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EX-32.0 - EXHIBIT 32.0 - CALIFORNIA WATER SERVICE GROUPcws-09302017xex32.htm
EX-31.2 - EXHIBIT 31.2 - CALIFORNIA WATER SERVICE GROUPcws-09302017xex312.htm
EX-31.1 - EXHIBIT 31.1 - CALIFORNIA WATER SERVICE GROUPcws-09302017xex311.htm


 
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, 2017
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 ý  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 ý  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth 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)
 
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o  

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes o  No o
 
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 September 30, 2017 — 48,015,140
 




TABLE OF CONTENTS
 
 
Page


2



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 per share data)
 
September 30,
2017
 
December 31,
2016
ASSETS
 

 
 

Utility plant:
 

 
 

Utility plant
$
2,892,666

 
$
2,717,339

Less accumulated depreciation and amortization
(910,742
)
 
(858,062
)
Net utility plant
1,981,924

 
1,859,277

Current assets:
 

 
 

Cash and cash equivalents
28,341

 
25,492

Receivables:
 

 
 

Customers
46,963

 
30,305

Regulatory balancing accounts
31,364

 
30,332

Other
16,438

 
17,158

Unbilled revenue
38,491

 
25,228

Materials and supplies at weighted average cost
6,344

 
6,292

Taxes, prepaid expenses, and other assets
12,544

 
7,262

Total current assets
180,485

 
142,069

Other assets:
 

 
 

Regulatory assets
379,884

 
355,930

Goodwill
2,615

 
2,615

Other assets
58,196

 
51,854

Total other assets
440,695

 
410,399

TOTAL ASSETS
$
2,603,104

 
$
2,411,745

CAPITALIZATION AND LIABILITIES
 

 
 

Capitalization:
 

 
 

Common stock, $0.01 par value; 68,000 shares authorized, 48,015 and 47,965 outstanding in 2017 and 2016, respectively
$
480

 
$
480

Additional paid-in capital
335,516

 
334,856

Retained earnings
351,727

 
324,135

Total common stockholders’ equity
687,723

 
659,471

Long-term debt, less current maturities
519,700

 
531,745

Total capitalization
1,207,423

 
1,191,216

Current liabilities:
 

 
 

Current maturities of long-term debt
36,015

 
26,208

Short-term borrowings
195,100

 
97,100

Accounts payable
89,394

 
77,813

Regulatory balancing accounts
4,545

 
4,759

Accrued interest
12,763

 
5,661

Accrued expenses and other liabilities
42,544

 
38,689

Total current liabilities
380,361

 
250,230

Unamortized investment tax credits
1,798

 
1,798

Deferred income taxes
329,506

 
298,924

Pension and postretirement benefits other than pensions
227,819

 
222,691

Regulatory liabilities and other
91,006

 
83,648

Advances for construction
182,820

 
182,448

Contributions in aid of construction
182,371

 
180,790

Commitments and contingencies (Note 10)


 


TOTAL CAPITALIZATION AND LIABILITIES
$
2,603,104

 
$
2,411,745

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

3



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (In thousands, except per share data)
For the three months ended
 
September 30,
2017
 
September 30,
2016
Operating revenue
 
$
211,731

 
$
184,268

Operating expenses:
 
 

 
 

Operations:
 
 

 
 

Water production costs
 
75,261

 
70,175

Administrative and general
 
24,886

 
23,844

Other operations
 
21,208

 
19,561

Maintenance
 
6,057

 
5,545

Depreciation and amortization
 
19,231

 
15,884

Income taxes
 
17,348

 
13,247

Property and other taxes
 
6,544

 
5,957

Total operating expenses
 
170,535

 
154,213

Net operating income
 
41,196

 
30,055

Other income and expenses:
 
 

 
 

Non-regulated revenue
 
3,542

 
3,397

Non-regulated expenses
 
(2,576
)
 
(2,517
)
Allowance for equity funds used during construction
 
1,105

 

Income tax expense on other income and expenses
 
(841
)
 
(349
)
Net other income
 
1,230

 
531

Interest expense:
 
 

 
 

Interest expense
 
9,284

 
8,485

Allowance for borrowed funds used during construction
 
(707
)
 
(774
)
Net interest expense
 
8,577

 
7,711

Net income
 
$
33,849

 
$
22,875

Earnings per share:
 
 

 
 

Basic
 
$
0.70

 
$
0.48

Diluted
 
0.70

 
0.48

Weighted average shares outstanding:
 
 

 
 

Basic
 
48,017

 
47,969

Diluted
 
48,017

 
47,969

Dividends declared per share of common stock
 
$
0.1800

 
$
0.1725

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


4



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (In thousands, except per share data)
For the nine months ended
 
September 30,
2017
 
September 30,
2016
Operating revenue
 
$
504,899

 
$
458,440

Operating expenses:
 
 

 
 

Operations:
 
 

 
 

Water production costs
 
181,460

 
168,833

Administrative and general
 
73,931

 
75,037

Other operations
 
55,660

 
57,766

Maintenance
 
16,877

 
17,542

Depreciation and amortization
 
57,650

 
47,772

Income taxes
 
26,099

 
19,192

Property and other taxes
 
18,717

 
17,439

Total operating expenses
 
430,394

 
403,581

Net operating income
 
74,505

 
54,859

Other income and expenses:
 
 

 
 

Non-regulated revenue
 
10,743

 
10,589

Non-regulated expenses
 
(6,244
)
 
(8,306
)
Allowance for equity funds used during construction
 
2,763

 

Income tax expense on other income and expenses
 
(2,947
)
 
(914
)
Net other income
 
4,315

 
1,369

Interest expense:
 
 

 
 

Interest expense
 
27,073

 
24,984

Allowance for borrowed funds used during construction
 
(1,765
)
 
(2,341
)
Net interest expense
 
25,308

 
22,643

Net income
 
$
53,512

 
$
33,585

Earnings per share:
 
 

 
 

Basic
 
$
1.11

 
$
0.70

Diluted
 
1.11

 
0.70

Weighted average shares outstanding:
 
 

 
 

Basic
 
48,007

 
47,949

Diluted
 
48,007

 
47,952

Dividends declared per share of common stock
 
$
0.5400

 
$
0.5175

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


5



CALIFORNIA WATER SER VICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)
For the nine months ended:
 
September 30,
2017
 
September 30,
2016
Operating activities:
 
 

 
 

Net income
 
$
53,512

 
$
33,585

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

 
 

Depreciation and amortization
 
59,016

 
48,946

Change in value of life insurance contracts
 
(1,871
)
 
(915
)
Allowance for equity funds used during construction
 
(2,763
)
 

Changes in operating assets and liabilities:
 
 

 
 

Receivables and unbilled revenue
 
(52,951
)
 
(13,352
)
Accounts payable
 
6,712

 
8,940

Other current assets
 
(4,643
)
 
(1,743
)
Other current liabilities
 
10,939

 
13,982

Other changes in noncurrent assets and liabilities
 
41,837

 
34,386

Net cash provided by operating activities
 
109,788

 
123,829

Investing activities:
 
 

 
 

Utility plant expenditures
 
(180,442
)
 
(166,406
)
Life insurance proceeds
 
1,558

 
495

Purchase of life insurance contracts
 
(3,948
)
 
(2,710
)
Change in restricted cash
 
(679
)
 
(685
)
Net cash used in investing activities
 
(183,511
)
 
(169,306
)
Financing activities:
 
 

 
 

Short-term borrowings
 
185,000

 
105,100

Repayment of short-term borrowings
 
(87,000
)
 
(81,615
)
Proceeds from long-term debt, net of issuance costs of $0 for 2017 and $177 for 2016
 

 
49,823

Repayment of long-term debt
 
(2,797
)
 
(2,865
)
Advances and contributions in aid of construction
 
14,964

 
18,186

Refunds of advances for construction
 
(6,316
)
 
(5,194
)
Repurchase of common stock
 
(1,359
)
 
(637
)
Dividends paid
 
(25,920
)
 
(24,807
)
Net cash provided by financing activities
 
76,572

 
57,991

Change in cash and cash equivalents
 
2,849

 
12,514

Cash and cash equivalents at beginning of period
 
25,492

 
8,837

Cash and cash equivalents at end of period
 
$
28,341

 
$
21,351

Supplemental information:
 
 

 
 

Cash paid for interest (net of amounts capitalized)
 
$
17,287

 
$
13,889

Income tax refund
 
$
(1,697
)
 
$

Supplemental disclosure of non-cash activities:
 
 

 
 

Accrued payables for investments in utility plant
 
$
31,750

 
$
26,767

Utility plant contribution by developers
 
13,022

 
12,104

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


6



CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2017
Dollar amounts in thousands unless otherwise stated
 
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 condensed consolidated 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 unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2016, included in its annual report on Form 10-K as filed with the SEC on February 23, 2017.
 
The preparation of the Company’s unaudited condensed consolidated interim 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 unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring transactions 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 the 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 wastewater revenue requirements are authorized by the Commissions in the states in which they operate. The revenue requirements are intended to provide the Company a reasonable opportunity to recover its operating costs and earn a 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

7



established by the CPUC for metered accounts. 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 guidance for regulated operations. The variance amount represents amounts that will be billed or refunded to customers in the future. In addition to volumetric revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items not subject to the WRAM.

Cost-recovery rates are designed to permit full recovery of certain costs allowed to be recovered by the Commissions. Cost-recovery rates such as the Modified Cost Balancing Account (MCBA) provide 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 costs related to water conservation programs and certain other operating expenses adopted by the CPUC. Variances (which include the effects of changes in both rates and volumes 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 customers in the future. Cost-recovery expenses are generally recognized when expenses are incurred with no markup for return on investments or profit.

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 the deferred net balances are interest bearing at the current 90 day commercial paper rate. Subsequent to calendar year-end, Cal Water files with the CPUC to refund or collect the balance in the accounts. The majority of under-collected 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 period in which it was recorded. The deferred net WRAM and MCBA revenue and associated costs were determined using forecasts of customer consumption trends in future reporting periods and the estimated timing of when the CPUC will authorize Cal Water's filings to recover unbilled balances. Deferred revenues and associated costs are recorded in the periods when the collection is within 24 months of the respective reporting period.

Customers' meter reads occur on various business days throughout the month. As a result, there are unmetered or unbilled customer usage each month. The estimated unbilled revenue for monthly unmetered customer usage is recorded using the number of unbilled days for that month and average daily customer billing rate for the previous month. The average daily customer billing rate for the previous month fluctuates depending on customer usage. Estimated unbilled revenue is not included in the WRAM until it is billed.
 
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 sheet and recognized as revenue when earned in the subsequent accounting period. The unearned revenue liability was $0.7 million and $0.8 million as of September 30, 2017 and December 31, 2016, respectively. This liability is included in “accrued expenses and other liabilities” on the condensed consolidated balance sheets.

Allowance for Funds Used During Construction
 
The allowance for funds used during construction (AFUDC) represents the capitalized cost of funds used to finance the construction of the utility plant. In general, AFUDC is applied to Cal Water construction projects requiring more than one month to complete. No AFUDC is applied to projects funded by customer advances for construction, contributions in aid of construction, or applicable state-revolving fund loans. AFUDC includes the net cost of borrowed funds and a rate of return on other funds when used, and is recovered through water rates as the utility plant is depreciated. Cal Water was authorized by the CPUC to record AFUDC on construction work in progress effective January 1, 2017. Prior to January 1, 2017, the CPUC authorized Cal Water to only record capitalized interest on borrowed funds. Cal Water previously reported the amounts authorized as capitalized interest and a reduction to interest expense. The amount of AFUDC related to equity funds and to borrowed funds for the three and nine month periods ended September 30, 2017 and 2016 are shown in the tables below:

8



 
Three Months Ended September 30
 
2017
 
2016
 
Change
Allowance for equity funds used during construction
$
1,105

 
$

 
$
1,105

Allowance for borrowed funds used during construction
707

 
774

 
(67
)
Total
$
1,812

 
$
774

 
$
1,038


 
Nine Months Ended September 30
 
2017
 
2016
 
Change
Allowance for equity funds used during construction
$
2,763

 
$

 
$
2,763

Allowance for borrowed funds used during construction
1,765

 
2,341

 
(576
)
Total
$
4,528

 
$
2,341

 
$
2,187

 
Cash and Cash Equivalents
 
Cash equivalents include highly liquid investments with maturities of three months or less. Cash and cash equivalents was $28.3 million and $25.5 million as of September 30, 2017 and December 31, 2016, respectively. Restricted cash was presented on the condensed consolidated balance sheet in “taxes, prepaid expenses and other assets” and was $1.1 million and $0.4 million as of September 30, 2017 and December 31, 2016, respectively.
 
Adoption of New Accounting Standards
 
In March 2016, the Financial Accounting Standards Board (FASB) issued updated accounting guidance on simplifying the accounting for share-based payments (Accounting Standards Update (ASU) 2016-09), which includes the accounting for share-based payment transactions, the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted and implemented the changes to accounting for share-based payments on January 1, 2017 and applied the requirements retrospectively on the statement of cash flows for all periods presented. The Company's forfeiture policy did not change and the Company continues to account for forfeitures when they occur. For the nine month period ended September 30, 2017, the Company recorded $0.5 million of income tax benefits in excess of compensation costs for share-based compensation which reduced the effective tax rate. The tax-related cash flows resulting from share-based payments were reported as operating activities and the associated cash paid by the company for employee tax withholding transactions were reported as financing activities on the consolidated statement of cash flows.

The following table shows the effect of the accounting change to the Condensed Consolidated Statements of Cash Flows for the nine month period ended September 30, 2016:
 
Nine Months Ended September 30, 2016
Cash Flow Classification
As Reported on Form 10-Q
 
Adjusted Balance on Form 10-Q
 
Increase (Decrease) from Retrospective Adoption
Other changes in noncurrent assets and liabilities
$
33,749

 
$
34,386

 
$
637

Net cash provided by operating activities
123,192

 
123,829

 
637

Repurchase of common stock

 
(637
)
 
(637
)
Net cash provided by financing activities
58,628

 
57,991

 
(637
)

New Accounting Standards
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which amends the existing revenue recognition guidance.  In August 2015, the FASB deferred the effective date of this amendment for public companies by one year to January 1, 2018, with early adoption permitted as of the original effective date of January 1, 2017. The Company has substantially completed an evaluation of the new revenue standard and intends to implement the standard using the modified retrospective method and does not expect ASU 2014-09 to materially impact the timing or recognition of revenue related to the sale and delivery of water to its customers, which is a significant percentage of the Company's revenue. The Company is in the process of finalizing its evaluation of the impact ASU 2014-09 has on its related revenue disclosures and internal controls.
 

9



In February 2016, the FASB issued ASU 2016-02, Leases. This update changes the accounting treatment of leases and related disclosure requirements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company will adopt the standard using the modified retrospective method for its existing leases and is currently evaluating the impact of adopting the new lease standard on its consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This update adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented as non-operating items. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statementThe standard only allows the service cost component to be eligible for capitalization. ASU 2017-07 is effective for annual periods after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures. The adoption of this guidance will change the Company's financial statement presentation of net benefit costs. However, based on current regulatory authorization, the changes required by the standard are not expected to materially impact the results of operations.

Note 3. Stock-based Compensation
 
Equity Incentive Plan
 
During the nine months ended September 30, 2017 and 2016, the Company granted annual Restricted Stock Awards (RSAs) of 48,717 and 72,317, respectively, to officers and directors of the Company. During those same periods, 17,466 and 13,319 RSAs were canceled, respectively. During the three months ended September 30, 2017 and 2016, no RSAs were granted and 3,280 and 2,719 RSAs were canceled, respectively. Employee RSAs granted in 2017 and 2016 vest over 36 months.  Director RSAs generally vest at the end of 12 months. During the first nine months of 2017 and 2016, the RSAs granted were valued at $36.75 and $25.17 per share, respectively, based upon the fair value of the Company’s common stock on the date of grant.

During the nine months ended September 30, 2017 and 2016, the Company granted 31,389 and 43,659 performance-based Restricted Stock Unit Awards (RSUs), respectively, to officers. During those same periods, the Company issued 38,709 and 28,424 RSUs, respectively, and canceled 19,735 and 6,602 RSUs, respectively. During the three months ended September 30, 2017 and 2016, the Company did not grant, issue or cancel any RSUs. Each RSU award reflects a target number of shares that may be issued to the award recipient. The 2017 and 2016 awards may be earned upon completion of the three-year performance period and are recognized as expense ratably over the period using a fair value of $36.75 per share and $25.17 per share, respectively, and an estimate of RSUs earned during the period. The Company has recorded compensation costs for the RSAs and RSUs in administrative and general operating expenses in the amount of $2.3 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively.
 

10



Note 4. Equity
 
The Company’s changes in total common stockholders’ equity for the nine months ended September 30, 2017 were as follows:
 
 
Total Common
Stockholders’ Equity
Balance at December 31, 2016
$
659,471

Common stock issued

Share-based compensation expense
660

Common stock dividends declared
(25,920
)
Net income
53,512

Balance at September 30, 2017
$
687,723

 

Note 5. Earnings Per Share
 
The computations of basic and diluted earnings per share are noted below. Basic earnings 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. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. 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. RSUs are not included in diluted shares for financial reporting until authorized by the Compensation & Organization Committee of the Board of Directors.
 
There were no shares of Stock Appreciation Rights (SARs) outstanding as of September 30, 2017 and 2016, respectively. All the SARs were dilutive when they were outstanding during the period, as shown in the tables below.
 
 
Three Months Ended September 30
 
2017
 
2016
 
(In thousands, except per share data)
Net income available to common stockholders
$
33,849

 
$
22,875

Weighted average common shares outstanding, basic
48,017

 
47,969

Dilutive SARs (treasury method)

 

Weighted average common shares outstanding, dilutive
48,017

 
47,969

Earnings per share - basic
$
0.70

 
$
0.48

Earnings per share - diluted
$
0.70

 
$
0.48

 
 
Nine Months Ended September 30
 
2017
 
2016
 
(In thousands, except per share data)
Net income available to common stockholders
$
53,512

 
$
33,585

Weighted average common shares outstanding, basic
48,007

 
47,949

Dilutive SARs (treasury method)

 
3

Weighted average common shares outstanding, dilutive
48,007

 
47,952

Earnings per share - basic
$
1.11

 
$
0.70

Earnings per share - diluted
$
1.11

 
$
0.70


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 in the qualified pension plan. The Company also

11



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 contributions by the Company related to pension plans were $22.2 million and $20.6 million for the nine months ended September 30, 2017 and 2016, respectively. Cash contributions by the Company related to other postretirement benefit plans were $2.3 million and $6.7 million for the nine months ended September 30, 2017 and 2016, respectively. The total 2017 estimated cash contribution to the pension plans is $29.8 million and to the other postretirement benefit plans is $9.0 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
 
2017
 
2016
 
2017
 
2016
Service cost
$
6,122

 
$
5,594

 
$
2,169

 
$
1,045

Interest cost
5,861

 
5,764

 
1,491

 
625

Expected return on plan assets
(6,031
)
 
(5,462
)
 
(1,218
)
 
(1,005
)
Amortization of prior service cost
1,445

 
1,555

 
11

 
10

Recognized net actuarial loss
1,881

 
1,743

 
649

 
(482
)
Net periodic benefit cost
$
9,278

 
$
9,194

 
$
3,102

 
$
193

 

 
Nine Months Ended September 30
 
Pension Plan
 
Other Benefits
 
2017
 
2016
 
2017
 
2016
Service cost
$
17,851

 
$
15,728

 
$
6,207

 
$
5,653

Interest cost
17,442

 
16,670

 
4,472

 
4,225

Expected return on plan assets
(18,090
)
 
(16,370
)
 
(3,653
)
 
(3,097
)
Amortization of prior service cost
4,336

 
4,664

 
32

 
32

Recognized net actuarial loss
5,386

 
4,329

 
1,947

 
2,041

Net periodic benefit cost
$
26,925

 
$
25,021

 
$
9,005

 
$
8,854





12



Note 7. Short-term and Long-term Borrowings
 
In March 2016, Cal Water issued $50.0 million of First Mortgage Bonds, consisting of $40.0 million of 4.41% series SSS maturing April 16, 2046 and $10.0 million of 4.61% series TTT maturing April 14, 2056. Cash proceeds of approximately $49.7 million, net of $0.3 million debt issuance costs, were received. Cal Water used a portion of the net proceeds from the offering to repay outstanding borrowings on the Company and Cal Water lines of credit of $48.6 million.

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.
 
The outstanding borrowings on the Company lines of credit were $55.1 million and $57.1 million as of September 30, 2017 and December 31, 2016, respectively. There were $140.0 million and $40.0 million borrowings on the Cal Water lines of credit as of September 30, 2017 and December 31, 2016, respectively. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the nine months ended September 30, 2017 was 1.97% compared to 1.30% for the same period last year.

Note 8. Income Taxes
 
The Company accounts for income taxes under the provisions of ASU 2009-06, Income Taxes (Topic 740). The Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items.
The provision for income taxes consists of the following:
 
Three Months Ended September 30
 
2017
 
2016
Income tax provision
$
18,189

 
$
13,595

 
Nine Months Ended September 30
 
2017
 
2016
Income tax provision
$
29,046

 
$
20,105

The $4.6 million increase in the income tax provision for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 was due primarily to an increase in the Company’s operating income in 2017 as compared to 2016.

The $8.9 million increase in the income tax provision for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was due primarily to an increase in the Company’s operating income in 2017 as compared to 2016, which was partially offset by a $0.5 million tax benefit associated with the settlement of equity awards in 2017. The Company’s fiscal year 2017 effective tax rate is estimated to be 37%.
 
The Company had unrecognized tax benefits of approximately $10.2 million and $10.5 million as of September 30, 2017 and December 31, 2016, respectively. Included in the balance of unrecognized tax benefits as of September 30, 2017 and December 31, 2016 is approximately $1.9 million and $2.2 million, respectively, 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 12 months.


13



Note 9. Regulatory Assets and Liabilities
 
Regulatory assets and liabilities were comprised of the following as of September 30, 2017 and December 31, 2016:
 
 
September 30, 2017
 
December 31, 2016
Regulatory Assets
 

 
 

Pension and retiree group health
$
188,386

 
$
188,880

Property-related temporary differences (tax benefits flowed through to customers)
94,144

 
92,099

Other accrued benefits
26,540

 
27,503

Net WRAM and MCBA long-term accounts receivable
34,735

 
16,148

Asset retirement obligations, net
16,832

 
15,812

Interim rates long-term accounts receivable
4,616

 
4,605

Tank coating
10,114

 
8,452

Health care balancing account
412

 
1,000

Pension balancing account
1,684

 

Other regulatory assets
2,421

 
1,431

Total Regulatory Assets
$
379,884

 
$
355,930

 
 
 
 
Regulatory Liabilities
 

 
 

Future tax benefits due to customers
$
33,375

 
$
33,231

Health care balancing account
6,006

 

Conservation program
2,312

 
584

Pension balancing account
383

 
695

Net WRAM and MCBA long-term payable
710

 
611

Other regulatory liabilities
1,251

 
3,614

Total Regulatory Liabilities
$
44,037

 
$
38,735

 
Short-term regulatory assets and liabilities are excluded from the above table. The short-term regulatory assets were $31.4 million as of September 30, 2017 and $30.3 million as of December 31, 2016. As of September 30, 2017, the short-term regulatory assets were primarily net WRAM and MCBA accounts receivable, 2012 General Rate Case (GRC) health cost balancing account receivable, 2014-2015 drought expense recovery, and East Los Angeles Memorandum Account receivable. As of December 31, 2016, the short-term regulatory assets were primarily net WRAM and MCBA accounts receivable, 2012 GRC health cost balancing account receivable, 2014-2015 drought expense recovery, interim rate memorandum account receivable, and East Los Angeles Memorandum Account receivable.

The short-term portions of regulatory liabilities were $4.5 million as of September 30, 2017 and $4.8 million as of December 31, 2016. As of September 30, 2017, the short-term regulatory liabilities were primarily net WRAM and MCBA liability balances, refund balance from an interim rates true up authorized prior to the 2009 GRC, and net refund balances to customers for the pension and conservation programs from the 2012 GRC. As of December 31, 2016, the short-term regulatory liabilities were primarily net WRAM and MCBA liability balances and net refund balances to customers for the pension and conservation programs from the 2012 GRC.

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, 2016. As of September 30, 2017, there were no significant changes from December 31, 2016.

14




Contingencies
 
Groundwater Contamination
 
The Company has undertaken litigation against third parties to recover past and anticipated costs related to groundwater contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. The CPUC’s general policy requires all proceeds from groundwater contamination litigation to be used first to pay transactional expenses, then to make ratepayers whole for water treatment costs to comply with the CPUC’s water quality standards. The CPUC 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 shareholder, determined on a case by case basis. The CPUC 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 CPUC’s general policy.
 
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. As of September 30, 2017 and December 31, 2016, the Company recognized a liability of $6.1 million and $6.0 million, respectively, for known legal matters. 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 hierarchical 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 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
 
Level 2 - Inputs to the valuation methodology include:
Quoted market prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in inactive markets;
Inputs other than quoted prices that are observable for the asset or liability; and
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
Specific valuation methods include the following:
 
Accounts receivable and accounts payable carrying amounts approximated the fair value because of the short-term maturity of the instruments.
 

15



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 1.70%.
 
Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.
 
 
September 30, 2017
 
 
 
Fair Value
 
Cost
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt, including current maturities
$
555,715

 

 
$
631,447

 

 
$
631,447

Advances for construction
182,820

 

 
75,717

 

 
75,717

Total
$
738,535

 
$

 
$
707,164

 
$

 
$
707,164

 
 
December 31, 2016
 
 
 
Fair Value
 
Cost
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt, including current maturities
$
557,953

 
$

 
$
630,510

 
$

 
$
630,510

Advances for construction
182,448

 

 
74,460

 

 
74,460

Total
$
740,401

 

 
$
704,970

 
$

 
$
704,970

 
Note 12. Condensed Consolidating Financial Statements
 
On April 17, 2009, Cal Water issued $100.0 million aggregate principal amount of 5.875% First Mortgage Bonds due 2019, and on November 17, 2010, Cal Water issued $100.0 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, the Company is required to present the following condensed consolidating financial information. The investments in affiliates are accounted for and presented using the “equity method” of accounting.
 
The following tables present the condensed consolidating balance sheets as of September 30, 2017 and December 31, 2016, the condensed consolidating statements of income for the three and nine months ended September 30, 2017 and 2016, and the condensed consolidating statements of cash flows for the nine months ended September 30, 2017 and 2016 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. No other subsidiary of the Company guarantees the securities. The condensed consolidating statement of cash flows for the nine months ended September 30, 2016 reflects the retrospective adoption of ASU 2016-09 (refer to Note 2 Summary of Significant Accounting Policies for more details).


16



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2017
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

Utility plant:
 

 
 

 
 

 
 

 
 

Utility plant
$
1,321

 
$
2,695,106

 
$
203,435

 
$
(7,196
)
 
$
2,892,666

Less accumulated depreciation and amortization
(896
)
 
(858,386
)
 
(53,448
)
 
1,988

 
(910,742
)
Net utility plant
425

 
1,836,720

 
149,987

 
(5,208
)
 
1,981,924

Current assets:
 
 
 
 
 

 
 
 
 
Cash and cash equivalents
2,722

 
17,851

 
7,768

 

 
28,341

Receivables and unbilled revenue

 
127,858

 
5,398

 

 
133,256

Receivables from affiliates
22,568

 
703

 
261

 
(23,532
)
 

Other current assets
184

 
17,665

 
1,039

 

 
18,888

Total current assets
25,474

 
164,077

 
14,466

 
(23,532
)
 
180,485

Other assets:
 
 
 
 
 

 
 
 
 
Regulatory assets

 
376,041

 
3,843

 

 
379,884

Investments in affiliates
693,766

 

 

 
(693,766
)
 

Long-term affiliate notes receivable
24,677

 

 

 
(24,677
)
 

Other assets
217

 
56,886

 
3,912

 
(204
)
 
60,811

Total other assets
718,660

 
432,927

 
7,755

 
(718,647
)
 
440,695

TOTAL ASSETS
$
744,559

 
$
2,433,724

 
$
172,208

 
$
(747,387
)
 
$
2,603,104

CAPITALIZATION AND LIABILITIES
 

 
 

 
 

 
 

 
 

Capitalization:
 

 
 

 
 

 
 

 
 

Common stockholders’ equity
$
687,723

 
$
620,892

 
$
78,143

 
$
(699,035
)
 
$
687,723

Affiliate long-term debt

 

 
24,677

 
(24,677
)
 

Long-term debt, less current maturities

 
518,802

 
898

 

 
519,700

Total capitalization
687,723

 
1,139,694

 
103,718

 
(723,712
)
 
1,207,423

Current liabilities:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt

 
35,606

 
409

 

 
36,015

Short-term borrowings
55,100

 
140,000

 

 

 
195,100

Payables to affiliates

 
1,257

 
22,275

 
(23,532
)
 

Accounts payable

 
86,374

 
3,020

 

 
89,394

Accrued expenses and other liabilities
154

 
55,607

 
4,091

 

 
59,852

Total current liabilities
55,254

 
318,844

 
29,795

 
(23,532
)
 
380,361

Unamortized investment tax credits

 
1,798

 

 

 
1,798

Deferred income taxes
1,582

 
325,619

 
2,448

 
(143
)
 
329,506

Pension and postretirement benefits other than pensions

 
227,819

 

 

 
227,819

Regulatory liabilities and other

 
87,714

 
3,292

 

 
91,006

Advances for construction

 
182,298

 
522

 

 
182,820

Contributions in aid of construction

 
149,938

 
32,433

 

 
182,371

TOTAL CAPITALIZATION AND LIABILITIES
$
744,559

 
$
2,433,724

 
$
172,208

 
$
(747,387
)
 
$
2,603,104


17



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2016
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

Utility plant:
 

 
 

 
 

 
 

 
 

Utility plant
$
1,318

 
$
2,519,785

 
$
203,433

 
$
(7,197
)
 
$
2,717,339

Less accumulated depreciation and amortization
(826
)
 
(805,992
)
 
(53,163
)
 
1,919

 
(858,062
)
Net utility plant
492

 
1,713,793

 
150,270

 
(5,278
)
 
1,859,277

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
5,216

 
13,215

 
7,061

 

 
25,492

Receivables and unbilled revenue

 
98,850

 
4,173

 

 
103,023

Receivables from affiliates
19,566

 
3,608

 
8

 
(23,182
)
 

Other current assets
80

 
12,442

 
1,032

 

 
13,554

Total current assets
24,862

 
128,115

 
12,274

 
(23,182
)
 
142,069

Other assets:
 

 
 

 
 

 
 

 
 

Regulatory assets

 
352,139

 
3,791

 

 
355,930

Investments in affiliates
666,525

 

 

 
(666,525
)
 

Long-term affiliate notes receivable
25,744

 

 

 
(25,744
)
 

Other assets
376

 
50,361

 
3,765

 
(33
)
 
54,469

Total other assets
692,645

 
402,500

 
7,556

 
(692,302
)
 
410,399

TOTAL ASSETS
$
717,999

 
$
2,244,408

 
$
170,100

 
$
(720,762
)
 
$
2,411,745

CAPITALIZATION AND LIABILITIES
 

 
 

 
 

 
 

 
 

Capitalization:
 

 
 

 
 

 
 

 
 

Common stockholders’ equity
$
659,471

 
$
595,003

 
76,833

 
$
(671,836
)
 
$
659,471

Affiliate long-term debt

 

 
25,744

 
(25,744
)
 

Long-term debt, less current maturities

 
530,850

 
895

 

 
531,745

Total capitalization
659,471

 
1,125,853

 
103,472

 
(697,580
)
 
1,191,216

Current liabilities:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt

 
25,657

 
551

 

 
26,208

Short-term borrowings
57,100

 
40,000

 

 

 
97,100

Payables to affiliates

 
539

 
22,643

 
(23,182
)
 

Accounts payable

 
74,998

 
2,815

 

 
77,813

Accrued expenses and other liabilities
88

 
47,232

 
1,789

 

 
49,109

Total current liabilities
57,188

 
188,426

 
27,798

 
(23,182
)
 
250,230

Unamortized investment tax credits

 
1,798

 

 

 
1,798

Deferred income taxes
1,340

 
296,781

 
803

 

 
298,924

Pension and postretirement benefits other than pensions

 
222,691

 

 

 
222,691

Regulatory and other liabilities

 
80,518

 
3,130

 

 
83,648

Advances for construction

 
181,907

 
541

 

 
182,448

Contributions in aid of construction

 
146,434

 
34,356

 

 
180,790

TOTAL CAPITALIZATION AND LIABILITIES
$
717,999

 
$
2,244,408

 
$
170,100

 
$
(720,762
)
 
$
2,411,745



18



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2017
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
199,002

 
$
12,729

 
$

 
$
211,731

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
73,061

 
2,200

 

 
75,261

Administrative and general

 
22,362

 
2,524

 

 
24,886

Other operations

 
18,979

 
2,356

 
(127
)
 
21,208

Maintenance

 
5,729

 
328

 

 
6,057

Depreciation and amortization
21

 
18,115

 
1,117

 
(22
)
 
19,231

Income tax (benefit) expense
(136
)
 
16,190

 
1,028

 
266

 
17,348

Property and other taxes

 
5,680

 
864

 

 
6,544

Total operating (income) expenses
(115
)
 
160,116

 
10,417

 
117

 
170,535

Net operating income
115

 
38,886

 
2,312

 
(117
)
 
41,196

Other income and expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
505

 
3,218

 
450

 
(631
)
 
3,542

Non-regulated expenses

 
(2,151
)
 
(425
)
 

 
(2,576
)
Allowance for equity funds used during construction

 
1,105

 

 

 
1,105

Income tax expense on other income and expenses
(206
)
 
(885
)
 
(7
)
 
257

 
(841
)
Total other income
299

 
1,287

 
18

 
(374
)
 
1,230

Interest:
 

 
 

 
 

 
 

 
 

Interest expense
313

 
8,951

 
525

 
(505
)
 
9,284

Allowance for borrowed funds used during construction

 
(684
)
 
(23
)
 

 
(707
)
Net interest expense
313

 
8,267

 
502

 
(505
)
 
8,577

Equity earnings of subsidiaries
33,748

 

 

 
(33,748
)
 

Net income
$
33,849

 
$
31,906

 
$
1,828

 
$
(33,734
)
 
$
33,849


19



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2016
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
173,223

 
$
11,045

 
$

 
$
184,268

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
68,045

 
2,130

 

 
70,175

Administrative and general

 
21,679

 
2,165

 

 
23,844

Other operations

 
18,037

 
1,692

 
(168
)
 
19,561

Maintenance

 
5,322

 
223

 

 
5,545

Depreciation and amortization
57

 
14,777

 
1,074

 
(24
)
 
15,884

Income tax (benefit) expense
(105
)
 
12,165

 
920

 
267

 
13,247

Property and other taxes

 
5,182

 
775

 

 
5,957

Total operating (income) expenses
(48
)
 
145,207

 
8,979

 
75

 
154,213

Net operating income
48

 
28,016

 
2,066

 
(75
)
 
30,055

Other income and expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
464

 
3,024

 
541

 
(632
)
 
3,397

Non-regulated expenses

 
(2,170
)
 
(347
)
 

 
(2,517
)
Income tax expense on other income and expenses
(189
)
 
(345
)
 
(73
)
 
258

 
(349
)
Total other income
275

 
509

 
121

 
(374
)
 
531

Interest:
 

 
 

 
 

 
 

 
 

Interest expense
201

 
8,259

 
488

 
(463
)
 
8,485

Less: capitalized interest

 
(759
)
 
(15
)
 

 
(774
)
Net interest expense
201

 
7,500

 
473

 
(463
)
 
7,711

Equity earnings of subsidiaries
22,753

 

 

 
(22,753
)
 

Net income
$
22,875

 
$
21,025

 
$
1,714

 
$
(22,739
)
 
$
22,875



20



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2017
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
473,518

 
$
31,381

 
$

 
$
504,899

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
175,339

 
6,121

 

 
181,460

Administrative and general

 
65,985

 
7,946

 

 
73,931

Other operations

 
50,108

 
5,931

 
(379
)
 
55,660

Maintenance

 
16,144

 
733

 

 
16,877

Depreciation and amortization
70

 
54,328

 
3,320

 
(68
)
 
57,650

Income tax (benefit) expense
(362
)
 
24,344

 
1,331

 
786

 
26,099

Property and other taxes
(4
)
 
16,407

 
2,314

 

 
18,717

Total operating (income) expenses
(296
)
 
402,655

 
27,696

 
339

 
430,394

Net operating income
296

 
70,863

 
3,685

 
(339
)
 
74,505

Other income and expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
1,482

 
9,822

 
1,300