SOURCE: California Water Service Group

California Water Service Group

October 28, 2015 18:45 ET

California Water Service Group Announces Third Quarter Results

SAN JOSE, CA--(Marketwired - Oct 28, 2015) - California Water Service Group (NYSE: CWT) today announced net income for the third quarter of 2015 of $25.1 million or $0.52 per diluted common share, compared to net income of $33.7 million or $0.70 per diluted common share for the third quarter of 2014. Net income decreased $8.6 million during the third quarter of 2015 compared to the third quarter of 2014 principally due to two non-recurring items in 2014. 

First, in the third quarter of 2014 the Company recorded interim revenue recovery approved by the California Public Utilities Commission (Commission) in its August 2014 General Rate Case (GRC) Decision for California Water Service Company (Cal Water). The additional revenue of $10.3 million, covering the interim rate period of January through June 2014, along with balancing account adjustments, resulted in $6.8 million additional net income in the third quarter of 2014. Additionally, third quarter 2014 results also included a non-recurring $2.3 million tax benefit. 

For the third quarter of 2015, total revenue decreased $7.7 million, or 4%, to $183.5 million, compared to revenue of $191.2 million for the third quarter of 2014. The largest factor in the revenue decrease was the California GRC interim revenue booked in the third quarter of 2014. There was also a $1.3 million decrease in revenue due to the net effect of rate base offsets, other rate changes, service revenue changes, and balancing account entries. Revenue decreases were partially offset by a $3.9 million increase in accrued estimated unbilled revenue in the current quarter. Increase estimated unbilled revenue resulted from higher usage at the end of the quarter as compared to usage at the end of the second quarter of 2015 and the introduction of drought surcharges this quarter. Estimated unbilled revenue is not included in the water revenue adjustment mechanism (WRAM) until it is billed. The estimated unbilled revenue accrual fluctuates on a quarterly and annual basis.

Total operating expenses increased $0.9 million to $151.3 million for the third quarter of 2015 compared to operating expenses of $150.4 million for the third quarter of 2014, principally due to employee wages and benefits which increased $3.0 million, costs attributable to the California drought program which increased $1.4 million, conservation program costs which increased $1.0 million, and uninsured loss costs which increased $1.4 million. These were partially offset by a $6.5 million, or 10%, reduction in water production expenses. Total water production decreased by 19% during the third quarter of 2015 compared to the third quarter of 2014 due primarily to California drought restrictions.

The majority of changes in employee pension and other postretirement benefits, health care, and water conservation program expenses for regulated California operations did not affect net income because the Company is permitted by the Commission to track these costs in balancing accounts for future recovery.

Maintenance expense increased $1.2 million, or 24%, to $6.0 million, primarily due to increases in repair costs for transmission, distribution, and service mains and pump equipment. 

Depreciation and amortization expense increased $0.7 million, or 5%, to $15.3 million, due to capital additions.

Income taxes decreased $3.9 million to $15.3 million in the third quarter of 2015 as compared to third quarter of 2014, primarily due to a $12.3 million decrease in pre-tax income in the third quarter of 2015, which was partially offset by the $2.3 million tax benefit in 2014. 

Other income, net of income taxes, decreased $0.2 million to a loss of $0.4 million in the third quarter of 2015 compared to third quarter of 2014, primarily due to an unrealized loss on our benefit plan insurance investments. 

Net interest expense decreased $0.2 million, or 4%, to $6.7 million in the third quarter of 2015 compared to third quarter of 2014, primarily due to an increase in interest charged to construction projects.

During the first nine months of 2015, the total company-funded and developer-funded investment in utility plant was $118.3 million, up 37% or $32.0 million from $86.3 million in the first nine months of 2014. 

On October 13, 2015, Cal Water sold $100 million in aggregate principal amount of First Mortgage Bonds in a private placement to refinance short-term indebtedness and for general corporate purposes. Cal Water has used short-term indebtedness to fund investments in utility plant. Cal Water has agreed to sell an additional $50 million in aggregate principal amount of First Mortgage Bonds on March 11, 2016 subject to customary closing conditions.

"During the third quarter of 2015, our California customers excelled at reducing their water consumption in response to the Governor's emergency drought declaration. We are committed to meeting the State's reduction targets, and we are headed in the right direction for the remaining five months of the emergency drought declaration period. We continue to take a customer-first approach and we are working hand-in-hand with customers," said Martin A. Kropelnicki, President and Chief Executive Officer. 

"The Company's operating results are in line with our projections and reflect our efforts to help customers reduce consumption. The success of our water conservation program also resulted in significant reductions to water production costs during the third quarter," he said. 

"As we move into the fourth quarter of 2015, we will continue our customer-first approach while continuing to focus on operating efficiently and investing prudently in capital to deliver results for our shareholders and high-quality, reliable water service to our customers," Kropelnicki said. 

Drought Update

During the quarter, Cal Water billed $23.6 million in drought surcharges to its customers who exceeded their water budget targets. The drought surcharges offset the WRAM net receivable balance under Commission approvals. The net receivable balance in the WRAM and modified cost balancing account (MCBA) mechanism was $42.5 million at the end of the third quarter, down 12% or $5.2 million from the balance at the end of the second quarter of $47.9 million.

The majority of Cal Water service areas are in compliance with the drought emergency declaration, with all districts making substantial progress toward conservation goals. Cal Water has incurred $3.1 million in incremental drought expenses during 2014 and 2015, including $1.8 million in the third quarter. Cal Water will request to recover these costs in a future period after a reasonableness review by the Commission.

All stockholders and interested investors are invited to listen to the 2015 third quarter conference call scheduled for Thursday, October 29, 2015 at 11:00 a.m. ET. It may be accessed by dialing 1-888-329-8893 or 1-719-325-2464 and keying in ID# 6725942. A replay of the call will be available from 2:00 p.m. ET on Thursday, October 29, 2015 through December 29, 2015, at 1-888-203-1112 or 1-719-457-0820, ID# 6725942. The call, which will be hosted by President and Chief Executive Officer Martin A. Kropelnicki and Vice President and 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, 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 more than 2 million people in 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 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; 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, 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,  
  2015     2014  
ASSETS              
Utility plant:              
  Utility plant $ 2,460,829     $ 2,342,471  
  Less accumulated depreciation and amortization   (797,264 )     (752,040 )
    Net utility plant   1,663,565       1,590,431  
               
Current assets:              
  Cash and cash equivalents   50,825       19,587  
  Receivables:              
    Customers   41,574       25,803  
    Regulatory balancing accounts   38,112       53,199  
    Other   14,369       14,136  
  Unbilled revenue   31,276       23,740  
  Materials and supplies at weighted average cost   6,087       6,041  
  Taxes, prepaid expenses, and other assets   8,823       11,618  
    Total current assets   191,066       154,124  
               
Other assets:              
  Regulatory assets   398,535       390,331  
  Goodwill   2,615       2,615  
  Other assets   50,739       49,850  
    Total other assets   451,889       442,796  
  $ 2,306,520     $ 2,187,351  
               
CAPITALIZATION AND LIABILITIES              
Capitalization:              
  Common stock, $.01 par value $ 479     $ 478  
  Additional paid-in capital   332,290       330,558  
  Retained earnings   308,083       295,590  
    Total common stockholders' equity   640,852       626,626  
  Long-term debt, less current maturities   416,447       419,233  
    Total capitalization   1,057,299       1,045,859  
               
Current liabilities:              
  Current maturities of long-term debt   6,565       6,607  
  Short-term borrowings   136,615       79,115  
  Accounts payable   77,261       59,395  
  Regulatory balancing accounts   1,870       6,126  
  Accrued interest   9,678       4,194  
  Accrued expenses and other liabilities   68,781       62,269  
    Total current liabilities   300,770       217,706  
               
Unamortized investment tax credits   1,947       2,032  
Deferred income taxes, net   236,443       214,842  
Pension and postretirement benefits other than pensions   276,525       270,865  
Regulatory liabilities and other   76,799       83,279  
Advances for construction   180,805       182,284  
Contributions in aid of construction   175,932       170,484  
Commitments and contingencies   -       -  
  $ 2,306,520     $ 2,187,351  
               
               
               
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,  
  2015     2014  
               
Operating revenue $ 183,543     $ 191,184  
Operating expenses:              
  Operations:              
    Water production costs   60,437       66,980  
    Administrative and general   30,737       23,765  
    Other operations   17,872       15,692  
  Maintenance   5,952       4,800  
  Depreciation and amortization   15,342       14,648  
  Income taxes   15,293       19,233  
  Property and other taxes   5,709       5,232  
    Total operating expenses   151,342       150,350  
               
    Net operating income   32,201       40,834  
               
Other income and expenses:              
  Non-regulated revenue   3,814       4,409  
  Non-regulated expenses, net   (4,454 )     (4,812 )
  Income tax benefit on other income and expenses   262       169  
    Net other loss   (378 )     (234 )
               
Interest expense:              
  Interest expense   7,201       7,221  
  Less: capitalized interest   (498 )     (271 )
    Net interest expense   6,703       6,950  
               
Net income $ 25,120     $ 33,650  
               
Earnings per share              
  Basic $ 0.52     $ 0.70  
  Diluted $ 0.52     $ 0.70  
Weighted average shares outstanding              
  Basic   47,878       47,803  
  Diluted   47,887       47,840  
Dividends declared per share of common stock $ 0.16750     $ 0.1625  
               
               
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  
  2015     2014  
               
Operating revenue $ 449,942     $ 460,115  
Operating expenses:              
  Operations:              
    Water production costs   158,661       174,297  
    Administrative and general   85,069       72,702  
    Other operations   51,227       48,072  
  Maintenance   15,735       14,793  
  Depreciation and amortization   46,015       46,788  
  Income taxes   21,008       22,584  
  Property and other taxes   16,036       15,601  
    Total operating expenses   393,751       394,837  
               
    Net operating income   56,191       65,278  
               
Other income and expenses:              
  Non-regulated revenue   10,540       12,163  
  Non-regulated expenses, net   (10,201 )     (11,184 )
  Income tax (expense) on other income and expenses   (131 )     (391 )
    Net other income   208       588  
               
Interest expense:              
  Interest expense   21,331       21,373  
  Less: capitalized interest   (1,472 )     (851 )
    Net interest expense   19,859       20,522  
               
Net income $ 36,540     $ 45,344  
               
Earnings per share              
  Basic $ 0.76     $ 0.95  
  Diluted $ 0.76     $ 0.95  
Weighted average shares outstanding              
  Basic   47,861       47,787  
  Diluted   47,877       47,825  
Dividends declared per share of common stock $ 0.5025     $ 0.4875  
               

1720 North First Street
San Jose, CA 95112-4598

Contact Information

  • Contact:

    Tom Smegal
    (408) 367-8200 (analysts)

    Shannon Dean
    (310) 257-1435 (media)