American States Water Company (AWR) — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; filed March 1, 2023. This combined filing covers AWR and its subsidiary Golden State Water Company (GSWC). AWR operates regulated water and electric utilities and contracted water and wastewater services, primarily for U.S. military installations.
Financial performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Operating revenue | $491.5 million | $498.9 million | -1.5% |
| Operating income | $126.6 million | $141.0 million | -10.2% |
| Net income | $78.4 million | $94.3 million | -16.9% |
| Diluted EPS | $2.11 | $2.55 | -$0.44 |
| Operating margin | 25.8% | 28.3% | Calculated from reported revenue and operating income |
| Net cash from operations | $117.8 million | $115.6 million | +$2.2 million |
| Cash capital expenditures | $166.2 million | $144.5 million | +$21.7 million |
| Dividends paid | $56.4 million | $51.7 million | +$4.7 million |
Operating cash flow less cash capital expenditures was approximately negative $49.3 million in 2022. Cash and cash equivalents were $6.0 million at year-end. The company reported $450.4 million of long-term debt principal and $277.5 million outstanding under revolving credit facilities at December 31, 2022; facility borrowings comprised $255.5 million at AWR and $22.0 million at BVESI.
Segment diluted EPS was $1.45 for water (down $0.42), $0.24 for electric (up $0.03), and $0.46 for contracted services (down $0.02). AWR parent contributed negative $0.04 per share.
Material changes and drivers
- Water revenue declined 1.9% to $340.6 million. The pending water general rate case meant 2022 bills used 2021 adopted rates; management said approved new rates would be retroactive to January 1, 2022. Water usage declined 6.0%, with the WRAM mitigating the effect of consumption changes on recorded revenue.
- Electric revenue increased 4.3% to $40.0 million, reflecting approved rate increases and 6.5% higher usage. Higher power purchase costs partly offset the improvement.
- Contracted-services revenue declined 2.2% to $110.9 million. Construction timing, supply-chain delays and delays in capital-upgrade awards weighed on activity; annual economic price adjustments supported management-fee revenue.
- Operating expenses increased 2.0% to $364.9 million, including higher labor, treatment, insurance, maintenance and depreciation costs. Interest expense rose 18.4% to $27.0 million amid higher borrowing and interest rates.
- Reported earnings included $5.2 million of losses on investments held to fund a retirement plan, compared with $4.3 million of gains in 2021. Management’s non-GAAP adjusted diluted EPS, excluding those investment results and including estimated net water-rate-case effects, was $2.59 versus $2.47 in 2021.
Outlook, liquidity, and risks
- Management estimated 2023 company-funded regulated-utility capital expenditures of $140 million to $160 million, including approximately $13.6 million for BVESI wildfire mitigation. Supply-chain disruption could affect timing and costs.
- AWR’s $280 million revolving credit facility was due to expire in May 2023. At year-end, $255.5 million was outstanding and reported working capital was negative $245.2 million, primarily because the borrowing was classified as current. Management said AWR could not repay the facility from available resources without refinancing or new financing. It planned to renew or replace the facility and concluded it could meet obligations for at least 12 months, while noting no assurance of successful financing.
- After year-end, GSWC issued $130 million of private-placement notes in January 2023 and used proceeds, alongside other funding, to repay its intercompany borrowing from AWR. AWR then repaid $124 million of its revolver. GSWC’s notes bear interest at 5.12% and 5.22%, with maturities in 2033 and 2038.
- The pending GSWC water rate case and cost-of-capital proceeding remain important uncertainties. GSWC recorded a $6.4 million revenue reduction for estimated refunds tied to the requested lower cost of debt. The rate-case settlement was not yet final at filing; management estimated that timely approval of the settlement and associated adjustments would have added $0.38 to 2022 EPS.
- BVESI’s 2023–2026 rate case seeks recovery of wildfire-mitigation costs and new capital spending; recovery remains subject to CPUC review. Drought and water-supply constraints, wildfire exposure, potential power shutoffs, water-quality rules including PFAS, inflation, and delayed regulatory cost recovery are material risks.
- ASUS was under a civil government investigation concerning bidding and estimating practices on certain capital-upgrade projects. The company was cooperating; management did not then expect a material adverse effect but could not predict the outcome or any penalties.
- AWR paid $1.525 per share in dividends in 2022. Management intended to continue quarterly dividends, subject to earnings, financial conditions, regulation and Board decisions; the stated long-term dividend-growth objective was above 7% annually.
Most important facts for investors to verify
- Whether AWR renewed or replaced its May 2023 credit facility on adequate terms, and its resulting borrowing levels and liquidity.
- Final CPUC outcomes for GSWC’s water general rate case and cost-of-capital proceeding, including retroactive rates, refunds and recovery timing.
- Whether BVESI receives recovery of wildfire-plan and other recorded regulatory assets through its 2023–2026 rate case.
- Progress and any findings or financial consequences from the ASUS government investigation.
- Actual 2023 capital spending, project delays, water-supply conditions and wildfire-related costs compared with management’s stated outlook.
The filing reports audited financial statements and effective internal control over financial reporting for AWR and GSWC. Margins and operating cash flow less capital expenditures above are calculated from reported figures.