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8-K - 8-K - CALIFORNIA WATER SERVICE GROUPa14-6896_18k.htm

Exhibit 99.1

 

NEWS RELEASE

 

CALIFORNIA WATER SERVICE GROUP

 

GRAPHIC

 

 

1720 North First

Street San Jose, CA 95112-4598

February 26, 2014

For Immediate Release

 

 

 

Contact:

Tom Smegal (408) 367-8200 (analysts)

Shannon Dean (310) 257-1435 (media)

 

 

CALIFORNIA WATER SERVICE GROUP ANNOUNCES 2013

 

REVENUES AND EARNINGS FOR YEAR-END AND 4TH QUARTER

 


 

SAN JOSE, CA — California Water Service Group (NYSE : CWT) today announced 2013 net income of $47.3 million, down 3.2% or $1.5 million from 2012, and diluted earnings per share of $1.02, a decrease of 12.8% or $0.15 compared to the prior year.  Earnings per share reflect the issuance of 5.75 million shares of the Company’s common stock in March of 2013.

 

Net income for 2013 was reduced $2.7 million due to the California Public Utilities Commission’s (CPUC’s) mandated reduction in our authorized return on equity in January 2013, and by a non-recurring benefit in 2012 of $1.6 million due to the reversal of a 2011 WRAM deferral. Net income also decreased due to higher labor and benefits costs, depreciation, and property taxes, along with limited rate relief in the third year of the Company’s California rate case cycle.  These decreases to net income were partially offset by reductions to maintenance and other operations expenses.

 

1



 

During 2013, one-time state tax repairs and maintenance deductions for linear assets, along with State of California enterprise zone credits, added $4.9 million to net income. During 2012, state tax repairs and maintenance tax deductions for linear assets added $6.2 million to net income. The 2013 and 2012 repairs and maintenance deductions reflect the impact of changes to the IRS tangible property regulations.

 

Total revenue increased $24.1 million, or 4.3%, to $584.1 million, compared to revenue of $560 million for 2012.  Rate increases added $13.7 million and sales to new customers added an additional $1.5 million, while the combined effect of consumption and regulatory balancing accounts added the remaining $8.9 million in incremental revenues.

 

Total operating expenses increased $24 million, or 4.9%, to $510.1 million in 2013.  Water production costs increased $23.4 million, or 11.5%, to $226.1 million, primarily due to wholesale water rate increases.  Administrative and general costs increased by $4.1 million, or 4.4%, to $98.1 million, due primarily to labor and benefit expense.  Changes in pension cost for regulated California operations do not affect earnings because the Company is allowed by the CPUC to track pension costs in a balancing account for future recovery, which creates a corresponding change to operating revenues.

 

2



 

Maintenance expense decreased $1.8 million, or 9.3%, to $17.4 million. Depreciation expense increased $3.7 million, or 6.7%, to $58.3 million, due to increases in utility plant.

 

Other income, net of income taxes, decreased $1 million.  Net interest expense increased $0.7 million, or 2.6%, to $28.9 million.

 

Fourth Quarter 2013 Results

 

For the fourth quarter of 2013, net income increased $0.7 million, or 13.2%, to $5.7 million from net income of $5.0 million in the fourth quarter of 2012, and diluted earnings per common share was unchanged at $0.12 per common share.  Earnings per share reflect the issuance of 5.75 million shares of the Company’s common stock in March 2013.

 

Revenue for the fourth quarter increased $12.2 million, or 10%, to $133.7 million.  Within the fourth quarter, rate increases added $3.8 million to revenue and sales to new customers added $0.4 million, while the net effect of consumption and regulatory balancing accounts added the remaining $8 million in incremental revenue. Total operating expenses for the quarter increased $11.8 million, or 10.7%, to $122.1 million.  Water production costs increased $9.5 million, or 21.4%, to $54.1 million.  Administrative and general expenses increased $0.1 million, or 0.5%, to $24.9 million.  Other operations expense increased $1.5 million, or 8.5%, to $19.4 million.

 

3



 

Maintenance expense increased $0.1 million, or 1.6%, to $4.5 million, due to increased costs for repairs.  Depreciation expense increased $1.4 million, or 10.6%, to $14.7 million, due to increases in utility plant.  Taxes other than income decreased $0.5 million, or 8.8%, to $4.9 million.

 

According to the Company’s President and Chief Executive Officer Martin A. Kropelnicki, 2013 results were in line with expectations, given the fact that California Water Service Company (Cal Water), the Company’s largest subsidiary, is in the third year of its three-year rate case cycle and the CPUC lowered Cal Water’s authorized return on equity in California from 9.99% to 9.43% for 2013.

 

“In 2013, the Company achieved solid financial results, especially given the fact it was the third year of our rate case cycle and regulatory lag was at its greatest.  Overall, the Company stayed focused on serving our customers while meeting our internal budget goals,” said Kropelnicki.  “In addition, the General Rate Case process is lengthy and complex, and our team has done an excellent job in working to ensure that our rates accurately reflect the costs of providing safe, high-quality water and excellent service. We anticipate that the Commission will act quickly to approve the settlement,” he said.

 

4



 

Regulatory Update for 2013

 

As announced in October of 2013, after more than 26 weeks of negotiations, Cal Water reached a settlement agreement with CPUC staff and other parties to its General Rate Case.  The CPUC may or may not approve the settlement agreement as proposed.

 

If the settlement agreement is approved as submitted, Cal Water would be authorized to invest $447 million in districts throughout California over the three-year period from 2013 to 2015 in order to provide a safe and high quality water supply to its customers.  Included in the $447 million in water system infrastructure improvements is $120 million that would be recovered through the CPUC’s advice letter procedures upon completion of qualified projects.

 

Because the settlement negotiations took longer than scheduled, the CPUC’s decision has been delayed. However, the CPUC’s process allows for revenues to be recovered when the final decision is rendered, retroactively to January 1, 2014.

 

5



 

In Hawaii, the Hawaii Public Utilities Commission approved a revenue increase of $0.6 million for wastewater services provided by Hawaii Water Service Company in Pukalani, which will be phased in over three years, beginning in February 2014.  Settlement agreements have also been filed for Hawaii Water Service Company’s water and wastewater systems in Waikoloa village; if approved as submitted, annual revenues would increase by $0.8 million.  Hawaii Water Service Company is in settlement negotiations for it water and wastewater systems in the Waikoloa resort area. The Company expects to receive decisions from the Hawaii Public Utilities Commission on these cases in 2014.

 

Other Information

 

All stockholders and interested investors are invited to listen to the 2013 year-end and fourth quarter conference call on February 27, 2014 at 8:00 a.m. PST (11:00 a.m. EST) by dialing 1-888-576-4387 or 1-719-325-2491 and keying in ID #1339013.  A replay of the call will be available from 11:00 a.m. PST (2:00 p.m. EST) on February 27, 2014 through April 28, 2014, at 1-888-203-1112 or 1-719-457-0820, ID #1339013.   The call, which will be hosted by President and Chief Executive Officer Martin A. Kropelnicki, and Vice President and Chief Financial Officer Thomas F. Smegal III, will also be webcast under the investor relations tab at www.calwatergroup.com.

 

6



 

California Water Service Group is the parent company of California Water Service Company, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, Inc., CWS Utility Services, and HWS Utility Services, LLC.  Together these companies provide regulated and non-regulated water service to approximately 2 million people in more than 100 California, Washington, New Mexico and Hawaii communities.  Group’s common stock trades on the New York Stock Exchange under the symbol “CWT.”  Additional information is available online at www.calwatergroup.com.

 

This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (“Act”).  The forward-looking statements are intended to qualify under provisions of the federal securities laws for “safe harbor” treatment established by the Act.  Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management’s judgment about the Company, the water utility industry and general economic conditions.  Such words as expects, intends, plans, believes, estimates, assumes, anticipates, projects, predicts, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements.  The forward-looking statements are not guarantees of future performance.  They are subject to uncertainty and changes in circumstances.  Actual results may vary materially from what is contained in a forward-looking statement.  Factors that may cause a result different than expected or anticipated include but are not limited to: governmental and regulatory commissions’ decisions, including decisions on proper disposition of property; changes in regulatory commissions’ policies and procedures; the timeliness of regulatory commissions’ actions concerning rate relief; new legislation; changes in accounting valuations and estimates; the ability to satisfy requirements related to the Sarbanes-Oxley Act and other regulations on internal controls; electric power interruptions; increases in suppliers’ prices and the availability of supplies including water and power; fluctuations in interest rates; changes in environmental compliance and water quality requirements; acquisitions and our ability to successfully integrate acquired companies;  the ability to successfully implement business plans; changes in customer water use patterns; the impact of weather on water sales and operating results; access to sufficient capital on satisfactory terms; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; the involvement of the United States in war or other hostilities; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and, other risks and unforeseen events.  When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph.  The Company assumes no obligation to provide public updates of forward-looking statements.

 

7



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

 

(In thousands, except per share data)

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,213,328

 

$

2,096,363

 

Less accumulated depreciation and amortization

 

(697,497

)

(639,307

)

Net utility plant

 

1,515,831

 

1,457,056

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

27,506

 

38,790

 

Receivables: net of allowance for doubtful accounts of $668 for 2013 and $714 for 2012

 

 

 

 

 

Customers

 

31,468

 

29,958

 

Regulatory balancing accounts

 

30,887

 

34,020

 

Other

 

18,700

 

11,943

 

Unbilled revenue

 

17,034

 

15,394

 

Materials and supplies at weighted average cost

 

5,571

 

5,874

 

Taxes, prepaid expenses, and other assets

 

8,324

 

10,585

 

Total current assets

 

139,490

 

146,564

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Regulatory assets

 

251,681

 

344,419

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

50,238

 

45,270

 

Total other assets

 

304,534

 

392,304

 

 

 

$

1,959,855

 

$

1,995,924

 

 

 

 

 

 

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value

 

$

477

 

$

419

 

Additional paid-in capital

 

328,364

 

221,013

 

Retained earnings

 

269,915

 

252,280

 

Total common stockholders’ equity

 

598,756

 

473,712

 

Long-term debt, less current maturities

 

426,142

 

434,467

 

Total capitalization

 

1,024,898

 

908,179

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

7,908

 

46,783

 

Short-term borrowings

 

46,815

 

89,475

 

Accounts payable

 

55,087

 

47,199

 

Regulatory balancing accounts

 

1,827

 

5,018

 

Accrued interest

 

4,245

 

4,705

 

Accrued expenses and other liabilities

 

50,702

 

49,887

 

Total current liabilities

 

166,584

 

243,067

 

 

 

 

 

 

 

Unamortized investment tax credits

 

2,106

 

2,180

 

Deferred income taxes, net

 

183,245

 

158,846

 

Pension and postretirement benefits other than pensions

 

145,451

 

244,901

 

Regulatory and other liabilities

 

86,455

 

92,593

 

Advances for construction

 

183,393

 

187,584

 

Contributions in aid of construction

 

167,723

 

158,574

 

Commitments and contingencies

 

 

 

 

 

 

 

$

1,959,855

 

$

1,995,924

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

For the Three-Months ended:

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Operating revenue

 

$

133,700

 

$

121,530

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

54,105

 

44,580

 

Administrative and General

 

24,949

 

24,817

 

Other operations

 

19,406

 

17,891

 

Maintenance

 

4,472

 

4,400

 

Depreciation and amortization

 

14,695

 

13,285

 

Income tax (benefit)

 

(520

)

(121

)

Property and other taxes

 

4,945

 

5,425

 

Total operating expenses

 

122,052

 

110,277

 

 

 

 

 

 

 

Net operating income

 

11,648

 

11,253

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

4,409

 

4,743

 

Non-regulated expense

 

(2,783

)

(2,978

)

Income tax (expense) on other income and expenses

 

(657

)

(713

)

Net other income

 

969

 

1,052

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest Expense

 

7,370

 

8,053

 

Less: capitalized interest

 

(419

)

(754

)

Net interest expense

 

6,951

 

7,299

 

 

 

 

 

 

 

Net income

 

$

5,666

 

$

5,006

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.12

 

$

0.12

 

Diluted

 

$

0.12

 

$

0.12

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,741

 

41,908

 

Diluted

 

47,780

 

41,908

 

Dividends per share of common stock

 

$

0.16000

 

0.15750

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

For the Twelve-Months ended:

 

 

 

December 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Operating revenue

 

$

584,103

 

$

559,966

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

226,061

 

202,699

 

Administrative and General

 

98,055

 

93,927

 

Other operations

 

69,738

 

77,104

 

Maintenance

 

17,368

 

19,142

 

Depreciation and amortization

 

58,320

 

54,668

 

Income taxes

 

19,047

 

19,356

 

Property and other taxes

 

21,509

 

19,227

 

Total operating expenses

 

510,098

 

486,123

 

 

 

 

 

 

 

Net operating income

 

74,005

 

73,843

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

14,795

 

16,686

 

Non-regulated expense

 

(11,265

)

(11,553

)

Gain on sale of non-utility property

 

 

84

 

Income tax (expense) on other income and expenses

 

(1,422

)

(2,096

)

Net other income

 

2,108

 

3,121

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest Expense

 

30,897

 

31,537

 

Less: capitalized interest

 

(2,038

)

(3,401

)

Net interest expense

 

28,859

 

28,136

 

 

 

 

 

 

 

Net income

 

$

47,254

 

$

48,828

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

1.02

 

$

1.17

 

Diluted

 

$

1.02

 

$

1.17

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

46,384

 

41,892

 

Diluted

 

46,417

 

41,892

 

Dividends per share of common stock

 

$

0.6400

 

$

0.6300