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 June 30, 2013

 

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 August 1, 2013 — 47,734,035

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Page

PART I Financial Information

3

Item 1 Financial Statements

3

Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2013 and December 31, 2012

3

Condensed Consolidated Statements of Income (unaudited) For the Three months Ended June 30, 2013 and 2012

4

Condensed Consolidated Statements of Income (unaudited) For the Six months Ended June 30, 2013 and 2012

5

Condensed Consolidated Statements of Cash Flows (unaudited) For the Six months Ended June 30, 2013 and 2012

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 Proceedings

35

Item 1A Risk Factors

36

Item 5 Other Information

36

Item 6 Exhibits

36

Signatures

37

Exhibit Index

38

 

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)

 

 

 

June 30,
2013

 

December 31,
2012

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,160,706

 

$

2,096,363

 

Less accumulated depreciation and amortization

 

(670,452

)

(639,307

)

Net utility plant

 

1,490,254

 

1,457,056

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

38,668

 

38,790

 

Receivables: net of allowance for doubtful accounts of $714 for both periods presented Customers

 

41,493

 

29,958

 

Regulatory balancing accounts

 

25,560

 

34,020

 

Other

 

14,335

 

11,943

 

Unbilled revenue

 

24,750

 

15,394

 

Materials and supplies at weighted average cost

 

5,720

 

5,874

 

Taxes, prepaid expenses and other assets

 

13,550

 

10,585

 

Total current assets

 

164,076

 

146,564

 

Other assets:

 

 

 

 

 

Regulatory assets

 

353,910

 

344,419

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

47,752

 

45,270

 

Total other assets

 

404,277

 

392,304

 

 

 

$

2,058,607

 

$

1,995,924

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value; 68,000,000 shares authorized, 47,734,035 and 41,908,218 outstanding in 2013 and 2012, respectively

 

$

477

 

$

419

 

Additional paid-in capital

 

327,628

 

221,013

 

Retained earnings

 

250,375

 

252,280

 

Total common stockholders’ equity

 

578,480

 

473,712

 

Long-term debt, less current maturities

 

430,705

 

434,467

 

Total capitalization

 

1,009,185

 

908,179

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

48,040

 

46,783

 

Short-term borrowings

 

28,815

 

89,475

 

Accounts payable

 

57,158

 

47,199

 

Regulatory balancing accounts

 

4,717

 

5,018

 

Accrued interest

 

4,608

 

4,705

 

Accrued expenses and other liabilities

 

52,872

 

49,887

 

Total current liabilities

 

196,210

 

243,067

 

Unamortized investment tax credits

 

2,180

 

2,180

 

Deferred income taxes, net

 

167,611

 

158,846

 

Pension and postretirement benefits other than pensions

 

248,003

 

244,901

 

Regulatory and other liabilities

 

88,578

 

92,593

 

Advances for construction

 

186,202

 

187,584

 

Contributions in aid of construction

 

160,638

 

158,574

 

Commitments and contingencies

 

 

 

 

 

 

 

$

2,058,607

 

$

1,995,924

 

 

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 three months ended 

 

June 30,
2013

 

June 30,
2012

 

Operating revenue

 

$

154,555

 

$

143,552

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

59,645

 

52,678

 

Administrative and general

 

23,155

 

22,167

 

Other operations

 

17,030

 

17,729

 

Maintenance

 

4,188

 

4,605

 

Depreciation and amortization

 

14,491

 

13,712

 

Income taxes

 

9,548

 

9,062

 

Property and other taxes

 

5,715

 

3,977

 

Total operating expenses

 

133,772

 

123,930

 

Net operating income

 

20,783

 

19,622

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

3,215

 

4,051

 

Non-regulated expenses, net

 

(3,240

)

(3,695

)

Income tax benefit (expense) on other income and expenses

 

16

 

(138

)

Net other (expense) income

 

(9

)

218

 

Interest expense:

 

 

 

 

 

Interest expense

 

7,803

 

7,821

 

Less: capitalized interest

 

(539

)

(946

)

Net interest expense

 

7,264

 

6,875

 

Net income

 

$

13,510

 

$

12,965

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.28

 

$

0.31

 

Diluted

 

$

0.28

 

$

0.31

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

47,729

 

41,911

 

Diluted

 

47,760

 

41,911

 

Dividends declared per share of common stock

 

$

0.16000

 

$

0.15750

 

 

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 six months ended 

 

June 30,
2013

 

June 30,
2012

 

Operating revenue

 

$

265,999

 

$

260,301

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

101,342

 

91,630

 

Administrative and general

 

48,436

 

45,185

 

Other operations

 

32,675

 

41,555

 

Maintenance

 

8,321

 

10,365

 

Depreciation and amortization

 

29,120

 

27,663

 

Income taxes

 

8,402

 

9,090

 

Property and other taxes

 

11,150

 

8,584

 

Total operating expenses

 

239,446

 

234,072

 

Net operating income

 

26,553

 

26,229

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

6,737

 

8,187

 

Non-regulated expenses, net

 

(5,657

)

(5,794

)

Income tax (expense) on other income and expenses

 

(435

)

(961

)

Net other income

 

645

 

1,432

 

Interest expense:

 

 

 

 

 

Interest expense

 

15,840

 

15,460

 

Less: capitalized interest

 

(1,079

)

(1,849

)

Net interest expense

 

14,761

 

13,611

 

Net income

 

$

12,437

 

$

14,050

 

Earnings per share

 

 

 

 

 

Basic

 

$

0.28

 

$

0.34

 

Diluted

 

$

0.28

 

$

0.34

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

45,004

 

41,877

 

Diluted

 

45,034

 

41,877

 

Dividends declared per share of common stock

 

$

0.32000

 

$

0.31500

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

5



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Unaudited

(In thousands)

 

For the six months ended :

 

June 30,
2013

 

June 30,
2012

 

Operating activities

 

 

 

 

 

Net income

 

$

12,437

 

$

14,050

 

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

 

 

 

 

 

Depreciation and amortization

 

30,088

 

28,554

 

Change in value of life insurance contracts

 

(504

)

(1,635

)

Other changes in noncurrent assets and liabilities

 

1,350

 

(1,658

)

Changes in operating assets and liabilities:

 

 

 

 

 

Receivables

 

(19,686

)

(20,701

)

Accounts payable

 

8,787

 

8,879

 

Other current assets

 

(3,889

)

(5,108

)

Other current liabilities

 

8,193

 

9,716

 

Net cash provided by operating activities

 

36,776

 

32,097

 

Investing activities:

 

 

 

 

 

Utility plant expenditures

 

(66,190

)

(61,984

)

Purchase of life insurance

 

(1,608

)

(1,357

)

Change in restricted cash and other changes

 

1,079

 

6

 

Net cash used in investing activities

 

(66,719

)

(63,335

)

Financing activities:

 

 

 

 

 

Short-term borrowings

 

32,615

 

62,635

 

Repayment of short-term borrowings

 

(93,275

)

(22,000

)

Proceeds from long-term debt

 

48

 

123

 

Repayment of long-term debt

 

(2,553

)

(1,645

)

Advances and contributions in aid of construction

 

5,006

 

2,760

 

Refunds of advances for construction

 

(3,512

)

(3,835

)

Issuance of common stock

 

110,688

 

 

Common stock issuance cost

 

(4,853

)

 

Dividends paid

 

(14,343

)

(13,187

)

Net cash provided by financing activities

 

29,821

 

24,851

 

Change in cash and cash equivalents

 

(122

)

(6,387

)

Cash and cash equivalents at beginning of period

 

38,790

 

27,203

 

Cash and cash equivalents at end of period

 

$

38,668

 

$

20,816

 

Supplemental information

 

 

 

 

 

Cash paid for interest (net of amounts capitalized)

 

$

14,383

 

$

13,143

 

Cash paid for income taxes

 

$

 

$

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

Accrued payables for investments in utility plant

 

$

9,492

 

$

8,998

 

Utility plant contribution by developers

 

$

6,809

 

$

8,710

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

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Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2013

(Amounts in thousands, except share and per share amounts)

 

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, 2012, included in its annual report on Form 10-K as filed with the SEC on February 28, 2013.

 

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. At the end of any calendar year, Cal Water files with the CPUC to refund or collect the balance in the accounts. Most undercollected net WRAM and MCBA receivable balances are collected over 12 and 18 months. Cal Water defers net WRAM and MCBA operating revenues and associated costs whenever the net receivable balances are estimated to be collected more than 24 months after the respective reporting periods in which it was recognized. The deferred net WRAM and MCBA revenues 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. Deferred net WRAM and MCBA revenues and associated costs will be recognized as revenues and costs in future periods when collection is within twenty-four months of the respective reporting period.

 

The change to deferred net WRAM and MCBA balances during the six months ended June 30, 2013 was:

 

 

 

Operating
Revenues

 

Operating
Costs

 

Income Before
Income Taxes

 

Net WRAM and MCBA deferral as of December 31, 2012

 

$

882

 

$

719

 

$

163

 

Less: reversal of prior year deferral during the six months ended June 30, 2013

 

(415

)

(317

)

(98

)

Add: net WRAM and MCBA deferral during the six months ended June 30, 2013

 

800

 

687

 

113

 

Net amount during the six months ended June 30, 2013

 

385

 

370

 

15

 

Net WRAM and MCBA deferral as of June 30, 2013

 

$

1,267

 

$

1,089

 

$

178

 

 

The change to deferred net WRAM and MCBA balances during the six months ended June 30, 2012 was:

 

 

 

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 year deferral during the six months ended June 30, 2012

 

(9,486

)

(7,736

)

(1,750

)

Add: net WRAM and MCBA deferral during the six months ended June 30, 2012

 

462

 

377

 

85

 

Net amount during the six months ended June 30, 2012

 

(9,024

)

(7,359

)

(1,665

)

Net WRAM and MCBA deferral as of June 30, 2012

 

$

3,840

 

$

3,133

 

$

707

 

 

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Table of Contents

 

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

 

 

 

June 30,
2013

 

December 31,
2012

 

Net short-term regulatory balancing accounts (receivable)

 

$

25,560

 

$

34,020

 

Net long-term regulatory assets (receivable)

 

18,644

 

12,051

 

Total regulatory assets

 

$

44,204

 

$

46,071

 

Net short-term regulatory balancing accounts (liability)

 

$

196

 

$

371

 

Net long-term regulatory liability

 

183

 

119

 

Total payable

 

$

379

 

$

490

 

 

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 $1.6 million and $1.7 million as of June 30, 2013 and December 31, 2012, respectively. This liability is included in “accrued expenses and other liabilities” on the condensed consolidated balance sheets.

 

Cash and Cash Equivalents

 

Cash equivalents include highly liquid investments with maturities of three months or less.  Cash and cash equivalents was $38.7 million and $38.8 million as of June 30, 2013 and December 31, 2012, respectively.  Restricted cash is included in “taxes, prepaid expenses and other assets” and was $1.2 million and $2.3 million as of June 30, 2013 and December 31, 2012, respectively.

 

Adoption of New Accounting Standards

 

On February 1, 2013, the Financial Accounting Standards Board issued an accounting standards update (ASU) for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements.  The ASU will impact the Company’s recognition, measurement, and disclosure requirements for guarantees on third party debt of its 100%-owned subsidiaries.  The ASU effective date for the Company’s interim and annual reporting is January 1, 2014.  The Company is reviewing its’ contracts to determine if there are any of these arrangements and the impact, if any, on the Company’s condensed consolidated financial statements.

 

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 six months ended June 30, 2013 and 2012, the Company granted annual Restricted Stock Awards (RSAs) of 70,557 and 98,422 shares, respectively, of common stock to officers and directors of the Company and no RSAs were cancelled. Employee RSAs granted in 2013 vest over 36 months and RSAs granted in 2012 vest over 48 months.  Director RSAs generally vest at the end of 12 months. During the first six months of 2013 and 2012, the shares granted were valued at $20.62 and $17.96 per share, respectively, based upon the fair market value of the Company’s common stock on the date of grant.

 

On March 1, 2013, the Company granted performance-based Restricted Stock Unit Awards (RSUs) of 50,267 shares of common stock to officers.  Each award reflects a target number of shares that may be issued to the award recipient.  The awards may be earned upon the completion of the three-year performance period ending February 28, 2016.  Whether RSUs are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the Board of Director Compensation Committee in connection with the issuance of the RSUs.  The performance objectives are based on the Company’s business plan covering the performance period.  The performance objectives include achieving the budgeted return on equity, budgeted investment in utility plant, customer service standards, and water quality standards.  Depending on the results achieved during the three-year performance period, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 200% of the target shares granted, provided that the grantee is continuously employed by the Company through the vesting date.  If prior to the vesting date employment is terminated by reason of death, disability or normal retirement, then a pro rata portion of this award will vest.  RSUs are not included in diluted shares for financial reporting until earned.  The RSUs are recognized as expense ratably over the three year performance period using a fair market value of $20.62 per share and an estimate of RSUs earned during the performance period.

 

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Table of Contents

 

The Company has recorded compensation costs for the RSAs and RSUs which are included in operating expense in the amount of $0.8 million and $0.6 million for the six months ended June 30, 2013 and June 30, 2012, respectively.  The Company has recorded compensation costs for the RSAs and RSUs in operating expense in the amount of $0.5 million and $0.4 million for the three months ended June 30, 2013 and June 30, 2012, respectively.

 

Note 4. Equity

 

The Company’s changes in equity for the six months ended June 30, 2013 were as follows:

 

 

 

Total Stockholders’ Equity

 

Balance at December 31, 2012

 

$

473,712

 

Common stock issued, net

 

105,835

 

Share-based compensation expense

 

839

 

Common stock dividends declared

 

(14,343

)

Net income

 

12,437

 

Balance at June 30, 2013

 

$

578,480

 

 

On March 26, 2013, the Company sold 5,750,000 shares of its common stock in an underwritten public offering for cash proceeds of $105.8 million, net of $4.9 million underwriting discounts and commissions and offering expenses. The net proceeds from the sale of common stock were added to our general funds to be used for general corporate purposes.  In April 2013, the Company used a portion of the net proceeds from the offering to repay outstanding borrowings on the Company and Cal Water lines of credit of $68.3 million and $25.0 million, respectively.

 

Note 5. 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.

 

A total of 333,856 shares of Stock Appreciation Rights were vested and outstanding and all were dilutive as of June 30, 2013 and anti-dilutive as of June 30, 2012 as shown in the tables below.

 

 

 

Three months Ended June 30

 

 

 

2013

 

2012

 

Net income available to common stockholders

 

$

13,510

 

$

12,965

 

Weighted average common shares, basic

 

47,729

 

41,911

 

Dilutive common stock appreciation rights (treasury method)

 

31

 

 

Shares used for dilutive computation

 

47,760

 

41,911

 

Net income per share - basic

 

$

0.28

 

$

0.31

 

Net income per share - diluted

 

$

0.28

 

$

0.31

 

 

 

 

Six months Ended June 30

 

 

 

2013

 

2012

 

Net income available to common stockholders

 

$

12,437

 

$

14,050

 

Weighted average common shares, basic

 

45,004

 

41,877

 

Dilutive common stock appreciation rights (treasury method)

 

30

 

 

Shares used for dilutive computation

 

45,034

 

41,877

 

Net income per share - basic

 

$

0.28

 

$

0.34

 

Net income per share - diluted

 

$

0.28

 

$

0.34

 

 

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Table of Contents

 

Note 6. 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 $17.8 million for the six months ended June 30, 2013 compared to $15.8 million for the six months ended June 30, 2012. The 2013 estimated cash contribution to the pension plans is $31.3 million and to the other postretirement benefit plans is $9.6 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 June 30

 

 

 

Pension Plan

 

Other Benefits

 

 

 

2013

 

2012

 

2013

 

2012

 

Service cost

 

$

4,658

 

$

3,709

 

$

1,695

 

$

1,330

 

Interest cost

 

4,063

 

3,864

 

1,109

 

1,005

 

Expected return on plan assets

 

(3,565

)

(2,886

)

(598

)

(448

)

Recognized net initial APBO (1)

 

N/A

 

N/A

 

2

 

69

 

Amortization of prior service cost

 

1,541

 

1,570

 

20

 

29

 

Recognized net actuarial loss

 

2,224

 

2,075

 

916

 

822

 

Net periodic benefit cost

 

$

8,921

 

$

8,332

 

$

3,144

 

$

2,807

 

 

 

 

Six months Ended June 30

 

 

 

Pension Plan

 

Other Benefits

 

 

 

2013

 

2012

 

2013

 

2012

 

Service cost

 

$

9,316

 

$

7,725

 

$

3,390

 

$

2,747

 

Interest cost

 

8,126

 

7,643

 

2,218

 

1,972

 

Expected return on plan assets

 

(7,130

)

(5,779

)

(1,196

)

(916

)

Recognized net initial APBO (1)

 

N/A

 

N/A

 

4

 

138

 

Amortization of prior service cost

 

3,082

 

3,141

 

40

 

58

 

Recognized net actuarial loss

 

4,448

 

4,001

 

1,832

 

1,586

 

Net periodic benefit cost

 

$

17,842

 

$

16,731

 

$

6,288

 

$

5,585

 

 


(1)      APBO - Accumulated postretirement benefit obligation

 

Note 7. Short-term and Long-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 June 30, 2013, the Company and Cal Water have met all borrowing covenants for both credit agreements.

 

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Table of Contents

 

As of June 30, 2013 and December 31, 2012, the outstanding borrowings on the Company lines of credit were $8.8 million and $64.5 million, respectively, and the outstanding borrowings on the Cal Water lines of credit were $20.0 million and $25.0 million.  For the six months ended June 30, 2013, the average borrowing rate was 2.3% compared to 1.6% for the same period last year.

 

Note 8. 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 anticipates that future rate actions by the regulatory commissions will reflect revenue requirements for the tax effects of temporary differences recognized, which have previously been passed through to customers. The regulatory commissions have granted us rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITCs) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes.

 

During 2012, the Company filed an application for a change in accounting method (section 481 adjustment) with the Internal Revenue Service (IRS) to implement the new repairs and maintenance deduction.  The new deduction is for qualified tangible property placed into service during 2012 and prior years.  The new tax regulations allow the Company to deduct a significant amount of costs previously capitalized for book and tax purposes. The 2012 repairs and maintenance deductions resulted in a federal net operating loss (NOL) of $26.0 million and a state NOL of $55.7 million.  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 2033.

 

The American Taxpayer Relief Act of 2012 provided the Company with additional 50% first-year bonus depreciation for assets placed in service from December 31, 2012 to December 31, 2013. The federal income tax bonus deduction was estimated at $3.1 million in 2012.  The 2012 estimate will be finalized when the Company files its 2012 tax returns during the third quarter of 2013.

 

The IRS is presently auditing the Company’s 2010 and 2011 federal income tax returns. It is uncertain when the IRS will complete its audit. The Company believes that the final resolution of the IRS audit will not have a material adverse impact on its financial condition, cash flows, or results of operations.

 

Note 9. 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, 2012, $22.4 million of the proceeds was recorded as CIAC.  Cal Water used $1.2 million of the proceeds to replace damaged infrastructure during the second quarter of 2013.  The remaining balance of $10.6 million at June 30, 2013 is included in regulatory and other 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 June 30, 2013 and December 31, 2012, the pension balancing account was a regulatory asset of $3.7 million and $2.4 million, respectively.  The conservation balancing account was a regulatory liability of $6.8 million and $6.5 million as of June 30, 2013 and December 31, 2012, respectively.

 

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Table of Contents

 

Note 10. 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, 2012.  As of June 30, 2013, there were no significant changes from December 31, 2012.

 

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 Company records gain contingencies as a regulatory liability when the net litigation proceeds are received.  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.  The Company recognized a liability of $1.0 million and $1.1 million for all known legal matters as of June 30, 2013 and December 31, 2012, respectively.  The cost of litigation is expensed as incurred and any settlement is first offset against such costs.  Any settlement in excess of the cost to litigate is accounted for on a case by case basis, dependant on the nature of the settlement.

 

Note 11. 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 in active 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.

 

13



Table of Contents

 

Specific valuation methods include the following:

 

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

 

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.

 

 

 

June 30, 2013

 

 

 

 

 

Fair Value

 

 

 

Cost

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Long -term debt, including current maturities

 

$

478,745

 

$

 

$

571,083

 

$

 

$

571,083

 

Advances for construction

 

186,202

 

 

71,801

 

 

71,801

 

Total

 

$

664,947

 

$

 

$

642,884

 

$

 

$

642,884

 

 

 

 

December 31, 2012

 

 

 

 

 

Fair Value

 

 

 

Cost

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Long -term debt, including current maturities

 

$

481,250

 

$

 

$

613,211

 

$

 

$

613,211

 

Advances for construction

 

187,584

 

 

70,914

 

 

70,914

 

Total

 

$

668,834

 

$

 

$

684,125

 

$

 

$

684,125

 

 

Note 12. 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 the guarantees are full and unconditional, and all of the guarantees are joint and several.

 

The following tables present the condensed consolidating balance sheets as of June 30, 2013 and December 31, 2012, the condensed consolidating statements of income for the three and six months ended June 30, 2013 and 2012 and the condensed consolidating statements of cash flow for the six months ended June 30, 2013 and 2012 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 June 30, 2013

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Utility plant:

 

 

 

 

 

 

 

 

 

 

 

Utility plant

 

$

1,079

 

$

1,984,718

 

$

182,106

 

$

(7,197

)

$

2,160,706

 

Less accumulated depreciation and amortization

 

(136

)

(636,860

)

(35,015

)

1,559

 

(670,452

)

Net utility plant

 

943

 

1,347,858

 

147,091

 

(5,638

)

1,490,254

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

2,871

 

34,054

 

1,743

 

 

38,668

 

Receivables and unbilled revenue, net

 

76

 

102,379

 

3,683

 

 

106,138

 

Receivables from affiliates

 

26,696

 

3,504

 

264

 

(30,464

)

 

Other current assets

 

146

 

18,125

 

999

 

 

19,270

 

Total current assets

 

29,789

 

158,062

 

6,689

 

(30,464

)

164,076

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

Regulatory assets

 

 

351,299

 

2,611

 

 

353,910

 

Investments in affiliates

 

524,923

 

 

 

(524,923

)

 

Long-term affiliate notes receivable

 

30,578

 

 

 

(30,578

)

 

Other assets

 

1,309

 

42,047

 

7,215

 

(204

)

50,367

 

Total other assets

 

556,810

 

393,346

 

9,826

 

(555,705

)

404,277

 

 

 

$

587,542

 

$

1,899,266

 

$

163,606

 

$

(591,807

)

$

2,058,607

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Capitalization:

 

 

 

 

 

 

 

 

 

 

 

Common stockholders’ equity

 

$

578,480

 

$

478,802

 

$

51,573

 

$

(530,375

)

$

578,480

 

Affiliate long-term debt

 

 

 

30,578

 

(30,578

)

 

Long-term debt, less current maturities

 

 

429,188

 

1,517

 

 

430,705

 

Total capitalization

 

578,480

 

907,990

 

83,668

 

(560,953

)

1,009,185

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

46,120

 

1,920

 

 

48,040

 

Short-term borrowings

 

8,815

 

20,000

 

 

 

28,815

 

Payables to affiliates

 

820

 

260

 

29,384

 

(30,464

)

 

Accounts payable

 

 

53,503

 

3,655

 

 

57,158

 

Accrued expenses and other liabilities

 

6

 

58,897

 

3,294

 

 

62,197

 

Total current liabilities

 

9,641

 

178,780

 

38,253

 

(30,464

)

196,210

 

Unamortized investment tax credits

 

 

2,180

 

 

 

2,180

 

Deferred income taxes, net

 

(579

)

164,246

 

4,334

 

(390

)

167,611

 

Pension and postretirement benefits other than pensions

 

 

248,003

 

 

 

248,003

 

Regulatory and other liabilities

 

 

79,847

 

8,731

 

 

88,578

 

Advances for construction

 

 

185,465

 

737

 

 

186,202

 

Contributions in aid of construction

 

 

132,755

 

27,883

 

 

160,638

 

 

 

$

587,542

 

$

1,899,266

 

$

163,606

 

$

(591,807

)

$

2,058,607

 

 

15



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2012

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Utility plant:

 

 

 

 

 

 

 

 

 

 

 

Utility plant

 

$

606

 

$

1,927,190

 

$

175,764

 

$

(7,197

)

$

2,096,363

 

Less accumulated depreciation and amortization

 

(108

)

(607,992

)

(32,710

)

1,503

 

(639,307

)

Net utility plant

 

498

 

1,319,198

 

143,054

 

(5,694

)

1,457,056

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1,470

 

34,609

 

2,711

 

 

38,790

 

Receivables, net

 

 

87,482

 

3,833

 

 

91,315

 

Receivables from affiliates

 

19,367

 

3,195

 

1,152

 

(23,714

)

 

Other current assets

 

 

15,535

 

924

 

 

16,459

 

Total current assets

 

20,837

 

140,821

 

8,620

 

(23,714

)

146,564

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

Regulatory assets

 

 

341,877

 

2,542

 

 

344,419

 

Investments in affiliates

 

492,188

 

 

 

(492,188

)

 

Long-term affiliate notes receivable

 

31,218

 

7,781

 

 

(38,999

)

 

Other assets

 

1,023

 

40,005

 

7,062

 

(205

)

47,885

 

Total other assets

 

524,429

 

389,663

 

9,604

 

(531,392

)

392,304

 

 

 

$

545,764

 

$

1,849,682

 

$

161,278

 

$

(560,800

)

$

1,995,924

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Capitalization:

 

 

 

 

 

 

 

 

 

 

 

Common stockholders’ equity

 

$

473,712

 

$

442,923

 

$

54,774

 

$

(497,697

)

$

473,712

 

Affiliate long-term debt

 

7,781

 

 

31,218

 

(38,999

)

 

Long-term debt, less current maturities

 

 

431,433

 

3,034

 

 

434,467

 

Total capitalization

 

481,493

 

874,356

 

89,026

 

(536,696

)

908,179

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

46,104

 

679

 

 

46,783

 

Short-term borrowings

 

64,475

 

25,000

 

 

 

89,475

 

Payables to affiliates

 

77

 

1,152

 

22,485

 

(23,714

)

 

Accounts payable

 

 

41,352

 

5,847

 

 

47,199

 

Accrued expenses and other liabilities

 

298

 

58,293

 

1,019

 

 

59,610

 

Total current liabilities

 

64,850

 

171,901

 

30,030

 

(23,714

)

243,067

 

Unamortized investment tax credits

 

 

2,180

 

 

 

2,180

 

Deferred income taxes, net

 

(579

)

155,481

 

4,334

 

(390

)

158,846

 

Pension and postretirement benefits other than pensions

 

 

244,901

 

 

 

244,901

 

Regulatory and other liabilities

 

 

83,942

 

8,651

 

 

92,593

 

Advances for construction

 

 

186,753

 

831

 

 

187,584

 

Contributions in aid of construction

 

 

130,168

 

28,406

 

 

158,574

 

 

 

$

545,764

 

$

1,849,682

 

$

161,278

 

$

(560,800

)

$

1,995,924

 

 

16



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended June 30, 2013

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

146,730

 

$

7,825

 

$

 

$

154,555

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

57,102

 

2,543

 

 

59,645

 

Administrative and general

 

 

20,460

 

2,695

 

 

23,155

 

Other operations

 

 

15,418

 

1,737

 

(125

)

17,030

 

Maintenance

 

 

4,029

 

159

 

 

4,188

 

Depreciation and amortization

 

28

 

13,697

 

794

 

(28

)

14,491

 

Income tax (benefit) expense

 

(93

)

9,813

 

(542

)

370

 

9,548

 

Property and other taxes

 

 

5,015

 

700

 

 

5,715

 

Total operating (income) expenses

 

(65

)

125,534

 

8,086

 

217

 

133,772

 

Net operating income (loss)

 

65

 

21,196

 

(261

)

(217

)

20,783

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

597

 

3,005

 

408

 

(795

)

3,215

 

Non-regulated expense, net

 

 

(2,873

)

(367

)

 

(3,240

)

Income tax (expense) benefit on other income and expense

 

(244

)

(54

)

(45

)

359

 

16

 

Net other income (expense)

 

353

 

78

 

(4

)

(436

)

(9

)

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

199

 

7,631

 

642

 

(669

)

7,803

 

Less: capitalized interest

 

 

(405

)

(134

)

 

(539

)

Net interest expense

 

199

 

7,226

 

508

 

(669

)

7,264

 

Equity earnings of subsidiaries

 

13,291

 

 

 

(13,291

)

 

Net income (loss)

 

$

13,510

 

$

14,048

 

$

(773

)

$

(13,275

)

$

13,510

 

 

17



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the six months ended June 30, 2013

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

251,161

 

$

14,838

 

$

 

$

265,999

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

96,543

 

4,799

 

 

101,342

 

Administrative and general

 

 

43,069

 

5,367

 

 

48,436

 

Other operations

 

 

29,607

 

3,320

 

(252

)

32,675

 

Maintenance

 

 

7,994

 

327

 

 

8,321

 

Depreciation and amortization

 

28

 

27,454

 

1,694

 

(56

)

29,120

 

Income tax (benefit) expense

 

(229

)

9,086

 

(1,171

)

716

 

8,402

 

Property and other taxes

 

 

9,869

 

1,281

 

 

11,150

 

Total operating (income) expenses

 

(201

)

223,622

 

15,617

 

408

 

239,446

 

Net operating income (loss)

 

201

 

27,539

 

(779

)

(408

)

26,553

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

1,167

 

6,187

 

940

 

(1,557

)

6,737

 

Non-regulated expense, net

 

 

(4,793

)

(864

)

 

(5,657

)

Income tax (expense) on other income and expense

 

(476

)

(568

)

(84

)

693

 

(435

)

Net other income (expense)

 

691

 

826

 

(8

)

(864

)

645

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

533

 

15,358

 

1,254

 

(1,305

)

15,840

 

Less: capitalized interest

 

 

(784

)

(295

)

 

(1,079

)

Net interest expense

 

533

 

14,574

 

959

 

(1,305

)

14,761

 

Equity earnings of subsidiaries

 

12,078

 

 

 

(12,078

)

 

Net income (loss)

 

$

12,437

 

$

13,791

 

$

(1,746

)

$

(12,045

)

$

12,437

 

 

18



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the three months ended June 30, 2012

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenue

 

$

 

$

135,291

 

$

8,261

 

$

 

$

143,552

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

50,207

 

2,471

 

 

52,678

 

Administrative and general

 

(36

)

19,752

 

2,451

 

 

22,167

 

Other operations

 

 

16,035

 

1,821

 

(127

)

17,729

 

Maintenance

 

 

4,452

 

153

 

 

4,605

 

Depreciation and amortization

 

5

 

13,042

 

694

 

(29

)

13,712

 

Income tax (benefit) expense

 

(126

)

9,016

 

(155

)

327

 

9,062

 

Property and other taxes

 

 

3,208

 

769

 

 

3,977

 

Total operating expenses

 

(157

)

115,712

 

8,204

 

171

 

123,930

 

Net operating income

 

157

 

19,579

 

57

 

(171

)

19,622

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

484

 

3,671

 

615

 

(719

)

4,051

 

Non-regulated expense, net

 

 

(3,157

)

(538

)

 

(3,695

)

Income tax (expense) on other income and expense

 

(197

)

(210

)

(45

)

314

 

(138

)

Net other income

 

287

 

304

 

32

 

(405

)

218

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

340

 

7,540

 

534

 

(593

)

7,821

 

Less: capitalized interest

 

 

(682

)

(264

)

 

(946

)

Net interest expense

 

340

 

6,858

 

270

 

(593

)

6,875

 

Equity earnings of subsidiaries

 

12,861

 

 

 

(12,861

)

 

Net income (loss)

 

$

12,965

 

$

13,025

 

$

(181

)

$

(12,844

)

$

12,965

 

 

19



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the six months ended June 30, 2012

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

245,116

 

$

15,185

 

$

 

$

260,301

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

86,749

 

4,881

 

 

91,630

 

Administrative and general

 

 

40,404

 

4,781

 

 

45,185

 

Other operations

 

 

38,407

 

3,401

 

(253

)

41,555

 

Maintenance

 

 

10,009

 

356

 

 

10,365

 

Depreciation and amortization

 

 

26,342

 

1,380

 

(59

)

27,663

 

Income tax (benefit) expense

 

(266

)

9,263

 

(570

)

663

 

9,090

 

Property and other taxes

 

 

7,267

 

1,317

 

 

8,584

 

Total operating expenses

 

(266

)

218,441

 

15,546

 

351

 

234,072

 

Net operating income (loss)

 

266

 

26,675

 

(361

)

(351

)

26,229

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

955

 

7,495

 

1,188

 

(1,451

)

8,187

 

Non-regulated expense, net

 

 

(4,855

)

(939

)

 

(5,794

)

Income tax (expense) on other income and expense