10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on October 26, 2017
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, 2017
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 ý 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 ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth 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) |
Emerging growth company o
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes o No o
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 September 30, 2017 — 48,015,140
TABLE OF CONTENTS
Page |
|
2
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, 2017 |
December 31, 2016 |
||||||
ASSETS |
|||||||
Utility plant: |
|||||||
Utility plant |
$ |
2,892,666 |
$ |
2,717,339 |
|||
Less accumulated depreciation and amortization |
(910,742 |
) |
(858,062 |
) |
|||
Net utility plant |
1,981,924 |
1,859,277 |
|||||
Current assets: |
|||||||
Cash and cash equivalents |
28,341 |
25,492 |
|||||
Receivables: |
|||||||
Customers |
46,963 |
30,305 |
|||||
Regulatory balancing accounts |
31,364 |
30,332 |
|||||
Other |
16,438 |
17,158 |
|||||
Unbilled revenue |
38,491 |
25,228 |
|||||
Materials and supplies at weighted average cost |
6,344 |
6,292 |
|||||
Taxes, prepaid expenses, and other assets |
12,544 |
7,262 |
|||||
Total current assets |
180,485 |
142,069 |
|||||
Other assets: |
|||||||
Regulatory assets |
379,884 |
355,930 |
|||||
Goodwill |
2,615 |
2,615 |
|||||
Other assets |
58,196 |
51,854 |
|||||
Total other assets |
440,695 |
410,399 |
|||||
TOTAL ASSETS |
$ |
2,603,104 |
$ |
2,411,745 |
|||
CAPITALIZATION AND LIABILITIES |
|||||||
Capitalization: |
|||||||
Common stock, $0.01 par value; 68,000 shares authorized, 48,015 and 47,965 outstanding in 2017 and 2016, respectively |
$ |
480 |
$ |
480 |
|||
Additional paid-in capital |
335,516 |
334,856 |
|||||
Retained earnings |
351,727 |
324,135 |
|||||
Total common stockholders’ equity |
687,723 |
659,471 |
|||||
Long-term debt, less current maturities |
519,700 |
531,745 |
|||||
Total capitalization |
1,207,423 |
1,191,216 |
|||||
Current liabilities: |
|||||||
Current maturities of long-term debt |
36,015 |
26,208 |
|||||
Short-term borrowings |
195,100 |
97,100 |
|||||
Accounts payable |
89,394 |
77,813 |
|||||
Regulatory balancing accounts |
4,545 |
4,759 |
|||||
Accrued interest |
12,763 |
5,661 |
|||||
Accrued expenses and other liabilities |
42,544 |
38,689 |
|||||
Total current liabilities |
380,361 |
250,230 |
|||||
Unamortized investment tax credits |
1,798 |
1,798 |
|||||
Deferred income taxes |
329,506 |
298,924 |
|||||
Pension and postretirement benefits other than pensions |
227,819 |
222,691 |
|||||
Regulatory liabilities and other |
91,006 |
83,648 |
|||||
Advances for construction |
182,820 |
182,448 |
|||||
Contributions in aid of construction |
182,371 |
180,790 |
|||||
Commitments and contingencies (Note 10) |
|||||||
TOTAL CAPITALIZATION AND LIABILITIES |
$ |
2,603,104 |
$ |
2,411,745 |
|||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (In thousands, except per share data)
For the three months ended |
September 30, 2017 |
September 30, 2016 |
||||||
Operating revenue |
$ |
211,731 |
$ |
184,268 |
||||
Operating expenses: |
||||||||
Operations: |
||||||||
Water production costs |
75,261 |
70,175 |
||||||
Administrative and general |
24,886 |
23,844 |
||||||
Other operations |
21,208 |
19,561 |
||||||
Maintenance |
6,057 |
5,545 |
||||||
Depreciation and amortization |
19,231 |
15,884 |
||||||
Income taxes |
17,348 |
13,247 |
||||||
Property and other taxes |
6,544 |
5,957 |
||||||
Total operating expenses |
170,535 |
154,213 |
||||||
Net operating income |
41,196 |
30,055 |
||||||
Other income and expenses: |
||||||||
Non-regulated revenue |
3,542 |
3,397 |
||||||
Non-regulated expenses |
(2,576 |
) |
(2,517 |
) |
||||
Allowance for equity funds used during construction |
1,105 |
— |
||||||
Income tax expense on other income and expenses |
(841 |
) |
(349 |
) |
||||
Net other income |
1,230 |
531 |
||||||
Interest expense: |
||||||||
Interest expense |
9,284 |
8,485 |
||||||
Allowance for borrowed funds used during construction |
(707 |
) |
(774 |
) |
||||
Net interest expense |
8,577 |
7,711 |
||||||
Net income |
$ |
33,849 |
$ |
22,875 |
||||
Earnings per share: |
||||||||
Basic |
$ |
0.70 |
$ |
0.48 |
||||
Diluted |
0.70 |
0.48 |
||||||
Weighted average shares outstanding: |
||||||||
Basic |
48,017 |
47,969 |
||||||
Diluted |
48,017 |
47,969 |
||||||
Dividends declared per share of common stock |
$ |
0.1800 |
$ |
0.1725 |
||||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited (In thousands, except per share data)
For the nine months ended |
September 30, 2017 |
September 30, 2016 |
||||||
Operating revenue |
$ |
504,899 |
$ |
458,440 |
||||
Operating expenses: |
||||||||
Operations: |
||||||||
Water production costs |
181,460 |
168,833 |
||||||
Administrative and general |
73,931 |
75,037 |
||||||
Other operations |
55,660 |
57,766 |
||||||
Maintenance |
16,877 |
17,542 |
||||||
Depreciation and amortization |
57,650 |
47,772 |
||||||
Income taxes |
26,099 |
19,192 |
||||||
Property and other taxes |
18,717 |
17,439 |
||||||
Total operating expenses |
430,394 |
403,581 |
||||||
Net operating income |
74,505 |
54,859 |
||||||
Other income and expenses: |
||||||||
Non-regulated revenue |
10,743 |
10,589 |
||||||
Non-regulated expenses |
(6,244 |
) |
(8,306 |
) |
||||
Allowance for equity funds used during construction |
2,763 |
— |
||||||
Income tax expense on other income and expenses |
(2,947 |
) |
(914 |
) |
||||
Net other income |
4,315 |
1,369 |
||||||
Interest expense: |
||||||||
Interest expense |
27,073 |
24,984 |
||||||
Allowance for borrowed funds used during construction |
(1,765 |
) |
(2,341 |
) |
||||
Net interest expense |
25,308 |
22,643 |
||||||
Net income |
$ |
53,512 |
$ |
33,585 |
||||
Earnings per share: |
||||||||
Basic |
$ |
1.11 |
$ |
0.70 |
||||
Diluted |
1.11 |
0.70 |
||||||
Weighted average shares outstanding: |
||||||||
Basic |
48,007 |
47,949 |
||||||
Diluted |
48,007 |
47,952 |
||||||
Dividends declared per share of common stock |
$ |
0.5400 |
$ |
0.5175 |
||||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
CALIFORNIA WATER SER VICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited (In thousands)
For the nine months ended: |
September 30, 2017 |
September 30, 2016 |
||||||
Operating activities: |
||||||||
Net income |
$ |
53,512 |
$ |
33,585 |
||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
59,016 |
48,946 |
||||||
Change in value of life insurance contracts |
(1,871 |
) |
(915 |
) |
||||
Allowance for equity funds used during construction |
(2,763 |
) |
— |
|||||
Changes in operating assets and liabilities: |
||||||||
Receivables and unbilled revenue |
(52,951 |
) |
(13,352 |
) |
||||
Accounts payable |
6,712 |
8,940 |
||||||
Other current assets |
(4,643 |
) |
(1,743 |
) |
||||
Other current liabilities |
10,939 |
13,982 |
||||||
Other changes in noncurrent assets and liabilities |
41,837 |
34,386 |
||||||
Net cash provided by operating activities |
109,788 |
123,829 |
||||||
Investing activities: |
||||||||
Utility plant expenditures |
(180,442 |
) |
(166,406 |
) |
||||
Life insurance proceeds |
1,558 |
495 |
||||||
Purchase of life insurance contracts |
(3,948 |
) |
(2,710 |
) |
||||
Change in restricted cash |
(679 |
) |
(685 |
) |
||||
Net cash used in investing activities |
(183,511 |
) |
(169,306 |
) |
||||
Financing activities: |
||||||||
Short-term borrowings |
185,000 |
105,100 |
||||||
Repayment of short-term borrowings |
(87,000 |
) |
(81,615 |
) |
||||
Proceeds from long-term debt, net of issuance costs of $0 for 2017 and $177 for 2016 |
— |
49,823 |
||||||
Repayment of long-term debt |
(2,797 |
) |
(2,865 |
) |
||||
Advances and contributions in aid of construction |
14,964 |
18,186 |
||||||
Refunds of advances for construction |
(6,316 |
) |
(5,194 |
) |
||||
Repurchase of common stock |
(1,359 |
) |
(637 |
) |
||||
Dividends paid |
(25,920 |
) |
(24,807 |
) |
||||
Net cash provided by financing activities |
76,572 |
57,991 |
||||||
Change in cash and cash equivalents |
2,849 |
12,514 |
||||||
Cash and cash equivalents at beginning of period |
25,492 |
8,837 |
||||||
Cash and cash equivalents at end of period |
$ |
28,341 |
$ |
21,351 |
||||
Supplemental information: |
||||||||
Cash paid for interest (net of amounts capitalized) |
$ |
17,287 |
$ |
13,889 |
||||
Income tax refund |
$ |
(1,697 |
) |
$ |
— |
|||
Supplemental disclosure of non-cash activities: |
||||||||
Accrued payables for investments in utility plant |
$ |
31,750 |
$ |
26,767 |
||||
Utility plant contribution by developers |
13,022 |
12,104 |
||||||
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
6
CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2017
Dollar amounts in thousands unless otherwise stated
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 wholly-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 condensed consolidated 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 unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2016, included in its annual report on Form 10-K as filed with the SEC on February 23, 2017.
The preparation of the Company’s unaudited condensed consolidated interim 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 unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring transactions 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 generally lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.
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 the 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 wastewater revenue requirements are authorized by the Commissions in the states in which they operate. The revenue requirements are intended to provide the Company a reasonable opportunity to recover its operating costs and earn a return on investments.
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
7
established by the CPUC for metered accounts. 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 guidance for regulated operations. The variance amount represents amounts that will be billed or refunded to customers in the future. In addition to volumetric revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items not subject to the WRAM.
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) provide 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 costs related to water conservation programs and certain other operating expenses adopted by the CPUC. Variances (which include the effects of changes in both rates and volumes 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 customers in the future. Cost-recovery expenses are generally recognized when expenses are incurred with no markup for return on investments or profit.
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 the deferred net balances are interest bearing at the current 90 day commercial paper rate. Subsequent to calendar year-end, Cal Water files with the CPUC to refund or collect the balance in the accounts. The majority of under-collected net WRAM and MCBA receivable balances are collected over 12 or 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 period in which it was recorded. The deferred net WRAM and MCBA revenue and associated costs were determined using forecasts of customer consumption trends in future reporting periods and the estimated timing of when the CPUC will authorize Cal Water's filings to recover unbilled balances. Deferred revenues and associated costs are recorded in the periods when the collection is within 24 months of the respective reporting period.
Customers' meter reads occur on various business days throughout the month. As a result, there are unmetered or unbilled customer usage each month. The estimated unbilled revenue for monthly unmetered customer usage is recorded using the number of unbilled days for that month and average daily customer billing rate for the previous month. The average daily customer billing rate for the previous month fluctuates depending on customer usage. Estimated unbilled revenue is not included in the WRAM until it is billed.
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. The unearned revenue liability was $0.7 million and $0.8 million as of September 30, 2017 and December 31, 2016, respectively. This liability is included in “accrued expenses and other liabilities” on the condensed consolidated balance sheets.
Allowance for Funds Used During Construction
The allowance for funds used during construction (AFUDC) represents the capitalized cost of funds used to finance the construction of the utility plant. In general, AFUDC is applied to Cal Water construction projects requiring more than one month to complete. No AFUDC is applied to projects funded by customer advances for construction, contributions in aid of construction, or applicable state-revolving fund loans. AFUDC includes the net cost of borrowed funds and a rate of return on other funds when used, and is recovered through water rates as the utility plant is depreciated. Cal Water was authorized by the CPUC to record AFUDC on construction work in progress effective January 1, 2017. Prior to January 1, 2017, the CPUC authorized Cal Water to only record capitalized interest on borrowed funds. Cal Water previously reported the amounts authorized as capitalized interest and a reduction to interest expense. The amount of AFUDC related to equity funds and to borrowed funds for the three and nine month periods ended September 30, 2017 and 2016 are shown in the tables below:
8
Three Months Ended September 30 |
|||||||||||
2017 |
2016 |
Change |
|||||||||
Allowance for equity funds used during construction |
$ |
1,105 |
$ |
— |
$ |
1,105 |
|||||
Allowance for borrowed funds used during construction |
707 |
774 |
(67 |
) |
|||||||
Total |
$ |
1,812 |
$ |
774 |
$ |
1,038 |
|||||
Nine Months Ended September 30 |
|||||||||||
2017 |
2016 |
Change |
|||||||||
Allowance for equity funds used during construction |
$ |
2,763 |
$ |
— |
$ |
2,763 |
|||||
Allowance for borrowed funds used during construction |
1,765 |
2,341 |
(576 |
) |
|||||||
Total |
$ |
4,528 |
$ |
2,341 |
$ |
2,187 |
|||||
Cash and Cash Equivalents
Cash equivalents include highly liquid investments with maturities of three months or less. Cash and cash equivalents was $28.3 million and $25.5 million as of September 30, 2017 and December 31, 2016, respectively. Restricted cash was presented on the condensed consolidated balance sheet in “taxes, prepaid expenses and other assets” and was $1.1 million and $0.4 million as of September 30, 2017 and December 31, 2016, respectively.
Adoption of New Accounting Standards
In March 2016, the Financial Accounting Standards Board (FASB) issued updated accounting guidance on simplifying the accounting for share-based payments (Accounting Standards Update (ASU) 2016-09), which includes the accounting for share-based payment transactions, the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted and implemented the changes to accounting for share-based payments on January 1, 2017 and applied the requirements retrospectively on the statement of cash flows for all periods presented. The Company's forfeiture policy did not change and the Company continues to account for forfeitures when they occur. For the nine month period ended September 30, 2017, the Company recorded $0.5 million of income tax benefits in excess of compensation costs for share-based compensation which reduced the effective tax rate. The tax-related cash flows resulting from share-based payments were reported as operating activities and the associated cash paid by the company for employee tax withholding transactions were reported as financing activities on the consolidated statement of cash flows.
The following table shows the effect of the accounting change to the Condensed Consolidated Statements of Cash Flows for the nine month period ended September 30, 2016:
Nine Months Ended September 30, 2016 |
|||||||||||
Cash Flow Classification |
As Reported on Form 10-Q |
Adjusted Balance on Form 10-Q |
Increase (Decrease) from Retrospective Adoption |
||||||||
Other changes in noncurrent assets and liabilities |
$ |
33,749 |
$ |
34,386 |
$ |
637 |
|||||
Net cash provided by operating activities |
123,192 |
123,829 |
637 |
||||||||
Repurchase of common stock |
— |
(637 |
) |
(637 |
) |
||||||
Net cash provided by financing activities |
58,628 |
57,991 |
(637 |
) |
|||||||
New Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which amends the existing revenue recognition guidance. In August 2015, the FASB deferred the effective date of this amendment for public companies by one year to January 1, 2018, with early adoption permitted as of the original effective date of January 1, 2017. The Company has substantially completed an evaluation of the new revenue standard and intends to implement the standard using the modified retrospective method and does not expect ASU 2014-09 to materially impact the timing or recognition of revenue related to the sale and delivery of water to its customers, which is a significant percentage of the Company's revenue. The Company is in the process of finalizing its evaluation of the impact ASU 2014-09 has on its related revenue disclosures and internal controls.
9
In February 2016, the FASB issued ASU 2016-02, Leases. This update changes the accounting treatment of leases and related disclosure requirements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company will adopt the standard using the modified retrospective method for its existing leases and is currently evaluating the impact of adopting the new lease standard on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This update adds and clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures.
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented as non-operating items. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. The standard only allows the service cost component to be eligible for capitalization. ASU 2017-07 is effective for annual periods after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements and related disclosures. The adoption of this guidance will change the Company's financial statement presentation of net benefit costs. However, based on current regulatory authorization, the changes required by the standard are not expected to materially impact the results of operations.
Note 3. Stock-based Compensation
Equity Incentive Plan
During the nine months ended September 30, 2017 and 2016, the Company granted annual Restricted Stock Awards (RSAs) of 48,717 and 72,317, respectively, to officers and directors of the Company. During those same periods, 17,466 and 13,319 RSAs were canceled, respectively. During the three months ended September 30, 2017 and 2016, no RSAs were granted and 3,280 and 2,719 RSAs were canceled, respectively. Employee RSAs granted in 2017 and 2016 vest over 36 months. Director RSAs generally vest at the end of 12 months. During the first nine months of 2017 and 2016, the RSAs granted were valued at $36.75 and $25.17 per share, respectively, based upon the fair value of the Company’s common stock on the date of grant.
During the nine months ended September 30, 2017 and 2016, the Company granted 31,389 and 43,659 performance-based Restricted Stock Unit Awards (RSUs), respectively, to officers. During those same periods, the Company issued 38,709 and 28,424 RSUs, respectively, and canceled 19,735 and 6,602 RSUs, respectively. During the three months ended September 30, 2017 and 2016, the Company did not grant, issue or cancel any RSUs. Each RSU award reflects a target number of shares that may be issued to the award recipient. The 2017 and 2016 awards may be earned upon completion of the three-year performance period and are recognized as expense ratably over the period using a fair value of $36.75 per share and $25.17 per share, respectively, and an estimate of RSUs earned during the period. The Company has recorded compensation costs for the RSAs and RSUs in administrative and general operating expenses in the amount of $2.3 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively.
10
Note 4. Equity
The Company’s changes in total common stockholders’ equity for the nine months ended September 30, 2017 were as follows:
|
Total Common
Stockholders’ Equity
|
|||
Balance at December 31, 2016 |
$ |
659,471 |
|
Common stock issued |
— |
||
Share-based compensation expense |
660 |
||
Common stock dividends declared |
(25,920 |
) |
|
Net income |
53,512 |
||
Balance at September 30, 2017 |
$ |
687,723 |
|
Note 5. Earnings Per Share
The computations of basic and diluted earnings per share are noted below. Basic earnings per share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. RSAs are included in the weighted average common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock. RSUs are not included in diluted shares for financial reporting until authorized by the Compensation & Organization Committee of the Board of Directors.
There were no shares of Stock Appreciation Rights (SARs) outstanding as of September 30, 2017 and 2016, respectively. All the SARs were dilutive when they were outstanding during the period, as shown in the tables below.
Three Months Ended September 30 |
|||||||
2017 |
2016 |
||||||
(In thousands, except per share data) |
|||||||
Net income available to common stockholders |
$ |
33,849 |
$ |
22,875 |
|||
Weighted average common shares outstanding, basic |
48,017 |
47,969 |
|||||
Dilutive SARs (treasury method) |
— |
— |
|||||
Weighted average common shares outstanding, dilutive |
48,017 |
47,969 |
|||||
Earnings per share - basic |
$ |
0.70 |
$ |
0.48 |
|||
Earnings per share - diluted |
$ |
0.70 |
$ |
0.48 |
|||
Nine Months Ended September 30 |
|||||||
2017 |
2016 |
||||||
(In thousands, except per share data) |
|||||||
Net income available to common stockholders |
$ |
53,512 |
$ |
33,585 |
|||
Weighted average common shares outstanding, basic |
48,007 |
47,949 |
|||||
Dilutive SARs (treasury method) |
— |
3 |
|||||
Weighted average common shares outstanding, dilutive |
48,007 |
47,952 |
|||||
Earnings per share - basic |
$ |
1.11 |
$ |
0.70 |
|||
Earnings per share - diluted |
$ |
1.11 |
$ |
0.70 |
|||
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 in the qualified pension plan. The Company also
11
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 contributions by the Company related to pension plans were $22.2 million and $20.6 million for the nine months ended September 30, 2017 and 2016, respectively. Cash contributions by the Company related to other postretirement benefit plans were $2.3 million and $6.7 million for the nine months ended September 30, 2017 and 2016, respectively. The total 2017 estimated cash contribution to the pension plans is $29.8 million and to the other postretirement benefit plans is $9.0 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 |
||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Service cost |
$ |
6,122 |
$ |
5,594 |
$ |
2,169 |
$ |
1,045 |
|||||||
Interest cost |
5,861 |
5,764 |
1,491 |
625 |
|||||||||||
Expected return on plan assets |
(6,031 |
) |
(5,462 |
) |
(1,218 |
) |
(1,005 |
) |
|||||||
Amortization of prior service cost |
1,445 |
1,555 |
11 |
10 |
|||||||||||
Recognized net actuarial loss |
1,881 |
1,743 |
649 |
(482 |
) |
||||||||||
Net periodic benefit cost |
$ |
9,278 |
$ |
9,194 |
$ |
3,102 |
$ |
193 |
|||||||
Nine Months Ended September 30 |
|||||||||||||||
Pension Plan |
Other Benefits |
||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Service cost |
$ |
17,851 |
$ |
15,728 |
$ |
6,207 |
$ |
5,653 |
|||||||
Interest cost |
17,442 |
16,670 |
4,472 |
4,225 |
|||||||||||
Expected return on plan assets |
(18,090 |
) |
(16,370 |
) |
(3,653 |
) |
(3,097 |
) |
|||||||
Amortization of prior service cost |
4,336 |
4,664 |
32 |
32 |
|||||||||||
Recognized net actuarial loss |
5,386 |
4,329 |
1,947 |
2,041 |
|||||||||||
Net periodic benefit cost |
$ |
26,925 |
$ |
25,021 |
$ |
9,005 |
$ |
8,854 |
|||||||
12
Note 7. Short-term and Long-term Borrowings
In March 2016, Cal Water issued $50.0 million of First Mortgage Bonds, consisting of $40.0 million of 4.41% series SSS maturing April 16, 2046 and $10.0 million of 4.61% series TTT maturing April 14, 2056. Cash proceeds of approximately $49.7 million, net of $0.3 million debt issuance costs, were received. Cal Water used a portion of the net proceeds from the offering to repay outstanding borrowings on the Company and Cal Water lines of credit of $48.6 million.
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.
The outstanding borrowings on the Company lines of credit were $55.1 million and $57.1 million as of September 30, 2017 and December 31, 2016, respectively. There were $140.0 million and $40.0 million borrowings on the Cal Water lines of credit as of September 30, 2017 and December 31, 2016, respectively. The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the nine months ended September 30, 2017 was 1.97% compared to 1.30% for the same period last year.
Note 8. Income Taxes
The Company accounts for income taxes under the provisions of ASU 2009-06, Income Taxes (Topic 740). The Company adjusts its effective tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items.
The provision for income taxes consists of the following:
Three Months Ended September 30 |
|||||||
2017 |
2016 |
||||||
Income tax provision |
$ |
18,189 |
$ |
13,595 |
|||
Nine Months Ended September 30 |
|||||||
2017 |
2016 |
||||||
Income tax provision |
$ |
29,046 |
$ |
20,105 |
|||
The $4.6 million increase in the income tax provision for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 was due primarily to an increase in the Company’s operating income in 2017 as compared to 2016.
The $8.9 million increase in the income tax provision for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was due primarily to an increase in the Company’s operating income in 2017 as compared to 2016, which was partially offset by a $0.5 million tax benefit associated with the settlement of equity awards in 2017. The Company’s fiscal year 2017 effective tax rate is estimated to be 37%.
The Company had unrecognized tax benefits of approximately $10.2 million and $10.5 million as of September 30, 2017 and December 31, 2016, respectively. Included in the balance of unrecognized tax benefits as of September 30, 2017 and December 31, 2016 is approximately $1.9 million and $2.2 million, respectively, of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next 12 months.
13
Note 9. Regulatory Assets and Liabilities
Regulatory assets and liabilities were comprised of the following as of September 30, 2017 and December 31, 2016:
September 30, 2017 |
December 31, 2016 |
||||||
Regulatory Assets |
|||||||
Pension and retiree group health |
$ |
188,386 |
$ |
188,880 |
|||
Property-related temporary differences (tax benefits flowed through to customers) |
94,144 |
92,099 |
|||||
Other accrued benefits |
26,540 |
27,503 |
|||||
Net WRAM and MCBA long-term accounts receivable |
34,735 |
16,148 |
|||||
Asset retirement obligations, net |
16,832 |
15,812 |
|||||
Interim rates long-term accounts receivable |
4,616 |
4,605 |
|||||
Tank coating |
10,114 |
8,452 |
|||||
Health care balancing account |
412 |
1,000 |
|||||
Pension balancing account |
1,684 |
— |
|||||
Other regulatory assets |
2,421 |
1,431 |
|||||
Total Regulatory Assets |
$ |
379,884 |
$ |
355,930 |
|||
Regulatory Liabilities |
|||||||
Future tax benefits due to customers |
$ |
33,375 |
$ |
33,231 |
|||
Health care balancing account |
6,006 |
— |
|||||
Conservation program |
2,312 |
584 |
|||||
Pension balancing account |
383 |
695 |
|||||
Net WRAM and MCBA long-term payable |
710 |
611 |
|||||
Other regulatory liabilities |
1,251 |
3,614 |
|||||
Total Regulatory Liabilities |
$ |
44,037 |
$ |
38,735 |
|||
Short-term regulatory assets and liabilities are excluded from the above table. The short-term regulatory assets were $31.4 million as of September 30, 2017 and $30.3 million as of December 31, 2016. As of September 30, 2017, the short-term regulatory assets were primarily net WRAM and MCBA accounts receivable, 2012 General Rate Case (GRC) health cost balancing account receivable, 2014-2015 drought expense recovery, and East Los Angeles Memorandum Account receivable. As of December 31, 2016, the short-term regulatory assets were primarily net WRAM and MCBA accounts receivable, 2012 GRC health cost balancing account receivable, 2014-2015 drought expense recovery, interim rate memorandum account receivable, and East Los Angeles Memorandum Account receivable.
The short-term portions of regulatory liabilities were $4.5 million as of September 30, 2017 and $4.8 million as of December 31, 2016. As of September 30, 2017, the short-term regulatory liabilities were primarily net WRAM and MCBA liability balances, refund balance from an interim rates true up authorized prior to the 2009 GRC, and net refund balances to customers for the pension and conservation programs from the 2012 GRC. As of December 31, 2016, the short-term regulatory liabilities were primarily net WRAM and MCBA liability balances and net refund balances to customers for the pension and conservation programs from the 2012 GRC.
Note 10. Commitments 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, 2016. As of September 30, 2017, there were no significant changes from December 31, 2016.
14
Contingencies
Groundwater Contamination
The Company has undertaken litigation against third parties to recover past and anticipated costs related to groundwater contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. The CPUC’s general policy requires all proceeds from groundwater contamination litigation to be used first to pay transactional expenses, then to make ratepayers whole for water treatment costs to comply with the CPUC’s water quality standards. The CPUC 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 CPUC 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 CPUC’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. As of September 30, 2017 and December 31, 2016, the Company recognized a liability of $6.1 million and $6.0 million, respectively, for known legal matters. 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, dependent 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 hierarchical 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 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2 - Inputs to the valuation methodology include:
• |
Quoted market prices for similar assets or liabilities in active markets; |
• |
Quoted prices for identical or similar assets or liabilities in inactive markets; |
• |
Inputs other than quoted prices that are observable for the asset or liability; and |
• |
Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Specific valuation methods include the following:
Accounts receivable and accounts payable carrying amounts approximated the fair value because of the short-term maturity of the instruments.
15
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 1.70%.
Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.
September 30, 2017 |
|||||||||||||||||||
Fair Value |
|||||||||||||||||||
Cost |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||||
Long-term debt, including current maturities |
$ |
555,715 |
— |
$ |
631,447 |
— |
$ |
631,447 |
|||||||||||
Advances for construction |
182,820 |
— |
75,717 |
— |
75,717 |
||||||||||||||
Total |
$ |
738,535 |
$ |
— |
$ |
707,164 |
$ |
— |
$ |
707,164 |
|||||||||
December 31, 2016 |
|||||||||||||||||||
Fair Value |
|||||||||||||||||||
Cost |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||||
Long-term debt, including current maturities |
$ |
557,953 |
$ |
— |
$ |
630,510 |
$ |
— |
$ |
630,510 |
|||||||||
Advances for construction |
182,448 |
— |
74,460 |
— |
74,460 |
||||||||||||||
Total |
$ |
740,401 |
— |
$ |
704,970 |
$ |
— |
$ |
704,970 |
||||||||||
Note 12. Condensed Consolidating Financial Statements
On April 17, 2009, Cal Water issued $100.0 million aggregate principal amount of 5.875% First Mortgage Bonds due 2019, and on November 17, 2010, Cal Water issued $100.0 million aggregate principal amount of 5.500% First Mortgage Bonds due 2040, all of which are fully and unconditionally guaranteed by the Company. As a result of these guarantee arrangements, the Company is required to present the following condensed consolidating financial information. The investments in affiliates are accounted for and presented using the “equity method” of accounting.
The following tables present the condensed consolidating balance sheets as of September 30, 2017 and December 31, 2016, the condensed consolidating statements of income for the three and nine months ended September 30, 2017 and 2016, and the condensed consolidating statements of cash flows for the nine months ended September 30, 2017 and 2016 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 consolidated subsidiary of California Water Service Group; and (iii) the other 100% owned non-guarantor consolidated subsidiaries of California Water Service Group. No other subsidiary of the Company guarantees the securities. The condensed consolidating statement of cash flows for the nine months ended September 30, 2016 reflects the retrospective adoption of ASU 2016-09 (refer to Note 2 Summary of Significant Accounting Policies for more details).
16
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2017
(In thousands)
|
Parent
Company
|
Cal Water |
All Other
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated |
|||||||||||||||
ASSETS |
|||||||||||||||||||
Utility plant: |
|||||||||||||||||||
Utility plant |
$ |
1,321 |
$ |
2,695,106 |
$ |
203,435 |
$ |
(7,196 |
) |
$ |
2,892,666 |
||||||||
Less accumulated depreciation and amortization |
(896 |
) |
(858,386 |
) |
(53,448 |
) |
1,988 |
(910,742 |
) |
||||||||||
Net utility plant |
425 |
1,836,720 |
149,987 |
(5,208 |
) |
1,981,924 |
|||||||||||||
Current assets: |
|||||||||||||||||||
Cash and cash equivalents |
2,722 |
17,851 |
7,768 |
— |
28,341 |
||||||||||||||
Receivables and unbilled revenue |
— |
127,858 |
5,398 |
— |
133,256 |
||||||||||||||
Receivables from affiliates |
22,568 |
703 |
261 |
(23,532 |
) |
— |
|||||||||||||
Other current assets |
184 |
17,665 |
1,039 |
— |
18,888 |
||||||||||||||
Total current assets |
25,474 |
164,077 |
14,466 |
(23,532 |
) |
180,485 |
|||||||||||||
Other assets: |
|||||||||||||||||||
Regulatory assets |
— |
376,041 |
3,843 |
— |
379,884 |
||||||||||||||
Investments in affiliates |
693,766 |
— |
— |
(693,766 |
) |
— |
|||||||||||||
Long-term affiliate notes receivable |
24,677 |
— |
— |
(24,677 |
) |
— |
|||||||||||||
Other assets |
217 |
56,886 |
3,912 |
(204 |
) |
60,811 |
|||||||||||||
Total other assets |
718,660 |
432,927 |
7,755 |
(718,647 |
) |
440,695 |
|||||||||||||
TOTAL ASSETS |
$ |
744,559 |
$ |
2,433,724 |
$ |
172,208 |
$ |
(747,387 |
) |
$ |
2,603,104 |
||||||||
CAPITALIZATION AND LIABILITIES |
|||||||||||||||||||
Capitalization: |
|||||||||||||||||||
Common stockholders’ equity |
$ |
687,723 |
$ |
620,892 |
$ |
78,143 |
$ |
(699,035 |
) |
$ |
687,723 |
||||||||
Affiliate long-term debt |
— |
— |
24,677 |
(24,677 |
) |
— |
|||||||||||||
Long-term debt, less current maturities |
— |
518,802 |
898 |
— |
519,700 |
||||||||||||||
Total capitalization |
687,723 |
1,139,694 |
103,718 |
(723,712 |
) |
1,207,423 |
|||||||||||||
Current liabilities: |
|||||||||||||||||||
Current maturities of long-term debt |
— |
35,606 |
409 |
— |
36,015 |
||||||||||||||
Short-term borrowings |
55,100 |
140,000 |
— |
— |
195,100 |
||||||||||||||
Payables to affiliates |
— |
1,257 |
22,275 |
(23,532 |
) |
— |
|||||||||||||
Accounts payable |
— |
86,374 |
3,020 |
— |
89,394 |
||||||||||||||
Accrued expenses and other liabilities |
154 |
55,607 |
4,091 |
— |
59,852 |
||||||||||||||
Total current liabilities |
55,254 |
318,844 |
29,795 |
(23,532 |
) |
380,361 |
|||||||||||||
Unamortized investment tax credits |
— |
1,798 |
— |
— |
1,798 |
||||||||||||||
Deferred income taxes |
1,582 |
325,619 |
2,448 |
(143 |
) |
329,506 |
|||||||||||||
Pension and postretirement benefits other than pensions |
— |
227,819 |
— |
— |
227,819 |
||||||||||||||
Regulatory liabilities and other |
— |
87,714 |
3,292 |
— |
91,006 |
||||||||||||||
Advances for construction |
— |
182,298 |
522 |
— |
182,820 |
||||||||||||||
Contributions in aid of construction |
— |
149,938 |
32,433 |
— |
182,371 |
||||||||||||||
TOTAL CAPITALIZATION AND LIABILITIES |
$ |
744,559 |
$ |
2,433,724 |
$ |
172,208 |
$ |
(747,387 |
) |
$ |
2,603,104 |
||||||||
17
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2016
(In thousands)
|
Parent
Company
|
Cal Water |
All Other
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated |
|||||||||||||||
ASSETS |
|||||||||||||||||||
Utility plant: |
|||||||||||||||||||
Utility plant |
$ |
1,318 |
$ |
2,519,785 |
$ |
203,433 |
$ |
(7,197 |
) |
$ |
2,717,339 |
||||||||
Less accumulated depreciation and amortization |
(826 |
) |
(805,992 |
) |
(53,163 |
) |
1,919 |
(858,062 |
) |
||||||||||
Net utility plant |
492 |
1,713,793 |
150,270 |
(5,278 |
) |
1,859,277 |
|||||||||||||
Current assets: |
|||||||||||||||||||
Cash and cash equivalents |
5,216 |
13,215 |
7,061 |
— |
25,492 |
||||||||||||||
Receivables and unbilled revenue |
— |
98,850 |
4,173 |
— |
103,023 |
||||||||||||||
Receivables from affiliates |
19,566 |
3,608 |
8 |
(23,182 |
) |
— |
|||||||||||||
Other current assets |
80 |
12,442 |
1,032 |
— |
13,554 |
||||||||||||||
Total current assets |
24,862 |
128,115 |
12,274 |
(23,182 |
) |
142,069 |
|||||||||||||
Other assets: |
|||||||||||||||||||
Regulatory assets |
— |
352,139 |
3,791 |
— |
355,930 |
||||||||||||||
Investments in affiliates |
666,525 |
— |
— |
(666,525 |
) |
— |
|||||||||||||
Long-term affiliate notes receivable |
25,744 |
— |
— |
(25,744 |
) |
— |
|||||||||||||
Other assets |
376 |
50,361 |
3,765 |
(33 |
) |
54,469 |
|||||||||||||
Total other assets |
692,645 |
402,500 |
7,556 |
(692,302 |
) |
410,399 |
|||||||||||||
TOTAL ASSETS |
$ |
717,999 |
$ |
2,244,408 |
$ |
170,100 |
$ |
(720,762 |
) |
$ |
2,411,745 |
||||||||
CAPITALIZATION AND LIABILITIES |
|||||||||||||||||||
Capitalization: |
|||||||||||||||||||
Common stockholders’ equity |
$ |
659,471 |
$ |
595,003 |
76,833 |
$ |
(671,836 |
) |
$ |
659,471 |
|||||||||
Affiliate long-term debt |
— |
— |
25,744 |
(25,744 |
) |
— |
|||||||||||||
Long-term debt, less current maturities |
— |
530,850 |
895 |
— |
531,745 |
||||||||||||||
Total capitalization |
659,471 |
1,125,853 |
103,472 |
(697,580 |
) |
1,191,216 |
|||||||||||||
Current liabilities: |
|||||||||||||||||||
Current maturities of long-term debt |
— |
25,657 |
551 |
— |
26,208 |
||||||||||||||
Short-term borrowings |
57,100 |
40,000 |
— |
— |
97,100 |
||||||||||||||
Payables to affiliates |
— |
539 |
22,643 |
(23,182 |
) |
— |
|||||||||||||
Accounts payable |
— |
74,998 |
2,815 |
— |
77,813 |
||||||||||||||
Accrued expenses and other liabilities |
88 |
47,232 |
1,789 |
— |
49,109 |
||||||||||||||
Total current liabilities |
57,188 |
188,426 |
27,798 |
(23,182 |
) |
250,230 |
|||||||||||||
Unamortized investment tax credits |
— |
1,798 |
— |
— |
1,798 |
||||||||||||||
Deferred income taxes |
1,340 |
296,781 |
803 |
— |
298,924 |
||||||||||||||
Pension and postretirement benefits other than pensions |
— |
222,691 |
— |
— |
222,691 |
||||||||||||||
Regulatory and other liabilities |
— |
80,518 |
3,130 |
— |
83,648 |
||||||||||||||
Advances for construction |
— |
181,907 |
541 |
— |
182,448 |
||||||||||||||
Contributions in aid of construction |
— |
146,434 |
34,356 |
— |
180,790 |
||||||||||||||
TOTAL CAPITALIZATION AND LIABILITIES |
$ |
717,999 |
$ |
2,244,408 |
$ |
170,100 |
$ |
(720,762 |
) |
$ |
2,411,745 |
||||||||
18
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2017
(In thousands)
|
Parent
Company
|
Cal Water |
All Other
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated |
|||||||||||||||
Operating revenue |
$ |
— |
$ |
199,002 |
$ |
12,729 |
$ |
— |
$ |
211,731 |
|||||||||
Operating expenses: |
|||||||||||||||||||
Operations: |
|||||||||||||||||||
Water production costs |
— |
73,061 |
2,200 |
— |
75,261 |
||||||||||||||
Administrative and general |
— |
22,362 |
2,524 |
— |
24,886 |
||||||||||||||
Other operations |
— |
18,979 |
2,356 |
(127 |
) |
21,208 |
|||||||||||||
Maintenance |
— |
5,729 |
328 |
— |
6,057 |
||||||||||||||
Depreciation and amortization |
21 |
18,115 |
1,117 |
(22 |
) |
19,231 |
|||||||||||||
Income tax (benefit) expense |
(136 |
) |
16,190 |
1,028 |
266 |
17,348 |
|||||||||||||
Property and other taxes |
— |
5,680 |
864 |
— |
6,544 |
||||||||||||||
Total operating (income) expenses |
(115 |
) |
160,116 |
10,417 |
117 |
170,535 |
|||||||||||||
Net operating income |
115 |
38,886 |
2,312 |
(117 |
) |
41,196 |
|||||||||||||
Other income and expenses: |
|||||||||||||||||||
Non-regulated revenue |
505 |
3,218 |
450 |
(631 |
) |
3,542 |
|||||||||||||
Non-regulated expenses |
— |
(2,151 |
) |
(425 |
) |
— |
(2,576 |
) |
|||||||||||
Allowance for equity funds used during construction |
— |
1,105 |
— |
— |
1,105 |
||||||||||||||
Income tax expense on other income and expenses |
(206 |
) |
(885 |
) |
(7 |
) |
257 |
(841 |
) |
||||||||||
Total other income |
299 |
1,287 |
18 |
(374 |
) |
1,230 |
|||||||||||||
Interest: |
|||||||||||||||||||
Interest expense |
313 |
8,951 |
525 |
(505 |
) |
9,284 |
|||||||||||||
Allowance for borrowed funds used during construction |
— |
(684 |
) |
(23 |
) |
— |
(707 |
) |
|||||||||||
Net interest expense |
313 |
8,267 |
502 |
(505 |
) |
8,577 |
|||||||||||||
Equity earnings of subsidiaries |
33,748 |
— |
— |
(33,748 |
) |
— |
|||||||||||||
Net income |
$ |
33,849 |
$ |
31,906 |
$ |
1,828 |
$ |
(33,734 |
) |
$ |
33,849 |
||||||||
19
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2016
(In thousands)
|
Parent
Company
|
Cal Water |
All Other
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated |
|||||||||||||||
Operating revenue |
$ |
— |
$ |
173,223 |
$ |
11,045 |
$ |
— |
$ |
184,268 |
|||||||||
Operating expenses: |
|||||||||||||||||||
Operations: |
|||||||||||||||||||
Water production costs |
— |
68,045 |
2,130 |
— |
70,175 |
||||||||||||||
Administrative and general |
— |
21,679 |
2,165 |
— |
23,844 |
||||||||||||||
Other operations |
— |
18,037 |
1,692 |
(168 |
) |
19,561 |
|||||||||||||
Maintenance |
— |
5,322 |
223 |
— |
5,545 |
||||||||||||||
Depreciation and amortization |
57 |
14,777 |
1,074 |
(24 |
) |
15,884 |
|||||||||||||
Income tax (benefit) expense |
(105 |
) |
12,165 |
920 |
267 |
13,247 |
|||||||||||||
Property and other taxes |
— |
5,182 |
775 |
— |
5,957 |
||||||||||||||
Total operating (income) expenses |
(48 |
) |
145,207 |
8,979 |
75 |
154,213 |
|||||||||||||
Net operating income |
48 |
28,016 |
2,066 |
(75 |
) |
30,055 |
|||||||||||||
Other income and expenses: |
|||||||||||||||||||
Non-regulated revenue |
464 |
3,024 |
541 |
(632 |
) |
3,397 |
|||||||||||||
Non-regulated expenses |
— |
(2,170 |
) |
(347 |
) |
— |
(2,517 |
) |
|||||||||||
Income tax expense on other income and expenses |
(189 |
) |
(345 |
) |
(73 |
) |
258 |
(349 |
) |
||||||||||
Total other income |
275 |
509 |
121 |
(374 |
) |
531 |
|||||||||||||
Interest: |
|||||||||||||||||||
Interest expense |
201 |
8,259 |
488 |
(463 |
) |
8,485 |
|||||||||||||
Less: capitalized interest |
— |
(759 |
) |
(15 |
) |
— |
(774 |
) |
|||||||||||
Net interest expense |
201 |
7,500 |
473 |
(463 |
) |
7,711 |
|||||||||||||
Equity earnings of subsidiaries |
22,753 |
— |
— |
(22,753 |
) |
— |
|||||||||||||
Net income |
$ |
22,875 |
$ |
21,025 |
$ |
1,714 |
$ |
(22,739 |
) |
$ |
22,875 |
||||||||
20
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2017
(In thousands)
|
Parent
Company
|
Cal Water |
All Other
Subsidiaries
|
Consolidating
Adjustments
|
Consolidated |
|||||||||||||||
Operating revenue |
$ |
— |
$ |
473,518 |
$ |
31,381 |
$ |
— |
$ |
504,899 |
|||||||||
Operating expenses: |
|||||||||||||||||||
Operations: |
|||||||||||||||||||
Water production costs |
— |
175,339 |
6,121 |
— |
181,460 |
||||||||||||||
Administrative and general |
— |
65,985 |
7,946 |
— |
73,931 |
||||||||||||||
Other operations |
— |
50,108 |
5,931 |
(379 |
) |
55,660 |
|||||||||||||
Maintenance |
— |
16,144 |
733 |
— |
16,877 |
||||||||||||||
Depreciation and amortization |
70 |
54,328 |
3,320 |
(68 |
) |
57,650 |
|||||||||||||
Income tax (benefit) expense |
(362 |
) |
24,344 |
1,331 |
786 |
26,099 |
|||||||||||||
Property and other taxes |
(4 |
) |
16,407 |
2,314 |
— |
18,717 |
|||||||||||||
Total operating (income) expenses |
(296 |
) |
402,655 |
27,696 |
339 |
430,394 |
|||||||||||||
Net operating income |
296 |
70,863 |
3,685 |
(339 |
) |
74,505 |
|||||||||||||
Other income and expenses: |
|||||||||||||||||||
Non-regulated revenue |
1,482 |
9,822 |
1,300 |
(1,861 |
) |
10,743 |
|||||||||||||
Non-regulated expenses |
— |
(5,326 |
) |
(918 |
) |
— |
(6,244 |
) |
|||||||||||
Allowance for equity funds used during construction |
— |
2,763 |
— |
— |
2,763 |
||||||||||||||
Income tax expense on other income and expenses |
(604 |
) |
(2,958 |
) |
(143 |
) |
758 |
(2,947 |
) |
||||||||||
Net other income |
878 |
4,301 |
239 |
(1,103 |
) |
4,315 |
|||||||||||||
Interest: |
|||||||||||||||||||
Interest expense |
823 |
26,216 |
1,516 |
(1,482 |
) |
27,073 |
|||||||||||||
Allowance for borrowed funds used during construction |
— |
(1,702 |
) |
(63 |
) |
— |
(1,765 |
) |
|||||||||||
Net interest expense |
823 |
||||||||||||||||||