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California Water Service Group (CWT) SEC Filing 8-K Material Event for the period ending Thursday, February 24, 2022

California Water Service Group

CIK: 1035201 Ticker: CWT

 

Exhibit 99.1

 

 

 

February 24, 2022 

For immediate release

 

 

CALIFORNIA WATER SERVICE GROUP ANNOUNCES

 

2021 EARNINGS FOR YEAR AND FOURTH QUARTER

 

 

SAN JOSE, CA – California Water Service Group (NYSE: CWT) ( “Company”) today announced net income attributable to CWT of $101.1 million and diluted earnings per share of $1.96 for 2021, compared to net income attributable to CWT of $96.8 million and diluted earnings per share of $1.97 in 2020.

 

The $4.3 million increase in net income attributable to CWT was driven primarily by general rate increases of $14.0 million, non-regulated revenue of $5.8 million, reduction in operating income tax expense of $8.6 million, and decrease in bad debt expense of $4.6 million. These positive factors were partially offset by increases in depreciation and amortization expenses of $10.2 million, employee wages of $3.2 million, uninsured loss expense of $1.9 million, property and other taxes of $2.4 million, and financing costs of $1.4 million.

 

Additionally, certain factors outside the Company's immediate control decreased net income attributable to CWT, including a $0.5 million reduction in accrued unbilled revenue and $0.5 million decrease in unrealized gain on certain benefit plan investments as compared to the prior year. Seasonal weather patterns and the number of unbilled days are the primary influences of accrued unbilled revenue.

 

President & Chief Executive Officer Martin A. Kropelnicki said he was pleased with the 2021 financial performance, which allowed the Company to increase the dividend by 8.7%. He made the following comments on the Company’s 2021 results:

 

 

 

 

“I’m really proud of our people, who continued to provide safe, reliable water and wastewater services in the face of worsening drought conditions, continuing pandemic concerns, and challenging supply chain disruptions.

 

We also made impressive progress on our Environmental, Social, and Governance (ESG) efforts, and were pleased to be named one of ‘America’s Most Responsible Companies’ by Newsweek magazine. The company ranked first among water utilities and 180th overall among companies nationwide. We will continue to focus ESG efforts on programs most relevant to our business and later this spring will issue our 2021 ESG report.

 

Success in managing the rate-setting process is key to our ability to meet customers’ needs today and achieve the ESG progress that will position us well to meet future needs. Currently, we are working diligently on rebuttal testimony for both our California GRC and the California Cost of Capital cases. A major focus for our team will be resolving these proceedings constructively in 2022.”

 

Additional Financial Results for 2021

 

Operating revenue in 2021 was $790.9 million and $794.3 million in 2020, a decrease of $3.4 million in 2021. The decrease in operating revenues was due to an increase in deferred revenue of $11.7 million and decrease in accrued unbilled revenue of $0.5 million partially offset by a net increase in general rates and regulatory cost mechanisms of $8.3 million, $6.1 million of which was related to increased water costs.

 

Total operating expenses increased $6.5 million, or 1.0%, to $664.1 million in 2021 compared to the prior year.

 

Water production expenses increased $0.7 million to $277.5 million in 2021, primarily due to increases in well water production costs. As designed, the California revenue decoupling mechanisms recorded an increase to revenue equal to the increase in California water production costs.

 

 

 

 

Administrative and general expense increased $9.6 million, or 8.2%, in 2021 as compared to 2020. The increase was mainly due to increases in employee wages of $6.2 million, uninsured loss costs of $1.9 million, outside consulting service costs of $1.2 million, and employee healthcare costs of $1.2 million. These cost increases were partially offset by a $1.5 million decrease in employee pension and retiree healthcare benefit costs. Changes in employee pension benefits and employee and retiree medical costs for regulated California operations generally do not affect net income attributable to California Water Service Group, as the Company has been allowed by the California Public Utilities Commission (“CPUC”) to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

 

Other operations expense decreased $9.5 million, or 9.9%, in 2021 as compared to 2020. The decrease was primarily due to reductions of $9.5 million in expenses associated with the deferral of operating revenue, $4.6 million in bad debt expense, and $2.1 million in employee wages, which was partially offset by increases in wastewater treatment expenses of $1.9 million from recently acquired subsidiaries, customer account expenses of $1.1 million, chemical and carbon filter costs of $0.9 million, and conservation program costs of $0.8 million. Changes in conservation program costs for regulated California operations generally do not affect net income attributable to California Water Service Group, as the CPUC has allowed the Company to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

 

Maintenance expenses increased $1.6 million, or 5.7%, to $29.6 million in 2021, due to repairs of transmission and distribution mains, reservoirs, tanks, and amortization of reservoir coating projects in accordance with CPUC orders.

 

Depreciation and amortization increased $10.2 million, or 10.4%, in 2021 primarily due to utility plant placed in service in 2020.

 

 

 

 

Income taxes decreased $8.6 million, or 75.5%, to $2.8 million in 2021, mostly due to a $9.9 million increase in customer refunds of excess deferred federal income taxes in 2021 as compared to 2020 which was partially offset by a reduction in the tax benefit from the flow-through method of accounting for “repairs” deductions on state corporate income tax filings.

 

Property and other taxes increased $2.4 million, or 8.0%, to $32.5 million, due mostly to an increase in our assessed property values for utility plant placed in service during the year.

 

In 2021, net other income and expenses increased $15.4 million from $2.0 million in 2020. The increase was due primarily to a $5.8 million increase in non-regulated revenue and $14.9 million decrease in other components of net periodic benefit costs. These were partially offset by a $2.4 million increase in non-regulated expenses, $1.8 million decrease in allowance for equity funds used during construction, and $0.5 million decrease in unrealized gain from certain benefit plan investments due to market conditions. Changes in other components of net periodic benefit costs for regulated California operations generally do not affect net income, as the CPUC has allowed the Company to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

 

In 2021 net interest expense increased $1.4 million as compared to 2020. The increase was due primarily to an increase in long-term financing to support utility plant infrastructure investments.

 

Fourth Quarter 2021 Results

 

For the fourth quarter of 2021, net income attributable to CWT was $3.5 million and diluted earnings per share was $0.07, compared to net income attributable to CWT of $15.5 million and diluted earnings per share of $0.31 in the fourth quarter of 2020. The $12.0 million decrease in net income attributable to CWT resulted primarily from a $9.2 million decrease in unbilled revenue, $2.4 million increase in depreciation expense, and $1.4 million increase in maintenance expense.

 

 

 

 

Operating revenue for the fourth quarter decreased $15.8 million, or 8.4%, to $173.3 million, mostly due to a decrease in regulatory cost mechanisms of $9.6 million, decrease in unbilled revenue of $9.2 million, and increase in deferred revenue of $3.4 million. These decreases were partially offset by rate increases of $4.0 million, of which $1.9 million was related to increases in water production costs.

 

Total operating expenses for the quarter decreased $1.2 million to $162.9 million. The decrease was mostly due to decreases in water production costs of $3.5 million, other operations expenses of $3.2 million, and income tax expense of $1.7 million which was partially offset by increases in administrative and general expenses of $2.6 million, depreciation and amortization of $2.4 million, and maintenance expense increased $1.4 million.

 

Other income and expenses, net of income taxes, increased $2.8 million. The increase was due primarily to an increase in non-regulated revenue and decrease in other components of net periodic benefit costs which was partially offset by an increase in non-regulated expenses.

 

Net interest expense increased $0.3 million to $11.3 million. The increase was due primarily to an increase in long-term financing to support utility plant infrastructure investments.

 

Liquidity and Financing

 

Our liquidity remains strong. We maintained $78.4 million of cash as of December 31, 2021 and have additional short-term borrowing capacity of more than $515 million, subject to meeting the borrowing conditions on the Company’s lines of credit facilities. Aged accounts receivable past due more than 60 days increased to $26.2 million as of December 31, 2021 due to suspension of shutoff procedures. On January 25, 2022, Cal Water received $20.8 million from the California Water and Wastewater Arrearages Payment Program to help customers unable to pay their water bills from March 4, 2020 to June 15, 2021. Additionally, Cal Water has interest and penalty free payment plans or extensions, subject to certain terms and conditions, to help customers pay water bills after June 15, 2021.

 

 

 

 

We invested $293.2 million in infrastructure in 2021 as compared to $298.7 million in 2020, which is in line with our estimated range of between $270.0 and $300.0 million. At our Board of Directors meeting on January 26, 2022, the Board increased the quarterly cash dividend by 8.7%, representing an indicated annual dividend of $1.00 per share of common stock.

 

WRAM Receivable

 

The under-collected net receivable balance in the WRAM and modified cost balancing account (MCBA) was $72.8 million as of December 31, 2021, an increase of 7.4%, or $5.0 million, from the balance of $67.8 million as of December 31, 2020.

 

Other Information

 

All stockholders and interested investors are invited to listen to the 2021 year-end and fourth quarter conference call on February 24, 2022 at 8:00 a.m. PT (11:00 a.m. ET) by dialing 1-833-832-5130 or 1-509-844-0151 and keying in ID #5577942, or you may access the live audio webcast at https//ir.calwatergroup.com/calendar/upcoming-events. Please join at least 15 minutes in advance of the call to ensure a timely connection. A replay of the call will be available from 11:00 a.m. PT (2:00 p.m. ET) on February 24, 2022 through April 27, 2022, at 1-855-859-2056 or 1-404-537-3406, ID #5577942. The replay will also be available under the investor relations tab at www.calwatergroup.com. Prior to the call, Cal Water will post a slide presentation on its website. The presentation can be found at www.calwatergroup.com/docs/q42021slides.pdf after 6:00 a.m. PT. The call will be hosted by President and Chief Executive Officer Martin A. Kropelnicki, Vice President and Chief Financial Officer Thomas F. Smegal, Vice President of Corporate Development Paul G. Townsley, and Vice President and Corporate Controller David B. Healey.

 

 

 

 

California Water Service Group is the parent company of California Water Service, Washington Water Service, New Mexico Water Service, Hawaii Water Service, Inc., Texas Water Service, CWS Utility Services, and HWS Utility Services LLC. Together, these companies provide regulated and non-regulated water service to more than 2.1 million people in California, Washington, New Mexico, Hawaii and Texas. California Water Service Group’s common stock trades on the New York Stock Exchange under the symbol “CWT.” Additional information is available online 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, may, estimates, assumes, anticipates, projects, progress, predicts, hopes, targets, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. 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: the impact of the ongoing COVID-19 pandemic and related public health measures; our ability to invest or apply the proceeds from the issuance of common stock in an accretive manner; governmental and regulatory commissions' decisions, including decisions on proper disposition of property; consequences of eminent domain actions relating to our water systems; changes in regulatory commissions' policies and procedures; the outcome and timeliness of regulatory commissions' actions concerning rate relief and other matters; increased risk of inverse condemnation losses as a result of climate conditions; inability to renew leases to operate water systems owned by others on beneficial terms; changes in California State Water Resources Control Board water quality standards; changes in environmental compliance and water quality requirements; electric power interruptions; housing and customer growth; the impact of opposition to rate increases; our ability to recover costs; availability of water supplies; issues with the implementation, maintenance or security of our information technology systems; civil disturbances or terrorist threats or acts; the adequacy of our efforts to mitigate physical and cyber security risks and threats; the ability of our enterprise risk management processes to identify or address risks adequately; labor relations matters as we negotiate with the unions; changes in customer water use patterns and the effects of conservation, including as a result of drought conditions; our ability to complete, in a timely manner or at all, successfully integrate and achieve anticipated benefits from announced acquisitions; the impact of weather, climate, natural disasters, and actual or threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness; 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, 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.

 

##

 

 

 

 

Contact

 

Tom Smegal 

(408) 367-8200 (analysts)

 

Shannon Dean 

(408) 367-8243 (media)

 

 

 

 

CALIFORNIA WATER SERVICE GROUP        
CONDENSED CONSOLIDATED BALANCE SHEETS        
Unaudited        
         
(In thousands, except per share data)  December 31   December 31 
   2021   2020 
ASSETS          
Utility plant:          
Utility plant  $4,197,344   $3,890,423 
Less accumulated depreciation and amortization   (1,350,482)   (1,239,865)
Net utility plant   2,846,862    2,650,558 
Current assets:          
Cash and cash equivalents   78,380    44,555 
Receivables:          
Customers, net   60,785    44,025 
Regulatory balancing accounts   78,597    96,241 
Other, net   18,452    20,331 
Unbilled revenue, net   32,760    34,069 
Materials and supplies at weighted average cost   9,511    8,831 
Taxes, prepaid expenses, and other assets   21,973    17,964 
Total current assets   300,458    266,016 
Other assets:          
Regulatory assets   285,692    325,376 
Goodwill   36,814    31,842 
Other assets   153,445    120,456 
Total other assets   475,951    477,674 
TOTAL ASSETS  $3,623,271   $3,394,248 
           
CAPITALIZATION AND LIABILITIES          
Capitalization:          
Common stock, $.01 par value; 68,000 shares authorized, 53,716 and 50,334 outstanding in 2021 and 2020, respectively  $537   $503 
Additional paid-in capital   651,121    448,632 
Retained earnings   525,936    472,209 
Noncontrolling interests   5,386    - 
Total equity   1,182,980    921,344 
Long-term debt, net   1,055,794    781,100 
Total capitalization   2,238,774    1,702,444 
Current liabilities:          
Current maturities of long-term debt, net   5,192    5,127 
Short-term borrowings   35,000    370,000 
Accounts payable   144,369    131,725 
Regulatory balancing accounts   17,547    34,636 
Accrued interest   6,542    6,178 
Accrued other liabilities   47,926    41,040 
Total current liabilities   256,576    588,706 
Deferred income taxes   298,945    276,032 
Pension   92,287    115,581 
Regulatory liabilities and other   252,938    247,810 
Advances for construction   198,086    195,625 
Contributions in aid of construction   285,665    268,050 
Commitments and contingencies          
TOTAL CAPITALIZATION AND LIABILITIES  $3,623,271   $3,394,248 

 

 

 

 

 

 

CALIFORNIA WATER SERVICE GROUP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In thousands, except per share data)

 

For the Three Months ended:

   December 31,   December 31, 
   2021   2020 
Operating revenue  $173,326   $189,152 
Operating expenses:          
Operations:          
Water production costs   62,786    66,267 
Administrative and general   33,849    31,231 
Other operations   23,074    26,241 
Maintenance   8,474    7,102 
Depreciation and amortization   27,199    24,772 
Income tax (benefit) expense   (771)   946 
Property and other taxes   8,262    7,559 
Total operating expenses   162,873    164,118 
Net operating income   10,453    25,034 
Other income and expenses:          
Non-regulated revenue   6,002    4,953 
Non-regulated expenses   (4,786)   (2,489)
Other components of net periodic benefit credit (cost)   2,383    (1,218)
Allowance for equity funds used during construction   896    684 
Income tax expense on other income and expenses   (210)   (431)
Net other income   4,285    1,499 
Interest expense:          
Interest expense   11,815    11,474 
Allowance for borrowed funds used during construction   (513)   (438)
Net interest expense   11,302    11,036 
Net income   3,436    15,497 
Loss attributable to noncontrolling interests   (67)   - 
Net income attributable to California Water Service Group  $3,503   $15,497 
Earnings per share:          
Basic  $0.07   $0.31 
Diluted  $0.07   $0.31 
Weighted average number of common shares outstanding:          
Basic   53,157    49,990 
Diluted   53,157    49,990 
Dividends per share of common stock  $0.2300   $0.2125 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In thousands, except per share data)

 

For the Twelve Months ended:  

   December 31,   December 31, 
   2021   2020 
Operating revenue  $790,909   $794,307 
Operating expenses:          
Operations:          
Water production costs   277,474    276,729 
Administrative and general   126,686    117,058 
Other operations   86,392    95,859 
Maintenance   29,592    28,026 
Depreciation and amortization   108,715    98,505 
Income taxes   2,805    11,435 
Property and other taxes   32,475    30,029 
Total operating expenses   664,139    657,641 
Net operating income   126,770    136,666 
Other income and expenses:          
Non-regulated revenue   22,761    16,922 
Non-regulated expenses   (17,140)   (14,300)
Other components of net periodic benefit credit (cost)   9,903    (4,988)
Allowance for equity funds used during construction   3,186    4,976 
Income tax expense on other income and expenses   (1,287)   (583)
Net other income   17,423    2,027 
Interest expense:          
Interest Expense   44,980    45,047 
Allowance for borrowed funds used during construction   (1,766)   (3,185)
Net interest expense   43,214    41,862 
Net income   100,979    96,831 
Net loss attributable to noncontrolling interests   (146)   - 
Net income attributable to California Water Service Group  $101,125   $96,831 
Earnings per share:          
Basic  $1.96   $1.97 
Diluted  $1.96   $1.97 
Weighted average number of common shares outstanding:          
Basic   51,633    49,274 
Diluted   51,633    49,274 
Dividends per share of common stock  $0.9200   $0.8500 

 

 

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

Current Report Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

 

Date of Report (date of earliest event reported): February 24, 2022

 

CALIFORNIA WATER SERVICE GROUP

(Exact name of Registrant as Specified in its Charter) 

 

Delaware
(State or other jurisdiction
of incorporation)
  1-13883
(Commission file number)
  77-0448994
(I.R.S. Employer
Identification Number)

 

1720 North First Street
San Jose, California
(Address of principal executive offices)
  95112
(Zip Code)

 

(408) 367-8200

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Shares, par value $0.01   CWT   New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined by Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

Item 2.02. Results of Operations and Financial Condition

 

 On February 24, 2022, California Water Service Group (the “Company”) issued a press release (a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference) announcing its financial results for the fourth quarter and year-end of 2021, ended December 31, 2021. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

 

As announced, the Company will host a conference call and webcast on Thursday, February 24, 2022 at 11:00 am ET to discuss financial results and management’s business outlook. The financial results announcement contains information about how to access the conference call. A slide presentation, which includes supplemental information relating to the Company, will be used by management during the conference call. A copy of the slide presentation is attached hereto as Exhibit 99.2 and is incorporated by reference herein. The Exhibits will be posted on the Company’s website at www.calwatergroup.com under the “Investor Relations” tab.

 

The information furnished pursuant to Item 2.02 of this Current Report shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 7.01. Regulation FD Disclosure.

 

The information included in the Exhibits to this report is incorporated by reference in response to this Item 7.01.

 

The information furnished pursuant to Item 7.01 of this Current Report shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits.

 

We hereby furnish the following exhibits, which shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, with this report:

 

Exhibit No.   Description
99.1   Press Release issued February 24, 2022
99.2   Slide presentation relating to conference call
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CALIFORNIA WATER SERVICE GROUP
     
Date: February 24, 2022 By: /s/ Thomas F. Smegal
  Name: Thomas F. Smegal
  Title: Vice President, Chief Financial Officer & Treasurer

 

 

 

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California Water Service Group provided additional information to their SEC Filing as exhibits

Ticker: CWT
CIK: 1035201
Form Type: 8-K Corporate News
Accession Number: 0001104659-22-026382
Submitted to the SEC: Thu Feb 24 2022 9:15:32 AM EST
Accepted by the SEC: Thu Feb 24 2022
Period: Thursday, February 24, 2022
Industry: Water Supply
Events:
  1. Earnings Release
  2. Financial Exhibit
  3. Regulated Disclosure

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