SOURCE: California Water Service Group

California Water Service Group

February 27, 2013 16:15 ET

California Water Service Group Announces Revenues and Earnings For Year-End and 4th Quarter 2012

SAN JOSE, CA--(Marketwire - Feb 27, 2013) - California Water Service Group (NYSE: CWT) today announced 2012 net income of $48.8 million, up 29.5%, or $11.1 million, from 2011, and diluted earnings per share of $1.17, an increase of 29.1%, or $0.27, over the prior year. 

Total revenue increased $58.2 million, or 11.6%, to $560.0 million, compared to revenue of $501.8 million for 2011. Sales to new customers added $1.2 million, general rate increases added $11.8 million, offset rate increases to recover increases in purchased water costs added $17.1 million, the reversal of the 2011 deferred WRAM revenue added $12.9 million and increased usage by existing customers and other activities added $15.2 million.

Total operating expenses increased $51.5 million, or 11.8%, to $486.1 million in 2012, including $10.5 million of 2011 deferred costs associated with the 2011 deferred WRAM revenues. Water production costs increased $20.9 million, or 11.5%, to $202.7 million, primarily due to wholesale water rate increases. Administrative and general costs increased by $8.2 million, or 9.5%, to $93.9 million, due primarily to labor and benefit expense. Changes in pension cost for regulated California operations do not affect earnings because the Company is allowed by the California Public Utilities Commission (CPUC) to track pension cost changes in a balancing account for future recovery, which creates a corresponding change to operating revenues. 

Maintenance expense decreased $1.6 million, or 7.5%, to $19.1 million. Depreciation expense increased $4.3 million, or 8.5%, to $54.7 million, due to increases in utility plant. Income taxes charged to operating expenses and other income and expenses decreased $1.7 million due to a nonrecurring income tax benefit related to 2011 and prior years for repairs costs previously capitalized for book and income tax purposes. Effective January 1, 2012, the corporate federal income tax repairs and maintenance deduction for qualified tangible property became mandatory for property placed into service during 2012 and prior years. The new tax regulations require the Company to deduct a significant amount of costs previously capitalized for book and tax purposes, which resulted in a $6.2 million reduction in income tax expense in 2012. 

Other income, net of income taxes, increased $2.9 million, primarily due to a mark-to-market adjustment to reflect the increased value of long-term assets held by the Company's non-qualified retirement plans. Net interest expense decreased $1.6 million, or 5.3%, to $28.1 million, due to lower interest rates on short-term borrowings.

According to Chairman and Chief Executive Officer Peter C. Nelson, 2012 performance was better than expected, given the fact that it was the second year in Cal Water's three-year rate case cycle. 

"Our 2012 results were positively impacted by prudent financial and operational management, as increases in wages, health care costs, and post retirement benefits (other than pensions) were mitigated by decreases in maintenance costs, interest expense, and costs for outside services. We also benefitted from a federal tax rule change and from a mark-to-market accounting adjustment to reflect an increase in the value of long-term assets held by the Company's non-qualified retirement plans," Nelson said. 

"We will remain focused on operating as efficiently as possible in 2013, which is the final year of Cal Water's current three-year rate case cycle," he said. 

Fourth Quarter 2012 Results
For the fourth quarter of 2012, net income increased $3.1 million, or 168.0%, to $5.0 million from net income of $1.9 million in the fourth quarter of 2011, and diluted earnings per common share increased $0.08, an increase of 167.4%, to $0.12 per common share from the same period last year.

Revenue for the fourth quarter increased $18.5 million, or 18.0%, to $121.5 million from the same period last year. Sales to new customers added $0.3 million, general rate increases added $2.4 million, offset rate increases to recover increases in purchased water costs added $3.2, and increased usage by existing customers and other activities added $12.6 million.

Total operating expenses for the quarter increased $14.9 million, or 15.6%, to $110.3 million over operating expenses in the same period last year. Water production costs increased $1.1 million, or 2.6%, to $44.6 million. Administrative and general expenses increased $1.7 million, or 7.6%, to $24.8 million. Other operations expense increased $11.1 million, or 162.5%, to 17.9 million, due mainly to 2011 deferred costs associated with deferred WRAM revenues recognized in 2012.

Maintenance expense decreased $1.2 million, or 20.9%, to $4.4 million, due to decreased costs for repairs. Depreciation expense increased $0.6 million, or 4.6%, to $13.3 million, due to increases in utility plant. Taxes other than income increased $1.3 million, or 32.5%, to $5.4 million, primarily due to increases in property taxes.

Regulatory Update for 2012
In January 2012, the Company received authorized revenue increases totaling $2.9 million annually for its Washington Water and Hawaii Water subsidiaries. The Company anticipates further rate relief in Hawaii in 2013 from other 2012 filings with the Hawaii Public Utilities Commission. 

Cal Water received annual escalation increases in 2012 reflecting inflation and additional plant investments, which add $8.7 million to authorized annual revenue. Cal Water received $9.6 million in authorized escalation revenue increases in January 2013.

Cal Water filed a General Rate Case in July 2012, requesting additional revenue of $92.7 million in 2014, $17.2 million in 2015, and $16.9 million in 2016. After a thorough review, the Commission will determine how much of a revenue increase it deems necessary in order for Cal Water to continue to deliver a reliable supply of high-quality water. New rates are scheduled to become effective in January 2014.

The California Public Utilities Commission issued two key decisions in 2012. First, in April, the Commission revised its policy that required Water Revenue Adjustment Mechanism (WRAM) balances to be recovered in rates over an extended period of time. This delay in recovery impacted the Company's results in 2011. Going forward, in most cases, balances will be recoverable within 18 months. Second, in July, in its "cost of capital" decision, the Commission authorized a return on equity of 9.99%, a cost of debt of 6.24%, and a capital structure of 46.60% long-term debt and 53.40% common equity. The decision also adopted a two-way index mechanism that will further reduce the authorized return on equity to 9.43% for 2013 due to the decline in interest rates.

Other Information
All stockholders and interested investors are invited to listen to the 2012 year-end and fourth quarter conference call on February 28, 2013 at 8:00 a.m. PST (11:00 a.m. EST) by dialing 1-888-455-2296 or 1-719-457-2697 and keying in ID #8496669. A replay of the call will be available from 11:00 a.m. PST (2:00 p.m. EST) on February 28, 2013 through April 28, 2013, at 1-888-203-1112 or 1-719-457-0820, ID #8496669. The call, which will be hosted by Chairman and CEO Peter C. Nelson, President and Chief Operating Officer Martin A. Kropelnicki, and Vice President and Chief Financial Officer Thomas F. Smegal III, will also be webcast under the investor relations tab at www.calwatergroup.com.

California Water Service Group is the parent company of California Water Service Company, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, Inc., CWS Utility Services, and HWS Utility Services, LLC. Together these companies provide regulated and non-regulated water service to approximately 2 million people in more than 100 California, Washington, New Mexico and Hawaii communities. Group's common stock trades on the New York Stock Exchange under the symbol "CWT."

This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management's judgment about the Company, the water utility industry and general economic conditions. Such words as expects, intends, plans, believes, estimates, assumes, anticipates, projects, predicts, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include but are not limited to: governmental and regulatory commissions' decisions, including decisions on proper disposition of property; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; new legislation; changes in accounting valuations and estimates; the ability to satisfy requirements related to the Sarbanes-Oxley Act and other regulations on internal controls; electric power interruptions; increases in suppliers' prices and the availability of supplies including water and power; fluctuations in interest rates; changes in environmental compliance and water quality requirements; acquisitions and our ability to successfully integrate acquired companies; the ability to successfully implement business plans; changes in customer water use patterns; the impact of weather on water sales and operating results; access to sufficient capital on satisfactory terms; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; the involvement of the United States in war or other hostilities; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and, other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph. The Company assumes no obligation to provide public updates of forward-looking statements.

Additional information is available online at www.calwatergroup.com.

CALIFORNIA WATER SERVICE GROUP          
CONDENSED CONSOLIDATED BALANCE SHEETS          
Unaudited          
           
(In thousands, except per share data) December 31,     December 31,  
  2012     2011  
ASSETS          
Utility plant:          
  Utility plant $ 2,096,363     $ 1,960,381  
  Less accumulated depreciation and amortization   (639,307 )     (579,262 )
    Net utility plant   1,457,056       1,381,119  
               
Current assets:              
  Cash and cash equivalents   38,790       27,203  
  Receivables              
    Customers   29,958       28,418  
    Regulatory balancing accounts   34,020       21,680  
    Other   11,943       6,422  
  Unbilled revenue   15,394       15,068  
  Materials and supplies at average cost   5,874       5,913  
  Taxes, prepaid expense, and other assets   10,585       9,184  
    Total current assets   146,564       113,888  
               
Other assets:              
  Regulatory assets   344,419       319,898  
  Goodwill   2,615       2,615  
  Other assets   45,270       37,067  
    Total other assets   392,304       359,580  
  $ 1,995,924     $ 1,854,587  
               
CAPITALIZATION AND LIABILITIES              
Capitalization:              
  Common stock, $.01 par value $ 419     $ 418  
  Additional paid-in capital   221,013       219,572  
  Retained earnings   252,280       229,839  
    Total common stockholders' equity   473,712       449,829  
  Long-term debt, less current maturities   434,467       481,632  
    Total capitalization   908,179       931,461  
               
Current liabilities:              
  Current maturities of long-term debt   46,783       6,533  
  Short-term borrowings   89,475       47,140  
  Accounts payable              
    Trade and other   47,199       48,923  
    Regulatory balancing accounts   5,018       2,655  
  Accrued interest   4,705       4,756  
  Accrued expenses and other liabilities   49,887       41,868  
    Total current liabilities   243,067       151,875  
               
Unamortized investment tax credits   2,180       2,254  
Deferred income taxes, net   158,846       116,368  
Pension and postretirement benefits other than pensions   244,901       232,110  
Regulatory liability and Other   92,593       79,050  
Advances for construction   187,584       187,278  
Contributions in aid of construction   158,574       154,191  
  $ 1,995,924     $ 1,854,587  
               
               
CALIFORNIA WATER SERVICE GROUP          
CONDENSED CONSOLIDATED STATEMENTS OF INCOME          
Unaudited          
(In thousands, except per share data)          
           
For the Three-Months ended:          
  December 31,     December 31,  
  2012     2011  
           
Operating revenue $ 121,530     $ 103,014  
Operating expenses:              
  Operations:              
    Water production costs   44,580       43,457  
    Administrative and General   24,817       23,056  
    Other operations   17,891       6,817  
  Maintenance   4,400       5,560  
  Depreciation and amortization   13,285       12,695  
  Income taxes   (121 )     (253 )
  Property and other taxes   5,425       4,096  
    Total operating expenses   110,277       95,428  
               
    Net operating income   11,253       7,586  
               
Other income and expenses:              
  Non-regulated revenue   4,743       4,663  
  Non-regulated expenses   (2,978 )     (2,400 )
  Loss on sale of non-utility property   -       -  
  Income taxes expense on other income and expenses   (713 )     (917 )
    1,052       1,346  
               
Interest expense:              
  Interest Expense   8,053       7,899  
  Less: capitalized interest   (754 )     (835 )
    Net interest expense   7,299       7,064  
               
Net income $ 5,006     $ 1,868  
               
Earnings per share              
  Basic $ 0.12     $ 0.04  
  Diluted $ 0.12     $ 0.04  
Weighted average shares outstanding              
  Basic   41,908       41,817  
  Diluted   41,908       41,817  
Dividends per share of common stock   0.15750       0.15375  
               
           
           
CALIFORNIA WATER SERVICE GROUP          
CONDENSED CONSOLIDATED STATEMENTS OF INCOME          
Unaudited          
(In thousands, except per share data)          
           
For the Twelve-Months ended:          
  December 31,     December 31,  
  2012     2011  
           
Operating revenue $ 559,966     $ 501,814  
Operating expenses:              
  Operations:              
    Water production costs   202,699       181,753  
    Administrative and General   93,927       85,758  
    Other operations   77,104       54,696  
  Maintenance   19,142       20,698  
  Depreciation and amortization   54,668       50,385  
  Income taxes   19,356       23,025  
  Property and other taxes   19,227       18,332  
    Total operating expenses   486,123       434,647  
               
    Net operating income   73,843       67,167  
               
Other income and expenses:              
  Non-regulated revenue   16,686       16,160  
  Non-regulated expenses   (11,553 )     (15,822 )
  Gain on sale of non-utility property   84       62  
  Income taxes expense on other income and expenses   (2,096 )     (141 )
    3,121       259  
               
Interest expense:              
  Interest Expense   31,537       32,455  
  Less: capitalized interest   (3,401 )     (2,741 )
    Net interest expense   28,136       29,714  
               
Net income $ 48,828     $ 37,712  
               
Earnings per share              
  Basic $ 1.17     $ 0.90  
  Diluted $ 1.17     $ 0.90  
Weighted average shares outstanding              
  Basic   41,892       41,762  
  Diluted   41,892       41,772  
Dividends per share of common stock $ 0.6300     $ 0.6150  
               
               

Contact Information

  • Contact:
    Tom Smegal
    (408) 367-8200
    (analysts)

    Shannon Dean
    (310) 257-1435
    (media)