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EX-32.0 - EXHIBIT 32.0 - CALIFORNIA WATER SERVICE GROUPcws-03312018xex32.htm
EX-31.2 - EXHIBIT 31.2 - CALIFORNIA WATER SERVICE GROUPcws-03312018xex312.htm
EX-31.1 - EXHIBIT 31.1 - CALIFORNIA WATER SERVICE GROUPcws-03312018xex311.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 March 31, 2018
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 March 31, 2018 — 48,074,000
 



TABLE OF CONTENTS
 


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)
 
March 31,
2018
 
December 31,
2017
ASSETS
 

 
 

Utility plant:
 

 
 

Utility plant
$
3,025,611

 
$
2,970,179

Less accumulated depreciation and amortization
(942,573
)
 
(922,214
)
Net utility plant
2,083,038

 
2,047,965

Current assets:
 

 
 

Cash and cash equivalents
34,702

 
94,776

Receivables:
 

 
 

Customers
28,161

 
32,451

Regulatory balancing accounts
34,119

 
36,783

Other
21,216

 
16,464

Unbilled revenue
28,132

 
29,756

Materials and supplies at weighted average cost
6,478

 
6,463

Taxes, prepaid expenses, and other assets
12,977

 
11,180

Total current assets
165,785

 
227,873

Other assets:
 

 
 

Regulatory assets
405,041

 
401,147

Goodwill
2,615

 
2,615

Other assets
60,028

 
60,775

Total other assets
467,684

 
464,537

TOTAL ASSETS
$
2,716,507

 
$
2,740,375

CAPITALIZATION AND LIABILITIES
 

 
 

Capitalization:
 

 
 

Common stock, $0.01 par value; 68,000 shares authorized, 48,074 and 48,012 outstanding in 2018 and 2017, respectively
$
481

 
$
480

Additional paid-in capital
335,625

 
336,229

Retained earnings
345,205

 
356,753

Total common stockholders’ equity
681,311

 
693,462

Long-term debt, less current maturities
515,670

 
515,793

Total capitalization
1,196,981

 
1,209,255

Current liabilities:
 

 
 

Current maturities of long-term debt
5,924

 
15,920

Short-term borrowings
275,100

 
275,100

Accounts payable
73,556

 
93,955

Regulatory balancing accounts
56,206

 
59,303

Accrued interest
12,342

 
6,122

Accrued expenses and other liabilities
41,189

 
40,559

Total current liabilities
464,317

 
490,959

Unamortized investment tax credits
1,724

 
1,724

Deferred income taxes
192,313

 
192,946

Pension and postretirement benefits other than pensions
256,520

 
252,141

Regulatory liabilities and other
232,587

 
224,127

Advances for construction
184,479

 
182,502

Contributions in aid of construction
187,586

 
186,721

Commitments and contingencies (Note 10)


 


TOTAL CAPITALIZATION AND LIABILITIES
$
2,716,507

 
$
2,740,375

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

3


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
Unaudited (In thousands, except per share data)
For the three months ended
 
March 31,
2018
 
March 31,
2017
Operating revenue
 
$
132,247

 
$
122,036

Operating expenses:
 
 

 
 

Operations:
 
 

 
 

Water production costs
 
47,606

 
42,068

Administrative and general
 
26,319

 
22,746

Other operations
 
17,640

 
16,124

Maintenance
 
5,439

 
6,112

Depreciation and amortization
 
20,715

 
19,201

Income tax benefit
 
(229
)
 
(884
)
Property and other taxes
 
6,704

 
6,116

Total operating expenses
 
124,194

 
111,483

Net operating income
 
8,053

 
10,553

Other income and expenses:
 
 

 
 

Non-regulated revenue
 
4,419

 
3,462

Non-regulated expenses
 
(5,437
)
 
(2,054
)
Other components of net periodic benefit cost
 
(2,546
)
 
(2,503
)
Allowance for equity funds used during construction
 
911

 
779

Income tax benefit (expense) on other income and expenses
 
758

 
(889
)
Net other loss
 
(1,895
)
 
(1,205
)
Interest expense:
 
 

 
 

Interest expense
 
9,198

 
8,710

Allowance for borrowed funds used during construction
 
(495
)
 
(494
)
Net interest expense
 
8,703

 
8,216

Net (loss) income
 
$
(2,545
)
 
$
1,132

(Loss) earnings per share:
 
 

 
 

Basic
 
$
(0.05
)
 
$
0.02

Diluted
 
(0.05
)
 
0.02

Weighted average shares outstanding:
 
 

 
 

Basic
 
48,030

 
47,984

Diluted
 
48,030

 
47,984

Dividends declared per share of common stock
 
$
0.1875

 
$
0.1800

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


4


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)
For the three months ended:
 
March 31,
2018
 
March 31,
2017
Operating activities:
 
 

 
 

Net (loss) income
 
$
(2,545
)
 
$
1,132

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
21,207

 
19,658

Change in value of life insurance contracts
 
1,137

 
(319
)
Allowance for equity funds used during construction
 
(911
)
 
(779
)
Changes in operating assets and liabilities:
 
 

 
 

Receivables and unbilled revenue
 
5,438

 
(4,564
)
Accounts payable
 
(7,015
)
 
(5,535
)
Other current assets
 
(1,727
)
 
(5,359
)
Other current liabilities
 
6,385

 
5,084

Other changes in noncurrent assets and liabilities
 
6,283

 
4,979

Net cash provided by operating activities
 
28,252

 
14,297

Investing activities:
 
 

 
 

Utility plant expenditures
 
(70,650
)
 
(51,853
)
Life insurance proceeds
 

 
450

Purchase of life insurance contracts
 

 
(836
)
Net cash used in investing activities
 
(70,650
)
 
(52,239
)
Financing activities:
 
 

 
 

Short-term borrowings
 
45,022

 
35,000

Repayment of short-term borrowings
 
(45,022
)
 
(2,000
)
Repayment of long-term debt
 
(10,224
)
 
(286
)
Advances and contributions in aid of construction
 
4,763

 
3,975

Refunds of advances for construction
 
(1,918
)
 
(2,236
)
Repurchase of common stock
 
(1,239
)
 
(1,119
)
Dividends paid
 
(9,003
)
 
(8,634
)
Net cash (used in) provided by financing activities
 
(17,621
)
 
24,700

Change in cash, cash equivalents, and restricted cash
 
(60,019
)
 
(13,242
)
Cash, cash equivalents, and restricted cash at beginning of period
 
95,352

 
25,935

Cash, cash equivalents, and restricted cash at end of period
 
$
35,333

 
$
12,693

Supplemental information:
 
 

 
 

Cash paid for interest (net of amounts capitalized)
 
$
1,251

 
$
994

Supplemental disclosure of non-cash activities:
 
 

 
 

Accrued payables for investments in utility plant
 
$
28,367

 
$
24,191

Utility plant contribution by developers
 
4,518

 
3,481

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


5


CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2018
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, 2017, included in its annual report on Form 10-K as filed with the SEC on March 1, 2018.
 
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
Operating revenue
The following table disaggregates the Company’s operating revenue by source:
 
Three Months Ended March 31,
 
2018
 
2017
Revenue from contracts with customers
$
134,254

 
$
112,812

Regulatory balancing account revenue
(2,007
)
 
9,224

Total operating revenue
$
132,247

 
$
122,036





6


Revenue from contracts with customers
The Company principally generates operating revenue from contracts with customers by providing regulated water and wastewater services at tariff-rates authorized by the Commissions in the states in which they operate and non-regulated water and wastewater services at rates authorized by contracts with government agencies. Revenue from contracts with customers reflects amounts billed for the volume of consumption at authorized per unit rates, for a service charge, and for other authorized charges.
The Company satisfies its performance obligation to provide water and wastewater services over time as services are rendered. The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice. The Company has a right to invoice for the volume of consumption, for the service charge, and for other authorized charges.
The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, the Company estimates consumption since the date of the last meter reading and a corresponding unbilled revenue is recognized. The estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month (which fluctuates based upon customer usage).
Contract terms are generally short-term and at will by customers and, as a result, no separate financing component is recognized for their collections from customers, which generally require payment within 30 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating their customers’ ability to pay.
Certain customers are not billed for volumetric consumption, but are instead billed a flat rate at the beginning of each monthly service period. The amount billed is initially deferred and subsequently recognized over the monthly service period, as the performance obligation is satisfied. The deferred revenue balance, which is included in "other accrued liabilities" on the consolidated balance sheets, is inconsequential.
In the following table, revenue from contracts with customers is disaggregated by class of customers:
 
Three Months Ended March 31,
 
2018
 
2017
Residential
$
91,319

 
$
75,865

Business
27,057

 
22,026

Industrial
7,579

 
6,954

Public authorities
5,444

 
4,146

Other
2,855

 
3,821

Total revenue from contracts with customers
$
134,254

 
$
112,812

Regulatory balancing account revenue
The Company’s ability to recover revenue requirements authorized by the California Public Utilities Commission (CPUC) in its triennial General Rate Case (GRC), is decoupled from the volume of the sales. Regulatory balancing account revenue is revenue related to rate mechanisms authorized in California by the CPUC, which allow the Company to recover the authorized revenue and are not considered contracts with customers.
The Water Revenue Adjustment Mechanism (WRAM) allows the Company to recognize the adopted level of volumetric revenues. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as regulatory balancing account revenue.
Cost-recovery rates, such as the Modified Cost Balancing Account (MCBA), provide for recovery of the adopted levels of expenses for purchased water, purchased power, pump taxes, water conservation program costs and certain other operating expenses. Variances between adopted and actual costs are recorded as regulatory balancing account revenue.
Each district's WRAM and MCBA regulatory assets and liabilities are allowed to be netted against one another. The Company recognizes regulatory balancing account revenues that have been authorized for rate recovery, are objectively determinable and probable of recovery, and are expected to be collected within 24 months. To the extent that regulatory balancing account revenue is estimated to be collectible beyond 24 months, recognition is deferred.



7


Non-regulated Revenue
 
Three Months Ended March 31,
 
2018
 
2017
Operating and maintenance revenue
$
3,165

 
$
1,913

Other non-regulated revenue
743

 
1,042

Non-regulated revenue from contracts with customers
$
3,908

 
$
2,955

Lease revenue
$
511

 
$
507

Total non-regulated revenue
$
4,419

 
$
3,462

Operating and maintenance services are provided for water and wastewater systems owned by private companies and municipalities. The Company negotiates formal agreements with the customers, under which they provide operating, maintenance and customer billing services related to the customers’ water system. The formal agreements outline the fee schedule for the services provided. The agreements typically call for a fee-per-service or a flat-rate amount per month. The Company typically satisfies its performance obligation of providing operating and maintenance services over time as services are rendered; as a result, the Company employs the invoice practical expedient and recognizes revenue in the amount that it has the right to invoice. Contract terms are generally short-term and as a result no separate financing component is recognized for its collections from customers, which generally require payment within 30 days of billing.
Other non-regulated revenue primarily relates to services for the design and installation of water mains and other water infrastructure for customers outside the regulated service areas and insurance program administration. Other non-regulated revenue is inconsequential.
The Company is the lessor in operating lease agreements with telecommunications companies under which cellular phone antennas are placed on the Company's property. Lease revenue is not considered revenue from contracts with customers and is recognized following current operating lease standards.
 Cash, Cash Equivalents, and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown on the Condensed Consolidated Statements of Cash Flows:
 
March 31, 2018
 
December 31, 2017
Cash and cash equivalents
34,702

 
94,776

Restricted cash (included in "taxes, prepaid expenses and other assets")
631

 
576

Total cash, cash equivalents, and restricted cash shown in the statements of cash flows
$
35,333

 
$
95,352

 Adoption of New Accounting Standards
In May of 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (codified in ASC 606), which amends the existing revenue recognition guidance. The Company completed an evaluation of the new revenue standard and implemented the standard on January 1, 2018 using the modified retrospective method for all contracts. The reported results for the first three months of 2018 reflect the application of ASC 606 guidance, while prior period amounts were not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods. Other than increased disclosures regarding revenues related to contracts with customers, the implementation did not have a significant impact on the Company’s consolidated financial statements (see "Operating Revenue" section of note 2 above).
In August of 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. The Company will continue to classify proceeds from the settlement of insurance claims on the basis of the nature of the loss and from the settlement of corporate-owned life insurance policies as cash inflows on the Condensed Consolidated Statements of Cash Flows. The Company implemented the standard on January 1, 2018 and retrospectively applied the standard in the comparative period. The standard does not have a significant impact to the Company's consolidated financial statements.
In November of 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. The update requires the Company to combine restricted cash with cash and cash equivalents when reconciling the beginning and end

8


of period balances in the Condensed Consolidated Statements of Cash Flows. The Company implemented the standard on January 1, 2018 and retrospectively applied the standard in the comparative period.
The following table shows the effect of the accounting change to the Condensed Consolidated Statements of Cash Flows:
 
Three Months Ended March 31, 2017
Condensed Consolidated Statements of Cash Flows line item
As Reported on Form 10-Q
 
Adjusted Balance on Form 10-Q
 
Increase (Decrease) from Retrospective Adoption
Change in restricted cash
$
(260
)
 
$

 
$
260

Net cash used in investing activities
$
(52,499
)
 
$
(52,239
)
 
$
260

Change in cash, cash equivalents, and restricted cash
$
(13,502
)
 
$
(13,242
)
 
$
260

Cash, cash equivalents, and restricted cash at beginning of period
$
25,492

 
$
25,935

 
$
443

Cash, cash equivalents, and restricted cash at end of period
$
11,990

 
$
12,693

 
$
703

In March of 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. In addition, the standard only allows the service cost component to be eligible for capitalization.
The standard became effective as of January 1, 2018. The presentation amendments were applied retrospectively and the capitalization amendments were applied prospectively on and after the effective date. The company applied the practical expedient that permits the Company to use the amounts disclosed in its pension and other postretirement benefit plan footnote from the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Commissions have authorized the Company to recover the other components of net periodic benefit cost through the Company’s capital program and thus on and after the effective date, the other components of net periodic benefit cost that have previously been recorded as part of utility plant have been recognized as a regulatory asset (see note 9). As a result, the changes required by the standard did not have a material impact on the results of operations.
The following table shows the effect of the accounting change to the Condensed Consolidated Statements of (Loss) Income for the three months ended March 31, 2017:
 
Three Months Ended March 31, 2017
Condensed Consolidated Statement of (Loss) Income line item
As Reported on Form 10-Q
 
Adjusted Balance on Form 10-Q
 
Increase (Decrease) from Retrospective Adoption
Administrative and general
$
25,249

 
$
22,746

 
$
(2,503
)
Total operating expenses
$
113,986

 
$
111,483

 
$
(2,503
)
Net operating income
$
8,050

 
$
10,553

 
$
2,503

Other components of net periodic benefit cost
$

 
$
(2,503
)
 
$
2,503

Net other income
$
1,298

 
$
(1,205
)
 
$
(2,503
)
New Accounting Standards Issued But Not Yet Adopted
In February of 2016, the FASB issued ASU 2016-02, Leases. This update changes the accounting treatment of leases and related disclosure requirements. In November of 2017, the FASB tentatively decided to amend the new leasing guidance such that entities may elect not to restate their comparative periods in the period of adoption. The guidance requires lessees to recognize an asset and liability on the balance sheet for all of their lease obligations. Operating leases were previously not recognized on the balance sheet. 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 expects this standard to increase lease assets and lease liabilities on the Condensed Consolidated Balance Sheets. The Company does not expect that the guidance will have a material impact on the Condensed Consolidated Statements of (Loss) Income, Condensed Consolidated Statements of Cash Flows, and lease disclosures.

9


Note 3. Stock-based Compensation
Equity Incentive Plan
During the three months ended March 31, 2018 and 2017, the Company granted annual Restricted Stock Awards (RSAs) of 46,135 and 48,717, respectively, to officers and directors of the Company. During those same periods, 9,464 RSAs and 10,902 RSAs, respectively, were canceled. RSAs granted to officers vest over 36 months with the first year cliff vesting. RSAs granted to directors generally vest at the end of 12 months. During the first three months of 2018 and 2017, the RSAs granted were valued at $35.40 and $36.75 per share, respectively, based upon the fair value of the Company’s common stock on the date of grant.
During the three months ended March 31, 2018 and 2017, the Company granted 28,594 and 31,389 performance-based Restricted Stock Unit Awards (RSUs), respectively, to officers. During those same periods, the Company issued 48,753 RSUs and 38,709 RSUs, respectively, to officers, and canceled 24,009 RSUs and 19,735 RSUs, respectively. Each RSU award reflects a target number of shares that may be issued to the award recipient. The 2018 and 2017 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 $35.40 per share and $36.75 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 $0.7 million for the three months ended March 31, 2018 and 2017.
Note 4. Equity
The Company’s changes in total common stockholders’ equity for the three months ended March 31, 2018 were as follows:
 
Total Common
Stockholders’ Equity
Balance at December 31, 2017
$
693,462

Common stock issued
1

Share-based compensation expense
635

Repurchase of common stock
(1,239
)
Common stock dividends declared
(9,003
)
Net loss
(2,545
)
Balance at March 31, 2018
$
681,311

 

Note 5. (Loss) Earnings Per Share
 
The computations of basic and diluted (loss) earnings per share are noted in the table below. Basic (loss) earnings per share are computed by dividing the net (loss) 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.
 
Three Months Ended March 31
 
2018
 
2017
 
(In thousands, except per share data)
Net (loss) income available to common stockholders
$
(2,545
)
 
$
1,132

Weighted average common shares outstanding, basic
48,030

 
47,984

Weighted average common shares outstanding, dilutive
48,030

 
47,984

(Loss) Earnings per share - basic
$
(0.05
)
 
$
0.02

(Loss) Earnings per share - diluted
$
(0.05
)
 
$
0.02

 
 
 
 

10


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 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 $7.3 million and $7.5 million for the three months ended March 31, 2018 and 2017, respectively. There were no cash contributions by the Company related to other postretirement benefit plans were for the three months ended March 31, 2018 and 2017. The total 2018 estimated cash contribution to the pension plans is $33.4 million and to the other postretirement benefit plans is $10.1 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 March 31
 
Pension Plan
 
Other Benefits
 
2018
 
2017
 
2018
 
2017
Service cost
$
7,402

 
$
5,865

 
$
2,550

 
$
2,019

Interest cost
5,995

 
5,791

 
1,484

 
1,491

Expected return on plan assets
(6,862
)
 
(6,029
)
 
(1,416
)
 
(1,218
)
Amortization of prior service cost
1,263

 
1,445

 
11

 
11

Recognized net actuarial loss
2,797

 
1,752

 
773

 
649

Net periodic benefit cost
$
10,595

 
$
8,824

 
$
3,402

 
$
2,952

 
 
 
 
 
 
 
 
Service cost portion of the pension plan and other postretirement benefits is recognized in administrative and general within the Condensed Consolidated Statements of (Loss) Income. Other components of net periodic benefit costs include interest costs, expected return on plan assets, amortization of prior service costs, and recognized net actuarial loss and are reported together as other components of net periodic benefit costs within the Condensed Consolidated Statements of (Loss) Income (see note 2).
Note 7. Short-term and Long-term Borrowings
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 as of March 31, 2018 and December 31, 2017. There were $220.0 million borrowings on the Cal Water lines of credit as of March 31, 2018 and December 31, 2017. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the three months ended March 31, 2018 was 2.45% compared to 1.60% for the same period last year.

11


Note 8. Income Taxes
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 is shown below:
 
Three Months Ended March 31
 
2018
 
2017
Income tax (benefit) expense
$
(987
)
 
$
5

The operating income tax benefit decreased $0.7 million to $0.2 million for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 mostly due to a decrease in the corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. The non-operating income tax expense decreased $1.6 million to $0.8 million for the three months ended March 31, 2018, as compared to the three months ended March 31, 2017, mostly due to a $1.5 million unrealized loss on certain benefit plan investments and a decrease in the corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018. The Company's 2018 effective tax rate, before discrete items, is estimated to be 23%.

For year ended December 31, 2017, the Company recorded a provisional re-measurement of its deferred tax balances (related mostly to timing differences for plant-related items) which was offset by a change from a net deferred income tax regulatory asset to a net regulatory liability. The Company is continuing to work with state regulators to finalize the ratepayer net refund of $108.0 million to ensure compliance with federal normalization rules.

The final transition impacts of the Tax Cuts and Jobs Act (TCJA) may differ from the recorded amounts, possibly materially, due to, among other things, regulatory decisions that could differ from the Company’s determination of how the impacts of the TCJA are allocated between customers and shareholders. In addition, while the Company was able to make reasonable estimates of the impact of the reduction in federal tax rate and the elimination of bonus depreciation due to the enactment of the TCJA; the Company has not completed analysis for areas of the TCJA around Internal Revenue Code Section 162(m), full expensing of fixed assets, and other asset related items of the TCJA. Changes in interpretations, guidance on legislative intent, and any changes in accounting standards for income taxes in response to the TCJA could impact the recorded amounts. The Company will finalize and record any adjustments related to the TCJA within the one year measurement period provided under Staff Accounting Bulletin No. 118. The balances relating to TCJA impact continue to be provisional as of March 31, 2018.

The Company had unrecognized tax benefits of approximately $11.3 million and $10.5 million as of March 31, 2018 and March 31, 2017, respectively. Included in the balance of unrecognized tax benefits as of March 31, 2018 and March 31, 2017 are approximately $2.1 million and $2.3 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.


12


Note 9. Regulatory Assets and Liabilities
Regulatory assets and liabilities were comprised of the following as of March 31, 2018 and December 31, 2017:
 
March 31, 2018
 
December 31, 2017
Regulatory Assets
 

 
 

Pension and retiree group health
$
214,084

 
$
214,249

Property-related temporary differences (tax benefits flowed through to customers)
87,700

 
87,323

Other accrued benefits
29,073

 
28,251

Net WRAM and MCBA long-term accounts receivable
35,278

 
34,879

Asset retirement obligations, net
17,473

 
17,126

Interim rates long-term accounts receivable
4,568

 
4,568

Tank coating
11,052

 
10,998

Health care balancing account
522

 
496

Pension balancing account
3,742

 
2,322

Other components of net periodic benefit cost
811

 

Other regulatory assets
738

 
935

Total Regulatory Assets
$
405,041

 
$
401,147

 
 
 
 
Regulatory Liabilities
 

 
 

Future tax benefits due to customers
$
168,366

 
$
168,343

Health care balancing account
9,282

 
7,749

Conservation program
3,797

 
2,273

Pension balancing account
154

 
364

Net WRAM and MCBA long-term payable
2,035

 
513

Tax accounting memorandum account
1,982

 

Cost of capital memorandum account
1,151

 

Other regulatory liabilities
299

 
464

Total Regulatory Liabilities
$
187,066

 
$
179,706

Short-term regulatory assets and liabilities are excluded from the above table.
The short-term regulatory assets were $34.1 million as of March 31, 2018 and $36.8 million as of December 31, 2017. As of March 31, 2018 and December 31, 2017, the short-term regulatory assets primarily consist of net WRAM and MCBA receivables.
The short-term portions of regulatory liabilities were $56.2 million as of March 31, 2018 and $59.3 million as of December 31, 2017. The short-term regulatory liabilities as of March 31, 2018, primarily consist of 1,2,3 trichloropropane (TCP) settlement proceeds. As of December 31, 2017, the short-term regulatory liabilities primarily consist of TCP settlement proceeds and net WRAM and MCBA liability balances.
The tax accounting and cost of capital memorandum account regulatory liabilities are related to the estimated ratepayer refunds due to changes in the federal income tax rate and to the cost of capital decision in California.
The other components of net periodic benefit cost regulatory asset are authorized by the Commissions and are probable for rate recovery through the capital program (see Note 2).
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, 2017. As of March 31, 2018, there were no significant changes from December 31, 2017.

13


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 March 31, 2018 and December 31, 2017, the Company recognized a liability of $6.9 million and $6.1 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.
 
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%.

14


Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.
 
March 31, 2018
 
 
 
Fair Value
 
Cost
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt, including current maturities
$
521,594

 

 
$
584,764

 

 
$
584,764

Advances for construction
184,479

 

 
77,621

 

 
77,621

Total
$
706,073

 
$

 
$
662,385

 
$

 
$
662,385

 
 
December 31, 2017
 
 
 
Fair Value
 
Cost
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt, including current maturities
$
531,713

 
$

 
$
607,492

 
$

 
$
607,492

Advances for construction
182,502

 

 
75,083

 

 
75,083

Total
$
714,215

 

 
$
682,575

 
$

 
$
682,575

 
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 March 31, 2018 and December 31, 2017, the Condensed Consolidating Statements of (Loss) Income for the three months ended March 31, 2018 and 2017, and the Condensed Consolidating Statements of Cash Flows for the three months ended March 31, 2018 and 2017 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 three months ended March 31, 2018 and 2017 reflect the retrospective adoption of ASU 2016-18 (refer to Note 2 for more details). The Condensed Consolidating Statement of (Loss) Income for the three months ended March 31, 2017 reflects the retrospective adoption of ASU 2017-07 (refer to Note 2 for more details).

15


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of March 31, 2018
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

Utility plant:
 

 
 

 
 

 
 

 
 

Utility plant
$
1,321

 
$
2,824,077

 
$
207,409

 
$
(7,196
)
 
$
3,025,611

Less accumulated depreciation and amortization
(943
)
 
(887,919
)
 
(55,743
)
 
2,032

 
(942,573
)
Net utility plant
378

 
1,936,158

 
151,666

 
(5,164
)
 
2,083,038

Current assets:
 
 
 
 
 

 
 
 
 
Cash and cash equivalents
2,242

 
24,471

 
7,989

 

 
34,702

Receivables and unbilled revenue

 
107,838

 
3,790

 

 
111,628

Receivables from affiliates
22,494

 
858

 
157

 
(23,509
)
 

Other current assets
400

 
17,894

 
1,161

 

 
19,455

Total current assets
25,136

 
151,061

 
13,097

 
(23,509
)
 
165,785

Other assets:
 
 
 
 
 

 
 
 
 
Regulatory assets

 
401,169

 
3,872

 

 
405,041

Investments in affiliates
686,964

 

 

 
(686,964
)
 

Long-term affiliate notes receivable
26,024

 

 

 
(26,024
)
 

Other assets
90

 
58,937

 
3,820

 
(204
)
 
62,643

Total other assets
713,078

 
460,106

 
7,692

 
(713,192
)
 
467,684

TOTAL ASSETS
$
738,592

 
$
2,547,325

 
$
172,455

 
$
(741,865
)
 
$
2,716,507

CAPITALIZATION AND LIABILITIES
 

 
 

 
 

 
 

 
 

Capitalization:
 

 
 

 
 

 
 

 
 

Common stockholders’ equity
$
681,311

 
$
614,914

 
$
77,291

 
$
(692,205
)
 
$
681,311

Affiliate long-term debt

 

 
26,024

 
(26,024
)
 

Long-term debt, less current maturities

 
514,894

 
776

 

 
515,670

Total capitalization
681,311

 
1,129,808

 
104,091

 
(718,229
)
 
1,196,981

Current liabilities:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt

 
5,604

 
320

 

 
5,924

Short-term borrowings
55,100

 
220,000

 

 

 
275,100

Payables to affiliates
245

 
157

 
23,107

 
(23,509
)
 

Accounts payable

 
69,950

 
3,606

 

 
73,556

Accrued expenses and other liabilities
215

 
106,958

 
2,564

 

 
109,737

Total current liabilities
55,560

 
402,669

 
29,597

 
(23,509
)
 
464,317

Unamortized investment tax credits

 
1,724

 

 

 
1,724

Deferred income taxes
1,721

 
188,278

 
2,441

 
(127
)
 
192,313

Pension and postretirement benefits other than pensions

 
256,520

 

 

 
256,520

Regulatory liabilities and other

 
229,072

 
3,515

 

 
232,587

Advances for construction

 
183,980

 
499

 

 
184,479

Contributions in aid of construction

 
155,274

 
32,312

 

 
187,586

TOTAL CAPITALIZATION AND LIABILITIES
$
738,592

 
$
2,547,325

 
$
172,455

 
$
(741,865
)
 
$
2,716,507


16


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2017
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

Utility plant:
 

 
 

 
 

 
 

 
 

Utility plant
$
1,321

 
$
2,771,259

 
$
204,795

 
$
(7,196
)
 
$
2,970,179

Less accumulated depreciation and amortization
(919
)
 
(868,762
)
 
(54,543
)
 
2,010

 
(922,214
)
Net utility plant
402

 
1,902,497

 
150,252

 
(5,186
)
 
2,047,965

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
4,728

 
80,940

 
9,108

 

 
94,776

Receivables and unbilled revenue

 
110,928

 
4,526

 

 
115,454

Receivables from affiliates
19,952

 
4,093

 
43

 
(24,088
)
 

Other current assets
80

 
16,569

 
994

 

 
17,643

Total current assets
24,760

 
212,530

 
14,671

 
(24,088
)
 
227,873

Other assets:
 

 
 

 
 

 
 

 
 

Regulatory assets

 
397,333

 
3,814

 

 
401,147

Investments in affiliates
698,690

 

 

 
(698,690
)
 

Long-term affiliate notes receivable
26,441

 

 

 
(26,441
)
 

Other assets
192

 
59,581

 
3,822

 
(205
)
 
63,390

Total other assets
725,323

 
456,914

 
7,636

 
(725,336
)
 
464,537

TOTAL ASSETS
$
750,485

 
$
2,571,941

 
$
172,559

 
$
(754,610
)
 
$
2,740,375

CAPITALIZATION AND LIABILITIES
 

 
 

 
 

 
 

 
 

Capitalization:
 

 
 

 
 

 
 

 
 

Common stockholders’ equity
$
693,462

 
$
626,300

 
77,647

 
$
(703,947
)
 
$
693,462

Affiliate long-term debt

 

 
26,441

 
(26,441
)
 

Long-term debt, less current maturities

 
514,952

 
841

 

 
515,793

Total capitalization
693,462

 
1,141,252

 
104,929

 
(730,388
)
 
1,209,255

Current liabilities:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt

 
15,598

 
322

 

 
15,920

Short-term borrowings
55,100

 
220,000

 

 

 
275,100

Payables to affiliates

 
580

 
23,508

 
(24,088
)
 

Accounts payable

 
90,561

 
3,394

 

 
93,955

Accrued expenses and other liabilities
271

 
104,002

 
1,711

 

 
105,984

Total current liabilities
55,371

 
430,741

 
28,935

 
(24,088
)
 
490,959

Unamortized investment tax credits

 
1,724

 

 

 
1,724

Deferred income taxes
1,652

 
189,004

 
2,424

 
(134
)
 
192,946

Pension and postretirement benefits other than pensions

 
252,141

 

 

 
252,141

Regulatory and other liabilities

 
220,779

 
3,348

 

 
224,127

Advances for construction

 
181,979

 
523

 

 
182,502

Contributions in aid of construction

 
154,321

 
32,400

 

 
186,721

TOTAL CAPITALIZATION AND LIABILITIES
$
750,485

 
$
2,571,941

 
$
172,559

 
$
(754,610
)
 
$
2,740,375



17


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended March 31, 2018
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
123,570

 
$
8,677

 
$

 
$
132,247

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
45,623

 
1,983

 

 
47,606

Administrative and general

 
23,606

 
2,713

 

 
26,319

Other operations

 
16,217

 
1,569

 
(146
)
 
17,640

Maintenance

 
5,244

 
195

 

 
5,439

Depreciation and amortization
23

 
19,613

 
1,101

 
(22
)
 
20,715

Income tax benefit
(78
)
 
(340
)
 
(8
)
 
197

 
(229
)
Property and other taxes

 
6,007

 
697

 

 
6,704

Total operating (income) expenses
(55
)
 
115,970

 
8,250

 
29

 
124,194

Net operating income
55

 
7,600

 
427

 
(29
)
 
8,053

Other income and expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
531

 
4,244

 
320

 
(676
)
 
4,419

Non-regulated expenses

 
(5,293
)
 
(144
)
 

 
(5,437
)
Other components of net periodic benefit cost

 
(2,447
)
 
(99
)
 

 
(2,546
)
Allowance for equity funds used during construction

 
911

 

 

 
911

Income tax (expense) benefit on other income and expenses
(148
)
 
741

 
(24
)
 
189

 
758

Total other income (loss)
383

 
(1,844
)
 
53

 
(487
)
 
(1,895
)
Interest:
 

 
 

 
 

 
 

 
 

Interest expense
258

 
8,934

 
537

 
(531
)
 
9,198

Allowance for borrowed funds used during construction

 
(458
)
 
(37
)
 

 
(495
)
Net interest expense
258

 
8,476

 
500

 
(531
)
 
8,703

Equity loss of subsidiaries
(2,725
)
 

 

 
2,725

 

Net loss
$
(2,545
)
 
$
(2,720
)
 
$
(20
)
 
$
2,740

 
$
(2,545
)

18


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended March 31, 2017
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
113,342

 
$
8,694

 
$

 
$
122,036

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
40,189

 
1,879

 

 
42,068

Administrative and general

 
20,126

 
2,620

 

 
22,746

Other operations

 
14,400

 
1,850

 
(126
)
 
16,124

Maintenance

 
5,906

 
206

 

 
6,112

Depreciation and amortization
23

 
18,111

 
1,090

 
(23
)
 
19,201

Income tax benefit
(103
)
 
(946
)
 
(92
)
 
257

 
(884
)
Property and other taxes
(4
)
 
5,412

 
708

 

 
6,116

Total operating (income) expenses
(84
)
 
103,198

 
8,261

 
108

 
111,483

Net operating income
84

 
10,144

 
433

 
(108
)
 
10,553

Other income and expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
481

 
3,135

 
454

 
(608
)
 
3,462

Non-regulated expenses

 
(1,747
)
 
(307
)
 

 
(2,054
)
Other components of net periodic benefit cost

 
(2,350
)
 
(153
)
 

 
(2,503
)
Allowance for equity funds used during construction

 
779

 

 

 
779

Income tax expense on other income and expenses
(196
)
 
(883
)
 
(58
)
 
248

 
(889
)
Total other income (loss)
285

 
(1,066
)
 
(64
)
 
(360
)
 
(1,205
)
Interest:
 

 
 

 
 

 
 

 
 

Interest expense
235

 
8,470

 
486

 
(481
)
 
8,710

Allowance for borrowed funds used during construction

 
(476
)
 
(18
)
 

 
(494
)
Net interest expense
235

 
7,994

 
468

 
(481
)
 
8,216

Equity earnings of subsidiaries
998

 

 

 
(998
)
 

Net income
$
1,132

 
$
1,084

 
$
(99
)
 
$
(985
)
 
$
1,132



19


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the three months ended March 31, 2018
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating activities:
 

 
 

 
 

 
 

 
 

Net loss
$
(2,545
)
 
$
(2,720
)
 
$
(20
)
 
$
2,740

 
$
(2,545
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

 
 

 
 

 
 

Equity loss of subsidiaries
2,725

 

 

 
(2,725
)
 

Dividends received from affiliates
9,003

 

 

 
(9,003
)
 

Depreciation and amortization
23

 
20,081

 
1,125

 
(22
)
 
21,207

Changes in value of life insurance contracts

 
1,137

 

 

 
1,137

Allowance for equity funds used during construction

 
(911
)
 

 

 
(911
)
Changes in operating assets and liabilities
(376
)
 
1,728

 
1,729

 

 
3,081

Other changes in noncurrent assets and liabilities
806

 
5,368

 
102

 
7

 
6,283

Net cash provided by operating activities
9,636

 
24,683

 
2,936

 
(9,003
)
 
28,252

Investing activities:
 
 
 
 
 

 
 
 
 
Utility plant expenditures

 
(67,841
)
 
(2,809
)
 

 
(70,650
)
Changes in affiliate advances
(2,520
)
 
3,235

 
(153
)
 
(562
)
 

Reduction of affiliates long-term debt
395

 

 

 
(395
)
 

Net cash used in investing activities
(2,125
)
 
(64,606
)
 
(2,962
)
 
(957
)
 
(70,650
)
Financing Activities:
 

 
 

 
 

 
 

 
 

Short-term borrowings

 
45,022

 

 

 
45,022

Repayment of short-term borrowings

 
(45,022
)
 

 

 
(45,022
)
Changes in affiliate advances
245

 
(423
)
 
(384
)
 
562

 

Repayment of affiliates long-term borrowings

 

 
(395
)
 
395

 

Repayment of long-term debt

 
(10,158
)
 
(66
)
 

 
(10,224
)
Advances and contributions in aid of construction

 
4,663

 
100

 

 
4,763

Refunds of advances for construction

 
(1,908
)
 
(10
)
 

 
(1,918
)
Repurchase of common stock
(1,239
)