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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 1993 Commission file number 0-1121
SOUTHERN CALIFORNIA WATER COMPANY
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(Exact Name of Registrant as specified in its charter)
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<S> <C>
California 95-1243678
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 East Foothill Boulevard, San Dimas, California 91773
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (909) 394-3600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $2.50 Par Value
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Title of Each Class
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 [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in a definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [x]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $136,770,000 on February 28, 1994. The closing
price per Common Share on that date, as quoted in the Western Edition of The
Wall Street Journal, was $17.38. Voting Preferred Shares, for which there is
no established market, were valued on February 28, 1994 based on a yield of
7.60%. As of February 28, 1994, the number of the Registrant's Common Shares,
$2.50 Par Value, outstanding was 7,845,092.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Shareholders for the year ended
December 31, 1993 as to Part I, Item 1 and Part II, Items 5, 6, 7 and
8, in each case, as specifically referenced herein.
(2) Portions of the Proxy Statement to be filed with the Securities and
Exchange Commission on or about March 18, 1994 as to Part III,
Items 10, 11, 12 and 13, in each case, as specifically
referenced herein.
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SOUTHERN CALIFORNIA WATER COMPANY
INDEX
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Page No.
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Part I
Item 1: Business 1 - 4
Item 2: Properties 4 - 6
Item 3: Legal Proceedings 6 - 7
Item 4: Submission of Matters to a Vote of Security Holders 7
Part II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters 7
Item 6: Selected Financial Data 7
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
Item 8: Financial Statements and Supplementary Data 8
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 8
Part III
Item 10: Directors and Executive Officers of the Registrant 8
Item 11: Executive Compensation 9
Item 12: Security Ownership of Certain Beneficial Owners and Management 9
Item 13: Certain Relationships and Related Transactions 9
Part IV
Item 14: Exhibits, Financial Schedules and Reports on Form 8-K 9 - 20
Signatures 21
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PART I
Item 1. Business
General
Southern California Water Company (the "Registrant") is a
public utility company engaged principally in the purchase, production,
distribution and sale of water. The Registrant also distributes electricity in
one community. The Registrant, regulated by the California Public Utilities
Commission ("CPUC"), was incorporated in 1929 under the laws of the State of
California as American States Water Services Company of California as the
result of the consolidation of 20 water utility companies. From time to time
additional water companies and municipal water districts have been acquired and
properties in limited service areas have been sold. The Registrant's present
name was adopted in 1936.
At December 31, 1993, the Registrant provided service in 17
separate operating districts, 16 of which were water districts and one an
electric district, located in 75 communities in ten counties throughout the
State of California. Total population of the service areas on December 31,
1993 was approximately 1,000,000. As of that date, about 73% of the
Registrant's water customers were located in the greater metropolitan areas of
Los Angeles and Orange Counties. The Registrant provided electric service to
the City of Big Bear Lake and surrounding areas in San Bernardino County. All
electric energy sold is purchased from Southern California Edison Company
("SCE") on a resale rate schedule.
The Registrant served 236,985 water customers and 20,131
electric customers at December 31, 1993, or a total of 257,116 customers
compared with 255,966 total customers at December 31, 1992. For the year ended
December 31, 1993, approximately 90% of the Registrant's operating revenues
were derived from water sales and approximately 10% from the sale of
electricity, ratios which are generally consistent with prior years. Operating
income before taxes on income of the electric district was 9.2% of the
Registrant's total operating income before taxes. The material contained in
Note 12 of the Notes to Financial Statements included in the 1993 Annual Report
to Shareholders provides additional information on business segments while Note
13 provides information regarding the seasonal nature of the Registrant's
business. Page 15 of the 1993 Annual Report to Shareholders lists the
geographical distribution of customers.
During 1993, the Registrant supplied, from all sources, a
total of 178,196 acre feet of water compared with 172,500 acre feet for the
previous year. Of the total water supplied in 1993, approximately 43% was
purchased from others, principally from member agencies of the Metropolitan
Water District of Southern California ("MWD"), and 1% was furnished by the
Bureau of Reclamation under contract, at no cost, for the Registrant's
Arden-Cordova District and to the Registrant's Clearlake district by
prescriptive right to water extracted from Clear Lake. These amounts reflect a
continued reduction in reliance on imported water supplies.
The MWD is a water district organized under the laws of the
State of California for the purpose of delivering imported water to areas
within its jurisdiction which includes most of coastal Southern California from
the County of Ventura south to and including San Diego County. The Registrant
has 52 connections to the water distribution facilities of MWD and other
municipal water agencies. MWD imports water from two principal sources: the
Colorado River and the State Water Project ("SWP"). Available water supplies
from the Colorado River and the SWP have historically been sufficient to meet
most of MWD's requirements even though the State's major reservoirs were
significantly impacted by six years of drought. The drought officially ended
in February, 1993. The price of water purchased from MWD, however, is expected
to continue to increase. MWD announced a 7% rate adjustment on March 8, 1994,
effective for the 1994-1995 fiscal year.
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In those districts of the Registrant which pump groundwater,
overall groundwater conditions continue to maintain at adequate levels. The
Registrant drilled six new wells during 1993 in order to improve the
Registrant's ability to use more groundwater in its resource mix and further
decrease its dependence on purchased water.
The Registrant is continuing its efforts to become a
participant in the Coastal Aqueduct extension of the State Water Project (the
"Project"). The Registrant believes that participation in the Project is
necessary in order to provide another source of water for its Santa Maria water
district. Should the Registrant be allowed to participate in the Project at a
500 acre-foot level, the Registrant will prepare a filing with the CPUC in
order to recover costs associated with that participation under normal
rate-making methods. A final decision of the CPUC on the application would not
be anticipated until late 1994 or early 1995.
Rates and Regulation
The Registrant is subject to regulation by the CPUC as to its
water and electric business and properties. The CPUC has broad powers of
regulation over public utilities with respect to service and facilities, rates,
classifications of accounts, valuation of properties and the purchase,
disposition and mortgaging of properties necessary or useful in rendering
public utility service. It also has authority over the issuance of securities,
the granting of certificates of convenience and necessity as to the extension
of services and facilities and various other matters.
Water rates of the Registrant vary from district to district
due to differences in operating conditions and costs. Each operating district
is considered a separate entity for rate-making purposes. The Registrant
continuously monitors its operations in all of its districts so that
applications for rate changes may be filed, when warranted, on a
district-by-district basis in accordance with CPUC procedure. Under the CPUC's
practices, rates may be increased by three methods - general rate increases,
offsets for certain expense increases and advice letter filings related to
certain plant additions. General rate increases typically are for three year
periods and include "step" increases in rates for the second and third years.
General rate increases are established by formal proceedings
in which the overall rate structure, expenses and rate base of the district are
examined. Rates are based on estimated expenses and capital costs for a
forward two-year period. A major feature of the proceeding is the use of an
attrition mechanism for setting rates for the third of the three year test
cycle assuming that the costs and expenses will increase in the same proportion
over the second year as the increase projected for the second test year
increased over the first test year. The step rate increases for the second and
third years are allowed to compensate for the projected cost increases, but are
subject to tests including a demonstration that earnings levels in the district
did not exceed the latest rate of return authorized for the Registrant. Formal
general rate proceedings typically take about twelve months from the filing of
a Notice of Intent to increase rates to the authorization of new rates.
Rate increases to offset increases in certain expenses such as
costs of purchased water, energy costs to pump water, costs of power purchased
for resale and groundwater production assessments are accomplished through an
abbreviated "offset" procedure that typically takes about two months. CPUC
regulations require utilities to maintain balancing accounts which reflect
differences between specific offset cost increases and the rate increases
authorized to offset those costs. The balancing accounts are subject to
amortization through the offset procedure or through general rate decisions.
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An advice letter, or rate base offset, proceeding is generally
undertaken on an order of the CPUC in a general rate proceeding wherein the
inclusion of certain projected plant facilities in future rates is delayed
pending notification that such facilities have actually been placed in service.
The advice letter provides such notification and, after CPUC approval, permits
the Registrant to include the costs associated with the facilities in rates.
During 1993, 1992 and 1991, the Registrant's rates for all
water districts were increased, among other reasons, to directly offset
increases in certain expenses, principally purchased water, as well as
increased levels of capital improvements. The Registrant decreased rates in
its Bear Valley electric district by approximately 28% in November, 1991 as a
result of amortizing large refunds from the Registrant's wholesale power
supplier. The following table lists information related to the Registrant's
rate increases for the last three years:
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General Supply Rate Base Other
and Cost Advice Advice
Step Offset Letter Letter
Year Increases Increases Increases Increases Total
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<S> <C> <C> <C> <C> <C>
1993 $2,270,700 $ 37,600 $ 0 $ 50,000 $ 2,358,300
1992 $7,767,700 $2,540,200 $ 673,900 $ 18,400 $11,000,200
1991 $5,030,700 $2,483,100 $ 276,300 $ 212,700 $ 8,002,800
</TABLE>
The Registrant filed an application for general rate increases
in six of its water operating districts in May, 1992. In June, 1993, the CPUC
issued its decision and the Registrant requested rehearing on two matters - the
rate of return on rate base and an authorized rate increase for the
Registrant's Bay Point water district. The CPUC granted the Registrant's
request for rehearing on the two issues and established an interim rate of
return on rate base of 9.5% applicable for certain attrition, step rate filings
and other earnings test filings with respect to the Registrant's other
operating districts. For further information, please see the caption "Rates
and Regulation" under Management's Discussion and Analysis herein and Note 10
of the Notes to Financial Statements in the 1993 Annual Report to Shareholders.
The Registrant has filed its case on the two matters set for
rehearing, which was held on March 15, 1994. Prior to commencement of
hearings, the Registrant and the Division of Ratepayer Advocates ("DRA") of the
CPUC had stipulated to a rate of return on common equity of 10.10%. In
addition, DRA had agreed that an increase in rates applicable to the
Registrant's Bay Point water district was appropriate with certain
modifications as to the level of rate base. A final decision on these matters,
however, is still subject to the CPUC and is not expected until the Summer of
1994.
The Registrant anticipates filing applications with the CPUC
in July, 1994 for rate increases, effective in 1995, in all of its operating
districts for certain cost-effective recommendations resulting from the
recently completed Management Audit of the Registrant conducted under the
auspices of the CPUC. In addition, the Registrant will file a general rate
case in one of its water operating districts. The requested annual
increase in rates will also seek step increases for 1996 and 1997. No
assurance can be given that the CPUC will authorize any or all of the rates for
which the Registrant applies.
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Industrial Relations
The Registrant had 486 paid employees as of December 31, 1993.
Seventeen employees in the Bear Valley Electric District were members of the
International Brotherhood of Electrical Workers. Their present labor agreement
is effective through June 30, 1994. Seventy-three of the Registrant's water
utility employees, unionized under the Utility Workers of America ("UWA"), are
covered by a contract which expires March 31, 1996. The Registrant has no other
unionized employees.
Environmental Matters
The Environmental Protection Agency ("EPA"), under provisions
of the Safe Drinking Water Act, as amended, is required to establish Maximum
Contaminant Levels ("MCL's") for the 83 potential drinking water contaminants
initially listed in the Act, and for an additional 25 contaminants every three
years thereafter. The California Department of Health Services ("DOHS"),
acting on behalf of the EPA, administers the EPA's program.
The Registrant continues to test its wells and water systems
for more than 90 contaminants. Water from wells found to contain levels of
contaminants above the established MCL's has either been treated or blended
before it is delivered to customers. Only 2 of the Registrant's 306 wells have
been permanently taken out of service due to high levels of contamination.
The Registrant is aware of two new rules pending
implementation by the EPA which may significantly affect the Registrant: the
Radon Rule and the Arsenic Rule. The EPA did not meet the October 1, 1993
deadline for establishing an MCL for radon. Because of this inaction, the rule
is presently in the hands of the United States Congress where it is believed
that an MCL will be established primarily to implement the regulation.
However, the 1994 budget as drafted by the Appropriations Committee has
specifically excluded funds for further work on radon regulation, basically
setting a moratorium on the regulation. The EPA is continuing its review of
data on the Arsenic Rule although the Registrant anticipates an MCL will be
proposed by September, 1994. The Registrant is unable to predict, until the
MCL's are established, what effects, if any, these new rules will have on its
financial condition or results of operation.
The Registrant has experienced increased operating costs for
testing to determine the levels (if any) of the contaminants in the
Registrant's source of supply and costs to lower the level of any contaminants
found to a level that meets standards. Such costs and the control of any other
pollutants may include capital costs as well as increased operating costs. The
rate-making process provides the Registrant with the opportunity to recover
capital and operating costs associated with water quality, and management
believes that such costs are properly recoverable.
Item 2 - Properties
Franchises, Competition, Acquisitions and Condemnation of Properties
The Registrant holds the required franchises from the
incorporated communities and the counties which it serves. The Registrant
holds certificates of public convenience and necessity granted by the CPUC in
each of the 17 districts it serves.
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The business of the Registrant is substantially free from
direct competition with other public utilities, municipalities and other public
agencies. The Registrant's certificates, franchises and similar rights are
subject to alteration, suspension or repeal by the respective governmental
authorities having jurisdiction over such matters.
The laws of the State of California provide for the
acquisition of public utility property by governmental agencies through their
power of eminent domain, also known as condemnation. The Registrant has been,
within the last three years, involved in activities related to the condemnation
of its Big Bear and Bay Point water districts. The Registrant continues to
oppose the condemnation actions with respect to its Bay Point water district
initiated by the Contra Costa Water District in 1992. Note 8 of the Notes to
Financial Statements contained in the 1993 Annual Report to Shareholders herein
describes condemnation actions related to the Registrant's properties in
greater detail.
Water Properties
As of December 31, 1993, the Registrant's physical properties
consisted of water transmission and distribution systems which included over
2,560 miles of pipeline together with services, meters and fire hydrants and
approximately 438 parcels of land (generally less than 1 acre each) on which
are located wells, pumping plants, reservoirs and other utility facilities.
The Registrant's operating properties have been maintained and improved in the
ordinary course of business. As of December 31, 1993, the Registrant owned and
operated 306 wells equipped with pumps with an aggregate capacity of 265.7
million gallons per day ("MGD"). Other production facilities include filter
plants with an aggregate capacity of 29.4 MGD and 52 connections to the water
distribution facilities of the MWD and other municipal water agencies. The
Registrant's storage reservoirs and tanks have an aggregate capacity of 156.6
million gallons. There are no dams in the Registrant's system.
Electric Properties
The Registrant's electric properties are all located in the
Big Bear area of San Bernardino County. As of December 31, 1993, the
Registrant operated 28.8 miles of overhead 34.5 KV transmission lines, 0.6
miles of underground 34.5 KV transmission lines, 172.7 miles of 4.16 KV or 2.4
KV distribution lines, 41.7 miles of underground cable and 14 sub-stations.
There are no generating plants in the Registrant's system.
Other Properties
The Registrant's general offices are housed in a single-story
office building located in San Dimas, California. The land and the building,
which was completed and occupied in early 1990, are owned by the Registrant.
Certain of the Registrant's district offices are housed in leased premises.
During 1993, the Registrant refinanced a significant portion
of its then outstanding debt in order to lower interest costs. In doing so,
the Registrant redeemed all outstanding First Mortgage Bonds. In early 1994,
the Trustee filed for release of the lien of an indenture securing the
previously outstanding First Mortgage Bonds. As of December 31, 1993, the
Registrant had no mortgage debt outstanding.
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Financing of Construction Expenditures
The Registrant's construction program is designed to ensure
its customers with high quality service. The Registrant has an ongoing
distribution main replacement program, throughout its service areas, based upon
the priority of leaks detected, fire protection enhancement and a reflection of
the underlying replacement schedule. In addition, the Registrant upgrades its
electric and water supply facilities and is aggressively scheduling meter
replacements. The Registrant anticipates gross capital expenditures of
$26,700,000, $17,500,000 and $34,500,000 in 1994, 1995 and 1996, respectively.
During 1993, the Registrant issued 1,107,000 Common Shares (on
a post-split basis) in two separate public offerings for aggregate net proceeds
of $23,935,000. The net proceeds were applied against then outstanding
short-term bank borrowing incurred to temporarily finance construction
expenditures.
The Registrant issued additional common equity through its
Dividend Reinvestment and Common Share Purchase Plan and its 401-k Plan. The
Registrant issued 47,828, 28,416 and 29,146 shares under the Dividend
Reinvestment and Common Share Purchase Plan in the three years ended December
31, 1993, 1992 and 1991, respectively. The Registrant issued 7,741 and 7,102
Common Shares under the 401-k Plan in the two years ended December 31, 1993 and
1992. The Registrant did not issue any Common Shares through its 401-k Plan in
the year ended December 31, 1991.
During 1993 and 1992, the Registrant did not undertake any
long-term debt financing to provide additional funds for construction. In
1993, however, the Registrant did refinance $37 million of its long-term debt,
in order to reduce interest expense, through its Medium Term Note Program. In
1992, the Registrant entered into a $2,247,000 fixed rate obligation due 2013
for financing construction of a new reservoir serving one of the Registrant's
water operating districts.
In May, 1991, the Registrant completed the sale of $28,000,000
in long-term Notes Due 2031, $13,500,000 of which was used to repay then
outstanding short-term bank loans which had been used to fund the Registrant's
construction program. In addition, in December, 1991, the Registrant redeemed,
at a premium, $6,000,000 principal amount of 11-3/4% Notes. The remainder of
the proceeds from the May, 1991 issue was utilized to fund the Registrant's
capital expansion program.
Item 3. Legal Proceedings
On October 20, 1993, the Registrant and the Internal Revenue
Service ("IRS") reached a tentative settlement on the results of the IRS
examination of the Registrant's 1987, 1988 and 1989 tax returns. Based on the
settlement, the Registrant remitted an additional $438,000 in taxes. The
Registrant anticipates signing the final agreement in late March, 1994.
On March 8, 1994, the Registrant and the Contra Costa County
Board of Supervisors (the "County") reached a tentative settlement of issues
related to the County's taking on the Registrant's Madison Treatment plant in
its Bay Point water district. The County's Highway Department had taken
possession of the property on June 24, 1993. The tentative settlement of
$2.3 million includes remuneration to the Registrant for the value of the
property taken, severance damages, if any, and reimbursement for treated water
purchased from the City of Pittsburg. The amount determined as remuneration
for the value of the property taken is to be applied against the value of the
Registrant's Bay Point district, currently under condemnation by the Contra
Costa Water District ("CCWD").
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The Registrant and CCWD, however, are continuing their
negotiations concerning the CCWD's condemnation of the Registrant's Bay Point
water district. At this time, however, the Registrant is unable to predict the
final outcome of these negotiations. In 1993, water revenues from the
Registrant's Bay Point water district were approximately $2.7 million or 2.75%
of its total annual water revenues.
There are no other material pending legal proceedings, other
than litigation incidental to the ordinary course of business, to which the
Registrant is a party or of which any of its properties is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Price for Common Shares
Information responding to Item 5(a) is included in
the 1993 Annual Report to Shareholders, under the caption "Trading of Stock"
located on the inside back cover, filed herein by the Registrant with the
Commission pursuant to Regulation 14A and is incorporated herein pursuant to
General Instruction G(2).
(b) Approximate Number of Holders of Common Shares
As of February 28, 1994, there were 4,342 holders of
record of Common Shares.
(c) Frequency and Amount of Any Dividends Declared and
Dividend Restrictions
Information responding to Item 5(c) is included in
the 1993 Annual Report to Shareholders, under the caption "Trading of Stock"
located on the inside back cover, filed herein by the Registrant with the
Commission pursuant to Regulation 14A and is incorporated by reference herein
pursuant to General Instruction G(2). For the last three years, the Registrant
has paid dividends on its Common Shares on March 1, June 1, September 1 and
December 1.
Additional information responding to Item 5(c) is
included in the 1993 Annual Report to Shareholders, under Note 3 of the Notes
to Financial Statements captioned "Common Share Dividend Restriction" on page
31, filed herein by the Registrant with the Commission pursuant to Regulation
14A and is incorporated herein by reference pursuant to General Instruction
G(2).
Item 6. Selected Financial Data
Information responding to Item 6 is included in the
1993 Annual Report to Shareholders, in the section entitled "Financial
Information" under the caption "Statistical Review from 1989 to 1993" on Page
36, filed herein by the Registrant with the Commission pursuant to Regulation
14A and is incorporated herein by reference pursuant to General Instruction
G(2).
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Information responding to Item 7 is included in the 1993
Annual Report to Shareholders, under the caption "Management's Discussion and
Analysis" on Pages 17 through 23, filed herein by the Registrant with the
Commission pursuant to Regulation 14A and is incorporated herein by reference
pursuant to General Instruction G(2).
Item 8. Financial Statements and Supplementary Data
Information responding to Item 8 is included in the 1993
Annual Report to Shareholders, under the captions contained on Pages 24 through
35, filed herein by the Registrant with the Commission pursuant to Regulation
14A and is incorporated herein by reference pursuant to General Instruction
G(2).
Balance Sheets - December 31, 1993 and 1992
Statements of Capitalization - December 31,
1993 and 1992
Statements of Income for the years ended
December 31, 1993, 1992 and 1991
Statements of Changes in Common Shareholders'
Equity for the years ended December 31, 1993,
1992 and 1991
Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991
Notes to Financial Statements
Report of Independent Public Accountants
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information responding to Item 10 was included in the Proxy
Statement, under the caption "Executive Officers Experience and Compensation",
filed by the Registrant with the Commission on or about March 18, 1994 pursuant
to Regulation 14A and is incorporated by reference herein pursuant to General
Instruction G(3).
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Item 11. Executive Compensation
Information responding to Item 11 was included in the
Proxy Statement, under the captions "Executive Officers Experience and
Compensation" and "Board Report on Executive Compensation", filed by the
Registrant with the Commission on March 18, 1994 pursuant to Regulation 14A and
is incorporated by reference herein pursuant to General Instruction G(3).
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information responding to Item 12 was included in the
Proxy Statement, under the captions "Election of Directors" and "Executive
Officers Experience and Compensation", filed by the Registrant with the
Commission on March 18, 1994 pursuant to Regulation 14A and is incorporated by
reference herein pursuant to General Instruction G(3).
Item 13. Certain Relationships and Related Transactions
Information responding to Item 13 was included in the
Proxy Statement, under the caption "Election of Directors", filed by the
Registrant with the Commission on March 18, 1994 pursuant to Regulation 14A and
is incorporated by reference herein pursuant to General Instruction G(3).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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(a) 1. Reference is made to the Financial
Statements incorporated herein in
Item 8.
2. Schedules V, VI and VIII, not
included in the 1993 Annual Report
to Shareholders, and the related
report of independent public
accountants, are included after Item
14 in Part IV herein.
Information required for Schedule IX
and X has been included in the
financial statements in the 1993
Annual Report to Shareholders.
Expenses for advertising and
royalties represented less than 1%
of total revenues.
Schedules I, II, III, IV, VII, XI,
XII and XIII are omitted as they
are not applicable.
3. See (c) below.
(b) No events have been reported on Form 8-K
during the last quarter of the period covered
by this report.
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<TABLE>
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(c) Exhibits -
3.1 By-Laws of the Registrant as Amended
to April 30, 1991 (incorporated
herein by reference to Registrant's
Form 10-Q with respect to the quarter
ended March 31, 1991).
3.2 Restated Articles of Incorporation
of the Registrant as Amended to
December 4, 1990 (incorporated
herein by reference to Registrant's
Form 10-K with respect to the year
ended December 31, 1990).
3.3 Certificate of Ownership dated
August 10, 1978 (incorporated herein
by reference to Registrant's Form
10-K with respect to the year ended
December 31, 1990).
3.4 Certificate of Amendment of Articles
of Incorporation of the Registrant
dated December 3, 1992 (incorporated
herein by reference to Registrant's
Form 10-K with respect to the year
ended December 31, 1992).
*3.5 Certificate of Amendment of Articles
of Incorporation of the Registrant
dated February 17, 1994.
4.1 First Mortgage Indenture dated May 1,
1947 between the Registrant and Bank
of America, N.T. & S.A.
(incorporated herein by reference to
Registrant's Registration Statement
No. 2-68485 on Form S-7).
4.2 Supplemental Indenture dated July 1,
1982 between the Registrant and Bank
of America, N.T. & S.A. (incorporated
herein by reference to Registrant's
Registration Statement No. 33-5151
on Form S-7).
4.3 Schedule of Omitted Supplemental
Indentures (incorporated herein by
reference to Registrant's
Registration Statement No. 33-5151
on Form S-2).
4.4 Indenture, dated September 1, 1993
between the Registrant and Chemical
Trust Company of California, as
trustee, relating to the Registrant's
Medium Term Notes, Series A
(incorporated herein by reference to
Registrant's Form 8-K dated
September 1, 1993).
10.1 Deferred Compensation Plan for
Directors and Executives
(incorporated herein by reference
to Registrant's Registration
Statement No. 33-5151 on Form S-2).
10.2 Reimbursement Agreement dated
November 1, 1984 between the
Registrant and Barclays Bank
International Limited (incorporated
herein by reference to Registrant's
Registration Statement No. 33-5151
on Form S-2).
</TABLE>
10
<PAGE> 14
<TABLE>
<S> <C> <C>
10.3 First Amendment to Reimbursement
Agreement dated January 1, 1986
between the Registrant and Barclays Bank
PLC (incorporated herein by reference
to Registrant's Registration Statement
No. 33-5151 on Form S-2).
10.4 Second Amendment to Reimbursement
Agreement dated April 9, 1987 between
the Registrant and Barclays Bank PLC
(incorporated herein by reference to
Registrant's Form 10-K with respect to
the year ended December 31, 1990).
10.5 Third Amendment to Reimbursement
Agreement dated September 14, 1987
between the Registrant and Barclays Bank
PLC (incorporated herein by reference
to Registrant's Form 10-K with respect
to the year ended December 31, 1990).
10.6 Fourth Amendment to Reimbursement
Agreement dated September 22, 1988
between the Registrant Barclays Bank PLC
(incorporated herein by reference to
Registrant's Form 10-K with respect to
the year ended December 31, 1990).
10.7 Fifth Amendment to Reimbursement
Agreement dated March 9, 1990 between
the Registrant and Barclays Bank PLC
(incorporated herein by reference to
Registrant's Form 10-K with respect to
the year ended December 31, 1990).
10.8 Sixth Amendment to Reimbursement
Agreement dated November 29, 1990
between the Registrant and Barclays Bank
PLC (incorporated herein by reference
to Registrant's Form 10-K with respect
to the year ended December 31, 1990).
10.9 Second Sublease dated October 5, 1984
between the Registrant and Three
Valleys Municipal Water District
(incorporated herein by reference to
Registrant's Registration Statement
No. 33-5151 on Form S-2).
10.10 Note Agreement dated as of February 1,
1989 between the Registrant and First
Colony Life Insurance (incorporated
herein by reference to Registrant's
Form 10-K with respect to the year ended
December 31, 1990).
10.11 Schedule of Omitted Note Agreements
(incorporated herein by reference to
Registrant's Form 10-K with respect to
the year ended December 31, 1990).
10.12 Note Agreement dated as of May 15, 1991
between the Registrant and Transamerica
Occidental Life Insurance Company
(incorporated herein by reference to
Registrant's Form 10-Q with respect to
the quarter ended June 30, 1991).
10.13 Schedule of Omitted Note Agreements
(incorporated herein by reference to
Registrant's Form 10-Q with respect to
the quarter ended June 30, 1991).
</TABLE>
11
<PAGE> 15
<TABLE>
<S> <C> <C>
10.14 Agreement for Financing Capital
Improvement dated as of June 2, 1992
between the Registrant and Three
Valleys Municipal Water District
(incorporated herein by reference to
Registrant's Form 10-K with respect to
the year ended December 31, 1992).
10.15 Retirement Plan for Non-Employee
Directors of Southern California
Water Company (incorporated herein by
reference to Registrant's Form 10-K
with respect to the year ended
December 31, 1992).
*13. Annual Report to Shareholders for
the year ended December 31, 1993
(except for those portions which
are expressly incorporated herein
by reference, such Annual Report
is furnished solely for the
information of the Commission and
is not deemed to be "filed" herein).
22. Subsidiaries of Registrant
Exhibit not included as subsidiaries
in the aggregate are not significant.
*24. Consent of Independent Public
Accountants.
28. Dividend Reinvestment and Common
Share Purchase Plan incorporated
herein by reference to Registrant's
Post-Effective Amendment No. 1 to
Form S-3 (Registration No. 33-42218).
(d) None.
</TABLE>
_____________________
* Filed herewith
12
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE SUPPLEMENTAL SCHEDULES
To the Shareholders and the Board of Directors
Of Southern California Water Company:
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Southern California Water Company's 1993
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 15, 1994. Our audit was made for
the purpose of forming an opinion on those basic financial statements taken as
a whole. The supplemental schedules listed in Part IV of this Form 10-K, which
are the responsibility of the company's management, are presented for purposes
of complying with the Securities and Exchange Commission's rules and
regulations and are not part of the basic financial statements. These
supplemental schedules have been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Los Angeles, California
February 15, 1994
13
<PAGE> 17
SOUTHERN CALIFORNIA WATER COMPANY
SCHEDULE V - TANGIBLE & INTANGIBLE PROPERTY, PLANT & EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Balance
at Additions Deductions
Beginning at for Sales and Balance at
Description of Year Cost(1) Retirements Transfers End of Year
----------- --------- --------- ----------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Utility plant
Water department-
Intangible plant $ 8,536 $ 0 $ 0 $ 0 $ 8,536
Land and land rights 4,087 92 0 (692) 3,487
Source of supply plant 10,248 2,001 (103) 0 12,146
Pumping plant 26,401 5,308 (482) (515) 30,712
Water treatment plant 9,220 1,036 (70) (1,033) 9,153
Transmission & distribution plant 237,243 12,601 (790) (22) 249,032
General plant & undistributed
assets 24,122 4,362 (208) 96 28,372
-------- ------- ------- ------- --------
Total water department 319,857 25,400 (1,653) (2,166) 341,438
-------- ------- ------- ------- --------
Electric department-
Intangible plant 31 245 0 0 276
Transmission plant 1,914 56 (5) 0 1,965
Distribution plant 19,233 1,987 (340) 64 20,944
General plant 1,349 287 (1) 0 1,635
-------- ------- ------- ------- --------
Total electric department 22,527 2,575 (346) 64 24,820
-------- ------- ------- ------- --------
Construction work in progress (2) 13,014 0 0 526 13,540
-------- ------- ------- ------- --------
Total utility plant $355,398 $27,975 $(1,999) $(1,576) $379,798
======== ======= ======= ======= ========
Investment in other physical property $ 804 $ 80 $ (21) $ (273) $ 590
======== ======= ======= ======= ========
</TABLE>
(1) Includes property added under install and convey contracts of $819,000.
(2) Additions to Construction Work in Progress are net of transfers to plant in
service which are shown as additions to the various operating plant
classifications.
14
<PAGE> 18
SOUTHERN CALIFORNIA WATER COMPANY
SCHEDULE V - TANGIBLE & INTANGIBLE PROPERTY, PLANT & EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
Balance
at Additions Deductions
Beginning at for Sales and Balance at
Description of Year Cost(1) Retirements Transfers End of Year
----------- --------- --------- ----------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Utility plant
Water department-
Intangible plant $ 6,262 $ 2,274 $ 0 $ 0 $ 8,536
Land and land rights 3,985 107 0 (5) 4,087
Source of supply plant 9,736 533 (2) (19) 10,248
Pumping plant 23,516 3,053 (196) 28 26,401
Water treatment plant 7,374 1,852 (6) 0 9,220
Transmission & distribution plant 224,621 12,613 (1,168) (9) 236,057
General plant & undistributed
assets 23,871 1,959 (521) 0 25,309
-------- ------- ------- ----- --------
Total water department 299,365 22,391 (1,893) (5) 319,858
-------- ------- ------- ----- --------
Electric department-
Intangible plant 29 2 0 0 31
Transmission plant 1,846 69 (1) 0 1,914
Distribution plant 17,453 1,821 (41) 0 19,233
General plant 1,296 202 (149) 0 1,349
-------- ------- ------- ----- --------
Total electric department 20,624 2,094 (191) 0 22,527
-------- ------- ------- ----- --------
Construction work in progress (2) 10,525 0 0 2,489 13,014
-------- ------- ------- ----- --------
Total utility plant $330,514 $24,485 ($2,084) $2,484 $355,399
======== ======= ======= ====== ========
Investment in other physical property $ 796 $ 8 $ 0 $ 0 $ 804
======== ======= ======= ====== ========
</TABLE>
(1) Includes property added under install and convey contracts of $3,119,000.
(2) Additions to Construction Work in Progress are net of transfers to plant in
service which are shown as additions to the various operating plant
classifications.
15
<PAGE> 19
SOUTHERN CALIFORNIA WATER COMPANY
SCHEDULE V - TANGIBLE & INTANGIBLE PROPERTY, PLANT & EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
Balance
at Additions Deductions
Beginning at for Sales and Balance at
Description of Year Cost(1) Retirements Transfers End of Year
----------- --------- --------- ----------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Utility plant
Water department-
Intangible plant $ 6,262 $ 0 $ 0 $ 0 $ 6,262
Land and land rights 2,755 1,242 0 (12) 3,985
Source of supply plant 8,577 1,213 (61) 7 9,736
Pumping plant 21,105 2,835 (382) (42) 23,516
Water treatment plant 5,864 1,577 (67) 0 7,374
Transmission & distribution plant 210,859 14,677 (935) 20 224,621
General plant & undistributed assets 14,298 18,059 (211) (8,275) 23,871
-------- ------- ------- ------- --------
Total water department 269,720 39,603 (1,656) (8,302) 299,365
-------- ------- ------- ------- --------
Electric department-
Intangible plant 4 25 0 0 29
Transmission plant 1,447 415 (16) 0 1,846
Distribution plant 15,666 1,963 (176) 0 17,453
General plant 1,137 161 (2) 0 1,296
-------- ------- ------- ------- --------
Total electric department 18,254 2,564 (194) 0 20,624
-------- ------- ------- ------- --------
Construction work in progress (2) 11,950 0 0 (1,425) 10,525
-------- ------- ------- ------- --------
Total utility plant $299,924 $42,167 $(1,850) $(9,727) $330,514
======== ======= ======= ======= ========
Investment in other physical property $786 $10 $0 $0 $796
======== ======= ======= ======= ========
</TABLE>
(1) Includes property added under install and convey contracts of $1,398,000.
(2) Additions to Construction Work in Progress are net of transfers to plant in
service which are shown as additions to the various operating plant
classifications.
16
<PAGE> 20
SOUTHERN CALIFORNIA WATER COMPANY
SCHEDULE VI - RESERVES FOR ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION> Other
Physical
Water Electric Total Property
------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year $70,884 $6,990 $77,874 $34
Add - Depreciation (1):
Charged to expense 6,715 683 7,398 0
Charged to clearing and
other accounts 1,245 72 1,317 0
Charged to contributions in
aid of construction 512 21 533 0
------- ------ ------- ---
Subtotal 79,356 7,766 87,122 34
Less - Retirements, sales and
cost of removal, less salvage (1,848) (466) (2,314) 0
------- ------ ------- ---
Balance at end of year $77,508 $7,300 $84,808 $34
======= ====== ======= ===
</TABLE>
(1) A remaining life method of calculating depreciation is used by the Company
with rates varying from a minimum of .01% to a maximum of 27.73%, for 1993.
The annual calculation is based on depreciable plant at the beginning of
each year.
17
<PAGE> 21
SOUTHERN CALIFORNIA WATER COMPANY
SCHEDULE VI - RESERVES FOR ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION> Other
Physical
Water Electric Total Property
------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year $65,499 $6,457 $71,956 $34
Add - Depreciation (1):
Charged to expense 5,894 632 6,526 0
Charged to clearing and
other accounts 975 77 1,052 0
Charged to contributions
in aid of construction 532 20 552 0
------- ------ ------- ---
Subtotal 72,900 7,186 80,086 34
Less - Retirements, sales and
cost of removal, less salvage (2,016) (196) (2,212) 0
------- ------ ------- ---
Balance at end of year $70,884 $6,990 $77,874 $34
======= ====== ======= ===
</TABLE>
(1) A remaining life method of calculating depreciation is used by the Company
with rates varying from a minimum of .05% to a maximum of 27.73%, for 1992.
The annual calculation is based on depreciable plant at the beginning of
each year.
18
<PAGE> 22
SOUTHERN CALIFORNIA WATER COMPANY
SCHEDULE VI - RESERVES FOR ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION> Other
Physical
Water Electric Total Property
------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year $58,079 $6,133 $64,212 $33
Add - Depreciation (1):
Charged to expense 5,468 559 6,027 1
Charged to clearing and
other accounts 3,308 61 3,369 0
Charged to contributions
in aid of construction 450 18 468 0
------- ------ ------- ---
Subtotal 67,305 6,771 74,076 34
Less - Retirements, sales and
cost of removal, less salvage (1,806) (314) (2,120) 0
------- ------ ------- ---
Balance at end of year $65,499 $6,457 $71,956 $34
======= ====== ======= ===
</TABLE>
(1) A remaining life method of calculating depreciation is used by the Company
with rates varying from a minimum of .05% to a maximum of 26.91%, for
1991. The annual calculation is based on depreciable plant at the
beginning of each year.
19
<PAGE> 23
SOUTHERN CALIFORNIA WATER COMPANY
SCHEDULE VIII - RESERVES FOR UNCOLLECTIBLE ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
Description 1993 1992 1991
----------- ----- ----- -----
<S> <C> <C> <C>
Balance at beginning of year $ 333 $ 261 $ 429
Add (deduct) -
Provisions charged to expense 706 489 291
Accounts written off, net of recoveries (669) (417) (459)
----- ----- -----
Balance at end of year $ 370 $ 333 $ 261
===== ===== =====
</TABLE>
20
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SOUTHERN CALIFORNIA WATER COMPANY
By : s/ JAMES B. GALLAGHER .
-----------------------------
James B. Gallagher
Secretary, Treasurer and Chief Financial Officer
Date: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
s/ W. V. CAVENEY . Date: March 25, 1994
- -------------------------------------
W. V. Caveney
Chairman of the Board
and Director
s/ FLOYD E. WICKS . March 25, 1994
- -------------------------------------
Floyd E. Wicks
Principal Executive Officer:
President and Chief Executive
Officer and Director
s/ JAMES B. GALLAGHER . March 25, 1994
- -------------------------------------
James B. Gallagher
Principal Financial Officer
and Principal Accounting Officer:
Secretary, Treasurer and Chief Financial Officer
s/ DONALD E. BROWN . March 25, 1994
- -------------------------------------
Donald E. Brown, Director
s/ R. BRADBURY CLARK . March 25, 1994
- -------------------------------------
R. Bradbury Clark, Director
s/ N. P. DODGE, JR. . March 25, 1994
- -------------------------------------
N. P. Dodge, Jr., Director
s/ WILLIAM M. KIZER . March 25, 1994
- -------------------------------------
William M. Kizer, Director
</TABLE>
21
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
SOUTHERN CALIFORNIA WATER COMPANY
a CALIFORNIA CORPORATION
Floyd E. Wicks and James B. Gallagher certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of the Southern California Water Company (the "Corporation").
2. The Restated Articles of Incorporation of the Corporation shall be
amended by striking in its entirety the first full paragraph of Article IV of
the Articles of Incorporation which now reads:
"This Corporation is authorized to issue three classes of stock
to be designated, respectively, '$100 Preferred Shares,' 'Preferred
Shares,' and 'Common Shares'. The total number of shares which this
Corporation is authorized to issue is 10,242,800 shares and the
aggregate par value of such shares is $42,320,000; all shares of each
class are to have a par value; 150,000 shares are to be $100 Preferred
Shares with a par value of $100 per share and an aggregate par value of
$15,000,000; 92,800 shares are to be Preferred Shares with a par value
of $25 per share and an aggregate par value of $2,320,000; and
10,000,000 shares are to be Common Shares with a par value of $2.50 per
share and an aggregate par value of $25,000,000."
1
<PAGE> 2
and substituting therefor the following paragraph to read in full as follows:
"This Corporation is authorized to issue three classes of stock
to be designated, respectively, '$100 Preferred Shares,' 'Preferred
Shares,' and 'Common Shares'. The total number of shares which this
Corporation is authorized to issue is 10,239,600 and the aggregate par
value of all such shares is $42,240,000; all shares of each class are
to have a par value; 150,000 shares are to be $100 Preferred Shares
with a par value of $100 per share and an aggregate par value of
$15,000,000; 89,600 shares are to be Preferred Shares with a par value
of $25 per share and an aggregate par value of $2,240,000; and
10,000,000 shares are to be Common Shares with a par value of $2.50 per
share and an aggregate par value of $25,000,000."
3. The foregoing amendment was one which may be adopted with the
approval by the Board of Directors alone, because the amendment is required by
Section 510 of the California Corporation Code to reflect the reacquisition of
a portion of the Corporation's Preferred Shares, 5% Series, $25 par value, in
accordance with the sinking fund provisions thereof. Such reacquired Preferred
Shares cannot be reissued.
We further declare, under penalty of perjury under the laws of the
State of California, that the matters set forth in this Certificate are true
and correct of our own knowledge.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Certificate
in San Dimas, California on this 1st day of February, 1994.
FLOYD E. WICKS
----------------------------------
FLOYD E. WICKS, President
JAMES B. GALLAGHER
----------------------------------
JAMES B. GALLAGHER, Secretary
3
<PAGE> 1
EXHIBIT 13
Annual
Report
1993
Southern
California
Water
Company
Investing
in the
Future
COVER PICTURE
<PAGE> 2
COMPANY OVERVIEW
Southern California Water Company (SCWC) is the second largest
investor-owned water company in California and the fifth largest in the United
States. The company provides water service to approximately 1 out of 30
Californians in 75 communities and electricity to more than 20,000 customers in
the Bear Valley mountain communities. The company's daily operations are
administered by 22 district offices grouped into five divisions which are
supported by the general office, production and construction departments.
SCWC was established in 1929 to acquire and consolidate a group of
privately-owned California water companies operating in the middle of a
population boom and severe drought. When California voters authorized mass
funding for state-wide water projects three years later, SCWC was well
positioned to expand its sphere of influence. The company continues to respond
to California's growing need for high-quality domestic water and electric
service through its Excellence in Service commitment to Customers,
Shareholders, Employees, and the Communities it serves.
ABOUT THE COVER:
Like the barometer, the management at
SCWC must continually monitor and
forecast change. These forecasts enable us to
better plan for and invest in the future.
<PAGE> 3
1993 HIGHLIGHTS
<TABLE>
<CAPTION>
Change 1993 vs. 1992
--------------------
Increase
1993 1992 (Decrease) Percent
- ------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Total Revenues $ 108,506 $ 100,660 $ 7,846 7.79%
Total Operating Expenses 88,456 81,562 6,894 8.45%
Operating Income 20,050 19,098 952 4.98%
Other Income 354 934 (580) (62.10)%
Interest charges 8,378 7,890 488 6.19%
Net Income 12,026 12,142 (116) (0.96)%
Net Income Applicable to Common Stock 11,926 12,040 (114) (0.95)%
Earnings per Common Share 1.66 1.82 (0.16) (8.79)%
Dividends Paid per Common Share 1.19 1.15 0.04 3.26%
Book Value per Common Share 14.92 13.28 1.64 12.35%
Total Assets 358,533 312,491 46,042 14.73%
Total Capitalization $ 202,949 $ 174,664 $ 28,285 16.19%
Average Shares Outstanding 7,186 6,627 559 8.42%
</TABLE>
PICTURE
PAGE 1
1
<PAGE> 4
TO OUR
SHAREOWNERS
[PHOTO]--PAGE 2
Floyd E. Wicks
President, Chief Executive Officer
W.V. Caveney
Chairman
2
<PAGE> 5
LETTER FROM THE PRESIDENT: The barometer on the front cover of this
year's Annual Report suggests a vital message: Southern California Water
Company is changing...for the better. We are changing in ways that will
improve customer service, develop employee potential, enhance communication and
position us for the future.
1993 OVERVIEW
In 1991, the California Public Utilities Commission (CPUC) staff strongly
recommended a management audit of the company's general office. The company
recommended that the scope of the audit be expanded to include field
operations, consisting of 22 districts in 10 counties, and that the audit be
deferred to 1993. An agreement was reached between the company and the CPUC
staff, and a comprehensive management audit was conducted by an independent
consultant during 1993. Prior to completion of the audit, the company developed
a Plan for Service Excellence which will serve as a blueprint for improving our
operations throughout California. The theme of this report, "Investing in the
Future," reflects our renewed commitment to excellence as we approach the 21st
century.
During 1993, SCWC invested in a number of areas that will enable the
company to more readily respond to and manage change. These investments will
help us to achieve our goal of Service Excellence throughout the company, to
our customers, to our communities, and to our shareholders. They will also
enable us to improve customer service, increase employee productivity, and make
better business decisions in a more timely manner.
The most noteworthy investment is not in equipment or technology, it is
in our people. While SCWC has always provided employee training, this year we
formalized the process by establishing a new Employee Development Department.
The primary goal of this department is to "upgrade" the skills and knowledge of
our employees. This formalized focus on employee development enhances
performance in current jobs and prepares employees for growth within the
company. We know that well trained employees are more motivated, more cost
effective, and better equipped to forecast, plan for and manage change.
SCWC achieved several milestones during 1993, many of them resulting from
prior years of management and planning. Because of our financial track record,
Standard & Poors and Moody's gave SCWC "A" and "A2" ratings, respectively, on
unsecured debt. The Los Angeles Times named SCWC one of the
3
<PAGE> 6
"Top 100 Best Performing Companies in California". And of special interest to
investors, we expanded the use of the company's Dividend Reinvestment Plan to
enable participating shareowners to invest up to an additional $12,000 annually
in new shares, without incurring brokerage fees. In addition, the company
listed on the New York Stock Exchange in June 1993.
We also expanded operations during 1993, by adding approximately 1,150
new customers, including 480 with the acquisition of Lemon Heights Mutual Water
Company in Orange County. We drilled several new wells state-wide, further
increasing groundwater reliability.
1993 FINANCIAL RESULTS
Earnings per common share of $1.66 in 1993 are 8.8% lower than the
$1.82 recorded in 1992. Earnings from operations of $1.61 per share in 1993 are
4.2% lower than the record 1992 operating earnings of $1.68 per share. Earnings
from other income decreased to $0.05 per share in 1993 compared to $0.14 in
1992. The above figures for 1993 reflect $0.28 per share in reserves against
earnings for the company's participation in the Coastal Aqueduct Project and a
portion of the company's Clearlake Treatment Plant investment. The decision to
create reserves for these two projects followed two separate adverse CPUC
decisions. The CPUC believed the Water Supply Agreement, required for
participation in the Coastal Aqueduct Project, was too onerous (despite 24
other water agencies' participation on the same terms and conditions). The CPUC
also disallowed $1.6 million of the company's investment in its Clearwater
Treatment Facility, claiming that the new plant was over-built, and that the
original engineer's estimate was exceeded by the same $1.6 million amount. The
company provided expert testimony that certain plant components were
over-sized, as dictated by sound engineering practices, costing only $66,000.
Further, much of the cost overrun was incurred as a result of State Health
Department requirements. The company has been negotiating with adjacent water
utilities regarding their interest in purchasing treatment capacity from the
company's non-utility portion of the plant. To date, negotiations have not been
fruitful. While we strongly disagreed with the CPUC decisions, the company did
not appeal to the California Supreme Court, believing that it was highly
unlikely that the Court would accept these matters for review.
Total operating revenues increased by 7.8% to $108.5 million in 1993,
from $100.7 million in 1992. This was due primarily to offsetting increases in
revenue triggered by increases in the cost of purchased water and power and the
full effects of rate increases from last year.
4
<PAGE> 7
Operating expenses increased by 8.5% from $81.6 million in 1992, to
$88.5 million in 1993. This increase was significantly affected by increased
water and electric supply expenses, an increase in personnel and
personnel-related costs, and increased maintenance expenses as we continue to
perform proper maintenance of our water and electric systems.
In a regulated business such as SCWC, returns to our shareowners are
directly linked to the level of return authorized by the CPUC. With the decline
in interest rates over the past several years, the CPUC has also reduced the
authorized returns on equity for all utilities. In the past few years, the
company's earnings have been maintained at record levels due to short-term
exogenous factors such as a condemnation gain and higher-than-forecasted sales
volumes. As these factors disappear, the relative level of authorized return
becomes more important in achieving earnings levels. With the currently reduced
return levels and the delay in obtaining rate relief from the CPUC, earnings
for 1994 may not achieve the record levels enjoyed for the past two years.
However, absent unforeseen circumstances, this should not have an impact on the
company's current dividend level.
PHOTO
PAGE 5
BUSINESS PLAN
During 1994, SCWC will continue investing in programs that improve
customer service, employee productivity and our ability to forecast and manage
change. By the end of 1994 our Customer Service Center will be fully
operational, ensuring a consistent quality of service. Centralizing telephone
calls will also free-up local customer service representatives to give
uninterrupted service to walk-in customers. We will also have completed
installation of a Wide Area Network (WAN) that connects districts throughout
the state to our general office, thus improving communications and service
capabilities.
We will enhance communications programs to inform the public about the
value and the actual costs of providing high-quality water. However, costs are
rapidly increasing because water must undergo more sophisticated treatment and
analysis than ever before. By communicating these, and other issues affecting
the cost of providing water service, we believe customers will place a higher
value on the service they receive and better understand when the need arises
for increasing rates.
5
<PAGE> 8
As in years past, we will continue to pursue appropriate acquisitions
located near existing company operations. Many local municipalities and small
water companies are finding it increasingly difficult to operate due to higher
costs and associated risks of increasing regulations. By serving more
customers, we can cost-effectively expand through economies of scale.
We will continue our organization and strategic planning to realize our
mission of Service Excellence. Since California regulation allows forecasting
costs over three years as part of a general rate case, our planning and
forecasting abilities are crucial. A management team with strong forecasting
and implementation skills will improve our efficiency and responsiveness in a
changing industry.
CHALLENGES
The future is never without challenges. Facing challenges pragmatically
and positively is another way of "Investing in the Future". We believe we will
ultimately receive CPUC approval to participate in the Coastal Aqueduct Project
if it can be shown that local water resources are being managed more
efficiently. And, we are currently evaluating all options available to us in
our Bay Point District so we may continue to serve the residents of this Contra
Costa County community.
Even before the management audit was completed this year, SCWC prepared
an implementation plan addressing each of the 114 recommendations for
improvement. In fact, we began implementing many of the recommendations prior
to the audit's completion. We believe the company's Plan for Service Excellence
will make us the best service-oriented utility in the business. Many "teams" of
SCWC employees worked diligently in preparation of the plan and we look forward
to improved relations with the CPUC and our customers.
SUMMARY
Like the barometer, the management at SCWC must continually monitor and
forecast change. These forecasts enable us to better plan for and invest in the
future. Change has been, and will continue to be, inherent in the water and
utility industries. Authorized rates of return for regulated utilities have
been dropping since 1991 due to continued lower interest rates. Federal Safe
Drinking Water amendments have increased testing requirements to include 83
different chemical elements in the water--45 more elements than were required
just ten years ago. Energy utilities are faced with competition for maintaining
their respective customer base. Water supply shortages are continuing, caused
by forces competing for available supplies. Increasing uses of reclaimed
6
<PAGE> 9
wastewater will present new environmental challenges and a need for higher
levels of consumer education. Such realities increase the risks of doing
business. However, SCWC's response is to become the industry leader in meeting
these challenges.
SCWC is an investor-owned utility dedicated to providing quality services
benefiting our customers, shareowners, employees and communities. In pursuit of
customer service excellence, SCWC is committed to exceeding customer
expectations for value and high-quality service. To achieve excellence in our
performance to shareowners, SCWC is committed to safeguarding and enhancing its
assets and to achieving a fair rate of return. In our treatment of employees,
SCWC is committed to fostering excellence by providing competitive and
equitable compensation and by supporting employee development in a professional
work environment. And to meet the needs of the communities we serve, SCWC is
committed to cultivating excellent communications and to promoting mutual
cooperation.
With our focus on "Investing in the Future", our Plan for Service
Excellence will serve as a blueprint to guide us into the 21st century and
beyond. Your continued support of Southern California Water Company is most
welcome, and deeply appreciated.
/s/ Floyd E. Wicks
Floyd E. Wicks
President, Chief Executive Officer
/s/ W. V. Caveney
W.V. Caveney
Chairman
7
<PAGE> 10
INVESTING
IN THE
FUTURE
PHOTO
PAGE 8
8
<PAGE> 11
SCWC's financial track record has been consistent with our mission of
Excellence. We have provided stockholder dividends for 63 years and increased
annual dividend payouts each year for the last 40 consecutive years. One of the
main reasons for this past performance is continuous monitoring of changes and
developments within the company, within the water industry, and in the general
economy. We have then developed and implemented plans that take these changes
into consideration, focusing always on our mission of Excellence.
INVESTMENTS IN FINANCIAL EXCELLENCE
In 1993, SCWC listed its Common Shares on the New York Stock Exchange
(ticker symbol SCW). This gives us greater stability in the trade-to-trade and
day-to-day stock price and provides the opportunity to attract a wider base of
mutual fund and institutional investors. Additionally, SCWC split the company's
Common Shares 2-for-1. This positions the stock in a price range more
competitive with other publicly traded water companies. This year we issued
1,107,000 new Common Shares (post split) to the public.
SCWC refinanced a significant portion of long-term debt and reduced
interest expense through its Medium Term Note (MTN) program. While resulting in
lower costs to ratepayers, the refinancing also enabled us to retire the first
mortgage, in effect since 1947, fourteen years early. The retirement of this
secured debt on all SCWC assets will help to lower the cost of financing on
future unsecured debt issues. It will also eliminate time-consuming, costly
reporting and compliance requirements and give us greater flexibility in
acquiring and selling non-operating properties.
PHOTO
PAGE 9
As a result of our financial planning and performance, Standard & Poors
and Moody's gave SCWC "A" and "A2" ratings, respectively, on its unsecured
debt. These ratings provide SCWC access to the public debt market.
9
<PAGE> 12
PHOTO
PAGE 10
By the end of 1994, we will complete additional upgrades to the SCWC
computer system, enhancing our abilities to budget and forecast and providing
more timely and complete information to our managers. We will also broaden our
Investor Relations Program to increase our visibility to the investing public,
thereby attracting more investors and enhancing shareholder value.
INVESTMENTS IN SERVICE EXCELLENCE
SCWC is primarily in the service business. Like any other service
organization, our profitability is heavily dependent on our level of Service
Excellence. We must continually improve our ability to serve our customers
efficiently and cost effectively.
During 1993 we made several changes directly impacting service
excellence. We upgraded our Customer Information System, for example, enabling
our Customer Service Representatives to more efficiently and consistently
provide a higher quality of service. More than half of our water districts now
have access to backup telephone support supplied by our new centralized
Customer Service Center. This support enables more customers to receive prompt
attention whenever they call.
By mid-1994, all 22 district offices will be supported by the Customer
Service Center. All Customer Service Representatives will have completed an
intensive customer training program by that time, further ensuring a consistent
level of quality service.
By the end of 1994, the Customer Service Center will have expanded
service hours, and it will be linked to our 24-hour emergency 800 hotline.
Customers will consistently be able to reach Customer Service Representatives
quickly. We also plan to conduct customer satisfaction surveys for each
district so that specific areas and activities requiring improvement may be
incorporated into SCWC's business plan.
Ultimately, to maintain our high standard of service excellence, one of
our most important investments in the future is in developing employee
excellence.
10
<PAGE> 13
INVESTMENTS IN EMPLOYEE EXCELLENCE
With 486 employees serving 10 California counties covering 41 different
water systems and one electric system, SCWC averages one employee for every 530
customers. Many other non-investor-owned water utilities do not service such a
widely diverse area and population, but average one employee for every 200-400
customers. This means that SCWC is a very lean operation with excellent
employees already in place. Our continued investments in Employee Excellence
are critical to achieving excellence in customer service, company growth, and
profitability.
We encourage employees to apply for advancement to management positions
which fosters individual employee growth. We also place decision-makers in the
field to give the kind of response necessary at the local level that customers
and community leaders demand. It is essential to continue building on this
in-house talent core for future leadership.
In 1993, SCWC introduced a formal program to further our goals for
employee excellence and development. We call it "The Southern California Water
Company University." This program ensures that training is an on-going process,
enabling employees to continually sharpen their skills, make intelligent
business decisions, and advance within the company.
Our new Employee Development Department is currently training the first
group of in-house instructors through the "Train-the- Trainer Program." These
instructors will be certified as in-house instructors by mid-1994. They will
introduce a new training program focusing on Collaboration, Communication, and
Cooperation: encouraging employees to "Work Smart." The "Work Smart" program
will deliver training on topics relating to customer service, interpersonal
skills, the environment, supervisory management, self- motivation, and other
employee development areas that will increase employee excellence and
productivity.
In 1993 SCWC also began a complete overview of the company's
compensation and performance
PHOTO
PAGE 11
11
<PAGE> 14
evaluation system. Consultants received input from employees on the existing
performance evaluation system, critiqued the existing system, and developed
specific recommendations for matching performance to compensation levels.
Recommendations for changes will be made and implemented during 1994. Creating
a meaningful system that ties performance to compensation levels should help
improve accountability and productivity.
INVESTMENTS IN PRODUCT EXCELLENCE
SCWC currently owns 306 wells, which supplied approximately 56% of our
customer's demands for water during 1993. Effective utilization of ground-water
resources has reduced the necessity and cost of purchasing water from
wholesalers. We drilled six new wells in 1993, and plan to drill several more
in the future to further reduce our costs of purchased water. Investments in
wells also represents a significant investment in our own self-sufficiency.
[GRAPH P.12]
Approximately 95% of all the water we supply is used for non-drinking
purposes, such as watering lawns, washing cars, and light industrial use. Much
of this water could be supplied from reclaimed water sources rather than the
water produced to meet drinking standards. We supplied two new customers with
reclaimed water in 1993 and believe we can continue to grow significantly in
this area in the future. In 1994 and the years to come we expect the number of
reclaimed water customers to significantly increase as costs escalate for
meeting increasingly higher drinking water standards.
As rules for drinking water standards become increasingly more stringent,
costs for treating water naturally increase. We must now test for 83 elements
compared to only 45 elements just ten years ago. Every three years 25 new
elements are to be added. All of our water systems meet all current federal and
state mandates. However, as technology for testing water purity improves, our
ability to meet lower and lower standards will decline. Thus
12
<PAGE> 15
future costs to test for and, as necessary, provide treatment for elements will
escalate, with questionable benefit to the customer.
It is, therefore, critical that SCWC provide the public with information
regarding government regulations as they relate to water quality and future
rate increases. SCWC has a responsibility not only to deliver a high-quality
product, but also to provide it at a reasonable cost to consumers.
Our Conservation Management and Governmental Relations Department not
only reviews and updates SCWC water management plans, it is also responsible
for coordinating the company's "legislative watch" efforts. This department is
working with other water industry representatives to achieve a reasonable
balance between regulating water quality and costs associated with meeting the
ever changing purity standards.
We have also met with representatives of the California State Legislature
requesting that the CPUC be given the legal basis to direct private water
utilities to charge property owners for vacant land fronting water utility
pipelines. These pipelines are an asset for vacant land owners and the
cost-sharing approach will be fair to all parties.
As a result of our commitment to Service Excellence, the investments in
the future outlined herein will better position SCWC to forecast and benefit
from the impending changes ahead.
[GRAPH P.13]
MANAGEMENT AUDIT AND PLAN FOR SERVICE EXCELLENCE
We are pleased to report that the independent Management Audit has been
completed and that SCWC has launched an ambitious program to improve the
company's organizational structure, operations and service to our 257,000
customers.
The Management Audit, which was completed in December, was conducted by
Barrington-Wellesley Group (BWG), a nationally recognized management consulting
firm. It took more than six
13
<PAGE> 16
months and included interviews with more than 150 SCWC employees, the company's
Board of Directors, customers, community representatives and members of the
CPUC staff. It also included review and analysis of almost 300 internal
documents, as well as visits to many of our major facilities.
The Audit represents a major turning point for SCWC, for it was the
primary stimulus behind our Plan for Service Excellence--a comprehensive road
map to follow for continually improving our company. The Plan is a blueprint
designed to help lead us into the 21st century.
[Picture P.14]
The Plan for Service Excellence details the steps SCWC is taking to
implement the 114 recommendations made by BWG. It is the product of exhaustive
effort. Employees, assembled from virtually every department in the company,
devoted thousands of hours to its development and the results demonstrate their
talent, energy and commitment. It addresses every aspect of the company, from
engineering and customer service to communications and regulatory relations.
We are extremely proud of this program and have shared both the Plan for
Service Excellence and the Management Audit report with employees, elected
officials, the news media and community leaders throughout California. We're
excited to begin implementation and are enthusiastic about its potential
long-term impact. The Plan for Service Excellence powerfully illustrates yet
another way SCWC is investing in the future.
Earnings per Share
<TABLE>
<CAPTION>
- --------------------------------------------------------
Other
Year Operations Income Total
- --------------------------------------------------------
<S> <C> <C> <C>
1993 $ 1.61 $ 0.05 $ 1.66
1992 1.68 0.14 1.82
1991 1.40 0.94 2.34
1990 1.31 0.09 1.40
1989 1.13 0.25 1.38
- --------------------------------------------------------
</TABLE>
14
<PAGE> 17
OPERATING DISTRICTS BY COUNTY
[Map P.15]
<TABLE>
<CAPTION>
Number of Customers Served at
December 31, 1993 1992
<S> <C> <C>
Lake
Clearlake 2,111 2,121
Contra Costa
Bay Point 4,475 4,473
Sacramento
Arden-Cordova 12,588 12,363
San Luis Obispo
Los Osos 3,028 3,045
Santa Barbara
Santa Maria 12,040 11,928
Ventura
Ojai 2,742 2,731
Simi Valley 11,852 11,851
Los Angeles
San Gabriel Valley 11,601 11,535
Metropolitan 97,176 97,193
San Dimas 15,082 15,080
Claremont 10,266 10,271
San Bernardino
Desert 3,149 3,180
Barstow 8,541 8,503
Wrightwood 2,450 2,439
Bear Valley* 20,131 20,039
Orange
Orange 38,735 38,075
Imperial
Calipatria-Niland 1,149 1,139
Total Customers 257,116 255,966
</TABLE>
* Electric Customers
Total Population Served Estimated at 1,000,000
15
<PAGE> 18
FINANCIAL
REVIEW
[Photo P.16]
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is an investor-owned public utility subject to the
jurisdiction of the California Public Utilities Commission (CPUC) as to its
water and electric business and properties. The CPUC has broad powers of
regulation over the Company with respect to service and facilities,
classification of accounts, rates, valuation of properties and the purchase,
disposition and mortgaging of properties necessary for the Company to render
its services. The CPUC also has authority over the issuance of securities, the
granting of certificates of necessity and convenience and various other
matters.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1992
Earnings per common share of $1.66 in 1993 are 8.8% lower than the $1.82
recorded during 1992. Earnings from operations of $1.61 per share in 1993,
however, are only 4.2% lower than 1992 operating earnings of $1.68 per share.
Non-operating income contributed $0.05 per share in 1993 compared to $0.14 per
share in 1992.
Water operating revenues of $98.2 million increased 8.3% from $90.6
million in 1992, attributable to a 1.2% increase in the volume of water sold,
an increase in the average number of customers and increased water rates
associated with general rate case decisions and other supply and rate base
offset decisions. In addition, the Company recorded approximately $1.4 million
in revenue related to the recoverability of net revenue losses, due to drought
conditions, and extraordinary conservation expenses.
Electric operating revenues increased by 3.2% to $10.4 million from $10.0
million as a result of a 0.8% increase in kilowatt- hour sales between the two
periods and a change in the mix of those sales during 1993 from industrial,
which has a lower rate per kilowatt-hour, to commercial which has a higher
rate.
Purchased water expense increased by 30% to $29.4 million from $22.6
million in 1992, largely as a result of increases in purchased water rates, the
most recent of which was effective in July, 1993. Continued water conservation,
coupled with increased costs to supply, have caused wholesale water rates in
the State of California to increase significantly. In addition, the Company
purchased approximately 3.2% more imported water during 1993 as compared to
1992.
Expenses for power purchased for resale increased by 35.5% to $3.3
million in 1993 as compared to $2.4 million in 1992. This increase is primarily
attributable to a 36% rate increase from Southern California Edison Company,
effective January 1, 1993.
The costs of power purchased for pumping increased by 9.2% to $8.1
million in 1993 from $7.5 million in 1992 primarily as a result of a 5.5%
increase in the amount of water produced from pumped sources.
Groundwater production assessments of $5.3 million, 23.6% higher in 1993
compared to the $4.3 million recorded in 1992, reflect general increases in
pumping assessment rates as well as the increased amount of water produced from
pumped sources.
A credit for the provision for supply cost balancing accounts reflects an
undercollection of water and electric energy supply costs. The credit in this
category results from the higher supply costs as evidenced by increases in
purchased water costs, power purchased for pumping and resale and groundwater
production assessments.
Other operating expenses increased by 3.7% to $10.9 million in 1993 from
$10.5 million in 1992 primarily as a result of a net increase in the number of
personnel involved in operating and customer service functions.
In 1993, the Company established a reserve of approximately $1.9 million
against previously incurred costs related to the Coastal Aqueduct extension of
the State Water Project. For further details, see Note 10 of the Notes to
Financial Statements.
17
<PAGE> 20
Administrative and general expenses of $13.5 million in 1993 increased by
12.6% from $12.0 million in 1992. The increase between the two years primarily
reflects an increase in payroll and personnel-related costs due to the addition
of 41 persons charging all or some of their time to this category as well as an
average 4% increase in wages granted to employees during 1993. The additional
personnel are necessitated by increasing regulatory, operational and customer
service considerations. In 1992, the Company recorded an additional reserve of
$1.1 million for liability claims; no such additional reserve was necessary
during 1993.
Depreciation expense increased by 13.4% from $6.5 million in 1992 to $7.4
million in 1993 reflecting, primarily, the effects of recording approximately
$28 million in plant in 1992, depreciation on which is fully reflected during
1993.
Maintenance expense of $6.5 million in 1993 increased by 26.7% from $5.1
million in 1992 caused by increased work performed on the Company's water
pumping equipment, main flushing programs and maintenance on the Company's Bear
Valley electric system during early 1993 resulting from abnormal weather.
Taxes on income, down by 29.5% to $5.5 million in 1993 from $7.8 million
in 1992, reflect both the reversal of approximately $1.3 million in previously
established tax reserves and reduced pre-tax book income, which were partially
offset by an increase in the corporate tax rate to 35% from 34% effective
January 1, 1993.
Total interest expense increased by 6.2% to $8.4 million in 1993 from
$7.9 million in 1992 primarily as a result of increased short-term borrowing.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Earnings per share in 1992 of $1.82 were 22.2% lower than earnings per
share of $2.34 in 1991. Earnings per share from operations, however, increased
by 20% to $1.68 in 1992 as compared to $1.40 in 1991. Non-operating earnings
were $0.14 per share in 1992 compared to $0.94 per share in 1991.
Water operating revenues increased to $90.6 million or 15.8% from the
$78.3 million in 1991. This change is attributable to an increase in the
average number of customers and a 6.5% increase in water sales volumes, coupled
with rates authorized in CPUC general rate case decisions and other supply cost
and rate base offset decisions.
Electric operating revenues decreased by 18.9% to $10 million in 1992
from $12.4 million in 1991, primarily as a result of a rate decrease effective
November, 1991 reflective of full collection of previously unrecovered amounts
in the electric balancing account. The decrease in electric operating revenues
occurred in spite of the fact that electric sales volumes increased by 3.4%.
Purchased water costs increased to $22.6 million, or 24.6%, in 1992 as
compared to $18.1 million in 1991. This increase reflects the effects of
increased water rates from the Company's wholesale water suppliers as well as a
4.9% increase in the amount of such water purchased during 1992.
Expenses for power purchased for resale increased 63.2% to $2.4 million
in 1992 as compared to $1.5 million in 1991 due to a 3.4% increase in
kilowatt-hour sales during 1992 and approximately $2.7 million in refunds
received during 1991 from the Company's wholesale supplier which reduced 1991
expense. During 1992, however, the Company received an additional $1.6 million
in refunds.
Power purchased for pumping expense increased by 2.4% to $7.5 million in
1992 as compared to $7.3 million in 1991 primarily as a result of a 5.9%
increase in the volume of pumped water produced.
Groundwater production assessments increased to $4.3 million in 1992 from
$3.1 million in 1991, or 38.1%, due to both the increase in the amount of water
supplied from pumped sources as well as
18
<PAGE> 21
general increases in assessment rates, 100% in the Company's Metropolitan
district, which were effective during 1992.
A credit in the supply cost balancing account in 1992 reflects an
undercollection of production costs, due chiefly to increases in wholesale
water rates and increases in groundwater production assessment rates.
The 9.8% increase in other operating expenses to $10.5 million in 1992
from $9.6 million in 1991 results from three factors: an increase in customer
accounting expenses associated with the acquisition in August, 1991 of four
water systems from the County of Los Angeles; an increase to reserve for
uncollectible accounts of $200,000; and increased expenses associated with
water pumping operations.
Administrative and general expenses increased by 28.8% from $9.3 million
in 1991 to $12.0 million in 1992, largely as a result of recording
approximately $1.1 million in additional insurance reserves related to a review
of several general liability claims and claims pending, all of which occurred
in the ordinary course of business and none of which were significant
individually.
Depreciation expense increased by 8.3% from $6.0 million in 1991 to $6.5
million in 1992 reflecting, primarily, the effects of recording approximately
$32 million in plant in 1991, depreciation on which is fully reflected during
1992.
Taxes on income increased to $7.8 million in 1992, or 45.9%, over the
$5.3 million in 1991 as a result of significantly higher pre-tax book income
and an increase of approximately $650,000 to reserves.
Other income decreased by 84.7% to $934,000 in 1992 compared to $6.1
million in 1991 due primarily to the recording of a $5.5 million gain on the
sale of the Big Bear water systems in 1991. An additional $849,000 in gain was
recorded in 1992.
Total interest expense of $7.9 million in 1992, 4.0% higher than the $7.6
million recorded in 1991, reflects increased short-term borrowing in 1992 as
compared to the prior year.
YEARS ENDED DECEMBER 31, 1991 AND 1990
Earnings per share in 1991 of $2.34 were 67.1% higher than earnings per
share of $1.40 in 1990. Earnings from operations increased by 6.9% to $1.40 per
share in 1991 as compared to $1.31 per share in 1990. Earnings from
non-operating income of $0.94 per share compared to $0.09 per share recorded in
1990.
For 1991, Company-mandated and customer-initiated conservation measures
resulted in a 16.5% decrease in water sales volumes from the prior year.
Notwithstanding the decline in sales volumes, water operating revenues
increased 2.6% to $78.3 million in 1991 compared to $76.3 million in 1990 as a
result of increased water rates approved by the CPUC and recording the
recoverability of approximately $3.3 million in net revenue losses resulting
from the Company's water rationing program.
Electric operating revenues in 1991 increased to $12.4 million, or 11.9%
from the $11.1 million recorded in 1990, as a result of rate increases approved
by the CPUC to cover supply cost increases. However, the Company's electric
rates were reduced in November, 1991 in recognition of recovery of the supply
costs due most significantly to receipt of approximately $2.7 million in
refunds from the Company's wholesale electric supplier. Electric sales
decreased slightly by 1.5%.
Purchased water expense decreased by 17.5% to $18.1 million in 1991 from
$22.0 million in 1990 reflecting the conservation-induced reduction in water
sales volumes as well as a change in the mix of water supplied from purchased
water in favor of pumped water sources.
Power purchased for resale decreased significantly to $1.5 million in
1991, a decrease of 81% from the $7.8 million recorded in 1990. This decrease
is the
19
<PAGE> 22
result of approximately $2.7 million in refunds from the Company's wholesale
electric supplier, reduced electric rates generally as a result of settlement
of issues in the wholesale supplier's FERC rate case and reduced electric sales
volumes.
Power purchased for pumping expense increased by 0.9% to $7.3 million in
1991 as compared to $7.2 million in 1990. Even though pumped water supplied
6.2% more of total water sold, due to conservation and rationing, total pumped
water volumes produced remained virtually unchanged between the two years.
Groundwater production assessments, up by 36.9% to $3.1 million in 1991
compared to $2.3 million in 1990, reflect the assessments associated with the
additional amounts of water supplied from pumped sources in 1991.
A charge in the supply cost balancing accounts reflects an over-collected
position resulting from a combination of the $2.7 million in refunds, generally
reduced wholesale power rates from the Company's wholesale electric supplier
and the rate increase designed to recover under-collected amounts.
Other operating expenses of $9.6 million in 1991 increased by 12.6% over
the $8.5 million recorded in 1990 and is affected by three factors. First is
increased operation costs associated with pumping as the Company shifted its
resource mix away from purchased sources. Second is the level of expense
associated with water treatment. Lastly, 1991 was affected by a period of
abnormally cold weather during the winter months which increased both electric
and water operating expense in its aftermath.
General and administrative expense increased by 15% to $9.3 million in
1991 from $8.1 million in 1990 due primarily to an increase in the number of
employees, a 5% pay increase granted to employees and approximately $542,000 in
expenses related to management of the Company's water conservation and
rationing programs. With respect to the latter, there was virtually no such
expense in 1990.
Depreciation expense increased by 16.5% from $5.2 million in 1990 to $6.0
million in 1991 reflecting, primarily, the effects of recording approximately
$27 million in plant in 1990, depreciation on which is fully reflected during
1991.
Maintenance expense increased by 3.3% to $5.2 million in 1991 from $5.0
million in 1990. This increase is primarily associated with pumping equipment
and reflects the accelerated pace of pump maintenance early in 1991 necessary
for preparations to maximize production from Company-owned wells during the
summer months.
The significant increase in other income results from booking
approximately $5.5 million of the total net gain on the condemnation of the Big
Bear water systems.
Total interest expense of $7.6 million in 1991 increased by 18.1% over
the $6.4 million recorded in 1991 as a result of the issuance in May, 1991 of
$28 million in 9.56% Notes due 2031.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company funds the majority of its operating expenses, interest on its
outstanding debt, sinking fund requirements on its outstanding debt and
preferred shares and dividends on its outstanding common and preferred shares
through internal sources. These internal sources consist of retained earnings,
deferred taxes, amortization of deferred charges and depreciation. However, due
to the seasonal nature of its water and electric businesses, the Company
utilizes its short-term borrowing capacity on occasion to finance its current
operating costs. As in recent years, the Company continues to rely on external
sources to fund the majority of its capital expenditures program.
The Company expects to incur net construction expenditures of
approximately $24.6 million,
20
<PAGE> 23
$15 million and $32 million in 1994, 1995 and 1996, respectively. Because these
estimates are subject to review, actual expenditures may vary and, in the case
of 1995 and 1996, the estimates are subject to approval by the Board of
Directors.
The Company relies on short-term bank borrowing to temporarily finance
its construction expenditures which are ultimately financed with equity or
long-term debt. At December 31, 1993, the Company had utilized $12,000,000 of
its aggregate short-term borrowing capacity of $27,063,000. Of its total
short-term borrowing capacity, $8,063,000 is also available to support letters
of credit. It is anticipated that borrowing under the three bank lines of
credit will increase during 1994. The Company received approximately $2.2
million in advances and contributions in aid of construction during 1993.
Refunds on advance contracts totaled approximately $2.9 million in 1993.
The Company sold 1,000,000 Common Shares in July, 1993 and an additional
107,000 Common Shares in September, 1993 for aggregate net proceeds to the
Company of approximately $23,935,000. These funds were utilized to retire
$21,000,000 in then outstanding short-term bank borrowing. The Company
anticipates selling long-term debt in 1994 to finance its continuing
construction requirements.
In 1993, the Company implemented an enhanced feature to its Dividend
Reinvestment Plan that allows participants in the Plan to make additional
investments in the Company's Common Shares, with no brokerage fees or
commissions. The Company received $1.1 million during 1993 through operation of
the Plan.
During 1993, the Company refinanced approximately $37,000,000 of its
outstanding debt in order to lower its interest expense. The net effect of the
refinancing efforts was to lower the weighted average cost of debt to
approximately 7.6% from 8.7% and to extend the weighted average life of the
debt to almost 24 years from 19 years. The Company paid approximately $2.6
million in premiums on redemption of its higher coupon debt which will be
amortized over the lives of the new issues of debt. As part of its refinancing
efforts, the Company was able to refinance its entire remaining first mortgage
bonds and close the indenture on its properties so that all of the Company's
presently outstanding debt is predominantly in the form of unsecured notes.
On January 17, 1994, an earthquake in Southern California affected 1 of
the Company's 41 water systems resulting in damage to Company facilities in
excess of $1 million. The Company does not expect that this event will have a
material impact on liquidity or results of operation due to the opportunity to
recover costs associated with this event through previously established
procedures of the CPUC.
RATES AND REGULATIONS
Water rates of the Company vary among its operating districts due to
differences in operating conditions, capital investment and costs. Each
operating district is considered as a separate entity for rate-making purposes.
The Company continuously monitors its operations in each district so that
applications for rate changes, when warranted and as permitted, may be filed on
a district-by-district basis with the CPUC. Under the CPUC's practices, rates
may be increased by three methods: general rate increases, offsets for certain
supply costs increases and advice letter filings related to certain plant
additions. General rate increases typically are for three year periods and
include "step" increases in rates for the second and third years.
The Company filed an application for general rate increases in six of its
operating districts in May, 1992. In June, 1993 the CPUC issued its decision
and the Company requested rehearing on two matters, the rate of return on rate
base and an authorized rate increase for the Company's Bay Point water
district. The CPUC granted the
21
<PAGE> 24
Company's request for rehearing on the two issues and establishing an interim
rate of return on rate base of 9.5% applicable for certain attrition, step rate
filings and other earnings test filings with respect to the Company's other
operating districts. The decision also disallowed $1.6 million, or
approximately one-half, of the cost of constructing a water treatment plant in
the Company's Clearlake water district.
The Company has filed its case on the two matters set for rehearing,
which is scheduled for March, 1994. The interim rate of return on rate base of
9.5% is estimated to yield a return on common equity of 10.15%. Should the
10.15% return on common equity be upheld, or, in light of reductions in
interest rates since June, 1993, lowered on rehearing, the ability of the
Company to generate additional cash flow through future filings would be
adversely and significantly affected due to the rate of return benchmark used
for earnings tests.
In response to the CPUC's disallowance of $1.6 million in investment
costs associated with the water treatment plant in the Company's Clearlake
water district, the Company transferred that amount to non-utility plant
undertaking efforts to sell either capacity from the plant or a portion of the
plant itself to other utilities. Discussions with these utilities have, to
date, not produced any firm agreement. Therefore, the Company has reserved
fully against the $1.6 million in investment costs.
The Company expects to receive approval from the CPUC to increase rates
in several of its operating districts to recover increases in its supply
operating expenses. While these increases do not affect earnings, they do
improve cash flow. The Company intends to file with the CPUC for recovery of
the costs of implementing certain recommendations made in the recently
completed management audit.
ENVIRONMENTAL MATTERS
The Company is subject to regulations established by the Environmental
Protection Agency (EPA) and administered by the California Department of Health
Services (DOHS) regarding water quality issues. The Safe Drinking Water Act
(SDWA) requires the EPA to set standards for contaminants and water treatment
processes. To date, the EPA has promulgated national primary drinking water
standards for 83 identified water contaminants and must establish standards for
an additional 25 contaminants every three years thereafter. Two regulations,
establishing maximum contaminant levels (MCL) for arsenic and radon, are
pending which could affect both the availability and costs of the Company's
groundwater supplies. However, because treatment of groundwater supplies would
vary with different MCL's potentially established for these two contaminants,
the Company is unable to predict the effect that the new standards will have on
the costs and availability of its groundwater supplies.
To date, the Company has not been significantly affected, from an
operational standpoint, from contamination of its pumped water supplies and
water purchased from its wholesale suppliers is generally delivered already
treated. Costs associated with the testing and treatment of water supplies in
response to these new standards has, however, increased by approximately 113%
since 1988. The rate-making process provides the Company with an opportunity
to recover these costs although no assurance can be given that the CPUC will
authorize all or any part of the rate increases necessary to do so.
There have been no material environmental matters affecting the Company's
Bear Valley electric district.
WATER SUPPLY
Water supplies in the State of California continue to maintain at
pre-drought levels, although
22
<PAGE> 25
current precipitation levels are far below last year. Precipitation for the
first three months of the water year, which begins October 1, have been much
lower than normal with seasonal rainfall about 60% of average on a statewide
basis and about 70% in the northern Sierra Nevada mountain range. Seasonal
runoff statewide is just under 40% of normal. The State of California's 155
major reservoirs showed storage to be 22.5 million acre-feet, or approximately
101% of average.
Long-term imported water supplies continue to be affected by
environmental concerns and restrictions in the California Delta area, stemming
from the Endangered Species Act. Current estimates indicate that approximately
1.6 million acre-feet of water will be available as compared to the 4.2 million
acre-feet entitlement of the State Water Project (SWP) during the water year
ending September 30, 1994. Inasmuch as the Department of Water Resources bases
its allocations on the maximum annual water demands since 1980, agricultural
agencies are expected to receive approximately 50% of their requirements while
urban agencies will receive about 31% of their requirements. On this basis, the
Metropolitan Water District (MWD) of Southern California and its various
sub-agencies, from which the Company purchases its wholesale water supplies,
expects to receive an allocation of 0.72 million acre-feet from the SWP.
Projected demands on the MWD in 1994 are 1.8 to 1.9 million acre-feet. However,
full allocation of 1.3 million acre-feet from the Colorado River Aqueduct,
together with the SWP allocation, will allow MWD to meet its water demand
requirements in 1994.
To the extent that continued legislation forces a reduction in the amount
of water available from Northern California, the MWD and its various agencies
will continue to intensify their efforts to secure contracts for water
transfers and conjunctive use of local groundwater basins. Conservation and
reclamation projects play an important part in MWD's integrated resource
planning efforts.
Overall groundwater conditions, in those water districts of the Company
which pump groundwater, continue to maintain at adequate levels. The Company
drilled six new wells during 1993.
ACCOUNTING STANDARDS
Effective January 1, 1994, the Company is subject to the reporting
requirements contained in SFAS No. 112--Employers' Accounting for
Post-employment Benefits. The Company has determined that, SFAS No. 112 does
not apply since there are no benefits other than those properly accounted for
under other reporting requirements.
Effective January 1, 1994, the Company is subject to the reporting
requirements contained in SFAS No. 115--Accounting for Certain Investments in
Debt and Equity Securities. The Company has determined that it has no debt
security investments that are held-to-maturity or any debt or equity security
investments that are trading securities or available-for-sale securities,
therefore, as of December 31, 1993, it will not be necessary to report any such
investments under this reporting requirement.
23
<PAGE> 26
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
At December 31, (in thousands) 1993 1992
====================================================================================================
<S> <C> <C>
UTILITY PLANT, AT COST
Water $ 341,438 $319,858
Electric 24,820 22,527
- ----------------------------------------------------------------------------------------------------
366,258 342,385
Less: Accumulated depreciation (84,808) (77,874)
- ----------------------------------------------------------------------------------------------------
281,450 264,511
Construction work in progress 13,540 13,014
- ----------------------------------------------------------------------------------------------------
294,990 277,525
- ----------------------------------------------------------------------------------------------------
OTHER PROPERTY AND INVESTMENTS 921 1,114
- ----------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents 1,726 442
Accounts receivable--
Customers, less reserves of
$370 in 1993 and $333 in 1992 6,815 8,030
Other 1,520 4,248
Unbilled revenue 8,106 6,523
Materials and supplies, at average cost 1,275 1,279
Supply cost balancing accounts 7,022 3,224
Prepayments 6,787 5,005
Accumulated deferred income taxes--net 1,279 3,520
- ----------------------------------------------------------------------------------------------------
34,530 32,271
- ----------------------------------------------------------------------------------------------------
DEFERRED CHARGES
Regulatory tax-related asset 23,198 ----
Other 4,894 1,581
- ----------------------------------------------------------------------------------------------------
28,092 1,581
- ----------------------------------------------------------------------------------------------------
$ 358,533 $312,491
====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 27
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
At December 31, (in thousands) 1993 1992
====================================================================================================
<S> <C> <C>
CAPITALIZATION
Common shareholders' equity $116,463 $88,229
Preferred Shares 1,600 1,600
Preferred Shares subject to mandatory
redemption requirements 600 640
Long-term debt 84,286 84,195
- ----------------------------------------------------------------------------------------------------
202,949 174,664
- ----------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Notes payable to banks 12,000 14,668
Long-term debt and Preferred Shares
due within one year 417 1,013
Accounts payable 9,277 6,739
Taxes payable 2,950 5,990
Rationing penalty reserve ---- 5,015
Accrued interest 1,178 1,450
Other 6,846 5,724
- ----------------------------------------------------------------------------------------------------
32,668 40,599
- ----------------------------------------------------------------------------------------------------
OTHER CREDITS
Advances for construction 55,295 56,458
Contributions in aid of construction 25,011 24,669
Accumulated deferred income taxes--net 34,969 10,625
Regulatory tax-related liability 2,389 ----
Unamortized investment tax credits 3,664 3,747
Other 1,588 1,729
- ----------------------------------------------------------------------------------------------------
122,916 97,228
- ----------------------------------------------------------------------------------------------------
$358,533 $ 312,491
====================================================================================================
</TABLE>
25
<PAGE> 28
STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
At December 31, (in thousands) 1993 1992
======================================================================================================
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY:
Common Shares, $2.50 par value--
Authorized 10,000,000 shares
Outstanding 7,805,495 shares in 1993 and 6,642,926
in 1992 $19,514 $16,607
Additional paid-in capital 54,179 32,234
Earnings reinvested in the business 42,770 39,388
- ------------------------------------------------------------------------------------------------------
116,463 88,229
- ------------------------------------------------------------------------------------------------------
PREFERRED SHARES: $25 PAR VALUE
Authorized 64,000 shares
Outstanding 32,000 Shares, 4% Series 800 800
Outstanding 32,000 shares, 4-1/4% Series 800 800
- ------------------------------------------------------------------------------------------------------
1,600 1,600
- ------------------------------------------------------------------------------------------------------
PREFERRED SHARES SUBJECT TO MANDATORY
REDEMPTION REQUIREMENTS: $25 PAR VALUE
Authorized and outstanding 25,600 in 1993 and
27,200 in 1992, 5% Series 640 680
Less: Preferred Shares to be redeemed within one year (40) (40)
- ------------------------------------------------------------------------------------------------------
600 640
- ------------------------------------------------------------------------------------------------------
LONG TERM DEBT:
First Mortgage Bonds:
4-3/4% Series due 1995 ---- 2,220
4.65% Series due 1995 ---- 2,220
5.10% Series due 1996 ---- 2,250
6.8% Series due 1997 ---- 2,805
10% Series due 2004 ---- 2,656
8.5% Series due 2007 ---- 2,750
Other Long-term Debt:
3.90% Notes due 1995 2,100 ----
4.16% Notes due 1995 2,100 ----
4.30% Notes due 1996 2,200 ----
8.75% Notes due 1996 ---- 9,500
9.25% Notes due 2001 ---- 2,790
5.82% Notes due 2003 12,500 ----
10.03% Notes due 2004 ---- 8,000
10.10% Notes due 2009 10,000 10,000
6.64% Notes due 2013 1,100 ----
6.80% Notes due 2013 2,000 ----
8.50% Fixed Rate Obligation due 2013 2,179 2,247
Variable Rate Obligation due 2014 6,000 6,000
10.375% Notes due 2016 ---- 3,264
6.87% Notes due 2023 5,000 ----
7.00% Notes due 2023 10,000 ----
9.56% Notes due 2031 28,000 28,000
Other 1,484 466
- ------------------------------------------------------------------------------------------------------
84,663 85,168
Less: Current maturities (377) (973)
- ------------------------------------------------------------------------------------------------------
84,286 84,195
- ------------------------------------------------------------------------------------------------------
$ 202,949 $174,664
======================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 29
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands, except per share amounts) 1993 1992 1991
=====================================================================================================
<S> <C> <C> <C>
OPERATING REVENUES
Water $ 98,155 $ 90,625 $ 78,282
Electric 10,351 10,035 12,378
- -----------------------------------------------------------------------------------------------------
108,506 100,660 90,660
- -----------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Water purchased 29,375 22,591 18,126
Power purchased for resale 3,282 2,422 1,484
Power purchased for pumping 8,139 7,452 7,276
Groundwater production assessment 5,284 4,274 3,095
Supply cost balancing accounts (7,960) (1,430) 4,454
Other operating expenses 10,923 10,537 9,594
Provision for State Water Project 1,854 ---- ----
Administrative and general expense 13,509 11,995 9,315
Depreciation 7,398 6,526 6,027
Maintenance 6,450 5,091 5,147
Taxes on income 5,491 7,791 5,340
Property and other taxes 4,711 4,313 3,977
- -----------------------------------------------------------------------------------------------------
88,456 81,562 73,835
- -----------------------------------------------------------------------------------------------------
Operating income 20,050 19,098 16,825
- -----------------------------------------------------------------------------------------------------
OTHER INCOME
Net gain from sale of operating properties ---- 849 5,463
Provision for non-operating assets (943) ---- ----
Other--net 1,297 85 658
- -----------------------------------------------------------------------------------------------------
354 934 6,121
- -----------------------------------------------------------------------------------------------------
Income before interest charges 20,404 20,032 22,946
- -----------------------------------------------------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 7,607 7,256 7,200
Other interest and amortization of debt expense 771 634 383
- -----------------------------------------------------------------------------------------------------
8,378 7,890 7,583
- -----------------------------------------------------------------------------------------------------
NET INCOME 12,026 12,142 15,363
Dividends on Preferred Shares 100 102 104
- -----------------------------------------------------------------------------------------------------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 11,926 $ 12,040 $ 15,259
- -----------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $ 1.66 $ 1.82 $ 2.34
- -----------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,186 6,628 6,518
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 30
STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares
----------------------- Additional Earnings
Number Paid-in Reinvested in
of Shares Amount Capital the Business
===============================================================================================================
<S> <C> <C> <C> <C>
Balances at December 31, 1990 (in thousands) 6,290 $ 15,722 $ 28,566 $ 26,853
Add:
Issuances of Common Shares
in conversion of $3,477,000 of 10.5%
Convertible Subordinated Notes 288 724 2,714
under Dividend Reinvestment Plan 30 73 397
Net Income 15,363
Deduct:
Dividends on Preferred Shares (104)
Dividends on Common Shares--$1.10 per share (7,146)
- ---------------------------------------------------------------------------------------------------------------
Balances at December 31, 1991 6,608 $ 16,519 $ 31,677 $ 34,966
Add:
Issuances of Common Shares under
Dividend Reinvestment & 401-k Plans 34 88 557
Net Income 12,142
Deduct:
Dividends on Preferred Shares (102)
Dividends on Common Shares--$1.15 per share (7,618)
- ---------------------------------------------------------------------------------------------------------------
Balances at December 31, 1992 6,642 $ 16,607 $ 32,234 $ 39,388
Add:
Issuances of Common Shares
for Public Offering in July 1,000 2,500 19,025
for Public Offering in September 107 268 2,142
under Dividend Reinvestment
& 401-k Plans 56 139 778
Net Income 12,026
Deduct:
Dividends on Preferred Shares (100)
Dividends on Common Shares--$1.1875 per share (8,544)
- ---------------------------------------------------------------------------------------------------------------
Balances at December 31, 1993 7,805 $ 19,514 $ 54,179 $ 42,770
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 31
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, (in thousands) 1993 1992 1991
=================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,026 $ 12,142 $ 15,363
Adjustments for non-cash items:
Depreciation and amortization 7,682 6,823 6,243
Deferred income taxes and investment tax credits 5,693 1,977 (1,152)
Gain on sale of properties ---- (1,418) (8,259)
Other--net (830) (876) (2,480)
Changes in Assets and Liabilities
Customer receivables 1,215 1,884 (281)
Supply cost balancing accounts (3,798) (1,721) 4,276
Rationing penalty reserve (5,015) 615 4,400
Accounts payable 2,538 1,112 (4,796)
Taxes payable (3,040) (2,611) 5,791
Other--net, including reserves (309) (1,998) (1,276)
- -------------------------------------------------------------------------------------------------
16,162 15,929 17,829
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares 24,852 646 471
Issuance of long-term debt and lease obligations 38,143 358 28,000
Debt issuance costs (427) ---- ----
Receipt of advances for and
contributions in aid of construction 2,157 2,414 5,442
Repayment of long-term debt and
redemption of Preferred Shares (233) (3,247) (599)
Early retirement of long-term debt (41,103) ---- (6,235)
Refunds on advances for construction (2,903) (2,985) (2,419)
Net change in notes payable to banks (2,668) 14,668 (7,500)
Common and Preferred dividends paid (8,651) (7,754) (7,267)
- --------------------------------------------------------------------------------------------------
9,167 4,100 9,893
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (22,248) (23,048) (24,164)
Acquisition of water systems (1,797) ---- (3,310)
Proceeds from sale of properties ---- 2,298 2
- --------------------------------------------------------------------------------------------------
(24,045) (20,750) (27,472)
- --------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,284 (721) 250
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 442 1,163 913
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,726 $ 442 $ 1,163
- --------------------------------------------------------------------------------------------------
TAXES AND INTEREST PAID:
Income taxes paid $ 1,484 $ 10,799 $ 6,316
Interest paid 8,354 7,458 7,489
- --------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to Company $ 818 $ 3,119 $ 1,398
Capital leases 1,142 2,606 ----
Conversion of 10.5% Convertible Subordinated Notes ---- ---- 3,477
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accounting records are maintained in accordance with the Uniform
System of Accounts prescribed by the California Public Utilities Commission
(CPUC).
PROPERTY AND DEPRECIATION--The Company capitalizes as utility plant the
cost of additions and replacements of retirement units. Such cost includes
labor, material and certain indirect charges.
Depreciation is computed on the straight-line, remaining-life basis. For
the years 1993, 1992 and 1991, the aggregate provisions for depreciation
approximated 2.47%, 2.39% and 2.40% of beginning of the year depreciable plant,
respectively.
Interest is generally not capitalized for financial reporting purposes as
such procedure is generally not followed for ratemaking purposes.
REVENUES--Revenues include amounts billed to customers and an amount of
unbilled revenue representing amounts to be billed for usage from the last
meter reading date to the end of the accounting period.
EARNINGS PER COMMON SHARE--Earnings per Common Share are based upon the
weighted average number of Common Shares outstanding during each period and net
income after deducting preferred dividend requirements. All per share amounts
reflect the 2-for-1 stock split effective September 23, 1993.
SUPPLY COST BALANCING ACCOUNTS--As permitted by the CPUC, the Company
maintains water and electric supply cost balancing accounts to account for
under-collections and over-collections of revenues designed to recover such
costs. Recoverability of such costs are recorded in income and charged to
balancing accounts when such costs are incurred. The balancing accounts are
credited when such costs are recovered through rate adjustments.
DEBT ISSUE EXPENSE AND REDEMPTION PREMIUMS--Original debt issue expenses
are amortized over the lives of the respective issues. Premiums paid on the
early redemption of debt which is reacquired through refunding are deferred and
amortized over the life of the debt issued to finance the refunding. The
redemption premium on debt reacquired without refunding is amortized over the
remaining period the debt would have been outstanding.
OTHER CREDITS--Advances for construction represent amounts advanced by
developers which are generally refundable at either a rate of 22% of the
revenue received from the installations for which funds were advanced or in
equal annual installments over a forty year period.
Contributions in aid of construction are similar to advances, but require
no refunding and are amortized over the useful lives of the related property.
CASH AND CASH EQUIVALENTS--For purposes of the Statements of Cash Flows,
cash and cash equivalents include short-term cash investments with an original
maturity of three months or less.
FINANCIAL INSTRUMENT RISK--The Company does not carry any financial
instruments with off-balance-sheet risk nor do its operations result in
concentrations of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The following methods and
assumptions were used to estimate the fair value, as shown in the table below,
of each class of financial instrument for which it is practicable to estimate
that value:
Cash and Cash Equivalents: The carrying amount.
Accounts Receivable and Short-term Debt: Due to their short-term nature,
the carrying amount.
Long-term Debt: Rates available to the Company at December 31, 1993 and
1992 for debt with similar terms and remaining maturities were used to
estimate the fair value of existing debt.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1993 1992
--------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
- ---------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 1,726 $ 1,726 $ 442 $ 442
Accounts receivable 16,441 16,441 18,801 18,801
Financing liabilities:
Short-term debt 12,000 12,000 14,668 14,668
Long-term debt 84,663 58,916 85,168 70,511
- ---------------------------------------------------------------------------------
</TABLE>
NOTE 2: CAPITAL STOCK
All of the series of Preferred Shares outstanding at December 31, 1993
are redeemable at the option of the Company. At December 31, 1993, the
redemption price per share for each series of $25 Preferred Shares was $27.00,
$26.50 and $25.25 for the 4%, 41/4% and 5% Series, respectively. To each of the
redemption prices must be added accrued and unpaid dividends to the redemption
date.
The $25 Preferred Shares, 5% Series, are subject to mandatory redemption
provisions of 1,600 shares per year. The annual aggregate mandatory redemption
requirements for this Series for the five years subsequent to December 31, 1993
is $40,000 each year.
The Company sold 1,000,000 Common Shares in a public offering in July,
1993 and an additional
30
<PAGE> 33
107,000 Common Shares in a follow-on offering in September, 1993.
In September, 1993, at a Special Meeting of Shareholders, amendments to
the Company's Restated Articles of Incorporation were approved to effect a
2-for-1 split of the Company's Common Shares. The stock split was effective for
shareholders of record as of September 23, 1993 and the distribution of shares
was made on October 5, 1993.
During the three years ended December 31, 1993, the Company issued
47,828, 28,416 and 29,146 Common Shares under the Dividend Reinvestment Plan
(DRP). The Company issued 7,741 and 7,102 Common Shares under the 401-k Plan in
1993 and 1992, respectively.
There are 109,454 and 92,259 Common Shares reserved for issuance under
the DRP and the 401-k plan, respectively. Shares reserved for the 401-k are in
relation to Company contributions under the 401-k and for investment purposes
by participants in the 401-k plan.
NOTE 3: COMMON SHARE DIVIDEND RESTRICTION
As of December 31, 1993, under the most restrictive covenant in the
Company's Articles of Incorporation and debt instruments, retained earnings of
$28,021,000 were restricted as to the payment of cash dividends on Common
Shares.
NOTE 4: LONG-TERM DEBT
During 1993, the Company issued a total of $37 million of unsecured
Notes. These notes were used to redeem and refinance all of the Company's
outstanding First Mortgage Bonds and certain high coupon debt prior to their
maturity.
With the redemption of all of the first Mortgage Bonds, the Company has
closed the lien of record under which substantially all of its properties were
subject and title to all property was conveyed to the Company.
Leases and other similar financial arrangements are not material. The
Company has posted an Irrevocable Letter of Credit in the amount of $1,183,219
as security for its self-insured workers' compensation plan which expires July
31, 1994. Management anticipates that the letter of credit will be renewed on
expiration. The Company has also provided an Irrevocable Letter of Credit in
the amount of $6,296,000 to a Trustee with respect to the variable rate
obligation due 2014 issued by the Three Valleys Municipal Water District.
(TVMWD).
The Company, during 1992, entered into a $2,247,000 fixed rate obligation
due 2013 payable to the TVMWD for construction of a new reservoir necessary to
serve one of the Company's operating districts.
Annual maturities of all long-term debt amount to $377,000, $4,584,000,
$2,591,000, $349,000 and $271,000 for each of the years ended December 31, 1994
through 1998, respectively.
NOTE 5: COMPENSATING BALANCES AND BANK DEBT
At December 31, 1993, the Company maintained lines of credit for
short-term borrowings with three commercial banks. Loans can be obtained at the
option of the Company and bear interest at rates based on floating prime
borrowing rates or at money market rates. Compensating balances are maintained
on one line of credit on an annual average but are not restricted as to
withdrawal. Of the aggregate borrowing capacity of $27,068,000, $12,000,000 was
outstanding at December 31, 1993.
Short-term bank borrowing activities for the last three years are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
1993 1992 1991
(dollars in thousands)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Balance Outstanding
at December 31, $12,000 $14,668 ----
Interest Rate at December 31 3.76% 4.37% ----
Average Amount Outstanding 9,862 3,916 4,208
Weighted Average Annual
Interest Rate 3.76% 4.23% 7.67%
Maximum Amount Outstanding 21,500 14,668 14,100
- ---------------------------------------------------------------------
</TABLE>
NOTE 6: TAXES ON INCOME
The Company provides deferred income taxes for certain transactions which
are recognized for income tax purposes in a period different from that in which
they are reported in the financial statements. The most significant items are
the tax effects of accelerated depreciation, the supply cost balancing accounts
and advances for and contributions in aid of construction. Deferred Investment
Tax Credits (ITC) are being amortized to other income ratably over the lives of
the property giving rise to the credits.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109--Accounting for Income Taxes. SFAS No. 109
requires a change from the deferred method to the asset and liability method of
accounting for income taxes. The effect of the new standard was an increase in
assets and liabilities of approximately $22 million, as of January 1, 1993, and
$23 million, as of December
31
<PAGE> 34
31, 1993, as the result of recording additional deferred taxes which were
offset by the recording of a regulatory asset. The CPUC has consistently
permitted the recovery of previously flowed-through tax benefits. Therefore,
the Company believes that adoption of SFAS No. 109 will not have a significant
impact on the Company's results of operations.
The current and deferred components of income tax expense are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1993 1992 1991
- ---------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal (1,854) $ 5,691 $ 8,621
State 80 1,836 1,863
- ---------------------------------------------------------------------
Total current tax expense (1,774) 7,527 10,484
- ---------------------------------------------------------------------
Deferred--Federal and State
Accelerated depreciation 2,819 2,473 2,013
Balancing accounts 505 571 (1,892)
Excess use penalties 3,660 126 (1,905)
Advances and contributions (1,465) (1,557) (2,584)
Gain on sales of operating
properties (43) 526 3,181
Gain on installment sale ---- (695) ----
Privilege year franchise tax 142 (317) (590)
Other (160) (232) 35
- ---------------------------------------------------------------------
Total deferred tax expense 5,458 895 (1,742)
- ---------------------------------------------------------------------
Total income tax expense 3,684 8,422 8,742
- ---------------------------------------------------------------------
Income taxes included in
operating expenses 5,491 7,791 5,340
Income taxes included in other
income and expense--net (1,809) 631 3,402
- ---------------------------------------------------------------------
Total income tax expense $ 3,684 $ 8,422 $ 8,742
- ---------------------------------------------------------------------
</TABLE>
Additional information regarding taxes on income is set forth in the
following table:
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1993 1992 1991
- ---------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Federal taxes on pre-tax income
at statutory rates $ 5,496 $ 6,992 $ 8,195
Increase (decrease) in taxes
resulting from:
State income tax expense 559 1,534 1,798
Federal benefit of state taxes (196) (521) (611)
Adjustments to prior years'
provisions (1,067) 650 ----
Unamortized ITC (82) (82) (665)
Payment of premium
on redemption (984) (3) (80)
Other--net (42) (148) 105
- ---------------------------------------------------------------------
Total income tax expense $ 3,684 $ 8,422 $ 8,742
- ---------------------------------------------------------------------
Pre-tax income $15,703 $20,565 $24,105
- ---------------------------------------------------------------------
Effective tax rate 23.5% 41.0% 36.3%
- ---------------------------------------------------------------------
</TABLE>
On October 20, 1993, the Company and the Internal Revenue Service (IRS)
reached a tentative settlement on the results of the IRS examination of years
1987, 1988 and 1989. Based on the settlement the Company remitted additional
taxes in the amount of $438,000 out of assessments made by the IRS of almost
$5,000,000. A final settlement agreement is expected to occur in early 1994.
NOTE 7: EMPLOYEE BENEFIT PLANS
The Company maintains a pension plan (the Plan) which provides eligible
employees (those age 21 with one year of service) monthly benefits upon
retirement based on average salaries and length of service. The normal
retirement benefit is equal to 2% of the five highest consecutive years average
earnings multiplied by the number of years of credited service, up to a maximum
of 40 years, reduced by a percentage of primary social security benefits. There
is also an early retirement option. Annual contributions are made to the Plan
which comply with the funding requirements of the Employee Retirement Income
Security Act.
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
projected benefit obligations for 1993 and 1992 were 7% and 8%, and 4% and 5%,
respectively. The expected long-term rate of return on assets, which consist
primarily of fixed income securities, was 7.5% for 1993 and 8% for 1992.
The following tables set forth the pension plan's funded status and
amounts recognized in the Company's balance sheet at December 31, 1993 and 1992
and the components of net pension cost for 1993 and 1992.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accumulated benefit obligation:
Vested 16,744 13,656
Nonvested 1,307 1,006
- ---------------------------------------------------------------------
Total 18,051 14,662
- ---------------------------------------------------------------------
Projected benefit obligation for
service rendered to date (22,162) (18,577)
Plan assets at fair value 22,796 20,880
Unrecognized net loss/(gain) due to
past experience different from
assumptions made 723 (1,352)
Unrecognized net obligation at January 1,
1986 being recognized over 15 years 409 468
Unrecognized prior service cost
due to Plan amendments 706 756
- ---------------------------------------------------------------------
Accrued pension asset $2,472 $2,175
- ---------------------------------------------------------------------
Service cost benefits earned
during the period $ 795 $ 708
Interest cost on projected benefit obligation 1,447 1,401
Return on Plan assets (1,912) (1,535)
Net amortization and deferral 345 (106)
- ---------------------------------------------------------------------
Net pension cost $ 675 $ 468
- ---------------------------------------------------------------------
</TABLE>
32
<PAGE> 35
The Company also provides health care benefits to 160 qualified retired
employees and/or their spouses. These benefits are provided through an
insurance company whose premiums were based on experience ratings and potential
Medicare coverage.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employer's
Accounting for Post-retirement Benefits Other than Pensions." The transition
obligation for benefits accumulated as a result of employees' past service to
December 31, 1992 was $9,344,000 using an 8% discount rate and an 8% health
care cost trend rate. A one percent (1%) increase in the anticipated health
care cost trend assumption results in an estimated increase of $1.9 million in
the accumulated post-retirement benefits obligation (APBO). The annual benefit
cost accrual for 1993, including an amortization of the transition obligation
over a 20 year period, was $1,873,000. Pursuant to a CPUC order regarding
treatment of SFAS No. 106 liabilities, the Company has recorded an offseting
regulatory asset. The Company has deferred any funding of its SFAS No. 106
liability pending the results of a detailed study of its existing and alternate
post-retirement medical plans. Should the annual benefit accrual be reduced as
a result of any plan changes, the regulatory asset will be correspondingly
reduced. The Company is unable to predict what impact any national health care
program will have on the Company's medical plans.
The Company has a 401-k Investment Incentive Program (the 401-k) under
which employees may invest a percentage of their pay, up to a maximum
investment prescribed by law, in an investment program managed by an outside
investment manager.
Company contributions to the 401-k are based upon a percentage of
individual employee contributions and for 1993, 1992 and 1991, totalled
$197,000, $167,000 and $121,000, respectively.
NOTE 8: CONDEMNATIONS AND SALES OF OPERATING PROPERTIES
On July 9, 1992, the Contra Costa Water District (CCWD) filed a
condemnation action seeking to acquire the Company's Bay Point water district.
The Company believed its position in this matter was improved following
adoption of a new state law, known as the "Necessity Bill", which allows
utilities to rebut the presumption that the property is being condemned for a
more necessary purpose. After a hearing on this matter, the court issued its
ruling which upheld CCWD's Resolution of Necessity. In recent elections,
however, several prior members of CCWD's Board of Directors were replaced which
might lead to abandonment of the condemnation action. The Company is unable at
this time to predict the course of action yet to be pursued by CCWD, but, if
necessary, intends to vigorously defend itself against any takeover attempts.
On May 4, 1993, the Board of Supervisors of Contra Costa County adopted a
resolution to acquire the Company's Madison Water Treatment Plant. On September
1, 1993, the Contra Costa County Highway Department took possession of the
property. The Company is seeking recovery of just compensation but is currently
unable to predict the outcome.
Neither of these actions is expected to have a material adverse effect on
the Company's financial condition.
NOTE 9: DROUGHT RELATED ISSUES
In October, 1991, the CPUC authorized water utilities, including the
Company, to recover net revenue losses reflected in previously established
drought memorandum accounts less an amount equal to a 20 basis point reduction
in the most recently authorized return on equity to reflect a perceived lower
risk due to the availability of the memorandum account mechanism. In 1993, the
Company recorded the recoverability of $1,414,000 in net revenue losses and
extraordinary conservation expenses relating to 1991 and 1992 pursuant to the
CPUC decision.
NOTE 10: CONTINGENCIES
During 1993, the Company, on two separate occasions, requested that the
CPUC authorize recovery of costs associated with participation in the
construction of the Coastal Aqueduct extension of the State Water Project (the
"Project"). The Project would provide additional water supplies to areas of
San Luis Obispo and Santa Barbara Counties, including the Company's Santa Maria
District. On both occasions, the CPUC denied the Company's request for
recovery of costs on the terms contained in the Company's applications.
Through December 31, 1993, the Company had incurred approximately $1.9
million in costs on the Project and, in addition, had deposited approximately
$1.7 million against future costs of redesigning the Project, should the
Company withdraw from participation in the Project. Any redesign costs
associated with the Company's withdrawal from the Project would be borne by the
Company although the state agency overseeing the construction has estimated
that the actual redesign costs will be significantly lower
33
<PAGE> 36
than the amount deposited. The excess deposit will be refunded to the Company
with interest.
In light of the CPUC actions and the uncertainty of the Company's
participation in the project, the Company has established reserves of
approximately $1.9 million against its previously recorded investment in the
Project and the estimated redesign costs.
In June, 1993, the CPUC issued a decision which disallowed $1.6 million
of the approximately $3.1 million cost of constructing a water treatment plant
(the "Sonoma Facility") in the Company's Clearlake water district. The Company
had transferred the disallowed portion of the Sonoma Facility's costs to
non-utility assets with CPUC staff approval. Efforts continue to lease a
portion of the capacity in the Sonoma Facility or, alternatively, the sale of
treated water to nearby utilities. Discussions with these utilities have, to
date, not produced any firm agreement. Therefore the Company has reserved
against the $1.6 million associated with the non-utility portion of the Sonoma
Facility.
NOTE 11: CONSTRUCTION PROGRAM
The Company's 1994 construction budget provides for expenditures of
approximately $26,709,000. Management anticipates that $2,116,000 of the 1994
budgeted amount will be obtained from developers and others.
NOTE 12: BUSINESS SEGMENTS
The table below sets forth information relating to the Company's
operating segments; however, the Company is a regulated public utility and such
information does not reflect the ratemaking treatment allowed by the regulatory
agency. In addition to amounts set forth, certain assets have not been
allocated. The identifiable assets are net of respective accumulated provisions
for depreciation.
NOTE 13: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial information presented below is unaudited. The
business of the Company is of a seasonal nature and it is management's opinion
that comparisons of earnings for the quarterly periods do not reflect overall
trends and changes in the Company's operations.
Business Segments
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
Water Electric Water Electric Water Electric
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 98,155 $ 10,351 $ 90,625 $ 10,035 $ 78,282 $ 12,378
Operating income before income taxes 23,192 2,349 24,193 2,696 19,553 2,612
Identifiable assets 276,710 18,280 260,712 16,813 243,800 14,758
Depreciation expense 6,715 683 5,894 632 5,468 559
Capital additions 26,443 2,057 25,382 2,780 29,909 2,563
- -------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Data
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended March 31, June 30, Sept. 30, Dec. 31,
1993 1993 1993 1993
- -------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 22,177 $ 28,614 $ 31,729 $ 25,986
Operating income 3,667 5,078 6,243 5,062
Net income 1,542 2,988 4,339 3,157
Primary EPS 0.23 0.44 0.57 0.42
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Quarters Ended March 31, June 30, Sept. 30, Dec. 31,
1992 1992 1992 1992
- -------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 20,945 $ 24,142 $ 30,180 $ 25,390
Operating income 3,894 4,390 5,700 5,114
Net income 1,925 2,452 3,793 3,972
Primary EPS 0.29 0.36 0.57 0.59
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 37
REPORT OF MANAGEMENT
The financial statements contained in this annual report were prepared by
the management of Southern California Water Company, which is responsible for
their integrity and objectivity. The financial statements were prepared in
accordance with generally accepted accounting principles and include, where
necessary, amounts based upon management's best estimates and judgments. All
other financial information in the annual report is consistent with the
financial statements and is also the responsibility of management.
The Company maintains systems of internal control which are designed to
help safeguard the assets of the Company and provide reasonable assurance that
accounting and financial records can be relied upon to generate accurate
financial statements. These systems include the hiring and training of
qualified personnel, appropriate segregation of duties, delegation of authority
and an internal audit function which has reporting responsibility to the Audit
Committee of the Board of Directors.
The Audit Committee, composed of three outside directors, exercises
oversight of management's discharge of its responsibilities regarding the
systems of internal control and financial reporting. The committee periodically
meets with management, the internal auditor and the independent accountants to
review the work and findings of each. The committee also reviews the
qualifications of and recommends to the Board of Directors a firm of
independent accountants.
The independent accountants, Arthur Andersen & Co., have performed an
audit of the financial statements in accordance with generally accepted
auditing standards. Their audit included a review of the Company's system of
internal accounting control as a basis for establishing the nature, timing and
scope of their work. The result of their work is expressed in their Report of
Independent Public Accountants.
Floyd E. Wicks James B. Gallagher
President and Chief Executive Officer Secretary, Treasurer and Chief
Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of Southern California
Water Company:
We have audited the balance sheets and statements of capitalization of
Southern California Water Company (a California corporation) as of December 31,
1993 and 1992 and the related statements of income, changes in common
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Southern California
Water Company as of December 31, 1993 and 1992 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 7 to the financial statements, and as
required by generally accepted accounting principles, the Company changed its
methods of accounting for income taxes and post-retirement benefits other than
pensions in 1993.
Arthur Andersen & Co.
Los Angeles, California
February 15, 1994
35
<PAGE> 38
STATISTICAL REVIEW FROM 1989 TO 1993
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
=================================================================================================
<S> <C> <C> <C> <C> <C>
FINANCIAL INFORMATION (in thousands, except per share amounts)
Revenues By Classification
Residential and Commercial $ 86,918 $ 82,112 $ 68,063 $ 69,161 $ 67,404
Industrial 1,134 1,110 1,019 1,021 1,074
Fire Service 1,149 1,067 927 954 785
Other 8,954 6,336 8,273 5,150 4,909
Total Water 98,155 90,625 78,282 76,286 74,172
Electric 10,351 10,035 12,378 11,054 10,043
Total operating revenues 108,506 100,660 90,660 87,340 84,215
Net income 12,026 12,142 15,363 8,907 8,730
Earnings available for common
shareholders 11,925 12,040 15,259 8,801 8,622
Earnings per Common Share 1.66 1.82 2.34 1.40 1.38
Dividends declared per
Common Share 1.19 1.15 1.10 1.08 1.04
Total assets 358,533 312,491 293,444 268,028 254,346
Total utility plant 294,990 277,525 258,558 235,713 214,465
Capital additions 28,500 28,162 32,472 27,077 25,726
Long-term debt 84,621 84,195 82,634 67,246 67,767
Preferred Shares--
mandatory redemption 600 640 680 720 760
Investment Per Customer $ 1,480 $ 1,388 $ 1,297 $ 1,213 $ 1,125
OPERATIONAL INFORMATION
Water Sold By Classification (MG)
Residential and Commercial 48,033 47,541 44,528 51,696 51,841
Industrial 679 699 737 937 966
Fire Service 33 23 11 50 25
Other 4,019 3,890 3,807 4,511 4,635
Total Water 52,764 52,153 49,083 57,194 57,467
Total Electric Sales (MWH) 106,234 105,346 101,923 103,376 97,583
Customers By Classification
Residential and Commercial 231,966 230,956 230,175 221,888 220,876
Industrial 322 330 347 376 385
Fire Service 2,877 2,846 2,779 2,610 2,562
Other 1,820 1,795 1,812 1,819 1,813
Total Water 236,985 235,927 235,113 226,693 225,636
Electric 20,131 20,039 19,780 19,559 19,215
Total Company 257,116 255,966 254,893 246,252 244,851
Water Production By Source (MG)
Purchased 25,156 24,377 23,221 31,021 32,189
Pumped-Electric 32,056 30,406 28,640 28,923 29,733
Pumped-Gas 195 177 245 270 306
Gravity and Surface 658 1,249 1,046 1,255 361
Total Supply 58,066 56,209 53,153 61,469 62,589
Miles of Main In Service 2,560 2,549 2,535 2,517 2,488
Number of Employees 486 445 422 410 388
=================================================================================================
</TABLE>
MG = Millions of Gallons MWH = Millions of Kilowatt Hours
36
<PAGE> 39
ANNUAL MEETING
The 1994 Annual Meeting of Shareholders will be held Tuesday, April 26,
1994 at 11:00 a.m. at The Sheraton Suites Fairplex, 601 West McKinley Avenue,
Pomona, California 91768. Notice of meeting and proxy material will be mailed.
TRADING OF STOCK
Common Shares of Southern California Water Company are traded on the New
York Stock Exchange under the symbol SCW. Common Share prices and dividends for
the last two years were:
<TABLE>
<CAPTION>
=========================================================
DIVIDENDS
PERIOD HIGH LOW PAID
- ---------------------------------------------------------
<S> <C> <C> <C>
1993
First Quarter 21 3/4 19 5/8 $ 0.2875
Second Quarter 24 21 1/4 0.3000
Third Quarter 23 11/16 21 1/4 0.3000
Fourth Quarter 24 3/8 21 3/4 0.3000
- ---------------------------------------------------------
$ 1.1875
=========================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================
DIVIDENDS
PERIOD HIGH LOW PAID
- ---------------------------------------------------------
<S> <C> <C> <C>
1992
First Quarter 17 3/4 16 1/2 $ 0.2875
Second Quarter 17 7/8 16 0.2875
Third Quarter 20 5/8 17 1/8 0.2875
Fourth Quarter 20 3/8 18 5/8 0.2875
- ---------------------------------------------------------
$ 1.1500
- ---------------------------------------------------------
</TABLE>
All information adjusted to reflect 2-for-1 stock split.
SHAREHOLDER ASSISTANCE AND CORPORATE REPORTS.
If you have any questions concerning your investment with Southern
California Water Company or wish to obtain a copy of the Company's reports to
the Securities and Exchange Commission, we will be pleased to assist you.
Please submit your request to:
James B. Gallagher
Secretary, Treasurer and Chief Financial Officer
Southern California Water Company
630 East Foothill Boulevard o San Dimas, CA 91773
(909) 394-3633
TRANSFER AGENT AND DIVIDEND PAYING AGENT
For questions regarding dividend payments, change of address or other
shareholder account matters, please contact:
First Interstate Bank of California
Stock Transfer Department
P.O. Box 30609 o Los Angeles, CA 90030
(800) 522-6645
DIVIDEND REINVESTMENT
The Company has a Dividend Reinvestment Plan which is open to all holders
of Company common shares. Dividends of participants are reinvested in common
shares of the Company. The Plan also provides for receipt of optional cash
payments for the purchase of additional common shares.
For a copy of the Plan prospectus and an enrollment card, contact First
Interstate Bank at the address shown above.
1993 DIVIDENDS
Dividends on common and preferred shares are expected to be paid on:
March 1 June 1 September 1 December 1
BOARD OF DIRECTORS
William V. Caveney
Chairman of the Board
Floyd E. Wicks
President, Chief Executive Officer
Donald E. Brown
Senior Vice President
Kirkpatrick, Pettis, Smith, Polian, Inc.
Omaha, Nebraska
R. Bradbury Clark
Attorney at Law; Retired
Partner in the law firm of O'Melveny & Myers
Los Angeles, California
N.P. Dodge, Jr.
President, N.P. Dodge Company
Omaha, Nebraska
William M. Kizer
Chairman of the Board and
Director of Central States Health & Life Company
Omaha, Nebraska
ELECTED OFFICERS
William V. Caveney
Chairman of the Board
Floyd E. Wicks
President, Chief Executive Officer
Joel A. Dickson
Vice President--Regulatory Affairs and Utility
Business Development
Randell J. Vogel
Vice President--Administration
Thomas J. Bunosky
Vice President--Operations
James B. Gallagher
Secretary, Treasurer and Chief Financial Officer
FIELD MANAGEMENT
J. Leroy Barker
Foothill Division
Ronald E. Mullen
Metropolitan Division
John F. Redding
Mountain/Desert Division
Donald K. Saddoris
Northern/Coastal Division
Patrick R. Scanlon
Orange County Division
COUNSEL
O'Melveny & Myers
400 South Hope Street
Los Angeles, CA 90071-2899
AUDITORS
Arthur Andersen & Co.
633 West Fifth Street
Los Angeles, CA 90071
38
<PAGE> 40
Southern California Water Company 630
East Foothill Boulevard o San Dimas,
California 91773
<PAGE> 41
APPENDIX
Cover
- -----
A 3.5" by 5.5" picture of a barometer.
Page 1
- ------
Picture of a barometer.
Page 2
- ------
A 4" by 5.5" picture of W.V. Caveney, Chairman and Floyd E. Wicks, President,
and Chief Executive Officer.
Page 5
- ------
A 2.5" by 3.5" picture of a barometer.
Page 8
- ------
A collage of various devices and tools used by water and electric utilities
including an electric meter, a water meter, a pipe wrench, a lightning
arrestor, a hard hat, 3 water specimen bottles, a hand held meter reading
device, work glove, and several circular pressure charts.
Page 9
- ------
A collage displaying several Southern California Water Company common stock
certificates, a plaque commemorating the 1991 issuance of $28,000,000 in
Long-term Notes, and a medallion memorializing Southern California Water
Company's (SCW) original listing on the New York Stock Exchange on June 17,
1993.
Page 10
- -------
A collage displaying various meter devices such as an electric meter, a water
meter, and a hand held meter reading device.
Page 11
- -------
A collage displaying a hard hat, a pipe wrench, and work gloves.
Page 12
- -------
A graph displaying Dividends Per Share from 1989 through 1993. Southern
California Water Company paid Dividends Per Share of $1.04 in 1989, $1.08 in
1990, $1.10 in 1991, $1.15 in 1992, and $1.19 in 1993. This graph is
accompanied by another graph displaying the Company's Total Capitalization from
1989 through 1993. Southern California Water Company's Total Capitalization was
$138,729,000 in 1989, $140,707,000 in 1990, $168,076,000 in 1991, $174,664,000
in 1992, and $202,949,000 in 1993.
<PAGE> 42
Page 13
- -------
A graph displaying Total Utility Plant from 1989 through 1993. Southern
California Water Company's Total Utility Plant was $214,465,000 in 1989,
$235,713,000 in 1990, $258,558,000 in 1991, $277,525,000 in 1992, and
$294,990,000 in 1993. This graph is accompanied by another graph displaying the
Company's Total Revenues from 1989 through 1993. Southern California Water
Company's Total Revenues was $84,215,000 in 1989, $87,340,000 in 1990,
$90,660,000 in 1991, $100,600,000 in 1992, and $108,506,000 in 1993.
Page 14
- -------
A 3.5" by 2" inch picture of a barometer.
Page 15
- -------
A map of California is displayed upon this page. Highlighted on the map are the
counties within which Southern California Water Company's Operating Districts
are located.
Page 16
- -------
A collage displaying the various financial related resources used by our
Company including several Southern California Water Company common stock
certificates, a plaque commemorating the 1991 issuance of $28,000,000.00 in
Long-term Notes, a medallion memorializing Southern California Water Company's
(SCW) original listing on the New York Stock Exchange on June 17, 1993, several
compact disks, two reels of computer tape, and a personal computer keyboard.
<PAGE> 1
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated February 15,
1994, included in the 1993 Annual Report to Shareholders of Southern California
Water Company. It should be noted that we have not audited any financial
statements of the Company subsequent to December 31, 1993 or performed any
audit procedures subsequent to the date of our report.
We further consent to the incorporation by reference of the
above-mentioned Report of Independent Public Accountants, incorporated by
reference in this Annual Report on Form 10-K, and to the incorporation by
reference of our report (the Report of Independent Public Accountants on
Supplemental Schedules), appearing on page 13 of this Annual Report on Form
10-K, in the Southern California Water Company Registration Statements which
follow:
<TABLE>
<CAPTION>
Registration Form File No. Effective Date
----------------- -------- --------------
<S> <C> <C>
Form S-3 33-42218 August 22, 1991
Form S-3 33-62832 June 2, 1993
Form S-8 33-71226 Nov. 4, 1993
</TABLE>
ARTHUR ANDERSEN & CO.
Los Angeles, California
March 30, 1994
