10-Q 1 a13-7692_110q.htm 10-Q

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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 March 31, 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 £ 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 May 1, 2013 — 47,728,775

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I Financial Information

 

3

Item 1 Financial Statements

 

3

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

 

3

Condensed Consolidated Statements of Income (Loss) (unaudited) For the Three Months Ended March 31, 2013 and 2012

 

4

Condensed Consolidated Statements of Cash Flows (unaudited) For the Three Months Ended March 31, 2013 and 2012

 

5

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

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

 

20

Item 3 Quantitative and Qualitative Disclosure about Market Risk

 

29

Item 4 Controls and Procedures

 

29

PART II Other Information

 

29

Item 1 Legal Proceedings

 

29

Item 1A Risk Factors

 

30

Item 6 Exhibits

 

30

Signatures

 

31

Index to Exhibits

 

32

 

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)

 

 

 

March 31,
2013

 

December 31,
2012

 

ASSETS

 

 

 

 

 

Utility plant:

 

 

 

 

 

Utility plant

 

$

2,123,935

 

$

2,096,363

 

Less accumulated depreciation and amortization

 

(655,345

)

(639,307

)

Net utility plant

 

1,468,590

 

1,457,056

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

127,677

 

38,790

 

Receivables:

 

 

 

 

 

Customers

 

29,204

 

29,958

 

Regulatory balancing accounts

 

29,607

 

34,020

 

Other

 

11,577

 

11,943

 

Unbilled revenue

 

15,551

 

15,394

 

Materials and supplies at weighted average cost

 

5,687

 

5,874

 

Taxes, prepaid expenses and other assets

 

12,393

 

10,585

 

Total current assets

 

231,696

 

146,564

 

Other assets:

 

 

 

 

 

Regulatory assets

 

353,606

 

344,419

 

Goodwill

 

2,615

 

2,615

 

Other assets

 

47,848

 

45,270

 

Total other assets

 

404,069

 

392,304

 

 

 

$

2,104,355

 

$

1,995,924

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

Capitalization:

 

 

 

 

 

Common stock, $.01 par value; 68,000,000 shares authorized, 47,729,000 and 41,908,000 outstanding in 2013 and 2012, respectively

 

$

477

 

$

419

 

Additional paid-in capital

 

327,178

 

221,013

 

Retained earnings

 

244,502

 

252,280

 

Total common stockholders’ equity

 

572,157

 

473,712

 

Long-term debt, less current maturities

 

434,153

 

434,467

 

Total capitalization

 

1,006,310

 

908,179

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

46,743

 

46,783

 

Short-term borrowings

 

93,275

 

89,475

 

Accounts payable

 

44,293

 

47,199

 

Regulatory balancing accounts

 

6,132

 

5,018

 

Accrued interest

 

11,003

 

4,705

 

Accrued expenses and other liabilities

 

55,308

 

49,887

 

Total current liabilities

 

256,754

 

243,067

 

Unamortized investment tax credits

 

2,180

 

2,180

 

Deferred income taxes, net

 

158,037

 

158,846

 

Pension and postretirement benefits other than pensions

 

248,385

 

244,901

 

Regulatory and other liabilities

 

88,476

 

92,593

 

Advances for construction

 

186,242

 

187,584

 

Contributions in aid of construction

 

157,971

 

158,574

 

Commitments and contingencies

 

 

 

 

 

$

2,104,355

 

$

1,995,924

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

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CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

 

Unaudited

(In thousands, except per share data)

 

For the three months ended 

 

March 31,
2013

 

March 31,
2012

 

Operating revenue

 

$

111,444

 

$

116,749

 

Operating expenses:

 

 

 

 

 

Operations:

 

 

 

 

 

Water production costs

 

41,697

 

38,952

 

Administrative and general

 

25,281

 

23,018

 

Other operations

 

15,645

 

23,826

 

Maintenance

 

4,133

 

5,760

 

Depreciation and amortization

 

14,629

 

13,951

 

Income tax (benefit) expense

 

(1,146

)

28

 

Property and other taxes

 

5,435

 

4,607

 

Total operating expenses

 

105,674

 

110,142

 

Net operating income

 

5,770

 

6,607

 

Other income and expenses:

 

 

 

 

 

Non-regulated revenue

 

3,522

 

4,136

 

Non-regulated expenses, net

 

(2,417

)

(2,099

)

Income tax (expense) on other income and expenses

 

(451

)

(823

)

Net other income

 

654

 

1,214

 

Interest expense:

 

 

 

 

 

Interest expense

 

8,037

 

7,639

 

Less: capitalized interest

 

(540

)

(903

)

Net interest expense

 

7,497

 

6,736

 

Net (loss) income

 

$

(1,073

)

$

1,085

 

(Loss) Earnings per share

 

 

 

 

 

Basic

 

$

(0.03

)

$

0.03

 

Diluted

 

$

(0.03

)

$

0.03

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

42,248

 

41,842

 

Diluted

 

42,248

 

41,842

 

Dividends declared per share of common stock

 

$

0.1600

 

$

0.1575

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

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Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Unaudited

(In thousands)

 

For the three months ended: 

 

March 31,
2013

 

March 31,
2012

 

Operating activities

 

 

 

 

 

Net (loss) income

 

$

(1,073

)

$

1,085

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

15,110

 

14,410

 

Change in value of life insurance contracts

 

(510

)

(1,713

)

Other changes in noncurrent assets and liabilities

 

(38

)

2,802

 

Changes in operating assets and liabilities:

 

 

 

 

 

Receivables

 

(1,645

)

3,524

 

Accounts payable

 

(730

)

334

 

Other current assets

 

(1,729

)

(3,371

)

Other current liabilities

 

10,164

 

5,845

 

Net cash provided by operating activities

 

19,549

 

22,916

 

Investing activities:

 

 

 

 

 

Utility plant expenditures

 

(32,101

)

(28,665

)

Purchase of life insurance

 

(1,539

)

(1,357

)

Changes in restricted cash and other changes, net

 

108

 

102

 

Net cash used in investing activities

 

(33,532

)

(29,920

)

Financing activities:

 

 

 

 

 

Short-term borrowings

 

3,800

 

5,650

 

Repayment of short-term borrowings

 

 

(2,000

)

Repayment of long-term debt

 

(355

)

(431

)

Advances and contributions in aid of construction

 

1,916

 

1,156

 

Refunds of advances for construction

 

(1,621

)

(1,974

)

Issuance of common stock

 

110,688

 

 

Common stock issuance costs

 

(4,853

)

 

Dividends paid

 

(6,705

)

(6,586

)

Net cash provided (used in) by financing activities

 

102,870

 

(4,185

)

Change in cash and cash equivalents

 

88,887

 

(11,189

)

Cash and cash equivalents at beginning of period

 

38,790

 

27,203

 

Cash and cash equivalents at end of period

 

$

127,677

 

$

16,014

 

Supplemental information

 

 

 

 

 

Cash paid for interest (net of amounts capitalized)

 

$

1,061

 

$

283

 

Cash paid for income taxes

 

 

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

Accrued payables for investments in utility plant

 

$

6,959

 

$

12,519

 

Utility plant contribution by developers

 

1,278

 

2,586

 

 

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

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CALIFORNIA WATER SERVICE GROUP

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 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 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 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.

 

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

 

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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 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 first quarter of 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 first quarter of 2013

 

(16

)

25

 

(41

)

Add: net WRAM and MCBA deferral the first quarter of 2013

 

1,125

 

967

 

158

 

Net amount recorded during the first quarter of 2013

 

1,109

 

992

 

117

 

Net WRAM and MCBA deferral as of March 31, 2013

 

$

1,991

 

$

1,711

 

$

280

 

 

The change to deferred net WRAM and MCBA balances during the first quarter of 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 first quarter of 2012

 

(8,846

)

(7,215

)

(1,631

)

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

 

110

 

90

 

20

 

Net amount recorded during the first quarter of 2012

 

(8,736

)

(7,125

)

(1,611

)

Net WRAM and MCBA deferral as of March 31, 2012

 

$

4,128

 

$

3,367

 

$

761

 

 

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

 

 

 

March 31,
2013

 

December 31,
2012

 

Net short-term receivable

 

$

29,607

 

$

34,020

 

Net long-term receivable

 

19,031

 

12,051

 

Total receivable

 

$

48,638

 

$

46,071

 

Net short-term payable

 

$

338

 

$

371

 

Net long-term payable

 

374

 

119

 

Total payable

 

$

712

 

$

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 $1.7 million as of March 31, 2013 and December 31, 2012. 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 $127.7 million and $38.8 million as of March 31, 2013 and December 31, 2012, respectively.  The $105.8 million net cash proceeds from the March 26, 2013 equity offering was included in Cash and cash equivalents as of March 31, 2013. Restricted cash was presented on the condensed consolidated balance sheet as “taxes, prepaid expenses and other assets” and was $2.2 million and $2.3 million as of March 31, 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 adoption of the new ASU in 2014 is not expected to have a material impact 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 three months ended March 31, 2013 and 2012, the Company granted annual Restricted Stock Awards (RSAs) of 70,557 and 89,980 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 three months of 2013 and 2012, the shares granted were valued at $20.62 and $17.98 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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The Company has recorded compensation costs for the RSAs and RSUs in Operating Expense in the amount of $0.4 million and $0.3 million for the three months ended March 31, 2013 and March 31, 2012, respectively.

 

Note 4. Equity

 

The Company’s changes in equity for the three months ended March 31, 2013 were as follows:

 

 

 

Total Stockholders’ Equity

 

Balance at December 31, 2012

 

$

473,712

 

Common stock issued, net

 

105,835

 

Share-based compensation expense

 

388

 

Common stock dividends declared

 

(6,705

)

Net loss

 

(1,073

)

Balance at March 31, 2013

 

$

572,157

 

 

On March 26, 2013, the Company sold 5,750,000 shares of its common stock in an underwritten public offering for cash proceeds of approximately $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.  The issuance of shares of common stock was applied to the condensed consolidated financial statements for the first quarter ended March 31, 2013.

 

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.

 

The Company’s weighted average number of common shares outstanding during the three months ended March 31, 2013 has been adjusted for the March 26, 2013 equity offering.  A total of 333,856 shares of Stock Appreciation Rights were vested and outstanding and all were anti-dilutive as of March 31, 2013 and March 31, 2012 as shown in the table below.

 

 

 

Three Months Ended March 31

 

 

 

2013

 

2012

 

Net (loss) income available to common stockholders

 

$

(1,073

)

$

1,085

 

Weighted average common shares, basic

 

42,248

 

41,842

 

Dilutive common stock options (treasury method)

 

 

 

Shares used for dilutive computation

 

42,248

 

41,842

 

Net (loss) income per share - basic

 

$

(0.03

)

$

0.03

 

Net (loss) income per share - diluted

 

$

(0.03

)

$

0.03

 

 

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.

 

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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 $7.5 million for the three months ended March 31, 2013 and were $6.0 million during the three months ended March 31, 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 March 31

 

 

 

Pension Plan

 

Other Benefits

 

 

 

2013

 

2012

 

2013

 

2012

 

Service cost

 

$

4,658

 

$

4,016

 

$

1,695

 

$

1,417

 

Interest cost

 

4,063

 

3,779

 

1,109

 

967

 

Expected return on plan assets

 

(3,565

)

(2,893

)

(598

)

(468

)

Recognized net initial APBO (1)

 

N/A

 

N/A

 

2

 

69

 

Amortization of prior service cost

 

1,541

 

1,571

 

20

 

29

 

Recognized net actuarial loss

 

2,224

 

1,926

 

916

 

764

 

Net periodic benefit cost

 

$

8,921

 

$

8,399

 

$

3,144

 

$

2,778

 

 


(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 Agreements, 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 that 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 March 31, 2013, the Company and Cal Water have met all borrowing covenants for both credit agreements.

 

As of March 31, 2013 and December 31, 2012, the outstanding borrowings on the Company lines of credit were $68.3 million and $64.5 million, respectively, and were $25.0 million as of March 31, 2013 and December 31, 2012 on the Cal Water lines of credit, respectively.  For the three months ended March 31, 2013, the average borrowing rate was 2.26% compared to 1.60% 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

 

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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.

 

We anticipate 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 deduction was estimated at $1.6 million in 2012.  The 2012 estimate will be finalized when we file the 2012 tax returns in 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 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 did not use any of the proceeds to replace damaged infrastructure during the first quarter of 2013.  The remaining balance of $11.8 million is recorded as other long-term liabilities.

 

During 2011, Cal Water added balancing accounts for its pension plans and conservation program. Both balancing account effective dates were January 1, 2011. The pension plans balancing account is a two-way balancing account that tracks the differences between actual expenses and adopted rate recovery which will result in either a regulatory asset or liability. The conservation program is a one-way balancing account that tracks the differences between actual expenses and adopted rate recovery which may result in a regulatory liability if actual conservation expenses are less than adopted over the three year period ending December 31, 2013. As of March 31, 2013 and December 31, 2012, the pension balancing account was a regulatory receivable of $3.1 million and $2.4 million, respectively.  The conservation balancing account was a regulatory liability of $5.6 million and $6.5 million as of March 31, 2013 and December 31, 2012, respectively.

 

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 March 31, 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

 

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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 $1.3 million and $0.2 million for all known legal matters as of March 31, 2013 and March 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 (Accounting Standards Update No. 2011-04 and Accounting Standards Codification No. 270-10-45-19, effective January 1, 2012), provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchal framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:

 

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

 

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

 

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

 

Specific valuation methods include the following:

 

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

 

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.

 

 

 

March 31, 2013

 

 

 

 

 

Fair Value

 

 

 

Cost

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Money market investments

 

$

107,418

 

$

107,418

 

 

 

$

107,418

 

Long -term debt, including current maturities

 

480,896

 

 

608,302

 

 

608,302

 

Advances for construction

 

186,242

 

 

72,073

 

 

72,073

 

Total

 

$

774,556

 

$

107,418

 

$

680,375

 

$

 

$

787,793

 

 

 

 

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

 

 

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Table of Contents

 

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 which are fully and unconditionally guaranteed by the Company.

 

The following tables present the condensed consolidating balance sheets as of March 31, 2013 and December 31, 2012, the condensed consolidating statements of income (loss) for the three months ended March 31, 2013 and 2012 and the condensed consolidating statements of cash flows for the three months ended March 31, 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 consolidated subsidiary of California Water Service Group; and (iii) the other 100%-owned consolidated subsidiaries of California Water Service Group.

 

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Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2013

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Utility plant:

 

 

 

 

 

 

 

 

 

 

 

Utility plant

 

$

930

 

$

1,951,750

 

$

178,452

 

$

(7,197

)

$

2,123,935

 

Less accumulated depreciation and amortization

 

(122

)

(622,808

)

(33,946

)

1,531

 

(655,345

)

Net utility plant

 

808

 

1,328,942

 

144,506

 

(5,666

)

1,468,590

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

107,418

 

18,262

 

1,997

 

 

127,677

 

Receivables and unbilled revenue

 

139

 

82,418

 

3,382

 

 

85,939

 

Receivables from affiliates

 

23,677

 

3,105

 

952

 

(27,734

)

 

Other current assets

 

177

 

16,871

 

1,032

 

 

18,080

 

Total current assets

 

131,411

 

120,656

 

7,363

 

(27,734

)

231,696

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

Regulatory assets

 

 

351,031

 

2,575

 

 

353,606

 

Investments in affiliates

 

484,269

 

 

 

(484,269

)

 

Long-term affiliate notes receivable

 

30,900

 

7,769

 

 

(38,669

)

 

Other assets

 

1,335

 

42,198

 

7,133

 

(203

)

50,463

 

Total other assets

 

516,504

 

400,998

 

9,708

 

(523,141

)

404,069

 

 

 

$

648,723

 

$

1,850,596

 

$

161,577

 

$

(556,541

)

$

2,104,355

 

CAPITALIZATION AND LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Capitalization:

 

 

 

 

 

 

 

 

 

 

 

Common stockholders’ equity

 

$

572,157

 

$

436,664

 

$

53,084

 

$

(489,748

)

$

572,157

 

Affiliate long-term debt

 

7,768

 

 

30,901

 

(38,669

)

 

Long-term debt, less current maturities

 

 

431,230

 

2,923

 

 

434,153

 

Total capitalization

 

579,925

 

867,894

 

86,908

 

(528,417

)

1,006,310

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

 

46,112

 

631

 

 

46,743

 

Short-term borrowings

 

68,275

 

25,000

 

 

 

93,275

 

Payables to affiliates

 

955

 

952

 

25,827

 

(27,734

)

 

Accounts payable

 

75

 

40,241

 

3,977

 

 

44,293

 

Accrued expenses and other liabilities

 

72

 

70,081

 

2,290

 

 

72,443

 

Total current liabilities

 

69,377

 

182,386

 

32,725

 

(27,734

)

256,754

 

Unamortized investment tax credits

 

 

2,180

 

 

 

2,180

 

Deferred income taxes, net

 

(579

)

154,672

 

4,334

 

(390

)

158,037

 

Pension and postretirement benefits other than pensions

 

 

248,385

 

 

 

248,385

 

Regulatory and other liabilities

 

 

79,786

 

8,690

 

 

88,476

 

Advances for construction

 

 

185,503

 

739

 

 

186,242

 

Contributions in aid of construction

 

 

129,790

 

28,181

 

 

157,971

 

 

 

$

648,723

 

$

1,850,596

 

$

161,577

 

$

(556,541

)

$

2,104,355

 

 

14



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

 

 

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

 

 

15



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)

For the three months ended March 31, 2013

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

104,431

 

$

7,013

 

$

 

$

111,444

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

39,441

 

2,256

 

 

41,697

 

Administrative and general

 

 

22,609

 

2,672

 

 

25,281

 

Other

 

 

14,189

 

1,583

 

(127

)

15,645

 

Maintenance

 

 

3,965

 

168

 

 

4,133

 

Depreciation and amortization

 

 

13,757

 

900

 

(28

)

14,629

 

Income tax (benefit)

 

(136

)

(727

)

(629

)

346

 

(1,146

)

Taxes other than income taxes

 

 

4,854

 

581

 

 

5,435

 

Total operating (income) expenses

 

(136

)

98,088

 

7,531

 

191

 

105,674

 

Net operating income (loss)

 

136

 

6,343

 

(518

)

(191

)

5,770

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

570

 

3,182

 

532

 

(762

)

3,522

 

Non-regulated expenses, net

 

 

(1,920

)

(497

)

 

(2,417

)

Income tax (expense) on other income and expense

 

(232

)

(514

)

(39

)

334

 

(451

)

Net other income (expense)

 

338

 

748

 

(4

)

(428

)

654

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

334

 

7,727

 

612

 

(636

)

8,037

 

Less: capitalized interest

 

 

(379

)

(161

)

 

(540

)

Net interest expense

 

334

 

7,348

 

451

 

(636

)

7,497

 

Equity earnings of subsidiaries

 

(1,213

)

 

 

1,213

 

 

Net (loss)

 

$

(1,073

)

$

(257

)

$

(973

)

$

1,230

 

$

(1,073

)

 

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Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)

For the three months ended March 31, 2012

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating revenue

 

$

 

$

109,825

 

$

6,924

 

$

 

$

116,749

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

 

 

 

 

Water production costs

 

 

36,542

 

2,410

 

 

38,952

 

Administrative and general

 

36

 

20,652

 

2,330

 

 

23,018

 

Other

 

 

22,372

 

1,580

 

(126

)

23,826

 

Maintenance

 

 

5,557

 

203

 

 

5,760

 

Depreciation and amortization

 

(5

)

13,300

 

686

 

(30

)

13,951

 

Income tax (benefit) expense

 

(140

)

247

 

(415

)

336

 

28

 

Taxes other than income taxes

 

 

4,059

 

548

 

 

4,607

 

Total operating (income) expenses

 

(109

)

102,729

 

7,342

 

180

 

110,142

 

Net operating income (loss)

 

109

 

7,096

 

(418

)

(180

)

6,607

 

Other Income and Expenses:

 

 

 

 

 

 

 

 

 

 

 

Non-regulated revenue

 

471

 

3,824

 

573

 

(732

)

4,136

 

Non-regulated expenses, net

 

 

(1,698

)

(401

)

 

(2,099

)

Income tax (expense) on other income and expense

 

(192

)

(866

)

(89

)

324

 

(823

)

Net other income

 

279

 

1,260

 

83

 

(408

)

1,214

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

314

 

7,406

 

525

 

(606

)

7,639

 

Less: capitalized interest

 

 

(598

)

(305

)

 

(903

)

Net interest expense

 

314

 

6,808

 

220

 

(606

)

6,736

 

Equity earnings of subsidiaries

 

1,011

 

 

 

(1,011

)

 

Net income (loss)

 

$

1,085

 

$

1,548

 

$

(555

)

$

(993

)

$

1,085

 

 

17



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2013

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

$

(1,073

)

$

(257

)

$

(973

)

$

1,230

 

$

(1,073

)

Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

Equity earnings of subsidiaries

 

1,213

 

 

 

(1,213

)

 

Dividends received from affiliates

 

6,705

 

 

 

(6,705

)

 

Depreciation and amortization

 

14

 

14,192

 

932

 

(28

)

15,110

 

Change in value of life insurance contracts

 

 

(510

)

 

 

(510

)

Other changes in noncurrent assets and liabilities

 

77

 

(63

)

(63

)

11

 

(38

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Other changes, net

 

(466

)

4,853

 

1,673

 

 

6,060

 

Net cash provided by operating activities

 

6,470

 

18,215

 

1,569

 

(6,705

)

19,549

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Utility plant expenditures

 

(324

)

(27,161

)

(4,616

)

 

(32,101

)

Net changes in affiliate advances

 

(4,293

)

91

 

(243

)

4,445

 

 

Proceeds from affiliates long-term debt

 

300

 

12

 

 

(312

)

 

Purchase of life insurance

 

 

(1,539

)

 

 

(1,539

)

Changes in restricted cash and other changes, net

 

 

108

 

 

 

108

 

Net cash (used in) investing activities

 

(4,317

)

(28,489

)

(4,859

)

4,133

 

(33,532

)

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

3,800

 

 

 

 

3,800

 

Repayment of long-term borrowings

 

 

(195

)

(160

)

 

(355

)

Net changes in affiliate advances

 

877

 

(200

)

3,768

 

(4,445

)

 

Repayment of affiliates long-term borrowings

 

(12

)

 

(300

)

312

 

 

Advances and contributions in aid for construction

 

 

1,903

 

13

 

 

1,916

 

Refunds of advances for construction

 

 

(1,592

)

(29

)

 

(1,621

)

Dividends paid to non-affiliates

 

(6,705

)

 

 

 

(6,705

)

Dividends paid to affiliates

 

 

(5,989

)

(716

)

6,705

 

 

Issuance of common stock, net

 

105,835

 

 

 

 

105,835

 

Net cash provided by (used in) financing activities

 

103,795

 

(6,073

)

2,576

 

2,572

 

102,870

 

Change in cash and cash equivalents

 

105,948

 

(16,347

)

(714

)

 

88,887

 

Cash and cash equivalents at beginning of period

 

1,470

 

34,609

 

2,711

 

 

38,790

 

Cash and cash equivalents at end of period

 

$

107,418

 

$

18,262

 

$

1,997

 

$

 

$

127,677

 

 

18



Table of Contents

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the three months ended March 31, 2012

 

(In thousands)

 

 

 

Parent
Company

 

Cal Water

 

All Other
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated

 

Operating activities:

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,085

 

$

1,548

 

$

(555

)

$

(993

)

$

1,085

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

Equity earnings of subsidiaries

 

(1,011

)

 

 

1,011

 

 

Dividends received from affiliates

 

6,586

 

 

 

(6,586

)

 

Depreciation and amortization

 

14

 

13,706

 

720

 

(30

)

14,410

 

Change in value of life insurance contracts

 

 

(1,713

)

 

 

(1,713

)

Other changes in noncurrent assets and liabilities

 

433

 

2,365

 

(40

)

44

 

2,802

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Other changes, net

 

(377

)

13,862

 

(7,121

)

(32

)

6,332

 

Net cash provided by (used in) operating activities

 

6,730

 

29,768

 

(6,996

)

(6,586

)

22,916

 

Investing activities:

 

 

 

 

 

 

 

 

 

 

 

Utility plant expenditures

 

 

(25,717

)

(2,948

)

 

(28,665

)

Net changes in affiliate advances

 

(3,511

)

433

 

 

3,078

 

 

Proceeds from affiliates long-term debt

 

135

 

12

 

 

(147

)

 

Purchase of life insurance

 

 

(1,357

)

 

 

(1,357

)

Changes in restricted cash and other changes, net

 

 

102

 

 

 

102

 

Net cash (used in) investing activities

 

(3,376

)

(26,527

)

(2,948

)

2,931

 

(29,920

)

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

 

4,650

 

1,000

 

 

 

5,650

 

Repayment of short-term borrowings

 

(1,000

)

(1,000

)

 

 

(2,000

)

Repayment of long-term borrowings

 

 

(266

)

(165

)

 

(431

)

Net changes in affiliate advances

 

 

(124

)

3,202

 

(3,078

)

 

Repayment of affiliates long-term borrowings

 

(12

)

 

(135

)

147

 

 

Advances and contributions in aid for construction

 

 

1,151

 

5

 

 

1,156

 

Refunds of advances for construction

 

 

(1,934

)

(40

)

 

(1,974

)

Dividends paid to non-affiliates

 

(6,586

)

 

 

 

(6,586

)

Dividends paid to affiliates

 

 

(5,882

)

(704

)

6,586

 

 

Net cash (used in) provided by financing activities

 

(2,948

)

(7,055

)

2,163

 

3,655

 

(4,185

)

Change in cash and cash equivalents

 

406

 

(3,814

)

(7,781

)

 

(11,189

)

Cash and cash equivalents at beginning of period

 

89

 

18,475

 

8,639

 

 

27,203

 

Cash and cash equivalents at end of period

 

$

495

 

$

14,661

 

$

858

 

$

 

$

16,014

 

 

19



Table of Contents

 

Item 2

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollar amounts in thousands, except where otherwise noted and per share amounts)

 

FORWARD LOOKING STATEMENTS

 

This quarterly report, including all documents incorporated by reference, contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 (Act). Forward-looking statements in this quarterly report are based on currently available information, expectations, estimates, assumptions and projections, and our management’s beliefs, assumptions, judgments and expectations about us, the water utility industry and general economic conditions. These statements are not statements of historical fact. When used in our documents, statements that are not historical in nature, including words like “expects,” “intends,” “plans,” “believes,” “may,” “estimates,” “assumes,” “anticipates,” “projects,” “predicts,” “forecasts,” “should,” “seeks,” or variations of these words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are based on numerous assumptions that we believe are reasonable, but they are open to a wide range of uncertainties and business risks. Consequently, actual results may vary materially from what is contained in a forward-looking statement.

 

Factors which may cause actual results to be different than those expected or anticipated include, but are not limited to:

 

·                      governmental and regulatory commissions’ decisions, including decisions on proper disposition of property;

 

·                      changes in regulatory commissions’ policies and procedures;

 

·                      the timeliness of regulatory commissions’ actions concerning rate relief;

 

·                      changes in the capital markets and access to sufficient capital on satisfactory terms;

 

·                      new legislation;

 

·                      changes in accounting valuations and estimates;

 

·                      changes in accounting treatment for regulated companies, including adoption of International Financial Reporting Standards, if required;

 

·                      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;

 

·                      litigation that may result in damages or costs not recoverable from third parties;

 

·                      acquisitions and the ability to successfully integrate acquired companies;

 

·                      the ability to successfully implement business plans;

 

·                      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;

 

·                      our ability to attract and retain qualified employees;

 

·                      labor relations matters as we negotiate with the unions;

 

20