Earnings and Distribution Growth Driven By New Government Contracts, Service Area Expansion and Pricing Approvals

60 consecutive years of dividend increases

Strategically positioned for revenue growth from multiple sources

A+ credit rating, strong balance sheet and excellent operational execution

American States Water Company (NYSE: AWR) provides water and wastewater services through its subsidiaries – Golden State Water Company and American State Utilities Services – to customers in Northern, Coastal and Southern California, and has 50-year contracted services for water and wastewater at 9 U.S. military bases. In addition, the company provides electricity to California’s Big Bear recreational area through Bear Valley Electric Services.

Declares 314th Consecutive Dividend, 2.5% Yield

On October 28, 2014, American States Water announced a Q4 dividend of $0.213 per share ($0.852 annualized) which was paid on December 1, 2014, to shareholders on record November 14, 2014. The dividend represents a 5.2% quarterly increase, a 14.1% year-over-year increase over 2013 and a 26.8% increase over 2012, with dividends up 11.6% annually since 2009.

The company has continuously paid dividends to shareholders since 1931 and has increased dividends annually since 1954. Its recent $0.213 dividend marks the 314th consecutive dividend paid by the company.

At $0.852 annualized, shares carry a dividend yield of 2.5%, with a dividend payout of approximately 55%. As of August 2014, the water industry had an average dividend yield of 3% and an average dividend payout of 66%.

Shares Up 19.4% Year-to-Date for American States Water, Outperforming Analyst Expectations

American States Water shares traded at $34.30 (as of market close on 12/12/2014), up 19.4% year-to-date and close to the high end of the company’s 52-week range of $26.75 – $37.00. Shares are trading in-line with the company’s 50-day moving average of $34.77 and above its 200-day moving average of $32.29. At $34.30 per share, American States Water has a market capitalization $1.31 billion and a price-to-earnings ratio of 22.6x.

Shares trade at 22.8x earnings and 10.3x cash flow, with solid profitability margins.

Golden State Water Company – Expanding Service Area

On July 1, 2014, the California Public Utilities Commission (CPUC) granted Golden State Water approval to provide water services to the newly developed Sutter Pointe region in Sacramento. The company plans to build underground pipelines, a treatment plant and a storage facility there to serve approximately 17,000 homes and retail and industrial customers.

Additionally, Golden State Water received approval on a settlement agreement between its Bear Valley Electric Service division and customers for new rates from 2013 to 2016. The settlement gives the company a Return on Equity of 9.95% with a return on rate base of 8.6% that will generate an additional $8.5 million for future capital projects.

As of December 31, 2013, American States Water had 257,102 water customers and 23,615 electric customers, and owned approximately 75,000 acre-feet of adjudicated groundwater rights and 11,300 acre-feet of surface water rights. Approximately 90% of its water revenues come from residential and commercial customers.

American States Utilities Services- New Build Expansion, Steady Long-Term Government Contracts

In September 2014, the U.S. government awarded American States Utilities approximately $27 million in new construction projects, with a majority to be completed in 2015. This will help the company expand future revenues from reliable government sources.

American States Utilities also has contracts with nine U.S. military bases in six states and expects sizable additional contract awards over the next five years.

Additionally, the U.S. government approved contract modifications related to price redeterminations for operations in Fort Bragg, Fort Jackson and Andrews Air Force Base. American States Utilities received approximately $2.6 million in retroactive revenues and $6 million in renewal and replacement funds. The company also revised contracts with Fort Bliss to cover additional infrastructure that will provide annual revenues of $575,000, $2.7 million in annual renewal and replacement fees and $2.9 million of funding for capital upgrade modifications.

Strong Balance Sheet with A+ Credit Rating

On June 12, 2014, American States Water subsidiary Golden State Water issued a redemption notice on its $5 million aggregate amount, 6.87% medium-term Series A notes due 2023 and $10 million aggregate amount, 7% medium-term Series A notes due 2023. Notes were redeemed at 100% of outstanding principal plus accrued interest on July 15, 2014.

On July 21, 2014, Standard & Poor’s upgraded its outlook for American States Water and Golden State Water from Stable to Positive with an A+ credit rating on lower financial risk, especially in California.

Management Has Strong Industry Experience

Robert Sprowls serves as President and Chief Executive Officer of American States Water, a position he has held since January 2009. Sprowls has over 32 years of industry experience and has held senior positions with Chaparral City Water Company, Golden State Water Company, CILCO and Central Illinois Light Company.

Eva Tang is Chief Financial Officer for American States Water, a position she has held since November 2008. Tang joined the company in 1996 and has held several financial positions with the company. She holds a B.S. in Business Administration and a Masters of Business Administration in Finance.

Management is in-tune with local and regional water issues and well-respected by customers and Wall Street for consistently rewarding shareholders with dividends and share price appreciation while maintaining fiscal discipline and a strong credit rating.

Q3 Operating Revenues Up 5.7% with 17% Growth in Contracted Services and 3% Growth in Water Revenues

For its third quarter ended September 30, 2014, American States Water had total operating revenues of $138.33 million (up 5.7%), operating income of $39.9 million (up 10.3%) and net income of $21.17 (up 2%), or $0.54 per share (up 2%).

Operating revenues were led by a 3% increase in water segment revenue and a 17% increase in contracted services’ revenue, slightly offset by a 3% decrease in electric segment revenues.

As of September 30, 2014, American States Water had $57.86 million in cash and cash equivalents, $379.13 million in long-term debt and $510.31 million in total stockholders’ equity.

Management expects to spend $70-$75 million on capital expenditures for all of 2014 and $85-$90 million for 2015. This growth in cap-ex reflects the company’s steady growth prospects.

Revenue Split

For the 12 months ended 9/30/2014, water brought in 70% of total revenues, ASUS contracted services brought in 22% and the electric segment brought in 8%. Golden State Water (which includes electric) accounted for 78% of total revenues while American States Utility accounted for 22% of revenues.

Revenues have grown at a 6% compounded annual rate since 2009 through military contracts, expansion and CPUC rate approvals that reflect strong pricing power and high barriers to entry in markets served.


American States Water has consistently delivered water services to customers in California despite a severe drought over the past few years. The company has been around since 1929 and has a strong history of delivering quality services to its customers and evolving to stay relevant in its marketplace. Shares have recently outperformed analyst expectations and reflect investor enthusiasm for potential revenue and dividend upside from expected new contracts over the next five years. Shares offer excellent long-term growth potential for income seeking investors, though share price appreciation may be muted near-term after a strong run-up in 2014. The company’s long-term revenue visibility also makes shares an attractive hedging option with less-than-market volatility, with a beta of 0.73.

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