing accounts (1)
 (764) 3,587
 (4,351) (121.3)%
TOTAL WATER SUPPLY COSTS $22,061
 $23,419
 $(1,358) (5.8)%
WATER GROSS MARGIN (2)
 $62,008
 $57,738
 $4,270
 7.4 %
PERCENT MARGIN - WATER 73.8%
71.1%  
  
         
ELECTRIC OPERATING REVENUES (1)
 $8,397
 $8,373
 $24
 0.3 %
ELECTRIC SUPPLY COSTS:  
  
  
  
Power purchased for resale (1)
 $2,828
 $2,680
 $148
 5.5 %
Electric supply cost balancing accounts (1)
 387
 576
 (189) (32.8)%
TOTAL ELECTRIC SUPPLY COSTS $3,215
 $3,256
 $(41) (1.3)%
ELECTRIC GROSS MARGIN (2)
 $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.

34



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

$(377,000) and $4,163,000 for the three months ended June 30,2013 and 2012, respectively.

(2)Water and electric gross margins do not include any depreciation and amortization, maintenance, administrative and general, property or other taxes, or other operation expenses.
Two of the principal factors affecting water supply costs are the amount of water produced and the source of the water. Generally, the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers. Under the 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%


33


The overall 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.

Purchased water costs for the three months ended 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.

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 June 30, 2012.

For the three months ended 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 SeptemberJune 30, 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.

The water supply cost balancing account 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.

discussed above.

For the three months ended 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 .$189,000

due to the increase in average price per MWh.

Other Operation Expenses

The primary components of other operation expenses for GSWC include payroll, materials and supplies, chemicals and water treatment costs, and outside service costs forof 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):

 

 

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

%

35



  Three Months Ended 
 June 30, 2013
 Three Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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 Contents

For the three months ended SeptemberJune 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.

miscellaneous other operation expenses. 


34



Administrative and General Expenses

Administrative and general expenses include payroll related to administrative and general functions, the 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 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):

 

 

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

%

  Three Months Ended 
 June 30, 2013
 Three Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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 %
For the three months ended 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.


For the three months ended 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.

For the three months ended June 30,2013, administrative and general expenses for contracted services increased by $562,000 due primarily to a $380,000 increase in labor and other employee related benefits 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.

Depreciation and general expenses.

Amortization

For the three months ended 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):

36



  Three Months Ended 
 June 30, 2013
 Three Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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 Contents

Depreciation and Amortization

For the three months ended SeptemberJune 30, 2012 and 2011 depreciation and amortization expense by segment consisted of the following (dollars in thousands):

 

 

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

%

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.

2012.


35


Maintenance
Maintenance

For the three months ended SeptemberJune 30, 20122013 and 2011,2012, maintenance expense by business segment consisted of the following (dollars(dollar amounts in thousands):

 

 

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

%

  Three Months Ended 
 June 30, 2013
 Three Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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%
Maintenance expense for 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.

2013.


Property and Other Taxes

For the three months ended SeptemberJune 30, 20122013 and 2011,2012, property and other taxes by business segment consisted of the following (dollars(dollar amounts in thousands):

 

 

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

%

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.

37



Table of Contents

  Three Months Ended 
 June 30, 2013
 Three Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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%

ASUS Construction Expenses

For the three months ended 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.

Texas. There was also an increase in indirect expenses allocated to construction activities.

Interest Expense

For the three 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):

 

 

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

%

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
 
$
CHANGE
 
%
CHANGE
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 %
Interest Income


For the three months ended SeptemberJune 30, 20122013 and 2011,2012, interest income by segment, including AWR (parent) consisted of the following (dollars in thousands):

 

 

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

%

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.

38



Table of Contents

Income Tax Expense

For 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):

 

 

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

%



36


  Three Months Ended 
 June 30, 2013
 Three Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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)%

Overall, interest income decreased by $355,000 for the three months ended June 30,2013 due primarily to refund claims approved by the Internal Revenue Service recorded during the three months ended June 30, 2012. These refunds were collected during the first quarter of 2013.

Income Tax Expense
For the three months ended 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
 
$
CHANGE
 
%
CHANGE
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 %
For the three months ended June 30,2013, income tax expense for water and electric services increased to $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.

For the three months ended 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.


37


Consolidated Results of Operations — Nine months ended SeptemberSix Months EndedJune 30, 20122013 and 2011 (dollars2012 (amounts in thousands, except per share amounts):

 

 

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

%

40


  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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 %

38


Operating Revenues

Revenues:

Water
General

Registrant 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.

Water

For the ninesix 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.

Billed water consumption for the first six months of 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.

accounts as regulatory assets or liabilities.

Electric
Electric

For the ninesix 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.

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.

Billed electric usage 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.

Contracted Services

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. 

For the 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.

41that period.   



39


Operating Expenses:

Supply Costs

Total supply costs comprise the largest segment of total operating expenses. Supply costs accounted for approximately 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.


The table below provides the amount of increases (decreases), percent changes in supply costs, and gross margins during the ninesix months ended SeptemberJune 30, 20122013 and 2011 (dollars2012 (amounts in thousands):

 

 

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

%

 

 

 

 


  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
WATER OPERATING REVENUES (1)
 $153,302
 $147,358
 $5,944
 4.0 %
WATER SUPPLY COSTS:  
  
  
  
Water purchased (1)
 $27,402
 $23,383
 $4,019
 17.2 %
Power purchased for pumping (1)
 3,971
 3,575
 396
 11.1 %
Groundwater production assessment (1)
 7,010
 7,305
 (295) (4.0)%
Water supply cost balancing accounts (1)
 (561) 5,605
 (6,166) (110.0)%
TOTAL WATER SUPPLY COSTS $37,822
 $39,868
 $(2,046) (5.1)%
WATER GROSS MARGIN (2)
 $115,480
 $107,490
 $7,990
 7.4 %
PERCENT MARGIN - WATER 75.3% 72.9%  
  
         
ELECTRIC OPERATING REVENUES (1)
 $19,131
 $19,186
 $(55) (0.3)%
ELECTRIC SUPPLY COSTS:  
  
  
  
Power purchased for resale (1)
 $6,508
 $5,871
 $637
 10.8 %
Electric supply cost balancing accounts (1)
 1,555
 1,995
 (440) (22.1)%
TOTAL ELECTRIC SUPPLY COSTS $8,063
 $7,866
 $197
 2.5 %
ELECTRIC GROSS MARGIN (2)
 $11,068
 $11,320
 $(252) (2.2)%
PERCENT MARGIN - ELECTRIC 57.9% 59.0%  
  

(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 $9,560,000$994,000 and $14,374,000$7.6 million for the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, respectively.

(2)Water and electric gross margins do not include any depreciation and amortization, maintenance, administrative and general, property 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. 

The overall 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.

Purchased water costs for the 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.

costs were higher as compared to the six months ended June 30, 2012.

For the 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.

42the decrease in pumped water.



40

Table of Contents

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.


The 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 $6.2 million during the 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.

MCBA.

For the 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.

account decreased by $440,000 due to the increase in average cost per MWh.

Other Operation Expenses

The primary components of other operation expenses for GSWC include payroll, materials and supplies, chemicals and water treatment costs, and outside service costs of operating the 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):

 

 

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

%

  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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)%
For the 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 six months ended June 30,2013.  In addition, there were also decreases in: (i) labor of $361,000 due to an increase in laborfewer employees; (ii) bad debt expense of $511,000, and related benefit costs.

(iii) conservation costs of $343,000.

For the 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.

other miscellaneous operations expenses.


Administrative and General Expenses

Administrative and general expenses include payroll related to administrative and general functions, 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):

43


  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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 %


41

Table of Contents

 

 

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

%


For the 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.
Excluding the reductions resulting from the final decision discussed above, administrative and general expenses for water services 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.
For the six months ended June 30,2013, administrative and general expenses for electric services increased by $1.0 million as compared to the six months ended June 30,2012 due, in part, to the CPUC's approval in March 2012 for recovery of $1.2 million in legal and outside services for costs incurred for renewable energy resources, which had previously been expensed as incurred; while in 2013, $834,000 was filed and approved, a difference of $416,000. In addition, there were increases of: (i) $365,000 in additional legal and other outside services incurred primarily for the pending general rate case, and (ii) $288,000 in general office expense allocation in accordance with the approved water rate case.
For the six months ended June 30,2013, administrative and general expenses for contracted services increased by $1.2 million due primarily to a 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.


Depreciation and Amortization

For the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012 depreciation and amortization by business segment consisted of the following (dollars(dollar amounts in thousands):

 

 

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

%

  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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)%
For the 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.

2012.

Maintenance
44



Table of Contents

Maintenance

For the ninesix months ended SeptemberJune 30, 20122013 and 2011,2012, maintenance expense by business segment consisted of the following (dollars(dollar amounts in thousands):

 

 

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

%

For the nine months ended September 30, 2012, maintenance

  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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%

42


Maintenance expense for water services 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.


Maintenance expense for electric services 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.


Maintenance expense for contracted services 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.

expenses.


Property and Other Taxes

For the 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):

 

 

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

%

For the nine months ended September 30, 2012, property

  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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 %
Property and other taxes remained relatively unchanged for water services increased by $735,000 primarily due to increases in franchise fees and property taxes.

For the ninesix months ended SeptemberJune 30, 2012, property and other taxes for contracted services increased by $243,000 primarily due2013 compared to an increasethe same period in payroll taxes.

2012

ASUS Construction Expenses

For the 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.

452012

, as previously discussed.


Table of Contents

Interest Expense

For the 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):

 

 

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

%

  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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)%
Overall, interest expense decreased by $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.

Interest Income

For the ninesix months ended SeptemberJune 30, 20122013 and 2011 were approximately 1.5%.

Interest Income2012

For the nine months ended September 30, 2012 and 2011,, interest income by segment, including AWR (parent) consisted of the following (dollars in thousands):

 

 

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

%

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 Expenses

For 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.

46



Table of Contents

Income Tax Expense

For 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):

 

 

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

%


43



  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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)%

Overall, interest income decreased by $383,000 for the six months ended June 30,2013 due primarily to refund claims approved by the Internal Revenue Service recorded during 2012. These refunds were collected during the first quarter of 2013.

Other

For the 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.

Income Tax Expense
For the six months ended June 30,2013 and 2012, income tax expense by business segment, including AWR (parent), consisted of the following (dollar amounts in thousands):
  Six Months Ended 
 June 30, 2013
 Six Months Ended 
 June 30, 2012
 
$
CHANGE
 
%
CHANGE
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 %
For the six months ended June 30,2013, income tax expense for water and electric services increased to $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.

Income

For the six months ended June 30,2013, income tax expense for contracted services increased $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 Operations2013

Net 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.

2012, respectively.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that are important to the portrayal of 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.


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The critical accounting policies used in the preparation of the Registrant’s financial statements that it believes affect the more significant judgments and estimates used in the preparation of its consolidated financial statements presented in this report are described in “Management’s Discussion and Analysis of Financial Condition and Results of 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.

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Liquidity and Capital Resources

AWR
AWR

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.

In July 2012, Standard & Poor’s Ratings Services (“S&P”) affirmed the ‘A+’ corporate credit rating on AWR and GSWC with a stable outlook.  S&P debt ratings range from AAA (highest rating possible) to D (obligation is in default).  In December 2012, Moody’s Investors Service (“Moody’s”) affirmed its ‘A2’ rating with a stable outlook for GSWC. Securities ratings are not recommendations to buy, sell or hold a security and are subject to change or withdrawal at any time by the rating agency.  Pursuant to the revolving credit facility agreement, the “A+ stable” credit rating results in an interest rate spread on the facility of 120 basis points.  Registrant believes that AWR’s sound capital structure and “A+ stable” credit rating, combined with its financial discipline, will enable AWR to access the debt and/or equity markets.  However, unpredictable financial market conditions in the future may limit its access or impact the timing of when to access the market, in which case, Registrant may choose to temporarily reduce its capital spending.  Registrant estimatesexpects to spend an average of $85 million a year in capital expenditures for 2012 to be approximately $70 - $75 million.

over the next three years, consistent with the CPUC-approved water general rate case.

AWR filed a Registration Statement in August 2012 with the Securities and Exchange Commission for the sale from time to time of debt and equity securities. As of SeptemberJune 30, 2012,2013, $115.0 million was available for issuance under this Registration Statement. The Registration Statement expires in August 2015.

AWR funds its operating expenses and pays dividends on its outstanding common shares primarily through dividends from its subsidiariesGSWC and through proceeds from equity issuances not invested in subsidiaries. The ability of GSWC and ASUS to pay dividends to AWR is restricted by California law. Under these restrictions, GSWC and ASUS had approximately $178.9$195.6 million and $13.0 million, respectively, was available on SeptemberJune 30, 20122013 to pay dividends to AWR.

Registrant has paid common dividends for over 7577 consecutive years.  On October 30, 2012,May 20, 2013, the Board of Directors of AWR declaredapproved a regular quarterly14.1% increase in its third quarter cash dividend offrom $0.355 per Common Share. Theshare to $0.405 per share on the common shares of the Company. This increase is equivalent to $0.20 per share above the prior annualized dividend totaling approximately $6.8 million,rate of $1.42 to $1.62. Dividends on the common shares will be paid on or about December 1, 2012September 3, 2013 to common shareholders of record at the close of business on November 12, 2012.  August 15, 2013.

On May 20, 2013, the Board of Directors of AWR also approved a two-for-one stock split of the Company's common shares. On or about September 3, 2013, shareholders will receive one additional share for each AWR common share they own. As a result of the stock split, the total number of common shares outstanding will increase from approximately 19.3 million to approximately 38.7 million.

AWR’s ability to pay cash dividends on its Common Shares outstanding depends primarily upon cash flows from its subsidiaries.GSWC. AWR presently intends to continue paying quarterly cash dividends in the future, on or about March 1, June 1, September 1 and December 1, subject to earnings and financial condition, regulatory requirements and such other factors as the Board of Directors may deem relevant.


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AWR anticipates that interest costs will increase in future periods due to the need for additional external capital to fund its construction program.program, and market interest rate increases. AWR believes that costs associated with capital used to fund construction projects at GSWC will continue to be recovered in water and electric rates charged to customers.

Cash Flows from Operating Activities:

Cash flows from operating activities have generally been sufficient to meet operating requirements and a portion of capital expenditure requirements. Registrant’s future cash flows from operating activities will be affected by a number of factors, including utility regulation; infrastructure investment; maintenance expenses; inflation; compliance with environmental, health and safety standards; production costs; customer growth; per customer usage of water and electricity; weather and seasonality; conservation efforts; compliance with local governmental requirements and required cash contributions to pension and post-retirement plans.  In addition, future cash flows from non-regulated subsidiaries will depend on new business activities, including military baseexisting operations, and the construction of new and/or replacement infrastructure at military bases, timely redetermination of prices and equitable adjustmentsadjustment of prices and timely collection of payments from the U.S. government.

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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.


Cash Flows from Investing Activities:

Net cash used in investing activities was $48.1$41.4 million for the ninesix months ended SeptemberJune 30, 20122013 as compared to $34.0$29.4 million for the same period in 2011. Cash flows from investing activities for the nine months ended September 30, 2011 included $29.6 million in cash received in connection2012, which is consistent with the sale of CCWC.

GSWC’s 2013 capital investment program.

Registrant intends to invest in capital to provide essential services to its regulated customer base, while working with its regulators to have the opportunity to earn a fair rate of return on investment. Registrant’s infrastructure investment plan consists of both infrastructure renewal programs, where infrastructure is replaced, as needed, and major capital investment projects, where new water treatment and delivery facilities are constructed.  GSWCThe Company may also be required from time to time to relocate existing infrastructure in order to accommodate local infrastructure improvement projects.  Projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors.

Cash Flows from Financing Activities:

Registrant’s financing activities include primarily: (i) the issuance of common shares, andCommon Shares, short-term and long-term debt; (ii) the repayment of long-term debt and notes payable to banks; (iii) proceeds from stock option exercises; and (iv) the payment of dividends on common shares.  In order to finance new infrastructure, Registrant also receives customer advances (net of refunds) for and contributions in aid of construction (net of refunds).construction.   Short-term borrowings are used to fund capital expenditures until long-term financing is arranged.

Net cash used in financing activities was $1.7$7.2 million for the ninesix months ended SeptemberJune 30, 20122013 as compared to $27.6$9.9 million for the same period in 2011.  In 2011, Registrant used a portion2012 due primarily to increases in receipts of the cash proceeds from the sale of CCWC and cash proceeds from the issuance of new debt to pay down short-term borrowings and redeem certain long-term debt with higher rates. For the nine months ended September 30, 2012, Registrant paid $17.3 million in shareholder dividends, which was largely offset by cash proceeds from the Company’s stock incentive plan and from receipt of advances for and contributions in aid of construction.  Because of theconstruction during 2013.  This increase was partially offset by an increase in cash generated from operations, Registrant did not have any short-term bank borrowings and was abledividends paid. During the six months ended June 30, 2013, AWR paid quarterly dividends to substantially increase its ending cash balance.

shareholders of approximately $13.7 million as compared to $10.6 million for the same period in 2012.


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GSWC

GSWC funds the majority of its operating expenses, payments on its debt, and dividends on its outstanding common shares and a portion of its construction expenditures through internal sources. Internal sources of cash flow are provided primarily by retention of a portion of earnings from operating activities. Internal cash generation is influenced by factors such as weather patterns, conservation efforts, environmental regulation, litigation, changes in supply costs and regulatory decisions affecting GSWC’s ability to recover these supply costs, timing of rate relief, increases in maintenance expenses and capital expenditures.  As of SeptemberJune 30, 2012,2013, GSWC had $100.0 million available for issuance of debt securities under a Registration Statement filed with the Securities and Exchange CommissionSEC. This Registration Statement expires in November 2011.2014.  During the ninesix months ended SeptemberJune 30, 2012,2013, GSWC was able to fund its operations and its capital expenditures through cash generated from operating activities.

GSWC relies onmay at times utilize external sources, including equity investments and short-term borrowings from AWR, and long-term debt from time to time to help fund a portion of its construction expenditures.  In addition, GSWC receives advances and contributions from customers, home builders and real estate developers to fund construction necessary to extend service to new areas. Advances for construction are generally refundable at a rate of 2.5% in equal annual installments over 40 years.  Amounts which are no longer refundable are reclassified to contributions in aid of construction. Utility plant funded by advances and contributions is excluded from rate base.

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Generally, GSWC depreciates contributed property and amortizes contributions in aid of construction at the composite rate of the related property.

As is often the case with public utilities, GSWC’s current liabilities may at times exceed its current assets.  Management believes that internally-generated funds along with the short-term borrowings under AWR’s existing credit facility and the proceeds from the issuance of long-term debt, borrowings from AWR and common shares issuances to AWR will be adequate to provide sufficient working capital to enable GSWC to maintain normal operations and to meet its capital and financing requirements pending recovery of costs in rates.

Cash Flows from Operating Activities:

Net cash provided by operating activities was $77.7$44.6 million for the ninesix months ended SeptemberJune 30, 20122013 as compared to $59.0$45.7 million for the same period in 2011.  As previously discussed, this increase was due primarily to higher rates in effect, surcharges in place to collect the WRAM under-collections in all of GSWC’s water regions, and lower tax payments resulting from accelerated depreciation taken in 2011 and 2012 in connection with tax law changes.  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.

Cash Flows from Investing Activities:

Net cash used in investing activities was $47.2$50.4 million for the ninesix months ended SeptemberJune 30, 20122013 as compared to $61.9$28.7 million for the same period in 2011, which2012. The increase in capital expenditure is consistent with GSWC’s 2012GSWC's capital investment program.improvement plan. GSWC is expected to incur capital expenditures in 2012 of approximately $70 - $75averaging $85 million a year over the next three year rate cycle, primarily for upgrades to its water supply and distribution facilities.

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.

Cash Flows from Financing Activities:

Net cash used in financing activities was $5.0$8.8 million for the ninesix months ended SeptemberJune 30, 20122013 as compared to cash provided by financing activitiesused of $3.5$10.2 million for the same period in 2011.  As a result of the2012.  The decrease in cash used in financing activities was due to an increase in cash generated from operations, GSWC did not have any intercompany borrowings,advances for and contributions in aid of construction.  Cash used for financing activities was ableprimarily used to pay dividends to AWR and substantially increase its ending cash balance.

during both periods.

ASUS

ASUS funds its operating expenses primarily through internal operating sources and investments by, or loans from, AWR. ASUS, in turn, provides funding to its subsidiaries.

Contractual Obligations and Other Commitments

Registrant has various contractual obligations which are recorded as liabilities in the consolidated financial statements. Other items, such as certain purchase commitments and operating leases are not recognized as liabilities in the consolidated financial statements, but are required to be disclosed. In addition to contractual maturities, Registrant has certain debt instruments that contain annual sinking fund or other principal payments. Registrant believes that it will be able to refinance debt instruments at their maturity through public issuance, or private placement, of debt or equity. Annual principal and interest payments are generally made from cash flow from operations.

In October 2009, GSWC entered into an agreement with the California Department


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There have been no other material changes to AWR’s contractual obligations and other commitments since December 31, 2011. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Operations—Contractual Obligations, Commitments and Off Balance Sheet Arrangements”section of the Registrant’s Form 10-K for the year-ended December 31, 20112012 for a detailed discussion of contractual obligations and other commitments.

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Contracted Services

Under the terms of the military privatization contracts, each contract price is subject to price redetermination two years after commencement of operations and every three years thereafter, unless otherwise agreed to by the parties.  In the event that ASUS (i) is managing more assets at specific military bases than were included in the U.S. government’s request for proposal; (ii) is managing assets that are in substandard condition as compared to what was disclosed in the request for proposal; or (iii) becomes subject to new regulatory requirements such as more stringent water quality standards, ASUS is permitted to file, and has filed, requests for equitable adjustment. The timely filing for and receipt of price redeterminations continues to be critical in order for ASUS to recover increasing costs of operating and maintaining, and renewing and replacing the water and/or wastewater systems at the military bases.  In addition, higher expenses from the corporate office and ASUS headquarters allocated to the Military Utility Privatization Subsidiaries were not contemplated at the time the contracts with the U.S. government were negotiated and are being addressed in current outstandingprice redeterminations.

In August 2011, Congress enacted the Budget Control Act which committed the U.S. government to significantly reduce the federal deficit over ten years. The Budget Control Act called for very substantial automatic spending cuts, known as "sequestration."  ASUS has not seen any earnings impact to its existing operations and future price redeterminations. Under the terms of thesemaintenance and renewal and replacement services provided by ASUS, as such contracts each contract price isare not subject to the provisions of the Budget Control Act.  Any future impact will likely be limited to the timing of funding for these services, a possible delay in the timing of payments from the U.S. government, likely delays in the processing of price redetermination two years after commencementredeterminations and issuance of operations and every three years thereafter, unless otherwise agreed tocontract modifications for new construction work not already funded by the parties.  In the event that ASUS is: (i) managing more assets at specific military bases than were includedU.S. government, and/or delays in the U.S. government’s request for proposal; (ii) managing assets that are in substandard condition as compared to what is disclosed insolicitation and/or awarding of new utility privatization opportunities under the request for proposal; or (iii) becomes subject to new regulatory requirements such as more stringent water quality standards, ASUS is permitted to file, and has filed, requests for equitable adjustment.

Department of Defense utility privatization program.

The timing of future filings of price redeterminations may also be impacted by government actions, including audits by the Defense Contract Audit Agency (“DCAA”).  At times, our filing of price redeterminationredeterminations and requests for equitable adjustment may be postponed pending the outcomes of these audits.

audits or upon mutual agreement with the U.S. government.


Below is a summary of significant projects, price redeterminationredeterminations and requests for equitable adjustment filings by subsidiaries of ASUS.

·

FBWS — In connection with the inventory settlement with the U.S. government reached in January 2010, FBWS and the government agreed to waive the first and second price redeterminations for Fort Bliss required under the original 50-year contract. The—The third price redetermination, for the three-year period beginning October 1, 2012, was filed on July 16, 2012. The U.S. government has agreedfinalized in principle with FBWS’s revised proposal submission, which among other thingsOctober 2012 and provides for an annual increase of approximately $450,000 to the operations and maintenance fee compared to the amounts currentlypreviously in effect.  Issuance of the contractA modification is pending funding this increased amount was issued by the U.S. government.

·government in January 2013.


 TUS —The first price redetermination for Andrews Air Force Base was filed in December 2007. The U.S. government has agreed in principle with TUS’A modification funding the settlement position forof this redetermination, which would provideprovides an increase of 7% to the operations and maintenance fee and an increase of 15% to the renewal and replacement fee compared to the interim adjustment in effect since August 2010, (andwas issued in August 2012.  This modification provided funding for the increases effective February 2012.  A modification to fund the retroactive portion of this increase to February 2008).  Final modification for funding is pending government approval.2008 was issued in May 2013 and payment was received in June 2013.

·


ODUS — The second price redetermination for the Fort Lee privatization contract in Virginia, for the three-year period beginning February 2011, was filed in May 2012 and the2012. The second price redetermination for the other bases that ODUS operates in Virginia, for the three-year period beginning April 2011, was filed in July 2012.  Negotiations on July 30, 2012.these redeterminations have commenced and are expected to be completed in late 2013. ODUS is also awaiting commencementfinal results of negotiations ona DCAA audit of its fringe benefit loading rate used in these filings.

·


PSUS — In February 2012, PSUS filed the first price redetermination for Fort Jackson, to be effective beginning February 16, 2010.  Pending resolution of this filing, an interim increase of 3.4%, retroactive to February 2010, is currently in effect. PSUS is awaiting commencementNegotiations on this redetermination have commenced and are expected to be completed during the fourth quarter of negotiations on these filings.

·2013.



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ONUS - In March 2012, ONUS received a contract modification based on a request for equitable adjustment regarding installation of new water meters at Fort Bragg.  The contract modification provided for a reduction in the number of water meters to be installed, and the price associated with this revised scope. This $11.0 million project commenced during the second quarter of 2012 and is being performed in conjunction with a backflow preventorpreventer installation project.  The two projects total $23 million in contract value and are expected to be completed by the endfirst quarter of 2013. In April 2012, ONUS received a contract modification affirming that ONUS will be able to retain the full amount of the cost savings from the use of an alternative pipe replacement technology. This modification and revision in cost estimates resulted in additional pretax operating income of $820,000. 2014.

In September 2012, ONUS received a $17.6 million contract modification for construction of Patriot Point- Phase 1.  This project includes construction of all water and sewer infrastructure required to provide such services toat a new area ofin Fort Bragg.  Construction is scheduled to start in the fourth quarter of 2012 with substantial completion expectedbe substantially complete by the first quarterend of 2014. 2013.

In December 2011, ONUS filed the first price redetermination for Fort Bragg, to be effective beginning March 1, 2010. Pending resolution of this filing, an interim increase of 3.6%, retroactive to March 2010, is currently in effect. Negotiations on this filing, including a DCAA audit on certain aspectsredetermination are expected to be completed during the fourth quarter of the filing, are underway with the government.

2013.

Price redeterminations and equitable adjustments, which include adjustments to reflect changes in operating conditions and infrastructure levels from that assumed at the time of the execution of the contracts, as well as inflation in costs, are expected to provide added revenues to help offset increased costs and provide Registrant the opportunity to continue to generate positive operating income at its Military Utility Privatization Subsidiaries.

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Regulatory Matters

Recent Changes in Rates

Rate changesincreases in 2012:

In July 2012,2013:

On May 9, 2013, the CPUC issued a final decision on GSWC’s costwater general rate case approving new rates for 2013 through 2015 at GSWC’s three water regions which include recovery of capital proceeding filed in May 2011. The decision approvescosts incurred at the settlement agreement entered into between GSWC, along with three other California water utilities, and the CPUC’s Division of Ratepayer Advocates (“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%.general office.  The new rate of return authorized by the CPUC’s final decision was implemented into water rates were retroactive to January 1, 2012.

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 six months ended June 30, 2013, GSWC recorded $3.2 million in October 2012, GSWC filed an advice letteradditional regulatory assets related to lower its water ROE by 56 basis points, from 9.99% to 9.43%, which will be incorporatedCPUC approval of these memorandum accounts.

Rate increases in the new 2013 water rates.

2012:

In January 2012, GSWC implemented the rates previously approved by the CPUC in its last generalapproved attrition rate case.increases for Regions I, II and III effective January 1, 2012. The authorized rate increases represent increases of approximately $2.0 million for Region II and $3.0 million for Region III overcompared to 2011 adoptedCPUC-adopted revenues. The rate increases for Region I arewere not material.

In January 2012, BVES implemented the rates previously approved by the CPUC in its last generalapproved attrition year rate case.increases for BVES effective January 1, 2012.  The authorized rate increase is expected to provideprovided GSWC with additional annual revenues of approximately $681,000 which includes BVES’ portion of the general office allocation.

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.

Pending General Rate Case Requests

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. 

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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.

Other Regulatory Matters
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters” section of the Registrant’s Form 10-K for 2014 over 2013 are $1.9 million, the 2015 proposed rate increases over 2014 amount to $1.3 million, and the 2016 proposed rate increases over 2015 amount to $1.3 million.

year-ended December 31, 2012 for a detailed discussion of other regulatory matters.


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CPUC Pending Rehearing Matter

In July 2011, the CPUC issued an order granting the DRA’s request to rehear certain issues from the Region II, Region III and general office rate case approved in November 2010.  Among the issues in the rehearing arewas the La Serena plant improvement project included in rate base totaling approximately $3.5 million, and GSWC’s methodology for deferring rate case costs.  Hearings and final resolution of these matters are expected in 2013. The regulatory issues associated with these two matters are further discussed below.

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.

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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.


Alternative Revenue Mechanisms:

Mechanisms

GSWC records the difference between what it bills its water customers and that which is authorized by the CPUC using the WRAM. GSWC also records the difference between adoptedWRAM and actual expense levels for purchased water, purchased power and pump taxes, as establishedMCBA accounts approved by the CPUC, using the Modified Cost Balancing Account (“MCBA”).CPUC.  GSWC has implemented surcharges to recover its WRAM balances, net of the MCBA.  For the three and nine months ended SeptemberJune 30, 2013 and 2012, surcharges of $6.7$7.1 million and $14.3$4.2 million, respectively, were billed to customers to decrease previously incurred under-collections in the WRAM, net of MCBA accounts.  As of SeptemberJune 30, 2012,2013, GSWC has a net aggregated regulatory asset of $43.6$38.0 million which is comprised of a $64.2$51.1 million under-collection in the WRAM accounts and $20.6$13.1 million over-collection in the MCBA accounts.

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.

Based on CPUC guidelines, recovery periods relating to the majority of GSWC’s WRAM/MCBA balances range between 1218 and 36 months, with the majority being 24 months.  As required by the accounting guidance for alternative revenue programs, GSWC is required to collect its WRAM, net of its MCBA, within 24 months following the year in which they are recorded.  In September 2010, GSWC, along with other California water utilities, filed an application with the CPUC to modify the recovery period of its WRAM and MCBA to 18 months or less.  In April 2012, the CPUC issued a final decision which, among other things, setsset the recovery periodperiods for under-collection balances that are up to 15% of adopted annual revenues at 18 months or less.  For under-collection balances greater than 15%, the recovery period is 19 to 36 months. GSWC does not currently have any balances over 15% of adopted annual revenues.  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 becomesis 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 filed in early 2014.  The cap requirement set forth in the final decision will not impact GSWC’s 2012 and prior year WRAM/MCBA balances. Surcharges are currently in place to recover
In May 2013, the WRAM/MCBA balances from 2009, 2010 and 2011.

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 $2.3 million.  Surcharges collected during the remainder of the 36-month period would be for recovery of a $1.6$1.8 million increase in the BVES revenue requirement representing the difference between the allocated general office costs authorized by the CPUC in its November 2010 decision on the Region II, Region III and general office rate case, and what is currentlywas then in BVES’ rates for allocated general office costs.  As authorized by the CPUC, the $1.6$1.8 million was includedcombined in the BRRAM for recovery through the surcharge; however, these costs are not considered an alternative revenue program.

Bear Valley Electric Service:

In February 2012, GSWCBVES filed its BVES general rate case (“GRC”) for new rates in years 2013 through 2016.  In August 2012, DRA issued its report on the GRC.  Included in DRA’s recommendations iswas a $2.0 million retroactive ratemaking proposal to increase BVES’ accumulated depreciation balance to reflect adopted depreciation expense for the years 2009 through 2012 rather than actual depreciation expense as recorded in complianceaccordance with Generally Accepted Accounting Principles.GAAP.  DRA also recommendsrecommended that one-half of deferred rate case costs be borne by shareholders, rather than entirely by customers, as has been authorized by the CPUC in prior rate cases.  As of SeptemberJune 30, 2012,2013, GSWC has a $2.2$2.0 million regulatory asset representing deferred rate case costs for the current BVES general rate case. Hearings oncase, which the GRC, including these matters, were held in September 2012.CPUC has historically allowed utilities to recover. If DRA prevails, GSWC may be required to record a charge to adjust accumulated depreciation and to write-off half of its deferred rate case costs. GSWC believes DRA’s recommendations are without merit and intends to vigorously defend its positions. 

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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.

Hearings on BVES’ GRC, including the matters discussed above, were held in September 2012.  In January 2010, the City of Big Bear and surrounding areas of San Bernardino County experienced a series of snow storms, which damaged BVES power lines, poles, transformers, and other facilities and caused temporary interruption of service to some BVES customers.  As a result of these storms, BVES incurred additional operating costs to repair equipment and restore electric service to its customers, which were tracked in a catastrophic event memorandum account (“CEMA”).  In June 2011,November 2012, GSWC filed a motion to introduce new information regarding the results of a study on mandatory testing of BVES’ transmission and distribution poles to support BVES' requests for recoveryapproval of additional capital expenditures. The administrative law judge assigned to this GRC re-opened the record to receive additional testimony on this study, and to conduct additional evidential hearings.  DRA has challenged the results of the CEMA account related to the storm damagestudy, and alsorequested that BVES provide additional information.  Alternative dispute resolution meetings for the remaining unrecovered balanceGRC are scheduled to be held in September 2013. A proposed decision for costs incurred from 2003 through 2005 related to a bark beetle infestationthis GRC is expected later in its BVES service area.  In June 2012, the CPUC approved a 12-month surcharge to recover $796,000 recorded in BVES’s CEMA accounts.

GSWC’s BVES division has been regularly filing compliance reports with the CPUC regarding its purchases2013.


50


A new renewables portfolio standard (“RPS”).  Previous filings under prior RPS laws had indicated that BVES had not achieved annual target purchase levels of renewable energy resources and thus, on its face, might be subject to a potential penalty.  However, a new RPS law went into effect in December 2011 which changed, among other things, the prior RPS requirement based upon annual procurement targets to multi-year procurement targets.  Under the new RPS, law, BVES must procure sufficient RPS-eligible resources to meet: (i) any RPS procurement requirement deficit for any year prior to 2011, and;and (ii) RPS procurement requirements for the 2011 — 20132011-2013 compliance period by no later than December 31, 2013.  BVES’ firstmost recent RPS reportsreport under the new law werewas submitted to the CPUC in March 2012 and AugustDecember 2012 and did not reflect any RPS procurement deficiencies nor any potential or actual penalties.  Accordingly, no provision

In December 2012, GSWC entered into a ten-year agreement with a third party to purchase renewable energy credits (“RECs”). Under the terms of the agreement, GSWC would purchase approximately 582,000 RECs over a ten-year period which would be used towards meeting the CPUC’s RPS procurement requirements. In July 2013, the CPUC approved the agreement, which management believes will allow BVES to meet the RPS requirements for loss has been recorded in the financial statements as of September 30, 2012.

next ten years and any shortfalls to date.

In June 2011,March 2013, BVES filed an application with the CPUC to recover $1.2 million$835,000 (including interest) in outside service costs incurred during the period Septemberfrom April 1, 20072011 through MarchDecember 31, 20112012 in connection with its efforts to procure renewable energy resources.  In March 2012,May 2013, the CPUC approved the application.  Accordingly,these costs and accordingly, BVES recorded a regulatory asset of $1.3 million, including accrued interest, was recorded in March 2012.  A 12-month surcharge was implemented in May 2012 for recovery of these costs.

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. 

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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

AWR’s subsidiaries are subject to increasingly stringent environmental regulations, including the 1996 amendments to the Federal Safe Drinking Water Act; interim enhanced surface water treatment rules; regulation of disinfectant/disinfection by-products; and the long-term enhanced surface water treatment rules; the ground water treatment rule; contaminant regulation of radon and arsenic; and unregulated contaminants monitoring rule.

There have been no material changes to AWR’s environmental matters since December 31, 2011. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation-EnvironmentalOperations-Environmental Matters”section of the Registrant’s Form 10-K for the year-ended December 31, 20112012 for a detailed discussion of environmental matters.

Water Supply

See “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Operations—Water Supply”section of the Registrant’s Form 10-K for the year-ended December 31, 20112012 for a detailed discussion of water supply issues. The discussion below focuses on significant matters and changes since December 31, 2011.

2012.

Metropolitan Water District/ State Water Project

Water supplies available to the Metropolitan Water District of Southern California (“MWD”) through the State Water Project (“SWP”) vary from year to year based on weather.several factors.  Historically, weather was the primary factor in determining annual deliveries.  However, biological opinions issued in late 2007 have limited water diversions through the Sacramento/San Joaquin Delta (“Delta”) resulting in pumping restrictions to the State Water Project.  Even with variable State Water Project deliveries,  MWD has generally been able to provide sufficient quantities of water to satisfy the needs of its member agencies and their customers.  Under its Integrated Resources Plan, MWD estimates that it can meet its member agencies’ demands over at least the next 20 years.

Every year, the California Department of Water Resources (“DWR”) establishes the SWPState Water Project allocation for water deliveries to the state water contractors.  DWR generally establishes a percentage allocation of delivery requests based on a number of factors, including weather patterns, snow pack levels, reservoir levels and reservoir levels.  The percent allocation given to state contractors can vary throughout the year as weather and other factors change.biological diversion restrictions.  In April 2012,March 2013, DWR announced an increase indecreased its projected 20122013 SWP water deliveries from 50%40 percent to 60%35 percent due to an unusually dry winter and pumping restrictions in the Delta.  Snow surveys conducted in May 2013 reported California snowpack below normal. Should such dry conditions continue, MWD could implement mandatory water rationing within its service territories. However, GSWC believes that MWD will be able to continue meeting water demand for the year.
Impact of delivery requests.

Low Precipitation on Groundwater Supplies


During the spring of 2013, California experienced reduced levels of precipitation from average annual conditions. This is the second year of lower than average precipitation and is the driest spring in approximately 90 years on record. Reduced rainfall results in reduced recharge to the State's groundwater basins. Water levels in several of these basins, especially smaller basins, are experiencing dropping groundwater levels. GSWC utilizes groundwater from numerous groundwater basins throughout California. Several of GSWC's service areas rely on groundwater as their only source of supply. Should dry conditions persist through the remainder of 2013, areas served by these smaller basins may experience future mandatory conservation measures.


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New Accounting Pronouncements

Registrant is subject to newly issued requirements as well as changes in existing requirements issued by the Financial Accounting Standards Board. Differences in financial reporting between periods for GSWC could occur unless and until the CPUC approves such changes for conformity through regulatory proceedings. See Note 1of Unaudited Notes to Consolidated Financial Statements.

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52


Item 3. Quantitative and Qualitative Disclosures About Market Risk

Registrant is exposed to certain market risks, including fluctuations in interest rates, commodity price risk primarily relating to changes in the market price of electricity for BVES and economic conditions. Market risk is the potential loss arising from adverse changes in prevailing market rates and prices.

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.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934 (the “Exchange Act”), 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.

(b) Changes in Internal Controls over Financial Reporting

There has been no change in 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.

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PART II

Item 1. Legal Proceedings

There have been no material developments

Barstow Perchlorate Contamination
On March 8, 2013, the Company was served with four toxic tort lawsuits filed in 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.
The disclosures about legal proceedings describedmatters are discussed in our 2011Item 3 - Legal Proceedings, contained in Registrant's Annual Report on Form 10-K.

Registrant is subject to ordinary routine litigation incidental to its business. Other than the above and those disclosed in Registrant’s Form 10-K for the year ended December 31, 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.

Item 1A. Risk Factors

There have been no significant changes in the risk factors disclosed in our 20112012 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The shareholders of AWR have approved the material features of all equity compensation plans under which AWR directly issues equity securities. AWR did not directly issue any unregistered equity securities during the thirdsecond quarter of 2012.2013.  The following table provides information about repurchases of common shares by AWR during the thirdsecond quarter of 2012:

Period

 

Total Number of
Shares
Purchased

 

Average Price Paid
per Share

 

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)

 

Maximum Number
of Shares That May
Yet Be Purchased
under the Plans or
Programs

 

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)

2013:


Period 
Total Number of
Shares
Purchased
 
Average Price Paid
per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs (1)
 
Maximum Number
of Shares That May
Yet Be Purchased
under the Plans or
Programs
 
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.


(1)None of the common shares were purchased pursuant to any publicly announced stock repurchase program.
(2)Of this amount, 192,550 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.

Item 3. Defaults Upon Senior Securities
None

None

Item 4. Mine Safety Disclosure

Not applicable.


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Item 5. Other Information
(a)There have been no material changes during the second quarter of 2013 to the procedures by which shareholders may nominate persons to the Board of Directors of AWR.

(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.

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Item 6. Exhibits

(a)The following documents are filed as Exhibits to this report:

3.1

3.1By-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, 2012

8-K, filed May 13, 2011

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 3.33.1 of Registrant’s Form 10-K/A for the year ended December 31, 2003

8-K filed June 19, 2013

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



55


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

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10.10

10.10Form 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)

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, 2009 (2)

2009(2)

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

10.14Subcontract 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
10.15Contract 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
10.16Amended 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, 2010

May 28, 2013

10.14

10.17

Form of Indemnification Agreement for executive officers and directors incorporated by reference to Exhibit 10.21 to Registrant’s Form 10-K for the year ended December 31, 2006 (2)

10.15

10.18

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)

10.16

10.19

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)

10.17

10.20

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)



56


10.18

10.21

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

10.19

10.22

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)

10.20

10.23

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)

10.21

10.23

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)

10.22

10.25

Amended 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)

10.23

10.26

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)

10.24

10.27

20112012 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)

March 30, 2012 (2)

10.25

10.28

Form of Award Agreement for Awards under the 20112012 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)

March 30, 2012 (2)

10.26

10.29

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)

10.27

10.30

Performance Incentive Plan incorporated herein by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed on July 31, 2009(2)

10.28

10.31

Officer Relocation Policy incorporated herein by reference to Exhibit 10.5 to the Registrant’s Form 8-K filed on July 31, 2009(2)

10.29

10.32

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)

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Table of Contents

10.30

10.33Form 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)

10.31

10.34

20122013 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)

10.32

10.35

Form of 20122013 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)

10.33

10.36

Performance Award Agreement for 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)

31.1

10.37

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)





57


10.38Form 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)
10.392013 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)
31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for AWR (1)

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)


(1)

Filed concurrently herewith

(2)

Management contract or compensatory arrangement

(3)

Furnished concurrently herewith

61(1)

Filed concurrently herewith

(2)Management contract or compensatory arrangement
(3)Furnished concurrently herewith



58


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and as its principal financial officer.

AMERICAN STATES WATER COMPANY (“AWR”):

  By:

By:

/s/ EVA G. TANG

Senior Vice President-Finance, Chief Financial

Officer, Corporate Secretary and Treasurer

GOLDEN STATE WATER COMPANY (“GSWC”):

  By:

By:

/s/ EVA G. TANG

Senior Vice President-Finance, Chief Financial

Officer and Secretary

Date:

November 5, 2012

Date:
August 8, 2013

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