American States Water pany(AWR) - 2021 Q3 - Quarterly Report

Part I Financial Information Item 1. Financial Statements Presents unaudited consolidated financial statements for AWR and GSWC, including balance sheets, income statements, cash flows, and notes American States Water Company (AWR) Consolidated Financial Statements AWR Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,874,800 | $1,791,603 | | Net Property, Plant and Equipment | $1,594,546 | $1,512,043 | | Total Liabilities | $1,195,865 | $1,149,930 | | Long-term Debt | $412,093 | $440,348 | | Total Common Shareholders' Equity | $678,935 | $641,673 | AWR Consolidated Income Statement Highlights (in thousands, except per share amounts) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $136,755 | $133,688 | $382,229 | $364,043 | | Operating Income | $42,784 | $39,807 | $110,960 | $101,222 | | Net Income | $28,153 | $26,530 | $73,997 | $66,214 | | Fully Diluted EPS | $0.76 | $0.72 | $2.00 | $1.79 | AWR Consolidated Cash Flow Highlights - Nine Months Ended Sep 30 (in thousands) | Cash Flow From | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities | $81,923 | $87,843 | | Investing Activities | ($106,492) | ($94,637) | | Financing Activities | ($5,027) | $13,587 | Golden State Water Company (GSWC) Financial Statements GSWC Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,618,114 | $1,560,782 | | Net Utility Plant | $1,471,740 | $1,400,489 | | Total Liabilities | $1,015,750 | $977,484 | | Total Common Shareholder's Equity | $602,364 | $583,298 | GSWC Income Statement Highlights (in thousands) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $102,768 | $98,701 | $269,430 | $275,846 | | Operating Income | $35,459 | $33,149 | $87,295 | $85,416 | | Net Income | $22,797 | $21,143 | $55,988 | $53,264 | Notes to Consolidated Financial Statements - On July 1, 2020, GSWC transferred its electric utility assets and liabilities to Bear Valley Electric Service, Inc. (BVESI), which became a direct, wholly-owned subsidiary of AWR, a reorganization that did not substantively change AWR's operations or business segments[63][100] - Due to the COVID-19 pandemic, GSWC and BVESI suspended service disconnections for non-payment, recording approximately $8.5 million in CPUC-authorized memorandum accounts as regulatory assets for future recovery of incremental costs, which have not impacted earnings[64][76] - The aggregate remaining performance obligations for the contracted services segment (ASUS) were $3.3 billion as of September 30, 2021, expected to be recognized as revenue over the remaining 33 to 47 years of the 50-year contracts[71] - BVESI's purchased power contracts are accounted for as derivatives, with a $7.9 million unrealized gain recorded as a regulatory liability as of September 30, 2021, which did not impact AWR's earnings due to deferral in a memorandum account[83] - AWR paid quarterly dividends of $0.365 per share in Q3 2021, up from $0.335 per share in Q3 2020, with total dividends for the first nine months of 2021 at $1.035 per share compared to $0.945 per share in the same period of 2020[82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results for Q3 and YTD 2021, covering segment performance, liquidity, capital, and regulatory issues Results of Operations Q3 2021 Diluted EPS by Segment vs. Q3 2020 | Segment | Q3 2021 EPS | Q3 2020 EPS | Change | | :--- | :--- | :--- | :--- | | Water | $0.62 | $0.57 | +$0.05 | | Electric | $0.04 | $0.04 | $0.00 | | Contracted Services | $0.11 | $0.10 | +$0.01 | | AWR (parent) | ($0.01) | $0.01 | ($0.02) | | Consolidated Total | $0.76 | $0.72 | +$0.04 | YTD 2021 Diluted EPS by Segment vs. YTD 2020 | Segment | YTD 2021 EPS | YTD 2020 EPS | Change | | :--- | :--- | :--- | :--- | | Water | $1.51 | $1.35 | +$0.16 | | Electric | $0.14 | $0.13 | +$0.01 | | Contracted Services | $0.35 | $0.30 | +$0.05 | | AWR (parent) | $0.00 | $0.01 | ($0.01) | | Consolidated Total | $2.00 | $1.79 | +$0.21 | - The Water segment's earnings increase was primarily driven by new CPUC-authorized rates, with the full third-year step increase effective January 1, 2021, expected to add $11.1 million in revenue less water supply costs for the full year[121][129] - The Contracted Services segment's year-to-date earnings increased by $0.05 per share due to higher construction activity, increased management fees from economic price adjustments, and lower operating expenses, with a projected full-year contribution of $0.45 to $0.49 per share for 2021[131] Liquidity and Capital Resources - The company's regulated business is capital intensive, with projected company-funded capital expenditures for 2021 between $130 million and $140 million[195][201] - As of September 30, 2021, AWR had $162.0 million outstanding on its $200.0 million credit facility, and its subsidiary BVESI had $28.0 million outstanding on its separate $35 million facility[195] - AWR has increased its annual dividend for 67 consecutive years and maintains a policy to achieve a compound annual growth rate in the dividend of more than 7% over the long term, with a Q4 2021 dividend of $0.365 per share approved[197][237] - In March 2021, S&P affirmed an A+ credit rating for both AWR and GSWC but revised the rating outlook to negative from stable[197] Regulatory, Environmental, and Water Supply Matters - GSWC filed a general rate case for 2022-2024, requesting a capital budget of approximately $450.6 million, with new rates expected to be retroactive to January 1, 2022, despite a final decision not expected by the end of 2021[108] - California is experiencing extreme drought conditions, with 83% of the state in extreme drought as of October 2021, leading the governor to request a 15% voluntary water use reduction and GSWC to implement its staged water conservation framework[220][222] - GSWC is addressing PFAS contamination in its water sources by removing some wells from service and tracking incremental costs in a CPUC-authorized memorandum account for future recovery[218] - BVESI's annual Wildfire Mitigation Plan (WMP) was approved by the CPUC in September 2021, with related costs being tracked for future recovery and an examination by an independent firm in progress[213] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk disclosures, covering interest rates and commodity prices, are materially unchanged from the 2020 Form 10-K - The company's market risk disclosures, which cover interest rate and commodity price risks, have not materially changed from those reported in the Form 10-K for the year ended December 31, 2020[227] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Based on an evaluation as of the end of the quarter, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[228] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[229] Part II Other Information Item 1. Legal Proceedings & Item 1A. Risk Factors No material legal proceedings are pending, and no significant changes to risk factors have occurred since the 2020 Form 10-K - The company is not involved in any legal proceedings that are believed to be material[231] - There have been no significant changes in the risk factors from those disclosed in the 2020 Annual Report on Form 10-K[232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the repurchase of AWR's common shares in Q3 2021 for the company's 401(k) and Dividend Reinvestment Plans AWR Common Share Repurchases - Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | 484 | $84.31 | | August 2021 | 315 | $89.80 | | September 2021 | 2,402 | $92.25 | | Total | 3,201 | $90.81 | - The common shares were acquired for employees as part of GSWC's 401(k) plan and for participants in the Dividend Reinvestment Plan, not as part of a publicly announced stock repurchase program[235][236] Item 5. Other Information Reports other corporate actions, including the declaration of AWR's fourth quarter dividend - On October 26, 2021, AWR's Board of Directors approved a fourth quarter dividend of $0.365 per share, payable on December 1, 2021, to shareholders of record on November 15, 2021[237] Item 6. Exhibits Lists documents filed as exhibits to the Form 10-Q, including bylaws, debt agreements, and officer certifications