California Water Service Group Announces 2013 Revenues and Earnings for Year-End and 4th Quarter

Marketwired

SAN JOSE, CA--(Marketwired - Feb 26, 2014) - California Water Service Group (NYSE: CWT) today announced 2013 net income of $47.3 million, down 3.2% or $1.5 million from 2012, and diluted earnings per share of $1.02, a decrease of 12.8% or $0.15 compared to the prior year. Earnings per share reflect the issuance of 5.75 million shares of the Company's common stock in March of 2013. 

Net income for 2013 was reduced $2.7 million due to the California Public Utilities Commission's (CPUC's) mandated reduction in our authorized return on equity in January 2013, and by a non-recurring benefit in 2012 of $1.6 million due to the reversal of a 2011 WRAM deferral. Net income also decreased due to higher labor and benefits costs, depreciation, and property taxes, along with limited rate relief in the third year of the Company's California rate case cycle. These decreases to net income were partially offset by reductions to maintenance and other operations expenses. 

During 2013, one-time state tax repairs and maintenance deductions for linear assets, along with State of California enterprise zone credits, added $4.9 million to net income. During 2012, state tax repairs and maintenance tax deductions for linear assets added $6.2 million to net income. The 2013 and 2012 repairs and maintenance deductions reflect the impact of changes to the IRS tangible property regulations. 

Total revenue increased $24.1 million, or 4.3%, to $584.1 million, compared to revenue of $560 million for 2012. Rate increases added $13.7 million and sales to new customers added an additional $1.5 million, while the combined effect of consumption and regulatory balancing accounts added the remaining $8.9 million in incremental revenues.

Total operating expenses increased $24 million, or 4.9%, to $510.1 million in 2013. Water production costs increased $23.4 million, or 11.5%, to $226.1 million, primarily due to wholesale water rate increases. Administrative and general costs increased by $4.1 million, or 4.4%, to $98.1 million, due primarily to labor and benefit expense. Changes in pension cost for regulated California operations do not affect earnings because the Company is allowed by the CPUC to track pension costs in a balancing account for future recovery, which creates a corresponding change to operating revenues. 

Maintenance expense decreased $1.8 million, or 9.3%, to $17.4 million. Depreciation expense increased $3.7 million, or 6.7%, to $58.3 million, due to increases in utility plant. 

Other income, net of income taxes, decreased $1 million. Net interest expense increased $0.7 million, or 2.6%, to $28.9 million.

Fourth Quarter 2013 Results

For the fourth quarter of 2013, net income increased $0.7 million, or 13.2%, to $5.7 million from net income of $5.0 million in the fourth quarter of 2012, and diluted earnings per common share was unchanged at $0.12 per common share. Earnings per share reflect the issuance of 5.75 million shares of the Company's common stock in March 2013.

Revenue for the fourth quarter increased $12.2 million, or 10%, to $133.7 million. Within the fourth quarter, rate increases added $3.8 million to revenue and sales to new customers added $0.4 million, while the net effect of consumption and regulatory balancing accounts added the remaining $8 million in incremental revenue. Total operating expenses for the quarter increased $11.8 million, or 10.7%, to $122.1 million. Water production costs increased $9.5 million, or 21.4%, to $54.1 million. Administrative and general expenses increased $0.1 million, or 0.5%, to $24.9 million. Other operations expense increased $1.5 million, or 8.5%, to $19.4 million. 

Maintenance expense increased $0.1 million, or 1.6%, to $4.5 million, due to increased costs for repairs. Depreciation expense increased $1.4 million, or 10.6%, to $14.7 million, due to increases in utility plant. Taxes other than income decreased $0.5 million, or 8.8%, to $4.9 million. 

According to the Company's President and Chief Executive Officer Martin A. Kropelnicki, 2013 results were in line with expectations, given the fact that California Water Service Company (Cal Water), the Company's largest subsidiary, is in the third year of its three-year rate case cycle and the CPUC lowered Cal Water's authorized return on equity in California from 9.99% to 9.43% for 2013.

"In 2013, the Company achieved solid financial results, especially given the fact it was the third year of our rate case cycle and regulatory lag was at its greatest. Overall, the Company stayed focused on serving our customers while meeting our internal budget goals," said Kropelnicki. "In addition, the General Rate Case process is lengthy and complex, and our team has done an excellent job in working to ensure that our rates accurately reflect the costs of providing safe, high-quality water and excellent service. We anticipate that the Commission will act quickly to approve the settlement," he said. 

Regulatory Update for 2013

As announced in October of 2013, after more than 26 weeks of negotiations, Cal Water reached a settlement agreement with CPUC staff and other parties to its General Rate Case. The CPUC may or may not approve the settlement agreement as proposed. 

If the settlement agreement is approved as submitted, Cal Water would be authorized to invest $447 million in districts throughout California over the three-year period from 2013 to 2015 in order to provide a safe and high quality water supply to its customers. Included in the $447 million in water system infrastructure improvements is $120 million that would be recovered through the CPUC's advice letter procedures upon completion of qualified projects.

Because the settlement negotiations took longer than scheduled, the CPUC's decision has been delayed. However, the CPUC's process allows for revenues to be recovered when the final decision is rendered, retroactively to January 1, 2014. 

In Hawaii, the Hawaii Public Utilities Commission approved a revenue increase of $0.6 million for wastewater services provided by Hawaii Water Service Company in Pukalani, which will be phased in over three years, beginning in February 2014. Settlement agreements have also been filed for Hawaii Water Service Company's water and wastewater systems in Waikoloa village; if approved as submitted, annual revenues would increase by $0.8 million. Hawaii Water Service Company is in settlement negotiations for it water and wastewater systems in the Waikoloa resort area. The Company expects to receive decisions from the Hawaii Public Utilities Commission on these cases in 2014. 

Other Information

All stockholders and interested investors are invited to listen to the 2013 year-end and fourth quarter conference call on February 27, 2014 at 8:00 a.m. PST (11:00 a.m. EST) by dialing 1-888-576-4387 or 1-719-325-2491 and keying in ID #1339013. A replay of the call will be available from 11:00 a.m. PST (2:00 p.m. EST) on February 27, 2014 through April 28, 2014, at 1-888-203-1112 or 1-719-457-0820, ID #1339013. 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 III, 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, 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 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, including decisions on proper disposition of property; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; new legislation; changes in accounting valuations and estimates; the ability to satisfy requirements related to the Sarbanes-Oxley Act and other regulations on internal controls; 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. 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)   December 31,     December 31,  
    2013     2012  
ASSETS            
Utility plant:                
  Utility plant   $ 2,213,328     $ 2,096,363  
  Less accumulated depreciation and amortization     (697,497 )     (639,307 )
    Net utility plant     1,515,831       1,457,056  
                 
Current assets:                
  Cash and cash equivalents     27,506       38,790  
  Receivables: net of allowance for doubtful accounts of $668 for 2013 and $714 for 2012                
    Customers     31,468       29,958  
    Regulatory balancing accounts     30,887       34,020  
    Other     18,700       11,943  
  Unbilled revenue     17,034       15,394  
  Materials and supplies at weighted average cost     5,571       5,874  
  Taxes, prepaid expenses, and other assets     8,324       10,585  
    Total current assets     139,490       146,564  
                 
Other assets:                
  Regulatory assets     251,681       344,419  
  Goodwill     2,615       2,615  
  Other assets     50,238       45,270  
    Total other assets     304,534       392,304  
    $ 1,959,855     $ 1,995,924  
                 
CAPITALIZATION AND LIABILITIES                
Capitalization:                
  Common stock, $.01 par value   $ 477     $ 419  
  Additional paid-in capital     328,364       221,013  
  Retained earnings     269,915       252,280  
    Total common stockholders' equity     598,756       473,712  
  Long-term debt, less current maturities     426,142       434,467  
    Total capitalization     1,024,898       908,179  
                 
Current liabilities:                
  Current maturities of long-term debt     7,908       46,783  
  Short-term borrowings     46,815       89,475  
  Accounts payable     55,087       47,199  
  Regulatory balancing accounts     1,827       5,018  
  Accrued interest     4,245       4,705  
  Accrued expenses and other liabilities     50,702       49,887  
    Total current liabilities     166,584       243,067  
                 
Unamortized investment tax credits     2,106       2,180  
Deferred income taxes, net     183,245       158,846  
Pension and postretirement benefits other than pensions     145,451       244,901  
Regulatory and other liabilities     86,455       92,593  
Advances for construction     183,393       187,584  
Contributions in aid of construction     167,723       158,574  
Commitments and contingencies                
    $ 1,959,855     $ 1,995,924  
                 
             
CALIFORNIA WATER SERVICE GROUP            
CONDENSED CONSOLIDATED STATEMENTS OF INCOME            
Unaudited            
(In thousands, except per share data)            
             
For the Three-Months ended:            
    December 31,     December 31,  
    2013     2012  
             
Operating revenue   $ 133,700     $ 121,530  
Operating expenses:                
  Operations:                
    Water production costs     54,105       44,580  
    Administrative and General     24,949       24,817  
    Other operations     19,406       17,891  
  Maintenance     4,472       4,400  
  Depreciation and amortization     14,695       13,285  
  Income tax (benefit)     (520 )     (121 )
  Property and other taxes     4,945       5,425  
    Total operating expenses     122,052       110,277  
                 
    Net operating income     11,648       11,253  
                 
Other income and expenses:                
  Non-regulated revenue     4,409       4,743  
  Non-regulated expense     (2,783 )     (2,978 )
  Income tax (expense) on other income and expenses     (657 )     (713 )
    Net other income     969       1,052  
                 
Interest expense:                
  Interest Expense     7,370       8,053  
  Less: capitalized interest     (419 )     (754 )
    Net interest expense     6,951       7,299  
                 
Net income   $ 5,666     $ 5,006  
                 
Earnings per share                
  Basic   $ 0.12     $ 0.12  
  Diluted   $ 0.12     $ 0.12  
Weighted average shares outstanding                
  Basic     47,741       41,908  
  Diluted     47,780       41,908  
Dividends per share of common stock   $ 0.16000       0.15750  
                 
             
CALIFORNIA WATER SERVICE GROUP            
CONDENSED CONSOLIDATED STATEMENTS OF INCOME            
Unaudited            
(In thousands, except per share data)            
             
For the Twelve-Months ended:            
    December 31,     December 31,  
    2013     2012  
             
Operating revenue   $ 584,103     $ 559,966  
Operating expenses:                
  Operations:                
    Water production costs     226,061       202,699  
    Administrative and General     98,055       93,927  
    Other operations     69,738       77,104  
  Maintenance     17,368       19,142  
  Depreciation and amortization     58,320       54,668  
  Income taxes     19,047       19,356  
  Property and other taxes     21,509       19,227  
    Total operating expenses     510,098       486,123  
                 
    Net operating income     74,005       73,843  
                 
Other income and expenses:                
  Non-regulated revenue     14,795       16,686  
  Non-regulated expense     (11,265 )     (11,553 )
  Gain on sale of non-utility property     -       84  
  Income tax (expense) on other income and expenses     (1,422 )     (2,096 )
    Net other income     2,108       3,121  
                 
Interest expense:                
  Interest Expense     30,897       31,537  
  Less: capitalized interest     (2,038 )     (3,401 )
    Net interest expense     28,859       28,136  
                 
Net income   $ 47,254     $ 48,828  
                 
Earnings per share                
  Basic   $ 1.02     $ 1.17  
  Diluted   $ 1.02     $ 1.17  
Weighted average shares outstanding                
  Basic     46,384       41,892  
  Diluted     46,417       41,892  
Dividends per share of common stock   $ 0.6400     $ 0.6300  
                 

1720 North First Street
San Jose, CA 95112-4598

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