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EX-99.2 - EX-99.2 - CALIFORNIA WATER SERVICE GROUPa17-24508_1ex99d2.htm
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Exhibit 99.1

 

NEWS RELEASE
CALIFORNIA WATER SERVICE GROUP

 

 

 

1720 North First Street

October 26, 2017

 

San Jose, CA 95112-4598

for immediate release

 

 

 

Contact:

Tom Smegal (408) 367-8200 (analysts)

 

 

Shannon Dean (408) 367-8243 (media)

 

 

 

 

 

CALIFORNIA WATER SERVICE GROUP ANNOUNCES

 

EARNINGS FOR THE THIRD QUARTER 2017

 

SAN JOSE, CA — California Water Service Group (NYSE: CWT) today announced net income of $33.8 million or $0.70 earnings per diluted common share for the third quarter of 2017, compared to a net income of $22.9 million or $0.48 earnings per diluted common share for the third quarter of 2016.

 

The $10.9 million increase in net income was primarily the result of rate changes authorized in California Water Service Company’s (Cal Water’s) 2015 General Rate Case (GRC) decision.  Also increasing net income was an increase in unbilled revenue, increases resulting from the adoption of allowance for equity funds used during construction (equity AFUDC) in 2017, and a decrease in emergency drought incremental expenses over the same period last year. These factors were partially offset by increases in administrative and general, other operations, maintenance, depreciation and amortization, and interest expenses.

 

For the third quarter, total revenue increased $27.5 million to $211.7 million, compared to revenue of $184.3 million for the same period last year. Rate increases added $14.4 million, $2.4 million of which was related to increased water costs. Accrued unbilled revenue added $3.4 million.  Decoupling mechanisms and other balancing accounts, including changes in deferred revenue, increased revenue $6.7 million.

 



 

According to President and Chief Executive Officer Martin A. Kropelnicki, quarterly operating results were in line with the Company’s expectations.

 

“In addition to delivering solid financial results, we continued to maintain and improve our water systems to fulfill our promise to provide customers with quality, service, and value.  We also worked with our cities and counties to improve joint emergency response capabilities, which is particularly important in light of the recent fires in California.  Safety is paramount in everything we do, especially given the importance of our service to the customers and communities we serve,” he added.

 

Total operating expenses increased $16.3 million, or 10.6%, to $170.5 million for the third quarter of 2017, compared to operating expenses of $154.2 million for the third quarter of 2016.

 

Water production expenses increased $5.1 million, or 7.2%, to $75.3 million for the third quarter of 2017, compared to prior year water production expenses of $70.2 million, primarily due to a 5.5% increase in customer usage and an average increase of 0.8% in wholesale supplier rates.

 

Administrative and general and other operations expenses increased $2.7 million to $46.1 million in the third quarter of 2017, as compared to $43.4 million in the third quarter of 2016.  Driving this increase was a change in deferred expenses which increased expenses $3.2 million. The company’s deferred expenses and corresponding deferred revenue are related to the timing of recovery of regulatory balancing accounts. In addition, the company expensed $1.1 million of capital costs in the third quarter as compared to $3.2 million in the same period last year.  Other changes included increased health care costs and uninsured loss expenses and decreases in incremental drought expenses. Changes in employee pension and other postretirement benefit costs, water conservation program costs, and medical costs for regulated California operations generally do not affect earnings, because the Company tracks these costs in balancing accounts for future recovery, which creates a corresponding change to operating revenue.

 



 

Depreciation and amortization expense increased $3.3 million, or 21.1%, to $19.2 million in the third quarter of 2017, as compared to $15.9 million in the third quarter of 2016, due to 2016 capital additions.

 

Income tax expense increased $4.1 million, or 31.0%, to $17.3 million in the third quarter of 2017, as compared to $13.2 million in the third quarter of 2016 due primarily to an increase in operating income.  The Company’s fiscal year 2017 effective tax rate is estimated at 37%.

 

Other income, net of income taxes, increased $0.7 million in the third quarter of 2017 to $1.2 million mostly due to the implementation of equity AFUDC and an increase in the unrealized gains on certain benefit plan investments.

 

Net interest expense increased $0.9 million, or 11.2%, to $8.6 million in the third quarter of 2017, as compared to $7.7 million in the third quarter of 2016.  The increase was due to increased use of short term financing for capital investments as well as increased short-term interest rates.

 



 

The under-collected net water revenue adjustment mechanism (WRAM) and modified cost balancing account (MCBA) net receivable balance increased 12.4% or $6.8 million to $61.6 million as of September 30, 2017 from $54.8 million as of June 30, 2017. The increase was due to water sales volumes, which on a year to date basis were 19% less than those adopted in the recent California GRC. Year-to-date sales were up 4.9% compared to the same period last year, but they are still below those recorded prior to the California drought.

 

Year-to-Date Results

 

For the nine-month period ended September 30, 2017, net income was $53.5 million or $1.11 earnings per diluted common share, compared to net income of $33.6 million or $0.70 earnings per diluted common share for the nine-month period ended September 30, 2016.

 

The $19.9 million increase in net income was primarily the result of increased rates adopted in the recent California GRC and decreases in emergency drought incremental costs and maintenance expenses, as well as increases resulting from the implementation of equity AFUDC in 2017 and unrealized gains on certain benefit plan investments.  These factors were partially offset by increases in depreciation and amortization, interest, and employee wage expenses.

 

Water System Improvements

 

During the first nine months of 2017, the total Company-funded and developer-funded capital investment was $180.4 million, an increase of $14.0 million, or 8.4%, compared to $166.4 million in the first nine months of 2016.

 



 

Regulatory Update

 

Cal Water expects to submit an advice letter to request recovery of 2016 and 2017 incremental drought expenses before the end of the year.

 

Cal Water will also submit advice letters to implement escalation rate increases in its California operations before the end of the year with rates effective in January 2018.

 

On September 15, 2017, the Hawaii Public Utilities Commission issued a proposed decision authorizing a $0.8 million increase in revenues on an annual basis. Pursuant to a settlement agreement between Hawaii Water and the Consumer Advocate, the revenue increase will be phased-in over four years, $0.2 million per year. The first phase of the increase was effective on October 18, 2017.

 

Other Information

 

All stockholders and interested investors are invited to listen to the third quarter of 2017 conference call on October 26, 2017 at 8:00 a.m. PDT (11:00 a.m. EDT) by dialing 1-833-832-5130 or 1-509-844-0151 and keying in ID# 97457125.  A replay of the call will be available from 11:00 a.m. PDT (2:00 p.m. EDT) on October 26, 2017 through December 26, 2017, at 1-855-859-2056 or 1-404-537-3406, ID # 97457125.  The replay will also be available under the investor relations tab at www.calwatergroup.com.  Prior to the call, Cal Water will post a slide presentation on its website.  The presentation can be found at www.calwatergroup.com/docs/2017q3slides.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, Washington Water Service, New Mexico Water Service, Hawaii Water Service, CWS Utility Services, and HWS Utility Services. Together, these companies provide regulated and non-regulated water service to nearly 2 million people in California, Washington, New Mexico, and Hawaii. California Water Service 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, 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

 

 

 

September 30,

 

December 31,

 

(In thousands, except per share data)

 

2017

 

2016

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,892,666

 

$

2,717,339

 

Less accumulated depreciation and amortization

 

(910,742

)

(858,062

)

Net utility plant

 

1,981,924

 

1,859,277

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

28,341

 

25,492

 

Receivables

 

 

 

 

 

Customers

 

46,963

 

30,305

 

Regulatory balancing accounts

 

31,364

 

30,332

 

Other

 

16,438

 

17,158

 

Unbilled revenue

 

38,491

 

25,228

 

Materials and supplies at average cost

 

6,344

 

6,292

 

Taxes, prepaid expense, and other assets

 

12,544

 

7,262

 

Total current assets

 

180,485

 

142,069

 

Other assets:

 

 

 

 

 

Regulatory assets

 

379,884

 

355,930

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

58,196

 

51,854

 

Total other assets

 

440,695

 

410,399

 

TOTAL ASSETS

 

$

2,603,104

 

$

2,411,745

 

 

 

 

 

 

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value

 

$

480

 

$

480

 

Additional paid-in capital

 

335,516

 

334,856

 

Retained earnings

 

351,727

 

324,135

 

Total common stockholders’ equity

 

687,723

 

659,471

 

Long-term debt, less current maturities

 

519,700

 

531,745

 

Total capitalization

 

1,207,423

 

1,191,216

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

36,015

 

26,208

 

Short-term borrowings

 

195,100

 

97,100

 

Accounts payable

 

89,394

 

77,813

 

Regulatory balancing accounts

 

4,545

 

4,759

 

Accrued interest

 

12,763

 

5,661

 

Accrued expenses and other liabilities

 

42,544

 

38,689

 

Total current liabilities

 

380,361

 

250,230

 

Unamortized investment tax credits

 

1,798

 

1,798

 

Deferred income taxes

 

329,506

 

298,924

 

Pension and postretirement benefits other than pensions

 

227,819

 

222,691

 

Regulatory liability and Other

 

91,006

 

83,648

 

Advances for construction

 

182,820

 

182,448

 

Contributions in aid of construction

 

182,371

 

180,790

 

Commitments and contingencies

 

 

 

TOTAL CAPITALIZATION AND LIABILITIES

 

$

2,603,104

 

$

2,411,745

 

 



 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

 

 

September 30,

 

September 30,

 

For the Three-Months ended:

 

2017

 

2016

 

 

 

 

 

 

 

Operating revenue

 

$

211,731

 

$

184,268

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

75,261

 

70,175

 

Administrative and general

 

24,886

 

23,844

 

Other operations

 

21,208

 

19,561

 

Maintenance

 

6,057

 

5,545

 

Depreciation and amortization

 

19,231

 

15,884

 

Income taxes

 

17,348

 

13,247

 

Property and other taxes

 

6,544

 

5,957

 

Total operating expenses

 

170,535

 

154,213

 

 

 

 

 

 

 

Net operating income

 

41,196

 

30,055

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

3,542

 

3,397

 

Non-regulated expenses

 

(2,576

)

(2,517

)

Allowance for equity funds used during construction

 

1,105

 

 

 

Income tax expense on other income and expenses

 

(841

)

(349

)

Net other income

 

1,230

 

531

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest Expense

 

9,284

 

8,485

 

Allowance for borrowed funds used during construction

 

(707

)

(774

)

Net interest expense

 

8,577

 

7,711

 

 

 

 

 

 

 

Net income

 

$

33,849

 

$

22,875

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.70

 

$

0.48

 

Diluted

 

$

0.70

 

$

0.48

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

48,017

 

47,969

 

Diluted

 

48,017

 

47,969

 

Dividends per share of common stock

 

$

0.1800

 

$

0.1725

 

 



 

 

 

September 30,

 

September 30,

 

For the Nine-Months ended:

 

2017

 

2016

 

 

 

 

 

 

 

Operating revenue

 

$

504,899

 

$

458,440

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

181,460

 

168,833

 

Administrative and general

 

73,931

 

75,037

 

Other operations

 

55,660

 

57,766

 

Maintenance

 

16,877

 

17,542

 

Depreciation and amortization

 

57,650

 

47,772

 

Income taxes

 

26,099

 

19,192

 

Property and other taxes

 

18,717

 

17,439

 

Total operating expenses

 

430,394

 

403,581

 

 

 

 

 

 

 

Net operating income

 

74,505

 

54,859

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

10,743

 

10,589

 

Non-regulated expenses

 

(6,244

)

(8,306

)

Allowance for equity funds used during construction

 

2,763

 

 

 

Income tax expense on other income and expenses

 

(2,947

)

(914

)

Net other income

 

4,315

 

1,369

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Interest Expense

 

27,073

 

24,984

 

Allowance for borrowed funds used during construction

 

(1,765

)

(2,341

)

Net interest expense

 

25,308

 

22,643

 

 

 

 

 

 

 

Net income

 

$

53,512

 

$

33,585

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

Basic

 

$

1.11

 

$

0.70

 

Diluted

 

$

1.11

 

$

0.70

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

48,007

 

47,949

 

Diluted

 

48,007

 

47,952

 

Dividends per share of common stock

 

$

0.5400

 

$

0.5175