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, 1998
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 1-13883
CALIFORNIA WATER SERVICE GROUP
(Exact name of registrant as specified in its charter)
California 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)
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 March 31, 1998 - 12,619,140.
This Form 10-Q contains a total of 13 pages.
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CALIFORNIA WATER SERVICE GROUP
BALANCE SHEET
MARCH 31, 1998 DEC 31, 1997
(In Thousands)
ASSETS
Utility plant $653,673 $647,648
Less depreciation and amortization 191,090 187,241
Net utility plant 462,583 460,407
Current assets:
Cash and cash equivalents 902 1,742
Receivables 11,887 14,862
Unbilled revenue 4,492 5,136
Materials and supplies 2,066 2,105
Taxes and other prepaid expenses 3,843 4,423
Total current assets 23,190 28,268
Regulatory assets 38,479 38,345
Other assets 4,230 4,277
$528,482 $531,297
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity:
Common stock 44,941 44,941
Retained earnings 117,275 119,124
Total common shareholders' equity 162,216 164,065
Preferred stock 3,475 3,475
Long term debt 139,205 139,205
Total capitalization 304,896 306,745
Current liabilities:
Short-term borrowings 12,500 14,500
Accounts payable 15,045 15,499
Accrued expenses and other liabilities 14,202 13,145
Total current liabilities 41,747 43,144
Unamortized investment tax credits 3,006 3,006
Deferred income taxes 25,914 25,761
Advances for construction 96,324 95,878
Contributions in aid of construction 44,103 44,270
Regulatory liabilities 12,492 12,493
$528,482 $531,297
See accompanying notes on page 5 2
CALIFORNIA WATER SERVICE GROUP
STATEMENT OF INCOME
March 31
1998 1997
FOR THE THREE MONTHS ENDED: In Thousands
Operating revenue $35,225 $37,558
Operating expenses:
Operation 22,290 23,006
Maintenance 2,121 1,921
Depreciation and amortization 3,626 3,388
Federal income taxes 649 1,347
State income taxes 65 267
Property and other taxes 1,973 1,917
Total operating expenses 30,724 31,846
Net operating income 4,501 5,712
Other income and expenses:
Interest and amortization on long term debt 2,836 2,890
Other income and expenses, net 75 (99)
2,911 2,791
Net income 1,590 2,921
Preferred dividends 38 38
Net income available for common stock $1,552 $2,883
Weighted average shares outstanding 12,619 12,619
Earnings per share of common stock $0.12 $0.23
Dividends per share of common stock $0.2675 $0.2638
See accompanying notes on page 5 3
CALIFORNIA WATER SERVICE GROUP
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED
In Thousands
MARCH 31
1998 1997
Operating activities:
Net Income $1,590 $2,921
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortizaion 3,626 3,388
Regulatory assets and liabilities, net (135) (135)
Deferred income taxes and investment tax
credits, net 153 361
Change in operating assets and liabilities:
Receivables 2,975 225
Unbilled revenue 644 (50)
Materials and supplies 39 105
Taxes and other prepaid expenses 580 117
Accounts payable (454) 2,574
Accrued expenses and other liabilities 1,057 1,801
Other changes, net 147 440
Net adjustments 8,632 8,826
Net cash provided by operating activities 10,222 11,747
Investing activities:
Utility plant expenditures (6,248) (5,471)
Financing activities:
Net short-term borrowings (2,000) (3,500)
Advances for construction 1,319 645
Contributions in aid of construction 167 405
Refunds of advances for construction (861) (857)
Dividends paid (3,439) (3,367)
Net cash used in financing activities (4,814) (6,674)
Change in cash and cash equivalents (840) (398)
Cash and cash equivalents at beginning of
period 1,742 1,368
Cash and cash equivalents at end of period $902 $970
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 1997 Annual Report on Form 10-K for a summary of significant
accounting policies and detailed information regarding the financial
statements.
5. During 1997, the Financial Accounting Standards Board issued two accounting
statements. Statement No. 130, "Reporting Comprehensive Income," requires
comprehensive income items be classified separately and the accumulated
balance be reported in the equity section of the financial statements.
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information," establishes disclosure requirements concerning
operating business segments, products and services, geographic areas
and major customers. The Group adopted these standards effective
January 1, 1998. The adoption did not have a material impact on its
financial position or operating results.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, Employer's Disclosures about
Pensions and Other Postretirement Benefits. This statement standardizes
employers' disclosure requirements for pensions and other postretirement
benefits. The Group expects to adopt SFAS 132 by December 31, 1998. The
Group does not expect that adoption of this statement will have a material
impact on its financial position or operating results.
In 1998, the Americal Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. This statement provides
guidance on accounting for the costs of computer software developed or
obtained for internal use. The Group adopted the provisions of SOP 98-1
effective January 1, 1998.
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 $1,590,000, equivalent to $0.12
per common share, an 11 cent decrease from the $0.23 earned in last
year's first quarter. 1997's first quarter earnings were the highest
first quarter earnings ever recorded by the Group.
Operating revenue decreased $2,333,000 from 1997 to
$35,225,000. The primary reason for the revenue decline was the
inclement El Nino weather pattern which California experienced
throughout the quarter. The wet and cool weather caused a decrease
in customers' consumption. By comparison, 1997's first quarter
weather was drier and warmer than normal, causing water sales to be
at near record highs. Consumption levels, as measured by average
sales per metered customer, decreased 8% during the quarter. Average
revenue per customer decreased $6.90 or 7%. The decrease due to
consumption was partially offset by rate increases and sales to new
customers. A breakdown of the net decrease in operating revenue is
accounted for in the following table:
General rate increases $278,000
Step rate increases 290,000
Total rate increases 568,000
Decreased consumption (3,158,000)
Usage by 2,885 new customers 257,000
Net revenue increase $(2,333,000)
Total operating expenses decreased 4% this year.
Water production for the quarter was 14% less than last year's
level. Well production provided 44% of the supply with 55% purchased
from wholesale suppliers and the other 1% received from a surface
water supply. Water production costs, which include purchased
water, purchased power and pump taxes, decreased $1,746,000,
reflecting the decline in water sales and production. Six districts
experienced wholesale suppliers' purchased water rate increases
ranging from 1% to 5%. The components of water production expense
and the changes from last year are shown in the table below:
First Quarter Dollar
1998 Cost Change
Purchased water $8,821,000 ($1,282,000
Purchased power 1,322,000 (379,000)
Pump taxes 345,000 (85,000)
Total $10,488,000 ($1,746,000
Other operations expense increased $894,000, mainly due to
the impact of the 3.0% general wage increase which was effective at
the start of the year, additional hours worked and increases in
related employee benefits. Increases were also experienced in
chemical costs, liability insurance and transmission facilities
expense.
Depreciation and amortization expense increased $238,000 due to
increased depreciation expense authorized by the Commission in the
rate case decisions and a greater depreciable plant investment. The
additional expense is reflected in customer rates.
Federal and state income taxes decreased $900,000 because of
reduced taxable income.
Pretax income from nonregulated operations was $282,000, a
$7,000 decline from last year. The income amount was netted against
$109,000 of expenses which includes contributions and costs of
maintaining nonoperating properties.
REGULATORY MATTERS
1997 rate case applications were filed with the California
Public Utilities Commission (Commission) in July 1997 for rate
increases in four districts representing 7% of total customers. The
applications request additional annual revenue of about $650,000. A
decision regarding the applications is expected from the full
Commission in the second quarter of 1998.
An assessment of which districts rate case applications will be
filed this year is currently underway. The filings will be made in
July.
LIQUIDITY
Interest expense on long-term debt decreased by $54,000 as a
result of the retirement of Series L first mortgage bonds and first
mortgage bond sinking fund payments made in the fourth quarter of
1997. Short-term interest expense increased $128,000 due to
additional borrowings under the bank line of credit. At March 31,
1998, $12.5 million was borrowed under the credit line at an
effective interest rate of 7%. At March 31, 1997, $4 million was
outstanding under the credit line.
The first quarter common dividend was paid on February 15,
1998, at $0.2675 per share. The $0.2675 represents a $0.00375 or
1.4% 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 $1.07 per common share compared to
$1.055 in 1997. Based on the 12 month earnings per share at March
31, 1998, the dividend payout ratio is 62%.
About 11% of the outstanding shares participate in the Group's
Dividend Reinvestment and Stock Purchase Plan (Plan). No new common
shares were issued under the Plan during the quarter. Shares
required for the dividend reinvestment and stock purchase options
were purchased on the open market and distributed to Plan
participants.
Book value per common share was $12.85 at March 31, 1998,
compared to $12.19 a year earlier.
During the quarter, utility plant expenditures totaled
$6,248,000 for additions to and replacements of utility plant. Of
that amount, $5,033,000 was funded through the Group's construction
budget with the balance consisting of funds received from developers
as contributions in aid of construction and refundable advances for
construction. The 1998 Group construction budget is $31,000,000.
WATER SUPPLY
The Group 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 114% of historic average as of March
31, 1998, and groundwater levels remain adequate. There is an
abundant snowpack which will provide runoff to streams and reservoirs
as the snowpack melts during the spring and summer months.
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
Group was held April 15, 1998, at the Group'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 George A. Vera
J. W. Weinhardt
(c) Two matters were voted on at the meeting: (1) election of
directors for the ensuing year, and (2) ratification of the Board's
selection of independent auditors for 1998.
(1) Tabulation of votes for the election of directors was:
For Withheld
Robert W. Foy 12,865,645 96,729
Edward D. Harris, Jr., M.D. 12,861,243 101,131
Robert K. Jaedicke 12,845,366 117,008
Richard P. Magnuson 12,873,285 89,089
Linda R. Meier 12,866,612 95,762
Peter C. Nelson 12,870,341 92,033
C. H. Stump 12,852,974 109,400
George A. Vera 12,845,535 116,839
J. W. Weinhardt 12,844,604 117,771
(2) The directors selection of KPMG Peat Marwick LLP to serve as
independent auditors for 1998 was ratified by the shareholders.
There were 12,813,166 votes in favor, 56,879 against, 92,329
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) The following reports on Form 8-K were filed during the
quarter ended March 31, 1998:
(1) Change in control of registrant as a result of the
merger on December 31, 1997 among California Water Service
Company, California Water Service Group and CWSG Merger
Company. The merger resulted in the formation of the
holding company. The Form 8-K was filed January 2, 1998.
(2) Adoption of a shareholder rights plan for common
shareholders . The rights, unless activated, attach to and
trade with the common stock. The Form 8-K was filed
February 13, 1998.
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 GROUP
Registrant
/s/ Gerald F. Feeney
Vice President, Chief Financial Officer and Treasurer
April 28, 1998
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