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8-K - 8-K - CALIFORNIA WATER SERVICE GROUPa15-21870_28k.htm

Exhibit 99.1

 

NEWS RELEASE
CALIFORNIA WATER SERVICE GROUP

 

 

1720 North First Street
San Jose, CA 95112-4598

October 28, 2015

for immediate release

 

 

 

Contact:

Tom Smegal (408) 367-8200 (analysts)
Shannon Dean (310) 257-1435 (media)

 

 

CALIFORNIA WATER SERVICE GROUP ANNOUNCES

THIRD QUARTER RESULTS

 


 

SAN JOSE, CA  — California Water Service Group (NYSE: CWT) today announced net income for the third quarter of 2015 of $25.1 million or $0.52 per diluted common share, compared to net income of $33.7 million or $0.70 per diluted common share for the third quarter of 2014.  Net income decreased $8.6 million during the third quarter of 2015 compared to the third quarter of 2014 principally due to two non-recurring items in 2014.

 

First, in the third quarter of 2014 the Company recorded interim revenue recovery approved by the California Public Utilities Commission (Commission) in its August 2014 General Rate Case (GRC) Decision for California Water Service Company (Cal Water). The additional revenue of $10.3 million, covering the interim rate period of January through June 2014, along with balancing account adjustments, resulted in $6.8 million additional net income in the third quarter of 2014. Additionally, third quarter 2014 results also included a non-recurring $2.3 million tax benefit.

 



 

For the third quarter of 2015, total revenue decreased $7.7 million, or 4%, to $183.5 million, compared to revenue of $191.2 million for the third quarter of 2014.  The largest factor in the revenue decrease was the California GRC interim revenue booked in the third quarter of 2014. There was also a $1.3 million decrease in revenue due to the net effect of rate base offsets, other rate changes, service revenue changes, and balancing account entries.  Revenue decreases were partially offset by a $3.9 million increase in accrued estimated unbilled revenue in the current quarter.  Increase estimated unbilled revenue resulted from higher usage at the end of the quarter as compared to usage at the end of the second quarter of 2015 and the introduction of drought surcharges this quarter.  Estimated unbilled revenue is not included in the water revenue adjustment mechanism (WRAM) until it is billed.  The estimated unbilled revenue accrual fluctuates on a quarterly and annual basis.

 



 

Total operating expenses increased $0.9 million to $151.3 million for the third quarter of 2015 compared to operating expenses of $150.4 million for the third quarter of 2014, principally due to employee wages and benefits which increased $3.0 million, costs attributable to the California drought program which increased $1.4 million, conservation program costs which increased $1.0 million, and uninsured loss costs which increased $1.4 million. These were partially offset by a $6.5 million, or 10%, reduction in water production expenses. Total water production decreased by 19% during the third quarter of 2015 compared to the third quarter of 2014 due primarily to California drought restrictions.

 

The majority of changes in employee pension and other postretirement benefits, health care, and water conservation program expenses for regulated California operations did not affect net income because the Company is permitted by the Commission to track these costs in balancing accounts for future recovery.

 

Maintenance expense increased $1.2 million, or 24%, to $6.0 million, primarily due to increases in repair costs for transmission, distribution, and service mains and pump equipment.

 



 

Depreciation and amortization expense increased $0.7 million, or 5%, to $15.3 million, due to capital additions.

 

Income taxes decreased $3.9 million to $15.3 million in the third quarter of 2015 as compared to third quarter of 2014, primarily due to a $12.3 million decrease in pre-tax income in the third quarter of 2015, which was partially offset by the $2.3 million tax benefit in 2014.

 

Other income, net of income taxes, decreased $0.2 million to a loss of $0.4 million in the third quarter of 2015 compared to third quarter of 2014, primarily due to an unrealized loss on our benefit plan insurance investments.

 

Net interest expense decreased $0.2 million, or 4%, to $6.7 million in the third quarter of 2015 compared to third quarter of 2014, primarily due to an increase in interest charged to construction projects.

 

During the first nine months of 2015, the total company-funded and developer-funded investment in utility plant was $118.3 million, up 37% or $32.0 million from $86.3 million in the first nine months of 2014.

 



 

On October 13, 2015, Cal Water sold $100 million in aggregate principal amount of First Mortgage Bonds in a private placement to refinance short-term indebtedness and for general corporate purposes. Cal Water has used short-term indebtedness to fund investments in utility plant. Cal Water has agreed to sell an additional $50 million in aggregate principal amount of First Mortgage Bonds on March 11, 2016 subject to customary closing conditions.

 

“During the third quarter of 2015, our California customers excelled at reducing their water consumption in response to the Governor’s emergency drought declaration.  We are committed to meeting the State’s reduction targets, and we are headed in the right direction for the remaining five months of the emergency drought declaration period.  We continue to take a customer-first approach and we are working hand-in-hand with customers,” said Martin A. Kropelnicki, President and Chief Executive Officer.

 

“The Company’s operating results are in line with our projections and reflect our efforts to help customers reduce consumption.  The success of our water conservation program also resulted in significant reductions to water production costs during the third quarter,” he said.

 

“As we move into the fourth quarter of 2015, we will continue our customer-first approach while continuing to focus on operating efficiently and investing prudently in capital to deliver results for our shareholders and high-quality, reliable water service to our customers,” Kropelnicki said.

 



 

Drought Update

 

During the quarter, Cal Water billed $23.6 million in drought surcharges to its customers who exceeded their water budget targets. The drought surcharges offset the WRAM net receivable balance under Commission approvals. The net receivable balance in the WRAM and modified cost balancing account (MCBA) mechanism was $42.5 million at the end of the third quarter, down 12% or $5.2 million from the balance at the end of the second quarter of $47.9 million.

 

The majority of Cal Water service areas are in compliance with the drought emergency declaration, with all districts making substantial progress toward conservation goals. Cal Water has incurred $3.1 million in incremental drought  expenses during 2014 and 2015, including $1.8 million in the third quarter. Cal Water will request to recover these costs in a future period after a reasonableness review by the Commission.

 



 

All stockholders and interested investors are invited to listen to the 2015 third quarter conference call scheduled for Thursday, October 29, 2015 at 11:00am ET. It may be accessed by dialing 1-888-329-8893 or 1-719-325-2464 and keying in ID# 6725942. A replay of the call will be available from 2:00 p.m. ET on Thursday, October 29, 2015 through December 29, 2015, at 1-888-203-1112 or 1-719-457-0820, ID# 6725942. 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, will also be webcast under the investor relations tab at www.calwatergroup.com.

 

California Water Service Group is the parent company of California Water Service, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, Inc., CWS Utility Services, and HWS Utility Services. Together these companies provide regulated and non-regulated water service to more than 2 million people in 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 at our web site 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; changes in regulatory commissions’ policies and procedures; the

 



 

timeliness of regulatory commissions’ actions concerning rate relief; new legislation; 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, as well as the annual 10-K, Quarterly 10-Q, and other reports filed from time-to-time with the Securities and Exchange Commission (SEC). The Company assumes no obligation to provide public updates of forward-looking statements.

 

###

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

 

 

 

September 30,

 

December 31,

 

(In thousands, except per share data)

 

2015

 

2014

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,460,829

 

$

2,342,471

 

Less accumulated depreciation and amortization

 

(797,264

)

(752,040

)

Net utility plant

 

1,663,565

 

1,590,431

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

50,825

 

19,587

 

Receivables:

 

 

 

 

 

Customers

 

41,574

 

25,803

 

Regulatory balancing accounts

 

38,112

 

53,199

 

Other

 

14,369

 

14,136

 

Unbilled revenue

 

31,276

 

23,740

 

Materials and supplies at weighted average cost

 

6,087

 

6,041

 

Taxes, prepaid expenses, and other assets

 

8,823

 

11,618

 

Total current assets

 

191,066

 

154,124

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Regulatory assets

 

398,535

 

390,331

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

50,739

 

49,850

 

Total other assets

 

451,889

 

442,796

 

 

 

$

2,306,520

 

$

2,187,351

 

 

 

 

 

 

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value

 

$

479

 

$

478

 

Additional paid-in capital

 

332,290

 

330,558

 

Retained earnings

 

308,083

 

295,590

 

Total common stockholders’ equity

 

640,852

 

626,626

 

Long-term debt, less current maturities

 

416,447

 

419,233

 

Total capitalization

 

1,057,299

 

1,045,859

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

6,565

 

6,607

 

Short-term borrowings

 

136,615

 

79,115

 

Accounts payable

 

77,261

 

59,395

 

Regulatory balancing accounts

 

1,870

 

6,126

 

Accrued interest

 

9,678

 

4,194

 

Accrued expenses and other liabilities

 

68,781

 

62,269

 

Total current liabilities

 

300,770

 

217,706

 

 

 

 

 

 

 

Unamortized investment tax credits

 

1,947

 

2,032

 

Deferred income taxes, net

 

236,443

 

214,842

 

Pension and postretirement benefits other than pensions

 

276,525

 

270,865

 

Regulatory liabilities and other

 

76,799

 

83,279

 

Advances for construction

 

180,805

 

182,284

 

Contributions in aid of construction

 

175,932

 

170,484

 

Commitments and contingencies

 

 

 

 

 

$

2,306,520

 

$

2,187,351

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

 

 

September 30,

 

September 30,

 

For the Three-Months ended:

 

2015

 

2014

 

 

 

 

 

 

 

Operating revenue

 

$

183,543

 

$

191,184

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

60,437

 

66,980

 

Administrative and general

 

30,737

 

23,765

 

Other operations

 

17,872

 

15,692

 

Maintenance

 

5,952

 

4,800

 

Depreciation and amortization

 

15,342

 

14,648

 

Income taxes

 

15,293

 

19,233

 

Property and other taxes

 

5,709

 

5,232

 

Total operating expenses

 

151,342

 

150,350

 

 

 

 

 

 

 

Net operating income

 

32,201

 

40,834

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

3,814

 

4,409

 

Non-regulated expenses, net

 

(4,454

)

(4,812

)

Income tax benefit on other income and expenses

 

262

 

169

 

Net other loss

 

(378

)

(234

)

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest expense

 

7,201

 

7,221

 

Less: capitalized interest

 

(498

)

(271

)

Net interest expense

 

6,703

 

6,950

 

 

 

 

 

 

 

Net income

 

$

25,120

 

$

33,650

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.52

 

$

0.70

 

Diluted

 

$

0.52

 

$

0.70

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,878

 

47,803

 

Diluted

 

47,887

 

47,840

 

Dividends declared per share of common stock

 

$

0.16750

 

$

0.1625

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

 

 

September 30

 

September 30

 

For the Nine-Months ended:

 

2015

 

2014

 

 

 

 

 

 

 

Operating revenue

 

$

449,942

 

$

460,115

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

158,661

 

174,297

 

Administrative and general

 

85,069

 

72,702

 

Other operations

 

51,227

 

48,072

 

Maintenance

 

15,735

 

14,793

 

Depreciation and amortization

 

46,015

 

46,788

 

Income taxes

 

21,008

 

22,584

 

Property and other taxes

 

16,036

 

15,601

 

Total operating expenses

 

393,751

 

394,837

 

 

 

 

 

 

 

Net operating income

 

56,191

 

65,278

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

10,540

 

12,163

 

Non-regulated expenses, net

 

(10,201

)

(11,184

)

Income tax (expense) on other income and expenses

 

(131

)

(391

)

Net other income

 

208

 

588

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest expense

 

21,331

 

21,373

 

Less: capitalized interest

 

(1,472

)

(851

)

Net interest expense

 

19,859

 

20,522

 

 

 

 

 

 

 

Net income

 

$

36,540

 

$

45,344

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.76

 

$

0.95

 

Diluted

 

$

0.76

 

$

0.95

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,861

 

47,787

 

Diluted

 

47,877

 

47,825

 

Dividends declared per share of common stock

 

$

0.5025

 

$

0.4875