SOURCE: California Water Service Group

California Water Service Group

October 29, 2014 17:08 ET

California Water Service Group Announces Third Quarter 2014 Results

SAN JOSE, CA--(Marketwired - Oct 29, 2014) -  California Water Service Group (NYSE: CWT) today announced net income of $33.7 million or $0.70 per diluted common share for the third quarter of 2014, compared to net income of $29.2 million or $0.61 per diluted common share for the third quarter of 2013. 

Revenue for the third quarter of 2014 was $191.2 million, compared to revenue of $184.4 million in third quarter of 2013. The largest driver of the $6.8 million revenue increase was the recognition of interim revenue associated with the California Water Service Company (Cal Water) General Rate Case (GRC) decision on August 14, 2014. During the third quarter of 2014, the delayed GRC decision resulted in the recognition of $21.6 million of interim rate revenue which was partially offset by a $15.0 million decrease in adopted Water Rate Adjustment Mechanism (WRAM) and Modified Cost Balancing Account Mechanism (MCBA) revenue due to a 13% decrease in the adopted sales volume. WRAM revenue also decreased due to the GRC decision which changed Cal Water's revenue mix to increase fixed rate charge revenue and decrease quantity based revenue. As a result of the authorized rate design changes in the new GRC, the Company expects to realize more of its annual revenue during the first and fourth quarters as compared to the prior GRC. 

Total operating expenses for the third quarter of 2014 increased $1.8 million, or 1%, to $150.4 million. Reduced expenses in water production, administrative and general, other operations, and property taxes were offset by increases in income taxes, maintenance, and depreciation expenses. Water production expenses decreased $3.6 million, or 5%, to $67.0 million mostly due to a decrease in customer consumption during the third quarter of 2014. Administrative & general and other operations expenses decreased $2.9 million, or 7%, to $39.5 million mostly due to a decrease in pension benefit and conservation program expenses. Cal Water's water production, pension benefit, conservation program, and medical costs are subject to balancing account treatment so that changes in these costs are offset by revenue adjustments. Income taxes increased $8.1 million, or 72%, to $19.2 million due to an increase in pre-tax operating income and a reduction in tax benefits during the third quarter of 2014. Tax benefits were $2.3 million during the third quarter of 2014 compared to $4.1 million during the third quarter of 2013. Maintenance expense increased $0.2 million, or 5%, to $4.8 million, while depreciation expense increased $0.1 million, or 1%, to $14.6 million. 

Net other income was a loss of $0.2 million during the third quarter of 2014 compared to income of $0.5 million during the third quarter of 2013. The $0.7 million decrease was primarily due to an increase in corporate development costs recognized during the third quarter of 2014. 

Net interest expense decreased $0.2 million, or 3%, to $7.0 million due to a reduction in long-term debt.

On August 14, 2014, the California Public Utilities Commission adopted the proposed GRC settlement. The decision authorizes Cal Water to increase rates by $45.3 million, or 9.2%, in 2014; and by $10.1 million, or 1.9%, in 2015; and $10.0 million, or 1.8%, in 2016 subject to the Commission's escalation earnings test. In addition, the decision authorizes Cal Water to invest $449.4 million in new capital throughout California over the three-year period from January 1, 2013 through December 31, 2015. Included in the $449.4 million in water system infrastructure improvements is $128.7 million that would be recovered through the Commission's advice letter procedure upon completion of qualified projects, which is estimated to provide an additional $19.0 million in revenue. 

New rates, in association with the GRC, went into effect on customer bills on August 29, 2014. On September 25, 2014, Cal Water filed an advice letter and received approval to begin recovering the interim rates receivable balance over up to 36 months.

"We are pleased with the operating results this quarter, which included the revenue increases authorized in the Cal Water GRC decision. The decision clears the way for us to focus on infrastructure improvements and managing through the serious drought affecting California," said President and Chief Executive Officer Martin A. Kropelnicki. 

"The Commission's decision upholds the hard work Cal Water and consumer groups went through to achieve settlement. It will bring ratepayer benefits not only from continued investment, but from strong conservation programs, low income assistance, and a revamped rate support mechanism for high cost areas. All of these programs make our continued drive for quality, service, and value that much more achievable," Kropelnicki said. 

All stockholders and interested investors are invited to listen to the earnings teleconference. The 2014 third quarter conference call may be accessed by dialing 1-888-505-4375 or 1-719-457-1512 and keying in ID# 1202555. A replay of the call will be available from 2:00 p.m. ET on Thursday, Oct. 30, 2014 through Dec. 30, 2014, at 1-888-203-1112 or 1-719-457-0820, ID# 1202555. The call, which will be hosted by President and Chief Executive Officer Martin A. Kropelnicki and Vice President, Chief Financial Officer Thomas F. Smegal, 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. 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 at our web site 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; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; new legislation; changes in accounting valuations and estimates; changes in accounting treatment for regulated companies, including adoption of International Financial Reporting Standards, if required; 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; litigation that may result in damages or costs not recoverable from third parties; 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 and climate 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; our ability to attract and retain qualified employees; labor relations matters as we negotiate with the unions; federal health care law changes that could result in increases to Company health care costs and additional income tax expenses in future years; changes in federal and state income tax regulations and treatment of such by regulatory commissions; implementation of new information technology systems; changes in operations that result in an impairment to acquisition goodwill; 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; general economic conditions, including changes in customer growth patterns and our ability to collect billed revenue from customers; 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)   September 30,     December 31,  
    2014     2013  
ASSETS            
Utility plant:            
  Utility plant   $ 2,306,427     $ 2,213,328  
  Less accumulated depreciation and amortization     (745,742 )     (697,497 )
    Net utility plant     1,560,685       1,515,831  
                 
Current assets:                
  Cash and cash equivalents     29,485       27,506  
  Receivables:                
    Customers     37,070       31,468  
    Regulatory balancing accounts     45,073       30,887  
    Other     15,759       18,700  
  Unbilled revenue     29,489       17,034  
  Materials and supplies at weighted average cost     5,912       5,571  
  Taxes, prepaid expenses and other assets     14,490       8,324  
    Total current assets     177,278       139,490  
                 
Other assets:                
  Regulatory assets     277,476       251,681  
  Goodwill     2,615       2,615  
  Other assets     51,026       50,238  
    Total other assets     331,117       304,534  
    $ 2,069,080     $ 1,959,855  
                 
CAPITALIZATION AND LIABILITIES                
Capitalization:                
  Common stock, $.01 par value   $ 478     $ 477  
  Additional paid-in capital     329,840       328,364  
  Retained earnings     291,964       269,915  
    Total common stockholders' equity     622,282       598,756  
  Long-term debt, less current maturities     422,825       426,142  
    Total capitalization     1,045,107       1,024,898  
                 
Current liabilities:                
  Current maturities of long-term debt     6,619       7,908  
  Short-term borrowings     61,715       46,815  
  Accounts payable     71,867       55,087  
  Regulatory balancing accounts     6,791       1,827  
  Accrued interest     9,748       4,245  
  Accrued expenses and other liabilities     58,674       50,702  
    Total current liabilities     215,414       166,584  
                 
Unamortized investment tax credits     2,106       2,106  
Deferred income taxes, net     210,357       183,245  
Pension and postretirement benefits other than pensions     153,085       145,451  
Regulatory and other liabilities     91,713       86,455  
Advances for construction     182,172       183,393  
Contributions in aid of construction     169,126       167,723  
    $ 2,069,080     $ 1,959,855  
                 
 
 
CALIFORNIA WATER SERVICE GROUP      
CONDENSED CONSOLIDATED STATEMENTS OF INCOME      
Unaudited      
(In thousands, except per share data)      
 
For the Three-Months ended:            
    September 30,     September 30,  
    2014     2013  
             
Operating revenue   $ 191,184     $ 184,404  
Operating expenses:                
  Operations:                
    Water production costs     66,980       70,614  
    Administrative and general     23,765       24,670  
    Other operations     15,692       17,657  
  Maintenance     4,800       4,575  
  Depreciation and amortization     14,648       14,505  
  Income taxes     19,233       11,165  
  Property and other taxes     5,232       5,414  
    Total operating expenses     150,350       148,600  
                 
    Net operating income     40,834       35,804  
                 
Other income and expenses:                
  Non-regulated revenue     4,409       3,649  
  Non-regulated expenses, net     (4,812 )     (2,825 )
  Income tax benefit (expense) on other income and expenses     169       (330 )
    Net other (loss) income     (234 )     494  
                 
Interest expense:                
  Interest expense     7,221       7,687  
  Less: capitalized interest     (271 )     (540 )
    Net interest expense     6,950       7,147  
                 
Net income   $ 33,650     $ 29,151  
                 
Earnings per share                
  Basic   $ 0.70     $ 0.61  
  Diluted   $ 0.70     $ 0.61  
Weighted average shares outstanding                
  Basic     47,803       47,737  
  Diluted     47,840       47,770  
Dividends declared per share of common stock   $ 0.1625     $ 0.1600  
                 
   
   
CALIFORNIA WATER SERVICE GROUP  
CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
Unaudited  
(In thousands, except per share data)  
   
For the Nine-Months ended:            
    September 30,     September 30,  
    2014     2013  
             
Operating revenue   $ 460,115     $ 450,403  
Operating expenses:                
  Operations:                
    Water production costs     174,297       171,956  
    Administrative and general     72,702       73,106  
    Other operations     48,072       50,332  
  Maintenance     14,793       12,896  
  Depreciation and amortization     46,788       43,625  
  Income taxes     22,584       19,567  
  Property and other taxes     15,601       16,564  
    Total operating expenses     394,837       388,046  
                 
    Net operating income     65,278       62,357  
                 
Other income and expenses:                
  Non-regulated revenue     12,163       10,386  
  Non-regulated expenses, net     (11,184 )     (8,482 )
  Income tax (expense) on other income and expenses     (391 )     (765 )
    Net other income     588       1,139  
                 
Interest expense:                
  Interest expense     21,373       23,527  
  Less: capitalized interest     (851 )     (1,619 )
    Net interest expense     20,522       21,908  
                 
Net income   $ 45,344     $ 41,588  
                 
Earnings per share                
  Basic   $ 0.95     $ 0.91  
  Diluted   $ 0.95     $ 0.90  
Weighted average shares outstanding                
  Basic     47,787       45,927  
  Diluted     47,825       45,957  
Dividends declared per share of common stock   $ 0.4875     $ 0.4800  
                 

1720 North First Street
San Jose, CA 95112-4598

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