California Water Service Group Announces First Quarter 2012 Results

SAN JOSE, CA -- (Marketwire) -- 05/07/12 -- California Water Service Group (NYSE: CWT) today announced net income of $1.1 million and earnings per share of $0.03 for the first quarter of 2012, compared to net income of $2.7 million and earnings per share of $0.07 for the first quarter of 2011. The first quarter of 2011 included a favorable one-time tax adjustment of $1.6 million, or $0.04 earnings per share while the first quarter of 2012 included a one-time recovery of $0.9 million or $0.02 earnings per share of deferred Water Revenue Adjustment Mechanism (WRAM) net income.

Revenue for the first quarter increased $18.6 million, or 19%, to $116.7 million compared to the first quarter of 2011. Sales to new customers added $0.3 million, rate increases added $1.9 million, surcharges to recover increases in purchased water costs added $3.8 million, increased usage by existing customers and other activities added $3.9 million. Included in the results was a net $8.7 million reversal of deferred WRAM revenue.

Total operating expenses for the first quarter of 2012 increased $21.9 million, or 24.9%, to $110.1 million. Water production costs increased $7.0 million, or 22%, due primarily to increases in wholesaler water prices and increases in the quantity of water supplied. Administrative and general costs increased $2.5 million, or 12.3%, to $23 million, due primarily to increases in wages and benefit costs. Similar to production costs, increases in pension costs do not affect earnings because in California, the company is allowed by the California Public Utilities Commission (CPUC) to record pension costs in a balancing account. Other operations expenses increased $9.2 million, or 62.8%, to $23.8 million, primarily due to the reversal of $7.1 million of deferred net costs associated with the WRAM, as well as increases in expenses associated with water treatment, water quality, and conservation programs. Conservation program expense increases are also tracked in a balancing account.

Maintenance expense increased 10.8%, or $0.6 million, to $5.8 million, compared to $5.2 million in the same period last year. Depreciation expense increased $1.4 million, or 10.8%, to $14.0 million, due to increases in utility plant. State income taxes increased $2.5 million compared to the same period last year, primarily due to the one-time tax adjustment recorded in the first quarter of 2011.

Other income, net of income taxes, increased $0.7 million to $1.2 million, due primarily to a favorable mark-to-market adjustment associated with the change in value of long-term assets held by the Company's non-qualified retirement plans. Interest expense decreased $1.0 million, or 13.3%, to $6.7 million.

In its 2011 year-end earnings release, California Water Service Group (Group) announced that it deferred the recognition of revenue, expenses, and pre-tax profit, due to inconsistency between the CPUC policy on the timing of recovery of WRAM balances and Generally Accepted Accounting Principles (GAAP). In April, the CPUC revised its policy to remove the requirement that WRAM balances reach a certain threshold before recovery, and in most cases, now allows the company to recover the balances within 18 months, which is accounted for as current period revenue. As a result, in the first quarter of 2012 the Group recognized $8.7 million of deferred net revenue, $7.1 million of deferred net expense, and $0.9 million of deferred net income.

According to President and Chief Executive Officer Peter C. Nelson, the Company is pleased with the CPUC's April decision, which resolves the WRAM balance recovery issue until the Company's next General Rate Case (GRC). "The decision allows our California utility to speed up the amortization of uncollected balances which should help replenish the working capital tied up in financing the WRAM balances. In addition, the Company has been busy preparing the 2012 GRC for the California operations which will be filed in early July," Nelson said.

"The first quarter is always our slowest quarter and our results are in line with our expectations. As expected, the second and third years of our three-year rate case cycle become more difficult as certain operating expenses increase faster than inflation. Accordingly, the Company remains focused on achieving operating efficiencies to deliver the results our shareholders expect," Nelson added.

All stockholders and interested investors are invited to listen to the 2012 first quarter conference call on Tuesday, May 8, 2012, at 11:00 a.m. (EDT), by dialing 1-800-776-9057 and keying in ID# 4304013. A replay of the call will be available from 2:00 p.m. EDT on May 8, 2012, through July 7, 2012, at 1-888-203-1112, ID# 4304013. The call, which will be hosted by President and Chief Executive Officer Peter C. Nelson and Vice President and Chief Financial Officer Martin A. Kropelnicki, will also be webcast under the investor relations tab at

California Water Service Group is the parent company of California Water Service Company, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, Inc., CWS Utility Services, and HWS Utility Services. Together these companies provide regulated and non-regulated water service to nearly 2 million people in 100 California, Washington, New Mexico, and Hawaii communities. Group's common stock trades on the New York Stock Exchange under the symbol "CWT." Additional information is available at our web site at

This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management's judgment about the Company, the water utility industry and general economic conditions. Such words as expects, intends, plans, believes, estimates, assumes, anticipates, projects, predicts, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include, but are not limited to: governmental and regulatory commissions' decisions; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; new legislation; electric power interruptions; increases in suppliers' prices and the availability of supplies including water and power; fluctuations in interest rates; changes in environmental compliance and water quality requirements; acquisitions and our ability to successfully integrate acquired companies; the ability to successfully implement business plans; changes in customer water use patterns; the impact of weather on water sales and operating results; access to sufficient capital on satisfactory terms; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; the involvement of the United States in war or other hostilities; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and, other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph, as well as the annual 10-K, Quarterly 10-Q, and other reports filed from time-to-time with the Securities and Exchange Commission (SEC). The Company assumes no obligation to provide public updates of forward-looking statements.


(In thousands, except per share data)              March 31,   December 31,
                                                     2012          2011
                                                 ------------  ------------
Utility plant:
  Utility plant                                  $  1,994,794  $  1,960,381
  Less accumulated depreciation and amortization     (594,173)     (579,262)
                                                 ------------  ------------
    Net utility plant                               1,400,621     1,381,119
                                                 ------------  ------------

Current assets:
  Cash and cash equivalents                            16,014        27,203
    Customers                                          24,244        28,418
    Regulatory balancing accounts                      24,842        21,680
    Other                                               5,474         6,422
  Unbilled revenue                                     18,036        15,068
  Materials and supplies at weighted average
   cost                                                 5,827         5,913
  Taxes, prepaid expenses, and other assets            12,620         9,184
                                                 ------------  ------------
    Total current assets                              107,057       113,888
                                                 ------------  ------------

Other assets:
  Regulatory assets                                   319,990       319,898
  Goodwill                                              2,615         2,615
  Other assets                                         38,236        37,067
                                                 ------------  ------------
    Total other assets                                360,841       359,580
                                                 ------------  ------------
                                                 $  1,868,519  $  1,854,587
                                                 ============  ============

  Common stock, $.01 par value                   $        419  $        418
  Additional paid-in capital                          219,909       219,572
  Retained earnings                                   224,337       229,839
                                                 ------------  ------------
    Total common stockholders' equity                 444,665       449,829
  Long-term debt, less current maturities             481,085       481,632
                                                 ------------  ------------
    Total capitalization                              925,750       931,461
                                                 ------------  ------------

Current liabilities:
  Current maturities of long-term debt                  6,649         6,533
  Short-term borrowings                                50,790        47,140
  Accounts payable                                     50,408        48,923
  Regulatory balancing accounts                         3,389         2,655
  Accrued interest                                     11,003         4,756
  Accrued expenses and other liabilities               42,279        41,868
                                                 ------------  ------------
    Total current liabilities                         164,518       151,875

Unamortized investment tax credits                      2,254         2,254
Deferred income taxes, net                            119,069       116,368
Pension and postretirement benefits other than
 pensions                                             235,465       232,110
Regulatory liability and Other                         81,042        79,050
Advances for construction                             185,829       187,278
Contributions in aid of construction                  154,592       154,191
                                                 ------------  ------------
                                                 $  1,868,519  $  1,854,587
                                                 ============  ============

(In thousands, except per share data)

For the Three Months ended:
                                                   March 31      March 31
                                                     2012          2011
                                                 ------------  ------------

Operating revenue                                $    116,749  $     98,149
                                                 ------------  ------------
Operating expenses:
    Water production costs                             38,952        31,958
    Administrative and general                         23,018        20,502
    Other operations                                   23,826        14,635
  Maintenance                                           5,760         5,199
  Depreciation and amortization                        13,951        12,588
  Income tax expense (benefit)                             28        (1,241)
  Property and other taxes                              4,607         4,560
                                                 ------------  ------------
    Total operating expenses                          110,142        88,201
                                                 ------------  ------------

    Net operating income                                6,607         9,948
                                                 ------------  ------------

Other income and expenses:
  Non-regulated revenue                                 4,136         4,333
  Non-regulated expenses                               (2,099)       (3,424)
  Income tax (expense) on other income and
   expenses                                              (823)         (366)
                                                 ------------  ------------
    Net other income                                    1,214           543
                                                 ------------  ------------

Interest expense:
  Interest expense                                      7,639         8,488
  Less: capitalized interest                             (903)         (716)
                                                 ------------  ------------
    Net interest expense                                6,736         7,772
                                                 ------------  ------------

Net income                                       $      1,085  $      2,719
                                                 ============  ============

Earnings per share
  Basic                                          $       0.03  $       0.07
                                                 ============  ============
  Diluted                                        $       0.03  $       0.07
                                                 ============  ============
Weighted average shares outstanding
  Basic                                                41,842        41,696
                                                 ============  ============
  Diluted                                              41,842        41,712
                                                 ============  ============
Dividends per share of common stock              $    0.15750  $    0.15375
                                                 ============  ============