American States Water pany(AWR) - 2021 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for American States Water Company (AWR) and its subsidiary Golden State Water Company (GSWC) for the period ended June 30, 2021, including balance sheets, income statements, changes in equity, and cash flow statements, along with detailed notes Consolidated Financial Statements (AWR & GSWC) This sub-section contains the core unaudited financial statements for both American States Water Company (AWR) and its subsidiary Golden State Water Company (GSWC), including balance sheets as of June 30, 2021, and December 31, 2020, and income, equity, and cash flow statements for the three and six months ended June 30, 2021 and 2020 American States Water Company (AWR) - Key Financials (in thousands, except per share amounts) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $128,414 | $121,278 | $245,474 | $230,355 | | Operating Income | $37,847 | $35,716 | $68,176 | $61,415 | | Net Income | $26,576 | $25,612 | $45,844 | $39,684 | | Fully Diluted EPS | $0.72 | $0.69 | $1.24 | $1.07 | American States Water Company (AWR) - Balance Sheet Highlights (in thousands) | Metric | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,842,358 | $1,791,603 | | Total Liabilities | $1,178,224 | $1,149,930 | | Total Common Shareholders' Equity | $664,134 | $641,673 | - For the six months ended June 30, 2021, AWR's net cash provided by operating activities was $41.1 million, a decrease from $46.3 million in the prior-year period, while net cash used in investing activities increased to $76.1 million from $62.5 million, primarily due to higher capital expenditures[30] Notes to Consolidated Financial Statements Provides detailed explanations of the accounting policies and specific items in the financial statements, covering operations, revenue recognition, regulatory matters, earnings per share, derivative instruments, fair value measurements, income taxes, employee benefits, contingencies, and business segment information - On July 1, 2020, GSWC completed the transfer of its electric utility assets and liabilities to BVESI, which became a direct wholly-owned subsidiary of AWR, a non-cash, tax-free reorganization with no substantive changes to AWR's operations or business segments[50][90] - Due to the COVID-19 pandemic, GSWC and BVESI suspended service disconnections and have recorded approximately $6.7 million in COVID-19-related incremental costs (including bad debt) in memorandum accounts for future recovery, as authorized by the CPUC[51][63] - As of June 30, 2021, the contracted services segment (ASUS) had aggregate remaining performance obligations of $3.2 billion, which are expected to be recognized as revenue over the remaining terms of the 50-year contracts (34 to 47 years)[58] - GSWC has an accrued liability of an estimated $1.3 million for additional costs to complete an environmental cleanup at one of its plant sites, which management believes will be recoverable through rates[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section provides management's perspective on the company's financial condition and results of operations, covering performance by business segment, the impact of COVID-19, regulatory developments, liquidity and capital resources, and key operational factors like water supply and environmental matters Results of Operations Provides a detailed analysis of consolidated financial results for the three and six months ended June 30, 2021, compared to the same periods in 2020, breaking down revenue and expense changes by business segment and explaining key drivers Diluted Earnings Per Share by Segment | Segment | Q2 2021 | Q2 2020 | Change | H1 2021 | H1 2020 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Water | $0.57 | $0.54 | $0.03 | $0.90 | $0.78 | $0.12 | | Electric | $0.04 | $0.03 | $0.01 | $0.10 | $0.09 | $0.01 | | Contracted Services | $0.11 | $0.12 | ($0.01) | $0.24 | $0.20 | $0.04 | | Consolidated | $0.72 | $0.69 | $0.03 | $1.24 | $1.07 | $0.17 | - The increase in Water segment earnings was primarily driven by CPUC-authorized rate increases, which generated an additional $3.2 million in water gross margin for Q2 2021 and $5.7 million for H1 2021 compared to the prior year[106][111][124] - Contracted Services segment earnings increased by $0.04 per share year-to-date, driven by higher construction activity and management fees, with the company expecting this segment to contribute $0.45 to $0.49 per share for the full year 2021[113] - Consolidated maintenance expenses decreased by $2.0 million (25.7%) for the first six months of 2021 compared to 2020, largely due to lower unplanned maintenance at the water segment and timing differences at the electric and contracted services segments[162] Liquidity and Capital Resources Discusses the company's capital-intensive nature, funding sources, and financial position, noting key sources include cash from operations, bank borrowings, and capital market access, with planned capital expenditures of $125 million and $135 million for 2021, and the impact of COVID-19 on customer receivables and early debt redemption - The regulated utilities' company-funded capital expenditures for 2021 are projected to be between $125 million and $135 million[180] - As of June 30, 2021, AWR had $162.0 million outstanding on its $200.0 million credit facility, and BVESI had $26.0 million outstanding on its $35 million facility[176] - On May 24, 2021, GSWC redeemed its 9.56% private placement notes of $28.0 million early, funding the redemption through borrowings from AWR[176][181] - On July 27, 2021, AWR's Board of Directors approved a 9% increase in the quarterly dividend to $0.365 per share, marking the 67th consecutive year of dividend increases[177][213] Regulatory, Environmental, and Water Supply Matters This section details significant regulatory proceedings, environmental compliance issues, and water supply challenges, including GSWC's general rate case for 2022-2024, the CPUC's decision on WRAM/MCBA mechanisms, BVESI's wildfire mitigation plans, PFAS contamination issues, and the impact of the ongoing California drought - GSWC filed a general rate case for 2022-2024, requesting capital budgets of approximately $450.6 million, with new rates expected to be retroactive to January 1, 2022, despite potential delays in a final decision[188] - A CPUC decision will phase out the Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA) after 2024, which is expected to increase future earnings volatility, a decision GSWC has appealed[189] - Due to drought conditions, the governor of California has requested a voluntary 15% water usage reduction, as nearly 90% of California was in extreme drought as of July 2021[200] - GSWC is addressing perfluoroalkyl substances (PFAS) contamination by removing some wells from service and is tracking incremental costs in a memorandum account for future recovery[197] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks including fluctuations in interest rates and commodity prices (primarily electricity), with no material changes referenced from the 2020 Form 10-K - The company is exposed to market risks from interest rates and commodity prices, particularly electricity at BVESI[203] - There have been no material changes to the market risk disclosures from those presented in the Annual Report on Form 10-K for the year ended December 31, 2020[203] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021, with no material changes to internal control over financial reporting occurring during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were adequate and effective as of the end of the fiscal quarter[204] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[205] Part II - Other Information Item 1. Legal Proceedings & Item 1A. Risk Factors The company is subject to ordinary routine litigation incidental to its business, none of which is believed to be material, and there have been no significant changes to the risk factors disclosed in the 2020 Annual Report on Form 10-K - The company is subject to ordinary routine litigation, but no pending proceedings are considered material[207] - There have been no significant changes in risk factors from the 2020 Form 10-K[208] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds & Other Items (Items 2-6) This section covers the use of proceeds from equity securities, confirms no defaults on senior securities, and notes other corporate actions, including the Board of Directors' approval of a 9% increase in the quarterly dividend in July 2021, concluding with a list of exhibits filed with the report - On July 27, 2021, AWR's Board of Directors approved a 9% increase in the third quarter dividend, from $0.335 per share to $0.365 per share[213] - Common shares were acquired on the open market for employees under the company's 401(k) plan and for participants in the Dividend Reinvestment Plan during the quarter[212] - The report confirms no defaults upon senior securities and that mine safety disclosures are not applicable[212]