California Water Service Group
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These activities are
reported below operating net income on the income statement, gross of
income taxes; therefore, the revenue is not included in operating
revenue. Due to the variety of services provided and the fact that the activities are outside of the Company’s core business, the number of customers is not tracked for these non-regulated activities. Non-regulated activities, excluding gain on sale of non-utility property, comprised 6% of the total net income in 2005. Rates and operations for regulated customers are subject to the jurisdiction of the respective state’s regulatory commission. The Commissions require that water and wastewater rates for each regulated district be independently determined. The Commissions are expected to authorize rates sufficient to recover normal operating expenses, and allow the utility the opportunity to earn a fair and reasonable return on invested capital. Rates for the City of Hawthorne and City of Commerce water systems are established in accordance with operating agreements and are subject to ratification by the respective city councils. Fees for other non-regulated activities are based on contracts negotiated between the parties. |
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Earnings and Dividends
Net income in 2005 was $27.2 million compared to $26.0 million in 2004
and $19.4 million in 2003. Diluted earnings per common share were $1.47
in 2005, $1.46 in 2004, and $1.21 in 2003. The weighted average number
of common shares outstanding used in the diluted earnings per share calculation was 18,402,000 in 2005, 17,674,000 in 2004, and 15,893,000 in 2003. As explained below, the increase in 2005 earnings per share resulted from these primary factors: receiving rate relief on GRC filings and balancing accounts; customer growth; and gains on sale of non-utility properties. Partially offsetting these positive factors were: higher maintenance costs; higher depreciation costs; decreased water usage by existing customers due to wetter than normal weather; higher income taxes; and increased common shares outstanding. At the January 2006 meeting, the Board of Directors declared the quarterly dividend, increasing it for the 39th consecutive year. The quarterly dividend was raised from $0.2850 to $0.2875 per common share, an annual rate of $1.15 per common share. Dividends have been paid for 61 consecutive years. The annual dividends paid per common share in 2005, 2004, and 2003 were $1.14, $1.13, and $1.125, respectively. The dividend increases were based on projections that the higher dividend could be sustained while still providing adequate financial resources and flexibility. Earnings not paid as dividends are reinvested in the business for the benefit of stockholders. In its long-term consideration, the Board of Directors plan to achieve a payout ratio in the range of 60%. The dividend payout ratio was 78% in 2005, 77% in 2004, and 93% in 2003, an average of 83% over the three-year period. Operating Revenue Operating revenue in 2005 was $320.7 million, an increase of $5.1 million, or 1.6%, over 2004. Operating revenue in 2004 was $315.6 million, an increase of $38.5 million, or 14%, above 2003. The estimated sources of changes in operating revenue were: |
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Overall, temperatures in our
service areas for 2005 were comparable to 2004; however, rainfall was
significantly higher, particularly in the first half of the year.
Southern California had one of its wettest years on record. For 2004,
rainfall was lower than 2003 in our California service areas, which
positively impacted the Company’s revenues and earnings. For Washington
Water service areas, rainfall was significantly lower in 2005. As a
result, state officials mandated water conservation, resulting in
decreased revenues compared to 2004. In 2005, rate relief increased revenues by $12.2 million. See the “Rates and Regulation” section of this report for more information on regulatory activity occurring in 2004, 2005, and through February 21, 2006. |
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