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, 1996
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 30, 1996 - 6,279,597
This Form 10-Q contains a total of 36 pages.
PART I - FINANCIAL INFORMATION
CALIFORNIA WATER SERVICE COMPANY
ITEM 1 FINANCIAL STATEMENTS BALANCE SHEET
MARCH 31, 1996 Dec. 31, 1995
In Thousands
ASSETS
Utility plant $595,927 $584,392
Less depreciation (165,542) (162,217)
Net utility plant 430,385 422,175
Current assets:
Cash and cash equivalents 1,827 6,273
Accounts receivable 11,161 13,663
Unbilled revenue 5,132 6,306
Materials and supplies 2,649 2,518
Taxes and other prepaid expenses 3,735 3,949
Total current assets 24,504 32,709
Regulatory assets 25,382 25,316
Other deferred charges 4,625 4,683
$484,896 $484,883
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity:
Common stock $ 43,870 $ 43,507
Retained earnings 101,321 103,442
Total common shareholders' equity 145,191 146,949
Preferred stock without mandatory
redemption provision 3,475 3,475
Long term debt 145,540 145,540
Total capitalization 294,206 295,964
Current liabilities:
Short-term borrowings 1,000 -
Accounts payable 13,778 14,807
Accrued expenses and other liabilities 12,156 11,023
Total current liabilities 26,934 25,830
Unamortized investment tax credits 3,179 3,352
Deferred income taxes 14,159 14,056
Advances for construction 94,690 94,100
Contributions in aid of construction 40,261 40,114
Regulatory liabilities 11,467 11,467
$484,896 $484,883
See accompanying notes on page 5 2
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF INCOME
March 31
1996 1995
In Thousands
FOR THE THREE MONTHS ENDED:
Operating revenue $32,298 $30,416
Operating expenses:
Operations 20,830 19,594
Maintenance 1,817 1,861
Depreciation 3,005 2,859
Federal income taxes 597 523
State Income taxes 181 160
Property and other taxes 1,840 1,734
28,270 26,731
Net operating income 4,028 3,685
Other income and expenses:
Interest and amortization on long term debt 2,952 2,637
Other income and expenses, net 39 9
2,991 2,646
Net income l,177 1,039
Preferred dividends 38 38
Net income available for common stock $ 1,139 $ 1,001
Weighted average shares outstanding 6,275 6,247
Earnings per share of common stock $ 0.18 $ 0.16
Dividends per share of common stock $ 0.52 $ 0.51
See accompanying notes on page 5 3
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED:
In Thousands
MARCH 31
1996 1995
Operating activities:
Net income $ 1,177 $ 1,039
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,005 2,859
Regulatory assets and liabilities, net (66) (48)
Deferred income taxes and investment tax credits (70) 288
Change in assets and liabilities:
Accounts receivable 2,502 2,197
Unbilled revenue 1,174 1,201
Materials and supplies (131) (99)
Taxes and other prepaid expenses 214 284
Accounts payable (1,029) (72)
Accrued expenses and other liabilities 1,133 590
Other changes, net 274 206
Net adjustments 7,006 7,406
Net cash provided by operating activities 8,183 8,445
Investing activities:
Utility plant expenditures (11,695) (6,177)
Financing activities:
Net short-term borrowings 1,000 (250)
Proceeds from issuance of common stock 363 0
Advances for construction 1,420 1,149
Contributions in aid of construction 376 465
Refunds of advances for construction (795) (768)
Dividends (3,298) (3,224)
Net cash used for financing activities (934) (2,628)
Change in cash and cash equivalents (4,446) (360)
Cash and cash equivalents at start of period 6,273 1,301
Cash and cash equivalents at end of period $ 1,827 $ 941
See accompanying notes on page 5 4
Notes:
1. Due to the seasonal nature of the water business, the results for
interim periods are not indicative of the results for a twelve month period.
2. The interim financial information is unaudited. In the opinion of
management, the accompanying financial statements reflect all adjustments
which are necessary to provide a fair statement of the results for the
periods covered. The adjustments consist only of normal recurring adjustments.
3. Earnings per share are calculated on the weighted average number of
common shares outstanding during the period and net income available for
common stock as shown on the Statement of Income.
4. Refer to 1995 Annual Report on Form 10-K for a summary of significant
accounting policies and detailed information regarding the financial
statements.
5
PART I FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF FIRST QUARTER OPERATIONS
First quarter net income was $1,177,000 equivalent to $0.18 per common
share, a two cent increase from the $0.16 earned in 1995's first quarter.
Operating revenue increased $1,882,000 from 1995 to $32,298,000. The
increase in operating revenue is accounted for in the following table:
General and step rate increases $629,000
Offset rate increases 545,000
Total rate increases 1,174,000
Increased consumption 270,000
Usage by 7,500 new customers 438,000
Net revenue increase $1,882,000
Water production for the quarter was 8% above last year's level. Well
production provided 43% of the supply with 56% purchased from wholesale
suppliers and 1% obtained from surface supply and processed through the Bear
Gulch district's treatment plant. Water production costs, which includes
purchased water, purchased power and pump taxes, increased $1,028,000 or 11%
due to the additional production and suppliers' rate increases which became
effective in seven districts since last year. The purchased water rate
increases ranged from 1% to 15%. Power savings were achieved by taking
advantage of modified power rate tariffs offered by suppliers. Four districts
have higher pump tax rates in effect this year. The components of water
production expense and the changes from last year are shown in the table below:
First Quarter Dollar
1996 Cost Change
Purchased water $8,719,000 $1,136,000
Purchased power 1,398,000 (175,000)
Pump taxes 298,000 67,000
Total $10,415,000 $1,028,000
Other operations expense increased $208,000, primarily due to a 3.5%
general wage increase which was effective January 1st and increases in related
employee benefits.
Federal and state income taxes increased $95,000 because of greater taxable
income.
NEW BUSINESS
The Company commenced operation of the City of Hawthorne's 5,900
customer water system on February 27th under terms of a 15 year lease
agreement. The lease required the Company to make an up front lease payment
to the City of $6.5 million which will be amortized over the lease period,
to make an annual lease payments of $100,000 and to be responsible for all
aspects of system operations and capital improvements. In exchange, the
Company receives all system revenues, currently estimated to be $4 million
annually. At the end of the lease, the City is required to reimburse the
Company for the undepreciated value of capital improvements made by the
Company.
REGULATORY MATTERS
In July 1995, the Company filed with the California Public Utilities
Commission (Commission) for rate increases in five districts representing about
47% of total customers. In early April 1996, hearings before the Commission
regarding this filing were completed and a decision in this matter is
anticipated from the full Commission in June. The Commission staff and
Company have stipulated to a 10.3 percent return on equity which will
increase revenue by about $10,600,000 over a four year period. The Company's
application to the Commission had requested a 12.1 percent return on equity
which would have resulted in a total revenue increase of $26,000,000 spread
over a four year period.
LIQUIDITY
Interest expense on long-term debt increased by $315,000. The increase
resulted from $364,000 of interest expense on the Series A senior notes issued
in August 1995 which was partially offset by reduced first mortgage bond
interest due to the retirement of the Series J bonds and sinking fund payments
made in the third quarter of 1995. Short-term interest expense declined
$100,000 due to reduced borrowings during the current quarter as compared to
the prior year under the Company's $30 million bank line of credit.
The first quarter common dividend was paid on February 15, 1996 at $0.52
per share. The $0.52 represents a one cent increase in the quarterly dividend
as approved by the Board of Directors at their January meeting. Annualized,
the dividend rate is $2.08 per common share.
Under the Company's Dividend Reinvestment Plan (Plan), 10,256 new
common shares were issued to shareholders who elected to reinvest their
dividends in additional shares. The new shares were issued at a price of
$35.40 per share which contributed $363,000 to shareholders' equity. About
11% of the outstanding shares participate in the Plan. Issuance of the
additional shares has a dilutive effect in earnings per share calculations
and upon existing equity of shareholders not participating in the Plan.
However, the issuance of new shares reduces quarterly cash required to fund
dividend payments by about $360,000 per quarter.
During the quarter, utility plant expenditures totaled $11,695,000, including
$6,515,000 for the up front lease payment for the City of Hawthorne water
system and $5,180,000 for additions to and replacements of utility plant.
Of the $5,180,000, $3,521,000 was funded through the Company's construction
budget with the balance consisting of developers' contributions in aid of
construction and refundable advances for construction. The 1996 Company
construction budget has been authorized at $22,200,000.
WATER SUPPLY
The Company believes that its various sources of water supply are sufficient
to meet customer demand for the remainder of the year. Approximately half of
the water source is purchased from wholesale suppliers with the other half
pumped from wells. Storage in state reservoirs was about 120% of historic
average as of March 31, 1996 and groundwater levels remain adequate.
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
Sequential
Exhibit Page Numbers
Number Description in this report
10.17 Agreement between the City of 12
Hawthorne and California Water
Service Company for the 15 year
lease of the City's water system
(b) No reports on Form 8-K have been filed during the quarter ended
March 31, 1996.
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
/s/ GERALD F. FEENEY
May 6, 1996 Gerald F. Feeney
Vice President, Chief Financial Officer
and Treasurer