SOURCE: California Water Service Group

California Water Service Group

February 24, 2016 16:30 ET

California Water Service Group Announces Revenues and Earnings for Year-End and Fourth Quarter 2015

SAN JOSE, CA--(Marketwired - Feb 24, 2016) - California Water Service Group (NYSE: CWT) today announced net income of $45.0 million and diluted earnings per share of $0.94 for 2015, compared to net income of $56.7 million and earnings per share of $1.19 in 2014.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management's judgment about the Company, the water utility industry and general economic conditions. Such words as would, expects, intends, plans, believes, estimates, assumes, anticipates, projects, predicts, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include, but are not limited to: governmental and regulatory commissions' decisions; consequences of eminent domain actions relating to our water systems; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; inability to renew leases to operate city water systems on beneficial terms; changes in California State Water Resources Control Board water quality standards; changes in environmental compliance and water quality requirements; electric power interruptions;; changes in customer water use patterns and the effects of conservation; the impact of weather and climate on water availability, water sales and operating results; the unknown impact of contagious diseases, such as Zika, avian flu, H1N1 flu and severe acute respiratory syndrome, on the Company's operations; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; labor relations matters as we negotiate with the unions; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and, other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph, as well as the annual 10-K, Quarterly 10-Q, and other reports filed from time-to-time with the Securities and Exchange Commission (SEC). The Company assumes no obligation to provide public updates of forward-looking statements.

             
CALIFORNIA WATER SERVICE GROUP            
CONDENSED CONSOLIDATED BALANCE SHEETS            
Unaudited            
             
(In thousands, except per share data)   December 31,     December 31,  
    2015     2014  
ASSETS            
Utility plant:            
  Utility plant   $ 2,506,946     $ 2,342,471  
  Less accumulated depreciation and amortization     (805,178 )     (752,040 )
    Net utility plant     1,701,768       1,590,431  
                 
Current assets:                
  Cash and cash equivalents     8,837       19,587  
  Receivables: net of allowance for doubtful accounts of $730 for 2015 and $697 for 2014                
    Customers     31,512       25,803  
    Regulatory balancing accounts     35,052       53,199  
    Other     14,760       14,136  
  Unbilled revenue     23,181       23,740  
  Materials and supplies at weighted average cost     6,339       6,041  
  Taxes, prepaid expenses, and other assets     7,897       11,618  
    Total current assets     127,578       154,124  
                 
Other assets:                
  Regulatory assets     361,893       390,331  
  Goodwill     2,615       2,615  
  Other assets     52,241       49,850  
    Total other assets     416,749       442,796  
    $ 2,246,095     $ 2,187,351  
                 
CAPITALIZATION AND LIABILITIES                
Capitalization:                
  Common stock, $.01 par value   $ 479     $ 478  
  Additional paid-in capital     333,135       330,558  
  Retained earnings     308,541       295,590  
    Total common stockholders' equity     642,155       626,626  
  Long-term debt, less current maturities     512,287       419,233  
    Total capitalization     1,154,442       1,045,859  
                 
Current liabilities:                
  Current maturities of long-term debt     6,600       6,607  
  Short-term borrowings     33,615       79,115  
  Accounts payable     66,380       59,395  
  Regulatory balancing accounts     2,227       6,126  
  Accrued interest     5,088       4,194  
  Accrued expenses and other liabilities     34,545       62,269  
    Total current liabilities     148,455       217,706  
                 
Unamortized investment tax credits     1,872       2,032  
Deferred income taxes, net     264,897       214,842  
Pension and postretirement benefits other than pensions     236,266       270,865  
Regulatory and other liabilities     82,414       83,279  
Advances for construction     180,172       182,284  
Contributions in aid of construction     177,577       170,484  
Commitments and contingencies                
    $ 2,246,095     $ 2,187,351  
                 
                 
CALIFORNIA WATER SERVICE GROUP            
CONDENSED CONSOLIDATED STATEMENTS OF INCOME            
Unaudited            
(In thousands, except per share data)            
             
For the Three-Months ended:            
    December 31,     December 31,  
    2015     2014  
             
Operating revenue   $ 138,426     $ 137,384  
Operating expenses:                
  Operations:                
    Water production costs     49,265       49,644  
    Administrative and General     28,041       24,671  
    Other operations     16,021       17,735  
  Maintenance     5,728       5,061  
  Depreciation and amortization     15,366       14,429  
  Income tax expense     3,520       4,143  
  Property and other taxes     5,523       5,132  
    Total operating expenses     123,464       120,815  
                 
    Net operating income     14,962       16,569  
                 
Other income and expenses:                
  Non-regulated revenue     5,084       5,155  
  Non-regulated expenses, net     (3,528 )     (3,050 )
  Income tax (expense) on other income and expenses     (630 )     (854 )
    Net other income     926       1,251  
                 
Interest expense:                
  Interest Expense     7,854       7,110  
  Less: capitalized interest     (443 )     (684 )
    Net interest expense     7,411       6,426  
                 
Net income   $ 8,477     $ 11,394  
                 
Earnings per share                
  Basic   $ 0.18     $ 0.24  
  Diluted   $ 0.18     $ 0.24  
Weighted average shares outstanding                
  Basic     47,876       47,806  
  Diluted     47,886       47,842  
Dividends per share of common stock   $ 0.16750     $ 0.16250  
                 
             
CALIFORNIA WATER SERVICE GROUP            
CONDENSED CONSOLIDATED STATEMENTS OF INCOME            
Unaudited            
(In thousands, except per share data)            
             
For the Twelve-Months ended:            
    December 31,     December 31,  
    2015     2014  
             
Operating revenue   $ 588,368     $ 597,499  
Operating expenses:                
  Operations:                
    Water production costs     207,926       223,941  
    Administrative and General     113,110       97,373  
    Other operations     67,248       65,807  
  Maintenance     21,463       19,854  
  Depreciation and amortization     61,381       61,217  
  Income taxes     24,528       26,727  
  Property and other taxes     21,559       20,733  
    Total operating expenses     517,215       515,652  
                 
    Net operating income     71,153       81,847  
                 
Other income and expenses:                
  Non-regulated revenue     15,624       17,318  
  Non-regulated expenses, net     (13,729 )     (14,234 )
  Income tax (expense) on other income and expenses     (761 )     (1,245 )
    Net other income     1,134       1,839  
                 
Interest expense:                
  Interest Expense     29,185       28,483  
  Less: capitalized interest     (1,915 )     (1,535 )
    Net interest expense     27,270       26,948  
                 
Net income   $ 45,017     $ 56,738  
                 
Earnings per share                
  Basic   $ 0.94     $ 1.19  
  Diluted   $ 0.94     $ 1.19  
Weighted average shares outstanding                
  Basic     47,865       47,791  
  Diluted     47,880       47,829  
Dividends per share of common stock   $ 0.6700     $ 0.6500  
                 

Contact Information

  • Contact:
    Tom Smegal
    (408) 367-8200 (analysts)
    Shannon Dean
    (310) 257-1435 (media)