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Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to             

 

Commission file number 1-13883

 

CALIFORNIA WATER SERVICE GROUP

(Exact name of registrant as specified in its charter)

 

Delaware

 

77-0448994

(State or other jurisdiction

 

(I.R.S. Employer identification No.)

of incorporation or organization)

 

 

 

1720 North First Street, San Jose, CA.

 

95112

(Address of principal executive offices)

 

(Zip Code)

 

408-367-8200

(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 the 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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated Filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common shares outstanding as of October 28, 2014 — 47,806,190

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Page

PART I Financial Information

3

Item 1 Financial Statements

3

Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2014 and December 31, 2013

3

Condensed Consolidated Statements of Income (unaudited) For the Three Months Ended September 30, 2014 and 2013

4

Condensed Consolidated Statements of Income (unaudited) For the Nine months Ended September 30, 2014 and 2013

5

Condensed Consolidated Statements of Cash Flows (unaudited) For the Nine months Ended September 30, 2014 and 2013

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3 Quantitative and Qualitative Disclosure about Market Risk

34

Item 4 Controls and Procedures

35

PART II Other Information

35

Item 1 Legal Proceedings

35

Item 1A Risk Factors

36

Item 6 Exhibits

36

Signatures

37

Index to Exhibits

38

 

2



Table of Contents

 

PART I FINANCIAL INFORMATION

 

Item 1.

 

FINANCIAL STATEMENTS

 

The condensed consolidated financial statements presented in this filing on Form 10-Q have been prepared by management and are unaudited.

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

 

Unaudited

(In thousands, except shares and per share data)

 

 

 

September 30,
2014

 

December 31,
2013

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,306,427

 

$

2,213,328

 

Less accumulated depreciation and amortization

 

(745,742

)

(697,497

)

Net utility plant

 

1,560,685

 

1,515,831

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

29,485

 

27,506

 

Receivables:

 

 

 

 

 

Customers

 

37,070

 

31,468

 

Regulatory balancing accounts

 

45,073

 

30,887

 

Other

 

15,759

 

18,700

 

Unbilled revenue

 

29,489

 

17,034

 

Materials and supplies at weighted average cost

 

5,912

 

5,571

 

Taxes, prepaid expenses and other assets

 

14,490

 

8,324

 

Total current assets

 

177,278

 

139,490

 

Other assets:

 

 

 

 

 

Regulatory assets

 

277,476

 

251,681

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

51,026

 

50,238

 

Total other assets

 

331,117

 

304,534

 

 

 

$

2,069,080

 

$

1,959,855

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value; 68,000,000 shares authorized, 47,806,000 and 47,741,000 outstanding in 2014 and 2013, respectively

 

$

478

 

$

477

 

Additional paid-in capital

 

329,840

 

328,364

 

Retained earnings

 

291,964

 

269,915

 

Total common stockholders’ equity

 

622,282

 

598,756

 

Long-term debt, less current maturities

 

422,825

 

426,142

 

Total capitalization

 

1,045,107

 

1,024,898

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

6,619

 

7,908

 

Short-term borrowings

 

61,715

 

46,815

 

Accounts payable

 

71,867

 

55,087

 

Regulatory balancing accounts

 

6,791

 

1,827

 

Accrued interest

 

9,748

 

4,245

 

Accrued expenses and other liabilities

 

58,674

 

50,702

 

Total current liabilities

 

215,414

 

166,584

 

Unamortized investment tax credits

 

2,106

 

2,106

 

Deferred income taxes, net

 

210,357

 

183,245

 

Pension and postretirement benefits other than pensions

 

153,085

 

145,451

 

Regulatory and other liabilities

 

91,713

 

86,455

 

Advances for construction

 

182,172

 

183,393

 

Contributions in aid of construction

 

169,126

 

167,723

 

Commitments and contingencies (Note 10)

 

 

 

 

 

$

2,069,080

 

$

1,959,855

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

3



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

Unaudited

(In thousands, except per share data)

 

For the three months ended

 

September 30,
2014

 

September 30,
2013

 

Operating revenue

 

$

191,184

 

$

184,404

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

66,980

 

70,614

 

Administrative and general

 

23,765

 

24,670

 

Other operations

 

15,692

 

17,657

 

Maintenance

 

4,800

 

4,575

 

Depreciation and amortization

 

14,648

 

14,505

 

Income taxes

 

19,233

 

11,165

 

Property and other taxes

 

5,232

 

5,414

 

Total operating expenses

 

150,350

 

148,600

 

Net operating income

 

40,834

 

35,804

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

4,409

 

3,649

 

Non-regulated expenses, net

 

(4,812

)

(2,825

)

Income tax benefit (expense) on other income and expenses

 

169

 

(330

)

Net other (loss) income

 

(234

)

494

 

Interest expense:

 

 

 

 

 

Interest expense

 

7,221

 

7,687

 

Less: capitalized interest

 

(271

)

(540

)

Net interest expense

 

6,950

 

7,147

 

Net Income

 

$

33,650

 

$

29,151

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.70

 

$

0.61

 

Diluted

 

0.70

 

0.61

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,803

 

47,737

 

Diluted

 

47,840

 

47,770

 

Dividends declared per share of common stock

 

$

0.1625

 

$

0.1600

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

4



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

Unaudited

(In thousands, except per share data)

 

For the nine months ended

 

September 30,
2014

 

September 30,
2013

 

Operating revenue

 

$

460,115

 

$

450,403

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

174,297

 

171,956

 

Administrative and general

 

72,702

 

73,106

 

Other operations

 

48,072

 

50,332

 

Maintenance

 

14,793

 

12,896

 

Depreciation and amortization

 

46,788

 

43,625

 

Income taxes

 

22,584

 

19,567

 

Property and other taxes

 

15,601

 

16,564

 

Total operating expenses

 

394,837

 

388,046

 

Net operating income

 

65,278

 

62,357

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

12,163

 

10,386

 

Non-regulated expenses, net

 

(11,184

)

(8,482

)

Income tax (expense) on other income and expenses

 

(391

)

(765

)

Net other income

 

588

 

1,139

 

Interest expense:

 

 

 

 

 

Interest expense

 

21,373

 

23,527

 

Less: capitalized interest

 

(851

)

(1,619

)

Net interest expense

 

20,522

 

21,908

 

Net Income

 

$

45,344

 

$

41,588

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.95

 

$

0.91

 

Diluted

 

0.95

 

0.90

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,787

 

45,927

 

Diluted

 

47,825

 

45,957

 

Dividends declared per share of common stock

 

$

0.4875

 

$

0.4800

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

5



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Unaudited

(In thousands)

 

For the nine months ended:

 

September 30,
2014

 

September 30,
2013

 

Operating activities

 

 

 

 

 

Net income

 

$

45,344

 

$

41,588

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

48,481

 

45,067

 

Changes in value of life insurance contracts

 

(501

)

(1,147

)

Changes in operating assets and liabilities:

 

 

 

 

 

Receivables

 

(13,781

)

(24,636

)

Accounts payable

 

7,239

 

7,719

 

Other current assets

 

(6,859

)

(751

)

Other current liabilities

 

6,904

 

20,558

 

Other changes in noncurrent assets and liabilities

 

13,340

 

13,501

 

Net cash provided by operating activities

 

100,167

 

101,899

 

Investing activities:

 

 

 

 

 

Utility plant expenditures

 

(86,258

)

(94,782

)

Purchase of life insurance contracts

 

(3,207

)

(3,204

)

Changes in restricted cash and other changes

 

354

 

1,148

 

Net cash used in investing activities

 

(89,111

)

(96,838

)

Financing activities:

 

 

 

 

 

Short-term borrowings

 

99,900

 

35,315

 

Repayment of short-term borrowings

 

(85,000

)

(113,275

)

Proceeds from long-term debt

 

 

48

 

Repayment of long-term debt

 

(4,604

)

(3,058

)

Advances and contributions in aid of construction

 

8,780

 

7,577

 

Refunds of advances for construction

 

(4,858

)

(5,230

)

Issuance of common stock

 

 

110,688

 

Common stock issuance costs

 

 

(5,088

)

Dividends paid

 

(23,295

)

(21,981

)

Net cash (used in) provided by financing activities

 

(9,077

)

4,996

 

Change in cash and cash equivalents

 

1,979

 

10,057

 

Cash and cash equivalents at beginning of period

 

27,506

 

38,790

 

Cash and cash equivalents at end of period

 

$

29,485

 

$

48,847

 

Supplemental information

 

 

 

 

 

Cash paid for interest (net of amounts capitalized)

 

$

14,102

 

$

15,141

 

Cash paid for income taxes

 

 

 

Income tax refunds

 

(6,000

)

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

Accrued payables for investments in utility plant

 

$

16,308

 

$

11,739

 

Utility plant contribution by developers

 

8,148

 

10,196

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

6



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2014

(Amounts in thousands, except share and per share amounts)

 

Note 1. Organization and Operations and Basis of Presentation

 

California Water Service Group (the Company) is a holding company that provides water utility and other related services in California, Washington, New Mexico and Hawaii through its wholly-owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water) provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to herein as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services.

 

The Company operates in one reportable segment, providing water and related utility services.

 

Basis of Presentation

 

The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2013, included in its annual report on Form 10-K as filed with the SEC on February 27, 2014.

 

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP 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 balance sheet dates and the reported amounts of revenues and expenses for the periods presented. These include, but are not limited to, estimates and assumptions used in determining the Company’s regulatory asset and liability balances based upon probability assessments of regulatory recovery, revenues earned but not yet billed, asset retirement obligations, allowance for doubtful accounts, pension and other employee benefit plan liabilities, and income tax-related assets and liabilities.  Actual results could differ from these estimates.

 

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals that are necessary to provide a fair presentation of the results for the periods covered. The results for interim periods are not necessarily indicative of the results for any future period.

 

Due to the seasonal nature of the water business, the results for interim periods are not indicative of the results for a 12-month period. Revenue and income are generally higher in the warm, dry summer months when water usage and sales are greater. Revenue and income are generally lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.

 

Note 2. Summary of Significant Accounting Policies

 

Revenue

 

Revenue generally includes monthly cycle customer billings for regulated water and wastewater services at rates authorized by regulatory commissions (plus an estimate for water used between the customer’s last meter reading and the end of the accounting period) and billings to certain non-regulated customers at rates authorized by contract with government agencies.

 

The Company’s regulated water and waste water revenue requirements are authorized by the Commissions in the states in which it operates. The revenue requirements are intended to provide the Company an opportunity to recover its operating costs and earn a reasonable return on investments.

 

For metered customers, Cal Water recognizes revenue from rates which are designed and authorized by the California Public Utilities Commission (CPUC). Under the Water Revenue Adjustment Mechanism (WRAM), Cal Water records the adopted level of volumetric revenues, which would include recovery of cost of service and a return on investments, as established by the CPUC for metered accounts (adopted volumetric revenues). In addition to volumetric-based revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items not subject to the WRAM. The adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account (tracked individually for each Cal Water district) subject to certain criteria under the accounting for regulated operations being met. The variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future.

 

7



Table of Contents

 

Cost-recovery rates are designed to permit full recovery of certain costs. Cost-recovery rates such as the Modified Cost Balancing Account (MCBA) provides for recovery of adopted expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. In addition, cost-recovery rates include recovery of cost related to water conservation programs and certain other operation expenses adopted by the CPUC. There is no markup for return or profit for cost-recovery expenses and are generally recognized when expenses are incurred.  Variances (which include the effects of changes in both rate and volume for the MCBA) between adopted and actual costs are recorded as a component of revenue, as the amount of such variances will be recovered from or refunded to Cal Water customers at a later date.  The variance between adopted costs and actual costs for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account (transferred individually for each Cal Water District) subject to certain criteria under the accounting for regulated operations being met.

 

The balances in the WRAM and MCBA assets and liabilities accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results. The recovery or refund of the WRAM is netted against the MCBA over- or under-recovery for the corresponding district and is interest bearing at the current 90 day commercial paper rate. At the end of any calendar year, Cal Water files with the CPUC to refund or collect the balance in the accounts. Most undercollected net WRAM and MCBA receivable balances are collected over 12 or 18 months. Cal Water defers net WRAM and MCBA operating revenues and associated costs whenever the net receivable balances are estimated to be collected more than 24 months after the respective reporting periods in which it was recognized. The deferred net WRAM and MCBA revenues and associated costs were determined using forecasts of rate payer consumption trends in future reporting periods and the timing of when the CPUC will authorize Cal Water’s filings to recover the undercollected balances. Deferred net WRAM and MCBA revenues and associated costs will be recognized as revenues and costs in future periods when collection is within twenty-four months of the respective reporting period.

 

The net WRAM and MCBA balances included in regulatory balancing account, assets, and liabilities were:

 

 

 

September 30,
2014

 

December 31,
2013

 

Net short-term receivable

 

$

27,927

 

$

30,887

 

Net long-term receivable

 

16,608

 

15,423

 

Total receivable

 

$

44,535

 

$

46,310

 

Net short-term payable

 

$

423

 

$

1,032

 

Net long-term payable

 

1,385

 

906

 

Total payable

 

$

1,808

 

$

1,938

 

 

Flat rate customers are billed in advance at the beginning of the service period. The revenue is prorated so that the portion of revenue applicable to the current period is included in that period’s revenue, with the balance recorded as unearned revenue on the balance sheets and recognized as revenue when earned in the subsequent accounting period. The unearned revenue liability was $1.5 million as of September 30, 2014 and as of December 31, 2013. This liability is included in “accrued expenses and other liabilities” on the condensed consolidated balance sheets.

 

Cash and Cash Equivalents

 

Cash equivalents include highly liquid investments with maturities of three months or less.  Cash and cash equivalents was $29.5 million and $27.5 million as of September 30, 2014 and December 31, 2013, respectively.  Restricted cash was included on the condensed consolidated balance sheets as “taxes, prepaid expenses and other assets” and was $0.8 million and $1.2 million as of September 30, 2014 and December 31, 2013, respectively.

 

Accounting Standards Update

 

On May 28, 2014 the Financial Accounting Standards Board issued an accounting standards update (ASU) 2014-09, Revenue from Contracts with Customers.  This update creates a single, principles based framework for revenue recognition and is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when goods or services are transferred to customers.  ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted.  The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements and related disclosures.

 

8



Table of Contents

 

Note 3. Stock-based Compensation

 

Equity Incentive Plan

 

The Company’s equity incentive plan was originally approved by stockholders on April 27, 2005 and again on May 20, 2014.  Under the equity incentive plan, the Company is authorized to issue up to 2,000,000 shares of common stock awards as defined in the Plan to employees and directors.

 

The Restricted Stock Awards (RSAs) granted in 2014 and 2013 to employees vest over 36 months.  Director RSAs generally vest at the end of 12 months.  During the first nine months of 2014, the RSAs granted were valued at $23.61 per share, based upon the fair market value of the Company’s common stock on the date of grant.

 

During the nine months ended September 30, 2014 and 2013, the Company also granted performance-based Restricted Stock Unit Awards (RSUs) of 37,143 shares and 50,267 shares of common stock, respectively, to officers.  Each award reflects a target number of shares that may be issued to the award recipient.  The 2014 and 2013 awards may be earned upon the completion of the three-year performance period ending on March 4, 2017 and March 5, 2016, respectively.  Whether RSUs are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the Board of Director Compensation Committee in connection with the issuance of the RSUs.  The performance objectives are based on the Company’s business plan covering the performance period.  The performance objectives include achieving the budgeted return on equity, budgeted investment in utility plant, customer service standards, water quality standards, and/or safety standards.  Depending on the results achieved during the three-year performance period, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 200% of the target shares granted, provided that the grantee is continuously employed by the Company through the vesting date.  If, prior to the vesting date, employment is terminated by reason of death, disability or normal retirement, then a pro rata portion of this award will vest.  RSUs were not dilutive as of September 30, 2014 and 2013 and will not be included in diluted shares for financial reporting until they are either dilutive or earned.  The 2014 and 2013 RSUs are recognized as expense ratably over the three year performance period using a fair market value of $23.61 per share and $20.62 per share, respectively, and an estimate of RSUs earned during the performance period.

 

The Company has recorded compensation costs for the RSAs and RSUs in operating expense in the amount of $1.5 million and $1.3 million for the nine months ended September 30, 2014 and September 30, 2013, respectively.

 

Note 4. Equity

 

The Company’s changes in equity for the nine months ended September 30, 2014 were as follows:

 

 

 

Total Stockholders’ Equity

 

Balance at December 31, 2013

 

$

598,756

 

Common stock issued

 

1

 

Share-based compensation expense

 

1,476

 

Common stock dividends paid

 

(23,295

)

Net income

 

45,344

 

Balance at September 30, 2014

 

$

622,282

 

 

9



Table of Contents

 

Note 5. Net Income Per Share Calculations

 

The computations of basic and diluted net income per weighted average common shares are noted below. Basic net income per share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period. RSAs are included in the weighted average common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts were exercised or converted into common stock.

 

A total of 185,420 shares and 283,856 shares of Stock Appreciation Rights were vested and outstanding and all were dilutive as of September 30, 2014 and September 30, 2013, respectively, as shown in the table below.

 

 

 

Three Months Ended September 30

 

 

 

2014

 

2013

 

Net Income available to common stockholders

 

$

33,650

 

$

29,151

 

Weighted average common shares outstanding, basic (in thousands)

 

47,803

 

47,737

 

Dilutive stock appreciation rights (treasury method) (in thousands)

 

37

 

33

 

Weighted average common shares outstanding, dilutive (in thousands)

 

47,840

 

47,770

 

Net Income per share - basic

 

$

0.70

 

$

0.61

 

Net Income per share - diluted

 

$

0.70

 

$

0.61

 

 

 

 

Nine months Ended September 30

 

 

 

2014

 

2013

 

Net Income available to common stockholders

 

$

45,344

 

$

41,588

 

Weighted average common shares outstanding, basic (in thousands)

 

47,787

 

45,927

 

Dilutive stock appreciation rights (treasury method) (in thousands)

 

38

 

30

 

Weighted average common shares outstanding, dilutive (in thousands)

 

47,825

 

45,957

 

Net Income per share - basic

 

$

0.95

 

$

0.91

 

Net Income per share - diluted

 

$

0.95

 

$

0.90

 

 

Note 6. Pension Plan and Other Postretirement Benefits

 

The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The Company makes annual contributions to fund the amounts accrued for the qualified pension plan. The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan. The costs of the plans are charged to expense or are capitalized in utility plant as appropriate.

 

The Company offers medical, dental, vision, and life insurance benefits for retirees and their spouses and dependents. Participants are required to pay a premium, which offsets a portion of the cost.

 

Cash payments by the Company related to pension plans and other postretirement benefit plans was $14.0 million and $2.4 million, respectively, for the nine months ended September 30, 2014 and was $23.4 million to pension plans and $4.7 million to other postretirement benefit plans during the nine months ended September 30, 2013. The 2014 estimated cash contribution to the pension plans is $26.8 million and to the other postretirement benefit plans is $9.6 million.

 

The following table lists components of net periodic benefit costs for the pension plans and other postretirement benefits. The data listed under “pension plan” includes the qualified pension plan and the non-qualified supplemental executive retirement plan. The data listed under “other benefits” is for all other postretirement benefits.

 

 

 

Three Months Ended September 30

 

 

 

Pension Plan

 

Other Benefits

 

 

 

2014

 

2013

 

2014

 

2013

 

Service cost

 

$

3,539

 

$

4,019

 

$

1,398

 

$

1,636

 

Interest cost

 

4,737

 

4,140

 

1,321

 

1,121

 

Expected return on plan assets

 

(4,091

)

(3,559

)

(832

)

(600

)

Recognized net initial APBO (1) 

 

N/A

 

N/A

 

 

3

 

Amortization of prior service cost

 

1,527

 

1,542

 

11

 

21

 

Recognized net actuarial loss

 

1,002

 

2,404

 

656

 

961

 

Net periodic benefit cost

 

$

6,714

 

$

8,546

 

$

2,554

 

$

3,142

 

 

10



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Nine months Ended September 30

 

 

 

Pension Plan

 

Other Benefits

 

 

 

2014

 

2013

 

2014

 

2013

 

Service cost

 

$

11,973

 

$

13,335

 

$

4,637

 

$

5,025

 

Interest cost

 

14,190

 

12,266

 

3,995

 

3,339

 

Expected return on plan assets

 

(12,449

)

(10,689

)

(2,339

)

(1,796

)

Recognized net initial APBO (1) 

 

N/A

 

N/A

 

 

7

 

Amortization of prior service cost

 

4,547

 

4,624

 

33

 

61

 

Recognized net actuarial loss

 

3,008

 

6,852

 

2,206

 

2,794

 

Net periodic benefit cost

 

$

21,269

 

$

26,388

 

$

8,532

 

$

9,430

 

 


(1)  APBO - Accumulated postretirement benefit obligation

 

Note 7. Short-term and Long-term Borrowings

 

On June 29, 2011, the Company and Cal Water entered into Syndicated Credit Agreements, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $400 million.  The Syndicated Credit Facilities amend, expand, and replace the Company’s and its subsidiaries’ credit facilities originally entered into on October 27, 2009.  The new credit facilities extended the terms until June 29, 2016, increased the Company’s and Cal Water’s unsecured revolving lines of credit, and lowered interest rates and fees.  The Company and subsidiaries that it designates may borrow up to $100 million under the Company’s revolving credit facility. Cal Water may borrow up to $300 million under its revolving credit facility; however, all borrowings need to be repaid within 12-months unless otherwise authorized by the CPUC.  The proceeds from the revolving credit facilities may be used for working capital purposes, including the short-term financing of capital projects.  The base loan rate may vary from LIBOR plus 72.5 basis points to LIBOR plus 95 basis points, depending on the Company’s total capitalization ratio.  Likewise, the unused commitment fee may vary from 8 basis points to 12.5 basis points based on the same ratio.

 

Both short-term unsecured credit agreements contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales. Also, these unsecured credit agreements contain financial covenants governing the Company and its subsidiaries’ consolidated total capitalization ratio and interest coverage ratio.

 

As of September 30, 2014 and December 31, 2013, the outstanding borrowings on the Company and Cal Water lines of credit were $61.7 million and $46.8 million, respectively.  For the nine months ended September 30, 2014, the average borrowing rate was 1.16% compared to 2.20% for the same period last year.

 

Note 8. Income Taxes

 

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Measurement of the deferred tax assets and liabilities is at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

 

The Company anticipates that future rate actions by the regulatory commissions will reflect revenue requirements for the tax effects of temporary differences recognized, which have previously been passed through to customers. The regulatory commissions have granted the Company rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITCs) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes.

 

During 2012, the Company filed an application for a change in tax accounting method with the IRS to implement tangible property regulations specifically in regards to repairs and maintenance deductions.  On September 13, 2013, the U.S. Department of the Treasury and Internal Revenue Service (IRS) issued the final and re-proposed tangible property regulations for repairs and maintenance deductions with an effective date of January 1, 2014.  These tax regulations allowed the Company to deduct a

 

11



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significant amount of linear asset costs previously capitalized for book and tax purposes.  The Company filed a tax accounting method change on its 2013 tax return for the repair and maintenance of linear assets within the guidance of the tangible property regulations.  The Company’s total federal net operating loss (NOL) was $67.1 million and state net operating loss NOL was $106.0 million as of December 31, 2013.  The NOL carry-forward amounts are more likely than not to be recovered and therefore require no valuation allowance.  The NOL carry-forward does not begin to expire until 2033.

 

As of September 30, 2014 the Company had unrecognized tax benefits of approximately $7.3 million.  Included in the balance of  unrecognized tax benefits is approximately $1.6 million of tax benefits that, if  recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next twelve months.

 

The State of Hawaii Department of Taxation is presently auditing the Company’s 2010, 2011 and 2012 Hawaii state income tax returns.  The State of California Board of Equalization is presently auditing the Company’s 2010, 2011, and 2012 sales and use tax filings. The State of California Franchise Tax Board is presently auditing the Company’s 2008 through 2011 enterprise zone filings.   It is uncertain when the state audits will be completed.  The Company believes that the final resolution of the state audits will not have a material impact on its financial condition or results of operations.

 

Note 9. Regulatory Assets and Liabilities

 

During 2013, the assigned Administrative Law Judge granted Cal Water’s request to continue applying existing rates on and after January 1, 2014 as interim rates and allowed Cal Water to track the difference between interim rates and the new authorized rates in a memorandum account.   The Commission issued a final order for Cal Water’s 2012 General Rate Case (GRC) on August 14, 2014. The 2012 GRC covers the years 2014, 2015, 2016 and replaces the 2009 GRC which covered the years 2011, 2012 and 2013.  The difference between Cal Water’s interim rates and the adopted new rates for the first eight months of 2014 resulted in a regulatory receivable of $30.6 million.  On September 30, 2014, the Commission authorized recovery of this regulatory receivable through ratepayer surcharges over the next three years.  As of September 30, 2014, the interim rates memorandum account balance was recorded as a regulatory balancing account asset of $17.1 million and a regulatory asset of $13.0 million, net of deferred revenues of $0.5 million.

 

As part of the Cal Water GRC decision, a balancing account for Cal Water’s employee and retiree health care plans was authorized with an effective date of January 1, 2014.   The health care balancing account is a two-way balancing account that tracks the differences between the adopted rate recovery and actual medical expenses.  The health care balancing account allows Cal Water to recover from ratepayers eighty-five percent of any actual medical costs that exceed the adopted rate recovery.   If the adopted rate recovery exceeds actual medical costs, Cal Water is required to refund eighty-five percent of the excess to ratepayers.  As of September 30, 2014 the health care balancing account was recorded as a regulatory asset of $1.9 million.

 

The Commission authorized balancing accounts for Cal Water’s pension plans and conservation program in the 2009 and 2012 GRC decisions.  The pension plan’s balancing account is a two-way balancing account that tracks the differences between actual expenses and adopted rate recovery which will result in either a regulatory asset or liability. The conservation program is a one-way balancing account that tracks the difference between actual expenses and adopted rate recovery which may result in a regulatory liability if actual conservation expenses are less than adopted.  During 2014, the Commission authorized a $6.3 million ratepayer refund for the conservation program balancing account authorized in the 2009 GRC.  As of September 30, 2014, the 2009 GRC pension balancing account was recorded as a regulatory asset of $3.0 million and the 2012 GRC pension balancing account was recorded as a regulatory liability of $3.5 million. As of September 30, 2014, the 2009 conservation balancing account was recorded as a regulatory balancing account liability of $4.9 million and the 2012 GRC conservation balancing account was recorded in regulatory and other liabilities of $2.0 million.

 

Note 10. Commitments and Contingencies

 

Commitments

 

The Company has significant commitments to lease certain office spaces and water systems and to purchase water from water wholesalers. These commitments are described in Form 10-K for the year ended December 31, 2013.  As of September 30, 2014, there were no significant changes from December 31, 2013.

 

Contingencies

 

Groundwater Contamination

 

The Company has undertaken litigation against third parties to recover past and future costs related to ground water contamination in the Company’s service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. The Commission’s general policy requires all proceeds from contamination litigation to be used first to pay transactional expenses, then to make ratepayers whole for water treatment costs to comply with the Commission’s water quality standards. The Commission allows for a risk-based consideration of contamination proceeds which exceed the costs of the remediation described above and may result in some sharing of proceeds with the shareholders, determined on a case by case basis. The Commission has authorized various memorandum accounts that allow the Company to track significant litigation costs to request recovery of these costs in future filings and uses of proceeds to comply with Commission’s general policy.

 

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Table of Contents

 

Other Legal Matters

 

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. The status of each significant matter is reviewed and assessed for potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be estimated, a liability is accrued for the estimated loss in accordance with the accounting standards for contingencies. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe when taking into account existing reserves the ultimate resolution of these matters will materially affect the Company’s financial position, results of operations, or cash flows.  The Company recognized a liability of $2.7 million and $1.3 million for all known legal matters as of September 30, 2014 and December 31, 2013, respectively.  The cost of litigation is expensed as incurred and any settlement is first offset against such costs.  Any settlement in excess of the cost to litigate is accounted for on a case by case basis, dependent on the nature of the settlement.

 

Note 11. Fair Value of Financial Assets and Liabilities

 

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchal framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:

 

Level 1 -                         Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices.

 

Level 2 -                         Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with discounted cash flow or option pricing models using highly observable inputs.

 

Level 3 -                         Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those valued with models requiring significant management judgment or estimation.

 

Specific valuation methods include the following:

 

Cash equivalents, accounts receivable, accounts payable, and short-term borrowings carrying amounts approximated the fair value because of the short-term maturity of the instruments.

 

Long-term debt fair values were estimated using the published quoted market price, if available, or the discounted cash flow analysis, based on the current rates available using a risk-free rate (a U.S. Treasury securities yield curve) plus a risk premium of 1.19%.

 

Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.

 

 

 

September 30, 2014

 

 

 

 

 

Fair Value

 

 

 

Cost

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Long -term debt, including current maturities

 

$

429,444

 

 

$

526,733

 

 

$

526,733

 

Advances for construction

 

182,172

 

 

74,389

 

 

74,389

 

Total

 

$

611,616

 

$

 

$

601,122

 

$

 

$

601,122

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

Fair Value

 

 

 

Cost

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Long -term debt, including current maturities

 

$

434,050

 

$

 

$

511,146

 

$

 

$

511,146

 

Advances for construction

 

183,393

 

 

73,389

 

 

73,389

 

Total

 

$

617,443

 

 

 

$

584,535

 

$

 

$

584,535

 

 

13



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Note 12. Condensed Consolidating Financial Statements

 

On April 17, 2009, Cal Water issued $100 million aggregate principal amount of 5.875% First Mortgage Bonds due 2019, and on November 17, 2010, Cal Water issued $100 million aggregate principal amount of 5.500% First Mortgage Bonds due 2040, all of which are fully and unconditionally guaranteed by the Company.  As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information.

 

The following tables present the condensed consolidating balance sheets as of September 30, 2014 and December 31, 2013, the condensed consolidating statements of income for the three months ended September 30, 2014 and 2013, the condensed consolidating statements of income for the nine months ended September 30, 2014 and 2013 and the condensed consolidating statements of cash flows for the nine months ended September, 2014 and 2013 of (i) California Water Service Group, the guarantor of the first mortgage bonds and the parent company; (ii) California Water Service Company, the issuer of the first mortgage bonds and a 100% owned consolidated subsidiary of California Water Service Group; and (iii) the other 100% owned non-guarantor consolidated subsidiaries of California Water Service Group.

 

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CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2014

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Utility plant:

 

 

 

 

 

 

 

 

 

 

 

Utility plant

 

$

1,318

 

$

2,120,177

 

$

192,129

 

$

(7,197

)

$

2,306,427

 

Less accumulated depreciation and amortization

 

(320

)

(705,851

)

(41,266

)

1,695

 

(745,742

)

Net utility plant

 

998

 

1,414,326

 

150,863

 

(5,502

)

1,560,685

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1,316

 

26,218

 

1,951

 

 

29,485

 

Receivables and unbilled revenue

 

(756

)

118,265

 

9,976

 

(94

)

127,391

 

Receivables from affiliates

 

22,242

 

977

 

95

 

(23,314

)

 

Other current assets

 

107

 

19,078

 

1,217

 

 

20,402

 

Total current assets

 

22,909

 

164,538

 

13,239

 

(23,408

)

177,278

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

Regulatory assets

 

 

274,509

 

2,967

 

 

277,476

 

Investments in affiliates

 

633,705

 

 

 

(633,705

)

 

Long-term affiliate notes receivable

 

25,516

 

 

 

(25,516

)

 

Other assets

 

1,037

 

48,729

 

4,287

 

(412

)

53,641

 

Total other assets

 

660,258

 

323,238

 

7,254

 

(659,633

)

331,117

 

 

 

$

684,165

 

$

1,902,102

 

$

171,356

 

$

(688,543

)

$

2,069,080

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Capitalization:

 

 

 

 

 

 

 

 

 

 

 

Common stockholders’ equity

 

$

622,282

 

$

564,803

 

$

74,304

 

$

(639,107

)

$

622,282

 

Affiliate long-term debt

 

 

 

25,516

 

(25,516

)

 

Long-term debt, less current maturities

 

 

421,909

 

916

 

 

422,825

 

Total capitalization

 

622,282

 

986,712

 

100,736

 

(664,623

)

1,045,107

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

6,164

 

455

 

 

6,619

 

Short-term borrowings

 

61,715

 

 

 

 

 

61,715

 

Payables to affiliates

 

 

1,813

 

21,501

 

(23,314

)

 

Accounts payable

 

 

68,659

 

3,208

 

 

 

71,867

 

Accrued expenses and other liabilities

 

168

 

71,269

 

3,818

 

(42

)

75,213

 

Total current liabilities

 

61,883

 

147,905

 

28,982

 

(23,356

)

215,414

 

Unamortized investment tax credits

 

 

2,106

 

 

 

2,106

 

Deferred income taxes, net

 

 

206,552

 

4,369

 

(564

)

210,357

 

Pension and postretirement benefits other than pensions

 

 

153,085

 

 

 

153,085

 

Regulatory and other liabilities

 

 

82,757

 

8,956

 

 

91,713

 

Advances for construction

 

 

181,514

 

658

 

 

182,172

 

Contributions in aid of construction

 

 

141,471

 

27,655

 

 

169,126

 

 

 

$

684,165

 

$

1,902,102

 

$

171,356

 

$

(688,543

)

$

2,069,080

 

 

15



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2013

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Utility plant:

 

 

 

 

 

 

 

 

 

 

 

Utility plant

 

$

1,318

 

$

2,034,935

 

$

184,272

 

$

(7,197

)

$

2,213,328

 

Less accumulated depreciation and amortization

 

(164

)

(661,780

)

(37,168

)

1,615

 

(697,497

)

Net utility plant

 

1,154

 

1,373,155

 

147,104

 

(5,582

)

1,515,831

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

5,280

 

20,790

 

1,436

 

 

27,506

 

Receivables and unbilled revenue

 

(756

)

90,008

 

8,931

 

(94

)

98,089

 

Receivables from affiliates

 

16,747

 

5,755

 

 

(22,502

)

 

Other current assets

 

 

13,011

 

884

 

 

13,895

 

Total current assets

 

21,271

 

129,564

 

11,251

 

(22,596

)

139,490

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

Regulatory assets

 

 

248,938

 

2,743

 

 

251,681

 

Investments in affiliates

 

565,347

 

 

 

(565,347

)

 

Long-term affiliate notes receivable

 

26,255

 

 

 

(26,255

)

 

Other assets

 

1,120

 

44,827

 

7,111

 

(205

)

52,853

 

Total other assets

 

592,722

 

293,765

 

9,854

 

(591,807

)

304,534

 

 

 

$

615,147

 

$

1,796,484

 

$

168,209

 

$

(619,985

)

$

1,959,855

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Capitalization:

 

 

 

 

 

 

 

 

 

 

 

Common stockholders’ equity

 

$

598,756

 

$

500,290

 

$

70,548

 

$

(570,838

)

$

598,756

 

Affiliate long-term debt

 

 

 

26,255

 

(26,255

)

 

Long-term debt, less current maturities

 

 

424,854

 

1,288

 

 

426,142

 

Total capitalization

 

598,756

 

925,144

 

98,091

 

(597,093

)

1,024,898

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

6,137

 

1,771

 

 

7,908

 

Short-term borrowings

 

16,815

 

30,000

 

 

 

46,815

 

Payables to affiliates

 

48

 

 

22,454

 

(22,502

)

 

Accounts payable

 

 

51,764

 

3,323

 

 

55,087

 

Accrued expenses and other liabilities

 

107

 

55,346

 

1,321

 

 

56,774

 

Total current liabilities

 

16,970

 

143,247

 

28,869

 

(22,502

)

166,584

 

Unamortized investment tax credits

 

 

2,106

 

 

 

2,106

 

Deferred income taxes, net

 

(579

)

179,870

 

4,344

 

(390

)

183,245

 

Pension and postretirement benefits other than pensions

 

 

145,451

 

 

 

145,451

 

Regulatory and other liabilities

 

 

77,627

 

8,828

 

 

86,455

 

Advances for construction

 

 

182,776

 

617

 

 

183,393

 

Contributions in aid of construction

 

 

140,263

 

27,460

 

 

167,723

 

 

 

$

615,147

 

$

1,796,484

 

$

168,209

 

$

(619,985

)

$

1,959,855

 

 

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Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended September 30, 2014

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

180,768

 

$

10,416

 

$

 

$

191,184

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

64,332

 

2,648

 

 

66,980

 

Administrative and general

 

34

 

21,282

 

2,449

 

 

23,765

 

Other

 

 

14,161

 

1,657

 

(126

)

15,692

 

Maintenance

 

 

4,620

 

180

 

 

4,800

 

Depreciation and amortization

 

57

 

13,692

 

926

 

(27

)

14,648

 

Income tax (benefit) expense

 

(79

)

18,632

 

393

 

287

 

19,233

 

Taxes other than income taxes

 

 

4,409

 

823

 

 

5,232

 

Total operating expenses

 

12

 

141,128

 

9,076

 

134

 

150,350

 

Net operating (loss) income

 

(12

)

39,640

 

1,340

 

(134

)

40,834

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

448

 

4,027

 

446

 

(512

)

4,409

 

Non-regulated expenses, net

 

 

(4,538

)

(274

)

 

(4,812

)

Income tax (expense) on other income and expense

 

(182

)

207

 

(132

)

276

 

169

 

Net other income

 

266

 

(304

)

40

 

(236

)

(234

)

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

103

 

7,030

 

473

 

(385

)

7,221

 

Less: capitalized interest

 

 

(252

)

(19

)

 

(271

)

Net interest expense

 

103

 

6,778

 

454

 

(385

)

6,950

 

Equity earnings of subsidiaries

 

33,499

 

 

 

(33,499

)

 

Net income (loss)

 

$

33,650

 

$

32,558

 

$

926

 

$

(33,484

)

$

33,650

 

 

17



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended September 30, 2013

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

174,699

 

$

9,705

 

$

 

$

184,404

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

67,981

 

2,633

 

 

70,614

 

Administrative and general

 

 

22,354

 

2,316

 

 

24,670

 

Other

 

 

15,883

 

1,900

 

(126

)

17,657

 

Maintenance

 

 

4,382

 

193

 

 

4,575

 

Depreciation and amortization

 

14

 

13,714

 

805

 

(28

)

14,505

 

Income tax (benefit) expense

 

(17

)

10,721

 

107

 

354

 

11,165

 

Taxes other than income taxes

 

 

4,680

 

734

 

 

5,414

 

Total operating (income) expenses

 

(3

)

139,715

 

8,688

 

200

 

148,600

 

Net operating income (loss)

 

3

 

34,984

 

1,017

 

(200

)

35,804

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

572

 

3,385

 

475

 

(783

)

3,649

 

Non-regulated expenses, net

 

 

(2,515

)

(310

)

 

(2,825

)

Income tax (expense) on other income and expense

 

(232

)

(355

)

(85

)

342

 

(330

)

Net other income (expense)

 

340

 

515

 

80

 

(441

)

494

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

30

 

7,608

 

707

 

(658

)

7,687

 

Less: capitalized interest

 

 

(495

)

(45

)

 

(540

)

Net interest expense

 

30

 

7,113

 

662

 

(658

)

7,147

 

Equity earnings of subsidiaries

 

28,838

 

 

 

(28,838

)

 

Net income (loss)

 

$

29,151

 

$

28,386

 

$

435

 

$

(28,821

)

$

29,151

 

 

18



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the nine months ended September 30, 2014

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

434,857

 

$

25,258

 

$

 

$

460,115

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

167,214

 

7,083

 

 

174,297

 

Administrative and general

 

67

 

65,144

 

7,491

 

 

72,702

 

Other

 

 

43,186

 

5,264

 

(378

)

48,072

 

Maintenance

 

 

14,276

 

517

 

 

14,793

 

Depreciation and amortization

 

157

 

43,607

 

3,104

 

(80

)

46,788

 

Income tax (benefit) expense

 

(184

)

22,713

 

(686

)

741

 

22,584

 

Taxes other than income taxes

 

 

13,552

 

2,049

 

 

15,601

 

Total operating expenses

 

40

 

369,692

 

24,822

 

283

 

394,837

 

Net operating (loss) income

 

(40

)

65,165

 

436

 

(283

)

65,278

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

1,365

 

11,264

 

1,193

 

(1,659

)

12,163

 

Non-regulated expenses, net

 

 

(10,286

)

(898

)

 

(11,184

)

Income tax (expense) on other income and expense

 

(556

)

(399

)

(144

)

708

 

(391

)

Net other income

 

809

 

579

 

151

 

(951

)

588

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

228

 

20,974

 

1,452

 

(1,281

)

21,373

 

Less: capitalized interest

 

 

(790

)

(61

)

 

(851

)

Net interest expense

 

228

 

20,184

 

1,391

 

(1,281

)

20,522

 

Equity earnings of subsidiaries

 

44,803

 

 

 

(44,803

)

 

Net income (loss)

 

$

45,344

 

$

45,560

 

$

(804

)

$

(44,756

)

$

45,344

 

 

19



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the nine months ended September 30, 2013

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

425,860

 

$

24,543

 

$

 

$

450,403

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

164,524

 

7,432

 

 

171,956

 

Administrative and general

 

 

65,423

 

7,683

 

 

73,106

 

Other

 

 

45,490

 

5,220

 

(378

)

50,332

 

Maintenance

 

 

12,376

 

520

 

 

12,896

 

Depreciation and amortization

 

42

 

41,168

 

2,499

 

(84

)

43,625

 

Income tax (benefit) expense

 

(246

)

19,807

 

(1,064

)

1,070

 

19,567

 

Taxes other than income taxes

 

 

14,549

 

2,015

 

 

16,564

 

Total operating (income) expenses

 

(204

)

363,337

 

24,305

 

608

 

388,046

 

Net operating income (loss)

 

204

 

62,523

 

238

 

(608

)

62,357

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

1,739