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EX-32.0 - EXHIBIT 32.0 - CALIFORNIA WATER SERVICE GROUPcws-09302018xex32.htm
EX-31.2 - EXHIBIT 31.2 - CALIFORNIA WATER SERVICE GROUPcws-09302018xex312.htm
EX-31.1 - EXHIBIT 31.1 - CALIFORNIA WATER SERVICE GROUPcws-09302018xex311.htm
EX-4.1 - EXHIBIT 4.1 - CALIFORNIA WATER SERVICE GROUPcws-09302018xex41.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, 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 every Interactive Data File required to be submitted 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). 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
 
 
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 x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common shares outstanding as of September 30, 2018 — 48,068,000
 



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,
2018
 
December 31,
2017
ASSETS
 

 
 

Utility plant:
 

 
 

Utility plant
$
3,169,726

 
$
2,970,179

Less accumulated depreciation and amortization
(983,984
)
 
(922,214
)
Net utility plant
2,185,742

 
2,047,965

Current assets:
 

 
 

Cash and cash equivalents
66,421

 
94,776

Receivables:
 

 
 

Customers
50,785

 
32,451

Regulatory balancing accounts
37,973

 
36,783

Other
20,903

 
16,464

Unbilled revenue
40,318

 
29,756

Materials and supplies at weighted average cost
6,563

 
6,463

Taxes, prepaid expenses, and other assets
12,576

 
11,180

Total current assets
235,539

 
227,873

Other assets:
 

 
 

Regulatory assets
388,300

 
401,147

Goodwill
2,615

 
2,615

Other assets
64,666

 
60,775

Total other assets
455,581

 
464,537

TOTAL ASSETS
$
2,876,862

 
$
2,740,375

CAPITALIZATION AND LIABILITIES
 

 
 

Capitalization:
 

 
 

Common stock, $0.01 par value; 68,000 shares authorized, 48,068 and 48,012 outstanding in 2018 and 2017, respectively
$
481

 
$
480

Additional paid-in capital
336,960

 
336,229

Retained earnings
374,593

 
356,753

Total common stockholders’ equity
712,034

 
693,462

Long-term debt, less current maturities
714,310

 
515,793

Total capitalization
1,426,344

 
1,209,255

Current liabilities:
 

 
 

Current maturities of long-term debt
104,812

 
15,920

Short-term borrowings
75,100

 
275,100

Accounts payable
102,938

 
93,955

Regulatory balancing accounts
43,300

 
59,303

Accrued interest
13,111

 
6,122

Accrued expenses and other liabilities
42,629

 
40,559

Total current liabilities
381,890

 
490,959

Unamortized investment tax credits
1,724

 
1,724

Deferred income taxes
199,143

 
192,946

Pension and postretirement benefits other than pensions
235,501

 
252,141

Regulatory liabilities and other
255,569

 
224,127

Advances for construction
186,897

 
182,502

Contributions in aid of construction
189,794

 
186,721

Commitments and contingencies (Note 10)


 


TOTAL CAPITALIZATION AND LIABILITIES
$
2,876,862

 
$
2,740,375

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,
2018
 
September 30,
2017
Operating revenue
 
$
218,983

 
$
211,731

Operating expenses:
 
 

 
 

Operations:
 
 

 
 

Water production costs
 
78,818

 
75,261

Administrative and general
 
26,493

 
22,749

Other operations
 
21,943

 
21,208

Maintenance
 
6,768

 
6,057

Depreciation and amortization
 
21,009

 
19,231

Income taxes
 
11,262

 
18,219

Property and other taxes
 
7,142

 
6,544

Total operating expenses
 
173,435

 
169,269

Net operating income
 
45,548

 
42,462

Other income and expenses:
 
 

 
 

Non-regulated revenue
 
4,703

 
3,542

Non-regulated expenses
 
(4,897
)
 
(2,576
)
Other components of net periodic benefit cost
 
(1,975
)
 
(2,137
)
Allowance for equity funds used during construction
 
1,023

 
1,105

Income tax benefit on other income and expenses
 
305

 
30

Net other loss
 
(841
)
 
(36
)
Interest expense:
 
 

 
 

Interest expense
 
10,875

 
9,284

Allowance for borrowed funds used during construction
 
(560
)
 
(707
)
Net interest expense
 
10,315

 
8,577

Net income
 
$
34,392

 
$
33,849

Earnings per share:
 
 

 
 

Basic
 
$
0.72

 
$
0.70

Diluted
 
0.72

 
0.70

Weighted average shares outstanding:
 
 

 
 

Basic
 
48,070

 
48,017

Diluted
 
48,070

 
48,017

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 INCOME
Unaudited (In thousands, except per share data)
For the nine months ended
 
September 30,
2018
 
September 30,
2017
Operating revenue
 
$
523,862

 
$
504,899

Operating expenses:
 
 

 
 

Operations:
 
 

 
 

Water production costs
 
191,797

 
181,460

Administrative and general
 
77,195

 
66,908

Other operations
 
60,307

 
55,660

Maintenance
 
17,596

 
16,877

Depreciation and amortization
 
62,677

 
57,650

Income taxes
 
15,380

 
27,941

Property and other taxes
 
20,253

 
18,717

Total operating expenses
 
445,205

 
425,213

Net operating income
 
78,657

 
79,686

Other income and expenses:
 
 

 
 

Non-regulated revenue
 
13,967

 
10,743

Non-regulated expenses
 
(16,449
)
 
(6,244
)
Other components of net periodic benefit cost
 
(6,984
)
 
(7,023
)
Allowance for equity funds used during construction
 
2,644

 
2,763

Income tax benefit (expense) on other income and expenses
 
1,882

 
(1,105
)
Net other loss
 
(4,940
)
 
(866
)
Interest expense:
 
 

 
 

Interest expense
 
30,207

 
27,073

Allowance for borrowed funds used during construction
 
(1,359
)
 
(1,765
)
Net interest expense
 
28,848

 
25,308

Net income
 
$
44,869

 
$
53,512

Earnings per share:
 
 

 
 

Basic
 
$
0.93

 
$
1.11

Diluted
 
0.93

 
1.11

Weighted average shares outstanding:
 
 

 
 

Basic
 
48,058

 
48,007

Diluted
 
48,058

 
48,007

Dividends declared per share of common stock
 
$
0.5625

 
$
0.5400

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


5


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)
For the nine months ended:
 
September 30,
2018
 
September 30,
2017
Operating activities:
 
 

 
 

Net income
 
$
44,869

 
$
53,512

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

 
 

Depreciation and amortization
 
64,131

 
59,016

Change in value of life insurance contracts
 
124

 
(1,871
)
Allowance for equity funds used during construction
 
(2,644
)
 
(2,763
)
Changes in operating assets and liabilities:
 
 

 
 

Receivables and unbilled revenue
 
(18,471
)
 
(52,951
)
Accounts payable
 
18,133

 
6,712

Other current assets
 
(1,392
)
 
(4,643
)
Other current liabilities
 
8,762

 
10,939

Other changes in noncurrent assets and liabilities
 
5,991

 
41,837

Net cash provided by operating activities
 
119,503

 
109,788

Investing activities:
 
 

 
 

Utility plant expenditures
 
(212,856
)
 
(180,442
)
Life insurance proceeds
 
3,491

 
1,558

Purchase of life insurance contracts
 
(4,925
)
 
(3,948
)
Net cash used in investing activities
 
(214,290
)
 
(182,832
)
Financing activities:
 
 

 
 

Short-term borrowings
 
141,000

 
185,000

Repayment of short-term borrowings
 
(341,000
)
 
(87,000
)
Issuance of long-term debt, net of expenses of $617 for 2018 and $0 for 2017
 
299,383

 

Repayment of long-term debt
 
(12,499
)
 
(2,797
)
Advances and contributions in aid of construction
 
13,630

 
14,964

Refunds of advances for construction
 
(5,462
)
 
(6,316
)
Repurchase of common stock
 
(1,496
)
 
(1,359
)
Dividends paid
 
(27,029
)
 
(25,920
)
Net cash provided by financing activities
 
66,527

 
76,572

Change in cash, cash equivalents, and restricted cash
 
(28,260
)
 
3,528

Cash, cash equivalents, and restricted cash at beginning of period
 
95,352

 
25,935

Cash, cash equivalents, and restricted cash at end of period
 
$
67,092

 
$
29,463

Supplemental information:
 
 

 
 

Cash paid for interest (net of amounts capitalized)
 
$
19,956

 
$
17,287

Income tax refund
 

 
$
(1,697
)
Supplemental disclosure of non-cash activities:
 
 

 
 

Accrued payables for investments in utility plant
 
$
32,328

 
$
31,750

Utility plant contribution by developers
 
$
14,807

 
$
13,022

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


6


CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 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 tables disaggregate the Company’s operating revenue by source for the three and nine month periods ended September 30, 2018 and 2017:
 
Three Months Ended September 30
 
2018
 
2017
Revenue from contracts with customers
$
209,541

 
$
197,007

Regulatory balancing account revenue
9,442

 
14,724

Total operating revenue
$
218,983

 
$
211,731


7


 
Nine Months Ended September 30
 
2018
 
2017
Revenue from contracts with customers
$
515,567

 
$
472,412

Regulatory balancing account revenue
8,295

 
32,487

Total operating revenue
$
523,862

 
$
504,899

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 the Company's collections from customers, which generally require payment within 30 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating its 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 "accrued expenses and other liabilities" on the consolidated balance sheets, is inconsequential.
In the following tables, revenue from contracts with customers is disaggregated by class of customers for the three and nine month periods ended September 30, 2018 and 2017:
 
Three Months Ended September 30
 
2018
 
2017
Residential
$
138,939

 
$
131,608

Business
38,538

 
35,678

Industrial
8,987

 
7,919

Public authorities
12,180

 
11,480

Other
10,897

 
10,322

Total revenue from contracts with customers
$
209,541

 
$
197,007

 
Nine Months Ended September 30
 
2018
 
2017
Residential
$
340,107

 
$
309,645

Business
97,720

 
87,246

Industrial
24,507

 
21,281

Public authorities
25,875

 
23,500

Other
27,358

 
30,740

Total revenue from contracts with customers
$
515,567

 
$
472,412

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

8


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.
Non-regulated Revenue
The following tables disaggregate the Company’s non-regulated revenue by source for the three and nine month periods ended September 30, 2018 and 2017:
 
Three Months Ended September 30
 
2018
 
2017
Operating and maintenance revenue
$
2,816

 
$
1,903

Other non-regulated revenue
1,328

 
1,143

Non-regulated revenue from contracts with customers
$
4,144

 
$
3,046

Lease revenue
$
559

 
$
496

Total non-regulated revenue
$
4,703

 
$
3,542

 
Nine Months Ended September 30
 
2018
 
2017
Operating and maintenance revenue
$
8,278

 
$
5,870

Other non-regulated revenue
4,053

 
3,362

Non-regulated revenue from contracts with customers
$
12,331

 
$
9,232

Lease revenue
$
1,636

 
$
1,511

Total non-regulated revenue
$
13,967

 
$
10,743

Operating and maintenance services are provided for non-regulated 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 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.




9


 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:
 
September 30, 2018
 
December 31, 2017
Cash and cash equivalents
66,421

 
94,776

Restricted cash (included in "taxes, prepaid expenses and other assets")
671

 
576

Total cash, cash equivalents, and restricted cash shown in the statements of cash flows
$
67,092

 
$
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 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 Company-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 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:
 
Nine Months Ended September 30, 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
$
(679
)
 
$

 
$
679

Net cash used in investing activities
$
(183,511
)
 
$
(182,832
)
 
$
679

Change in cash, cash equivalents, and restricted cash
$
2,849

 
$
3,528

 
$
679

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
$
28,341

 
$
29,463

 
$
1,122

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

10


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 tables show the effect of the accounting change to the Condensed Consolidated Statements of Income for the three and nine month periods ended September 30, 2017:
 
Three Months Ended September 30, 2017
Condensed Consolidated Statement of Income line item
As Reported on Form 10-Q
 
Adjusted Balance on Form 10-Q
 
Increase (Decrease) from Retrospective Adoption
Administrative and general
$
24,886

 
$
22,749

 
$
(2,137
)
Income taxes
$
17,348

 
$
18,219

 
$
871

Total operating expenses
$
170,535

 
$
169,269

 
$
(1,266
)
Net operating income
$
41,196

 
$
42,462

 
$
1,266

Other components of net periodic benefit cost
$

 
$
(2,137
)
 
$
2,137

Income tax benefit (expense) on other income and expenses
$
(841
)
 
$
30

 
$
871

Net other income (loss)
$
1,230

 
$
(36
)
 
$
(1,266
)
 
Nine Months Ended September 30, 2017
Condensed Consolidated Statement of Income line item
As Reported on Form 10-Q
 
Adjusted Balance on Form 10-Q
 
Increase (Decrease) from Retrospective Adoption
Administrative and general
$
73,931

 
$
66,908

 
$
(7,023
)
Income taxes
$
26,099

 
$
27,941

 
$
1,842

Total operating expenses
$
430,394

 
$
425,213

 
$
(5,181
)
Net operating income
$
74,505

 
$
79,686

 
$
5,181

Other components of net periodic benefit cost
$

 
$
(7,023
)
 
$
7,023

Income tax expense on other income and expenses
$
(2,947
)
 
$
(1,105
)
 
$
1,842

Net other income (loss)
$
4,315

 
$
(866
)
 
$
(5,181
)
New Accounting Standards Issued But Not Yet Adopted
In February of 2016, the FASB issued ASU 2016-02, Leases, which amends the guidance relating to the definition of a lease, recognition of lease assets and liabilities on the balance sheet, and the related disclosure requirements. In July of 2018, the FASB issued ASU 2018-11, Leases: Targeted Improvements, which amends 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 intends to elect certain practical expedients and will carry forward historical conclusions related to (1) contracts that contain leases, (2) existing lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company will also apply the practical expedient that will allow the Company to elect, as an accounting policy, by asset class, to include both lease and nonlease components as a single component and account for it as a lease. The Company will apply the short-term lease exception for lessees which will allow the Company to not have to apply the recognition requirements of the new leasing guidance for short-term leases and to recognize lease payments in net income on a straight line basis over the lease term. The Company does not expect that the guidance will have a material impact on the Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Cash Flows, and lease disclosures.

11


Note 3. Stock-based Compensation
Equity Incentive Plan
During the nine months ended September 30, 2018 and 2017, the Company granted annual Restricted Stock Awards (RSAs) of 47,273 and 48,717, respectively, to officers and directors of the Company. During those same periods, 16,520 RSAs and 17,466 RSAs, respectively, were canceled. During the three months ended September 30, 2018 and 2017, 1,138 RSAs and no RSAs, respectively, were granted and 3,214 RSAs and 3,280 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 nine 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 nine months ended September 30, 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. During the three months ended September 30, 2018 and 2017, 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 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 $2.3 million for the nine months ended September 30, 2018 and 2017.
Note 4. Equity
The Company’s changes in total common stockholders’ equity for the nine months ended September 30, 2018 were as follows:
 
Total Common
Stockholders’ Equity
Balance at December 31, 2017
$
693,462

Common stock issued
1

Share-based compensation expense
2,227

Repurchase of common stock
(1,496
)
Common stock dividends declared
(27,029
)
Net income
44,869

Balance at September 30, 2018
$
712,034

 

12


Note 5. Earnings Per Share
The computations of basic and diluted earnings per share are noted in the table below. Basic earnings per share are 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 Organization & Compensation Committee of the Board of Directors.
 
Three Months Ended September 30
 
2018
 
2017
 
(In thousands, except per share data)
Net income available to common stockholders
$
34,392

 
$
33,849

Weighted average common shares outstanding, basic
48,070

 
48,017

Weighted average common shares outstanding, dilutive
48,070

 
48,017

Earnings per share - basic
$
0.72

 
$
0.70

Earnings per share - diluted
$
0.72

 
$
0.70

 
Nine Months Ended September 30
 
2018
 
2017
 
(In thousands, except per share data)
Net income available to common stockholders
$
44,869

 
$
53,512

Weighted average common shares outstanding, basic
48,058

 
48,007

Weighted average common shares outstanding, dilutive
48,058

 
48,007

Earnings per share - basic
$
0.93

 
$
1.11

Earnings per share - diluted
$
0.93

 
$
1.11


13


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 $42.3 million and $22.2 million for the nine months ended September 30, 2018 and 2017, respectively. Cash contributions by the Company related to other postretirement benefit plans were $8.0 million and $2.3 million for the nine months ended September 30, 2018 and 2017, respectively. The total 2018 estimated cash contribution to the pension plans is $42.3 million and to the other postretirement benefit plans is $9.7 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
 
2018
 
2017
 
2018
 
2017
Service cost
$
6,966

 
$
6,122

 
$
1,966

 
$
2,169

Interest cost
6,007

 
5,861

 
1,183

 
1,491

Expected return on plan assets
(7,052
)
 
(6,031
)
 
(1,397
)
 
(1,218
)
Amortization of prior service cost
1,263

 
1,445

 
11

 
11

Recognized net actuarial loss
2,791

 
1,881

 
242

 
649

Net periodic benefit cost
$
9,975

 
$
9,278

 
$
2,005

 
$
3,102


 
Nine Months Ended September 30
 
Pension Plan
 
Other Benefits
 
2018
 
2017
 
2018
 
2017
Service cost
$
21,770

 
$
17,851

 
$
7,066

 
$
6,207

Interest cost
17,996

 
17,442

 
4,152

 
4,472

Expected return on plan assets
(20,777
)
 
(18,090
)
 
(4,229
)
 
(3,653
)
Amortization of prior service cost
3,789

 
4,336

 
32

 
32

Recognized net actuarial loss
8,386

 
5,386

 
1,789

 
1,947

Net periodic benefit cost
$
31,164

 
$
26,925

 
$
8,810

 
$
9,005

Service cost portion of the pension plan and other postretirement benefits is recognized in administrative and general within the Condensed Consolidated Statements of 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 cost within the Condensed Consolidated Statements of 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.

14


The outstanding borrowings on the Company line of credit were $75.1 million and $55.1 million as of September 30, 2018 and December 31, 2017, respectively. There were no borrowings on the Cal Water line of credit as of September 30, 2018 and $220.0 million of borrowings as of December 31, 2017. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the nine months ended September 30, 2018 was 2.88% compared to 1.97% for the same period last year.
On September 13, 2018, Cal Water sold $300.0 million of floating rate First Mortgage Bonds due in September of 2020 in a private placement. The floating interest rate was set at three-month LIBOR plus 70 basis points, will accrue quarterly, and be payable in arrears. The bonds are redeemable at a premium of 102%, or at par after June 13, 2019. The bonds will also rank equally with all of Cal Water's other First Mortgage Bonds and will be secured by liens on Cal Water's properties, subject to certain exceptions and permitted liens.
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 in the tables below:
 
Three Months Ended September 30
 
2018
 
2017
Income tax expense
$
10,957

 
$
18,189

 
Nine Months Ended September 30
 
2018
 
2017
Income tax expense
$
13,498

 
$
29,046

The income tax expense decreased $7.2 million to $11.0 million for the three months ended September 30, 2018 as compared to the three months ended September 30, 2017 mostly due to the federal income tax rate reduction from 35% to 21%, effective January 1, 2018, an increase in tax benefits of $0.9 million, and a decrease in pre-tax income.
The income tax expense decreased $15.5 million to $13.5 million in the first nine months of 2018, as compared to $29.0 million in the first nine months of 2017. The decrease was mainly due to the federal income tax rate reduction from 35% to 21%, effective January 1, 2018, an increase in tax benefits of $0.9 million, and a decrease in pre-tax income.
The Company's 2018 effective tax rate, before discrete items, is estimated to be in the range from 22% to 25%.
For the 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 customer 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 September 30, 2018.
The Company had unrecognized tax benefits of approximately $12.0 million and $10.2 million as of September 30, 2018 and 2017, respectively. Included in the balance of unrecognized tax benefits as of September 30, 2018 and 2017 are approximately $2.3 million of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next 12 months.

15


Note 9. Regulatory Assets and Liabilities
Regulatory assets and liabilities were comprised of the following as of September 30, 2018 and December 31, 2017:
 
September 30, 2018
 
December 31, 2017
Regulatory Assets
 

 
 

Pension and retiree group health
$
213,755

 
$
214,249

Property-related temporary differences (tax benefits flowed through to customers)
81,354

 
87,323

Other accrued benefits
27,634

 
28,251

Net WRAM and MCBA long-term accounts receivable
21,826

 
34,879

Asset retirement obligations, net
18,180

 
17,126

Interim rates long-term accounts receivable
4,557

 
4,568

Tank coating
11,490

 
10,998

Health care balancing account
442

 
496

Pension balancing account
6,250

 
2,322

Other components of net periodic benefit cost
2,433

 

Other regulatory assets
379

 
935

Total Regulatory Assets
$
388,300

 
$
401,147

 
 
 
 
Regulatory Liabilities
 

 
 

Future tax benefits due to customers
$
169,675

 
$
168,343

Health care balancing account
12,124

 
7,749

Conservation program
6,019

 
2,273

Pension balancing account
13

 
364

Net WRAM and MCBA long-term payable
136

 
513

Tax accounting memorandum account
4,998

 

Cost of capital memorandum account
2,834

 

1,2,3 trichloropropane settlement proceeds
12,841

 

Other regulatory liabilities
50

 
464

Total Regulatory Liabilities
$
208,690

 
$
179,706

Short-term regulatory assets and liabilities are excluded from the above table.
The short-term regulatory assets were $38.0 million as of September 30, 2018 and $36.8 million as of December 31, 2017. As of September 30, 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 $43.3 million as of September 30, 2018 and $59.3 million as of December 31, 2017. The short-term regulatory liabilities as of September 30, 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 customer refunds due to changes in the federal income tax rate and to the cost of capital decision for Cal Water.
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).

16


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. 
Effective April 3, 2018, the City of Commerce has renewed a lease agreement for Cal Water to operate the City of Commerce’s water system for the next 15 years. Cal Water has operated the City of Commerce water system since 1985 and is responsible for all operations, maintenance, water quality assurance, and customer service programs to provide a reliable supply of water that meets federal and state standards to customers served by the City of Commerce system. The City of Commerce will remain responsible for financing infrastructure improvements and setting its customers’ water rates.
As of September 30, 2018, there were no other significant changes from December 31, 2017.
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 customers 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, 2018 and December 31, 2017, the Company recognized a liability of $3.8 million and $6.1 million, respectively, for known legal matters. The decrease is mainly due to several large claims being resolved in the first nine months of 2018. 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.

17


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%.
Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.
 
September 30, 2018
 
 
 
Fair Value
 
Cost
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt, including current maturities
$
819,122

 

 
$
847,812

 

 
$
847,812

Advances for construction
186,897

 

 
77,745

 

 
77,745

Total
$
1,006,019

 
$

 
$
925,557

 
$

 
$
925,557

 
 
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 September 30, 2018 and December 31, 2017, the Condensed Consolidating Statements of Income for the three and nine months ended September 30, 2018 and 2017, and the Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 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 nine months ended September 30, 2018 and 2017 reflect the retrospective adoption of ASU 2016-18 (refer to Note 2 for more details). The Condensed Consolidating Statements of Income for the three and nine months ended September 30, 2017 reflect the retrospective adoption of ASU 2017-07 (refer to Note 2 for more details).

18


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2018
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

Utility plant:
 

 
 

 
 

 
 

 
 

Utility plant
$
1,317

 
$
2,963,674

 
$
211,931

 
$
(7,196
)
 
$
3,169,726

Less accumulated depreciation and amortization
(989
)
 
(926,291
)
 
(58,780
)
 
2,076

 
(983,984
)
Net utility plant
328

 
2,037,383

 
153,151

 
(5,120
)
 
2,185,742

Current assets:
 
 
 
 
 

 
 
 
 
Cash and cash equivalents
2,445

 
55,108

 
8,868

 

 
66,421

Receivables and unbilled revenue

 
144,340

 
5,639

 

 
149,979

Receivables from affiliates
44,671

 
895

 
286

 
(45,852
)
 

Other current assets
203

 
17,360

 
1,576

 

 
19,139

Total current assets
47,319

 
217,703

 
16,369

 
(45,852
)
 
235,539

Other assets:
 
 
 
 
 

 
 
 
 
Regulatory assets

 
384,249

 
4,051

 

 
388,300

Investments in affiliates
716,177

 

 

 
(716,177
)
 

Long-term affiliate notes receivable
25,172

 

 

 
(25,172
)
 

Other assets
70

 
63,624

 
3,660

 
(73
)
 
67,281

Total other assets
741,419

 
447,873

 
7,711

 
(741,422
)
 
455,581

TOTAL ASSETS
$
789,066

 
$
2,702,959

 
$
177,231

 
$
(792,394
)
 
$
2,876,862

CAPITALIZATION AND LIABILITIES
 

 
 

 
 

 
 

 
 

Capitalization:
 

 
 

 
 

 
 

 
 

Common stockholders’ equity
$
712,034

 
$
642,588

 
$
78,798

 
$
(721,386
)
 
$
712,034

Affiliate long-term debt

 

 

 

 

Long-term debt, less current maturities

 
713,622

 
25,860

 
(25,172
)
 
714,310

Total capitalization
712,034

 
1,356,210

 
104,658

 
(746,558
)
 
1,426,344

Current liabilities:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt

 
104,538

 
274

 

 
104,812

Short-term borrowings
75,100

 

 

 

 
75,100

Payables to affiliates

 
21,710

 
24,142

 
(45,852
)
 

Accounts payable

 
99,315

 
3,623

 

 
102,938

Accrued expenses and other liabilities
112

 
94,675

 
4,253

 

 
99,040

Total current liabilities
75,212

 
320,238

 
32,292

 
(45,852
)
 
381,890

Unamortized investment tax credits

 
1,724

 

 

 
1,724

Deferred income taxes
1,820

 
193,864

 
3,459

 

 
199,143

Pension and postretirement benefits other than pensions

 
235,501

 

 

 
235,501

Regulatory liabilities and other

 
251,235

 
4,318

 
16

 
255,569

Advances for construction

 
186,389

 
508

 

 
186,897

Contributions in aid of construction

 
157,798

 
31,996

 

 
189,794

TOTAL CAPITALIZATION AND LIABILITIES
$
789,066

 
$
2,702,959

 
$
177,231

 
$
(792,394
)
 
$
2,876,862


19


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



20


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2018
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
206,390

 
$
12,593

 
$

 
$
218,983

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
76,317

 
2,501

 

 
78,818

Administrative and general

 
23,878

 
2,615

 

 
26,493

Other operations

 
20,271

 
1,816

 
(144
)
 
21,943

Maintenance

 
6,538

 
230

 

 
6,768

Depreciation and amortization
23

 
19,632

 
1,376

 
(22
)
 
21,009

Income tax (benefit) expense
(142
)
 
9,911

 
1,271

 
222

 
11,262

Property and other taxes

 
6,205

 
937

 

 
7,142

Total operating (income) expenses
(119
)
 
162,752

 
10,746

 
56

 
173,435

Net operating income
119

 
43,638

 
1,847

 
(56
)
 
45,548

Other income and expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
628

 
4,589

 
259

 
(773
)
 
4,703

Non-regulated expenses

 
(4,675
)
 
(222
)
 

 
(4,897
)
Other components of net periodic benefit cost

 
(1,834
)
 
(141
)
 

 
(1,975
)
Allowance for equity funds used during construction

 
1,023

 

 

 
1,023

Income tax (expense) benefit on other income and expenses
(176
)
 
252

 
13

 
216

 
305

Net other income (loss)
452

 
(645
)
 
(91
)
 
(557
)
 
(841
)
Interest:
 

 
 

 
 

 
 

 
 

Interest expense
486

 
10,443

 
574

 
(628
)
 
10,875

Allowance for borrowed funds used during construction

 
(522
)
 
(38
)
 

 
(560
)
Net interest expense
486

 
9,921

 
536

 
(628
)
 
10,315

Equity earnings of subsidiaries
34,307

 

 

 
(34,307
)
 

Net income
$
34,392

 
$
33,072

 
$
1,220

 
$
(34,292
)
 
$
34,392


21


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

 
20,352

 
2,397

 

 
22,749

Other operations

 
18,979

 
2,356

 
(127
)
 
21,208