<PAGE>
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, 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 July 31, 1996 - 6,289,896
This Form 10-Q contains a total of 13 pages.
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PART I - FINANCIAL INFORMATION
CALIFORNIA WATER SERVICE COMPANY
ITEM 1 FINANCIAL STATEMENTS
BALANCE SHEET
(In Thousands)
June 30, Dec. 31,
1996 1995
ASSETS
Utility plant $602,522 $584,392
Less depreciation 168,901 162,217
Net utility plant 433,621 422,175
Current assets:
Cash and cash equivalents 920 6,273
Accounts receivable 16,610 13,663
Unbilled revenue 7,722 6,306
Materials and supplies 2,470 2,518
Taxes and other prepaid expenses 3,659 3,949
Total current assets 31,381 32,709
Regulatory assets 25,448 25,316
Other deferred assets 4,571 4,683
$495,021 $484,883
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity:
Common stock $44,228 $43,507
Retained earnings 103,853 103,442
Total common shareholders' equity 148,081 146,949
Preferred stock 3,475 3,475
Long term debt 145,540 145,540
Total capitalization 297,096 295,964
Current liabilities:
Short-term borrowings 2,000 0
Accounts payable 18,284 14,807
Accrued expenses and other liabilities 13,103 11,023
Total current liabilities 33,387 25,830
Invest tax credit 3,179 3,352
Deferred income taxes 13,939 14,056
Advances for construction 95,256 94,100
Contributions in aid of construction 40,697 40,114
Regulatory liability 11,467 11,467
$495,021 $484,883
See accompanying notes on page 5
2
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF INCOME
June 30
1996 1995
In Thousands
FOR THE THREE MONTHS ENDED:
Operating revenue 49,048 40,371
Operating expenses:
Operation 29,306 25,493
Maintenance 1,996 1,847
Depreciation 3,139 2,859
Federal income taxes 3,108 1,834
State income taxes 918 543
Property and other taxes 1,735 1,634
40,202 34,210
Net operating income 8,846 6,161
Other income and expenses
Interest and amortization on long-term debt 2,952 2,637
Other income and expenses, net 58 57
3,010 2,694
Net income 5,836 3,467
Preferred dividends 38 38
Net income available for common stock 5,798 3,429
Weighted average shares outstanding 6,285 6,247
Earnings per share of common stock 0.92 0.55
Dividends per share of common stock 0.52 0.51
FOR THE SIX MONTHS ENDED:
Operating revenue 81,346 70,787
Operating expenses:
Operation 50,136 45,087
Maintenance 3,813 3,709
Depreciation 6,144 5,718
Federal income taxes 3,705 2,357
State income taxes 1,099 703
Property and other taxes 3,575 3,367
68,472 60,941
Net operating income 12,874 9,846
Other income and expenses
Interest and amortization on long-term debt 5,904 5,274
Other income and expenses, net (43) 66
5,861 5,340
Net income 7,013 4,506
Preferred dividends 76 76
Net income available for common stock 6,937 4,430
Weighted average shares outstanding 6,280 6,247
Earnings per share of common stock 1.10 0.71
Dividends per share of common stock 1.04 1.02
See accompanying notes on page 5
3
CALIFORNIA WATER SERVICE COMPANY
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED:
In Thousands
JUNE 30
1996 1995
Operating activities:
Net income $ 7,013 $ 4,506
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,144 5,718
Regulatory assets and liabilities, net (132) (95)
Deferred income taxes and investment tax credits (291) 211
Change in assets and liabilities:
Accounts receivable (2,948) (426)
Unbilled revenue (1,415) (250)
Materials and supplies 463 14
Taxes and other prepaid expenses 290 1,034
Accounts payable 3,477 2,153
Accrued expenses and other liabilities 2,080 665
Other changes, net 25 323
Net adjustments 7,693 9,347
Net cash provided by operating activities 14,706 13,853
Investing activities:
Utility plant expenditures (18,458) (12,492)
Financing activities:
Net short-term borrowings 2,000 3,000
Proceeds from issuance of common stock 721 0
Advances for construction 2,929 2,791
Contributions in aid of construction 1,067 876
Refunds of advances for construction (1,716) (1,696)
Dividends (6,602) (6,448)
Net cash used for financing activities (1,601) (1,477)
Change in cash and cash equivalents (5,353) (116)
Cash and cash equivalents at start of period 6,273 1,301
Cash and cash equivalents at end of period $ 920 $ 1,185
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 SECOND QUARTER OPERATIONS
Net income for the second quarter was $5,836,000 equivalent to $0.92 per
common share, a 37 cent or 67% increase from the $0.55 earned in 1995.
Operating revenue increased $8,677,000 to $49,048,000, primarily in
response to increased customer consumption due to warmer and drier weather this
year compared to last year's second quarter weather. The increase in operating
revenue is accounted for in the following table:
General and step rate increases $1,150,000
Offset rate increases 939,000
Total rate increases 2,089,000
Increased consumption 5,274,000
Usage by 8,200 new customers 1,314,000
Net revenue increase $8,677,000
Water production for the quarter was 18% above last year's level. Well
production provided 53% of the supply with 46% purchased from wholesale
suppliers and 1% obtained from surface supply and processed through the
Company's Bear Gulch district treatment plant. Total production for the
quarter was 30,418 million gallons compared to 25,133 million gallons in
1995. Water production costs, which includes purchased water, purchased
power and pump taxes, increased $3,558,000 or 23% due to the additional
production and suppliers' rate increases which became effective in seven
districts since last year. The
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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:
Second Quarter Dollar
1996 Cost Change
Purchased water $14,045,000 $2,942,000
Purchased power 3,520,000 344,000
Pump taxes 1,242,000 272,000
Total $18,807,000 $3,558,000
Other operations expense increased $256,000, 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 $1,649,000 because of greater
taxable income.
REGULATORY MATTERS
The California Public Utilities Commission (Commission) issued its
decision concerning the Company's 1995 rate case filing. The decision, which
became effective on June 11, applies to five districts covering about 47
percent of the Company's customers. During the first full year, the new
rates will provide for $6,668,000 of additional revenue, including $1,242,000
of step and offset rate increases that were effective at the start of 1996.
For the five districts, the decision includes a provision to accelerate
recovery of the Company's utility plant investment, resulting in an
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annualized depreciation rate for these districts of about 2.6 percent. The
Commission staff and Company stipulated to a 10.3 percent return on equity.
The final decision will provide an estimated $10,600,000 in new revenue 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.
In July, 1996, 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.
LIQUIDITY
Interest and amortization 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 fourth quarter of 1995. Short-term interest expense
declined $123,000 due to reduced borrowings under the Company's $30 million
bank line of credit during the second quarter as compared to the prior year.
At June 30, 1996, $2,000,000 was outstanding under the bank line of credit
8
compared to $10,000,000 in 1995. Cash flow during the quarter was strong due
to the increased revenue.
The second quarter common dividend was paid on May 15, 1996 at $0.52
per share. This was the Company's 207th consecutive quarterly dividend. The
$0.52 is a one cent increase over the 1995 dividend rate. Annualized, the
dividend rate is $2.08 per common share. The regular dividend was paid on
the Series C preferred stock.
Under the Company's Dividend Reinvestment Plan (Plan), 10,299 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 $34.775 per
share which contributed $358,000 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 $350,000 per quarter.
During the quarter, utility plant expenditures totaled $6,763,000. Of this
amount, $5,253,000 was funded through the Company's construction budget with
the balance consisting of developers' contributions in aid of construction and
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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. The California Department of Water Resources
reports that storage in state reservoirs was about 119% of historic average
as of June 30, 1996. Groundwater levels remain adequate.
10
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 at the Company's executive office in San Jose, California on
April 17, 1996.
(b) At the annual shareholders' meeting, a Board of Directors was elected for
the ensuing year. All directors nominated were elected:
William E. Ayer Robert W. Foy
Edward D. Harris, Jr., M.D. Robert K. Jaedicke
Linda R. Meier Peter C. Nelson
C. H. Stump Edwin E. Van Bronkhorst
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 Company's selection of independent
auditors for 1996.
(1) Tabulation of votes for the election of directors was:
For Withheld
William E. Ayer 6,474,259 59,341
Robert W. Foy. 6,485,933 47,667
Edward D. Harris, Jr., M.D 6,479,235 54,365
Robert K. Jaedicke 6,475,523 58,077
Linda R. Meier 6,478,459 55,141
Peter C. Nelson 6,470,308 63,292
C. H. Stump 6,477,179 56,421
Edwin E. Van Bronkhorst 6,478,224 55,376
J. W. Weinhardt 6,470,546 63,054
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(2) KPMG Peat Marwick was elected to serve as independent auditors for
1996. There were 6,441,090 votes cast in favor of KPMG Peat Marwick,
33,535 votes against and 58,975 abstentions.
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, 1996.
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
undersigned thereunto duly authorized.
CALIFORNIA WATER SERVICE COMPANY
Registrant
/s/ Gerald F. Feeney
Vice President, Chief Financial Officer and Treasurer
August 5, 1996
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