American States Water (AWR)

Q3 2012 Earnings Call

November 5, 2012, 2:00 p.m. ET

Executives

Eva G. Tang - CFO, Principal Accounting Officer, SVP of Finance, Treasurer and Corporate Secretary

Robert J. Sprowls - CEO, President

Analysts

Michael Gaugler – Brean Murray, Carret & Co.

Jonathan Reeder – Wells Fargo

(Hika Dor) – Robert W. Baird & Co, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company, AWR, conference call discussing the company’s financial results for the third quarter of 2012 results. If you have not received a copy of this morning's earnings release, please call (909) 394-3600 extension 651, and one will be faxed or emailed to you. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 2:00 p.m. Pacific Time and run through Monday, November 12, 2012. After logging onto the website, click the Investors button at the top of the page. The archive is located just above the Stock Quote section. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).

As a reminder, this call will be recorded and will be limited to no more than 1 hour.

At this time, I would like to turn the call over to Eva Tang, Chief Financial Officer of American States Water Company.

Eva G. Tang - CFO, Principal Accounting Officer, SVP of Finance, Treasurer and Corporate Secretary

Thank you, Laura. Welcome everyone and thank you for joining us today. On the call with me is our President and CEO, Bob Sprowls.

I would like to first remind you that certain matters discussed during this call may be forward-looking statements intended to qualify for the Safe Harbor for liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.

Now let’s move on to the quarterly results. I’m pleased to report that we continue to deliver strong quarterly results. Our third quarter earnings from continuing operations increased by 17% to $0.97 per share compared to $0.83 per share for the third quarter of 2011.

Net income for the quarter increased by $3.1 million or 19.6% compared to the same period in 2011. Our earnings for the third quarter were also above analysis consensus due to increased construction activities at a contracted service segment, and our cost control effort as regulated operations.

For the third quarter of 2012 our operating revenues increased by $13.8 million or 11.5% to $133.5 million. The main driver of this increase continues to be our contracted services segment, American States Utility Services, or ASUS.

ASUS’s revenue increased by $13 million to $34.4 million compared to the same period last year, primarily due to increased construction activity at all military basis. At Fort Bragg, there continues to be significant progress made on a major water and wastewater pipeline replacement project, estimated to be substantially completed by the end of 2013.

While the revenues at Golden State Water increased by $1 million, primarily due to rate increases approved by the California Public Utilities Commission, effective January 1, 2012, to recover infrastructure improvements and operating cost.

Our water and electric supply cost were $30.7 million and approximately 31.6% of total operating expenses for the third quarter of 2012.

As you know, any changes in purchased the water, power purchase for pumping, pump taxes for water segment as compared to the adopted supply cost, are covered by the Modified Cost Balancing Account.

The electric utility segment also has a full cost balancing account to track the changes in purchased power and transmission related costs.

Other operations expenses remained about the same as compared to the same period in 2011. Administrative and general expenses decreased by $660,000 compared to the same period in 2011, due to lower outside service cost, labor and other employee related cost at Golden State water.

Depreciation and amortization expense increased by $676,000 to $10.2 million for the third quarter of 2012 as compared to the same quarter in 2011 due to [inaudible] additions, [inaudible] decreased slightly by $114,000 primarily in the contracted services segment, due to the need to perform pipeline replacement capital work, in lieu of routine maintenance services.

While we expect planned maintenance cost related to water services to increase during the fourth quarter and in to 2013, it is difficult to predict the timing and the scope of any unplanned emergency work that may arise.

Property and other taxes for the quarter increased by $196,000, due to an increase in overall low [inaudible] taxes. ASUS construction expenses increased by $10.2 million to $23.3 million during the third quarter of 2012 as compared to the same period in 2011. This increase is primarily due to increased construction activities at various military bases, especially at Fort Bragg, Andrews Air Force Base, and the military bases in Virginia.

Interest expense, net of interest income and other non-operating items decreased by $782,000 to 5.4 million for the third quarter of 2012, as compared to the same period in 2011. The decrease was due to short-term borrowing – bank borrowing, higher interest income earned on a regulatory assets, and a lease on claim currently under review by the Internal Revenue Service, and again recorded on Golden State Waters investments.

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