<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MARCH 31, 1996 Commission file number 0-1121
SOUTHERN CALIFORNIA WATER COMPANY
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 95-1243678
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 EAST FOOTHILL BOULEVARD, SAN DIMAS, CALIFORNIA 91773
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (909) 394-3600
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 30, 1996, the number of shares outstanding
of the Registrant's Common Shares, Par Value $2.50,
was 7,845,092.
<PAGE> 2
SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1: Financial Statements 1
Balance Sheets as of March 31, 1996 and December 31, 1995 2 - 3
Statements of Income for the Three Months Ended
March 31, 1996 and March 31, 1995 4
Statements of Income for the Twelve Months Ended
March 31, 1996 and March 31, 1995 5
Cash Flow Statements for the Three Months Ended
March 31, 1996 and March 31, 1995 6
Notes to Financial Statements 7 - 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operation 9 - 15
PART II OTHER INFORMATION
Item 1: Legal Proceedings 15
Item 2: Changes in Securities 15
Item 3: Defaults Upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
The basic financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements, prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
rules and regulations, although the Registrant believes that the disclosures
are adequate to make the information presented not misleading. In the opinion
of management, all adjustments necessary for a fair statement of results for
the interim period have been made.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto in the Registrant's
latest Annual Report for the year ended December 31, 1995 on Form 10-K.
1
<PAGE> 4
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
UTILITY PLANT, at cost (in thousands)
Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $384,111 $383,368
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,483 30,269
-------------- --------------
414,594 413,637
Less - Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (105,968) (103,018)
-------------- --------------
308,626 310,619
Construction work in progress. . . . . . . . . . . . . . . . . . . . . . . . . 28,971 24,349
-------------- --------------
337,597 334,968
-------------- --------------
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 755 755
-------------- --------------
CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 2,684 343
Accounts receivable -
Customers, less reserves of $645
in 1996 and $648 in 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 7,940 8,238
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,120 2,563
Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,676 11,035
Materials and supplies, at average cost . . . . . . . . . . . . . . . . . . . 1,742 1,733
Supply cost balancing accounts . . . . . . . . . . . . . . . . . . . . . . . . 8,250 8,073
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,756 7,779
Accumulated deferred income taxes - net . . . . . . . . . . . . . . . . . . . 3,015 3,206
-------------- --------------
42,183 42,970
-------------- --------------
DEFERRED CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory tax-related assets . . . . . . . . . . . . . . . . . . . . . . . . 22,943 22,986
Other deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,732 4,576
-------------- --------------
27,675 27,562
-------------- --------------
$408,210 $406,255
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------------- ---------------
(Unaudited)
(in thousands)
<S> <C> <C>
CAPITALIZATION
Common shareholders' equity . . . . . . . . . . .. . . . . . . . $121,327 $121,576
Preferred shares . . . . . . . . . . . . . . . . .. . . . . . . . 1,600 1,600
Preferred shares - mandatory redemption . . . . .. . . . . . . . 520 520
Long-term debt . . . . . . . . . . . . . . . . . .. . . . . . . . 107,336 107,455
--------------- ---------------
230,783 231,151
--------------- ---------------
CURRENT LIABILITIES
Notes payable to banks . . . . . . . . . . . . . .. . . . . . . . 23,000 8,500
Long-term debt and preferred shares - current . .. . . . . . . . 424 15,624
Accounts payable . . . . . . . . . . . . . . . . .. . . . . . . . 9,604 6,839
Taxes payable . . . . . . . . . . . . . . . . . .. . . . . . . . 5,354 5,562
Accrued interest . . . . . . . . . . . . . . . . .. . . . . . . . 2,166 1,955
Other accrued liabilities . . . . . . . . . . . .. . . . . . . . 7,932 8,061
--------------- ---------------
48,480 46,541
--------------- ---------------
OTHER CREDITS
Advances for construction . . . . . . . . . . . .. . . . . . . . 55,296 55,385
Contributions in aid of construction . . . . . . .. . . . . . . . 27,775 27,745
Accumulated deferred income taxes - net . . . . .. . . . . . . . 39,532 39,050
Unamortized investment tax credits . . . . . . . .. . . . . . . . 3,479 3,499
Regulatory tax-related liability . . . . . . . . .. . . . . . . . 2,289 2,300
Other . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 576 584
--------------- ---------------
128,947 128,563
--------------- ---------------
$408,210 $406,255
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1996 1995
--------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
OPERATING REVENUES
Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,061 $21,699
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,336 3,277
----------- -----------
30,397 24,976
----------- -----------
OPERATING EXPENSES
Water purchased . . . . . . . . . . . . . . . . . . . . . . . . . 6,697 5,381
Power purchased for pumping . . . . . . . . . . . . . . . . . . . 1,565 1,450
Power purchased for resale . . . . . . . . . . . . . . . . . . . . 1,551 1,503
Groundwater production assessment . . . . . . . . . . . . . . . . 1,397 1,294
Supply cost balancing accounts . . . . . . . . . . . . . . . . . . (176) (602)
Other operating expenses . . . . . . . . . . . . . . . . . . . . . 3,115 2,962
Administrative and general expenses . . . . . . . . . . . . . . . 4,625 3,987
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,526 2,124
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353 1,655
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . 1,618 790
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,416 1,036
----------- -----------
25,687 21,580
----------- -----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . 4,710 3,396
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6
----------- -----------
Income before interest charges . . . . . . . . . . . . . . . . . . 4,758 3,402
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,590 2,284
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,168 1,118
DIVIDENDS ON PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . 24 24
----------- -----------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS . . . . . . . . . . . . . . $2,144 $1,094
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . . . 7,845 7,845
=========== ===========
Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . $0.27 $0.14
=========== ===========
Dividends Declared Per Common Share . . . . . . . . . . . . . . . . . . $0.305 $0.30
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31,
----------------------------------
1996 1995
------------ ------------
(in thousands, except
per share amounts)
<S> <C> <C>
OPERATING REVENUES
Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $124,283 $112,574
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,950 10,896
------------ ------------
135,233 123,470
------------ ------------
OPERATING EXPENSES
Water purchased . . . . . . . . . . . . . . . . . . . . . . . . . 33,945 29,408
Power purchased for pumping . . . . . . . . . . . . . . . . . . . 8,077 7,813
Power purchased for resale . . . . . . . . . . . . . . . . . . . . 5,263 4,769
Groundwater production assessment . . . . . . . . . . . . . . . . 6,240 6,116
Supply cost balancing accounts . . . . . . . . . . . . . . . . . . (721) 1,119
Other operating expenses . . . . . . . . . . . . . . . . . . . . . 13,491 11,839
Administrative and general expenses . . . . . . . . . . . . . . . 17,041 14,703
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,884 8,160
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,454 6,763
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . 9,594 8,863
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,245 4,487
------------ ------------
112,513 104,040
------------ ------------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . 22,720 19,430
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 201
------------ ------------
Income before interest charges . . . . . . . . . . . . . . . . . . 23,079 19,631
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,865 8,341
------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,214 11,290
DIVIDENDS ON PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . 96 98
------------ ------------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS . . . . . . . . . . . . . . $13,118 $11,192
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . . . 7,845 7,845
============ ============
Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . $1.67 $1.43
============ ============
Dividends Declared Per Common Share . . . . . . . . . . . . . . . . . . $1.21 $1.20
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE> 8
SOUTHERN CALIFORNIA WATER COMPANY
CASH FLOW STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1996 1995
------------ ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM -
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,168 $1,118
Adjustments for non-cash items:
Depreciation and amortization . . . . . . . . . . . . . . . . 2,604 2,203
Deferred income taxes and . . . . . . . . . . . . . . . . . .
investment tax credits . . . . . . . . . . . . . . . . . . . 685 931
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . (548) (408)
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 1,740 950
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 1,023 463
Supply cost balancing accounts . . . . . . . . . . . . . . . . (177) (589)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 2,765 (3,367)
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . (208) (1,552)
Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . 359 2,431
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 220
---------- ----------
Net Cash Provided . . . . . . . . . . . . . . . . . . . . . 10,428 2,400
---------- ----------
Financing Activities:
Receipt of advances and contributions . . . . . . . . . . . . . 577 417
Repayments of long-term debt and
redemption of preferred shares . . . . . . . . . . . . . . . . (15,319) (2,240)
Refunds on advances . . . . . . . . . . . . . . . . . . . . . . (256) (27)
Net change in notes payable to banks . . . . . . . . . . . . . . 14,500 5,500
Common and preferred dividends paid . . . . . . . . . . . . . . (2,439) (2,228)
---------- ----------
Net Cash Provided . . . . . . . . . . . . . . . . . . . . . 2,937 1,422
---------- ----------
Investing Activities:
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . (5,150) (5,131)
---------- ----------
Net Cash Used . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,150) (5,131)
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . 2,341 (1,309)
Cash and Cash Equivalents, Beginning of Period . . . . . . . . . . . . 343 2,344
---------- ----------
Cash and Cash Equivalents, End of Period . . . . . . . . . . . . . . . $2,684 $1,035
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 9
SOUTHERN CALIFORNIA WATER COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. For a summary of significant accounting policies and other information
relating to these interim financial statements, reference is made to
pages 24 through 27 of the 1995 Annual Report to Shareholders under
the caption "Notes to Financial Statements."
2. Earnings per Common Share are based on the weighted average number of
Common Shares outstanding during each period and net income after
deducting preferred dividend requirements.
3. In June, 1994, the Registrant signed a Water Supply Agreement to
become a participant in the Coastal Aqueduct Extension of the State
Water Project (the "Project") at a level of 500 acre-feet. The
Registrant's current investment for this level of participation is
$1,481,000 and is included in utility plant.
The Registrant intends to file an application with the California
Public Utilities Commission (the "CPUC") seeking approval of its
recovery through rates of costs associated with that participation.
No assurance can be given that the CPUC will deny or approve recovery
through rates of all or any costs associated with such participation.
The Registrant has sold the remaining 2,500 acre-feet of its total
3,000 acre-foot entitlement in the Project, after receiving approval
from the CPUC. Proceeds from the sale of $1.2 million were received
in February, 1996.
4. The Registrant implemented increased water rates in six of its
rate-making districts on January 1, 1996. In addition, the Registrant
anticipates that the CPUC will issue a final decision regarding the
settlement stipulation in its general rate case application affecting
its Bear Valley Electric customer service area in May, 1996. In
January, 1996, the Registrant filed Notices of Intent to increase
rates in two of its water customer service areas to cover costs
associated with 1996 and 1997 capital projects in those two areas.
See the section entitled "Rates and Regulation" for more information.
5. On January 1, 1996, the Registrant adopted SFAS No. 121 - "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." This Statement imposes stricter criteria for regulatory
assets by requiring that such assets be probable of future recovery at
each balance sheet date. Adoption of SFAS No. 121 will not have a
material impact on the financial position or results of operations of
the Registrant, based on the current regulatory structure in which the
Registrant operates.
6. Effective January 1, 1996, the Registrant is subject to the reporting
requirements contained in SFAS No. 123, "Accounting for Stock- Based
Compensation." The Registrant has a Key Executive Long-Term Incentive
Plan, the provision of which became effective in January, 1995. Any
payout under the plan, which is made in Common Shares of the
Registrant, will not occur until 1998. At that time, the registrant
intends to utilize the footnote option of SFAS No. 123 to disclose the
effects of any such awards.
7
<PAGE> 10
7. As permitted by the CPUC, the Registrant maintains water and electric
supply cost balancing accounts to account for undercollections and
overcollections 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. In October 1995, the Registrant identified and adjusted
for an error in the recording of offset revenue into its electric
balancing account. The impact of the adjustment for 1994 was not
material and the cumulative effects of the adjustment through March
31, 1995 were included in the first quarter 1995 results. Second
quarter 1995 results were also restated. The error did not affect
actual billings to electric customers.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL
Southern California Water Company (the "Registrant") is a
public utility company engaged principally in the purchase, production,
distribution and sale of water (SIC No. 4941). The Registrant also distributes
electricity in one community (SIC No. 4911). The Registrant, regulated by the
California Public Utilities Commission ("CPUC"), was incorporated on December
31, 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.
The Registrant is organized into three regions operating
within 75 communities in 10 counties in the State of California and provides
water service in 21 customer service areas. As of March 31, 1996, about 73% of
the Registrant's water customers were located in the greater metropolitan areas
of Los Angeles and Orange Counties. The Registrant also provides electric
service to the City of Big Bear Lake and surrounding areas in San Bernardino
County. All electric energy sold is presently purchased from Southern
California Edison Company ("SCE"). The Registrant served 239,168 water
customers and 20,422 electric customers at March 31, 1996, or a total of
259,590, customers compared with 257,576 total customers at March 31, 1995.
RESULTS OF OPERATION
Earnings per common share for the three months ended March 31,
1996 increased by 92.9% to $0.27 per share as compared to $0.14 per share for
the comparable period last year. Earnings for the twelve months ended March 31,
1996 increased by 16.8% to $1.67 per share as compared to $1.43 per share for
the twelve months ended March 31, 1995.
As compared to last year, water sales volumes for the three
months ended March 31, 1996 increased by 9.8%. For the twelve months ended
March 31, 1996, water sales volumes decreased by 1.9% as compared to the twelve
months ended March 31, 1995. Water operating revenues, however, increased by
24.7% and 10.4% , respectively, for the three and twelve months ended March 31,
1996. The increase in revenues is a result of the effects of approximately $15
million in general rate increases effective January 1, 1996 and, for the three
month comparison, the increase in water sales volumes. See the section
entitled "Rates and Regulation" for more information.
Kilowatt-hour sales of electricity increased by 4.6% and 2.0%
for the three and twelve months ended March 31, 1996, respectively, as compared
to the same periods last year. As a result of the increased kilowatt-hour
sales and a slight change in the composition of those sales among customer
classifications, electric operating revenues for the three and twelve month
periods ending March 31, 1996 increased by 1.8% and 0.5%, respectively, over
the comparable periods last year.
Purchased water costs increased by 24.5% and 15.4%,
respectively, for the three and twelve months ended March 31, 1996 as compared
to the same periods ending in 1995. These increases reflect increased
purchased water volumes as well as increased purchased water rates, the latest
series of which was effective July 1, 1995.
9
<PAGE> 12
The costs of power purchased for pumping increased by 7.9%
and 3.4%, respectively, for the three and twelve months ended March 31, 1996 as
compared to the same period ended March 31, 1995 due chiefly to the effects of
an increase in the amount of total water supplied which came from pumped
groundwater sources.
As compared to the three months ended March 31, 1995, the
costs of power purchased for resale increased by 3.2% chiefly as a result of
the increased kilowatt-hour sales volumes. For the twelve months ended March
31, 1996, the costs of power purchased for resale increased by 10.4% as
compared to the same period last year both as a result of the increased
kilowatt-hour sales and refunds from SCE of approximately $492,000 received
during the twelve months ended March 31, 1995. There were no comparable
refunds received during the twelve months ended March 31, 1996.
Groundwater production assessments are 8.0% higher for the
three months ended March 31, 1996 and 2.0% higher for the twelve months ended
March 31, 1996, as compared to the same periods last year, due to the increased
volumes of pumped water as well as increased assessment rates.
A negative entry for the provision for supply cost balancing
accounts reflects an undercollection of previously incurred supply costs.
Conversely, a positive entry for the provision for supply cost balancing
accounts reflects recovery of previously under-collected supply costs. The
negative entries for both the three and twelve months ended March 31, 1996
reflect the effects of the Registrant's bimonthly billings which create a
slight lag between the period supply costs are incurred and their recovery. In
October 1995, the Registrant identified and adjusted for an error in the
recording of offset revenue into its electric balancing account. The impact of
the adjustment for 1994 was not material and the cumulative effects of the
adjustment through March 31, 1995 were included in the first quarter 1995
results. The error did not affect actual billings to electric customers.
Other operating expenses increased by 5.2% and 14.0%,
respectively, for the three and twelve months ended March 31, 1996 as compared
to the same periods ended March 31, 1995 due chiefly to an increase in the
amount of time being charged to this category. In addition, there has been a
net increase in the number of persons charging all or a portion of their time
to various customer service functions.
Administrative and general expenses increased by 16.0% and
15.9% for the three and twelve months ended March 31, 1996, respectively, as
compared to the same periods ended March 31, 1995. These periods are each
affected by an increase in the amount of labor being charged to this category
since, as part of the settlement stipulation for the rates that were effective
January 1, 1996, the Registrant began expensing, and subsequently recovering, a
greater amount of labor for persons engaged in general and administrative
functions. As well, this category has increased due to increased
personnel-related expenditures such as health insurance, recovery of
postretirement medical benefits, pension and 401-k plan costs.
Depreciation expense increased by 18.9% and 8.9%,
respectively, for the three and twelve months ended March 31, 1996 reflecting,
among other things, the effects of recording approximately $30 million in net
plant additions during 1995, depreciation on which began in January, 1996.
Each period is also affected by the higher depreciation rates authorized by the
CPUC and effective January 1, 1996.
Taxes on income increased by 104.8% and 8.2%, respectively,
for the three and twelve months ended March 31, 1996 as compared to the three
and twelve months ended March 31, 1995 as a result of higher pre-tax income.
10
<PAGE> 13
Maintenance expense decreased by 18.2% and 19.4% for the
three and twelve months ended March 31, 1996 as compared to the three and
twelve months ended March 31, 1995, respectively. These decreases primarily
reflect changes in scheduled maintenance to later in 1996.
Interest expense for the three and twelve months ended March
31, 1996 increased by 13.4% and 18.3%, respectively, over the comparable 1995
time periods. The increases are principally the result of the Registrant's
issuance of $30 million in long-term debt in September, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant funds the majority of its operating expenses,
interest payments on its debt, dividends on its outstanding common and
preferred shares and makes its mandatory sinking fund payments through internal
sources. However, because of the seasonal nature of its water and electric
businesses, the Registrant utilizes its short-term borrowing capacity on
occasion to finance current operating expenses.
The Registrant continues to rely on external sources,
including short-term bank borrowing, the receipt of contributions-in-
aid-of-construction and advances for construction and install-and-convey
advances, to fund the majority of its construction expenditures. For the
quarter ended March 31, 1996, receipts of contributions-in-aid-of-construction
and advances for construction were $321,000 net of refunds on such advances, as
compared to $390,000 for the quarter ended March 31, 1995.
The aggregate short-term borrowing capacity currently
available to the Registrant under its three bank lines of credit is
$37,063,000. At March 31, 1996, the Registrant had a total of $23,000,000 in
borrowing outstanding under its bank lines of credit, leaving an unused
short-term borrowing capacity of $14,063,000. The Registrant routinely employs
short-term bank borrowing as an interim financing source prior to executing
either a long-term debt or equity issue. The Registrant anticipates issuing
additional long-term debt as well as additional Common Shares, with the net
proceeds initially being used to repay short-term bank borrowings and, after
that, fund construction expenditures.
The Registrant currently has an application pending with the
California Pollution Control Financing Authority to fund a portion of its
qualifying capital expenditures through issuance of tax-exempt debt.
The Registrant has no derivative financial instruments,
financial instruments with significant off-balance sheet risks or financial
instruments with concentrations of credit risk.
ACCOUNTING STANDARDS
On January 1, 1996, the Registrant adopted SFAS No. 121 -
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." This Statement imposes stricter criteria for regulatory assets
by requiring that such assets be probable of future recovery at each balance
sheet date. Adoption of SFAS No. 121 will not have a material impact on the
financial position or results of operations of the Registrant, based on the
current regulatory structure in which the Registrant operates. See Note 5 of
the Notes to Financial Statements.
Effective January 1, 1996, the Registrant is subject to the
reporting requirements contained in SFAS No. 123, "Accounting for Stock-Based
Compensation." The Registrant has a Key Executive Long-Term Incentive Plan,
the provision of which became effective in January, 1995. Any payout under the
plan, which are made in Common Shares of the Registrant, will not occur until
1998. At
11
<PAGE> 14
that time, the registrant intends to utilize the footnote option of SFAS No.
123 to disclose the effects of any such awards. See Note 6 of the Notes to
Financial Statements.
WATER SUPPLY
For the three months ended March 31, 1996, the Registrant
supplied a total of 34,643 acre-feet of water as compared to 31,345 acre-feet
for the three months ended March 31, 1995. Of the total 34,643 acre-feet of
water supplied during the first quarter of 1996, approximately 60.8% came from
pumped sources and 39.2% was purchased from others, principally the
Metropolitan Water District of Southern California ("MWD") and its member
agencies. A minimal amount of total supply came from the United States Bureau
of Reclamation (the "Bureau") under a no-cost contract. For the three months
ended March 31, 1995, 59.4%, 40.5% and 0.1% was supplied from pumped sources,
purchased from MWD and the Bureau, respectively.
During the twelve months ended March 31, 1996, the Registrant
supplied 186,379 acre-feet of water as compared to 181,828 acre- feet supplied
during the twelve months ended March 31, 1995. During the twelve month period
ended March 31, 1996, pumped sources provided 57.5% of total supply, 40.6% was
purchased and the remaining 1.9% was supplied by the Bureau. For the twelve
months ended March 31, 1996, 57.7%, 40.6% and 1.7%, respectively, was supplied
from pumped sources, purchased from MWD and the Bureau.
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. 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 and MWD's
supplies are anticipated to continue to remain adequate through 1995. MWD's
import of water from the Colorado River is expected to decrease in future years
due to the requirements of the Central Arizona Project in the State of Arizona.
In response, MWD has taken a number of steps to secure additional storage
capacity and increase available water supplies, including effecting transfers
of water rights from other sources.
As of April 2, 1996, the Northern Sierra 8-station index has
recorded seasonal rainfall of 48.7 inches, or 116% of the seasonal average.
For the water year which began October 1, 1995, precipitation was 49.8 inches
or approximately 98% of average. Statewide, the snowpack water content is 100%
of average and seasonal runoff is in excess of normal due to above normal
temperatures. Storage in the Northern Sierra's 8 major reservoirs has
increased to 86% of capacity at April 2, 1996 as compared to 73% at September
30, 1995, the beginning of the water year. In those districts of the
Registrant which pump groundwater, overall groundwater conditions have improved
and remain at adequate levels. As such, the Registrant believes that its water
supplies are adequate to meet projected current year demands.
WATER QUALITY
The United States Environmental Protection Agency (the "EPA"),
under provisions of the 1972 Safe Drinking Water Act as amended in 1986 (the
"SDWA") is required to establish maximum contaminant levels ("MCLs") for 83
potential drinking water contaminants listed in the 1986 amendments to the
SDWA, and for an additional 25 contaminants every three years thereafter. The
California Department of Health Services, acting on behalf of the EPA,
administers the EPA's program. The Registrant currently tests its wells and
water systems for more than 90 contaminants, covering all
12
<PAGE> 15
contaminants listed in the SDWA. Water from wells found to contain levels of
contaminants above the established MCL's is either treated or blended before it
is delivered to customers.
The Registrant, like any provider of water from surface
supplies, is subject to the risk that cryptosporidium, a microscopic organism
widely present in the environment, will contaminate its water supply. The
Registrant's risk is greatly reduced, however, due in part to the high quality
of source water where, according to the MWD, measured amounts of
cryptosporidium are 100 to 1,000 times less than the national average.
The Registrant is a voluntary member of the "Partnership for
Safe Water", a national program developed in conjunction with the EPA, the
National Association of Water Companies and the American Water Works
Association to further protect the public from diseases caused by
cryptosporidium and other organisms. As a volunteer in the program, the
Registrant has committed to exceed current regulations governing surface water
treatment to ensure that its treatment facilities are performing as efficiently
as possible.
All 41 of the Registrant's water systems are in compliance
with the lead and copper rules as promulgated by the EPA.
The Registrant will also be subject to new rules regarding
MCLs for radon and arsenic. With respect to the radon rule, the EPA did not
meet its October 1, 1993 deadline for implementation of the rule. As a result,
the radon rule was to be considered as part of the re- authorization of the
SDWA presently before the United States Congress. The Registrant believes the
EPA may, in the interim, establish a MCL of 3,000 pico-curies per liter, which
would affect only one of the Registrant's wells. The Registrant would,
however, be required to conduct mandatory public information and educational
programs on radon. The Registrant is currently conducting studies to determine
the best treatment for any affected wells which could range from simple
aeration to filtration through granular activated carbon. The Registrant is
currently unable to predict what ultimate effects, if any, this rule, if
passed, would have on its financial position or results of operation.
The EPA is continuing its review of data before implementing
the arsenic rule. In January, 1995, the EPA filed suit in U.S. District Court
seeking to delay implementation of the arsenic rule. The proposed SDWA
amendments before the last session of Congress would have delayed the
implementation of an arsenic rule until 2001. Although the Registrant is unable
to predict the actions that either the Court or Congress may take, it is
believed that, if required to do so without further research, the EPA will
establish a MCL for arsenic of from 2 to 5 micrograms per liter. At this
level, nearly all of the Registrant's wells and water systems would be
affected. Depending on the circumstances associated with each individual well
and water system, compliance with such a standard could cause the Registrant to
implement costly well-head remedies such as ion exchange or, alternatively, to
purchase additional and more expensive water supplies already in compliance,
for blending with well sources.
The Registrant will also be subject to the new EPA rule
concerning Disinfection/Disinfection By-Products, Stage I of which has been
published with an effective date of June, 1998. This rule reduces
tri-halomethane contaminants from 100 micrograms per liter to 80 micrograms per
liter and will affect only two of the Registrant's systems. As part of its
January, 1995 filing in U.S. District Court, the EPA requested an extension of
time to complete this rule.
The Registrant anticipates that the Enhanced Surface Water
Treatment Rule will be proposed in 1997, with an effective date of 1999. This
rule would affect each of the Registrant's five surface water treatment plants.
13
<PAGE> 16
The proposed Information Collection Rule, originally expected
to be implemented in October, 1994 and which may affect one of the Registrant's
water systems with minor paperwork costs, is presently anticipated to be
implemented by the end of 1996. Recent changes in the Rule, however, may allow
for a variance from requirements for the Registrant's systems. In addition, a
set of primary standards, referred to as "Phase VI," has been postponed
indefinitely.
Since the SDWA became effective, the Registrant has
experienced increased operating costs for testing to determine the levels, if
any, of the contaminants in the Registrant's sources of supply and additional
expense to, if exceeding the MCL, lower the level of any contaminants found to
meet the MCL standards. Such costs and the costs of controlling any other
pollutants may cause the Registrant to experience additional capital costs as
well as increased operating costs.
The Registrant is currently unable to predict the ultimate
impact that adoption of proposed rules might have on its financial position or
its results of operation, although 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. However, no assurance can be given that the CPUC will
authorize recovery of all or any of such costs in rates.
The Registrant is subject to State of California Assembly Bill
733 which requires fluoridation of water supplies for public water systems
serving more than 10,000 service connections. Although the bill requires
affected systems to install treatment facilities only when public funds have
been made available to cover capital and operating costs, the bill requires the
CPUC to authorize cost recovery through rates should public funds for operation
of the facilities, once installed, become unavailable in future years.
Three of the 27 wells in the Registrant's Arden-Codova system
have, for several years, been subject to contamination by tricholoroethylene.
The Aerojet Corporation has, by court decree, been responsible for all costs
related to the provision of well-head treatment. A ten-year agreement, reached
with the Aerojet Corporation in 1986, will expire in 1996, leaving open the
question of who will remain financially responsible for continuing well-head
treatment. The Registrant is currently negotiating with the Aerojet
Corporation for a renewal of the agreement but is unable to predict the outcome
of such negotiations or the impact, if any, of such negotiations on the results
of operations or financial condition.
There have been no environmental matters that have materially
affected or are currently materially affecting the Registrant's Bear Valley
Electric Service area.
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.
Rates to customers of the Registrant vary among its 21 water
customer service areas due to differences in operating conditions and costs.
The customer service areas are currently grouped into 16 water districts and
one electric district 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
14
<PAGE> 17
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.
The Registrant filed an application for general rate relief,
including step and attrition year changes, in six of its water rate-making
districts in March, 1995. In December, 1995, the CPUC issued its final
decision on those applications which, among other things, authorized a rate of
return on common equity of 10.40%, increased depreciation rates and authorized
recovery of postretirement medical benefit costs and resulted in an approximate
increase in annual water operating revenues of $15 million, Rates approved by
the CPUC were effective on January 1, 1996.
The Registrant filed an application with the CPUC for a
general rate increase in its Bear Valley Electric customer service area in
September, 1995. In February, the Registrant reached a stipulated settlement
among all parties. The stipulation is based on a number of items, including
the 10.40% return on common equity, stipulated in the Registrant's water rate
cases discussed previously. In April, 1996, the Administrative Law Judge
assigned to the application issued a proposed decision recommending approval of
the settlement stipulation in its entirety. The Registrant anticipates that
the CPUC will issue its final decision in this matter in May, 1996 with rates
going into effect shortly thereafter. However, the Registrant is unable to
offer any assurance that the CPUC will approve part or all of the settlement
stipulation or authorize all or any of the rates stipulated therein.
On January 31, 1996, the Registrant filed Notices of Intent
to increase water rates in two of its customer service areas to recover costs
associated with 1996 and 1997 capital projects in those areas. A final decision
by the CPUC is not anticipated until December, 1996.
PART II
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the
Registrant or any of its subsidiaries is a party or which any of their
properties is the subject. There is, however, ordinary routine litigation
incidental to the conduct of the Registrant's business.
ITEM 2. CHANGES IN SECURITIES
As of March 31, 1996, earned surplus amounted to
$46,962,000. Of this amount, $26,983,000 was restricted as to payment of cash
dividends on the Registrant's Common Shares.
As of March 31, 1996, authorized but unissued Common Shares
includes 109,454 and 92,259 Common Shares reserved for issuance under the
Registrant's Dividend Reinvestment and Common Share Purchase Program and
Investment Incentive Program ("401-k"), respectively. Common Shares reserved
for the 401-k Plan are in relation to the matching contributions by the
Registrant and for investment purposes by participants.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
15
<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On or about March 15, 1996, common and preferred
shareholders of the Registrant were mailed a Notice of Annual Meeting and a
Proxy Statement. Shareholders were requested to vote their shares for the
election of a slate of seven directors to serve until the next annual meeting
and until their successors are chosen and qualified.
The following table presents the results of the election
presented at the Annual Meeting of Shareholders on April 30, 1996:
<TABLE>
<CAPTION>
NAME "FOR" "AGAINST"
------------- ------------- --------------
<S> <C> <C>
Jean E Auer 99.73% 0.27%
William V. Caveney 99.91% 0.09%
R. Bradbury Clark 99.63% 0.37%
N.P. Dodge, Jr. 99.77% 0.23%
Robert F. Kathol 99.74% 0.26%
Lloyd E. Ross 99.83% 0.17%
Floyd E. Wicks 99.94% 0.06%
</TABLE>
ITEM 5. OTHER INFORMATION
On April 29, 1996, the Board of Directors of the Registrant
declared a regular quarterly dividend of $0.305 per common share. The dividend
will be paid June 1, 1996 to shareholders of record as of the close of business
on May 12, 1996. In other actions, the Board of Directors declared regular
quarterly dividends of $0.25 per share, $0.265625 per share and $0.3125 per
share on its 4%, 4-1/4% and 5% Cumulative Preferred Shares, respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned duly authorized officer and chief financial officer.
SOUTHERN CALIFORNIA WATER COMPANY
By : s/ JAMES B. GALLAGHER
--------------------------
James B. Gallagher
Vice President - Finance,
Chief Financial Officer and
Secretary
Dated: May 14, 1996
17
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) BALANCE
SHEETS AND STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996
CONTAINED IN THIS REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FINANCIAL STATEMENTS IN THIS REPORT FILED ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31,1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 337,597
<OTHER-PROPERTY-AND-INVEST> 755
<TOTAL-CURRENT-ASSETS> 42,183
<TOTAL-DEFERRED-CHARGES> 27,675
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 408,210
<COMMON> 19,613
<CAPITAL-SURPLUS-PAID-IN> 54,752
<RETAINED-EARNINGS> 46,962
<TOTAL-COMMON-STOCKHOLDERS-EQ> 121,327
520
1,600
<LONG-TERM-DEBT-NET> 106,283
<SHORT-TERM-NOTES> 23,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 98
40
<CAPITAL-LEASE-OBLIGATIONS> 887
<LEASES-CURRENT> 286
<OTHER-ITEMS-CAPITAL-AND-LIAB> 154,169
<TOT-CAPITALIZATION-AND-LIAB> 408,210
<GROSS-OPERATING-REVENUE> 30,397
<INCOME-TAX-EXPENSE> 1,618
<OTHER-OPERATING-EXPENSES> 24,069
<TOTAL-OPERATING-EXPENSES> 25,687
<OPERATING-INCOME-LOSS> 4,710
<OTHER-INCOME-NET> 48
<INCOME-BEFORE-INTEREST-EXPEN> 4,758
<TOTAL-INTEREST-EXPENSE> 2,590
<NET-INCOME> 2,168
24
<EARNINGS-AVAILABLE-FOR-COMM> 2,144
<COMMON-STOCK-DIVIDENDS> 2,393
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 10,428
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
