AWR-2014.09.30-10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the quarterly period ended September 30, 2014 |
or |
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¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the transition period from to |
Commission file number 001-14431
American States Water Company
(Exact Name of Registrant as Specified in Its Charter)
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California | | 95-4676679 |
(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)
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California | | 95-1243678 |
(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.
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American States Water Company | | Yes x No ¨ |
Golden State Water Company | | Yes x No ¨ |
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 ¨ |
Golden State Water Company | | Yes x No ¨ |
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 |
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Large accelerated filer x | | Accelerated filer ¨ | | Non-accelerated filer ¨ | | Smaller reporting company ¨ |
Golden State Water Company |
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Large accelerated filer ¨ | | Accelerated filer ¨ | | Non-accelerated filer x | | Smaller reporting company ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
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American States Water Company | | Yes ¨ Nox |
Golden State Water Company | | Yes ¨ Nox |
As of October 31, 2014, the number of Common Shares outstanding, of American States Water Company was 38,400,038 shares. As of October 31, 2014, 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.
AMERICAN STATES WATER COMPANY
and
GOLDEN STATE WATER COMPANY
FORM 10-Q
INDEX
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 of 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 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 those 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:
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• | 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 |
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• | Changes in the policies and procedures of the California Public Utilities Commission ("CPUC") |
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• | Timeliness of CPUC action on rates |
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• | Availability of water supplies, which may be adversely affected by the California drought, changes in weather patterns in the West, contamination and court decisions or other governmental actions restricting the use of water from the Colorado River, the California State Water Project, and/or pumping of groundwater |
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• | Our ability to efficiently manage GSWC capital expenditures and operating and maintenance expenses within CPUC authorized levels and timely recovery of our costs through rates |
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• | The impact of increasing opposition to GSWC rate increases on our ability to recover our costs through rates and the threat of condemnation of our service territories on the size of our customer base |
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• | 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 |
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• | Changes in accounting valuations and estimates, including changes resulting from changes in our assessment of anticipated recovery of regulatory assets, liabilities and revenues subject to refund or regulatory disallowances |
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• | Changes in environmental laws and water and wastewater quality requirements and increases in costs associated with complying with these laws and requirements |
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• | 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 |
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• | 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 |
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• | Adequacy of our electric division's power supplies and the extent to which we can manage and respond to the volatility of electric and natural gas prices |
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• | Our electric operation's ability to comply with the CPUC’s renewable energy procurement requirements |
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• | Changes in GSWC long-term customer demand due to changes in customer usage patterns as a result of conservation efforts, regulatory changes affecting demand such as new landscaping or irrigation requirements, recycling of water by the customer or purchase of recycled water supplied by other parties, unanticipated population growth or decline, changes in climate conditions, general economic and financial market conditions and cost increases |
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• | Changes in accounting treatment for regulated utilities |
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• | Changes in estimates used in ASUS’s revenue recognition under the percentage of completion method of accounting for construction activities at our contracted services business |
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• | Termination, in whole or in part, of one or more of our Military Utility Privatization Subsidiaries' contracts to provide water and/or wastewater services at military bases for the convenience of the U.S. government or for default |
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• | Termination of contracts and suspension or debarment for a period of time from contracting with the government due to violations of federal law or regulations in connection with military utility privatization activities |
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• | Failure of the U.S. government to make timely payments to ASUS for water and/or wastewater services at military bases as a result of fiscal uncertainties over the funding of the U.S. government |
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• | Delays in obtaining redetermination of prices or equitable adjustments to our prices on one or more of our contracts to provide water and/or wastewater services at military bases |
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• | Disallowance of costs on any of our contracts to provide water and/or wastewater services at military bases as a result of audits, cost reviews or investigations by contracting agencies |
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• | Inaccurate assumptions used in preparing bids in our contracted services business |
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• | Failure of the wastewater systems that we operate on military bases resulting in untreated wastewater or contaminants spilling into nearby properties, streams or rivers |
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• | Failure to comply with the terms of our military privatization contracts |
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• | Failure of any of our subcontractors to perform services for us in accordance with the terms of our military privatization contracts |
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• | Issues with the implementation, maintenance and/or upgrading of our information technology systems |
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• | General economic conditions which may impact our ability to recover infrastructure investments and operating costs from customers |
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• | 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 water and electric systems 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 |
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• | 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 |
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• | 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 |
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• | 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 2013 Annual Report on Form 10-K) as you read this Form 10-Q. We qualify all of our forward-looking statements by these cautionary statements.
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
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(in thousands) | | September 30, 2014 | | December 31, 2013 |
Property, Plant and Equipment | | |
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Regulated utility plant, at cost | | $ | 1,480,087 |
| | $ | 1,443,623 |
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Non-utility property, at cost | | 10,900 |
| | 9,519 |
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Total | | 1,490,987 |
| | 1,453,142 |
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Less - Accumulated depreciation | | (495,544 | ) | | (471,665 | ) |
Net property, plant and equipment | | 995,443 |
| | 981,477 |
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Other Property and Investments | | |
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Goodwill | | 1,116 |
| | 1,116 |
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Other property and investments | | 17,509 |
| | 15,806 |
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Total other property and investments | | 18,625 |
| | 16,922 |
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Current Assets | | |
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Cash and cash equivalents | | 57,862 |
| | 38,226 |
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Accounts receivable — customers (less allowance for doubtful accounts of $839 in 2014 and $755 in 2013) | | 26,348 |
| | 23,829 |
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Unbilled receivable | | 32,629 |
| | 18,552 |
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Receivable from the U.S. government | | 3,542 |
| | 7,106 |
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Other accounts receivable (less allowance for doubtful accounts of $102 in 2014 and $432 in 2013) | | 3,313 |
| | 4,914 |
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Income taxes receivable | | 136 |
| | 9,214 |
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Materials and supplies, at average cost | | 3,923 |
| | 4,558 |
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Regulatory assets — current | | 6,228 |
| | 27,676 |
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Prepayments and other current assets | | 4,261 |
| | 2,481 |
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Costs and estimated earnings in excess of billings on uncompleted contracts | | 37,755 |
| | 45,508 |
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Deferred income taxes — current | | 10,558 |
| | 9,553 |
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Total current assets | | 186,555 |
| | 191,617 |
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Regulatory and Other Assets | | |
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Regulatory assets | | 100,815 |
| | 95,005 |
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Costs and estimated earnings in excess of billings on uncompleted contracts | | 8,620 |
| | 7,823 |
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Unbilled receivable | | 4,024 |
| | 3,104 |
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Other | | 12,033 |
| | 14,235 |
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Total regulatory and other assets | | 125,492 |
| | 120,167 |
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Total Assets | | $ | 1,326,115 |
| | $ | 1,310,183 |
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The accompanying notes are an integral part of these consolidated financial statements
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)
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(in thousands) | | September 30, 2014 | | December 31, 2013 |
Capitalization | | |
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Common shares, no par value | | $ | 253,957 |
| | $ | 253,961 |
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Earnings reinvested in the business | | 256,355 |
| | 238,443 |
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Total common shareholders’ equity | | 510,312 |
| | 492,404 |
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Long-term debt | | 310,807 |
| | 326,079 |
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Total capitalization | | 821,119 |
| | 818,483 |
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Current Liabilities | | |
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Long-term debt — current | | 6,292 |
| | 6,298 |
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Accounts payable | | 49,740 |
| | 49,787 |
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Income taxes payable | | 5,642 |
| | 507 |
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Accrued other taxes | | 8,711 |
| | 9,802 |
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Accrued employee expenses | | 11,204 |
| | 10,801 |
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Accrued interest | | 6,143 |
| | 3,897 |
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Billings in excess of costs and estimated earnings on uncompleted contracts | | 15,699 |
| | 6,852 |
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Other | | 17,162 |
| | 12,962 |
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Total current liabilities | | 120,593 |
| | 100,906 |
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Other Credits | | |
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Advances for construction | | 68,327 |
| | 69,332 |
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Contributions in aid of construction - net | | 115,329 |
| | 114,916 |
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Deferred income taxes | | 157,355 |
| | 159,506 |
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Unamortized investment tax credits | | 1,722 |
| | 1,790 |
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Accrued pension and other postretirement benefits | | 34,873 |
| | 38,726 |
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Other | | 6,797 |
| | 6,524 |
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Total other credits | | 384,403 |
| | 390,794 |
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Commitments and Contingencies (Note 7) | |
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Total Capitalization and Liabilities | | $ | 1,326,115 |
| | $ | 1,310,183 |
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The accompanying notes are an integral part of these consolidated financial statements
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)
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| | Three Months Ended September 30, |
(in thousands, except per share amounts) | | 2014 | | 2013 |
Operating Revenues | | |
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Water | | $ | 96,700 |
| | $ | 93,932 |
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Electric | | 8,614 |
| | 8,849 |
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Contracted services | | 33,013 |
| | 28,133 |
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Total operating revenues | | 138,327 |
| | 130,914 |
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Operating Expenses | | |
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Water purchased | | 17,837 |
| | 19,246 |
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Power purchased for pumping | | 3,914 |
| | 3,414 |
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Groundwater production assessment | | 4,291 |
| | 4,656 |
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Power purchased for resale | | 2,383 |
| | 3,386 |
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Supply cost balancing accounts | | 3,179 |
| | (1,003 | ) |
Other operation | | 6,958 |
| | 7,185 |
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Administrative and general | | 20,178 |
| | 20,083 |
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Depreciation and amortization | | 10,549 |
| | 9,753 |
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Maintenance | | 4,390 |
| | 4,666 |
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Property and other taxes | | 4,359 |
| | 4,108 |
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ASUS construction | | 20,430 |
| | 19,256 |
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Net gain on sale of property | | (36 | ) | | — |
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Total operating expenses | | 98,432 |
| | 94,750 |
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Operating Income | | 39,895 |
| | 36,164 |
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Other Income and Expenses | | |
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Interest expense | | (5,519 | ) | | (5,852 | ) |
Interest income | | 224 |
| | 185 |
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Other, net | | 47 |
| | 247 |
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Total other income and expenses | | (5,248 | ) | | (5,420 | ) |
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Income from operations before income tax expense | | 34,647 |
| | 30,744 |
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Income tax expense | | 13,476 |
| | 9,905 |
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Net Income | | $ | 21,171 |
| | $ | 20,839 |
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Weighted Average Number of Common Shares Outstanding | | 38,704 |
| | 38,696 |
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Basic Earnings Per Common Share | | $ | 0.54 |
| | $ | 0.54 |
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Weighted Average Number of Diluted Shares | | 38,930 |
| | 38,923 |
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Fully Diluted Earnings Per Common Share | | $ | 0.54 |
| | $ | 0.53 |
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Dividends Paid Per Common Share | | $ | 0.2130 |
| | $ | 0.2025 |
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The accompanying notes are an integral part of these consolidated financial statements
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)
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| | Nine Months Ended September 30, |
(in thousands, except per share amounts) | | 2014 | | 2013 |
Operating Revenues | | |
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Water | | $ | 253,689 |
| | $ | 247,234 |
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Electric | | 27,398 |
| | 27,980 |
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Contracted services | | 74,826 |
| | 86,947 |
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Total operating revenues | | 355,913 |
| | 362,161 |
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Operating Expenses | | |
| | |
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Water purchased | | 45,324 |
| | 46,648 |
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Power purchased for pumping | | 8,448 |
| | 7,385 |
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Groundwater production assessment | | 12,684 |
| | 11,666 |
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Power purchased for resale | | 7,070 |
| | 9,894 |
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Supply cost balancing accounts | | 3,891 |
| | (9 | ) |
Other operation | | 20,990 |
| | 19,158 |
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Administrative and general | | 59,769 |
| | 56,103 |
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Depreciation and amortization | | 31,604 |
| | 29,337 |
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Maintenance | | 12,206 |
| | 13,513 |
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Property and other taxes | | 12,649 |
| | 12,004 |
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ASUS construction | | 47,651 |
| | 59,053 |
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Net gain on sale of property | | (36 | ) | | (12 | ) |
Total operating expenses | | 262,250 |
| | 264,740 |
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| | | | |
Operating Income | | 93,663 |
| | 97,421 |
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Other Income and Expenses | | |
| | |
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Interest expense | | (16,924 | ) | | (17,398 | ) |
Interest income | | 459 |
| | 512 |
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Other, net | | 443 |
| | 673 |
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Total other income and expenses | | (16,022 | ) | | (16,213 | ) |
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Income from operations before income tax expense | | 77,641 |
| | 81,208 |
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| | | | |
Income tax expense | | 30,095 |
| | 30,302 |
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| | | | |
Net Income | | $ | 47,546 |
| | $ | 50,906 |
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| | | | |
Weighted Average Number of Common Shares Outstanding | | 38,744 |
| | 38,613 |
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Basic Earnings Per Common Share | | $ | 1.22 |
| | $ | 1.31 |
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Weighted Average Number of Diluted Shares | | 38,963 |
| | 38,835 |
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Fully Diluted Earnings Per Common Share | | $ | 1.22 |
| | $ | 1.31 |
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Dividends Paid Per Common Share | | $ | 0.6180 |
| | $ | 0.5575 |
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The accompanying notes are an integral part of these consolidated financial statements
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)
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| | | | | | | | |
| | Nine Months Ended September 30, |
(in thousands) | | 2014 | | 2013 |
Cash Flows From Operating Activities: | | |
| | |
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Net income | | $ | 47,546 |
| | $ | 50,906 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
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Depreciation and amortization | | 32,302 |
| | 30,019 |
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Provision for doubtful accounts | | 781 |
| | 776 |
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Deferred income taxes and investment tax credits | | (3,236 | ) | | 10,616 |
|
Stock-based compensation expense | | 1,961 |
| | 1,711 |
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Other — net | | 288 |
| | (31 | ) |
Changes in assets and liabilities: | | |
| | |
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Accounts receivable — customers | | (3,345 | ) | | (11,498 | ) |
Unbilled receivable | | (14,997 | ) | | (3,265 | ) |
Other accounts receivable | | 2,559 |
| | (504 | ) |
Receivable from the U.S. government | | 3,564 |
| | (6,964 | ) |
Materials and supplies | | 635 |
| | 162 |
|
Prepayments and other current assets | | (1,780 | ) | | 712 |
|
Costs and estimated earnings in excess of billings on uncompleted contracts | | 6,956 |
| | (9,387 | ) |
Other assets (including other regulatory assets) | | 19,344 |
| | (2,899 | ) |
Accounts payable | | 5,450 |
| | 9,370 |
|
Income taxes receivable/payable | | 14,213 |
| | 13,984 |
|
Billings in excess of costs and estimated earnings on uncompleted contracts | | 8,847 |
| | (4,757 | ) |
Accrued pension and other postretirement benefits | | (3,623 | ) | | 2,114 |
|
Other liabilities | | 2,604 |
| | 6,214 |
|
Net cash provided | | 120,069 |
| | 87,279 |
|
| | | | |
Cash Flows From Investing Activities: | | |
| | |
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Construction expenditures | | (53,714 | ) | | (69,059 | ) |
Other investments | | (1,739 | ) | | (1,423 | ) |
Proceed from sale of property | | 43 |
| | 12 |
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Net cash used | | (55,410 | ) | | (70,470 | ) |
| | | | |
Cash Flows From Financing Activities: | | |
| | |
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Proceeds from issuance of common shares and stock option exercises | | 370 |
| | 1,948 |
|
Repurchase of common shares | | (7,101 | ) | | — |
|
Receipt of advances for and contributions in aid of construction | | 5,157 |
| | 10,051 |
|
Refunds on advances for construction | | (3,062 | ) | | (3,328 | ) |
Repayments of long-term debt | | (15,278 | ) | | (365 | ) |
Proceeds from issuance of long-term debt | | — |
| | 60 |
|
Dividends paid | | (23,931 | ) | | (21,520 | ) |
Other | | (1,178 | ) | | (979 | ) |
Net cash used | | (45,023 | ) | | (14,133 | ) |
Net change in cash and cash equivalents | | 19,636 |
| | 2,676 |
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Cash and cash equivalents, beginning of period | | 38,226 |
| | 23,486 |
|
Cash and cash equivalents, end of period | | $ | 57,862 |
| | $ | 26,162 |
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| | | | |
Non-cash transactions: | | | | |
Accrued payables for investment in utility plant | | $ | 14,018 |
| | $ | 25,072 |
|
Property installed by developers and conveyed | | $ | 388 |
| | $ | 1,598 |
|
The accompanying notes are an integral part of these consolidated financial statements
GOLDEN STATE WATER COMPANY
BALANCE SHEETS
ASSETS
(Unaudited)
|
| | | | | | | | |
(in thousands) | | September 30, 2014 | | December 31, 2013 |
Utility Plant | | |
| | |
|
Utility plant, at cost | | $ | 1,480,087 |
| | $ | 1,443,623 |
|
Less - Accumulated depreciation | | (489,498 | ) | | (466,329 | ) |
Net utility plant | | 990,589 |
| | 977,294 |
|
| | | | |
Other Property and Investments | | 15,365 |
| | 13,653 |
|
| | | | |
Current Assets | | |
| | |
|
Cash and cash equivalents | | 27,727 |
| | 37,875 |
|
Accounts receivable-customers (less allowance for doubtful accounts of $839 in 2014 and $755 in 2013) | | 26,348 |
| | 23,829 |
|
Unbilled receivable | | 20,821 |
| | 18,552 |
|
Inter-company receivable | | 177 |
| | 718 |
|
Other accounts receivable (less allowance for doubtful accounts of $93 in 2014 and $359 in 2013) | | 2,027 |
| | 3,570 |
|
Income taxes receivable from Parent | | — |
| | 9,704 |
|
Note receivable from Parent | | — |
| | 500 |
|
Materials and supplies, at average cost | | 2,465 |
| | 1,859 |
|
Regulatory assets — current | | 6,228 |
| | 27,676 |
|
Prepayments and other current assets | | 3,630 |
| | 2,218 |
|
Deferred income taxes — current | | 9,722 |
| | 8,573 |
|
Total current assets | | 99,145 |
| | 135,074 |
|
| | | | |
Regulatory and Other Assets | | |
| | |
|
Regulatory assets | | 100,815 |
| | 95,005 |
|
Other accounts receivable | | — |
| | 913 |
|
Other | | 10,575 |
| | 11,442 |
|
Total regulatory and other assets | | 111,390 |
| | 107,360 |
|
| | | | |
Total Assets | | $ | 1,216,489 |
| | $ | 1,233,381 |
|
The accompanying notes are an integral part of these financial statements
GOLDEN STATE WATER COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
(Unaudited)
|
| | | | | | | | |
(in thousands) | | September 30, 2014 | | December 31, 2013 |
Capitalization | | |
| | |
|
Common shares, no par value | | $ | 234,607 |
| | $ | 233,721 |
|
Earnings reinvested in the business | | 203,648 |
| | 203,892 |
|
Total common shareholder’s equity | | 438,255 |
| | 437,613 |
|
Long-term debt | | 310,807 |
| | 326,079 |
|
Total capitalization | | 749,062 |
| | 763,692 |
|
| | | | |
Current Liabilities | | |
| | |
|
Long-term debt — current | | 6,292 |
| | 6,298 |
|
Accounts payable | | 35,054 |
| | 37,611 |
|
Income taxes payable to Parent | | 650 |
| | — |
|
Accrued other taxes | | 8,376 |
| | 9,299 |
|
Accrued employee expenses | | 9,834 |
| | 9,536 |
|
Accrued interest | | 6,143 |
| | 3,897 |
|
Other | | 17,051 |
| | 12,880 |
|
Total current liabilities | | 83,400 |
| | 79,521 |
|
| | | | |
Other Credits | | |
| | |
|
Advances for construction | | 68,327 |
| | 69,332 |
|
Contributions in aid of construction — net | | 115,329 |
| | 114,916 |
|
Deferred income taxes | | 157,115 |
| | 158,994 |
|
Unamortized investment tax credits | | 1,722 |
| | 1,790 |
|
Accrued pension and other postretirement benefits | | 34,873 |
| | 38,726 |
|
Other | | 6,661 |
| | 6,410 |
|
Total other credits | | 384,027 |
| | 390,168 |
|
| | | | |
Commitments and Contingencies (Note 7) | |
|
| |
|
|
| | | | |
Total Capitalization and Liabilities | | $ | 1,216,489 |
| | $ | 1,233,381 |
|
The accompanying notes are an integral part of these financial statements
GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)
|
| | | | | | | | |
| | Three Months Ended September 30, |
(in thousands) | | 2014 | | 2013 |
Operating Revenues | | | | |
Water | | $ | 96,700 |
| | $ | 93,932 |
|
Electric | | 8,614 |
| | 8,849 |
|
Total operating revenues | | 105,314 |
| | 102,781 |
|
| | | | |
Operating Expenses | | | | |
Water purchased | | 17,837 |
| | 19,246 |
|
Power purchased for pumping | | 3,914 |
| | 3,414 |
|
Groundwater production assessment | | 4,291 |
| | 4,656 |
|
Power purchased for resale | | 2,383 |
| | 3,386 |
|
Supply cost balancing accounts | | 3,179 |
| | (1,003 | ) |
Other operation | | 6,223 |
| | 6,506 |
|
Administrative and general | | 17,261 |
| | 17,007 |
|
Depreciation and amortization | | 10,236 |
| | 9,474 |
|
Maintenance | | 3,765 |
| | 4,239 |
|
Property and other taxes | | 3,879 |
| | 3,572 |
|
Total operating expenses | | 72,968 |
| | 70,497 |
|
| | | | |
Operating Income | | 32,346 |
| | 32,284 |
|
| | | | |
Other Income and Expenses | | | | |
Interest expense | | (5,509 | ) | | (5,815 | ) |
Interest income | | 214 |
| | 148 |
|
Other, net | | 47 |
| | 247 |
|
Total other income and expenses | | (5,248 | ) | | (5,420 | ) |
| | | | |
Income from operations before income tax expense | | 27,098 |
| | 26,864 |
|
| | | | |
Income tax expense | | 11,019 |
| | 10,251 |
|
| | | | |
Net Income | | $ | 16,079 |
| | $ | 16,613 |
|
The accompanying notes are an integral part of these consolidated financial statements
GOLDEN STATE WATER COMPANY
STATEMENTS OF INCOME
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)
|
| | | | | | | | |
| | Nine Months Ended September 30, |
(in thousands) | | 2014 | | 2013 |
Operating Revenues | | |
| | |
|
Water | | $ | 253,689 |
| | $ | 247,234 |
|
Electric | | 27,398 |
| | 27,980 |
|
Total operating revenues | | 281,087 |
| | 275,214 |
|
| | | | |
Operating Expenses | | |
| | |
|
Water purchased | | 45,324 |
| | 46,648 |
|
Power purchased for pumping | | 8,448 |
| | 7,385 |
|
Groundwater production assessment | | 12,684 |
| | 11,666 |
|
Power purchased for resale | | 7,070 |
| | 9,894 |
|
Supply cost balancing accounts | | 3,891 |
| | (9 | ) |
Other operation | | 19,027 |
| | 17,145 |
|
Administrative and general | | 50,670 |
| | 46,407 |
|
Depreciation and amortization | | 30,708 |
| | 28,480 |
|
Maintenance | | 10,609 |
| | 12,097 |
|
Property and other taxes | | 11,305 |
| | 10,663 |
|
Total operating expenses | | 199,736 |
| | 190,376 |
|
| | | | |
Operating Income | | 81,351 |
| | 84,838 |
|
| | | | |
Other Income and Expenses | | |
| | |
|
Interest expense | | (16,841 | ) | | (17,289 | ) |
Interest income | | 436 |
| | 466 |
|
Other, net | | 443 |
| | 674 |
|
Total other income and expenses | | (15,962 | ) | | (16,149 | ) |
| | | | |
Income from operations before income tax expense | | 65,389 |
| | 68,689 |
|
| | | | |
Income tax expense | | 26,507 |
| | 27,557 |
|
| | | | |
Net Income | | $ | 38,882 |
| | $ | 41,132 |
|
The accompanying notes are an integral part of these financial statements
GOLDEN STATE WATER COMPANY
STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(Unaudited)
|
| | | | | | | | |
| | Nine Months Ended September 30, |
(in thousands) | | 2014 | | 2013 |
Cash Flows From Operating Activities: | | |
| | |
|
Net income | | $ | 38,882 |
| | $ | 41,132 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
|
Depreciation and amortization | | 31,406 |
| | 29,162 |
|
Provision for doubtful accounts | | 844 |
| | 687 |
|
Deferred income taxes and investment tax credits | | (3,110 | ) | | 10,556 |
|
Stock-based compensation expense | | 1,513 |
| | 1,384 |
|
Other — net | | 273 |
| | 103 |
|
Changes in assets and liabilities: | | |
| | |
|
Accounts receivable — customers | | (3,345 | ) | | (11,498 | ) |
Unbilled receivable | | (2,269 | ) | | (4,936 | ) |
Other accounts receivable | | 2,438 |
| | 1,483 |
|
Materials and supplies | | (606 | ) | | 188 |
|
Prepayments and other current assets | | (1,412 | ) | | 928 |
|
Other assets (including other regulatory assets) | | 18,976 |
| | (1,597 | ) |
Accounts payable | | 2,941 |
| | 7,015 |
|
Inter-company receivable/payable | | 541 |
| | (2,720 | ) |
Income taxes receivable/payable from/to Parent | | 10,354 |
| | 12,892 |
|
Accrued pension and other postretirement benefits | | (3,623 | ) | | 2,114 |
|
Other liabilities | | 2,616 |
| | 6,130 |
|
Net cash provided | | 96,419 |
| | 93,023 |
|
| | | | |
Cash Flows From Investing Activities: | | |
| | |
|
Construction expenditures | | (52,150 | ) | | (68,823 | ) |
Note receivable from AWR parent | | (8,300 | ) | | (9,200 | ) |
Receipt of payment of note receivable from AWR parent | | 8,800 |
| | 5,364 |
|
Other investments | | (1,739 | ) | | (1,423 | ) |
Net cash used | | (53,389 | ) | | (74,082 | ) |
| | | | |
Cash Flows From Financing Activities: | | |
| | |
|
Receipt of advances for and contributions in aid of construction | | 5,157 |
| | 10,051 |
|
Refunds on advances for construction | | (3,062 | ) | | (3,328 | ) |
Proceeds from the issuance of long-term debt | | — |
| | 60 |
|
Repayments of long-term debt | | (15,278 | ) | | (365 | ) |
Dividends paid | | (39,000 | ) | | (21,400 | ) |
Other | | (995 | ) | | (811 | ) |
Net cash used | | (53,178 | ) | | (15,793 | ) |
| | | | |
Net change in cash and cash equivalents | | (10,148 | ) | | 3,148 |
|
Cash and cash equivalents, beginning of period | | 37,875 |
| | 22,578 |
|
Cash and cash equivalents, end of period | | $ | 27,727 |
| | $ | 25,726 |
|
| | | | |
Non-cash transactions: | | | | |
Accrued payables for investment in utility plant | | $ | 14,017 |
| | $ | 25,072 |
|
Property installed by developers and conveyed | | $ | 388 |
| | $ | 1,598 |
|
The accompanying notes are an integral part of these financial statements
AMERICAN STATES WATER COMPANY AND SUBSIDIARIES
AND
GOLDEN STATE WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.”
GSWC is a public utility engaged principally in the purchase, production, distribution and sale of water in California serving approximately 257,000 customers. GSWC also distributes electricity in several San Bernardino County mountain communities in California serving approximately 24,000 customers through its Bear Valley Electric Service (“BVES”) division. Although Registrant has a diversified base of residential, industrial and other customers, revenues derived from commercial and residential water customers accounted for approximately 90% of total water revenues during the three and nine months ended September 30, 2014 and 2013. The California Public Utilities Commission (“CPUC”) regulates GSWC’s water and electric businesses, in matters 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, through its wholly-owned subsidiaries, operates, maintains and performs construction activities (including renewal and replacement capital work) on water and/or wastewater systems at various United States military bases pursuant to 50-year firm fixed-price contracts. These contracts 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 2014 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 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, 2013 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles ("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, 2013 filed with the SEC.
GSWC'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 agreed to pay any unpaid principal amounts outstanding under the Note, plus accrued interest. As of September 30, 2014, AWR had no amounts outstanding to GSWC under this Note.
GSWC and ASUS provide and receive various support services to and from their parent, AWR, and among themselves. GSWC also allocates certain corporate office administrative and general costs to its affiliate, ASUS, using allocation factors approved by the CPUC. During the nine months ended September 30, 2014 and 2013, GSWC allocated to ASUS approximately $2.0 million and $1.9 million, respectively, of corporate office administrative and general costs. In addition, AWR has a $100.0 million syndicated credit facility. AWR borrows under this facility and provides funds to its subsidiaries, including GSWC, in support of their operations. The interest rate charged to GSWC and ASUS is sufficient to cover AWR’s interest cost under the credit facility. Amounts owed to GSWC by its parent, AWR, or for allocated expenses are included in inter-company receivables as of September 30, 2014 and December 31, 2013.
Notes Payable to Banks: On May 23, 2013, AWR entered into a fourth amendment to its revolving credit agreement to, among other things, extend the expiration date of the syndicated credit facility to May 23, 2018, reduce the amount of interest and fees paid by AWR, and update certain representations and covenants in the credit agreement. The aggregate amount that may be borrowed under this facility is unchanged at $100.0 million. AWR may, under the terms of the fourth amendment, elect to increase the aggregate commitment by up to an additional $50.0 million. As of September 30, 2014, there were no borrowings outstanding under this credit facility.
Long-term debt: On July 15, 2014, GSWC redeemed its $5,000,000, 6.87% Medium-Term Notes Series A due 2023, and $10,000,000, 7.00% Medium-Term Notes Series A also due 2023. The notes were redeemed at a price of 100% of the outstanding principal amount of the Notes, plus interest.
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 for each rate-making area as applicable. 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 $1.1 million and $1.0 million for the three months ended September 30, 2014 and 2013, respectively, and $2.9 million and $2.8 million for the nine months ended September 30, 2014 and 2013, 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-year contracts. The non-income tax assessments are accounted for on a gross basis and totaled $248,000 and $305,000 during the three months ended September 30, 2014 and 2013, respectively, and $554,000 and $636,000 for the nine months ended September 30, 2014 and 2013, respectively.
Recently Issued Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board ("FASB") issued updated accounting guidance on revenue recognition. The updated guidance includes specific steps required to recognize revenue on contracts with customers. For Registrant, the updated guidance is effective for reporting periods beginning after December 15, 2016. Registrant is currently evaluating the impact of this guidance.
In June 2014, the FASB issued updated accounting guidance on share-based compensation. The update includes explicit guidance on how to account for share-based payment awards whereby a performance target could be achieved after an employee completes the requisite service period. For Registrant, the updated guidance is effective for reporting periods beginning after December 15, 2015. Registrant is currently evaluating the impact of this guidance, but does not expect it to have a material impact on its consolidated financial statements.
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 September 30, 2014, Registrant had approximately $35.5 million of regulatory assets, net of regulatory liabilities, not accruing carrying costs. Of this amount, $14.9 million relates to the underfunding of pension and other post-retirement obligations and $16.2 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. 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 determines that a portion of GSWC’s assets are not recoverable in customer rates, GSWC must determine if it has 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, 2014 | | December 31, 2013 |
GSWC | | | | |
Water Revenue Adjustment Mechanism, net of Modified Cost Balancing Account | | $ | 13,987 |
| | $ | 16,345 |
|
Base Revenue Requirement Adjustment Mechanism | | 10,121 |
| | 8,725 |
|
Costs deferred for future recovery on Aerojet case | | 13,906 |
| | 14,763 |
|
Pensions and other post-retirement obligations (Note 6) | | 18,142 |
| | 20,241 |
|
Flow-through taxes, net (Note 5) | | 16,203 |
| | 16,189 |
|
Low income rate assistance balancing accounts | | 9,218 |
| | 9,979 |
|
General rate case memorandum accounts | | 6,171 |
| | 15,645 |
|
Other regulatory assets | | 18,216 |
| | 25,086 |
|
Various refunds to customers | | (2,348 | ) | | (4,292 | ) |
Total | | $ | 103,616 |
| | $ | 122,681 |
|
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, 2013 filed with the SEC. The discussion below focuses on significant matters and developments since December 31, 2013.
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”) and Modified Cost Balancing Account (“MCBA”) accounts approved by the CPUC. GSWC has implemented surcharges to recover all of its WRAM, net of the MCBA balances, as of December 31, 2013. 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. Based on CPUC guidelines, recovery periods relating to the majority of GSWC’s WRAM/MCBA balances range between 18 and 24 months. For the three months ended September 30, 2014 and 2013, surcharges of approximately $5.8 million and $9.1 million, respectively, were billed to customers to recover previously incurred under-collections in the WRAM, net of MCBA accounts, and surcharges (net of surcredits) of approximately $12.2 million and $19.8 million were billed to customers during the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, GSWC has a net aggregated regulatory asset of $14.0 million which is comprised of a $13.6 million under-collection in the WRAM accounts and $375,000 under-collection in the MCBA accounts.
For BVES, the CPUC approved the Base Revenue Requirement Adjustment Mechanism (“BRRAM”) which adjusts certain revenues to adopted levels. Pending a final decision on the BVES general rate case, the 2013 and 2014 BRRAM balances have been recorded using 2012 adopted levels authorized by the CPUC. As of September 30, 2014, GSWC had a regulatory asset of $10.1 million under-collection in the BRRAM.
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 due to delays in receiving decisions on various general rate case applications. As of September 30, 2014, there is an aggregate $6.2 million in the general rate case memorandum accounts, $2.1 million 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. Surcharges ranging from 12 to 24 months, with the majority being 12 months, were implemented during the third quarter of 2013 to recover the retroactive adopted revenues related to the May 2013 CPUC decision. Upon expiration of these surcharges, any unrecovered amounts will be addressed in a future rate case or other filing.
Other Regulatory Matters:
CPUC Approval to Serve New Area:
On June 26, 2014, the CPUC approved a Certificate of Public Convenience and Necessity application granting GSWC approval to provide water utility services to an area to be developed near Sacramento, in Sutter County, California, called Sutter Pointe. The CPUC's decision approved a settlement that was jointly filed by GSWC, Sutter County, the Sutter Pointe Developers, and a coalition of Sutter County residents. With the CPUC's approval, GSWC will create a water service district to supply the Sutter Pointe development with groundwater and surface water from the Sacramento River. The project will involve the construction of underground infrastructure, groundwater wells, a water treatment plant and storage facilities to serve retail, industrial and approximately 17,000 residential customers at final build out. As part of the agreement, GSWC will also request approval from the CPUC to acquire the water system that currently serves the community of Robbins in Sutter County. In August 2014, the CPUC's Office of Ratepayer Advocates ("ORA") filed an application for rehearing on this application. At this time, management cannot predict if a rehearing will be granted or the outcome of any rehearing if granted.
CPUC Rehearing Matter:
In July 2011, the CPUC issued an order granting the rehearing of certain issues from the Region II, Region III and general office rate case approved in November 2010. Among the issues in the rehearing was the La Serena plant improvement project included in rate base totaling approximately $3.5 million. As a result of the CPUC's November 2010 decision and subsequent settlement discussions held with ORA, GSWC recorded a $2.2 million pretax charge during 2010, and an additional $416,000 during 2012, representing the disallowance of a portion of the La Serena capital costs and the related revenues earned on those capital costs to be refunded to customers. In March 2013, GSWC and ORA reached a settlement agreement, which was approved by the CPUC in September 2014, resolving all issues arising from the rehearing. As a result of the CPUC approval of the settlement agreement, GSWC does not believe any further disallowances of the La Serena plant improvement project will be required.
Procurement Audits:
In December 2011, the CPUC issued a final decision on its investigation of certain work orders and charges paid to a specific contractor used previously for numerous construction projects. As part of the CPUC decision, 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 related to contracts with other contractors from 1994 forward and could result in disallowances of costs. The cost of the audits will be borne by shareholders and may not be recovered by GSWC in rates to customers. The first audit is currently underway and an audit report has not been issued. GSWC anticipates that a draft audit report will be issued during the first quarter of 2015. At this time, management cannot predict the outcome of these audits or estimate a loss or range of loss, if any, resulting from these audits.
BVES General Rate Case:
In February 2012, BVES filed its general rate case (“GRC”) for new rates in years 2013 through 2016. On May 7, 2014, GSWC filed a settlement agreement with the CPUC covering all matters in the pending electric rate case which has been approved by all parties. In September 2014, the CPUC issued a proposed decision, adopting the settlement agreement. A final decision from the CPUC is expected in the fourth quarter of 2014. Management does not expect that this settlement, once approved by the CPUC, will have a significant impact on GSWC's financial statements. Pending a final decision on the BVES rate case, electric revenues have been recorded using 2012 adopted levels authorized by the CPUC.
Note 3 — Earnings per Share/Capital Stock:
In accordance with the accounting guidance for participating securities and earnings per share (“EPS”), Registrant 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 its stock-based awards that earn dividend equivalents on an equal basis with AWR’s Common Shares (the “Common Shares”). In applying the “two-class” method, undistributed earnings are allocated to both common shares and participating securities.
The following is a reconciliation of Registrant’s net income and weighted average Common Shares outstanding used 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) | | 2014 | | 2013 | | 2014 | | 2013 |
Net income | | $ | 21,171 |
| | $ | 20,839 |
| | $ | 47,546 |
| | $ | 50,906 |
|
Less: (a) Distributed earnings to common shareholders | | 8,244 |
| | 7,836 |
| | 23,944 |
| | 21,527 |
|
Distributed earnings to participating securities | | 48 |
| | 48 |
| | 133 |
| | 123 |
|
Undistributed earnings | | 12,879 |
| | 12,955 |
| | 23,469 |
| | 29,256 |
|
| | | | | | | | |
(b) Undistributed earnings allocated to common shareholders | | 12,805 |
| | 12,877 |
| | 23,340 |
| | 29,089 |
|
Undistributed earnings allocated to participating securities | | 74 |
| | 78 |
| | 129 |
| | 167 |
|
| | | | | | | | |
Total income available to common shareholders, basic (a)+(b) | | $ | 21,049 |
| | $ | 20,713 |
| | $ | 47,284 |
| | $ | 50,616 |
|
| | | | | | | | |
Weighted average Common Shares outstanding, basic | | 38,704 |
| | 38,696 |
| | 38,744 |
| | 38,613 |
|
| | | | | | | | |
Basic earnings per Common Share | | $ | 0.54 |
| | $ | 0.54 |
| | $ | 1.22 |
| | $ | 1.31 |
|
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 and restricted stock units granted under Registrant’s 2000 and 2008 Stock Incentive Plans and the 2003 Non-Employee Directors Plan, and net income. At September 30, 2014 and 2013, there were 235,584 and 273,740 options outstanding, respectively, under these Plans. At September 30, 2014 and 2013, there were also 224,543 and 236,891 restricted stock units outstanding, respectively, under these plans and the 2013 Non-Employee Directors Plan.
The following is a reconciliation of Registrant’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) | | 2014 | | 2013 | | 2014 | | 2013 |
Common shareholders earnings, basic | | $ | 21,049 |
| | $ | 20,713 |
| | $ | 47,284 |
| | $ | 50,616 |
|
Undistributed earnings for dilutive stock options | | 74 |
| | 78 |
| | 129 |
| | 167 |
|
Total common shareholders earnings, diluted | | $ | 21,123 |
| | $ | 20,791 |
| | $ | 47,413 |
| | $ | 50,783 |
|
| | | | | | | | |
Weighted average common shares outstanding, basic | | 38,704 |
| | 38,696 |
| | 38,744 |
| | 38,613 |
|
Stock-based compensation (1) | | 226 |
| | 227 |
| | 219 |
| | 222 |
|
Weighted average common shares outstanding, diluted | | 38,930 |
| | 38,923 |
| | 38,963 |
| | 38,835 |
|
| | | | | | | | |
Diluted earnings per Common Share | | $ | 0.54 |
| | $ | 0.53 |
| | $ | 1.22 |
| | $ | 1.31 |
|
(1) In applying the treasury stock method of reflecting the dilutive effect of outstanding stock-based compensation in the calculation of diluted EPS, 235,584 and 273,740 stock options at September 30, 2014 and 2013, respectively, were deemed to be outstanding in accordance with accounting guidance on earnings per share. All of the 224,543 and 236,891 restricted stock units at September 30, 2014 and 2013, respectively, were included in the calculation of diluted EPS for the nine months ended September 30, 2014 and 2013.
No stock options outstanding at September 30, 2014 had an exercise price greater than the average market price of AWR’s Common Shares for the nine months ended September 30, 2014. There were no stock options outstanding at September 30, 2014 or 2013 that were anti-dilutive.
During the nine months ended September 30, 2014 and 2013, Registrant issued 95,331 and 236,528 common shares, for approximately $370,000 and $1,948,000, respectively, under Registrant’s Common Share Purchase and Dividend Reinvestment Plan (“DRP”), the 401(k) Plan, the 2000 and 2008 Stock Incentive Plans, and the 2003 and 2013 Non-Employee Directors Stock Plans. In addition, Registrant purchased 566,258 and 553,067 Common Shares on the open market during the nine months ended September 30, 2014 and 2013, respectively, under Registrant’s 401(k) Plan and the DRP.
On March 27, 2014, AWR's Board of Directors approved a stock repurchase program, authorizing AWR to repurchase up to 1.25 million shares of its Common Shares from time to time through June 30, 2016. Pursuant to this program, Registrant repurchased 231,298 Common Shares on the open market during the nine months ended September 30, 2014.
During the three months ended September 30, 2014 and 2013, AWR paid quarterly dividends of approximately $8.2 million, or $0.213 per share, and $7.8 million, or $0.2025 per share, respectively. During the nine months ended September 30, 2014 and 2013 AWR paid quarterly dividends to shareholders of approximately $23.9 million, or $0.6180 per share, and $21.5 million, or $0.5575 per share, respectively.
On October 28, 2014, AWR's Board of Directors approved a fourth quarter dividend of $0.2130 per share on the Common Shares of AWR. Dividends on the Common Shares will be payable on December 1, 2014 to shareholders of record at the close of business on November 14, 2014.
Note 4 — 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 $8.7 million as of September 30, 2014. 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 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).
The table below estimates the fair value of long-term debt held by GSWC. The fair values as of September 30, 2014 and December 31, 2013 have been determined using rates for similar financial instruments of the same duration utilizing level 2 methods and assumptions. The interest rates used for the September 30, 2014 valuation decreased as compared to December 31, 2013, increasing the fair value of long-term debt as of September 30, 2014. Changes in the assumptions will produce differing results.
|
| | | | | | | | | | | | | | | | |
| | September 30, 2014 | | December 31, 2013 |
(dollars in thousands) | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial liabilities: | | |
| | |
| | |
| | |
|
Long-term debt—GSWC | | $ | 317,099 |
| | $ | 419,881 |
| | $ | 332,377 |
| | $ | 412,590 |
|
Note 5 — 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 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. The GSWC ETR was 40.7% and 38.2% for the three months ended September 30, 2014 and 2013, respectively, and 40.5% and 40.1% for the nine months ended September 30, 2014 and 2013, respectively. The 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 (primarily related to plant, rate-case and compensation items), as well as permanent items.
Changes in Tax Law:
In September 2013, the U.S. Treasury Department issued final regulations related to the tax treatment of tangible property, including guidance on expensing certain repair and maintenance expenditures. The regulations are effective for tax years beginning on or after January 1, 2014. Registrant’s current tax treatment of tangible property continues to be permitted; however, Registrant is evaluating its water-pipeline tax repair-cost method, as well as other tax-method changes pursuant to these regulations. If Registrant adopts new methods, the impact to total income tax expense and the effective tax rate is not expected to be significant.
In January 2013, the American Taxpayer Relief Act of 2012 extended 50% bonus depreciation for qualifying property through 2013. Although this change in law reduced AWR’s current taxes payable, it did not reduce its total income tax expense or ETR.
Note 6 — 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 nine months ended September 30, 2014 and 2013 are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For The Three Months Ended September 30, |
| | Pension Benefits | | Other Postretirement Benefits | | SERP |
(dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
Components of Net Periodic Benefits Cost: | | |
| | |
| | |
| | |
| | |
| | |
|
Service cost | | $ | 1,411 |
| | $ | 1,742 |
| | $ | 63 |
| | $ | 106 |
| | $ | 192 |
| | $ | 201 |
|
Interest cost | | 1,880 |
| | 1,727 |
| | 111 |
| | 113 |
| | 154 |
| | 129 |
|
Expected return on plan assets | | (2,225 | ) | | (1,894 | ) | | (114 | ) | | (95 | ) | | — |
| | — |
|
Amortization of transition | | — |
| | — |
| | 105 |
| | 105 |
| | — |
| | — |
|
Amortization of prior service cost (benefit) | | 30 |
| | 30 |
| | (50 | ) | | (50 | ) | | 40 |
| | 40 |
|
Amortization of actuarial (gain) loss | | — |
| | 720 |
| | (115 | ) | | — |
| | 35 |
| | 85 |
|
Net periodic pension cost under accounting standards | | 1,096 |
| | 2,325 |
| | — |
| | 179 |
| | 421 |
| | 455 |
|
Regulatory adjustment — deferred | | 374 |
| | (521 | ) | | — |
| | — |
| | — |
| | — |
|
Total expense recognized, before allocation to overhead pool | | $ | 1,470 |
| | $ | 1,804 |
| | $ | — |
| | $ | 179 |
| | $ | 421 |
| | $ | 455 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For The Nine Months Ended September 30, |
| | Pension Benefits | | Other Postretirement Benefits | | SERP |
(dollars in thousands) | | 2014 | | 2013 | | 2014 | | 2013 | | 2014 | | 2013 |
Components of Net Periodic Benefits Cost: | | |
| | |
| | |
| | |
| | |
| | |
|
Service cost | | $ | 4,233 |
| | $ | 5,226 |
| | $ | 261 |
| | $ | 318 |
| | $ | 576 |
| | $ | 603 |
|
Interest cost | | 5,640 |
| | 5,181 |
| | 371 |
| | 339 |
| | 462 |
| | 387 |
|
Expected return on plan assets | | (6,675 | ) | | (5,682 | ) | | (340 | ) | | (285 | ) | | — |
| | — |
|
Amortization of transition | | — |
| | — |
| | 313 |
| | 315 |
| | — |
| | — |
|
Amortization of prior service cost (benefit) | | 89 |
| | 90 |
| | (150 | ) | | (150 | ) | | 120 |
| | 120 |
|
Amortization of actuarial (gain) loss | | — |
| | 2,160 |
| | (247 | ) | | — |
| | 105 |
| | 255 |
|
Net periodic pension cost under accounting standards | | 3,287 |
| | 6,975 |
| | 208 |
| | 537 |
| | 1,263 |
| | 1,365 |
|
Regulatory adjustment — deferred | | 1,123 |
| | (1,440 | ) | | — |
| | — |
| | — |
| | — |
|
Total expense recognized, before allocation to overhead pool | | $ | 4,410 |
| | $ | 5,535 |
| | $ | 208 |
| | $ | 537 |
| | $ | 1,263 |
| | $ | 1,365 |
|
During the three and nine months ended September 30, 2014, Registrant contributed $8.2 million to the pension plan.
Regulatory Adjustment:
In May 2013, the CPUC issued a final decision that authorized GSWC to utilize a two-way balancing account 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 recorded by GSWC in accordance with the accounting guidance for pension costs. As of September 30, 2014, GSWC has a $3.2 million under-collection in the two-way pension balancing account included as part of the pension regulatory asset (Note 2).
Affordable Care Act:
In 2010, the Patient Protection and Affordable Care Act ("Affordable Care Act") was passed and was to become effective in 2014. In July 2013, compliance with the employer mandate and certain reporting requirements under the Affordable Care Act were delayed until 2015. Registrant’s health care plan meets the current requirements of the Affordable Care Act for the majority of its employees. Registrant continues to assess the impact of the Affordable Care Act on its health care benefit costs, but does not expect it to have a material impact in the near future on Registrant's consolidated financial position, results of operations or cash flows.
Note 7 — Contingencies:
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.
Claremont System:
The City of Claremont ("Claremont" or "the City") 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. In November 2012 and again in September 2013, Claremont made offers to acquire GSWC’s water system servicing Claremont. GSWC rejected both offers and informed the City that the system is not for sale. Claremont continues to express a desire to potentially take the system by eminent domain.
On July 31, 2014, the City passed a resolution calling for a special election to be held November 4, 2014 for the purpose of authorizing the issuance of $135.0 million in water revenue bonds by the City to finance the acquisition of the system. GSWC serves approximately 11,000 customers in Claremont.
Ojai System:
In April 2011, an organization called Ojai FLOW ("Friends of Locally Owned Water") started a local campaign for the Casitas Municipal Water District ("CMWD") to purchase GSWC’s Ojai water system. In March 2013, CMWD passed resolutions authorizing the establishment of a Community Facilities District, an entity authorized pursuant to the Mello-Roos Community Facilities District Act of 1982 ("Mello-Roos Act") and the issuance of bonds to finance the potential acquisition of GSWC’s Ojai system by eminent domain. In August 2013, Ojai residents approved the levying of a special tax to satisfy the planned bond obligations. GSWC filed a petition in the Superior Court, Ventura County, which, among other things, challenged the legality of CMWD’s effort to utilize the Mello-Roos Act to acquire property by eminent domain and to fund legal and expert costs of the planned condemnation. Ojai FLOW members filed a motion with the Superior Court asking that all residents of GSWC’s Ojai service area be certified as class defendants in GSWC's pending action. They contend that the class would later be entitled to sue GSWC for damages if GSWC's challenge is denied. Without deciding whether such a lawsuit would be permitted, the Court granted the motion for class certification. On March 13, 2014, the Court denied GSWC's petition. On April 9, 2014, GSWC filed a Notice of Appeal. GSWC is unable to predict the outcome of the appeal at this time. GSWC serves approximately 3,000 customers in Ojai.
Apple Valley System:
In recent years the Town of Apple Valley has considered a potential condemnation of the water systems serving its area, including GSWC's Apple Valley system. In August 2014, Apple Valley's Town Council issued a request for proposal for an updated feasibility study on the potential acquisition of the water systems. GSWC serves approximately 2,900 customers in the Town of Apple Valley.
Artesia System:
On October 13, 2014, the City of Artesia's City Council approved a request for a feasibility study on the potential acquisition of GSWC's water system in Artesia. GSWC serves approximately 3,300 customers in Artesia.
Environmental Clean-Up and Remediation:
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. Recent analysis indicates that offsite monitoring wells may also be necessary to document effectiveness of remediation.
As of September 30, 2014, the total spent to clean-up and remediate GSWC’s plant facility was approximately $4.3 million, of which $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 September 30, 2014, GSWC has a regulatory asset and an accrued liability for the estimated additional cost of $1.4 million to complete the clean-up at the site. The estimate includes costs for two years of continued activities of groundwater cleanup and monitoring, future soil treatment and site closure related activities. 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.
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, 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.
Note 8 — Business Segments:
AWR has three reportable segments, water, electric and contracted services, whereas GSWC has two segments, water and electric. AWR has no material assets other than cash and its investments in its subsidiaries on a stand-alone basis. All activities of GSWC are geographically located within California.
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-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 utility 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.
|
| | | | | | | | | | | | | | | | | | | | |
| | As Of And For The Three Months Ended September 30, 2014 |
| | GSWC | | ASUS | | AWR | | Consolidated |
(dollars in thousands) | | Water | | Electric | | Contracts | | Parent | | AWR |
Operating revenues | | $ | 96,700 |
| | $ | 8,614 |
| | $ | 33,013 |
| | $ | — |
| | $ | 138,327 |
|
Operating income | | 31,185 |
| | 1,161 |
| | 7,549 |
| | — |
| | 39,895 |
|
Interest expense, net | | 4,976 |
| | 319 |
| | 10 |
| | (10 | ) | | 5,295 |
|
Utility plant | | 950,256 |
| | 40,333 |
| | 4,854 |
| | — |
| | 995,443 |
|
Depreciation and amortization expense (1) | | 9,643 |
| | 593 |
| | 313 |
| | — |
| | 10,549 |
|
Income tax expense (benefit) | | 10,749 |
| | 270 |
| | 2,857 |
| | (400 | ) | | 13,476 |
|
Capital additions | | 17,093 |
| | 726 |
| | 275 |
| | — |
| | 18,094 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | As Of And For The Three Months Ended September 30, 2013 |
| | |