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California Water Service Group Announces Second Quarter 2014 Results

SAN JOSE, CA -- (Marketwired) -- 07/30/14 -- California Water Service Group (NYSE: CWT) today announced net income of $17.2 million or $0.36 per diluted common share for the second quarter of 2014, compared to net income of $13.5 million or $0.28 per diluted common share for the second quarter of 2013. Included in the second quarter of 2014 operating results is a $2.5 million (or $0.05 per diluted common share) non-recurring tax benefit.

Revenue for the second quarter of 2014 was $158.4 million, compared to revenue of $154.6 million in second quarter 2013, in part due to higher estimated unbilled revenue. The unbilled revenue increase resulted from higher consumption at the end of the quarter which is not included in the water revenue adjustment mechanism (WRAM).

Total operating expenses for the second quarter of 2014 increased $1.4 million, or 1%, to $135.1 million. Increases in water production costs, primarily purchased water cost increases, were partially offset by decreases in other operating expenses, income taxes, and property and other taxes. Maintenance expense increased $0.8 million, or 19%, to $5.0 million, while depreciation expense increased $1.6 million, or 11%, to $16.1 million due to 2014 capital additions.

Other income, net of income taxes, increased $0.7 million in the second quarter of 2014, primarily due to an increase in unrealized gains on our benefit plan insurance investments. Interest expense decreased $0.4 million, or 6%, to $6.9 million due to the Company's repayment of long-term debt in 2013.

A delay in the decision on the Company's largest subsidiary's General Rate Case, filed with the California Public Utilities Commission (CPUC) in 2012, continued to impact results for the quarter. On July 21, 2014, the CPUC issued a Proposed Decision on California Water Service Company's (Cal Water) General Rate Case. The Proposed Decision will not become effective until it has been reviewed and approved by the CPUC. The Commission may adopt the proposed decision, modify it, or reject it.

Until the Proposed Decision is adopted, Cal Water will continue to track the difference between approved interim rates and new rates that are eventually adopted in a memorandum account. After new rates are implemented, the memorandum account balance will be collected through customer surcharges over 12, 24, or 36 months. Had the Commission approved the settlement proposed by the parties effective January 1, 2014, the new rates would have increased pre-tax income $10.2 million for the six month period ended June 30, 2014. The proposed new rates would have added the following to the Company's results in 2014: $16.1 million of pre-tax income for service charges, flat rate, and fire protection rate increases, $1.6 million of pre-tax income from the proposed new health care balancing account, and a $7.5 million reduction to WRAM pre-tax income.

"We are pleased to have a Proposed Decision in Cal Water's General Rate Case. We are looking forward to receiving a final decision that will allow us to recover prudently incurred costs of providing a safe, reliable water supply and earn a reasonable return on critical infrastructure investments," said President and Chief Executive Officer Martin A. Kropelnicki.

"Having this lengthy proceeding behind us will enable us to focus all of our attention on meeting our customers' need for a reliable supply of high quality water in the midst of one of the most serious droughts in the state's history," he said.

All stockholders and interested investors are invited to listen to the teleconference. The 2014 second quarter conference call may be accessed by dialing 1-888-572-7033 or 1-719-325-2491 and keying in ID# 3765528. A replay of the call will be available from 2:00 p.m. ET on Thursday, July 31, 2014 through September 30, 2014, at 1-888-203-1112 or 1-719-457-0820, ID# 3765528. The call, which will be hosted by President and Chief Executive Officer Martin A. Kropelnicki and Vice President and Chief Financial Officer Thomas F. Smegal, 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. 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." Additional information is available at our web site at www.calwatergroup.com.

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 would, 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; changes in regulatory commissions' policies and procedures; the timeliness of regulatory commissions' actions concerning rate relief; changes in the capital markets and access to sufficient capital on satisfactory terms; new legislation; changes in California Department of Public Health water quality standards; changes in environmental compliance and water quality requirements; changes in accounting valuations and estimates; changes in accounting treatment for regulated companies, including adoption of International Financial Reporting Standards, if required; electric power interruptions; increases in suppliers' prices and the availability of supplies including water and power; fluctuations in interest rates; litigation that may result in damages or costs not recoverable from third parties; acquisitions and our ability to successfully integrate acquired companies; the ability to successfully implement business plans; 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; our ability to attract and retain qualified employees; labor relations matters as we negotiate with the unions; federal health care law changes that could result in increases to Company health care costs and additional income tax expenses in future years; changes in federal and state income tax regulations and treatment of such by regulatory commissions; implementation of new information technology systems; changes in operations that result in an impairment to acquisition goodwill; restrictive covenants in or changes to the credit ratings on current or future debt that could increase financing costs or affect the ability to borrow, make payments on debt, or pay dividends; general economic conditions, including changes in customer growth patterns and our ability to collect billed revenue from customers; changes in customer water use patterns and the effects of conservation; the impact of weather and climate on water availability, water sales and operating results; the ability to satisfy requirements related to the Sarbanes-Oxley and Dodd-Frank Acts and other regulations on internal controls; and, other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph, as well as the annual 10-K, Quarterly 10-Q, and other reports filed from time-to-time with the Securities and Exchange Commission (SEC). The Company assumes no obligation to provide public updates of forward-looking statements.


CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited

(In thousands, except per share data)              June 30,    December 31,
                                                     2014          2013
                                                 ------------  ------------
ASSETS
Utility plant:
  Utility plant                                  $  2,269,779  $  2,213,328
  Less accumulated depreciation and amortization     (730,266)     (697,497)
                                                 ------------  ------------
    Net utility plant                               1,539,513     1,515,831
                                                 ------------  ------------

Current assets:
  Cash and cash equivalents                            29,706        27,506
  Receivables:
    Customers                                          34,278        31,468
    Regulatory balancing accounts                      26,978        30,887
    Other                                              13,825        18,700
  Unbilled revenue                                     28,055        17,034
  Materials and supplies at weighted average
   cost                                                 5,952         5,571
  Taxes, prepaid expenses and other assets             12,014         8,324
                                                 ------------  ------------
    Total current assets                              150,808       139,490
                                                 ------------  ------------

Other assets:
  Regulatory assets                                   264,245       251,681
  Goodwill                                              2,615         2,615
  Other assets                                         53,003        50,238
                                                 ------------  ------------
    Total other assets                                319,863       304,534
                                                 ------------  ------------
                                                 $  2,010,184  $  1,959,855
                                                 ============  ============

CAPITALIZATION AND LIABILITIES
Capitalization:
  Common stock, $.01 par value                   $        478  $        477
  Additional paid-in capital                          329,332       328,364
  Retained earnings                                   266,082       269,915
                                                 ------------  ------------
    Total common stockholders' equity                 595,892       598,756
  Long-term debt, less current maturities             423,334       426,142
                                                 ------------  ------------
    Total capitalization                            1,019,226     1,024,898
                                                 ------------  ------------

Current liabilities:
  Current maturities of long-term debt                  6,550         7,908
  Short-term borrowings                                81,215        46,815
  Accounts payable                                     70,906        55,087
  Regulatory balancing accounts                         6,603         1,827
  Accrued interest                                      4,240         4,245
  Accrued expenses and other liabilities               52,560        50,702
                                                 ------------  ------------
    Total current liabilities                         222,074       166,584

Unamortized investment tax credits                      2,106         2,106
Deferred income taxes, net                            180,956       183,245
Pension and postretirement benefits other than
 pensions                                             145,426       145,451
Regulatory and other liabilities                       90,134        86,455
Advances for construction                             181,443       183,393
Contributions in aid of construction                  168,819       167,723
                                                 ------------  ------------
                                                 $  2,010,184  $  1,959,855
                                                 ------------  ------------



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)

For the Three-Months ended:
                                                   June 30,      June 30,
                                                     2014          2013
                                                 ------------  ------------

Operating revenue                                $    158,416  $    154,555
                                                 ------------  ------------
Operating expenses:
  Operations:
    Water production costs                             61,915        59,645
    Administrative and general                         23,796        23,155
    Other operations                                   16,004        17,030
  Maintenance                                           4,988         4,188
  Depreciation and amortization                        16,087        14,491
  Income taxes                                          7,190         9,548
  Property and other taxes                              5,144         5,715
                                                 ------------  ------------
    Total operating expenses                          135,124       133,772
                                                 ------------  ------------

    Net operating income                               23,292        20,783
                                                 ------------  ------------

Other income and expenses:
  Non-regulated revenue                                 3,474         3,215
  Non-regulated expenses, net                          (2,253)       (3,240)
  Income tax (expense) benefit on other income
   and expense                                           (481)           16
                                                 ------------  ------------
    Net other income (loss)                               740            (9)
                                                 ------------  ------------

Interest expense:
  Interest expense                                      7,077         7,803
  Less: capitalized interest                             (215)         (539)
                                                 ------------  ------------
    Net interest expense                                6,862         7,264
                                                 ------------  ------------

Net income                                       $     17,170  $     13,510
                                                 ============  ============

Earnings per share
  Basic                                          $       0.36  $       0.28
                                                 ============  ============
  Diluted                                        $       0.36  $       0.28
                                                 ============  ============
Weighted average shares outstanding
  Basic                                                47,804        47,729
                                                 ============  ============
  Diluted                                              47,837        47,760
                                                 ============  ============
Dividends declared per share of common stock     $     0.1625  $     0.1600
                                                 ------------  ------------



CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except per share data)

For the Six-Months ended:
                                                   June 30,      June 30,
                                                     2014          2013
                                                 ------------  ------------

Operating revenue                                $    268,931  $    265,999
                                                 ------------  ------------
Operating expenses:
  Operations:
    Water production costs                            107,317       101,342
    Administrative and general                         48,937        48,436
    Other operations                                   32,380        32,675
  Maintenance                                           9,993         8,321
  Depreciation and amortization                        32,140        29,120
  Income taxes                                          3,351         8,402
  Property and other taxes                             10,369        11,150
                                                 ------------  ------------
    Total operating expenses                          244,487       239,446
                                                 ------------  ------------

    Net operating income                               24,444        26,553
                                                 ------------  ------------

Other income and expenses:
  Non-regulated revenue                                 7,754         6,737
  Non-regulated expenses, net                          (6,372)       (5,657)
  Income tax (expense) on other income and
   expense                                               (560)         (435)
                                                 ------------  ------------
    Net other income                                      822           645
                                                 ------------  ------------

Interest expense:
  Interest expense                                     14,152        15,840
  Less: capitalized interest                             (580)       (1,079)
                                                 ------------  ------------
    Net interest expense                               13,572        14,761
                                                 ------------  ------------

Net income                                       $     11,694  $     12,437
                                                 ============  ============

Earnings per share
  Basic                                          $       0.24  $       0.28
                                                 ============  ============
  Diluted                                        $       0.24  $       0.28
                                                 ============  ============
Weighted average shares outstanding
  Basic                                                47,780        45,004
                                                 ============  ============
  Diluted                                              47,818        45,034
                                                 ============  ============
Dividends declared per share of common stock     $     0.3250  $     0.3200
                                                 ------------  ------------

1720 North First Street
San Jose, CA 95112-4598

Contact:
Tom Smegal
(408) 367-8200 (analysts)

Shannon Dean
(310) 257-1435 (media)

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