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8-K - 8-K - CALIFORNIA WATER SERVICE GROUPa16-5088_28k.htm
EX-99.2 - EX-99.2 - CALIFORNIA WATER SERVICE GROUPa16-5088_2ex99d2.htm

Exhibit 99.1

 

NEWS RELEASE
CALIFORNIA WATER SERVICE GROUP

 

 

1720 North First Street

San Jose, CA 95112-4598

February 24, 2016

for immediate release

 

 

 

Contact:

Tom Smegal (408) 367-8200 (analysts)

Shannon Dean (310) 257-1435 (media)

 

 

CALIFORNIA WATER SERVICE GROUP ANNOUNCES REVENUES

AND EARNINGS FOR YEAR-END AND FOURTH QUARTER 2015

 


 

SAN JOSE, CA  —  California Water Service Group (NYSE: CWT) today announced net income of $45.0 million and diluted earnings per share of $0.94 for 2015, compared to net income of $56.7 million and earnings per share of $1.19 in 2014.

 

The decrease in net income was largely attributable to a decrease of $4.9 million in estimated unbilled revenue in 2015 net of taxes, a non-recurring $4.8 million tax benefit in 2014, and drought-related expenses that the Company expects to recover in rates after regulatory review.

 

Total revenue decreased 1.5% to $588.4 million in 2015, compared to revenue of $597.5 million in 2014, primarily due to significant reductions in customers’ water usage, which affected both the water revenue decoupling mechanisms and estimated unbilled revenue.  (The revenue decoupling mechanisms are the California water revenue adjustment mechanism [WRAM] and modified cost balancing account [MCBA]).  The decrease to revenue was partially offset by rate increases of $5.8 million and rate increases of $17.7 million related to increased water production cost.

 

1



 

“Responding to California’s historic drought and helping our customers achieve the required 25% water-use reduction was our primary focus in 2015. Overall, our customers did an excellent job conserving water, and the company achieved a 28.6% total reduction through December 2015 as compared to the same period in 2013. Further, the company invested $176.8 million in capital improvements during 2015, an increase of 34% over 2014. This investment in rate base enables us to continue supplying high quality, reliable water service for our customers.” said President and Chief Executive Officer Martin A. Kropelnicki.

 

Total operating expenses increased slightly to $517.2 million in 2015 compared to the prior year.

 

Water production expenses decreased $16.0 million, or 7.2%, to $207.9 million in 2015, primarily due to the reduction in customer water use associated with the California drought.   As designed, the California revenue decoupling mechanisms record a reduction to revenue equal to the reduction in California water production costs.

 

Administrative & general and other operations expenses increased $17.2 million, or 10.5%, to $180.4 million in 2015, primarily due to increases in employee wage and pension benefit costs, drought-related expenses, and water conservation program costs.  These cost increases were partially offset by decreases in employee medical costs, lower amounts of uninsured loss, and reduced outside services costs.  Changes in employee pension benefits, employee and retiree medical costs, and water conservation program costs for regulated California operations generally do not affect earnings, as the Company is allowed by the California Public Utilities Commission (CPUC) to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

 

2



 

Incremental California drought program operating expenses were approximately $4.4 million in 2015 and $0.5 million in 2014.  These costs are expensed in the quarter and included in administrative & general, other operations, and maintenance expenses. Further, all incremental drought costs are recorded in a CPUC-authorized memorandum account for which the Company will request recovery later in 2016.  Incremental drought costs are recoverable from customers in rates after review and approval of the CPUC.

 

Maintenance expenses increased $1.6 million, or 8.1%, to $21.5 million in 2015, due to increased costs for repairs of transmission and distribution mains.

 

Income taxes decreased $2.2 million, or 8.2%, to $24.5 million in 2015, due primarily to a decrease in net operating income, which was partially offset by non-recurring tax benefits of $4.8 million in 2014.

 

Other income, net of income taxes, decreased $0.7 million in 2015, due primarily to an unrealized loss associated with our nonqualified benefit plan.

 

“2015 was a challenging year.  We led the industry with our customer-first approach to the drought while doing two things that will benefit the Company in the longer term: filing our 2015 General Rate Case in California and continuing to invest in capital improvements needed to provide a safe and reliable water supply to our customers,” Kropelnicki said.

 

Fourth Quarter 2015 Results

 

For the fourth quarter of 2015, net income decreased $2.9 million, or 25.6%, to $8.5 million, and diluted earnings per share decreased $0.06, or 25.0%, to $0.18 per diluted share compared to the fourth quarter of 2014.  The decrease in net income was due primarily to a decrease in estimated unbilled revenue and increases in employee wage, drought-related, and maintenance costs which were partially offset by reductions in water treatment and uninsured loss costs.  Net other income decreased $0.3 million to $0.9 million in 2015.

 

3



 

Revenue for the fourth quarter increased $1.0 million, or 0.8%, to $138.4 million mostly due to rate increases and changes to various balancing accounts.  Total operating expenses for the quarter increased $2.6 million, or 2.2%, to $123.5 million.  Water production expenses decreased $0.4 million due to a reduction in customer water consumption.  Administrative & general and other operations expenses increased $1.7 million, or 3.9%, to $44.1 million due to increase in employee wage and pension benefits costs as well as drought-related expenses.  These expenses were partially offset by a decrease in employee health care and water treatment costs.  Maintenance expense increased $0.7 million, or 13.2%, to $5.7 million due mostly to repairs of mains and services.  Other income, net of income taxes, decreased $0.3 million, or 25%, to $0.9 million.  Net interest expense increased $1.0 million, or 15.6%, to $7.4 million.

 

The under-collected net receivable balance in the WRAM and MCBA mechanism was $40.6 million as of December 31, 2015, a decrease of 10.2%, or $4.6 million, from the balance of $45.2 million as of December 31, 2014.

 

Regulatory Update

 

On July 9, 2015, Cal Water filed a GRC application seeking rate increases in all regulated operating districts in California beginning January 1, 2017. The 2015 GRC application requested increased revenues of $94.8 million for 2017, $23.0 million for 2018, and $22.6 million for 2019. In addition to the CPUC’s Office of Ratepayer Advocates (ORA), several other entities representing various districts intervened in the case to become active parties.

 

4



 

In the application, Cal Water also requested approval to invest $693.0 million in districts throughout California over the three-year period from January 1, 2016 through December 31, 2018.

 

Other Information

 

All stockholders and interested investors are invited to listen to the 2015 year-end and fourth quarter conference call on February 25, 2016 at 8:00 a.m. PST (11:00 a.m. EST) by dialing 1-888-461-2024 or 1-719-325-2376 and keying in ID #4899398. A replay of the call will be available from 11:00 a.m. PST (2:00 p.m. EST) on February 25, 2016 through April 25, 2016, at 1-888-203-1112 or 1-719-457-0820, ID #4899398. The replay will also be available under the investor relations tab at www.calwatergroup.com.  Prior to the call, Cal Water will furnish a slide presentation on its website. The presentation may be found at www.calwatergroup.com/docs/earningsslidesfebruary2016.pdf after 6:00 a.m. PST.  The call will be hosted by President and Chief Executive Officer Martin A. Kropelnicki and Vice President and Chief Financial Officer Thomas F. Smegal III.

 

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.

 

5



 

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 would, 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; consequences of eminent domain actions relating to our water systems; changes in regulatory commissions’ policies and procedures; the timeliness of regulatory commissions’ actions concerning rate relief; inability to renew leases to operate city water systems on beneficial terms; changes in California State Water Resources Control Board water quality standards; changes in environmental compliance and water quality requirements; electric power interruptions; changes in customer water use patterns and the effects of conservation; the impact of weather and climate on water availability, water sales and operating results; the unknown impact of contagious diseases, such as Zika, avian flu, H1N1 flu and severe acute respiratory syndrome, on the Company’s operations; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; labor relations matters as we negotiate with the unions; 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.

 

###

 

6



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

 

(In thousands, except per share data)

 

 

 

December 31,

 

December 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,506,946

 

$

2,342,471

 

Less accumulated depreciation and amortization

 

(805,178

)

(752,040

)

Net utility plant

 

1,701,768

 

1,590,431

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

8,837

 

19,587

 

Receivables: net of allowance for doubtful accounts of $730 for 2015 and $697 for 2014

 

 

 

 

 

Customers

 

31,512

 

25,803

 

Regulatory balancing accounts

 

35,052

 

53,199

 

Other

 

14,760

 

14,136

 

Unbilled revenue

 

23,181

 

23,740

 

Materials and supplies at weighted average cost

 

6,339

 

6,041

 

Taxes, prepaid expenses, and other assets

 

7,897

 

11,618

 

Total current assets

 

127,578

 

154,124

 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Regulatory assets

 

361,893

 

390,331

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

52,241

 

49,850

 

Total other assets

 

416,749

 

442,796

 

 

 

$

2,246,095

 

$

2,187,351

 

 

 

 

 

 

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value

 

$

479

 

$

478

 

Additional paid-in capital

 

333,135

 

330,558

 

Retained earnings

 

308,541

 

295,590

 

Total common stockholders’ equity

 

642,155

 

626,626

 

Long-term debt, less current maturities

 

512,287

 

419,233

 

Total capitalization

 

1,154,442

 

1,045,859

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

6,600

 

6,607

 

Short-term borrowings

 

33,615

 

79,115

 

Accounts payable

 

66,380

 

59,395

 

Regulatory balancing accounts

 

2,227

 

6,126

 

Accrued interest

 

5,088

 

4,194

 

Accrued expenses and other liabilities

 

34,545

 

62,269

 

Total current liabilities

 

148,455

 

217,706

 

 

 

 

 

 

 

Unamortized investment tax credits

 

1,872

 

2,032

 

Deferred income taxes, net

 

264,897

 

214,842

 

Pension and postretirement benefits other than pensions

 

236,266

 

270,865

 

Regulatory and other liabilities

 

82,414

 

83,279

 

Advances for construction

 

180,172

 

182,284

 

Contributions in aid of construction

 

177,577

 

170,484

 

Commitments and contingencies

 

 

 

 

 

 

 

$

2,246,095

 

$

2,187,351

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

 

 

December 31,

 

December 31,

 

For the Three-Months ended:

 

2015

 

2014

 

 

 

 

 

 

 

Operating revenue

 

$

138,426

 

$

137,384

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

49,265

 

49,644

 

Administrative and General

 

28,041

 

24,671

 

Other operations

 

16,021

 

17,735

 

Maintenance

 

5,728

 

5,061

 

Depreciation and amortization

 

15,366

 

14,429

 

Income tax expense

 

3,520

 

4,143

 

Property and other taxes

 

5,523

 

5,132

 

Total operating expenses

 

123,464

 

120,815

 

 

 

 

 

 

 

Net operating income

 

14,962

 

16,569

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

5,084

 

5,155

 

Non-regulated expenses, net

 

(3,528

)

(3,050

)

Income tax (expense) on other income and expenses

 

(630

)

(854

)

Net other income

 

926

 

1,251

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest Expense

 

7,854

 

7,110

 

Less: capitalized interest

 

(443

)

(684

)

Net interest expense

 

7,411

 

6,426

 

 

 

 

 

 

 

Net income

 

$

8,477

 

$

11,394

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.18

 

$

0.24

 

Diluted

 

$

0.18

 

$

0.24

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,876

 

47,806

 

Diluted

 

47,886

 

47,842

 

Dividends per share of common stock

 

$

0.16750

 

$

0.16250

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

 

 

December 31,

 

December 31,

 

For the Twelve-Months ended:

 

2015

 

2014

 

 

 

 

 

 

 

Operating revenue

 

$

588,368

 

$

597,499

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

207,926

 

223,941

 

Administrative and General

 

113,110

 

97,373

 

Other operations

 

67,248

 

65,807

 

Maintenance

 

21,463

 

19,854

 

Depreciation and amortization

 

61,381

 

61,217

 

Income taxes

 

24,528

 

26,727

 

Property and other taxes

 

21,559

 

20,733

 

Total operating expenses

 

517,215

 

515,652

 

 

 

 

 

 

 

Net operating income

 

71,153

 

81,847

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

15,624

 

17,318

 

Non-regulated expenses, net

 

(13,729

)

(14,234

)

Income tax (expense) on other income and expenses

 

(761

)

(1,245

)

Net other income

 

1,134

 

1,839

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest Expense

 

29,185

 

28,483

 

Less: capitalized interest

 

(1,915

)

(1,535

)

Net interest expense

 

27,270

 

26,948

 

 

 

 

 

 

 

Net income

 

$

45,017

 

$

56,738

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.94

 

$

1.19

 

Diluted

 

$

0.94

 

$

1.19

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,865

 

47,791

 

Diluted

 

47,880

 

47,829

 

Dividends per share of common stock

 

$

0.6700

 

$

0.6500