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EX-99.2 - EX-99.2 - CALIFORNIA WATER SERVICE GROUPa18-39367_1ex99d2.htm
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Exhibit 99.1

 

NEWS RELEASE

CALIFORNIA WATER SERVICE GROUP

 

 

1720 North First Street

San Jose, CA 95112-4598

 

November 1, 2018

for immediate release

 

 

 

 

Contact:

Tom Smegal (408) 367-8200 (analysts)

Shannon Dean (310) 257-1435 (media)

 

 

CALIFORNIA WATER SERVICE GROUP ANNOUNCES

EARNINGS FOR THE THIRD QUARTER 2018

 

SAN JOSE, CA  —  California Water Service Group (NYSE: CWT) today announced net income of $34.4 million or $0.72 earnings per diluted common share for the third quarter of 2018, compared to net income of $33.8 million or $0.70 earnings per diluted common share for the third quarter of 2017.

 

The $0.6 million increase in net income was driven primarily by aggregate rate increases of $4.4 million, reflecting general rate increases net of California’s cost of capital decision. Other factors increasing net income included a $1.1 million reduction in write-offs of unrecoverable capital costs and an increase in tax benefits of $0.9 million.   The increases to net income were partially offset by a $1.8 million increase in depreciation and amortization, employee wage increases of $1.5 million, a $1.3 million increase in new business expenses, and a $1.7 million increase in interest expense.

 

“Our results for the third quarter were in line with expectations,” said President and Chief Executive Officer Martin A. Kropelnicki.

 

“During the quarter, we had the Mendocino Complex wildfire, the largest in California history, threatening one of our service areas. We activated our emergency operations center for two weeks, staffed around the clock, to provide resources to firefighters and help protect our customers’ property. I’m so proud of our dedicated employees who kept the water flowing while dealing with the risk to themselves and their families from the fire,” he said.

 


 

“Finally, I am pleased that we continued our efforts in the quarter to complete capital programs to bring clean, reliable water service to customers. We now anticipate our capital investment for the year will be in the range of $240 to $260 million. Towards that goal, we successfully raised $300 million in first mortgage bonds in the quarter to refinance our California Water Service Company (Cal Water) line of credit. The refinancing supports planned improvements to transmission and distribution pipelines, which are necessary to upgrade aging water systems, to enable the delivery of safe, reliable, and high-quality water supply for both our customers’ everyday needs and for emergency use by firefighters and other first responders,” said President and Chief Executive Officer Martin A. Kropelnicki.

 

Additional Financial Results for the Third Quarter of 2018

 

Total revenue increased 3.4% to $219.0 million in the third quarter of 2018 compared to $211.7 million in the third quarter of 2017.  The increase was mostly due to aggregate rate increases of $4.4 million, reflecting general rate increases net of the reduction for California’s cost of capital decision.  In addition, balancing account adjustments added $1.5 million and deferred revenue adjustments added $1.5 million.

 

Total operating expenses increased $4.1 million, or 2.5%, to $173.4 million in the third quarter of 2018 compared to $169.3 million in the third quarter of 2017.

 

Water production expenses increased $3.5 million, or 4.7%, to $78.8 million in the third quarter of 2018 compared to $75.3 million in the third quarter of 2017, primarily due to increases in purchased water quantities and higher wholesale water rates.  The California revenue decoupling mechanisms record an increase to revenue equal to the increase in California water production costs.

 

Administrative and general and other operations expenses increased $4.4 million to $48.4 million in the third quarter of 2018, primarily due to increases in employee wage and benefit costs and uninsured losses associated with operations.  Changes in employee pension benefits and employee and retiree medical 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.

 


 

Maintenance expenses increased $0.7 million, or 11.7%, to $6.8 million in the third quarter of 2018, due to increased costs for repairs of transmission and distribution mains and services.

 

Income taxes decreased $6.9 million primarily due to a decrease in the corporate federal income tax rate from 35 percent to 21 percent, effective January 1, 2018, an increase in tax benefits of $0.9 million, and a decrease in pre-tax income.  The Company estimates its combined effective income tax rate for 2018 in the range of 22 to 25 percent.

 

Depreciation and amortization expenses increased $1.8 million, to $21.0 million, in the third quarter of 2018, as compared to $19.2 million in the third quarter of 2017, due to a record increase in utility plant investment in 2017.

 

Net other loss, net of income tax benefits, increased $0.8 million in 2018, primarily due to $1.3 million of expenses associated with new business acquisition efforts.

 

Year-to-Date Results

 

For the nine-month period ended September 30, 2018, net income was $44.9 million or $0.93 earnings per diluted common share, compared to net income of $53.5 million or $1.11 earnings per diluted common share for the nine-month period ended September 30, 2017.

 

The $8.6 million decrease in net income was primarily the result of $5.1 million increase in expenses associated with new business development, increase of $5.0 million in depreciation and amortization, employee wage increases of $4.0 million, and an increase of $3.5 million in interest expense.  In addition, there were other changes driven primarily by factors outside our immediate control that decreased net income, including a $2.7 million reduction in unbilled revenue accrual and a net $0.5 million decrease in the valuation of our benefit plan investments due to changes in market valuation offset by life insurance proceeds.  These decreases to net income were partially offset by aggregate rate increases of $10.8 million, reflecting general rate increases net of California’s cost of capital decision.

 


 

Water System Improvements

 

During the first nine months of 2018, the total company-funded and developer-funded capital investment was $212.9 million, an increase of $32.5 million, or 18.0%, compared to $180.4 million in the first nine months of 2017. The increase was primarily due to Cal Water projects constructed to treat 35 wells to remove 1,2,3 trichloropropane (TCP).

 

California Revenue Decoupling Mechanisms

 

The under-collected net receivable balance in the Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA) was $60.0 million as of September 30, 2018, a decrease of 13.2%, or $9.1 million, from the balance of $69.1 million as of December 31, 2017. Cal Water used its CPUC-authorized Sales Reconciliation Mechanism (SRM) to adjust its adopted sales forecast for 2018.

 

Other Information

 

All stockholders and interested investors are invited to listen to the third quarter 2018 conference call, which will be held today at 11:00 a.m. ET, by dialing 1-833-832-5130 or 1-509-844-0151 and keying in ID# 9442499.  A replay of the call will be available from 2:00 p.m. ET on Thursday, November 1, 2018 through January 1, 2019, at 1-855-859-2056 or 1-404-537-3406, ID# 9442499.  The replay will also be available under the investor relations tab at www.calwatergroup.com. The call will be hosted by President and Chief Executive Officer Martin A. Kropelnicki and Vice President and Chief Financial Officer Thomas F. Smegal. Prior to the call, the Company will post a slide presentation on its website. The presentation can be found at www.calwatergroup.com/docs/2018q3slides.pdf  after 6:00 a.m. PDT.

 

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)

 

2018

 

2017

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

3,169,726

 

$

2,970,179

 

Less accumulated depreciation and amortization

 

(983,984

)

(922,214

)

Net utility plant

 

2,185,742

 

2,047,965

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

66,421

 

94,776

 

Receivables:

 

 

 

 

 

Customers

 

50,785

 

32,451

 

Regulatory balancing accounts

 

37,973

 

36,783

 

Other

 

20,903

 

16,464

 

Unbilled revenue

 

40,318

 

29,756

 

Materials and supplies at weighted average cost

 

6,563

 

6,463

 

Taxes, prepaid expenses, and other assets

 

12,576

 

11,180

 

Total current assets

 

235,539

 

227,873

 

Other assets:

 

 

 

 

 

Regulatory assets

 

388,300

 

401,147

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

64,666

 

60,775

 

Total other assets

 

455,581

 

464,537

 

TOTAL ASSETS

 

$

2,876,862

 

$

2,740,375

 

 

 

 

 

 

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value; 68,000 shares authorized, 48,068 and 48,012 outstanding in 2018 and 2017, respectively

 

$

481

 

$

480

 

Additional paid-in capital

 

336,960

 

336,229

 

Retained earnings

 

374,593

 

356,753

 

Total common stockholders’ equity

 

712,034

 

693,462

 

Long-term debt, less current maturities

 

714,310

 

515,793

 

Total capitalization

 

1,426,344

 

1,209,255

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

104,812

 

15,920

 

Short-term borrowings

 

75,100

 

275,100

 

Accounts payable

 

102,938

 

93,955

 

Regulatory balancing accounts

 

43,300

 

59,303

 

Accrued interest

 

13,111

 

6,122

 

Accrued expenses and other liabilities

 

42,629

 

40,559

 

Total current liabilities

 

381,890

 

490,959

 

Unamortized investment tax credits

 

1,724

 

1,724

 

Deferred income taxes

 

199,143

 

192,946

 

Pension and postretirement benefits other than pensions

 

235,501

 

252,141

 

Regulatory liabilities and Other

 

255,569

 

224,127

 

Advances for construction

 

186,897

 

182,502

 

Contributions in aid of construction

 

189,794

 

186,721

 

 

 

 

 

 

 

TOTAL CAPITALIZATION AND LIABILITIES

 

$

2,876,862

 

$

2,740,375

 

 


 

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:

 

2018

 

2017

 

 

 

 

 

 

 

Operating revenue

 

$

218,983

 

$

211,731

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

78,818

 

75,261

 

Administrative and general

 

26,493

 

22,749

 

Other operations

 

21,943

 

21,208

 

Maintenance

 

6,768

 

6,057

 

Depreciation and amortization

 

21,009

 

19,231

 

Income taxes

 

11,262

 

18,219

 

Property and other taxes

 

7,142

 

6,544

 

Total operating expenses

 

173,435

 

169,269

 

Net operating income

 

45,548

 

42,462

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

4,703

 

3,542

 

Non-regulated expenses

 

(4,897

)

(2,576

)

Other components of net periodic benefit cost

 

(1,975

)

(2,137

)

Allowance for equity funds used during construction

 

1,023

 

1,105

 

Income tax benefit on other income and expenses

 

305

 

30

 

Net other loss

 

(841

)

(36

)

Interest expense:

 

 

 

 

 

Interest expense

 

10,875

 

9,284

 

Allowance for borrowed funds used during construction

 

(560

)

(707

)

Net interest expense

 

10,315

 

8,577

 

Net income

 

$

34,392

 

$

33,849

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.72

 

$

0.70

 

Diluted

 

$

0.72

 

$

0.70

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

48,070

 

48,017

 

Diluted

 

48,070

 

48,017

 

Dividends declared per share of common stock

 

$

0.1875

 

$

0.1800

 

 


 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Unaudited

(In thousands, except per share data)

 

 

 

September 30,

 

September 30,

 

For the Nine Months ended:

 

2018

 

2017

 

 

 

 

 

 

 

Operating revenue

 

$

523,862

 

$

504,899

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

191,797

 

181,460

 

Administrative and general

 

77,195

 

66,908

 

Other operations

 

60,307

 

55,660

 

Maintenance

 

17,596

 

16,877

 

Depreciation and amortization

 

62,677

 

57,650

 

Income taxes

 

15,380

 

27,941

 

Property and other taxes

 

20,253

 

18,717

 

Total operating expenses

 

445,205

 

425,213

 

Net operating income

 

78,657

 

79,686

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

13,967

 

10,743

 

Non-regulated expenses

 

(16,449

)

(6,244

)

Other components of net periodic benefit cost

 

(6,984

)

(7,023

)

Allowance for equity funds used during construction

 

2,644

 

2,763

 

Income tax benefit (expense) on other income and expenses

 

1,882

 

(1,105

)

Net other loss

 

(4,940

)

(866

)

Interest expense:

 

 

 

 

 

Interest expense

 

30,207

 

27,073

 

Allowance for borrowed funds used during construction

 

(1,359

)

(1,765

)

Net interest expense

 

28,848

 

25,308

 

Net income

 

$

44,869

 

$

53,512

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.93

 

$

1.11

 

Diluted

 

$

0.93

 

$

1.11

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

48,058

 

48,007

 

Diluted

 

48,058

 

48,007

 

Dividends declared per share of common stock

 

$

0.5625

 

$

0.5400