California Water Service Group Announces Revenues and Earnings for Year-End and 4th Quarter 2008
SAN JOSE, CA -- (MARKET WIRE) -- 02/25/09 -- California Water Service Group (NYSE: CWT) today announced net income of $39.8 million, up 28% or $8.6 million for the 2008 fiscal year. Diluted earnings per share were $1.90, up 27% or $0.40 per share compared to $1.50 for the same period last year.
Revenue for 2008 was $410.3 million, increasing 12% or $43.2 million over revenue of $367.1 million for 2007. Revenues for 2008 included an additional $42.0 million from rate increases and $4 million in sales to new customers. The net effect of the Water Revenue Adjustment Mechanism (WRAM) and Modified Cost Balancing Account (MCBA), that went into effect July 1, 2008, increased revenue by $2.0 million. Sales to existing customers declined $2.2 million while other decreases accounted for $2.6 million.
Total operating expenses increased 9% or $29.9 million to $352.8 million for the year. Of this amount, water production costs increased 6% or $7.7 million to $146.6 million. Other operations expense increased 10% or $10.1 million to $110.6 million, due primarily to increases in health and welfare plan expense, professional and other outside services costs, and additional water treatment expenses.
Maintenance expense increased 3% or $0.6 million to $19.0 million. Depreciation increased 11% or $3.8 million to $37.3 million for the full year.
Net other income decreased $4.6 million for the full year primarily due to no significant property sales during the year and a negative mark to market adjustment of $3.8 million associated with long-term investment assets held by the Company. Net interest expense remained similar to last year at $17.1 million, while income tax increased 16% or $3.4 million to $24.1 million, due to the higher pretax income.
According to President and Chief Executive Officer Peter C. Nelson, California Water Service Group's greatest achievements in 2008 were those related to implementing the California Public Utilities Commission's Water Action Plan. "Receiving recovery of reasonably incurred costs was critical to this year's results, as was implementing both a WRAM and an MCBA which allows us to promote water efficiency," Nelson said. "We also made some key acquisitions, made important and necessary infrastructure upgrades, and continue our focus on improving the way we serve our customers."
Fourth Quarter 2008 Results
For the fourth quarter 2008, net income was $7.3 million, down 9% or $0.7 million from net income of $8.0 million in the fourth quarter of 2007, and diluted earnings per common share were $0.35, a decrease of 10% from $0.39 per common share for the same period last year.
Revenue for the fourth quarter increased to $100.1 million, up 17% or $14.2 million for the same period last year. Revenues reflected an additional $13.8 million from rate increases, an increase of $2.3 million in sales to new customers and an additional $0.9 million in revenue from the WRAM and MCBA. These increases were offset by a $1.6 million reduction in sales to existing customers and other decreases of $1.2 million.
Total operating expenses for the quarter were $88.7 million, an increase of 17% or $12.8 million over operating expenses in the same period last year. Water production costs were up 12% or $3.7 million to $34.4 million, due to increases in production and higher rates charged by wholesalers. Other operations expense increased 22% or $5.5 million to $30.6 million, due mainly to health and welfare plan expenses, increases in professional services, and increased water treatment costs.
Maintenance expense increased approximately 40% or $1.7 million to $6.1 million, which includes increased expenditures on water mains, reservoirs, and pumping equipment. Depreciation expense increased 14% or $1.2 million to $9.6 million due to increases in utility plant. Taxes other than income increased 18% or $0.6 million to $3.7 million, primarily due to increases in property taxes.
Net other income decreased $2.1 million from the same period in 2007, primarily due to no property sales in the fourth quarter and a negative mark to market adjustment of $1.6 million associated with long-term investment assets held by the Company.
Regulatory Update for 2008
In July 2008, the CPUC approved California Water Service Company's (the Company) 2007 General Rate Case filing, authorizing rate increases of $33.4 million for eight districts, and an additional $13.7 million in 24 districts for General Office expenses. Additionally, the Company requested recovery of increases in "offsettable" expenses, including purchased water, power, and pump taxes, and others were made to recover incremental cost increases and certain capital expenses incurred in the districts in between the three-year General Rate Case cycle.
Also in 2008, the CPUC approved the Company's request for a WRAM, which effectively decouples water sales from revenues, as well as a tiered rate structure for most California districts. Having a WRAM effectively removes a major disincentive for the Company to pursue and promote water efficiency and conservation. In the same decision, the CPUC approved an MCBA, which will enable the Company to capture changes in costs resulting from utilizing different sources and volumes of supply. Both mechanisms support principals expressed in the CPUC's Water Action Plan, which reflects best practices in water utility regulation.
Pursuant to the CPUC's Rate Case Plan, the Company will file a General Rate Case in 2009 for all California districts, including general office, with a scheduled effective date of January 1, 2011; if the decision is delayed, the Company will seek interim rates and recovery of lost revenues resulting from any delay. Subsequent General Rate Cases will be filed for all California districts every three years.
2008 Acquisitions
The most significant growth in 2008 occurred in Hawaii, beginning with HWS Utility Services' acquisition of multiple water and wastewater operations contracts on the Island of Hawaii. In the second quarter of 2008, Hawaii Water Service Company (Hawaii Water) received approval from the Hawaii Public Utilities Commission (HPUC) to acquire a wastewater system serving approximately 800 customers in the community of Pukalani on the Island of Maui, and in the third quarter, Hawaii Water completed its acquisition of Waikoloa Resort Utilities, Waikoloa Water Company, Inc., and Waikoloa Sanitary Sewer Company, Inc. (collectively known as West Hawaii Utilities), which together provide water utility services to 1,970 customer accounts and wastewater services to 300 customer accounts on the Island of Hawaii. Finally, in the fourth quarter, Hawaii Water completed its acquisition of a water and wastewater system serving approximately 250 customers in Kukio on the Island of Hawaii.
Additionally, in California, the Company agreed to acquire Skyline County Water District, a 465-connection system adjacent to Cal Water's Bear Gulch District, and signed an agreement to purchase the Woodside Mutual Water Company, another adjacent system serving 43 customers.
Other Information
All stockholders and interested investors are invited to listen to the 2008 fourth quarter and year-end conference call on February 26, 2009 at 8:00 a.m. PST (11:00 a.m. EST) by dialing 1-866-882-0695 and keying in ID #1322231. A replay of the call will be available from 11:00 a.m. PST (2:00 p.m. EST) on February 26, 2009 through April 27, 2009, at 1-888-266-2081 ID #1322231. The call, which will be hosted by President and CEO Peter C. Nelson and Vice President and CFO Martin A. Kropelnicki, will also be webcast under the investor relations tab at www.calwatergroup.com.
California Water Service Group is the parent company of California Water Service Company, Washington Water Service Company, New Mexico Water Service Company, Hawaii Water Service Company, Inc., CWS Utility Services, and HWS Utility Services, LLC. Together these companies provide regulated and non-regulated water service to approximately 2 million people in more than 100 California, Washington, New Mexico and Hawaii communities. Group's common stock trades on the New York Stock Exchange under the symbol "CWT."
This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management's judgment about the Company, the water utility industry and general economic conditions. Such words as expects, intends, plans, believes, estimates, assumes, anticipates, projects, predicts, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include but are not limited to: governmental and regulatory commissions' decisions, including decisions on proper disposition of property; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; new legislation; changes in accounting valuations and estimates; the ability to satisfy requirements related to the Sarbanes-Oxley Act and other regulations on internal controls; electric power interruptions; increases in suppliers' prices and the availability of supplies including water and power; fluctuations in interest rates; changes in environmental compliance and water quality requirements; acquisitions and our ability to successfully integrate acquired companies; the ability to successfully implement business plans; changes in customer water use patterns; the impact of weather on water sales and operating results; access to sufficient capital on satisfactory terms; civil disturbances or terrorist threats or acts, or apprehension about the possible future occurrences of acts of this type; the involvement of the United States in war or other hostilities; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and, other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph. The Company assumes no obligation to provide public updates of forward-looking statements.
Additional information is available online at www.calwatergroup.com.
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except per share data) December 31 December 31
2008 2007
----------- -----------
ASSETS
Utility plant:
Utility plant $ 1,583,079 $ 1,447,047
Less accumulated depreciation and
amortization (470,712) (436,851)
----------- -----------
Net utility plant 1,112,367 1,010,196
----------- -----------
Current assets:
Cash and cash equivalents 13,869 6,734
Receivables
Customers 22,786 18,600
Other 12,071 8,617
Unbilled revenue 13,112 12,911
Materials and supplies at average cost 5,070 4,744
Taxes, prepaid expense, and other assets 12,890 8,369
----------- -----------
Total current assets 79,798 59,975
----------- -----------
Other assets:
Regulatory assets 201,558 90,908
Goodwill 3,736 -
Other assets 23,913 23,420
----------- -----------
Total other assets 229,207 114,328
----------- -----------
$ 1,421,372 $ 1,184,499
=========== ===========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $.01 par value $ 207 $ 207
Additional paid-in capital 213,922 211,885
Retained earnings 188,820 173,617
----------- -----------
Total common stockholders' equity 402,949 385,709
Preferred stock - 3,475
Long-term debt, less current maturities 287,498 289,220
----------- -----------
Total capitalization 690,447 678,404
----------- -----------
Current liabilities:
Current maturities of long-term debt 2,818 2,701
Short-term borrowing 40,000 -
Accounts payable 41,772 36,694
Accrued expenses and other liabilities 38,606 30,258
----------- -----------
Total current liabilities 123,196 69,653
Unamortized investment tax credits 2,392 2,467
Deferred income taxes, net 72,344 69,712
Pension and postretirement benefits other than
pensions 152,685 39,444
Regulatory and other liabilities 52,361 38,783
Advances for construction 176,163 168,024
Contributions in aid of construction 117,568 118,012
MTBE Settlement 34,216 -
Commitments and contingencies
----------- -----------
$ 1,421,372 $ 1,184,499
----------- -----------
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)
For the Three-Months ended:
December 31 December 31
2008 2007
----------- -----------
Operating revenue $ 100,108 $ 85,879
----------- -----------
Operating expenses:
Water production costs 34,402 30,734
Other operations 30,610 25,149
Maintenance 6,085 4,353
Depreciation and amortization 9,560 8,390
Income taxes 4,381 4,126
Property and other taxes 3,676 3,124
----------- -----------
Total operating expenses 88,714 75,876
----------- -----------
Net operating income 11,394 10,003
----------- -----------
Other income and expenses:
Non-regulated revenue 4,499 3,674
Non-regulated expenses (5,103) (3,261)
Gain on sale of non-utility property - 2,599
Less: income taxes on other income and
expenses 258 (1,227)
----------- -----------
(346) 1,785
----------- -----------
Interest expense:
Interest Expense 5,186 4,931
Less: capitalized interest (1,456) (1,185)
----------- -----------
Net interest expense 3,730 3,746
----------- -----------
Net income $ 7,318 $ 8,042
=========== ===========
Earnings per share
Basic $ 0.35 $ 0.39
=========== ===========
Diluted $ 0.35 $ 0.39
=========== ===========
Weighted average shares outstanding
Basic 20,719 20,666
=========== ===========
Diluted 20,743 20,691
=========== ===========
Dividends per share of common stock $ 0.2925 $ 0.2900
----------- -----------
CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)
For the Twelve-Months ended:
December 31 December 31
2008 2007
----------- -----------
Operating revenue $ 410,312 $ 367,082
----------- -----------
Operating expenses:
Water production costs 146,564 138,883
Other operations 110,625 100,572
Maintenance 18,969 18,336
Depreciation and amortization 37,339 33,563
Income taxes 24,507 17,887
Property and other taxes 14,839 13,671
----------- -----------
Total operating expenses 352,843 322,912
----------- -----------
Net operating income 57,469 44,170
----------- -----------
Other income and expenses:
Non-regulated revenue 14,230 13,557
Non-regulated expenses (15,097) (9,114)
Gain on sale of non-utility property 7 2,516
Less: income taxes on other income and
expenses 376 (2,836)
----------- -----------
(484) 4,123
----------- -----------
Interest expense:
Interest Expense 20,591 19,719
Less: capitalized interest (3,411) (2,585)
----------- -----------
Net interest expense 17,180 17,134
----------- -----------
Net income $ 39,805 $ 31,159
=========== ===========
Earnings per share
Basic $ 1.90 $ 1.50
=========== ===========
Diluted $ 1.90 $ 1.50
=========== ===========
Weighted average shares outstanding
Basic 20,710 20,665
=========== ===========
Diluted 20,734 20,689
=========== ===========
Dividends per share of common stock $ 1.1700 $ 1.1600
----------- -----------
Released February 25, 2009