10-Q
Table of Contents

 
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 September 30, 2015
or
o
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)
Delaware
 
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)
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 ý  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated Filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act)  Yes o  No ý
 
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 October 27, 2015 — 47,876,087
 


Table of Contents

TABLE OF CONTENTS
 
 
Page


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Table of Contents

PART I FINANCIAL INFORMATION
 
Item 1.
 
FINANCIAL STATEMENTS
 
The condensed consolidated financial statements presented in this filing on Form 10-Q have been prepared by management and are unaudited.

CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except per share data)
 
September 30, 2015
 
December 31,
2014
ASSETS
 

 
 

Utility plant:
 

 
 

Utility plant
$
2,460,829

 
$
2,342,471

Less accumulated depreciation and amortization
(797,264
)
 
(752,040
)
Net utility plant
1,663,565

 
1,590,431

Current assets:
 

 
 

Cash and cash equivalents
50,825

 
19,587

Receivables:
 

 
 

Customers
41,574

 
25,803

Regulatory balancing accounts
38,112

 
53,199

Other
14,369

 
14,136

Unbilled revenue
31,276

 
23,740

Materials and supplies at average cost
6,087

 
6,041

Taxes, prepaid expense, and other assets
8,823

 
11,618

Total current assets
191,066

 
154,124

Other assets:
 

 
 

Regulatory assets
398,535

 
390,331

Goodwill
2,615

 
2,615

Other assets
50,739

 
49,850

Total other assets
451,889

 
442,796

 
$
2,306,520

 
$
2,187,351

CAPITALIZATION AND LIABILITIES
 

 
 

Capitalization:
 

 
 

Common stock, $.01 par value; 68,000 shares authorized, 47,877 and 47,806 outstanding in 2015 and 2014, respectively
$
479

 
$
478

Additional paid-in capital
332,290

 
330,558

Retained earnings
308,083

 
295,590

Total common stockholders’ equity
640,852

 
626,626

Long-term debt, less current maturities
416,447

 
419,233

Total capitalization
1,057,299

 
1,045,859

Current liabilities:
 

 
 

Current maturities of long-term debt
6,565

 
6,607

Short-term borrowings
136,615

 
79,115

Accounts payable
77,261

 
59,395

Regulatory balancing accounts
1,870

 
6,126

Accrued interest
9,678

 
4,194

Accrued expenses and other liabilities
68,781

 
62,269

Total current liabilities
300,770

 
217,706

Unamortized investment tax credits
1,947

 
2,032

Deferred income taxes, net
236,443

 
214,842

Pension and postretirement benefits other than pensions
276,525

 
270,865

Regulatory liabilities and other
76,799

 
83,279

Advances for construction
180,805

 
182,284

Contributions in aid of construction
175,932

 
170,484

Commitments and contingencies (Note 10)

 

 
$
2,306,520

 
$
2,187,351

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Unaudited
(In thousands, except per share data)
For the three months ended
 
September 30,
2015
 
September 30,
2014
Operating revenue
 
$
183,543

 
$
191,184

Operating expenses:
 
 

 
 

Operations:
 
 

 
 

Water production costs
 
60,437

 
66,980

Administrative and general
 
30,737

 
23,765

Other operations
 
17,872

 
15,692

Maintenance
 
5,952

 
4,800

Depreciation and amortization
 
15,342

 
14,648

Income taxes
 
15,293

 
19,233

Property and other taxes
 
5,709

 
5,232

Total operating expenses
 
151,342

 
150,350

Net operating income
 
32,201

 
40,834

Other income and expenses:
 
 

 
 

Non-regulated revenue
 
3,814

 
4,409

Non-regulated expenses, net
 
(4,454
)
 
(4,812
)
Income tax benefit on other income and expenses
 
262

 
169

Net other loss
 
(378
)
 
(234
)
Interest expense:
 
 

 
 

Interest expense
 
7,201

 
7,221

Less: capitalized interest
 
(498
)
 
(271
)
Net interest expense
 
6,703

 
6,950

Net Income
 
$
25,120

 
$
33,650

Earnings per share:
 
 

 
 

Basic
 
$
0.52

 
$
0.70

Diluted
 
0.52

 
0.70

Weighted average shares outstanding:
 
 

 
 

Basic
 
47,878

 
47,803

Diluted
 
47,887

 
47,840

Dividends declared per share of common stock
 
$
0.1675

 
$
0.1625

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Unaudited
(In thousands, except per share data)
For the nine months ended
 
September 30,
2015
 
September 30,
2014
Operating revenue
 
$
449,942

 
$
460,115

Operating expenses:
 
 

 
 

Operations:
 
 

 
 

Water production costs
 
158,661

 
174,297

Administrative and general
 
85,069

 
72,702

Other operations
 
51,227

 
48,072

Maintenance
 
15,735

 
14,793

Depreciation and amortization
 
46,015

 
46,788

Income taxes
 
21,008

 
22,584

Property and other taxes
 
16,036

 
15,601

Total operating expenses
 
393,751

 
394,837

Net operating income
 
56,191

 
65,278

Other income and expenses:
 
 

 
 

Non-regulated revenue
 
10,540

 
12,163

Non-regulated expenses, net
 
(10,201
)
 
(11,184
)
Income tax expense on other income and expenses
 
(131
)
 
(391
)
Net other income
 
208

 
588

Interest expense:
 
 

 
 

Interest expense
 
21,331

 
21,373

Less: capitalized interest
 
(1,472
)
 
(851
)
Net interest expense
 
19,859

 
20,522

Net Income
 
$
36,540

 
$
45,344

Earnings per share:
 
 

 
 

Basic
 
$
0.76

 
$
0.95

Diluted
 
0.76

 
0.95

Weighted average shares outstanding:
 
 

 
 

Basic
 
47,861

 
47,787

Diluted
 
47,877

 
47,825

Dividends declared per share of common stock
 
$
0.5025

 
$
0.4875

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Unaudited
(In thousands)
For the nine months ended:
 
September 30,
2015
 
September 30,
2014
Operating activities:
 
 

 
 

Net income
 
$
36,540

 
$
45,344

Adjustments to reconcile net income to net cash:
 
 

 
 

Depreciation and amortization
 
47,406

 
48,481

Change in value of life insurance contracts
 
758

 
(501
)
Changes in operating assets and liabilities:
 
 

 
 

Receivables
 
(18,412
)
 
(13,781
)
Accounts payable
 
7,245

 
7,239

Other current assets
 
(2,428
)
 
(6,859
)
Other current liabilities
 
11,939

 
6,904

Other changes in noncurrent assets and liabilities
 
33,476

 
13,340

Net cash provided by operating activities
 
116,524

 
100,167

Investing activities:
 
 

 
 

Utility plant expenditures
 
(118,309
)
 
(86,258
)
Purchase of life insurance contracts
 
(1,855
)
 
(3,207
)
Change in restricted cash
 
(241
)
 
354

Net cash used in investing activities
 
(120,405
)
 
(89,111
)
Financing activities:
 
 

 
 

Short-term borrowings
 
82,500

 
99,900

Repayment of short-term borrowings
 
(25,000
)
 
(85,000
)
Debt issuance costs
 
(1,197
)
 

Proceeds from long-term debt
 
50

 

Repayment of long-term debt
 
(2,878
)
 
(4,604
)
Advances and contributions in aid of construction
 
10,741

 
8,780

Refunds of advances for construction
 
(5,050
)
 
(4,858
)
Dividends paid
 
(24,047
)
 
(23,295
)
Net cash provided by (used in) financing activities
 
35,119

 
(9,077
)
Change in cash and cash equivalents
 
31,238

 
1,979

Cash and cash equivalents at beginning of period
 
19,587

 
27,506

Cash and cash equivalents at end of period
 
$
50,825

 
$
29,485

Supplemental information:
 
 

 
 

Cash paid for interest (net of amounts capitalized)
 
$
13,618

 
$
14,102

Income tax refunds
 

 
(6,000
)
Supplemental disclosure of non-cash activities:
 
 

 
 

Accrued payables for investments in utility plant
 
$
24,856

 
$
16,308

Utility plant contribution by developers
 
5,573

 
8,148

 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements


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CALIFORNIA WATER SERVICE GROUP
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2015
(Amounts in thousands, except per share amounts)
 
Note 1. Organization and Operations and Basis of Presentation
 
California Water Service Group (the Company) is a holding company that provides water utility and other related services in California, Washington, New Mexico and Hawaii through its wholly-owned subsidiaries. California Water Service Company (Cal Water), Washington Water Service Company (Washington Water), New Mexico Water Service Company (New Mexico Water), and Hawaii Water Service Company, Inc. (Hawaii Water) provide regulated utility services under the rules and regulations of their respective state’s regulatory commissions (jointly referred to herein as the commissions). CWS Utility Services and HWS Utility Services LLC provide non-regulated water utility and utility-related services.
 
The Company operates in one reportable segment, providing water and related utility services.
 
Basis of Presentation
 
The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC) and therefore do not contain all of the information and footnotes required by GAAP and the SEC for annual financial statements. The condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2014, included in its annual report on Form 10-K as filed with the SEC on February 26, 2015.
 
The preparation of the Company’s condensed consolidated unaudited interim financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses for the periods presented. These include, but are not limited to, estimates and assumptions used in determining the Company’s regulatory asset and liability balances based upon probability assessments of regulatory recovery, revenues earned but not yet billed, asset retirement obligations, allowance for doubtful accounts, pension and other employee benefit plan liabilities, and income tax-related assets and liabilities.  Actual results could differ from these estimates.
 
In the opinion of management, the accompanying condensed consolidated unaudited interim financial statements reflect all adjustments, consisting of normal recurring transactions that are necessary to provide a fair presentation of the results for the periods covered. The results for interim periods are not necessarily indicative of the results for any future period.
 
Due to the seasonal nature of the water business, the results for interim periods are not indicative of the results for a 12-month period. Revenue and income are generally higher in the warm, dry summer months when water usage and sales are greater. Revenue and income are generally lower in the winter months when cooler temperatures and rainfall curtail water usage and sales.
 
Note 2. Summary of Significant Accounting Policies
 
Revenue
 
Revenue generally includes monthly cycle customer billings for regulated water and wastewater services at rates authorized by the commissions plus estimated unbilled revenue for water used between the customer’s last meter reading and the end of the accounting period and billings to certain non-regulated customers at rates authorized by contract with government agencies.
 
The Company’s regulated water and waste water revenue requirements are authorized by the commissions in the states in which they operate. The revenue requirements are intended to provide the Company an opportunity to recover its operating costs and earn a reasonable return on investments.
 
For metered customers, Cal Water recognizes revenue from rates which are designed and authorized by the California Public Utilities Commission (CPUC). Under the Water Revenue Adjustment Mechanism (WRAM), Cal Water records the adopted level of volumetric revenues, which would include recovery of cost of service and a return on investment, as

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established by the CPUC for metered accounts (adopted volumetric revenues). In addition to volumetric-based revenues, the revenue requirements approved by the CPUC include service charges, flat rate charges, and other items not subject to the WRAM. The adopted volumetric revenue considers the seasonality of consumption of water based upon historical averages. The variance between adopted volumetric revenues and actual billed volumetric revenues for metered accounts is recorded as a component of revenue with an offsetting entry to a regulatory asset or liability balancing account (tracked individually for each Cal Water district) subject to certain criteria under the accounting for regulated operations being met. The variance amount may be positive or negative and represents amounts that will be billed or refunded to customers in the future.

Cost-recovery rates are designed to permit full recovery of certain costs. Cost-recovery rates such as the Modified Cost Balancing Account (MCBA) provide for recovery of adopted expense levels for purchased water, purchased power and pump taxes, as established by the CPUC. In addition, cost-recovery rates include recovery of costs related to water conservation programs and certain other operation expenses adopted by the CPUC. There is no markup for return or profit for cost-recovery expenses and such costs are generally recognized when expenses are incurred.  Variances (which include the effects of changes in both rate and volume for the MCBA) between adopted and actual costs are recorded as a component of revenue, as the amount of such variances will be recovered from or refunded to our customers at a later date.  The off-setting entries are recorded to a regulatory asset or liability balancing account (transferred individually for each Cal Water district) subject to certain criteria under the accounting for regulated operations being met.
 
The balances in the WRAM and MCBA asset and liability accounts will fluctuate on a monthly basis depending upon the variance between adopted and actual results. The over- or under-recovery of WRAM is netted against the over- or under-recovery of MCBA in the corresponding district. The district’s net WRAM/MCBA refund or recovery is interest bearing at the current 90 day commercial paper rate. At the end of any calendar year, Cal Water files with the CPUC to refund or collect the balance in the accounts. Most undercollected net WRAM and MCBA receivable balances are collected over 12 or 18 months. Cal Water defers net WRAM and MCBA operating revenues and associated costs whenever the net receivable balances are estimated to be collected more than 24 months after the respective reporting periods in which they were recognized. The deferred net WRAM and MCBA revenues and associated costs were determined using forecasts of rate payer consumption trends in future reporting periods and the timing of when the CPUC will authorize Cal Water’s filings to recover the undercollected balances. Deferred net WRAM and MCBA revenues and associated costs will be recognized as revenues and costs in future periods when collection is within twenty-four months of the respective reporting period.
 
Flat rate customers are billed in advance at the beginning of the service period. The revenue is prorated so that the portion of revenue applicable to the current period is included in that period’s revenue, with the balance recorded as unearned revenue on the balance sheet and recognized as revenue when earned in the subsequent accounting period. The unearned revenue liability was $1.4 million and $1.5 million as of September 30, 2015 and December 31, 2014, respectively. This liability is included in “accrued expenses and other liabilities” on the condensed consolidated balance sheets.
 
Cash and Cash Equivalents
 
Cash equivalents include highly liquid investments with maturities of three months or less.  Cash and cash equivalents was $50.8 million and $19.6 million as of September 30, 2015 and December 31, 2014, respectively.  Restricted cash was presented on the condensed consolidated balance sheet in “taxes, prepaid expenses and other assets” and was $1.0 million and $0.8 million as of September 30, 2015 and December 31, 2014.
 
Adoption of New Accounting Standards
 
In May 2014, the FASB issued an Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. This update creates a single, principles based framework for revenue recognition and is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when goods or services are transferred to customers.  In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, deferring the effective date of this amendment for public companies by one year to January 1, 2018, with early adoption permitted as of the original effective date of January 1, 2017.  The Company is currently evaluating the impact of adopting the new revenue standard on its consolidated financial statements and related disclosures. 






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Note 3. Stock-based Compensation
 
Equity Incentive Plan
 
During the nine months ended September 30, 2015 and 2014, the Company granted annual Restricted Stock Awards (RSAs) of 61 and 60 shares, respectively, of common stock to officers and directors of the Company and 16 and 11 shares of RSAs were canceled during the nine months ended September 30, 2015 and September 30, 2014, respectively. The Company did not grant any shares of RSAs and 3 shares of RSAs were canceled during the three months ended September 30, 2015. The Company granted 2 shares of RSAs and no RSAs were canceled during the three months ended September 30, 2014.  Employee RSAs granted in 2015 and 2014 vest over 36 months.  Director RSAs generally vest at the end of 12 months. During the first nine months of 2015 and 2014, the RSAs granted were valued at $24.29 and $23.61 per share, respectively, based upon the fair market value of the Company’s common stock on the date of grant.

During the nine months ended September 30, 2015 and 2014, the Company granted performance-based Restricted Stock Unit Awards (RSUs) of 39 shares and 37 shares of common stock, respectively, to officers.  The Company did not grant any shares of RSUs during the three months ended September 30, 2015 and during the three months ended September 30, 2014.  Each award reflects a target number of shares that may be issued to the award recipient.  The 2015 and 2014 awards may be earned upon the completion of the three year performance period ending on March 3, 2018 and March 4, 2017, respectively.  Whether RSUs are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the Compensation & Organization Committee of the Board of Directors in connection with the issuance of the RSUs.  The performance objectives are based on the Company’s business plan covering the performance period.  The performance objectives include achieving the budgeted return on equity, budgeted investment in utility plant, customer service standards, water quality standards, and safety standards.  Depending on the results achieved during the three year performance period, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 200% of the target shares granted, provided that the grantee is continuously employed by the Company through the vesting date.  If prior to the vesting date employment is terminated by reason of death, disability, or normal retirement, then a pro rata portion of this award will vest.  RSUs are not included in diluted shares for financial reporting until authorized by the Compensation & Organization Committee of the Board of Directors.  The 2015 and 2014 RSUs are recognized as expense ratably over the three year performance period using a fair market value of $24.28 per share and $23.61 per share, respectively, and an estimate of RSUs earned during the performance period.
 
The Company has recorded compensation costs for the RSAs and RSUs in administrative and general operating expenses in the amount of $2.0 million and $1.5 million for the nine months ended September 30, 2015 and September 30, 2014 respectively.
 
Note 4. Equity
 
The Company’s changes in total common stockholders’ equity for the nine months ended September 30, 2015 were as follows:
 
 
Total Common
Stockholders’ Equity
Balance at December 31, 2014
$
626,626

Common Stock Issued
1

Share-based compensation expense
1,732

Common stock dividends declared
(24,047
)
Net income
36,540

Balance at September 30, 2015
$
640,852

 
Note 5. Net Income Per Share Calculations
 
The computations of basic and diluted net income per weighted average common share are noted below. Basic net income per share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts were exercised or converted into common stock. RSAs are included in the weighted average

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common shares outstanding because the shares have all the same voting and dividend rights as issued and unrestricted common stock.
 
A total of 65 shares and 185 shares of Stock Appreciation Rights (SARs) were vested and outstanding and all were dilutive as of September 30, 2015 and September 30, 2014, respectively, as shown in the table below.
 
 
Three Months Ended September 30
 
2015
 
2014
Net income available to common stockholders
$
25,120


$
33,650

Weighted average common shares outstanding, basic
47,878


47,803

Dilutive SARs (treasury method)
9


37

Weighted average common shares outstanding, dilutive
47,887


47,840

Net income per share - basic
$
0.52


$
0.70

Net income per share - diluted
$
0.52


$
0.70

 
 
Nine Months Ended September 30
 
2015
 
2014
Net income available to common stockholders
$
36,540


$
45,344

Weighted average common shares outstanding, basic
47,861


47,787

Dilutive SARs (treasury method)
16


38

Weighted average common shares outstanding, dilutive
47,877


47,825

Net income per share - basic
$
0.76


$
0.95

Net income per share - diluted
$
0.76


$
0.95


Note 6. Pension Plan and Other Postretirement Benefits
 
The Company provides a qualified, defined-benefit, non-contributory pension plan for substantially all employees. The Company makes annual contributions to fund the amounts accrued for in the qualified pension plan. The Company also maintains an unfunded, non-qualified, supplemental executive retirement plan. The costs of the plans are charged to expense or are capitalized in utility plant as appropriate.
 
The Company offers medical, dental, vision, and life insurance benefits for retirees and their spouses and dependents. Participants are required to pay a premium, which offsets a portion of the cost.
 
Cash contributions by the Company related to pension plans were $22.7 million and $14.0 million for the nine months ended September 30, 2015 and September 30, 2014, respectively. Cash contributions by the Company related to other postretirement benefit plans were $7.5 million and $2.4 million for the nine months ended September 30, 2015 and September 30, 2014, respectively. The 2015 estimated cash contribution to the pension plans is $31.2 million and to the other postretirement benefit plans is $15.0 million.
 
The following table lists components of net periodic benefit costs for the pension plans and other postretirement benefits. The data listed under “pension plan” includes the qualified pension plan and the non-qualified supplemental executive retirement plan. The data listed under “other benefits” is for all other postretirement benefits.
 

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Three Months Ended September 30
 
Pension Plan
 
Other Benefits
 
2015
 
2014
 
2015
 
2014
Service cost
$
4,715

 
$
3,539

 
$
3,043

 
$
1,398

Interest cost
5,072

 
4,737

 
2,101

 
1,321

Expected return on plan assets
(4,770
)
 
(4,091
)
 
(908
)
 
(832
)
Amortization of prior service cost
1,502

 
1,527

 
12

 
11

Recognized net actuarial loss
2,308

 
1,002

 
2,182

 
656

Net periodic benefit cost
$
8,827

 
$
6,714

 
$
6,430

 
$
2,554

 
 
Nine Months Ended September 30
 
Pension Plan
 
Other Benefits
 
2015
 
2014
 
2015
 
2014
Service cost
$
15,980

 
$
11,973

 
$
8,044

 
$
4,637

Interest cost
15,078

 
14,190

 
5,328

 
3,995

Expected return on plan assets
(14,354
)
 
(12,449
)
 
(2,660
)
 
(2,339
)
Amortization of prior service cost
4,506

 
4,547

 
34

 
33

Recognized net actuarial loss
7,108

 
3,008

 
5,099

 
2,206

Net periodic benefit cost
$
28,318

 
$
21,269

 
$
15,845

 
$
8,532

 
Note 7. Short-term and Long-term Borrowings
 
On March 10, 2015, the Company and Cal Water entered into Syndicated Credit Agreements, which provide for unsecured revolving credit facilities of up to an initial aggregate amount of $450 million for a term of five years.  The Syndicated Credit Facilities amend, expand, and replace the Company’s and its subsidiaries’ existing credit facilities originally entered into on June 29, 2011.  The new credit facilities extended the terms until March 10, 2020, and increased the Company’s unsecured revolving line of credit. The Company and subsidiaries that it designates may borrow up to $150 million under the Company’s revolving credit facility. Cal Water may borrow up to $300 million under its revolving credit facility; however, all borrowings need to be repaid within twelve months unless otherwise authorized by the CPUC.  The credit facilities may each be expanded by up to $50 million subject to certain conditions.  The proceeds from the revolving credit facilities may be used for working capital purposes, including the short-term financing of capital projects.  The base loan rate may vary from LIBOR plus 72.5 basis points to LIBOR plus 95 basis points, depending on the Company’s total capitalization ratio.  Likewise, the unused commitment fee may vary from 8 basis points to 12.5 basis points based on the same ratio.
 
Both short-term unsecured credit agreements contain affirmative and negative covenants and events of default customary for credit facilities of this type including, among other things, limitations and prohibitions relating to additional indebtedness, liens, mergers, and asset sales. Also, these unsecured credit agreements contain financial covenants governing the Company and its subsidiaries’ consolidated total capitalization ratio and interest coverage ratio.
 
The outstanding borrowings on the Company lines of credit were $64.2 million and $61.7 million as of September 30, 2015 and December 31, 2014, respectively. The outstanding borrowings on the Cal Water lines of credit were $72.4 million and $17.4 million as of September 30, 2015 and December 31, 2014, respectively.  The average borrowing rate for borrowings on the Company and Cal Water lines of credit during the nine months ended September 30, 2015 was 1.05% compared to 1.16% for the same period last year.
 
Note 8. Income Taxes
 
The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Measurement of the deferred tax assets and liabilities is at enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

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We anticipate that future rate actions by the commissions will reflect revenue requirements for the tax effects of temporary differences recognized, which have previously flowed through to customers. The commissions have granted the Company rate increases to reflect the normalization of the tax benefits of the federal accelerated methods and available Investment Tax Credits (ITCs) for all assets placed in service after 1980. ITCs are deferred and amortized over the lives of the related properties for book purposes.
 
During 2012, the Company filed an application for a change in tax accounting method with the Internal Revenue Service (IRS) regarding the classification of expenditures related to tangible property as deductible repairs and capitalizable improvements deductible over time as tax depreciation.  In September 2013, the U.S. Department of the Treasury (U.S. Treasury) and the IRS issued the final regulations for repairs and maintenance deductions with an effective date of January 1, 2014.  In August 2014, the U.S. Treasury and IRS issued the final regulations regarding dispositions of tangible property with an effective date of January 1, 2014. These tax regulations allow the Company to deduct a significant amount of costs to maintain its depreciable plant that were previously capitalized for tax purposes and continue to be capitalizable for book purposes.  The Company implemented the final regulations on its 2014 tax return.
 
As of September 30, 2015 and December 31, 2014, the Company had unrecognized tax benefits of approximately $8.5 million and $7.9 million, respectively.  Included in the balance of unrecognized tax benefits as of September 30, 2015 and December 31, 2014 is approximately $1.8 million and $1.6 million respectively of tax benefits that, if recognized, would result in an adjustment to the Company’s effective tax rate. The Company does not expect its unrecognized tax benefits to change significantly within the next twelve months.
 
The State of California Franchise Tax Board is presently auditing the Company’s 2008 through 2011 enterprise zone filings.  The State of Hawaii Department of Taxation is presently auditing the Company’s 2013 capital goods excise tax filing.  It is uncertain when the state audits will be completed.  The Company believes that the final resolution of the state audits will not have a material impact on its financial condition or results of operations.
 
Note 9. Regulatory Assets and Liabilities
 
Regulatory assets and liabilities were comprised of the following as of September 30, 2015 and December 31, 2014:
 
 
September 30, 2015
 
December 31, 2014
Regulatory Assets
 

 
 

Pension and retiree group health
$
244,514

 
$
245,008

Property-related temporary differences (tax benefits flowed through to ratepayers)
73,797

 
72,350

Other accrued benefits
29,356

 
32,959

Net WRAM and MCBA long-term accounts receivable
16,972

 
14,449

Asset retirement obligations, net
14,792

 
13,863

Interim rates long-term accounts receivable
5,694

 
10,627

Tank coating
7,264

 

Health care balancing account
4,445

 
1,075

Other regulatory assets
1,701

 

Total Regulatory Assets
$
398,535

 
$
390,331

Regulatory Liabilities
 

 
 

Future tax benefits due ratepayers
$
26,620

 
$
26,114

Conservation program
4,686

 
2,669

Pension balancing account
2,181

 
4,291

Other regulatory liabilities
2,640

 
3,373

Total Regulatory Liabilities
$
36,127

 
$
36,447

 
Short-term regulatory assets and liabilities are excluded from the above table. The short-term regulatory assets were $38.1 million as of September 30, 2015 and $53.2 million as of December 31, 2014. The short-term regulatory assets were primarily interim rate memorandum account receivable and net WRAM and MCBA accounts receivable as of September

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30, 2015 and December 31, 2014. The short-term portions of regulatory liabilities were $1.9 million as of September 30, 2015 and $6.1 million as of December 31, 2014. The short-term regulatory liabilities were primarily short term net WRAM payables as of September 30, 2015 and were primarily short term net WRAM payables and net refund balances to rate payers for the water conservation program from the 2009 General Rate Case (GRC) as of December 31, 2014.

Note 10. Commitment and Contingencies
 
Commitments
 
The Company has significant commitments to lease certain office spaces and water systems and to purchase water from water wholesalers. These commitments are described in Form 10-K for the year ended December 31, 2014.  As of September 30, 2015, there were no significant changes from December 31, 2014.
 
Contingencies
 
Groundwater Contamination
 
The Company has undertaken litigation against third parties to recover past and anticipated costs related to groundwater contamination in our service areas. The cost of litigation is expensed as incurred and any settlement is first offset against such costs. The CPUC’s general policy requires all proceeds from groundwater contamination litigation to be used first to pay transactional expenses, then to make ratepayers whole for water treatment costs to comply with the CPUC’s water quality standards. The CPUC allows for a risk-based consideration of contamination proceeds which exceed the costs of the remediation described above and may result in some sharing of proceeds with the shareholder, determined on a case by case basis. The CPUC has authorized various memorandum accounts that allow the Company to track significant litigation costs to request recovery of these costs in future filings and uses of proceeds to comply with CPUC’s general policy.
 
LEGAL PROCEEDINGS
 
From time to time, the Company has been named as a co-defendant in asbestos-related lawsuits. Several of these cases against the Company have been dismissed without prejudice. In other cases, Company’s contractors and insurance policy carriers have settled the cases with no effect on the Company’s financial statements. As such, the Company does not currently believe there is any potential loss that is probable to occur related to these matters and therefore no accrual has been recorded.
 
Other Legal Matters
 
From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. The status of each significant matter is reviewed and assessed for potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount of the range of loss can be estimated, a liability is accrued for the estimated loss in accordance with the accounting standards for contingencies. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. While the outcome of these disputes and litigation matters cannot be predicted with any certainty, management does not believe when taking into account existing reserves the ultimate resolution of these matters will materially affect the Company’s financial position, results of operations, or cash flows.  The Company recognized a liability of $4.1 million and $3.2 million for known legal matters as of September 30, 2015 and December 31, 2014, respectively. The cost of litigation is expensed as incurred and any settlement is first offset against such costs.  Any settlement in excess of the cost to litigate is accounted for on a case by case basis, dependent on the nature of the settlement.
 
Note 11. Fair Value of Financial Assets and Liabilities
 
The accounting guidance for fair value measurements and disclosures provides a single definition of fair value and requires certain disclosures about assets and liabilities measured at fair value. A hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value is established by this guidance. The three levels in the hierarchy are as follows:
 
Level 1 -  Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices.
 

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Level 2 -  Pricing inputs are other than quoted prices inactive markets, but are either directly or indirectly observable as of the reporting date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, or priced with discounted cash flow or option pricing models using highly observable inputs.

Level 3 -  Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those valued with models requiring significant management judgment or estimation.
 
Specific valuation methods include the following:
 
Cash equivalents, restricted cash, accounts receivable and accounts payable carrying amounts approximated the fair value because of the short-term maturity of the instruments.
 
Long-term debt fair values were estimated using the published quoted market price, if available, or the discounted cash flow analysis, based on the current rates available using a risk-free rate (a U.S. Treasury securities yield curve) plus a risk premium of 1.19%.
 
Advances for construction fair values were estimated using broker quotes from companies that frequently purchase these investments.
 
 
September 30, 2015
 
 
 
Fair Value
 
Cost
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt, including current maturities
$
423,012

 

 
$
518,301

 

 
$
518,301

Advances for construction
180,805

 

 
73,305

 

 
73,305

Total
$
603,817

 
$

 
$
591,606

 
$

 
$
591,606

 
 
December 31, 2014
 
 
 
Fair Value
 
Cost
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt, including current maturities
$
425,840

 
$

 
$
534,068

 
$

 
$
534,068

Advances for construction
182,284

 

 
72,571

 

 
72,571

Total
$
608,124

 

 
$
606,639

 
$

 
$
606,639

 
Note 12. Subsequent Event

On October 13, 2015, Cal Water agreed to sell $150.0 million in aggregate principal amount of first mortgage bonds in a private placement. Pursuant to the agreement, Cal Water sold $100.0 million of the first mortgage bonds on October 13, 2015, consisting of $50.0 million of 3.33% series QQQ maturing October 15, 2025 and $50.0 million of 4.31% series RRR maturing October 16, 2045. Cash proceeds of approximately $99.4 million, net of $0.6 million debt issuance costs, were received. Cal Water used a portion of the net proceeds from the offering to repay outstanding borrowings on the Cal Water line of credit of $72.4 million . The sale of the remaining $50.0 million of the first mortgage bonds, consisting of
$40.0 million of 4.41% series SSS maturing April 15, 2046 and $10.0 million of 4.61% series TTT maturing October 15, 2025, is scheduled to close on March 11, 2016, subject to customary closing conditions.

Note 13. Condensed Consolidating Financial Statements
 
On April 17, 2009, Cal Water issued $100 million aggregate principal amount of 5.875% First Mortgage Bonds due 2019, and on November 17, 2010, Cal Water issued $100 million aggregate principal amount of 5.500% First Mortgage Bonds due 2040, all of which are fully and unconditionally guaranteed by the Company.  As a result of these guarantee arrangements, the Company is required to present the following condensed consolidating financial information.  The investments in affiliates are accounted for and presented using the “equity method” of accounting.
 
The following tables present the condensed consolidating balance sheets as of September 30, 2015 and December 31, 2014, the condensed consolidating statements of income for the three months ended September 30, 2015 and 2014, condensed consolidating statements of income for the nine months ended September 30, 2015 and 2014, and the

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condensed consolidating statements of cash flows for the nine months ended September 30, 2015 and 2014 of (i) California Water Service Group, the guarantor of the first mortgage bonds and the parent company; (ii) California Water Service Company, the issuer of the first mortgage bonds and a 100% owned consolidated subsidiary of California Water Service Group; and (iii) the other 100% owned non-guarantor consolidated subsidiaries of California Water Service Group.

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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2015
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

Utility plant:
 

 
 

 
 

 
 

 
 

Utility plant
$
1,318

 
$
2,268,876

 
$
197,832

 
$
(7,197
)
 
$
2,460,829

Less accumulated depreciation and amortization
(548
)
 
(751,913
)
 
(46,601
)
 
1,798

 
(797,264
)
Net utility plant
770

 
1,516,963

 
151,231

 
(5,399
)
 
1,663,565

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
5,523

 
43,359

 
1,943

 

 
50,825

Receivables and unbilled revenue, net
13

 
120,790

 
4,528

 

 
125,331

Receivables from affiliates
23,161

 
690

 
195

 
(24,046
)
 

Other current assets
182

 
13,517

 
1,211

 

 
14,910

Total current assets
28,879

 
178,356

 
7,877

 
(24,046
)
 
191,066

Other assets:
 

 
 

 
 

 
 

 
 

Regulatory assets

 
395,079

 
3,456

 

 
398,535

Investments in affiliates
651,120

 

 

 
(651,120
)
 

Long-term affiliate notes receivable
24,452

 

 

 
(24,452
)
 

Other assets
806

 
48,803

 
4,628

 
(883
)
 
53,354

Total other assets
676,378

 
443,882

 
8,084

 
(676,455
)
 
451,889

 
$
706,027

 
$
2,139,201

 
$
167,192

 
$
(705,900
)
 
$
2,306,520

CAPITALIZATION AND LIABILITIES
 

 
 

 
 

 
 

 
 

Capitalization:
 

 
 

 
 

 
 

 
 

Common stockholders’ equity
$
640,852

 
$
581,135

 
$
75,367

 
$
(656,502
)
 
$
640,852

Affiliate long-term debt

 

 
24,452

 
(24,452
)
 

Long-term debt, less current maturities

 
415,375

 
1,072

 

 
416,447

Total capitalization
640,852

 
996,510

 
100,891

 
(680,954
)
 
1,057,299

Current liabilities:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt

 
6,201

 
364

 

 
6,565

Short-term borrowings
64,215

 
72,400

 

 

 
136,615

Payables to affiliates

 
3,235

 
20,811

 
(24,046
)
 

Accounts payable

 
74,277

 
2,984

 

 
77,261

Accrued expenses and other liabilities
64

 
75,231

 
5,034

 

 
80,329

Total current liabilities
64,279

 
231,344

 
29,193

 
(24,046
)
 
300,770

Unamortized investment tax credits

 
1,947

 

 

 
1,947

Deferred income taxes, net
896

 
236,447

 

 
(900
)
 
236,443

Pension and postretirement benefits other than pensions

 
276,525

 

 

 
276,525

Regulatory liabilities and other

 
73,911

 
2,888

 

 
76,799

Advances for construction

 
180,297

 
508

 

 
180,805

Contributions in aid of construction

 
142,220

 
33,712

 

 
175,932

 
$
706,027

 
$
2,139,201

 
$
167,192

 
$
(705,900
)
 
$
2,306,520


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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2014
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

Utility plant:
 

 
 

 
 

 
 

 
 

Utility plant
$
1,318

 
$
2,154,146

 
$
194,204

 
$
(7,197
)
 
$
2,342,471

Less accumulated depreciation and amortization
(377
)
 
(710,840
)
 
(42,545
)
 
1,722

 
(752,040
)
Net utility plant
941

 
1,443,306

 
151,659

 
(5,475
)
 
1,590,431

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
4,108

 
13,929

 
1,550

 

 
19,587

Receivables

 
108,815

 
9,114

 
(1,051
)
 
116,878

Receivables from affiliates
20,001

 
3,608

 

 
(23,609
)
 

Other current assets

 
16,443

 
1,216

 

 
17,659

Total current assets
24,109

 
142,795

 
11,880

 
(24,660
)
 
154,124

Other assets:
 

 
 

 
 

 
 

 
 

Regulatory assets

 
387,387

 
2,944

 

 
390,331

Investments in affiliates
637,998

 

 

 
(637,998
)
 

Long-term affiliate notes receivable
25,263

 

 

 
(25,263
)
 

Other assets
891

 
47,617

 
4,278

 
(321
)
 
52,465

Total other assets
664,152

 
435,004

 
7,222

 
(663,582
)
 
442,796

 
$
689,202

 
$
2,021,105

 
$
170,761

 
$
(693,717
)
 
$
2,187,351

CAPITALIZATION AND LIABILITIES
 

 
 

 
 

 
 

 
 

Capitalization:
 

 
 

 
 

 
 

 
 

Common stockholders’ equity
$
626,626

 
$
569,319

 
74,107

 
$
(643,426
)
 
$
626,626

Affiliate long-term debt

 

 
25,263

 
(25,263
)
 

Long-term debt, less current maturities

 
417,884

 
1,349

 

 
419,233

Total capitalization
626,626

 
987,203

 
100,719

 
(668,689
)
 
1,045,859

Current liabilities:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt

 
6,173

 
434

 

 
6,607

Short-term borrowings
61,715

 
17,400

 

 

 
79,115

Payables to affiliates

 
270

 
23,339

 
(23,609
)
 

Accounts payable

 
56,666

 
2,930

 
(201
)
 
59,395

Accrued expenses and other liabilities
861

 
71,203

 
1,281

 
(756
)
 
72,589

Total current liabilities
62,576

 
151,712

 
27,984

 
(24,566
)
 
217,706

Unamortized investment tax credits

 
2,032

 

 

 
2,032

Deferred income taxes, net

 
210,789

 
4,515

 
(462
)
 
214,842

Pension and postretirement benefits other than pensions

 
270,865

 

 

 
270,865

Regulatory and other liabilities

 
74,282

 
8,997

 

 
83,279

Advances for construction

 
181,763

 
521

 

 
182,284

Contributions in aid of construction

 
142,459

 
28,025

 

 
170,484

 
$
689,202

 
$
2,021,105

 
$
170,761

 
$
(693,717
)
 
$
2,187,351



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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2015
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
172,425

 
$
11,118

 
$

 
$
183,543

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
58,173

 
2,264

 

 
60,437

Administrative and general

 
27,620

 
3,117

 

 
30,737

Other operations

 
16,329

 
1,668

 
(125
)
 
17,872

Maintenance

 
5,722

 
230

 

 
5,952

Depreciation and amortization
57

 
14,231

 
1,079

 
(25
)
 
15,342

Income tax (benefit) expense
(107
)
 
14,638

 
508

 
254

 
15,293

Property and other taxes

 
4,910

 
799

 

 
5,709

Total operating (income) expenses
(50
)
 
141,623

 
9,665

 
104

 
151,342

Net operating income
50

 
30,802

 
1,453

 
(104
)
 
32,201

Other Income and Expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
444

 
3,489

 
451

 
(570
)
 
3,814

Non-regulated expenses, net

 
(4,058
)
 
(396
)
 

 
(4,454
)
Income tax (expense) benefit on other income and expense
(181
)
 
232

 
(33
)
 
244

 
262

Total other income (loss)
263

 
(337
)
 
22

 
(326
)
 
(378
)
Interest:
 

 
 

 
 

 
 

 
 

Interest expense
205

 
6,969

 
472

 
(445
)
 
7,201

Less: capitalized interest

 
(488
)
 
(10
)
 

 
(498
)
Net interest expense
205

 
6,481

 
462

 
(445
)
 
6,703

Equity earnings of subsidiaries
25,012

 

 

 
(25,012
)
 

Net income
$
25,120

 
$
23,984

 
$
1,013

 
$
(24,997
)
 
$
25,120


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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the three months ended September 30, 2014
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
180,768

 
$
10,416

 
$

 
$
191,184

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
64,332

 
2,648

 

 
66,980

Administrative and general
34

 
21,282

 
2,449

 

 
23,765

Other

 
14,161

 
1,657

 
(126
)
 
15,692

Maintenance

 
4,620

 
180

 

 
4,800

Depreciation and amortization
57

 
13,692

 
926

 
(27
)
 
14,648

Income tax (benefit) expense
(79
)
 
18,632

 
393

 
287

 
19,233

Taxes other than income taxes

 
4,409

 
823

 

 
5,232

Total operating expenses
12

 
141,128

 
9,076

 
134

 
150,350

Net operating (loss) income
(12
)
 
39,640

 
1,340

 
(134
)
 
40,834

Other Income and Expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
448

 
4,027

 
446

 
(512
)
 
4,409

Non-regulated expenses, net

 
(4,538
)
 
(274
)
 

 
(4,812
)
Income tax (expense) benefit on other income and expense
(182
)
 
207

 
(132
)
 
276

 
169

Net other income (loss)
266

 
(304
)
 
40

 
(236
)
 
(234
)
Interest:
 

 
 

 
 

 
 

 
 

Interest expense
103

 
7,030

 
473

 
(385
)
 
7,221

Less: capitalized interest

 
(252
)
 
(19
)
 

 
(271
)
Net interest expense
103

 
6,778

 
454

 
(385
)
 
6,950

Equity earnings of subsidiaries
33,499

 

 

 
(33,499
)
 

Net income
$
33,650

 
$
32,558

 
$
926

 
$
(33,484
)
 
$
33,650



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CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2015
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
422,372

 
$
27,570

 
$

 
$
449,942

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
152,593

 
6,068

 

 
158,661

Administrative and general

 
76,271

 
8,798

 

 
85,069

Other operations

 
46,632

 
4,973

 
(378
)
 
51,227

Maintenance

 
15,148

 
587

 

 
15,735

Depreciation and amortization
171

 
42,659

 
3,261

 
(76
)
 
46,015

Income tax (benefit) expense
(294
)
 
20,454

 
92

 
756

 
21,008

Property and other taxes

 
13,964

 
2,072

 

 
16,036

Total operating (income) expenses
(123
)
 
367,721

 
25,851

 
302

 
393,751

Net operating income
123

 
54,651

 
1,719

 
(302
)
 
56,191

Other Income and Expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
1,353

 
9,674

 
1,241

 
(1,728
)
 
10,540

Non-regulated expenses, net

 
(9,283
)
 
(918
)
 

 
(10,201
)
Income tax expense on other income and expense
(549
)
 
(159
)
 
(148
)
 
725

 
(131
)
Total other income
804

 
232

 
175

 
(1,003
)
 
208

Interest:
 

 
 

 
 

 
 

 
 

Interest expense
555

 
20,751

 
1,375

 
(1,350
)
 
21,331

Less: capitalized interest

 
(1,438
)
 
(34
)
 

 
(1,472
)
Net interest expense
555

 
19,313

 
1,341

 
(1,350
)
 
19,859

Equity earnings of subsidiaries
36,168

 

 

 
(36,168
)
 

Net income
$
36,540

 
$
35,570

 
$
553

 
$
(36,123
)
 
$
36,540


20

Table of Contents

CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the nine months ended September 30, 2014
(In thousands)
 
 
Parent
Company
 
Cal Water
 
All Other
Subsidiaries
 
Consolidating
Adjustments
 
Consolidated
Operating revenue
$

 
$
434,857

 
$
25,258

 
$

 
$
460,115

Operating expenses:
 

 
 

 
 

 
 

 
 

Operations:
 

 
 

 
 

 
 

 
 

Water production costs

 
167,214

 
7,083

 

 
174,297

Administrative and general
67

 
65,144

 
7,491

 

 
72,702

Other

 
43,186

 
5,264

 
(378
)
 
48,072

Maintenance

 
14,276

 
517

 

 
14,793

Depreciation and amortization
157

 
43,607

 
3,104

 
(80
)
 
46,788

Income tax (benefit) expense
(184
)
 
22,713

 
(686
)
 
741

 
22,584

Taxes other than income taxes

 
13,552

 
2,049

 

 
15,601

Total operating expenses
40

 
369,692

 
24,822

 
283

 
394,837

Net operating (loss) income
(40
)
 
65,165

 
436

 
(283
)
 
65,278

Other Income and Expenses:
 

 
 

 
 

 
 

 
 

Non-regulated revenue
1,365

 
11,264

 
1,193

 
(1,659
)
 
12,163

Non-regulated expenses, net

 
(10,286
)
 
(898
)
 

 
(11,184
)
Income tax (expense) on other income and expense