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 June 30, 1997
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)
_______________________1-408-367-8200______________________________________
(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
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 July 31, 1997 - 6,309,570. This Form 10-Q contains a total of 14 pages.
PART I - FINANCIAL INFORMATION
CALIFORNIA WATER SERVICE COMPANY
ITEM 1 FINANCIAL STATEMENTS BALANCE SHEET
JUNE 30, 1997 DEC 31, 1996
(In Thousands)
ASSETS
Utility plant $629,522 $618,432
Less depreciation 181,381 174,844
Net utility plant 448,141 443,588
Current assets:
Cash and cash equivalents 1,587 1,368
Accounts receivable 16,145 12,965
Unbilled revenue 7,833 5,353
Unbilled conservation revenue 96 224
Materials and supplies 2,225 2,324
Taxes and other prepaid expenses 4,091 4,537
Total current assets 31,977 26,771
Regulatory assets 37,219 37,556
Other deferred assets 4,379 4,475
$521,716 $512,390
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity:
Common stock 44,941 44,941
Retained earnings 114,351 109,285
Total common shareholders' equity 159,292 154,226
Preferred stock 3,475 3,475
Long term debt 142,153 142,153
Total capitalization 304,920 299,854
Current liabilities:
Short-term borrowings 3,500 7,500
Accounts payable 20,623 14,692
Accrued expenses and other liabilities 15,119 12,602
Total current liabilities 39,242 34,794
Unamortized investment tax credit 3,086 3,086
Deferred income taxes 24,002 23,736
Advances for construction 94,842 95,226
Contributions in aid of construction 43,132 43,067
Regulatory liabilities 12,492 12,627
$521,716 $512,390
See accompanying notes on page 5 2
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF INCOME
June 30
1997 1996
FOR THE THREE MONTHS ENDED: In Thousands
Operating revenue $55,083 $49,048
Operating expenses:
Operation 30,027 29,421
Maintenance 2,300 1,996
Depreciation 3,388 3,139
Federal income taxes 4,572 3,108
State income taxes 1,162 918
Property and other taxes 1,846 1,734
Total operating expenses 43,295 40,316
Net operating income 11,788 8,732
Other income and expenses:
Interest and amortization on long term debt 2,890 2,952
Other income and expenses, net 20 (56)
2,910 2,896
Net income 8,878 5,836
Preferred dividends 38 38
Net income available for common stock $8,840 $5,798
Weighted average shares outstanding 6,310 6,285
Earnings per share of common stock $1.40 $0.92
Dividends per share of common stock $0.5275 $0.52
FOR THE SIX MONTHS ENDED:
Operating revenue $92,641 $81,346
Operating expenses:
Operation 53,033 50,285
Maintenance 4,222 3,813
Depreciation 6,776 6,144
Federal income taxes 5,918 3,705
State income taxes 1,429 1,099
Property and other taxes 3,763 3,575
Total operating expenses 75,141 68,621
Net operating income 17,500 12,725
Other income and expenses:
Interest and amortization on long term debt 5,779 5,904
Other income and expenses, net (79) (192)
5,700 5,712
Net income 11,800 7,013
Preferred dividends 76 76
Net income available for common stock 11,724 6,937
Weighted average shares outstanding 6,310 6,280
Earnings per share of common stock $1.86 $1.10
Dividends per share of common stock $1.055 $1.04
See accompanying notes on page 5 3
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
In Thousands
JUNE 30
1997 1996
Operating activities:
Net Income $11,800 $7,013
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,776 6,144
Regulatory assets and liabilities, net 202 (132)
Deferred income taxes and investment tax credits, net 266 (291)
Change in assets and liabilities:
Accounts receivable (3,179) (2,948)
Unbilled revenue (2,352) (1,415)
Materials and supplies 99 463
Taxes and other prepaid expenses 446 290
Accounts payable 5,931 3,477
Accrued expenses and other liabilities 2,517 2,080
Other changes, net 601 25
Net adjustments 11,307 7,693
Net cash provided by operating activities 23,107 14,706
Investing activities:
Utility plant expenditures (12,517) (18,458)
Financing activities:
Net short-term borrowings (4,000) 2,000
Proceeds from issuance of common stock 0 721
Advances for construction 1,397 2,929
Contributions in aid of construction 738 1,067
Refunds of advances for construction (1,773) (1,716)
Dividends (6,733) (6,602)
Net cash used for financing activities (10,371) (1,601)
Change in cash and cash equivalents 219 (5,353)
Cash and cash equivalents at start of period 1,368 6,273
Cash and cash equivalents at end of period $1,587 $920
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 1996 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 SECOND QUARTER OPERATIONS
Second quarter net income was $8,878,000 equivalent to $1.40 per
common share, a 52 percent or 48 cents increase from the $0.92 earned in 1996's
second quarter. These results represent an all time high for second quarter
earnings.
Operating revenue increased $6,035,000 from 1996 to $55,083,000.
Weather, rate increases and new customers each contributed to the revenue
increase. Consumption levels, as measured by average sales per metered
customer, increased 11% during the quarter due to drier and warmer weather
throughout the period. Revenue benefited from the general rate increase, which
was effective June 11, 1996, and covered five districts and 47% of the
Company's customers. A breakdown of the increase in operating revenue is
accounted for in the following table:
General rate increases $1,960,000
Step rate increases 409,000
Offset rate increases 158,000
Total rate increases 2,527,000
Increased consumption 3,096,000
Usage by 3,108 new customers 412,000
Net revenue increase $6,035,000
Total operating expenses increased 7% this year.
Water production for the quarter was 9% above last year's level. Well
production provided 54% of the supply with 46% purchased from wholesale
suppliers. Water production costs, which includes purchased water, purchased
power and pump taxes, decreased $670,000 despite the increase in water
production. Purchased water refunds totaling $2,524,000 were received from two
wholesale suppliers and credited to purchased water costs during the quarter,
offsetting the additional production costs, and wholesale water suppliers'
rate increases that became effective in five districts since last year. The
components of water production expense and the changes from last year are
shown in the table below:
Second Quarter Dollar
1997 Cost Change
Purchased water $13,004,000 ($1,041,000)
Purchased power 3,637,000 118,000
Pump taxes 1,495,000 253,000
Total $18,136,000 ($670,000)
Other operations expense increased $1,276,000, primarily due to the
impact of the 3.0% general wage increase which was effective at the start of
the year and increases in related employee benefits. Customer accounting
expense increased due to the timing of certain purchases. The California
Public Utilities Commission reimbursement fee, which is based on 1-1/2% of
billings, was greater due to additional customer billings.
Depreciation and amortization expense increased $249,000 due primarily to
increased depreciation expense authorized by the Commission in the rate case
decision received in June 1996 affecting five districts. The additional
expense is reflected in customer rates.
Federal and state income taxes increased $1,708,000 because of greater
taxable income. The California tax rate decreased from last year's 9.3% to
8.84% this year.
REGULATORY MATTERS
In July 1997, the Company filed its 1997 rate case applications with the
California Public Utilities Commission (Commission) for rate increases in four
districts representing 7% of total customers. The applications request
additional annual revenue of about $650,000.
In early February 1997, hearings before the Commission regarding the 1996
rate case filings were completed and a decision regarding the application was
received from the full Commission in April. The Commission's decision
authorized a 10.35% return on common equity. The decision is expected to
increase 1997 revenue by about $2.5 million.
LIQUIDITY
Interest expense on long-term debt decreased by $62,000 as a result of the
retirement of Series K first mortgage bonds and sinking fund payments made in
the fourth quarter of 1996. Short-term interest expense increased $73,000
due to additional borrowings under the Company's bank line of credit during
the current quarter. At June 30, 1997, $3.5 million was borrowed under the
bank line of credit at an effective interest rate of 6.9%. During the quarter,
the bank line of credit was renewed for a two year period with the maximum
amount available to the Company under the arrangement increased to $50 million
from $30 million.
The second quarter common dividend was paid on May 15, 1997, at $0.5275 per
share. The $0.5275 represents a $0.0075 increase in the quarterly dividend
rate from last year as approved by the Board of Directors at their January
meeting. Annualized, the dividend rate is $2.11 per common share. Based on
the 12 month earnings per share at June 30, 1997, the dividend payout ratio
is 56%.
About 11% of the outstanding shares participate in the Company's Dividend
Reinvestment Plan (Plan). No new common shares were issued under
the Plan during the second quarter. Shares required for the Plan were
purchased on the open market and redistributed to Plan participants.
Book value per common share was $25.25 at June 30, 1997, compared to
$23.58 a year earlier.
During the quarter, utility plant expenditures totaled $7,046,000 for
additions to and replacements of utility plant. Of that amount, $3,718,000 was
funded through the Company's construction budget with the balance consisting of
funds received from developers as contributions in aid of construction and
refundable advances for construction. The 1997 Company construction budget is
$23,200,000.
The Indian Springs Mutual Utility Company's 187 customer water system
was acquired during the quarter. The system is operated as part of the Salinas
district. The Company had been operating the system for several months prior
to completing the acquisition.
HOLDING COMPANY FORMATION
Progress continues to be made on formation of the holding company structure
as authorized by the shareholders at their annual meeting. In conjunction
with formation of the holding company, the Company's common stock will be
split on a two-for-one basis and the Series C preferred stock's voting rights
adjusted proportionately. Regulatory approval for adoption of the holding
company is anticipated to be received in this year's fourth quarter.
WATER SUPPLY
The Company believes that its various sources of water supply are
sufficient to meet customer demand for the remainder of the year.
Historically, approximately half of the water source is purchased from
wholesale suppliers with the other half pumped from wells. Storage in state
reservoirs was 116% of historic average as of May 31, 1997, and groundwater
levels remain adequate.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of California Water Service Company
was held April 16, 1997, at the Company's executive office in San Jose,
California.
(b) At the annual shareholders' meeting, a Board of Directors was elected for
the ensuing year. The following directors were elected as nominated:
Robert W. Foy Edward D. Harris, Jr., M.D.
Robert K. Jaedicke Richard P. Magnuson
Linda R. Meier Peter C. Nelson
C. H. Stump Edwin E. Van Bronkhorst
J. W. Weinhardt
(c) Three matters were voted on at the meeting: (1) a proposal to adopt
formation of a holding company structure, (2) election of directors for the
ensuing year, and (3) ratification of the Board's selection of independent
auditors for 1997.
(1) The shareholders approved the adoption of a holding company structure
which will include a two-for-one common stock split and a proportionate
increase in the preferred stock's voting rights in connection with the
holding company formation. 4,877,045 shares voted in favor of this
proposal, 71,483 voted against it, 53,884 shares abstained, and 1,374,710
shares did not vote.
(2) Tabulation of votes for the election of directors was:
For Withheld
Robert W. Foy 6,340,184 36,938
Edward D. Harris Jr., M.D. 6,334,276 42,846
Robert K. Jaedicke 6,331,315 45,807
Richard P. Magnuson 6,342,638 34,484
Linda R. Meier 6,336,211 40,911
Peter C. Nelson 6,343,900 33,222
C. H. Stump 6,341,601 35,521
Edwin E. Van Bronkhorst 6,341,096 36,026
J. W. Weinhardt 6,334,307 42,815
(3) The directors selection of KPMG Peat Marwick to serve as independent
auditors for 1997 was ratified by the shareholders. There were
6,260,567 votes in favor, 36,587 against, 79,968 abstentions on this
matter and no non votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K.
None.
(b) No reports on Form 8-K have been filed during the quarter ended
June 30, 1997.
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
authorized undersigned.
CALIFORNIA WATER SERVICE COMPANY
Registrant
/s/ Gerald F. Feeney
Vice President, Chief Financial Officer
and Treasurer
July 31, 1997