UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
____
|_X_| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 Identification No.)
of incorporation or organization)
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 November 1, 1996 - 6,299,789. This Form 10-Q contains a total of 21
pages.
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CALIFORNIA WATER SERVICE COMPANY
BALANCE SHEET
(In Thousands)
Sept 30, 1996 Dec. 31, 1995
ASSETS
Utility plant $611,056 $584,392
Less depreciation (172,341) (162,217)
Net utility plant 438,715 422,175
Current assets:
Cash and cash equivalents 6,016 6,273
Accounts receivable 16,699 13,663
Unbilled revenue 8,403 6,306
Materials and supplies 2,353 2,518
Taxes and other prepaid expenses 6,211 3,949
Total current assets 39,682 32,709
Regulatory assets 25,497 25,316
Other deferred assets 4,519 4,683
$508,413 $484,883
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity:
Common stock $44,583 $43,507
Retained earnings 109,217 103,442
Total common shareholders' equity 153,800 146,949
Preferred stock 3,475 3,475
Long term debt 145,540 145,540
Total capitalization 302,815 295,964
Current liabilities:
Accounts payable 18,843 14,807
Accrued expenses and other liabilities 20,180 11,023
Total current liabilities 39,023 25,830
Investment tax credit 3,179 3,352
Deferred income taxes 14,812 14,056
Advances for construction 95,325 94,100
Contributions in aid of construction 41,792 40,114
Regulatory liability 11,467 11,467
$508,413 $484,883
See accompanying notes on page 5 2
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF INCOME SEPTEMBER 30,
1996 1995
In Thousands
FOR THE THREE MONTHS ENDED:
Operating revenue $59,230 $53,276
Operating expenses:
Operation 34,319 33,008
Maintenance 2,186 2,000
Depreciation 3,263 2,859
Federal income taxes 4,634 3,447
State income taxes 1,365 1,018
Property and other taxes 1,975 1,848
Total Operating Expenses 47,742 44,180
Net operating income 11,488 9,096
Other income and expenses:
Interest and amortization on long-term debt 2,953 2,791
Other income and expenses, net (138) (167)
2,815 2,624
Net income 8,673 6,472
Preferred dividends 38 38
Net income available for common stock $8,635 $6,434
Weighted average shares outstanding 6,295 6,253
Earnings per share of common stock $1.37 $1.03
Dividends per share of common stock $0.52 $0.51
FOR THE NINE MONTHS ENDED:
Operating revenue $140,577 $124,063
Operating expenses:
Operation 84,604 78,095
Maintenance 5,999 5,708
Depreciation 9,407 8,577
Federal income taxes 8,339 5,804
State income taxes 2,464 1,721
Property and other taxes 5,550 5,215
Total Operating Expenses 116,363 105,120
Net operating income 24,214 18,943
Other income and expenses:
Interest and amortization on long-term debt 8,859 8,065
Other income and expenses, net (331) (101)
8,528 7,964
Net income 15,686 10,979
Preferred dividends 114 114
Net income available for common stock 15,572 10,865
Weighted average shares outstanding 6,285 6,249
Earnings per share of common stock $2.48 $1.74
Dividends per share of common stock $1.56 $1.53
See accompanying notes on page 5 3
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
In Thousands
SEPTEMBER 30
1996 1995
Operating activities:
Net Income $15,686 $10,979
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,407 8,577
Regulatory assets and liabilities, net (181) (142)
Deferred income taxes and investment tax
credits, net 582 103
Change in assets and liabilities:
Accounts receivable (3,037) (2,827)
Unbilled revenue (2,097) (2,375)
Materials and supplies 165 288
Taxes and other prepaid expenses (2,262) (1,734)
Accounts payable 4,036 5,126
Accrued expenses and other liabilities 9,158 8,323
Other changes, net 644 944
Net adjustments 16,415 16,283
Net cash provided by operating activities 32,101 27,262
Investing activities:
Utility plant expenditures (27,298) (18,716)
Financing activities:
Net short-term borrowings -- (7,000)
Proceeds from issuance of senior notes -- 20,000
Proceeds from issuance of common stock 1,076 --
Advances for construction 4,059 3,870
Contributions in aid of construction 2,440 1,370
Refunds of advances for construction (2,724) (2,671)
Dividends (9,911) (9,673)
Net cash used for financing activities (5,060) 5,896
Change in cash and cash equivalents (257) 14,442
Cash and cash equivalents at start of period 6,273 1,301
Cash and cash equivalents at end of period $6,016 $15,743
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.
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PART I FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF THIRD QUARTER OPERATIONS
Net income for the third quarter of 1996 was $8,673,000, equivalent to
$1.37 per common share, a 34 cents increase from the $1.03 earned in last
year's third quarter.
Operating revenue increased $5,954,000 from 1995 to $59,230,000. The
increase in operating revenue is accounted for in the following table:
General and step rate increases $3,515,000
Offset rate increases 534,000
Total rate increases 4,049,000
Increased consumption 400,000
Usage by 9,300 new customers 1,505,000
Net revenue increase $5,954,000
In June, the California Public Utilities Commission (Commission)
authorized a general rate increase for five operating districts representing
about 47 percent of the Company's customer base. The benefit of the rate
increases were in place for the full third quarter and is reflected in the
revenue increases shown in the table above. The 9,300 new customers added
this year includes 6,000 customers added under the Hawthorne lease agreement
which became effective in the first quarter.
Water production for the quarter was three percent above last year's
level. Well production provided 56 percent of the supply with 44 percent
purchased from wholesale suppliers. Water production cost, which includes
purchased water, purchased power and pump taxes, increased $452,000 or two
percent. Wholesale water suppliers' rates remained relatively unchanged from
last year and savings were realized in purchased power costs in certain
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districts due to less expensive supplier rate tariffs. The components of
water production expense and the changes from last year are shown in the
table below:
Third Quarter Dollar Percent
1996 Cost Change Change
Purchased water $16,200,000 $684,000 4
Purchased power 4,869,000 (465,000) (9)
Pump taxes 1,732,000 233,000 15
Total $22,801,000 $452,000
Other operations expense increased $859,000, primarily due to a 3.5
percent general wage increase which was effective January 1 and increases in
related employee benefits.
Maintenance expense increased $186,000 during the quarter, primarily
due to various scheduled projects and main repairs.
Depreciation expense was $404,000 greater this year. In addition to
increased depreciation expense resulting from utility plant additions, the
Commission's June rate case decision provided for about $200,000 of added
depreciation during the quarter, equivalent to $810,000 on an annualized basis.
Recovery of the increase is reflected in the new customer rates which became
effective June 11 for the five districts covered by the decision.
Federal and state income taxes increased $1,534,000 because of higher
taxable income.
REGULATORY MATTERS
In July, the Company filed its 1996 rate application with the Commission
covering two districts, Livermore and Palos Verdes, which represents about 11
percent of the total customers. A 12.05 percent return on equity was requested
in the application which would yield $2,780,000 of additional revenue over a
four year period with $2,530,000 anticipated in the first full year the rates
are effective. A decision from the Commission is expected during the latter
part of next year's second quarter.
During the quarter, federal legislation was enacted which repealed the
income tax on deposits and facilities contributed by developers, known as
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contributions in aid of construction (CIAC), to investor-owned water utilities
for construction of new utility plant. Since the tax had primarily been
collected from developers as a cost of each development, the federal tax law
change will reduce each development's cost. The Company's cash flow will
improve to the extent the Company was required to participate in the tax
payments. The legislation requires new utility plant to be depreciated over
a 25 year life using straight line depreciation. California state tax
continues to apply to CIAC.
LIQUIDITY
At September 30, 1996, temporary investments totaled $4,000,000. The
funds will be required on November 1 to fund semi-annual debt interest
payments, first mortgage bond sinking fund requirements and the maturity of
Series K first mortgage bonds.
Interest on long-term debt increased $161,000 due to the sale of the
$20,000,000 Series A senior notes in August 1995. The notes were outstanding
for the full third quarter in 1996. Other interest expense decreased because
of a reduced need for borrowings under the Company's bank line of credit.
Bank borrowings were higher during the period prior to the senior note sale,
resulting in higher 1995 interest expense.
On August 15, 1996, the third quarter common dividend was paid at $0.52
per share. Under the Company's Dividend Reinvestment Plan (Plan), 9,893 new
common shares at an average share price of $35.87 were issued to shareholders
who elected to reinvest their dividend in additional shares. The
dividend reinvestment program contributed $355,000 to shareholders' equity.
About 11 percent of the outstanding shares participate in the Plan. The
regular dividend was also paid on the Series C preferred stock.
Issuance of the additional shares will have a dilutive effect in earnings per
share calculations and upon existing equity of shareholders not participating
in the Plan.
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During the quarter, utility plant expenditures totaled $8,840,000. Of this
amount, $6,136,000 was funded through the Company's construction budget
with the balance consisting of developers' contributions in aid of construction
and refundable advances for construction. On a year-to-date basis, plant
expenditures have been $27,298,000 with $21,425,000 provided by Company
funds. The Company funded expenditures include $14,925,000 for the ongoing
construction budget and $6,500,000 for the City of Hawthorne lease payment.
WATER SUPPLY
The Company believes that its various sources of water supply are
adequate to meet customer demand for the balance of this year. Storage in
state reservoirs at September 30, 1996 is about 120% of average as reported by
the California Department of Water Resources. This storage level should
provide an adequate storage carryover into 1997.
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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
10.18 Water Supply Agreement dated 11
September 25, 1996 between
City of Bakersfield and California
Water Service Company
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 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
November 6, 1996 Gerald F. Feeney
Vice President, Chief Financial Officer
and Treasurer
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