SOURCE: California Water Service Group

California Water Service Group

April 28, 2016 09:00 ET

California Water Service Group Announces Revenues and Operating Results for the First Quarter 2016

SAN JOSE, CA--(Marketwired - Apr 28, 2016) -  California Water Service Group (NYSE: CWT) today announced a net loss of $0.8 million, or $0.02 net loss per diluted share, for the first quarter of 2016, compared to net income of $1.6 million, or $0.03 net income per diluted share, for the first quarter of 2015.

The decrease in net income was attributable to increases in incremental drought costs, maintenance expense, and interest expense. Total revenue decreased $0.3 million, or 0.2%, to $121.7 million for the first quarter of 2016 as compared to revenue of $122.0 million for the first quarter of 2015. Rate increases added $6.1 million, $5.0 million of which was related to water production cost increases. Revenue decoupling mechanisms and other balancing accounts reduced revenue $11.5 million due to a decrease in customer usage during the first quarter of 2016. All other changes added $5.1 million.

According to President and Chief Executive Officer Martin A. Kropelnicki, the quarterly operating results were in line with the Company's expectations, excluding first quarter increases in drought and associated maintenance costs.

"California's historic drought and the associated $2.0 million of incremental drought costs in the first quarter put pressure on our operating results. However, we expect to recover drought-related expenses at a future date," Kropelnicki said. 

Drought costs are tracked in a memorandum account authorized by the California Public Utilities Commission (CPUC) and will be recoverable from customers after a reasonableness review.

Total operating expenses increased $1.0 million, or 0.9%, to $115.5 million for the first quarter of 2016 as compared to operating expenses of $114.5 million for the first quarter of 2015.

Water production expenses decreased $4.1 million, or 9.1%, to $41.1 million for the first quarter of 2016 as compared to prior year water production expenses of $45.2 million, due primarily to the reduction in customer water usage 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 and general and other operations expenses increased $3.6 million, or 8.3%, to $47.1 million for the first quarter of 2016, due primarily to increases in California drought program incremental costs of $2.0 million, outside service fees of $0.7 million, and on-going conservation program costs of $0.6 million. These cost increases were partially offset by a decrease in employee pension benefits of $0.9 million. Changes in employee pension benefits, employee and retiree health care, and on-going water conservation program costs for regulated California operations are tracked with authorized balancing accounts and generally do not affect earnings.

Maintenance expenses increased $1.6 million, or 36.0%, to $6.1 million for the first quarter of 2016 as compared to expenses of $4.5 million for the first quarter of 2015, due to increased costs for repairs of transmission and distribution mains, services, wells, and water treatment equipment.

Income taxes decreased $1.5 million in the first quarter of 2016 as compared to first quarter of 2015, due primarily to a $3.6 million decrease to pre-tax income and a tax benefit of $0.2 million. The Company's fiscal year 2016 effective tax rate is estimated at 37%.

Other income, net of income taxes, decreased $0.3 million in 2016 due to an unrealized loss on our benefit plan insurance investments.

Company-funded and developer-funded capital expenditures for the first quarter of 2016 were $56.5 million, an increase of $21.5 million, or 61.1%, compared to $35.0 million in the first quarter of 2015.

The under-collected water revenue adjustment mechanism (WRAM) and modified cost balancing account (MCBA) net receivable balance was down 17%, or $6.9 million, to $33.6 million as of March 31, 2016 compared to $40.5 million as of December 31, 2015, primarily due to drought surcharges. California drought surcharges were $11.4 million during the first quarter of 2016 and $48.4 million for the period from July 1, 2015 to March 31, 2016.

In March 2016, California Water Service Company (Cal Water) closed $50.0 million of first mortgage bonds in a previously announced private placement to support infrastructure investments needed to provide a safe and reliable water supply to our customers.

Regulatory Update

In July 2015, Cal Water filed a General Rate Case (GRC) application seeking rate increases in all regulated operating districts in California effective 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. The primary reason for the requested revenue increase was a proposed capital program of $693.0 million in districts throughout California over the three-year period from January 1, 2016 through December 31, 2018. The GRC process considers the views of several interveners, including the Office of Ratepayer Advocates (ORA). Many of these parties have submitted testimony and the company is in the process of filing responsive rebuttal testimony before moving to settlement discussions and hearings later in the year.

"We've achieved notable progress on the 2015 General Rate Case in California and continue our work with interveners. Our goal is to finalize the rate case before the end of this year," Kropelnicki said.

Other Information

All stockholders and interested investors are invited to listen to the first quarter of 2016 conference call on April 28, 2016 at 8:00 a.m. PST (11:00 a.m. EST) by dialing 1-888-427-9411 or 1-719-325-2144 and keying in ID #9747630. A replay of the call will be available from 11:00 a.m. PST (2:00 p.m. EST) on April 28, 2016 through June 28, 2016, at 1-888-203-1112 or 1-719-457-0820, ID #9747630. 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 can be found at www.calwatergroup.com/docs/earningsslidesmarch2016.pdf after 6:00 a.m. PDT. 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) March 31,     December 31  
  2016     2015  
ASSETS              
Utility plant:              
  Utility plant $ 2,560,787     $ 2,506,946  
  Less accumulated depreciation and amortization   (821,108 )     (805,178 )
    Net utility plant   1,739,679       1,701,768  
               
Current assets:              
  Cash and cash equivalents   30,878       8,837  
  Receivables:              
    Customers   31,397       31,512  
    Regulatory balancing accounts   31,554       35,052  
    Other   12,741       14,760  
  Unbilled revenue   25,522       23,181  
  Materials and supplies at weighted average cost   6,321       6,339  
  Taxes, prepaid expense, and other assets   10,108       7,897  
    Total current assets   148,521       127,578  
               
Other assets:              
  Regulatory assets   361,249       361,893  
  Goodwill   2,615       2,615  
  Other assets   47,741       47,399  
    Total other assets   411,605       411,907  
  $ 2,299,805     $ 2,241,253  
               
CAPITALIZATION AND LIABILITIES              
Capitalization:              
  Common stock, $.01 par value $ 480     $ 479  
  Additional paid-in capital   333,002       333,135  
  Retained earnings   299,485       308,541  
    Total common stockholders' equity   632,967       642,155  
  Long-term debt, less current maturities   557,849       508,002  
    Total capitalization   1,190,816       1,150,157  
               
Current liabilities:              
  Current maturities of long-term debt   6,113       6,043  
  Short-term borrowings   34,500       33,615  
  Accounts payable   65,354       66,380  
  Regulatory balancing accounts   1,075       2,227  
  Accrued interest   11,611       5,088  
  Accrued expenses and other liabilities   39,490       34,545  
    Total current liabilities   158,143       147,898  
               
Unamortized investment tax credits   1,872       1,872  
Deferred income taxes, net   264,153       264,897  
Pension and postretirement benefits other than pensions   239,164       236,266  
Regulatory liabilities and other   88,018       82,414  
Advances for construction   180,210       180,172  
Contributions in aid of construction   177,429       177,577  
Commitments and contingencies   -       -  
  $ 2,299,805     $ 2,241,253  
               
           
           
CALIFORNIA WATER SERVICE GROUP          
CONDENSED CONSOLIDATED STATEMENTS OF INCOME          
Unaudited          
(In thousands, except per share data)          
           
For the Three-Months ended:          
  March 31,     March 31,  
  2016     2015  
               
Operating revenue $ 121,727     $ 121,985  
Operating expenses:              
  Operations:              
    Water production costs   41,069       45,202  
    Administrative and General   27,827       27,695  
    Other operations   19,302       15,843  
  Maintenance   6,063       4,457  
  Depreciation and amortization   16,046       15,319  
  Income tax (benefit) expense   (925 )     613  
  Property and other taxes   6,075       5,359  
    Total operating expenses   115,457       114,488  
                 
    Net operating income   6,270       7,497  
               
Other income and expenses:              
  Non-regulated revenue   3,428       3,247  
  Non-regulated expenses, net   (2,980 )     (2,243 )
  Income tax (expense) on other income and expenses   (181 )     (403 )
    Net other income   267       601  
               
Interest expense:              
  Interest Expense   8,065       7,069  
  Less: capitalized interest   (730 )     (546 )
    Net interest expense   7,335       6,523  
               
Net (loss) income $ (798 )   $ 1,575  
               
Net (loss) income per share              
  Basic $ (0.02 )   $ 0.03  
  Diluted $ (0.02 )   $ 0.03  
Weighted average shares outstanding              
  Basic   47,905       47,825  
  Diluted   47,905       47,854  
Dividends per share of common stock $ 0.1725     $ 0.1675  
               

Contact Information

  • Contact:

    Tom Smegal
    (408) 367-8200 (analysts)

    Shannon Dean
    (310) 257-1435 (media)