Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

OR

 

o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to                    

 

Commission file number 1-13883

 

CALIFORNIA WATER SERVICE GROUP

(Exact name of registrant as specified in its charter)

 

Delaware

 

77-0448994

(State or other jurisdiction

 

(I.R.S. Employer identification No.)

of incorporation or organization)

 

 

 

 

 

1720 North First Street, San Jose, CA.

 

95112

(Address of principal executive offices)

 

(Zip Code)

 

408-367-8200

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Common shares outstanding as of October 21, 2012 — 41,905,495

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Page

PART I Financial Information

3

Item 1 Financial Statements

3

Condensed Consolidated Balance Sheets (unaudited) September 30, 2012 and December 31, 2011

3

Condensed Consolidated Statements of Income (unaudited) For the Three Months Ended September 30, 2012 and 2011

4

Condensed Consolidated Statements of Income (unaudited) For the Nine Months Ended September 30, 2012 and 2011

5

Condensed Consolidated Statements of Cash Flows (unaudited) For the Nine Months Ended September 30, 2012 and 2011

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3 Quantitative and Qualitative Disclosure about Market Risk

35

Item 4 Controls and Procedures

35

PART II Other Information

 

Item 1 Legal Proceeding

36

Item 1A Risk Factors

36

Item 6 Exhibits

37

Signatures

38

Index to Exhibits

39

 

2



Table of Contents

 

PART I FINANCIAL INFORMATION

 

Item 1.

 

FINANCIAL STATEMENTS

 

The condensed consolidated financial statements presented in this filing on Form 10-Q have been prepared by management and are unaudited.

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

 

Unaudited

(In thousands, except per share data)

 

 

 

September 30,
2012

 

December 31,
2011

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,065,679

 

$

1,960,381

 

Less accumulated depreciation and amortization

 

(622,553

)

(579,262

)

Net utility plant

 

1,443,126

 

1,381,119

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

16,971

 

27,203

 

Receivables:

 

 

 

 

 

Customers

 

48,087

 

28,418

 

Regulatory balancing accounts

 

33,171

 

21,680

 

Other

 

12,277

 

6,422

 

Unbilled revenue

 

23,474

 

15,068

 

Materials and supplies at average cost

 

6,029

 

5,913

 

Taxes, prepaid expenses and other assets

 

10,089

 

9,184

 

Total current assets

 

150,098

 

113,888

 

Other assets:

 

 

 

 

 

Regulatory assets

 

334,000

 

319,898

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

45,994

 

37,067

 

Total other assets

 

382,609

 

359,580

 

 

 

$

1,975,833

 

$

1,854,587

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value— 68,000 shares authorized, 41,905 and 41,817 outstanding in 2012 and 2011, respectively

 

$

419

 

$

418

 

Additional paid-in capital

 

220,642

 

219,572

 

Retained earnings

 

253,875

 

229,839

 

Total common stockholders’ equity

 

474,936

 

449,829

 

Long-term debt, less current maturities

 

479,460

 

481,632

 

Total capitalization

 

954,396

 

931,461

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

6,677

 

6,533

 

Short-term borrowings

 

60,675

 

47,140

 

Accounts payable

 

58,839

 

48,923

 

Regulatory balancing accounts

 

5,533

 

2,655

 

Accrued interest

 

11,046

 

4,756

 

Accrued expenses and other liabilities

 

47,464

 

41,868

 

Total current liabilities

 

190,234

 

151,875

 

Unamortized investment tax credits

 

2,254

 

2,254

 

Deferred income taxes, net

 

164,245

 

116,368

 

Pension and postretirement benefits other than pensions

 

234,432

 

232,110

 

Regulatory and other liabilities

 

87,037

 

79,050

 

Advances for construction

 

188,249

 

187,278

 

Contributions in aid of construction

 

154,986

 

154,191

 

 

 

$

1,975,833

 

$

1,854,587

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

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CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

Unaudited

(In thousands, except per share data)

 

For the three months ended

 

September 30,
2012

 

September 30,
2011

 

Operating revenue

 

$

178,135

 

$

169,254

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

66,489

 

61,593

 

Administrative and general

 

23,925

 

21,646

 

Other operations

 

17,658

 

17,506

 

Maintenance

 

4,377

 

4,651

 

Depreciation and amortization

 

13,720

 

12,729

 

Income taxes

 

10,387

 

15,881

 

Property and other taxes

 

5,218

 

5,170

 

Total operating expenses

 

141,774

 

139,176

 

Net operating income

 

36,361

 

30,078

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

3,756

 

3,425

 

Non-regulated expenses, net

 

(2,697

)

(6,489

)

Income tax (expense) benefit on other income and expenses

 

(422

)

1,254

 

Net other income (expense)

 

637

 

(1,810

)

Interest expense:

 

 

 

 

 

Interest expense

 

8,024

 

8,007

 

Less: capitalized interest

 

(798

)

(674

)

Net interest expense

 

7,226

 

7,333

 

Net income

 

$

29,772

 

$

20,935

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.71

 

$

0.50

 

Diluted

 

$

0.71

 

$

0.50

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

41,905

 

41,780

 

Diluted

 

41,905

 

41,789

 

Dividends declared per share of common stock

 

$

0.15750

 

$

0.15375

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

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Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

Unaudited

(In thousands, except per share data)

 

For the nine months ended

 

September 30,
2012

 

September 30,
2011

 

Operating revenue

 

$

438,436

 

$

398,800

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

158,119

 

138,296

 

Administrative and general

 

69,110

 

62,702

 

Other operations

 

59,213

 

47,879

 

Maintenance

 

14,742

 

15,138

 

Depreciation and amortization

 

41,383

 

37,690

 

Income taxes

 

19,477

 

23,278

 

Property and other taxes

 

13,802

 

14,236

 

Total operating expenses

 

375,846

 

339,219

 

Net operating income

 

62,590

 

59,581

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

11,943

 

11,497

 

Non-regulated expenses, net

 

(8,491

)

(13,360

)

Income tax (expense) benefit on other income and expenses

 

(1,383

)

776

 

Net other income (expense)

 

2,069

 

(1,087

)

Interest expense:

 

 

 

 

 

Interest expense

 

23,484

 

24,556

 

Less: capitalized interest

 

(2,647

)

(1,906

)

Net interest expense

 

20,837

 

22,650

 

Net income

 

$

43,822

 

$

35,844

 

Earnings per share

 

 

 

 

 

Basic

 

$

1.05

 

$

0.86

 

Diluted

 

$

1.05

 

$

0.86

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

41,886

 

41,743

 

Diluted

 

41,886

 

41,756

 

Dividends declared per share of common stock

 

$

0.47250

 

$

0.46125

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

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Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Unaudited

(In thousands)

 

For the nine months ended:

 

September 30,
2012

 

September 30,
2011

 

Operating activities

 

 

 

 

 

Net income

 

$

43,822

 

$

35,844

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

42,722

 

39,013

 

Change in value of life insurance contracts

 

(2,244

)

2,829

 

Other changes in noncurrent assets and liabilities

 

28,411

 

2,628

 

Changes in operating assets and liabilities:

 

 

 

 

 

Receivables

 

(34,462

)

(25,485

)

Accounts payable

 

13,066

 

15,011

 

Other current assets

 

(2,491

)

7,591

 

Other current liabilities

 

10,581

 

20,293

 

Net adjustments

 

55,583

 

61,880

 

Net cash provided by operating activities

 

99,405

 

97,724

 

Investing activities:

 

 

 

 

 

Utility plant expenditures

 

(99,600

)

(89,517

)

Purchase of life insurance

 

(3,199

)

(1,744

)

Restricted cash decrease (increase)

 

1,553

 

(50

)

Net cash (used in) investing activities

 

(101,246

)

(91,311

)

Financing activities:

 

 

 

 

 

Short-term borrowings

 

65,565

 

16,110

 

Repayment of short-term borrowing

 

(52,030

)

 

Proceeds from long-term debt

 

123

 

135

 

Repayment of long-term debt

 

(2,123

)

(1,744

)

Issuance of common stock

 

 

965

 

Advances and contributions in aid of construction

 

5,491

 

6,240

 

Refunds of advances for construction

 

(5,632

)

(4,439

)

Dividends paid

 

(19,785

)

(19,245

)

Net cash (used in) financing activities

 

(8,391

)

(1,978

)

Change in cash and cash equivalents

 

(10,232

)

4,435

 

Cash and cash equivalents at beginning of period

 

27,203

 

42,277

 

Cash and cash equivalents at end of period

 

$

16,971

 

$

46,712

 

Supplemental information

 

 

 

 

 

Cash paid for interest (net of amounts capitalized)

 

$

13,721

 

$

14,222

 

Cash paid for income taxes

 

$

 

$

43

 

Refund for income taxes

 

$

(3,498

)

$

(4,000

)

Supplemental disclosure of non-cash activities:

 

 

 

 

 

Accrued payables for investments in utility plant

 

$

9,654

 

$

7,746

 

Utility plant contribution by developers

 

$

11,868

 

$

11,263

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

6



Table of Contents

 

Note 1. Organization and Operations and Basis of Presentation

 

California Water Service Group (the Company) is a holding company that provides water utility and other related services in California, Washington, New Mexico and Hawaii through its 100% owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water) provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to herein as the Commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services.

 

The Company operates in one reportable segment, providing water and related utility services.

 

Basis of Presentation

 

The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2011, included in its annual report on Form 10-K as filed with the SEC on February 29, 2012.

 

The preparation of the Company’s condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. These include, but are not limited to, estimates and assumptions used in determining the Company’s regulatory asset and liability balances based upon probability assessments of regulatory recovery, revenues earned but not yet billed, asset retirement obligations, allowance for doubtful accounts, pension and other employee benefit plan liabilities, and income tax-related assets and liabilities.  Actual results could differ from these estimates.

 

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals that are necessary to provide a fair presentation of the results for the periods covered. The results for interim periods are not necessarily indicative of the results for any future period.

 

Due to the seasonal nature of the water business, the results for interim periods are not indicative of the results for a 12-month period. Revenue and income are generally higher in the warm, dry summer months when water usage and sales are greater. Revenue and income are lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.

 

The Company evaluated its operations through the time these financials were issued and determined there were no subsequent events requiring adjustments or disclosures as of the time these financial statements were issued.

 

Note 2. Summary of Significant Accounting Policies

 

Revenue

 

Revenue generally includes monthly cycle customer billings for regulated water and wastewater services at rates authorized by regulatory commissions (plus an estimate for water used between the customer’s last meter reading and the end of the accounting period) and billings to certain non-regulated customers at rates authorized by contract with government agencies.

 

The Company’s regulated water and waste water revenue requirements are authorized by the Commissions in the states in which it operates. The revenue requirements are intended to provide the Company a reasonable opportunity to recover its operating costs and earn a return on investments.

 

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Table of Contents

 

For metered customers, Cal Water recognizes revenue from rates which are designed and authorized by the California Public Utilities Commission (CPUC). Under the Water Revenue Adjustment Mechanism (WRAM), Cal Water records the adopted level of volumetric revenues, which would include recovery of cost of service and a return on investments, as established by the CPUC for metered accounts (adopted volumetric revenues). In addition to volumetric-based revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items not subject to the WRAM. The adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account (tracked individually for each Cal Water district) subject to certain criteria under the accounting for regulated operations being met. The variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future.

 

Cost-recovery rates are designed to permit full recovery of certain costs allowed to be recovered by the Commissions. Cost-recovery rates such as the Modified Cost Balancing Account (MCBA) provides for recovery of adopted expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. In addition, cost-recovery rates include recovery of cost related to water conservation programs and certain other operation expenses adopted by the CPUC. Variances (which include the effects of changes in both rate and volume for the MCBA) between adopted and actual costs are recorded as a component of revenue, as the amount of such variances will be recovered from or refunded to our customers at a later date. There is no markup for return or profit for cost-recovery expenses and they are generally recognized when expenses are incurred.

 

The balances in the WRAM and MCBA assets and liabilities accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results. The recovery or refund of the WRAM is netted against the MCBA over- or under-recovery for the corresponding district and is interest bearing at the current 90 day commercial paper rate. Cal Water files with the CPUC to refund or collect the net WRAM and MCBA balances. As of September 30, 2012, $1.5 million of net WRAM and MCBA operating revenues and $1.2 million of associated costs were deferred because the Company concluded it would not be able to collect those amounts within 24-months of the respective reporting period.  On April 19, 2012, the CPUC issued a decision to shorten the amortization periods for Cal Water’s undercollected net WRAM and MCBA receivable balances for calendar years 2011, 2012, and 2013.  The shortened amortization periods for 2011 undercollected balances resulted in recording $11.4 million of deferred net WRAM and MCBA operating revenues and $9.3 million of associated costs during the nine months ended September 30, 2012, because these amounts become collectable within 24 months.  This change increased income before income taxes by $2.1 million during the nine months ended September 30, 2012.

 

The change to net WRAM and MCBA deferred balances during the nine month period ended September 30, 2012 were:

 

 

 

Operating
Revenues

 

Operating
Costs

 

Income Before
Income Taxes

 

Net WRAM and MCBA deferral as of December 31, 2011

 

$

12,864

 

$

10,492

 

$

2,372

 

Less: reversal of prior deferral during the first quarter of 2012

 

(8,846

)

(7,215

)

(1,631

)

Add: net WRAM and MCBA deferral the first quarter of 2012

 

110

 

90

 

20

 

Net amount recorded during the first quarter of 2012

 

(8,736

)

(7,125

)

(1,611

)

Net WRAM and MCBA deferral as of March 31, 2012

 

4,128

 

3,367

 

761

 

Less: reversal of prior deferral during the second quarter of 2012

 

(640

)

(521

)

(119

)

Add: net WRAM and MCBA deferral the second quarter of 2012

 

352

 

287

 

65

 

Net amount recorded during the second quarter of 2012

 

(288

)

(234

)

(54

)

Net WRAM and MCBA deferral as of June 30, 2012

 

3,840

 

3,133

 

707

 

Less: reversal of prior deferral during the third quarter of 2012

 

(2,809

)

(2,291

)

(518

)

Add: net WRAM and MCBA deferral the third quarter of 2012

 

477

 

389

 

88

 

Net amount recorded during the third quarter of 2012

 

(2,332

)

(1,902

)

(430

)

Net WRAM and MCBA deferral as of September 30, 2012

 

$

1,508

 

$

1,231

 

$

277

 

 

The deferred net WRAM and MCBA operating revenue and associated costs were determined using forecasts of rate payer consumption trends in future reporting periods and the timing of when the CPUC will authorize Cal Water’s filings to recover the undercollected balances. The deferred revenue and associated cost amounts will be recorded in future periods when the Company concludes it will be able to collect those amounts within 24-months of the respective reporting period.

 

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Table of Contents

 

The net WRAM and MCBA under- or overcollected balances are:

 

 

 

September 30,
2012

 

December 31,
2011

 

Net short-term receivable

 

$

33,171

 

$

19,357

 

Net long-term receivable

 

18,839

 

30,268

 

Total receivable

 

$

52,010

 

$

49,625

 

Net short-term payable

 

$

291

 

$

543

 

Net long-term payable

 

157

 

145

 

Total payable

 

$

448

 

$

688

 

 

Flat rate customers are billed in advance at the beginning of the service period. The revenue is prorated so that the portion of revenue applicable to the current period is included in that period’s revenue, with the balance recorded as unearned revenue on the balance sheet and recognized as revenue when earned in the subsequent accounting period. Unearned revenue liability was $1.8 and $1.9 million as of September 30, 2012 and December 31, 2011, respectively. This liability is included in “accrued expenses and other liabilities” on the condensed consolidated balance sheets.

 

Note 3. Stock-based Compensation

 

Equity Incentive Plan

 

The Company’s equity incentive plan was approved by stockholders on April 27, 2005.  The Company is authorized to issue awards up to 2,000,000 shares of common stock. During the nine months ended September 30, 2012 and 2011, the Company granted annual Restricted Stock Awards (RSAs) of 98,422 and 85,426 shares, respectively, of common stock to officers and directors of the Company and 9,959 shares of RSAs were cancelled during the nine months ended September 30, 2012. Employee RSAs vest over 48-months, while director RSAs vest at the end of 12- months. During the first nine-months of 2012 and 2011, the shares granted were valued at $17.96 and $17.44 per share, respectively, based upon the fair market value of the Company’s common stock on the date of grant.

 

The Company has recorded compensation costs for the RSAs in Operating Expense in the amount of $1.1 million for the nine months ended September 30, 2012 and $1.0 million for the nine months ended September 30, 2011.  Compensation costs were $0.3 million for the three months ended September 30, 2012 and $0.3 million for the three months ended September 30, 2011.

 

Note 4. Earnings Per Share Calculations

 

The computations of basic and diluted earnings per share are noted below. Basic earnings per share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. RSAs are included in the common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock.  The Company’s 2 for 1 stock split has been adjusted retroactively for all periods presented.

 

All RSAs are dilutive and the dilutive effect is shown in the table below.

 

 

 

Three months Ended September 30,

 

 

 

2012

 

2011

 

Net income available to common stockholders

 

$

29,772

 

$

20,935

 

Weighted average common shares, basic

 

41,905

 

41,780

 

Dilutive common stock options (treasury method)

 

 

9

 

Shares used for dilutive computation

 

41,905

 

41,789

 

Net income per share - basic

 

$

0.71

 

$

0.50

 

Net income per share - diluted

 

$

0.71

 

$

0.50

 

 

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Table of Contents

 

 

 

Nine months Ended September 30,

 

 

 

2012

 

2011

 

Net income available to common stockholders

 

$

43,822

 

$

35,844

 

Weighted average common shares, basic

 

41,886

 

41,743

 

Dilutive common stock options (treasury method)

 

 

13

 

Shares used for dilutive computation

 

41,886

 

41,756

 

Net income per share - basic

 

$

1.05

 

$

0.86

 

Net income per share - diluted

 

$

1.05

 

$

0.86

 

 

Note 5. Pension Plan and Other Postretirement Benefits

 

The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The Company makes annual contributions to fund the amounts accrued for the qualified pension plan. The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan. The costs of the plans are charged to expense or are capitalized in utility plant as appropriate.

 

The Company offers medical, dental, vision, and life insurance benefits for retirees and their spouses and dependents. Participants are required to pay a premium, which offsets a portion of the cost.

 

Cash payments by the Company related to pension plans and other postretirement benefit plans were $25.5 million for the nine months ended September 30, 2012 compared to $15.8 million for the nine months ended September 30, 2011. The 2012 estimated cash contributions to the pension plans is $28.6 million and to the other postretirement benefit plans is $8.8 million.

 

The following table lists components of net periodic benefit costs for the pension plans and other postretirement benefits. The data listed under “pension plan” includes the qualified pension plan and the non-qualified supplemental executive retirement plan. The data listed under “other benefits” is for all other postretirement benefits.

 

 

 

Three months Ended September 30

 

 

 

Pension Plan

 

Other Benefits

 

 

 

2012

 

2011

 

2012

 

2011

 

Service cost

 

$

3,863

 

$

2,928

 

$

1,374

 

$

990

 

Interest cost

 

3,822

 

3,671

 

986

 

895

 

Expected return on plan assets

 

(2,890

)

(2,237

)

(458

)

(344

)

Recognized net initial APBO (1)

 

N/A

 

N/A

 

69

 

69

 

Amortization of prior service cost

 

1,571

 

1,580

 

29

 

29

 

Recognized net actuarial loss

 

2,000

 

1,017

 

793

 

504

 

Net periodic benefit cost

 

$

8,366

 

$

6,959

 

$

2,793

 

$

2,143

 

 

 

 

Nine months Ended September 30

 

 

 

Pension Plan

 

Other Benefits

 

 

 

2012

 

2011

 

2012

 

2011

 

Service cost

 

$

11,588

 

$

8,785

 

$

4,121

 

$

2,971

 

Interest cost

 

11,465

 

11,012

 

2,958

 

2,683

 

Expected return on plan assets

 

(8,669

)

(6,712

)

(1,374

)

(1,032

)

Recognized net initial APBO (1)

 

N/A

 

N/A

 

207

 

207

 

Amortization of prior service cost

 

4,712

 

4,740

 

87

 

87

 

Recognized net actuarial loss

 

6,001

 

3,051

 

2,379

 

1,512

 

Net periodic benefit cost

 

$

25,097

 

$

20,876

 

$

8,378

 

$

6,428

 

 


(1)      APBO - Accumulated postretirement benefit obligation

 

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Note 6. Short-term Borrowings

 

On June 29, 2011, the Company and Cal Water entered into Syndicated Credit Facilities, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $400 million.  The Syndicated Credit Facilities amend, expand, and replace the Company’s and its subsidiaries’ existing credit facilities originally entered into on October 27, 2009.  The new credit facilities extended the terms until June 29, 2016, increased the Company’s and Cal Water’s unsecured revolving lines of credit, and lowered interest rates and fees.  The Company and subsidiaries which it designates may borrow up to $100 million under the Company’s revolving credit facility. Cal Water may borrow up to $300 million under its revolving credit facility; however, all borrowings need to be repaid within 12-months unless otherwise authorized by the CPUC.  The proceeds from the revolving credit facilities may be used for working capital purposes, including the short-term financing of capital projects.  The base loan rate may vary from LIBOR plus 72.5 basis points to LIBOR plus 95 basis points, depending on the Company’s total capitalization ratio.  Likewise, the unused commitment fee may vary from 8 basis points to 12.5 basis points based on the same ratio.

 

Both short-term unsecured credit agreements contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales. Also, these unsecured credit agreements contain financial covenants governing the Company and its subsidiaries’ consolidated total capitalization ratio and interest coverage ratio. As of September 30, 2012, the Company and Cal Water have met all borrowing covenants for both credit agreements.

 

As of September 30, 2012 and December 31, 2011, the outstanding borrowings on the Company lines of credit were $60.7 million and $47.1 million, respectively, and there were no outstanding borrowings on the Cal Water lines of credit as of September 30, 2012 and December 31, 2011.  For the nine months ended September 30, 2012, the average borrowing rate was 1.7% compared to 2.6% for the same period last year.

 

Note 7. Income Taxes

 

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Measurement of the deferred tax assets and liabilities is at enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

 

The Company’s estimated annual effective tax rate was 41.8% and 41.2% for the nine months ended September 30, 2012 and 2011, respectively, excluding discrete items.  The Company’s actual effective rates for the three months ended September 30, 2012 and 2011 was 26.6% and 41.1%, respectively and reflect the recording of a discrete tax item in 2012.  The Company’s actual effective rates for the nine months ended September 30, 2012 and 2011 was 32.6% and 38.4%, respectively and reflect the tax effects of discrete items for both years.  The Company considers these discrete items as infrequently occurring or unusual.

 

Effective January 1, 2012, the corporate federal income tax repairs and maintenance deduction for qualified tangible property became mandatory for qualified property placed into service during 2012 and prior years.  The new tax regulations require the Company to deduct a significant amount of costs previously capitalized for book and tax purposes.  The Company completed its’ analysis of the federal repairs and maintenance deduction related to 2011 and prior years during the third quarter of 2012.  The Company’s federal repairs and maintenance deduction for qualified tangible property placed into service during 2011 and prior years was $86.7 million and created a $30.4 million deferred tax liability for the temporary timing difference between book and tax treatments as of September 30, 2012.  An estimate for the 2012 federal repairs deduction was not recorded as of September 30, 2012.  The 2011 and prior year federal repairs and maintenance deduction eliminated the Company’s 2010 and 2011 previously filed federal qualified U.S. production activities deductions (QPAD) and was recorded as an $0.8 million federal income tax expense during the three months ended September 30, 2012.  The 2012 federal income tax QPAD deduction is more likely than not to be eliminated and was excluded from the 2012 tax provision.  The Company’s state repairs deduction for qualified tangible property deductions placed into service during 2011 and prior years was $122.2 million and was recorded as a $7.0 million reduction to state income tax expense during the third quarter ended September 30, 2012.  An estimate for the 2012 state repairs deduction was not recorded as of September 30, 2012.

 

The repairs and maintenance deductions resulted in a federal and state tax net operating loss (NOL).  The NOL carry-forward amounts are more likely than not to be recovered and therefore require no valuation allowance.  The NOL carry-forward does not begin to expire until 2032.

 

The California Franchise Tax Board (FTB) is auditing the Company’s 2008 and 2009 California income tax returns. It is uncertain when the FTB will complete its audit. The Company believes that the final resolution of the FTB audit will not have a material adverse impact on its financial condition or results of operations. The Company is not under audit by any other jurisdiction.

 

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Table of Contents

 

Note 8. Regulatory Assets and Liabilities

 

During 2011, the CPUC issued a decision regarding the $34.2 million of litigation proceeds previously received by Cal Water during 2008 which is being used to replace infrastructure damaged by the gasoline additive Methyl tert-butyl ether (MTBE). The decision requires use of these proceeds for costs incurred as a result of MTBE contamination with any related benefits to be provided to Cal Water customers. Such usage includes transfer of the amount to contributions in aid of construction (CIAC) for remediation or replacement project costs once complete. Usage of the proceeds is reported to the CPUC through an Advice Letter or General Rate Case filing. As of December 31, 2011, $16.7 million of the proceeds was recorded as CIAC.  Cal Water did not use any of the proceeds to replace damaged infrastructure during the third quarter of 2012.  The remaining balance of $16.3 million at September 30, 2012 is recorded as other long-term liabilities.

 

During 2011, Cal Water added balancing accounts for its pension plans and conservation program. Both balancing account effective dates were January 1, 2011. The pension plans balancing account is a two-way balancing account that tracks the differences between actual expenses and adopted rate recovery which will result in either a regulatory asset or liability. The conservation program is a one-way balancing account that tracks the differences between actual expenses and adopted rate recovery which may result in a regulatory liability if actual conservation expenses are less than adopted over the three year period ending December 31, 2013. As of September 30, 2012 there was a pension regulatory asset of $1.9 million and a conservation program regulatory liability of $6.6 million compared to a $1.9 million pension regulatory liability and a conservation program regulatory liability of $4.3 million as of December 31, 2011.

 

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Table of Contents

 

Note 9. Commitment and Contingencies

 

Commitments

 

The Company has significant commitments to lease certain office spaces and water systems and to purchase water from water wholesalers. These commitments are described in Form 10-K for the year ended December 31, 2011.  As of September 30, 2012, there were no significant changes from December 31, 2011.

 

Contingencies

 

Groundwater Contamination

 

The Company has undertaken litigation against third parties to recover past and future costs related to ground water contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. The Commission’s general policy requires all proceeds from contamination litigation to be used first to pay transactional expenses, then to make ratepayers whole for water treatment costs to comply with the Commission’s water quality standards. The Commission allows for a risk-based consideration of contamination proceeds which exceed the costs of the remediation described above and may result in some sharing of proceeds with the shareholder, determined on a case by case basis. The Commission has authorized various memorandum accounts that allow the Company to track significant litigation costs to request recovery of these costs in future filings and uses of proceeds to comply with Commission’s general policy.

 

Other Legal Matters

 

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. The status of each significant matter is reviewed and assessed for potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be estimated, a liability is accrued for the estimated loss in accordance with the accounting standards for contingencies. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe when taking into account existing reserves the ultimate resolution of these matters will materially affect the Company’s financial position, results of operations, or cash flows.

 

Note 10. Fair Value of Financial Assets and Liabilities

 

The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchal framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:

 

Level 1 -

 

Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices.

 

 

 

Level 2 -

 

Pricing inputs are other than quoted prices inactive markets, but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with discounted cash flow or option pricing models using highly observable inputs.

 

 

 

Level 3 -

 

Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those valued with models requiring significant management judgment or estimation.

 

Specific valuation methods include the following:

 

Cash equivalents, accounts receivable and accounts payable carrying amounts approximated the fair value because of the short-term maturity of the instruments.

 

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Table of Contents

 

Long-term debt fair values were estimated using the published quoted market price, if available, or the discounted cash flow analysis, based on the current rates available using a risk-free rate (a U.S. Treasury securities yield curve) plus a risk premium of 1.19%.

 

Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.

 

 

 

September 30, 2012

 

 

 

 

 

Fair Value

 

 

 

Cost

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Long -term debt, including current maturities

 

$

486,137

 

$

 

$

629,572

 

$

 

$

629,572

 

Advances for construction

 

188,249

 

 

67,175

 

 

67,175

 

Total

 

$

674,386

 

$

 

$

696,747

 

$

 

$

696,747

 

 

 

 

December 31, 2011

 

 

 

 

 

Fair Value

 

 

 

Cost

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Long -term debt, including current maturities

 

$

488,165

 

$

 

$

625,202

 

$

 

$

625,202

 

Advances for construction

 

187,278

 

 

69,959

 

 

69,959

 

Total

 

$

675,443

 

$

 

$

695,161

 

$

 

$

695,161

 

 

Note 11. Condensed Consolidating Financial Statements

 

On April 17, 2009, Cal Water issued $100 million aggregate principal amount of 5.875% First Mortgage Bonds due 2019, and on November 17, 2010, Cal Water issued $100 million aggregate principal amount of 5.500% First Mortgage Bonds due 2040, all of which are fully and unconditionally guaranteed by the Company.

 

The following tables present the condensed consolidating balance sheets as of September 30, 2012 and December 31, 2011, the condensed consolidating statements of income for the three and nine months ended September 30, 2012 and 2011 and the condensed consolidating statements of cash flow for the nine months ended September 30, 2012 and 2011 of (i) California Water Service Group, the guarantor of the first mortgage bonds and the parent company; (ii) California Water Service Company, the issuer of the first mortgage bonds and a 100% owned subsidiary of California Water Service Group; and (iii) the other 100% owned subsidiaries of California Water Service Group.

 

14



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING BALANCE SHEET

As of September 30, 2012

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Utility plant:

 

 

 

 

 

 

 

 

 

 

 

Utility plant

 

$

525

 

$

1,902,919

 

$

169,432

 

$

(7,197

)

$

2,065,679

 

Less accumulated depreciation and amortization

 

(94

)

(592,236

)

(31,697

)

1,474

 

(622,553

)

Net utility plant

 

431

 

1,310,683

 

137,735

 

(5,723

)

1,443,126

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1,198

 

14,439

 

1,334

 

 

16,971

 

Receivables and unbilled revenue

 

 

112,641

 

4,368

 

 

117,009

 

Receivables from affiliates

 

21,085

 

741

 

78

 

(21,904

)

 

Other current assets

 

81

 

15,003

 

1,034

 

 

16,118

 

Total current assets

 

22,364

 

142,824

 

6,814

 

(21,904

)

150,098

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

Regulatory assets

 

 

331,532

 

2,468

 

 

334,000

 

Investments in affiliates

 

493,832

 

 

 

(493,832

)

 

Long-term affiliate notes receivable

 

25,692

 

7,794

 

 

(33,486

)

 

Other assets

 

858

 

38,408

 

9,585

 

(242

)

48,609

 

Total other assets

 

520,382

 

377,734

 

12,053

 

(527,560

)

382,609

 

 

 

$

543,177

 

$

1,831,241

 

$

156,602

 

$

(555,187

)

$

1,975,833

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Capitalization:

 

 

 

 

 

 

 

 

 

 

 

Common stockholders’ equity

 

$

474,936

 

$

443,704

 

$

55,703

 

$

(499,407

)

$

474,936

 

Affiliate long-term debt

 

7,794

 

 

25,692

 

(33,486

)

 

Long-term debt, less current maturities

 

 

476,260

 

3,200

 

 

479,460

 

Total capitalization

 

482,730

 

919,964

 

84,595

 

(532,893

)

954,396

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

5,987

 

690

 

 

6,677

 

Short-term borrowings

 

60,675

 

 

 

 

60,675

 

Payables to affiliates

 

50

 

714

 

21,140

 

(21,904

)

 

Accounts payable

 

 

54,562

 

4,277

 

 

58,839

 

Accrued expenses and other liabilities

 

301

 

59,890

 

3,852

 

 

64,043

 

Total current liabilities

 

61,026

 

121,153

 

29,959

 

(21,904

)

190,234

 

Unamortized investment tax credits

 

 

2,254

 

 

 

2,254

 

Deferred income taxes, net

 

(579

)

160,880

 

4,334

 

(390

)

164,245

 

Pension and postretirement benefits other than pensions

 

 

234,432

 

 

 

234,432

 

Regulatory and other liabilities

 

 

78,910

 

8,127

 

 

87,037

 

Advances for construction

 

 

187,360

 

889

 

 

188,249

 

Contributions in aid of construction

 

 

126,288

 

28,698

 

 

154,986

 

 

 

$

543,177

 

$

1,831,241

 

$

156,602

 

$

(555,187

)

$

1,975,833

 

 

15



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2011

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Utility plant:

 

 

 

 

 

 

 

 

 

 

 

Utility plant

 

$

324

 

$

1,808,568

 

$

158,688

 

$

(7,199

)

$

1,960,381

 

Less accumulated depreciation and amortization

 

(51

)

(551,345

)

(29,251

)

1,385

 

(579,262

)

Net utility plant

 

273

 

1,257,223

 

129,437

 

(5,814

)

1,381,119

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

89

 

18,475

 

8,639

 

 

27,203

 

Receivables

 

158

 

76,227

 

(4,797

)

 

71,588

 

Receivables from affiliates

 

7,817

 

3,446

 

5

 

(11,268

)

 

Other current assets

 

 

14,225

 

872

 

 

15,097

 

Total current assets

 

8,064

 

112,373

 

4,719

 

(11,268

)

113,888

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

Regulatory assets

 

 

317,564

 

2,334

 

 

319,898

 

Investments in affiliates

 

466,515

 

 

 

(466,515

)

 

Long-term affiliate notes receivable

 

28,921

 

7,832

 

 

(36,753

)

 

Other assets

 

1,144

 

31,662

 

7,081

 

(205

)

39,682

 

Total other assets

 

496,580

 

357,058

 

9,415

 

(503,473

)

359,580

 

 

 

$

504,917

 

$

1,726,654

 

$

143,571

 

$

(520,555

)

$

1,854,587

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Capitalization:

 

 

 

 

 

 

 

 

 

 

 

Common stockholders’ equity

 

$

449,829

 

$

417,810

 

$

54,377

 

$

(472,187

)

$

449,829

 

Affiliate long-term debt

 

7,832

 

 

28,921

 

(36,753

)

 

Long-term debt, less current maturities

 

 

477,998

 

3,634

 

 

481,632

 

Total capitalization

 

457,661

 

895,808

 

86,932

 

(508,940

)

931,461

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

5,851

 

682

 

 

6,533

 

Short-term borrowings

 

47,140

 

 

 

 

47,140

 

Payables to affiliates

 

52

 

190

 

11,026

 

(11,268

)

 

Accounts payable

 

 

47,568

 

4,010

 

 

51,578

 

Accrued expenses and other liabilities

 

625

 

46,462

 

(547

)

84

 

46,624

 

Total current liabilities

 

47,817

 

100,071

 

15,171

 

(11,184

)

151,875

 

Unamortized investment tax credits

 

 

2,254

 

 

 

2,254

 

Deferred income taxes, net

 

(561

)

113,925

 

3,435

 

(431

)

116,368

 

Pension and postretirement benefits other than pensions

 

 

232,110

 

 

 

232,110

 

Regulatory and other liabilities

 

 

71,034

 

8,016

 

 

79,050

 

Advances for construction

 

 

185,902

 

1,376

 

 

187,278

 

Contributions in aid of construction

 

 

125,550

 

28,641

 

 

154,191

 

 

 

$

504,917

 

$

1,726,654

 

$

143,571

 

$

(520,555

)

$

1,854,587

 

 

16



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended September 30, 2012

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

168,680

 

$

9,455

 

$

 

$

178,135

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

63,647

 

2,842

 

 

66,489

 

Administrative and general

 

 

21,639

 

2,286

 

 

23,925

 

Other operations

 

 

16,177

 

1,607

 

(126

)

17,658

 

Maintenance

 

 

4,238

 

139

 

 

4,377

 

Depreciation and amortization

 

 

13,051

 

699

 

(30

)

13,720

 

Income tax (benefit) expense

 

(150

)

9,831

 

372

 

334

 

10,387

 

Property and other taxes

 

 

4,552

 

666

 

 

5,218

 

Total operating expenses

 

(150

)

133,135

 

8,611

 

178

 

141,774

 

Net operating income

 

150

 

35,545

 

844

 

(178

)

36,361

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

474

 

3,372

 

617

 

(707

)

3,756

 

Non-regulated expense, net

 

 

(2,217

)

(483

)

3

 

(2,697

)

Income tax (expense) on other income and expense

 

(193

)

(469

)

(82

)

322

 

(422

)

Net other income

 

281

 

686

 

52

 

(382

)

637

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

368

 

7,702

 

535

 

(581

)

8,024

 

Less: capitalized interest

 

 

(505

)

(293

)

 

(798

)

Net interest expense

 

368

 

7,197

 

242

 

(581

)

7,226

 

Equity earnings of subsidiaries

 

29,709

 

 

 

(29,709

)

 

Net income

 

$

29,772

 

$

29,034

 

$

654

 

$

(29,688

)

$

29,772

 

 

17



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the nine months ended September 30, 2012

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

413,796

 

$

24,640

 

$

 

$

438,436

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

150,396

 

7,723

 

 

158,119

 

Administrative and general

 

 

62,043

 

7,067

 

 

69,110

 

Other operations

 

 

54,584

 

5,008

 

(379

)

59,213

 

Maintenance

 

 

14,247

 

495

 

 

14,742

 

Depreciation and amortization

 

 

39,393

 

2,079

 

(89

)

41,383

 

Income tax (benefit) expense

 

(416

)

19,094

 

(198

)

997

 

19,477

 

Property and other taxes

 

 

11,819

 

1,983

 

 

13,802

 

Total operating expenses

 

(416

)

351,576

 

24,157

 

529

 

375,846

 

Net operating income

 

416

 

62,220

 

483

 

(529

)

62,590

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

1,429

 

10,867

 

1,805

 

(2,158

)

11,943

 

Non-regulated expense, net

 

 

(7,072

)

(1,422

)

3

 

(8,491

)

Income tax (expense) on other income and expense

 

(582

)

(1,545

)

(216

)

960

 

(1,383

)

Net other income

 

847

 

2,250

 

167

 

(1,195

)

2,069

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

1,022

 

22,648

 

1,594

 

(1,780

)

23,484

 

Less: capitalized interest

 

 

(1,785

)

(862

)

 

(2,647

)

Net interest expense

 

1,022

 

20,863

 

732

 

(1,780

)

20,837

 

Equity earnings of subsidiaries

 

43,581

 

 

 

(43,581

)

 

Net income (loss)

 

$

43,822

 

$

43,607

 

$

(82

)

$

(43,525

)

$

43,822

 

 

18



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended September 30, 2011

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

160,297

 

$

8,957

 

$

 

$

169,254

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

58,913

 

2,680

 

 

61,593

 

Administrative and general

 

 

19,359

 

2,287

 

 

21,646

 

Other operations

 

 

15,746

 

1,886

 

(126

)

17,506

 

Maintenance

 

 

4,417

 

234

 

 

4,651

 

Depreciation and amortization

 

 

12,110

 

650

 

(31

)

12,729

 

Income tax (benefit) expense

 

(135

)

15,659

 

(24

)

381

 

15,881

 

Property and other taxes

 

 

4,537

 

633

 

 

5,170

 

Total operating expenses

 

(135

)

130,741

 

8,346

 

224

 

139,176

 

Net operating income

 

135

 

29,556

 

611

 

(224

)

30,078

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

558

 

3,033

 

678

 

(844

)

3,425

 

Non-regulated expense, net

 

 

(6,005

)

(484

)

 

(6,489

)

Income tax (expense) benefit on other income and expense

 

(227

)

1,211

 

(99

)

369

 

1,254

 

Net other income (expense)

 

331

 

(1,761

)

95

 

(475

)

(1,810

)

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

330

 

7,764

 

630

 

(717

)

8,007

 

Less: capitalized interest

 

 

(434

)

(240

)

 

(674

)

Net interest expense

 

330

 

7,330

 

390

 

(717

)

7,333

 

Equity earnings of subsidiaries

 

20,799

 

 

 

(20,799

)

 

Net income

 

$

20,935

 

$

20,465

 

$

316

 

$

(20,781

)

$

20,935

 

 

19



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the nine months ended September 30, 2011

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

375,851

 

$

22,949

 

$

 

$

398,800

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

131,004

 

7,292

 

 

138,296

 

Administrative and general

 

 

56,582

 

6,120

 

 

62,702

 

Other operations

 

 

42,741

 

5,518

 

(380

)

47,879

 

Maintenance

 

 

14,567

 

571

 

 

15,138

 

Depreciation and amortization

 

 

35,802

 

1,981

 

(93

)

37,690

 

Income tax (benefit) expense

 

(427

)

23,270

 

(714

)

1,149

 

23,278

 

Property and other taxes

 

 

12,505

 

1,731

 

 

14,236

 

Total operating expenses

 

(427

)

316,471

 

22,499

 

676

 

339,219

 

Net operating income

 

427

 

59,380

 

450

 

(676

)

59,581

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

1,647

 

8,760

 

3,595

 

(2,505

)

11,497

 

Non-regulated expense, net

 

 

(10,815

)

(2,607

)

 

(13,422

)

Gain on sale of properties

 

 

62

 

 

 

62

 

Income tax (expense) benefit on other income and expense

 

(671

)

812

 

(476

)

1,111

 

776

 

Net other income (expense)

 

976

 

(1,181

)

512

 

(1,394

)

(1,087

)

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

1,047

 

23,800