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, 1994
OR
___
|___| 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 0-464
CALIFORNIA WATER SERVICE COMPANY
(Exact name of registrant as specified in its charter)
California 94-0362795
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1720 North First Street, San Jose, Ca. 95112
(Address of principal executive offices) (Zip Code)
1-408-451-8200
(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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 April 29, 1994 - 5,697,034
This Form 10-Q contains a total of 17 pages.
PART I - FINANCIAL INFORMATION
CALIFORNIA WATER SERVICE COMPANY
FINANCIAL STATEMENTS BALANCE SHEET
March 31, 1994 Dec. 31, 1993
In Thousands
ASSETS
Utility plant: $539,089 $533,213
Less depreciation (144,443) (141,510)
-------- --------
Net utility plant 394,646 391,703
Current assets:
Cash and cash equivalents 710 1,461
Accounts receivable 10,051 10,835
Unbilled revenue 4,052 5,124
Unbilled conservation revenue 2,339 2,424
Materials and supplies 2,871 2,853
Taxes and other prepaid expenses 3,328 3,716
-------- --------
Total current assets 23,351 26,413
Deferred regulatory asset 23,463 23,404
Other deferred charges 5,022 5,099
-------- --------
$446,482 $446,619
======== ========
LIABILITIES
Capitalization:
Common shareholders' equity:
Common stock $ 25,363 $ 25,059
Retained earnings 97,481 98,940
-------- --------
Total common shareholders' equity 122,844 123,999
Preferred stock without mandatory
redemption provision 3,475 3,475
First mortgage bonds 129,608 129,608
-------- --------
Total capitalization 255,927 257,082
Current liabilities:
Short-term borrowings 13,500 15,000
Accounts payable 11,994 11,234
Accrued expenses and other liabilities 12,418 11,722
-------- --------
Total current liabilities 37,912 37,956
Unamortized investment tax credits 3,320 3,341
Deferred income taxes 11,463 11,045
Regulatory tax liability 11,467 11,467
Advances for construction 91,279 90,812
Contributions in aid of construction 35,114 34,916
-------- --------
$446,482 $446,619
======== ========
2
See accompanying notes on page 5
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF INCOME
March 31
1994 1993
In Thousands
FOR THE THREE MONTHS ENDED:
Operating revenue $30,579 $27,833
Operating expenses:
Operations 19,111 17,377
Maintenance 1,939 1,693
Depreciation 2,737 2,643
Income taxes 976 540
Property and other taxes 1,652 1,464
------- -------
26,415 23,717
------- -------
Net operating income 4,164 4,116
------- -------
Other income and expenses:
Interest and amortization on first
mortgage bonds 2,651 3,016
Other income and expenses, net 118 122
------- -------
2,769 3,138
------- -------
Net income l,395 978
------- -------
Preferred dividends 38 38
------- -------
Net income available for common stock $ 1,357 $ 940
======= =======
Weighted average shares outstanding 5,693 5,689
======= =======
Earnings per share of common stock $ 0.24 $ 0.17
======= =======
Dividends per share of common stock $0.49-1/2 $ 0.48
========= =======
3
See accompanying notes on page 5
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED:
In Thousands
MARCH 31
1994 1993
Operating activities:
Net income $ 1,395 $ 978
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,737 2,643
Regulatory assets and liabilities, net (59) 0
Deferred income taxes and investment tax credits 397 751
Change in assets and liabilities:
Accounts receivable 784 2,675
Unbilled revenue 1,157 776
Materials and supplies (18) (42)
Taxes and other prepaid expenses 388 1,396
Accounts payable 760 509
Accrued expenses and other liabilities 696 995
Other changes, net 307 (249)
------- -------
Net adjustments 7,149 9,454
------- -------
Net cash provided by operating activities 8,544 10,432
------- -------
Investing activities:
Utility plant expenditures (6,131) (6,894)
------- -------
Financing activities:
Net short-term borrowings (1,500) (3,000)
Proceeds from issuance of common stock 304 0
Advances for construction 1,281 1,544
Contributions in aid of construction 421 777
Refunds of advances for construction (816) (768)
Dividends (2,854) (2,769)
------- -------
Net cash provided by financing activities (3,164) (4,216)
------- -------
Change in cash and cash equivalents (751) (678)
Cash and cash equivalents at start of
period 1,461 899
------- -------
Cash and cash equivalents at end of
period $ 710 $ 221
======= =======
4
See accompanying notes on page 5
Notes:
1. Due to the seasonal nature of the water business, the results for a
three month period are not indicative of the results for a twelve month
period.
2. In the opinion of management, the accompanying financial statements
reflect all adjustments which are necessary to a fair statement of
the results for the periods covered. The adjustments consist only
of normal recurring accruals.
3. Earnings per share are calculated on the weighted average number of
common shares outstanding at the end of the period and net income
available for common stock as shown on the Statement of Income.
4. Refer to 1993 Annual Report on Form 10-K for a summary of significant
accounting policies and detail information regarding the financial
statements.
5
PART I FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
The Company's 1994 capital improvement budget has been authorized
at $21.6 million by the Board of Directors. Permanent financing will be
provided by cash from operations and sale of up to 600,000 shares
of common stock depending upon market conditions. If a new stock offering
is not made, long term financing will be provided by the issuance of
$20 million of first mortgage bonds. The California Public Utilities
Commission has authorized both the stock issue and the sale of bonds.
Interim financing, to meet seasonal cash requirements, is available through
the Company's $30 million bank line of credit.
With payment of the first quarter dividend in February, 8,280 new common
shares were issued to shareholders participating in the dividend reinvestment
plan. Issuance of new shares, rather than obtaining shares for the plan by
purchase on the open market, added $304,000 to common shareholders' equity.
This was the first issue of new shares since 1989.
RESULTS OF FIRST QUARTER OPERATIONS
Net income increased $417,000 to $1,395,000. Earnings per share were
24 cents compared to 17 cents in the prior year. Revenue increased $2,746,000,
including $712,000 from rate relief and $146,000 from new customers. Average
water consumption per customer was 50.9 Ccf., an increase of 6.0 Ccf or 13%.
The increased consumption, attributable primarily to the drier winter weather
this year compared to 1993, contributed an additional $1,888,000 to the
quarter's revenue.
Water production in the first quarter totaled 16.6 billion gallons,
up 16% from 1993. In order to take advantage of wholesalers' pricing and
available supplies, water purchases were increased in certain districts and
less of the supply was obtained from wells. Purchased water supply increased
35%, while well production declined 3%.
Purchased water costs increased $1,758,000 due to increased deliveries,
supplier rate changes and the shift from well production to purchased water
supply. Purchased power and pump taxes decreased $398,000 as the result of
reduced well production and lower average power costs.
Interest expense on first mortgage bonds decreased $409,000 despite an
increase of $7.1 million in bonds outstanding. The decrease resulted primarily
from the major refinancing program completed during 1993 in which eight
bond series were called and refinanced with new issues at lower interest
rates.
6
REGULATORY MATTERS
During March, the California Public Utilities Commission (Commission)
authorized the Company to implement a surcharge in the Stockton district to
collect, over the next 12 months, $1,300,000 of revenue lost due to
conservation during the drought. With the addition of Stockton, surcharges
are now in effect in four districts to collect revenue lost due to conservation.
During the first quarter, the Company completed Commission hearings in
general rate cases involving three districts. A rate of return on common
equity of 10.2% was stipulated at the hearing, down from a return of 11%
received in 1993 decisions. Decisions on these three districts should be
effective in the third quarter of this year. Currently, 10 districts are being
reviewed by the Company for possible general rate case filings this summer.
COMMON STOCK LISTING
In the first quarter the Company applied to the New York Stock
Exchange (NYSE) for listing of the Company's common stock. The listing was
approved in March and trading commenced on the NYSE on April 8 under the
symbol CWT. Trading on the NYSE has resulted in a narrowing of the spread
between bid and ask prices. The common shares had previously been traded
on NASDAQ.
WATER SUPPLY
Precipitation for the 1993-94 winter season has averaged about 60% of
normal through March 1994. As a result, runoff into reservoirs and recharge
of the underground will be significantly less than in the prior year and well
below normal. However, because of the carryover into 1994 of water stored in
state reservoirs, the Company expects that there will be an adequate supply to
meet demand for the current year and the need for water rationing is not
anticipated. Water tables in well supply districts remain at high levels.
7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
Sequentially
Exhibit Numbered
Number Exhibit Page
10.8 Dividend Reinvestment Plan for Common 9
Stock Shareholders, amended as of
January 14, 1994
(b) No reports on Form 8-K have been filed during the quarter ended
March 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIFORNIA WATER SERVICE COMPANY
Registrant
May 2, 1994 /s/ Harold C. Ulrich
Harold C. Ulrich
Vice President, Treasurer and
Chief Financial Officer
8
DIVIDEND REINVESTMENT PLAN
For Common Stock Shareholders of California Water Service Company
CALIFORNIA WATER SERVICE COMPANY
To the Common Stock Shareholders:
We are pleased to offer a Dividend Reinvestment Plan which
affords our shareholders a convenient and inexpensive method of
acquiring additional shares in California Water Service Company.
The Plan was first established to permit Participants to defer
reinvestment dividends from federal income tax under provisions
of the 1981 Federal Tax Act. Although this provision expired on
December 31, 1985, the Company has continued to offer the
dividend program due to its popularity with shareholders.
Dividends reinvested in common stock since December 31, 1985 are
taxed as if the Participant has received a cash dividend.
Although the tax deferral provision of the Plan has been
eliminated, a primary advantage still allows common shares to be
acquired without commission and administrative expense to the
Participant. If you wish to participate in the Plan, you should
forward a signed authorization form to the Administrator, the
First National Bank of Boston at the address shown on page 1.
You will continue to participate until you send a written request
for termination to the Administrator.
The Dividend Reinvestment Plan is designed to facilitate
your acquisition of additional shares in the Company and we
welcome your participation in the Plan. The Plan is described in
question and answer form on the following pages.
Sincerely,
/s/ C. H. STUMP /s/ DONALD L. HOUCK
C.H. Stump Donald L. Houck
Chairman of the Board President and
Chief Executive Officer
9
Purpose and Features
1. What is the purpose of the Plan?
The purpose of the Plan is to provide holders of the
Company's common stock who elect to participate in the Plan
("Participants") a simple and convenient method of acquiring
additional shares of common stock, in lieu of receiving cash
dividends.
2. What are the features of the Plan?
The Plan provides Participants the following features?
(a) Automatic acquisition of additional shares of common
stock in lieu of cash dividends on all or a portion
of shares of common stock.
(b) The Company pays all costs incurred in administering
the Plan. No commission expense is incurred by the
Participant.
(c) Participants can avoid the responsibility for safe-
keeping of shares of common stock purchased under the
Plan.
(d) Quarterly statements regarding issuance of shares pro-
vide the Participants with simplified record-keeping.
Administration
3. Who administers the Plan for Participants?
The First National Bank of Boston ("Bank") administers the
Plan as agent for the Participants. It keeps a continuing record
of their accounts, provides them with regular statements and
performs other duties related to the Plan. Common stock issued
under the Plan will be registered in the name of the Participant.
All notices, inquiries and request concerning the Plan
should be directed to:
The First National Bank of Boston
Dividend Reinvestment Unit
Mail stop: 45-01-06
P. O. Box 1681
Boston, MA 02105-1681
10
Participation
4. Who is eligible to participate?
All holders of the Company's common stock are eligible to
participate in the Plan.
5. How does a shareholder participate?
Holders of record of the Company's common stock may enroll
in the Plan by signing the Authorization Form and returning it to
the Bank. The Authorization Form may be obtained at any time by
written request to the Bank at the address specified under
Question 3.
6. When may a shareholder join the Plan?
A shareholder may enroll in the Plan at any time (See
Questions 4, 5 and 8).
7. What does the Authorization Form provide?
The Authorization Form directs the acquisition of common
stock in lieu of cash dividends on those shares of common stock
designated by a Participant on the Authorization Form. A
Participant may make either of the following elections:
FULL DIVIDEND REINVESTMENT
Reinvest all dividends paid on common shares of California Water
Service Company to purchase additional shares of the Company's
common stock.
PARTIAL DIVIDEND REINVESTMENT
Reinvest dividends on a portion of all shares of common stock
registered in the Participant's name and continue to receive cash
dividends on all other shares of common stock held by such
Participant.
If the Participant has directed the Bank to pay cash
dividends on a portion of his/her shares and to reinvest
dividends on the remainder, the Participant should provide new
written instructions to the Bank when a portion of shares are
disposed. If the Bank does not receive new instructions, it may,
in its discretion, either (a) pay cash dividends on all shares or
(b) continue to reinvest dividends on any shares owned in excess
of the number of shares on which the Participant has directed the
Bank to pay cash dividends.
Dividends paid on common stock held under the Plan (and not
withdrawn from the Plan) will be automatically reinvested.
11
PARTIAL DIVIDEND REINVESTMENT (continued)
8. When must the Authorization Form be received to begin
reinvesting dividends?
To initiate or adjust a shareholder's participation in the
Plan, the Bank must receive a shareholder's original or amended
Authorization Form on or before a record date for the dividend.
If the original or amended Authorization Form is received after
the record date for that dividend, authorization will commence
with the dividend, as declared, for the following quarter.
9. How may a Participant change options under the Plan?
A Participant in the Plan may increase or decrease the
number of shares which he/she elects to reinvest in common stock
by completing a new Authorization Form and returning it to the Bank.
Terms of Reinvestment
10. How is the amount of Common Stock to be received in
lieu of cash dividend determined?
Shares to be acquired under the Plan may come directly from
the Company's authorized but unissued common shares or may come
from purchases by the Administrator on the open market. The
decision as to whether to use newly issued shares from the
Company or to purchase shares on the open market will take into
account the Company's need for additional common equity, general
market conditions, and any other factors considered to be
relevant by the Company.
The price deemed to be paid for newly issued shares acquired
directly from the Company under the Plan will be the average of
the closing prices for the Company's common shares as quoted on
the open market during each of the last five trading days ending
with the Dividend Payment Date. If prices for the Company's
common stock are not so reported for any of such five consecutive
trading days, the applicable price will be determined by
reference to the closing prices for the five consecutive days for
which sales prices are reported, ending on the Dividend Payment
Date or, if prices are not reported for the Dividend Payment
Date, the last day on which prices for the Company's common stock
are reported.
12
Terms of Reinvestment (continued)
In the case of purchases of common stock on the open market
such purchases will begin on the Dividend Payment Date and will
be completed as soon as practicable thereafter. Purchase price
will be the weighted average price for all shares acquired. The
First National Bank of Boston will make every effort to invest
all dividends promptly after receipt of such dividends, and in no
event later than 30 days from such receipt, except where
necessary under applicable Federal securities laws.
No Participant shall have any authority or power to direct
the time or price at which common stock may be purchased.
11. When will shares of Common Stock issued under the Plan
be credited to a Participant's account.
Newly issued shares acquired directly from the Company will
be automatically credited to a Participant's Account as of the
same day as payment of the cash dividend. Shares purchased on
the open market will be credited as of the most recent applicable
settlement date.
Information Furnished to Participants
12. What information will be sent to Participants in the
Plan?
Each Participant will receive a statement of account as soon
as practicable following the credit of shares to the
Participant's account. The statement will indicate the number of
shares purchased, the price per share paid and will include any
applicable tax information pertaining to the Participant's
reinvestment account. These statements are a Participant's
continuing record of the cost of his/her purchases and should be
retained for tax or other purposes. Participants should be aware
that it is important to retain all statements received as there
could be a fee incurred when requesting the Bank to supply past
history.
Custody of Shares
13. Will certificates be issued for shares of common stock
acquired under the Plan?
Certificates for shares of common stock acquired under the
Plan will not be issued to Participants unless requested. This
protects against loss, theft or destruction of stock
certificates. However, Participants may request the Bank in
writing to issue and deliver certificates to them for all or a
portion of their full Plan shares.
13
Custody of Shares (continued)
14. In whose name will shares of common stock be
registered?
Common stock issued under the Plan will be registered in the
name of the Participant.
Plan accounts will be maintained in the name in which the
Participant's common stock was registered at the time the
Participant enrolled in the Plan. Certificates for full Plan
shares will be similarly registered as and when issued.
Participants may effect a transfer of ownership for either shares
held by the Bank or by Participants, provided all applicable
documentation necessary to effect such transfer is submitted.
Shares credited to Participants' Plan accounts may not be
pledged as collateral. Participants wishing to pledge these
shares must request issuance and delivery to them of certificates
representing such shares.
Termination of Plan Participation
15. How is participation in the Plan terminated?
In order to terminate participation in the Plan, a
Participant (or Participants, if a joint registration) must send
a written request to the Bank (See Question 3). A withdrawal/
termination form is provided on the reverse side of the account
statement for this purpose. Upon termination, a certificate for
full shares will be issued in the Participant's name and
forwarded to the Participant. Fractional shares will be
converted to cash on the basis of the then current market price
of California Water Service Company common stock and the proceeds
remitted to the Participant.
16. When may participation in the Plan be terminated?
Participation in the Plan may be terminated by a shareholder
at any time by written notice to the Bank (See Question 3). If
termination instructions are received by the Bank prior to a
dividend record date, future dividends will be sent directly to
the Participant. Notification received after such record date
for a dividend will not be effective until the next quarterly
dividend. If certificate shares are transferred out of the
Participant's name, the dividend will not be reinvested
automatically under the new registration. A new Authorization
Form should be completed. However, such a transfer will not
automatically cover the issuance of any shares of common stock
held under the Plan. Such shares will continue to participate in
14
Termination of Plan Participation (continued)
the Plan until certificates are issued to the record holder
evidencing the shares and a termination of participation is
requested as to such shares. Participation will also be
terminated upon receipt by the Bank of notice of the death of a
shareholder.
Rejoining the Plan
17. May a shareholder rejoin the Plan?
Generally, a shareholder may again become a Participant at
any time. However, the Company reserves the right to reject any
Authorization Form from a previous Participant on the grounds of
excessive joining and terminating. Such reservation is intended
to minimize unnecessary administrative expense and to encourage
use of the Plan as a long-term shareholder reinvestment service.
Cost
18. Are there any expenses to Participants in connection
with reinvestment of dividends under the Plan?
Participants are able to reinvest dividends without paying
brokerage commissions or the administrative costs of the Plan.
Other Information
19. What happens if the Company issues a stock dividend or
declares a stock split, applicable to all shares?
Any common shares distributed by the Company on shares held
by the Bank under the Plan by reason of a stock dividend, or a
stock split, applicable to all shares of the Company, will be
added to the Participant's account under the Plan. Stock
dividends or split shares distributed on shares registered in the
name of the Participant and not held by the Bank under the Plan
will be mailed directly to the Participant in the same manner as
to shareholders who are not participating in the plan.
20. How will be Participant's shares be voted at meetings
of shareholders?
Plan shares will be voted by the Company as the shareholder
directs. Participants will receive a proxy covering their Plan
shares which will be voted in accordance with their proper
instruction. If a properly signed proxy is returned and no
instructions as to voting are indicated thereon, all of the
Participant's Plan shares will be voted in accordance with the
recommendations of the Company's management. If the proxy is not
returned, the Participant's Plan shares will not be voted by the
Company.
15
Other Information (continued)
21. May the Plan be changed or discontinued?
The Company reserves the right to suspend or terminate the
Plan at any time although it has no present intention to do so.
It also reserves the right to make modifications to any provision
of the Plan. Participants will be notified of any suspension,
termination or modification.
22. What are the responsibilities of the Company under the
Plan?
The Company will not be liable for any act done in good
faith or for any good faith omission to act, or for any claim or
liability arising out of failure to terminate a Participant's
account upon such Participant's death prior to receipt of notice
by the Bank in writing of such death. In addition, the Company
will not be liable with respect to the prices at which shares are
deemed acquired for a Participant's Plan account or the times
when such acquisitions are made or with respect to any
fluctuation in the market value before or after acquisition of
shares. The Company shall have the right to decide in its sole
discretion any questions of interpretation or administration of
the Plan.
FEDERAL INCOME TAX INFORMATION
The following information is an outline of the federal tax
provisions applicable to the Plan. The treatment of dividends
reinvested under the Plan for state income tax purposes may vary
from state to state.
It is understood that the reinvestment of dividends does not
relieve the Participant of any income tax which may be payable on
such dividends. The Bank will report to each Participant for tax
purposes the dividends credited to his/her account. Participants
will be treated as having received a dividend in an amount equal to
the cash dividend reinvested by the Company.
Under Section 3406(a)(1) of the Internal Revenue Code, the
Company is required to withhold for United States income tax
purposes 20% of all dividend payments to a shareholder if (a)
such shareholder has failed to furnish his/her taxpayer iden-
tification number ("TIN"), which for an individual is his/her
social security number, (b) the Internal Revenue Service (the
Service) has notified the Company that the TIN furnished by the
shareholder is incorrect, (c) the Service notifies that back-up
withholding should be commenced because the shareholder has
failed to properly report interest or dividends or (d) the
shareholder has failed to certify, under penalties of perjury,
16
FEDERAL INCOME TAX INFORMATION (continued)
that he/she is not subject to back-up withholding. Shareholders
have previously been requested by the Company or their broker to
submit all information and certifications required in order to
exempt them from back-up withholding if such exemption is
available to them.
In the case of a stockholder who is subject to back-up
withholding tax on dividends under the plan, or a foreign
stockholder whose dividends are subject to United States income
tax withholding, the amount of the tax to be withheld will be
deducted from the amount of the dividend and only the reduced
amount will be reinvested in common stock.
17