<PAGE> 1
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, 1995 Commission file number 0-1121
SOUTHERN CALIFORNIA WATER COMPANY
---------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 95-1243678
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
630 EAST FOOTHILL BOULEVARD, SAN DIMAS, CALIFORNIA 91773
-------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (909) 394-3600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, $2.50 PAR VALUE
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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]
The aggregate market value of the total voting stock held by non-affiliates of
the Registrant was approximately $154,336,000 on March 4, 1996. The closing
price per Common Share on that date, as quoted in the Western Edition of The
Wall Street Journal, was $19.625. Voting Preferred Shares, for which there is
no established market, were valued on March 4, 1996 at $1,367,000 based on a
yield of 6.84%. As of March 4, 1996, the number of the Registrant's Common
Shares, $2.50 Par Value, outstanding was 7,845,092.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Shareholders for the year
ended December 31, 1995 as to Part I, Items 1 and 2, and Part
II, Items 5, 6, 7 and 8, in each case, as specifically
referenced herein.
(2) Portions of the Proxy Statement filed with the Securities and
Exchange Commission on or about March 6, 1996 as to Part III,
Items 10, 11, 12 and 13, in each case as specifically
referenced herein.
<PAGE> 2
SOUTHERN CALIFORNIA WATER COMPANY
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I
Item 1: Business 1 - 6
Item 2: Properties 6 - 8
Item 3: Legal Proceedings 8
Item 4: Submission of Matters to a Vote of Security Holders 8
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 8 - 9
Item 6: Selected Financial Data 9
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operation 9
Item 8: Financial Statements and Supplementary Data 9 - 10
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 10
PART III
Item 10: Directors and Executive Officers of the Registrant 10
Item 11: Executive Compensation 10
Item 12: Security Ownership of Certain Beneficial Owners and Management 10
Item 13: Certain Relationships and Related Transactions 10
PART IV
Item 14: Exhibits, Financial Schedules and Reports on Form 8-K 10 - 11
Exhibit Index 11 - 13
Signatures 14
</TABLE>
i.
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Southern California Water Company, hereinafter referred to as the
Registrant, is a 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, hereinafter referred
to as the 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 or subject to condemnation
proceedings. The Registrant's present name was adopted in 1936.
At December 31, 1995, the Registrant was organized into three regions
operating within 75 communities in 10 counties located throughout the State of
California and provided water service in 21 separate customer service areas and
one electric customer service area. The total population of these service areas
on that date was approximately 1 million persons. For each of the years ended
December 31, 1995 and 1994, about 73% of the Registrant's water customers were
located in the greater metropolitan areas of Los Angeles and Orange Counties.
The Registrant provides electric service to the City of Big Bear Lake and
surrounding areas in San Bernardino County.
The Registrant served 238,962 water customers and 20,475 electric
customers at December 31, 1995, or a total of 259,437 customers, compared with
258,236 total customers at December 31, 1994 and 257,116 total customers at
December 31, 1993. For the years ended December 31, 1995 and 1994,
approximately 92% and 91%, respectively, of the Registrant's operating revenues
were derived from water sales and approximately 8% and 9%, respectively, were
derived from the sale of electricity. Operating income before taxes on income
of the electric district was 8% and 7% of the Registrant's total operating
income before taxes for the years ended December 31, 1995 and 1994,
respectively. The material contained in Note 10 - Business Segments - of the
Notes to Financial Statements in the 1995 Annual Report to Shareholders
provides additional information on business segments while Note 11 - Selected
Quarterly Financial Data (Unaudited) - of the Notes to Financial Statements in
the 1995 Annual Report to Shareholders provides information regarding the
seasonal nature of the Registrant's business. The Notes to Financial
Statements contained in the 1995 Annual Report to Shareholders are included
herein by reference.
During 1995, the Registrant supplied, from all sources, a total of
183,108 acre-feet of water compared to 185,490 acre-feet supplied in 1994 and
178,196 acre-feet in 1993. Of the total water supplied in 1995, approximately
41% was purchased from others, principally from member agencies of the
Metropolitan Water District of Southern California, hereinafter referred to as
the MWD, and the remaining amount was furnished by the Bureau of Reclamation
under contract, at no cost, to the Registrant's Arden-Cordova customer service
area and to the Registrant's Clearlake customer service area by prescriptive
rights to water extracted from Clear Lake. The remainder of water supplied was
produced from the Registrant's owned wells. All electric energy sold is
purchased from Southern California Edison Company.
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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
jurisdictions, which include 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 the MWD and other municipal
water agencies. The MWD imports water from two principal sources: the
Colorado River and the State Water Project, hereinafter referred to as the SWP.
Available water supplies from the Colorado River and the SWP have historically
been sufficient to meet most of the MWD's requirements. The California
Department of Water Resources has approved MWD's full allocation of water for
the 1995 - 1996 water year, which began October 1, 1995 and, as such, the
Registrant believes that its demand for MWD's water supplies will be met through
1996. The MWD's import of water from the Colorado River is anticipated to
decrease in future years due to the requirements of the Central Arizona Project
in the State of Arizona. In response, the MWD has taken steps to secure
additional storage capacity and to effect transfers of water rights from other
sources. The price of water purchased from the MWD, however, is expected to
continue to increase. In those districts of the Registrant which pump
groundwater, overall groundwater conditions remain at adequate levels allowing
the Registrant to use groundwater in its resource mix and decrease its
dependence on increasingly expensive purchased water.
COMPETITION
The business of the Registrant is substantially free from direct and
indirect competition with other public utilities, municipalities and other
public agencies.
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 to regulate
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. The CPUC 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.
The 22 customer service areas of the Registrant are grouped into 16
water districts and one electric district for ratemaking purposes. Water rates
of the Registrant vary among the 16 ratemaking districts due to differences in
operating conditions and costs. The Registrant continuously monitors
operations in each of these districts so that it may file applications for rate
changes, when warranted, on a district-by-district basis, in accordance with
the CPUC's 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" and "attrition" increases in rates for the second and third
years, respectively. 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 prospective two-year period. An attrition mechanism is used for setting
rates applicable to the third of the three-year test cycle, which assumes that
the costs and expenses for the third year of the cycle will change in the same
proportion over the second year as the change projected for the second year
over the first year. The step and attrition rate increases for the second and
third years, respectively, are allowed to compensate for projected cost
changes, but are subject to the satisfaction of certain tests, including a
demonstration that earnings levels in the district did not exceed the latest
rate of return
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authorized for the Registrant. General rate proceedings typically take about
twelve months from the filing of an application 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. The
CPUC's regulations require utilities to maintain balancing accounts that
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.
An advice letter, or rate base offset, proceeding is generally
undertaken on an order of the CPUC in a general rate proceeding and provides
for the delayed inclusion of certain projected plant facilities in future
rates, pending notification that such facilities have actually been placed in
service. The advice letter provides that notification and, after CPUC approval,
permits the Registrant to include the costs associated with the facilities in
rates.
During each of 1995, 1994 and 1993, the Registrant's rates for its
water ratemaking districts were changed, among other reasons, to directly
offset changes in certain expenses (principally purchased water) and for
increased levels of capital improvements. Rates in the Registrant's Bear
Valley Electric customer service area have not been changed during the last
three years. The following table lists information on rate changes, by major
type, approved by CPUC decisions for the Registrant for the last three years:
<TABLE>
<CAPTION>
Supply Balancing General & Step Rate Base
Cost Account Rate Offset
Year Offset Amortization Increases And Others Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 $1,780,000 $ (102,900) $1,426,800 $ 256,500 $ 3,360,400
1994 $9,439,800 $2,847,700 $3,084,600 $(2,070,800) $13,301,300
1993 $ 105,500 $ (67,900) $2,270,700 $ 50,000 $ 2,358,300
</TABLE>
In December, 1995, the CPUC issued its final decision on the
Registrant's water rate case applications which were filed in March, 1995. The
new rates approved by the CPUC went into effect in six of the Registrant's water
districts in January, 1996 and are anticipated to increase annual revenues in
those districts by approximately $15 million. The CPUC decision also allowed
for changes in rates in these six water districts in 1997 and 1998.
In February, 1996, the Registrant and other interested parties reached
a settlement of issues in the Registrant's rate increase application affecting
its Bear Valley electric customer service area. That settlement is subject to
approval by the CPUC. The Registrant anticipates that the CPUC will approve the
new rates, resulting in a total increase of revenues of approximately $1.5
million over two years. On January 31, 1996, the Registrant filed Notices of
Intent to increase water rates in two of its customer service areas to cover
costs associated with 1996 and 1997 capital projects. A final decision on these
applications by the CPUC is expected by December, 1996. No assurances can be
given, however, that the CPUC will either ultimately approve the settlement
agreement or approve all or any of the agreed upon rate increase.
EMPLOYEE RELATIONS
The Registrant had 448 employees as of December 31, 1995. Sixteen
employees in the Registrant's Bear Valley Electric customer service area were
members of the International Brotherhood of Electrical Workers, hereinafter
referred to as the IBEW. The present labor agreement with the IBEW is
effective until
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December 1, 1996. Fifty-nine of the Registrant's water utility employees in
its Metropolitan ratemaking district are members of the Utility Workers of
America, hereinafter referred to as the UWA. The collective bargaining
agreement with the UWA expires March 31, 1996. The Registrant and the UWA are
currently in negotiations on a new contract and the Registrant is unable at
this time to predict what changes, if any, will ultimately transpire. The
Registrant has no other unionized employees.
ENVIRONMENTAL MATTERS
The United States Environmental Protection Agency, hereinafter
referred to as 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 initially listed
in 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
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 pending implementation of those rules by the EPA. 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 will, 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
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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 is currently unable to predict what ultimate effects, if any, this
rule might have on its financial position or results of operation until the
final MCL is established.
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, although
the Registrant is currently unable to predict the ultimate impact that adoption
of the rule might have on its financial position or its results of operation.
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 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 Aerojet 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 Aerojet for a renewal of the agreement but is
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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.
ITEM 2 - PROPERTIES
FRANCHISES, COMPETITION, ACQUISITIONS AND CONDEMNATION OF PROPERTIES
The Registrant holds 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 ratemaking
districts it serves. The Registrant's certificates, franchises and similar
rights are subject to alteration, suspension or repeal by the respective
governmental authorities having jurisdiction.
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 Bay
Point water district by the Contra Costa Water District. The Registrant and
the Contra Costa customer service area have settled all matters related to this
action. Note 7 - Contingencies - of the Notes to Financial Statements
contained in the 1995 Annual Report to Shareholders, incorporated herein by
reference, describes the general terms of the settlement agreement.
WATER PROPERTIES
As of December 31, 1995, the Registrant's physical properties
consisted of water transmission and distribution systems which included
approximately 2,587 miles of pipeline together with services, meters and fire
hydrants and approximately 437 parcels of land, generally less than 1 acre
each, on which are located wells, pumping plants, reservoirs and other water
utility facilities including five surface water treatment plants. The
Registrant's 41 water systems and operating properties have been maintained and
improved in the ordinary course of business. As of December 31, 1995, the
Registrant owned and operated 271 active wells equipped with pumps with an
aggregate capacity of approximately 180 million gallons per day. The
Registrant has 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 approximately 95 million gallons. There
are no dams in the Registrant's system. The table on the following page
provides, in greater detail, a listing of selected water utility plant by
ratemaking district.
ELECTRIC PROPERTIES
The Registrant's electric properties are all located in the Big Bear
area of San Bernardino County. As of December 31, 1995, the Registrant
operated 28.7 miles of overhead 34.5 KV transmission lines, 0.6 miles of
underground 34.5 KV transmission lines, 172.4 miles of 4.16 KV or 2.4 KV
distribution lines, 39.5 miles of underground cable and 14 sub-stations. There
are no generating plants in the Registrant's system.
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<TABLE>
<CAPTION>
PUMPS DISTRIBUTION FACILITIES RESERVOIRS
- ---------------------------------------------------------------------------------------------------------
DISTRICT WELL BOOSTER MAINS (FT) METERS SERVICES HYDRANTS TANKS CAPACITY
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arden-Cordova 27 15 442,615 2,514 7,219 1,092 3 2,000
Barstow 27 31 853,771 12,166 10,491 956 13 5,025
Bay Point 1 13 122,197 4,315 2,796 279 7 4,046
Calipatria 0 9 134,873 681 1,631 62 4 300
Claremont 27 37 705,587 12,960 10,406 1,141 18 17,367
Clearlake - 12 185,914 2,495 793 632 4 867
Desert 20 24 742,148 6,514 4,463 552 12 1,500
Los Osos 10 11 195,809 3,272 1,342 149 8 1,423
Metropolitan 76 84 4,619,750 123,022 103,796 6,871 44 24,263
Ojai 4 13 233,971 2,615 3,091 340 6 1,536
Orange County 30 37 2,087,566 45,463 37,947 5,487 16 11,713
San Dimas 12 38 1,173,943 18,402 7,007 806 15 12,143
San Gabriel 22 10 545,797 11,384 12,439 767 3 1,520
Santa Maria 29 25 944,212 14,696 6,726 185 8 3,238
Simi Valley 1 16 460,019 13,079 9,230 792 6 6,210
Wrightwood 8 6 214,049 3,525 534 69 7 1,546
Total 294 381 13,662,221 277,103 219,911 20,180 174 94,697
</TABLE>
Capacity is measured in thousands of gallons
OFFICE BUILDINGS
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. The
Registrant also owns and occupies certain offices located in its customer
service areas while other such offices are housed in leased premises.
MORTGAGE AND OTHER LIENS
As of December 31, 1995, the Registrant had no mortgage debt
outstanding, and its properties were free of any encumbrances or liens securing
indebtedness.
FINANCING OF CAPITAL EXPENDITURES
The Registrant's construction program is designed to ensure its
customers high quality service. The Registrant maintains an ongoing
distribution main replacement program throughout its customer service areas,
based on 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 that conform with CPUC requirements.
The Board of Directors of the Registrant has approved anticipated
net capital expenditures of approximately $25,000,000 in 1996. The Registrant
anticipates net capital expenditures of approximately $35,200,000 and
$35,000,000 in 1997 and 1998, respectively, although such expenditures are
subject to final approval by the Board of Directors of the Registrant. The
Registrant anticipates that net capital expenditures in excess of its
internally generated cash will be financed through a combination of long-term
debt and additional common equity.
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During 1995 and 1994, the Registrant issued no common equity to raise
capital through either a public offering or a private placement or through its
Dividend Reinvestment and Common Share Purchase Plan or 401-k Plan. All common
shares scheduled to be issued through the Plans was purchased on the open
market.
In January, 1994, the Registrant issued 39,597 Common Shares pursuant
to the Merger Agreement between the Registrant and Lemon Heights Mutual Water
Company.
During 1993, the Registrant issued 1,107,000 Common Shares 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 47,828 and 7,741 Common Shares through its
Dividend Reinvestment and Common Share Purchase Plan and its 401-k Plan,
respectively, for the year ended December 31, 1993.
The Registrant has sold $30,000,000, $13,000,000 and $37,000,000 in
long-term debt under its Medium Term Note program during the years ended
December 31, 1995, 1994 and 1993, respectively. The net proceeds were used to
pay off then existing short-term debt incurred to fund construction
expenditures and to refinance then-existing higher coupon debt.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings. There is, however,
ordinary routine litigation incidental to the business.
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 INFORMATION RELATING TO COMMON SHARES -
Information responding to Item 201(a) of Regulation S-K is
included in the 1995 Annual Report to Shareholders, under the
caption "Stock Listing" and located on page 28, filed by the
Registrant with the Commission pursuant to Regulation 14A, and
is incorporated herein by reference pursuant to General
Instruction G(2).
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES -
As of March 4, 1996, there were 4,233 holders of record of
Common Shares.
(c) FREQUENCY AND AMOUNT OF ANY DIVIDENDS DECLARED AND DIVIDEND
RESTRICTIONS
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Information responding to Item 201(c) of Regulation S-K is
included in the 1995 Annual Report to Shareholders, under the
caption "Stock Listing" and located on page 28, filed by the
Registrant with the Commission pursuant to Regulation 14A, and
is incorporated herein by reference 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 201(c) of Regulation S-K
with respect to dividend restrictions is included in the 1995 Annual Report to
Shareholders, under Note 2 captioned "Capital Stock" located on Page 24 of the
Notes to Financial Statements, filed 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 1995 Annual Report
to Shareholders, under the caption entitled "1995 Financial Highlights" located
on Page 1, filed by the Registrant with the Commission pursuant to Regulation
14A, and is incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Information responding to Item 7 is included in the 1995 Annual Report
to Shareholders, under the caption entitled "Management's Discussion and
Analysis" located on Pages 13 through 15, filed 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 1995 Annual Report
to Shareholders, filed by the Registrant with the Commission pursuant to
Regulation 14A, under the following captions located on Pages 17 through 27 and
is incorporated herein by reference pursuant to General Instruction G(2).
Report of Independent Public Accountants
Balance Sheets - December 31, 1995 and 1994
Statements of Capitalization - December 31, 1995 and 1994
Statements of Income - for the years ended December 31, 1995, 1994
and 1993
Statements of Changes in Common Shareholders' Equity - for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows - for the years ended December 31, 1995,
1994 and 1993
Notes to Financial Statements
9
<PAGE> 12
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 is included in the Proxy Statement,
filed by the Registrant with the Commission on or about March 6, 1996 pursuant
to Regulation 14A, under the captions entitled "Election of Directors" and
"Executive Officers - Experience, Security Ownership and Compensation" and is
incorporated herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information responding to Item 11 is included in the Proxy Statement,
filed by the Registrant with the Commission on or about March 6, 1996 pursuant
to Regulation 14A, under the captions entitled "Election of Directors,"
"Executive Officers - Experience, Security Ownership and Compensation" and
"Performance Graph" is incorporated herein by reference pursuant to General
Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information responding to Item 12 is included in the Proxy Statement,
filed by the Registrant with the Commission on or about March 6, 1996 pursuant
to Regulation 14A, under the captions entitled "Election of Directors" and
"Executive Officers - Experience, Security Ownership and Compensation" and is
incorporated herein by reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responding to Item 13 is included in the Proxy Statement,
filed by the Registrant with the Commission on or about March 6, 1996 pursuant
to Regulation 14A, under the caption entitled "Election of Directors" and is
incorporated herein by reference pursuant to General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Reference is made to the Financial Statements incorporated
herein by reference to Item 8 hereof.
2. Schedules I, III, IV, and V 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.
10
<PAGE> 13
(c) Exhibits -
3.1 By-Laws 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.
Commission File No. 0-1121
3.2 Restated Articles of Incorporation 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. Commission File No. 0-1121
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. Commission File No. 0-1121
3.4 Certificate of Amendment of Articles of Incorporation
dated December 3, 1992 incorporated herein by
reference to Registrant's Form 10-K with respect to
the year ended December 31, 1992. Commission File
No. 0-1121.
3.5 Certificate of Amendment of Articles of Incorporation
dated February 17, 1994 incorporated herein by
reference to Registrant's Form 10-K with respect to
the year ended December 31, 1993. Commission File
No. 0-1121.
4.1 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. Commission File No. 33-62832.
10.1 Deferred Compensation Plan for Directors and
Executives incorporated herein by reference to
Registrant's Registration Statement on Form S-2
(Registration No. 33-5151).
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 on
Form S-2 (Registration No. 33-5151).
10.3 First Amendment to Reimbursement Agreement dated
January 1, 1986 between the Registrant and Barclays
Bank PLC (formerly Barclays Bank International
Limited) incorporated herein by reference to
Registrant's Registration Statement on Form S-2 (
Registration No. 33-5151).
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. Commission File No. 0-1121.
11
<PAGE> 14
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. Commission File No. 0-1121.
10.6 Fourth Amendment to Reimbursement Agreement dated
September 22, 1988 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. Commission File No. 0-1121.
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. Commission File No. 0-1121.
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. Commission File No. 0-1121.
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 on Form S-2 (Registration No.
33- 5151).
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. Commission File No. 0-1121.
10.11 Schedule of omitted Note Agreement incorporated
herein by reference to Registrant's Form 10-K with
respect to the year ended December 31, 1990.
Commission File No. 0-1121.
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. Commission File No. 0-1121.
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.
Commission File No. 0-1121.
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. Commission File
No. 0-1121.
12
<PAGE> 15
10.15 Water Supply Agreement dated as of June 1, 1994
between the Registrant and Central Coast Water
Authority incorporated herein by reference to the
Registrant's Form 10-K with respect to the year
ended December 31, 1994. Commission File No. 0-1121.
10.16 Retirement Plan for Non-Employee Directors of
Southern California Water Company, as amended,
January 25, 1995 incorporated herein by reference to
the Registrant's Form 10-K with respect to the year
ended December 31, 1994. Commission File No. 0-1121.
10.17 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).
10.18 Key Executive Long-Term Incentive Plan incorporated
herein by reference to the Registrant's 1995 Proxy
Statement, Commission File No. 0-1121.
13. Portions of the Annual Report to Shareholders* for
the year ended December 31, 1995 which are expressly
incorporated herein by reference.
21. Subsidiaries of Registrant - Exhibit not included as
subsidiaries in the aggregate are not significant.
23. Consent of Independent Public Accountants*.
27. Schedule UT*.
(d) None.
_____________________
*Filed concurrently herewith
13
<PAGE> 16
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
Vice President - Finance,
Chief Financial Officer and Secretary
Date: March 5, 1996
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 5, 1996
- -------------------------------------------
W. V. Caveney
Chairman of the Board and Director
s/ FLOYD E. WICKS . March 5, 1996
- ------------------------------------------
Floyd E. Wicks
Principal Executive Officer;
President, CEO and Director
s/ JAMES B. GALLAGHER . March 5, 1996
- ---------------------------------------
James B. Gallagher
Principal Financial and Accounting Officer;
Vice President - Finance, CFO and Secretary
s/ JEAN E. AUER . March 5, 1996
- -------------------------------------------------
Jean E. Auer, Director
s/ R. BRADBURY CLARK . March 5, 1996
- ---------------------------------------
R. Bradbury Clark, Director
s/ N. P. DODGE, JR. . March 5, 1996
- -------------------------------------------------
N. P. Dodge, Jr., Director
s/ ROBERT F. KATHOL . March 5, 1996
- ------------------------------------------
Robert F. Kathol, Director
s/ LLOYD E. ROSS . March 5, 1996
- -----------------------------------------------
Lloyd E. Ross, Director
</TABLE>
14
<PAGE> 1
EXHIBIT 13
1995 Financial Highlights
--------------------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
Increase
(in thousands, except per share amounts) 1995 1994 (Decrease) Percent
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Operating Revenues $129,813 $122,675 $ 7,138 5.82%
Total Operating Expenses 108,425 103,745 4,680 4.51%
Operating Income 21,388 18,930 2,458 12.98%
Other Income 336 236 100 42.37%
Interest Charges 9,559 7,828 1,731 22.11%
Net Income 12,165 11,338 827 7.29%
Earnings Available for Common Shareholders 12,069 11,240 829 7.38%
Earnings per Share from Operations Only 1.50 1.40 0.10 7.14%
Earnings per Common Share 1.54 1.43 0.11 7.69%
Dividends Paid per Common Share 1.21 1.20 0.01 0.42%
Book Value per Common Share 15.50 15.16 0.34 2.24%
Total Assets 406,255 383,627 22,628 5.90%
Total Capitalization $231,151 $214,013 $17,138 8.01%
Average Shares Outstanding 7,845 7,842 3 0.04%
</TABLE>
one
---
<PAGE> 2
Management's Discussion and Analysis
--------------------------------------------------------
Southern California Water Company is an investor-owned public utility engaged
principally in the purchase, production, distribution and sale of water. The
company also distributes electricity in one community. The company is 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 rates, service, facilities and
various other matters.
Results of Operations
---------------------
Years Ended December 31, 1995 and 1994
Earnings per common share in 1995 increased by 7.7% to $1.54 from the $1.43
reported in 1994. Earnings from utility operations only were $1.50 in 1995 as
compared to $1.40 reported in 1994, an increase of 7.1%. Other income
contributed $0.04 per share in 1995 compared to $0.03 per share in 1994. Water
operating revenues increased by 6.1% to $118.9 million in 1995 from the $112.1
million reported in 1994 due to the impact of general, step, attrition and
offset rate increases which went into effect throughout 1994 and 1995. Water
sales volumes in 1995 decreased by 2.6% as compared to 1994.
Electric operating revenues of $10.9 million were 2.9% greater in 1995
as compared to last year as a result of a 1.2% increase in kilowatt-hour sales
and a slight shift in sales volumes from industrial customers in favor of
residential and commercial customers, who have a higher unit rate.
Purchased water costs increased by 6.0% to $32.6 million in 1995 as a
result of increased prices from the company's wholesale water suppliers which
went into effect in July, 1995. These price increases were partially offset by
a 6.1% decrease in purchased water volumes.
Costs of power purchased for resale increased by 10.3% to $5.2
million, reflecting the slight increase in kilowatt-hour sales and the effect
of refunds received from the company's wholesale electric supplier in 1994, for
which there are no counterparts in 1995.
In 1995, costs of power purchased for pumping increased by
approximately 5.0% to $8.0 million as a result of the increased proportion of
total water supplied that was derived from pumped sources.
Groundwater production assessments increased to $6.1 million in 1995,
an increase of 12.5% from the $5.5 million reported in 1994. The increase
reflects both higher assessment rates, the latest of which was effective in
July, 1995, as well as increased volumes of pumped water in the company's
resource mix.
A negative entry for the provision for supply cost balancing accounts
reflects an under-collection of water and electric supply costs. The credit in
this category primarily reflects higher purchased water costs and groundwater
production assessments which have not yet been collected through rates.
Other operating expenses increased by 9.9% to approximately $13.4
million in 1995. The increase is primarily due to a $450,000 increase in the
reserve for uncollectible accounts and approximately $555,000 incurred in an
extensive water main flushing program in the Southwest customer service area
of Region II.
In 1994, the company established additional reserves of $263,000
against retention rights associated with its participation in the Coastal
Aqueduct Extension of the State Water Project (the Project) which was offset by
a reversal of approximately $456,000 in recognition of the company's
participation in the Project at a level of 500 acre-feet. In 1995, the company
reversed an additional $639,000 in recognition of the sale of its remaining
2,500 acre-foot entitlement to the Goleta Water District.
Administrative and general expense increased by 19.6% to $17 million
in 1995 compared to $14.2 million in 1994. The increase in expense reflects
additional costs associated with pension and 401-k plan contributions,
personnel training and relocation expenses, rent for new and remodeled office
space and travel and communication expenses. In addition, this category was
affected by an increase in the amount of labor expense being charged to this
category.
Depreciation expense increased by 5.4% to $8.5 million in 1995
reflecting, among other things, the effects of recording approximately $22
million in net plant additions during 1994, depreciation on which began in
1995.
Maintenance expense decreased by 16.8% in 1995 compared to 1994,
primarily as a result of work performed in 1994 on the company's water pumping
equipment, emphasis on hydrant maintenance and extensive main flushing and
valve exercise programs for which there is no direct counterpart in 1995.
Other income increased by 42.4% in 1995 due principally to an increase
of $132,000 in billings to the city of Folsom for the lease of a portion of the
company's water rights in the American River.
Interest expense in 1995 was approximately $9.6 million. The 22.1%
increase from 1994 is due to both additional long-term debt and short-term bank
borrowing utilized to finance the company's capital improvement program.
Years Ended December 31, 1994 and 1993
Earnings per common share of $1.43 in 1994 were 13.9% lower than the $1.66
earnings per common share recorded for 1993. Earnings from operations of $1.40
per share in 1994 were 13.0% lower than the $1.61 recorded in 1993. Other
income contributed $0.03 per share in 1994, as compared to $0.05 per share in
1993. Water operating revenues for 1994 increased by 14.2% over 1993 to $112.1
million, principally due to the full effects of approximately $2.3 million in
general rate increases effective during 1993 and the partial effects of $12
million in supply cost offset rate increases effective in March, 1994. Water
sales volumes in 1994 increased by 7.5%.
Electric operating revenues were 2.3% greater than 1993 as a result of
a 3.8% increase in kilowatt-hour sales. Purchased water expense increased $1.4
million, 4.7%, from 1993 to 1994. This increase is a result of both a higher
volume of water purchased as well as increased prices from the company's
wholesale suppliers.
Expense for power purchased for resale increased by approximately
44.0% to $4.7 million in 1994 and reflected the effects of approximately $1.6
million in additional refunds in 1993 received from the company's wholesale
electric supplier, which was partially offset by the 3.8% increase in electric
sales volumes.
thirteen
--------
<PAGE> 3
As compared to 1993, the recorded expense for power purchased for
pumping declined by 6.8% to $7.6 million in 1994 due chiefly to the effects of
an increase in the amount of total water supplied which was derived from
purchased sources.
A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs resulting from
approval by the CPUC in March, 1994 of rate increases to collect these
under-recovered amounts.
Other operating expenses in 1994 were $12.1 million, 11.2% higher than
the $10.9 million recorded in 1993 due to a net increase in personnel involved
in various operating and customer service functions.
In 1993, the company established a reserve of approximately $1.9
million against previously incurred costs related to its participation in the
Coastal Aqueduct Extension of the State Water Project. Additional reserves of
$263,000 offset by a reversal of $456,000 in recognition of participation in
the Project at a level of 500 acre-feet constitute the net credit for 1994.
Administrative and general expenses increased by approximately 5.4%,
or $728,000, in 1994. This increase reflects costs associated with increased
levels of personnel performing regulatory, administrative and operational
requirements as well as personnel-related expenses such as health insurance and
pension expenses. In 1994, the company wrote off $435,000 of legal expenses
associated with the settled condemnation action in the company's Bay Point
district.
Maintenance expense increased by 7.2% in 1994 to $6.9 million as a
result of continuing work performed on the company's water pumping equipment,
increased emphasis on hydrant maintenance and extensive main flushing and valve
exercise programs.
Depreciation expense increased $651,000 in 1994, which was 8.8% higher
than 1993, primarily reflecting the effects of recording approximately $28
million in net plant additions during 1993, depreciation on which is fully
reflected during 1994.
Taxes on income, $8.9 million in 1994, increased by 61.4% over the
$5.5 million recorded in 1993 as a result of higher pte-tax book income.
Additionally, in 1994 the company booked adjustments for prior tax years of
approximately $671,000. Tax expense in 1993 reflected the effects of a reversal
of approximately $1.3 million in previously established tax reserves.
Total interest expense decreased by 6.6% to $7.8 million in 1994 from
$8.4 million in 1993, chiefly as a result of the company's refinancing, during
the last quarter of 1993, of a substantial portion of its outstanding long-term
debt at lower interest rates.
Financial Condition
-------------------
Liquidity and Capital Resources
The company funds the majority of its operating expenses, interest on its debt,
sinking fund requirements and dividends through internal sources. However, the
seasonal nature of the company's water and electric business periodically
necessitates that the company utilize its short-term borrowing capacity to
finance current operations. The company relies on external sources, including
advances and contributions from developers, to fund the majority of its capital
expenditures program.
The company also relies on short-term bank borrowing to temporarily
finance its construction expenditures. Bank borrowing is repaid as internal
sources of cash allow and is ultimately financed with equity or long-term debt.
At December 31, 1995, the company had utilized $8,500,000 of its aggregate
short-term borrowing capacity of $37,063,000. Of its total short-term borrowing
capacity, $5,063,000 is also available to support letters of credit. It is
anticipated that borrowing under the three bank lines of credit will increase
during 1996.
During 1995, the company issued $30 million in debt under its Medium
Term Note Program. The net proceeds paid down then-existing bank borrowing.
The company anticipates selling additional long-term debt and possibly issuing
common shares in 1996 to finance its construction requirements and refund
approximately $15 million in debt which matures in 1996.
The company anticipates that over the next five years it will be
necessary to issue new debt and equity securities to repay bank borrowing and
pay for capital expenditures. The timing, type and amount of future financing
will reflect both the company's internal financial policies and external market
conditions, all of which will be consistent with maintenance of the company's
A+/A2 debt ratings.
In December, 1995, the company completed the sale of 2,500 acre-feet
of its total 3,000 acre-foot entitlement in the Coastal Aqueduct Extension of
the State Water Project. Net proceeds from the sale of approximately $1.2
million were received in February, 1996. See Note 7 of the Notes to Financial
Statements.
Construction Program
Net construction expenditures for 1996 are estimated at approximately $24.9
million. Capital expenditures for years after 1996 are expected to increase.
The company's capital expenditure program is not only affected by various
federal, state and local regulations but also by a number of operational
factors including, among others, age of the various water systems and customer
growth.
In the past, the CPUC has, through the regulatory process, approved
the recovery of and return on prudently incurred construction expenditures. No
assurance can be given, however, that the CPUC will grant all or any portion of
the rate increases necessary to fully recover the company's capital
investments.
Regulatory Matters
Water and electric rates of the company vary among its 22 customer service
areas due to differences in operating conditions, capital investment and costs.
The customer service areas are currently grouped into 16 water tariff areas and
one electric district 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 cost 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 applications for general rate relief, including step
and attrition year increases, in six of its water operating districts in March,
1995. In December, 1995, the CPUC issued its final decision on those
applications which, among other things, authorized a 10.4% return on common
equity, increased depreciation rates, authorized recovery of postretirement
benefit costs (See Note 6 of the Notes to
fourteen
--------
<PAGE> 4
Financial Statements) and resulted in an approximate increase in annual water
operating revenues of $15 million, effective January 1, 1996.
The company filed an application for a general rate increase in its
Bear Valley Electric customer service area in September, 1995. In February,
1996, the company reached a stipulated settlement agreement among all parties
which, among other things, authorized a return on equity of 10.4% and increased
depreciation rates. The settlement agreement is based on a number of other
items stipulated in the company's water rate cases described earlier. New
rates, resulting in a total increase in revenues of approximately $1.5 million
over two years, are expected to be approved by the CPUC by mid-year, 1996.
On January 31, 1996, the company 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 anticipated by December, 1996.
Environmental Matters
The company is subject to regulations established by the United States
Environmental Protection Agency (the EPA) and administered by the California
Department of Health Services regarding water quality issues. The Safe Drinking
Water Act (the SDWA) requires the EPA to set standards for contaminants and
water treatment processes. 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 already
treated. Anticipated amendments to the SDWA and/or interim regulations set by
the EPA may result in increased costs for testing and, where necessary,
treatment of the company's groundwater supplies.
The rate-making process has provided the company with recovery of
these costs in the past and it is anticipated that costs associated with any
new standards will also be recoverable, although no assurance can be given that
the CPUC will authorize such future recovery. There have been no material
environmental matters affecting the company's Bear Valley Electric customer
service area.
Water Supply
During 1995, the company supplied, from all sources, a total of 183,108
acre-feet of water compared to 185,490 acre-feet supplied in 1994. Of the total
water supplied in 1995, approximately 41% was purchased from others,
principally from member agencies of the Metropolitan Water District of Southern
California, and 1.6% was furnished by the Bureau of Reclamation under contract,
at no cost, for the company's Arden-Cordova customer service area and to the
company's Clearlake customer service area by prescriptive right to water
extracted from Clear Lake. The remainder of water supplied was produced from
the company's own wells.
The water supply outlook for the 1996 water year, which began on
October 1, 1995, assumed below average precipitation for the winter months. In
spite of this, the Department of Water Resources, which operates the State
Water Project, has allocated 100% of the water requested by the Metropolitan
Water District of Southern California. This allocation provides assurance that
the company's purchased water requirements will be met in 1996.
Winter precipitation, especially in Northern and Central California,
has been in excess of normal through February, 1996. Statewide, the snowpack
water content is approximately 85% of average through February, 1996. For the
same period, storage in the state's major reservoirs stood at about 73% of
capacity.
Overall groundwater conditions, in those customer service areas of the
company which pump groundwater, remain at adequate levels. In light of all of
these conditions, it is not anticipated that the company will experience any
water supply problems during 1996.
Accounting Standards
In March, 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
imposes a stricter criterion for regulatory assets by requiring that such
assets be probable of future recovery at each balance sheet date. The company
will adopt this standard on January 1, 1996, however it does not expect that
adoption will have a material impact on the financial position or results of
operations based on the current regulatory structure in which the company
operates. This conclusion may change in the future should competitive factors
influence wholesale and retail pricing in this industry.
Effective January 1, 1996, the company is subject to the reporting
requirements contained in SFAS No. 123, "Accounting for Stock-Based
Compensation." The company has a Key Executive Long-Term Incentive Plan, the
provisions of which became effective in January, 1995. Any payouts under the
plan, which are made in Common Shares of the company, will not occur prior to
1998. At that time, the company intends to utilize the footnote option to
disclose the effects of any such awards, in compliance with SFAS No. 123.
fifteen
-------
<PAGE> 5
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 LLP, have performed an
audit of the financial statements in accordance with generally accepted
auditing standards. Their audit gave consideration to 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.
/s/ FLOYD E. WICKS
Floyd E. Wicks
President, Chief Executive Officer
/s/ JAMES B. GALLAGHER
James B. Gallagher
Vice President - Finance,
Chief Financial Officer and Secretary
February 15, 1996
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, 1995 and
1994 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, 1995. 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, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 5 and 6 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.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
Los Angeles, California
February 15, 1996
seventeen
---------
<PAGE> 6
Balance Sheets
--------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------
(in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Utility Plant, at cost
Water $383,368 $356,666
Electric 30,269 26,642
----------------------------
413,637 383,308
Less - Accumulated depreciation (103,018) (92,679)
----------------------------
310,619 290,629
Construction work in progress 24,349 24,250
----------------------------
Net utility plant 334,968 314,879
----------------------------
Other Property and Investments 755 921
----------------------------
Current Assets
Cash and cash equivalents 343 2,344
Accounts receivable -
Customers, less reserves of
$648 in 1995 and $419 in 1994 8,238 8,889
Other 2,563 2,015
Unbilled revenue 11,035 9,560
Materials and supplies, at average cost 1,733 1,232
Supply cost balancing accounts 8,073 7,008
Prepayments 7,779 6,578
Accumulated deferred income taxes - net 3,206 2,461
----------------------------
Total current assets 42,970 40,087
----------------------------
Deferred Charges
Regulatory tax-related assets 22,986 23,105
Other 4,576 4,635
----------------------------
Total deferred charges 27,562 27,740
----------------------------
Total Assets $406,255 $383,627
----------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
eighteen
--------
<PAGE> 7
<TABLE>
<CAPTION>
December 31,
----------------------------
(in thousands) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization and Liabilities
Capitalization
Common shareholders' equity $121,576 $118,962
Preferred shares 1,600 1,600
Preferred shares - mandatory redemption 520 560
Long-term debt 107,455 92,891
----------------------------
Total capitalization 231,151 214,013
----------------------------
Current Liabilities
Notes payable to banks 8,500 19,500
Long-term debt and preferred shares - current 15,624 4,624
Accounts payable 6,839 8,448
Taxes payable 5,562 5,635
Accrued interest 1,955 1,885
Other 8,061 6,504
----------------------------
Total current liabilities 46,541 46,596
----------------------------
Other Credits
Advances for construction 55,385 54,503
Contributions in aid of construction 27,745 25,567
Accumulated deferred income taxes - net 39,050 36,252
Unamortized investment tax credits 2,300 2,352
Regulatory tax-related liability 3,499 3,582
Other 584 762
----------------------------
Total other credits 128,563 123,018
----------------------------
Total Capitalization and Liabilities $406,255 $383,627
============================
</TABLE>
nineteen
--------
<PAGE> 8
Statements of Capitalization
--------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------
(in thousands) 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shareholders' Equity:
Common shares, $2.50 par value -
Authorized 10,000,000 shares
Outstanding 7,845,092 in 1995 and 1994 $ 19,613 $ 19,613
Additional paid-in capital 54,753 54,753
Earnings reinvested in the business 47,210 44,596
------------------------------
121,576 118,962
------------------------------
Preferred Shares: $25 par value
Authorized 64,000 shares
Outstanding 32,000 shares, 4% Series 800 800
Outstanding 32,000 shares, 4G% Series 800 800
------------------------------
1,600 1,600
------------------------------
Preferred Shares Subject
to Mandatory Redemption
Requirements: $25 par value
Authorized and outstanding 22,400 shares in
1995 and 24,000 shares in 1994, 5% Series 560 600
Less: Preferred shares to be redeemed within one year (40) (40)
------------------------------
520 560
------------------------------
Long-Term Debt
3.90% notes due 1995 - 2,100
4.16% notes due 1995 - 2,100
4.30% notes due 1996 2,200 2,200
6.40% notes due 1996 13,000 13,000
5.82% notes due 2003 12,500 12,500
10.10% notes due 2009 10,000 10,000
6.64% notes due 2013 1,100 1,100
6.80% notes due 2013 2,000 2,000
8.50% fixed rate obligation due 2013 2,077 2,130
Variable rate obligation due 2014 6,000 6,000
6.87% notes due 2023 5,000 5,000
7.00% notes due 2023 10,000 10,000
7.55% notes due 2025 8,000 -
7.65% notes due 2025 22,000 -
9.56% notes due 2031 28,000 28,000
Other 1,162 1,345
------------------------------
123,039 97,475
Less: Current maturities (15,584) (4,584)
------------------------------
107,455 92,891
------------------------------
Total Capitalization $231,151 $214,013
==============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
twenty
------
<PAGE> 9
Statements of Income
--------------------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
----------------------------------------------------
(in thousands, except per share amounts) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues
Water $118,922 $112,087 $98,155
Electric 10,891 10,588 10,351
-----------------------------------------------------
Total operating revenues 129,813 122,675 108,506
-----------------------------------------------------
Operating Expenses
Water purchased 32,629 30,768 29,375
Power purchased for resale 5,215 4,726 3,282
Power purchased for pumping 7,963 7,584 8,139
Groundwater production assessment 6,137 5,457 5,284
Supply cost balancing accounts (1,146) 500 (7,960)
Other operating expenses 13,351 12,148 10,923
Provision for State Water Project (639) (193) 1,854
Administrative and general expenses 17,029 14,237 13,509
Depreciation 8,483 8,049 7,398
Maintenance 5,754 6,916 6,450
Taxes on income 8,784 8,865 5,491
Property and other taxes 4,865 4,688 4,711
-----------------------------------------------------
Total operating expenses 108,425 103,745 88,456
-----------------------------------------------------
Operating Income 21,388 18,930 20,050
-----------------------------------------------------
Other Income
Net gain from sale of operating properties - 313 -
Provision for non-operating assets - - (943)
Other - net 336 (77) 1,297
-----------------------------------------------------
Total other income 336 236 354
-----------------------------------------------------
Income before interest charges 21,724 19,166 20,404
-----------------------------------------------------
Interest Charges
Interest on long-term debt 7,807 6,694 7,607
Other interest and amortization of debt expense 1,752 1,134 771
-----------------------------------------------------
Total interest charges 9,559 7,828 8,378
-----------------------------------------------------
Net Income 12,165 11,338 12,026
Dividends on Preferred Shares (96) (98) (100)
-----------------------------------------------------
Earnings Available For Common Shareholders $ 12,069 $ 11,240 $11,926
-----------------------------------------------------
Earnings Per Common Share $ 1.54 $ 1.43 $ 1.66
-----------------------------------------------------
Weighted Average Number
of Common Shares Outstanding 7,845 7,842 7,186
=====================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
twenty-one
----------
<PAGE> 10
Statements of Changes in Common Shareholders' Equity
--------------------------------------------------------
<TABLE>
<CAPTION> Common Shares
----------------------- Additional Earnings
Number Paid-in Reinvested in
(in thousands) of Shares Amount Capital the Business
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 6,642 $16,607 $32,234 $39,388
Add:
Issuances of Common Shares
for Public Offerings 1,107 2,768 21,167
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
Add:
Issuances of Common Shares
for acquisition of water system 40 99 574
Net Income 11,338
Deduct:
Dividends on Preferred Shares 98
Dividends on Common Shares - $1.20 per share 9,414
- ------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1994 7,845 $19,613 $54,753 $44,596
Add:
Net Income 12,165
Deduct:
Dividends on Preferred Shares 96
Dividends on Common Shares - $1.205 per share 9,455
- ------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995 7,845 $19,613 $54,753 $47,210
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
twenty-two
----------
<PAGE> 11
Statements of Cash Flows
--------------------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 12,165 $ 11,338 $ 12,026
Adjustments for non-cash items:
Depreciation and amortization 9,033 8,476 7,682
Deferred income taxes and
investment tax credits 2,016 75 5,693
Gain on sale of properties - (532) -
Other - net 416 (185) (830)
Changes in assets and liabilities:
Customer receivables 651 (2,074) 1,215
Supply cost balancing accounts (1,065) 14 (3,798)
Rationing penalty reserve - - (5,015)
Accounts payable (1,609) (829) 2,538
Taxes payable (73) 2,685 (3,040)
Other - net (2,587) (1,393) (309)
-----------------------------------------------------
Net cash provided 18,947 17,575 16,162
-----------------------------------------------------
Cash Flows from Financing Activities:
Issuance of Common Shares - - 24,852
Issuance of long-term debt and lease obligations 30,000 13,000 38,143
Debt issuance costs - - (427)
Receipt of advances for and
contributions in aid of construction 2,761 2,335 2,157
Refunds on advances for construction (2,812) (2,694) (2,903)
Repayments of long-term debt and
redemption of preferred shares (4,477) (228) (233)
Early retirement of long-term debt - - (41,103)
Net change in notes payable to banks (11,000) 7,500 (2,668)
Common and preferred dividends paid (9,614) (9,496) (8,651)
-----------------------------------------------------
Net cash provided 4,858 10,417 9,167
-----------------------------------------------------
Cash Flows from Investing Activities:
Construction expenditures (25,808) (28,620) (22,248)
Acquisition of water systems - (100) (1,797)
Proceeds from sale of properties - 1,346 -
-----------------------------------------------------
Net cash used (25,808) (27,374) (24,045)
-----------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (2,001) 618 1,284
Cash and Cash Equivalents, Beginning of Year 2,344 1,726 442
-----------------------------------------------------
Cash and Cash Equivalents, End of Year $ 343 $ 2,344 $ 1,726
-----------------------------------------------------
Taxes and Interest Paid:
Income taxes paid $ 6,955 $ 6,261 $ 1,484
Interest paid 9,043 6,846 8,354
-----------------------------------------------------
Non-Cash Transactions:
Property installed by developers
and conveyed to company $ 2,764 $ 564 $ 818
Capital leases - 53 1,142
Acquisition of water system for common shares - 673 -
-----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
twenty-three
------------
<PAGE> 12
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). The
preparation of these financial statements required the use of certain estimates
by management in determining the company's assets, liabilities, revenues and
expenses.
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 1995, 1994 and 1993, the aggregate provisions for depreciation
approximated 2.52%, 2.50% and 2.47% 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 rate-making 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 and net income after
deducting preferred dividend requirements.
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 is 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. The company
accrues interest on its supply cost balancing accounts at the rate prevailing
for 90-day commercial paper.
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, Accounts Receivable and Short-term Debt -
The carrying amount.
Long-term Debt - Rates available to the company at December 31, 1995
and 1994 for debt with similar terms and remaining maturities were used to
estimate fair value. Changes in the assumptions will produce differing results.
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
- -----------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 343 $ 343 $ 2,344 $ 2,344
Accounts receivable 21,836 21,836 20,464 20,464
Financial liabilities:
Short-term debt 8,500 8,500 19,500 19,500
Long-term debt $123,039 $136,191 $97,475 $100,146
- -----------------------------------------------------------------------------
</TABLE>
Note 2
--------
Capital Stock
All of the series of Preferred Shares outstanding at December 31, 1995 are
redeemable at the option of the company. At December 31, 1995, the redemption
price per share for each series of $25 Preferred Shares was $27.00, $26.50 and
$25.25 for the 4%, 4G% 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, 1995 is $40,000 each year.
During the year ended December 31, 1993, the company issued 47,828 and
7,741 Common Shares under the Dividend Reinvestment Plan (DRP) and the 401-k
Plan, respectively. All shares due under the DRP and the 401-k programs during
the years ended December 31, 1994 and 1995 were purchased on the open market.
There are 109,454 and 92,259 Common Shares reserved for issuance under
the DRP and the 401-k Plan, respectively, at December 31, 1995. Shares reserved
for the 401-k Plan are in relation to company matching contributions and for
investment purposes by participants.
As of December 31, 1995, retained earnings of $27,183,000 were
restricted as to the payment of cash dividends on Common Shares.
Note 3
------
Long-Term Debt
During 1995, the company issued a total of $30 million of unsecured Notes, the
proceeds of which were used to pay down short-term bank borrowing. The company
has no mortgage debt, and leases and other similar financial arrangements are
not material.
The company has posted an Irrevocable Letter of Credit, which expires
July 31, 1996, in the amount of $551,000 as
twenty-four
-----------
<PAGE> 13
security for its self-insured workers' compensation plan. 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 issued by the Three
Valleys Municipal Water District.
Annual maturities of all long-term debt, including capitalized leases,
amount to $15,584,000, $174,000, $180,000, $187,000 and $1,193,000 for each of
the years ending December 31, 1996 through 2000, respectively.
Note 4
------
Compensating Balances and Bank Debt
At December 31, 1995, the company maintained $37,063,000 in aggregate borrowing
capacity with three commercial banks with no compensating balances required.
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. Of the
$37,063,000 aggregate borrowing capacity, $8,500,000 was outstanding at
December 31, 1995.
Short-term bank borrowing activities for the last three years were as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands, except percent)
Balance Outstanding
at December 31, $ 8,500 $19,500 $12,000
Interest Rate
at December 31, 6.39% 7.53% 3.76%
Average Amount
Outstanding $17,897 $16,527 $ 9,862
Weighted Average Annual
Interest Rate 6.92% 4.65% 3.76%
Maximum Amount
Outstanding $27,500 $24,750 $21,500
- -----------------------------------------------------------------------
</TABLE>
Note 5
------
Taxes on Income
The company provides deferred income taxes for temporary differences under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109) 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.
SFAS No. 109 also requires that rate-regulated enterprises record
deferred income taxes for temporary differences accorded flow-through treatment
at the direction of a regulatory commission. The resulting deferred tax assets
and liabilities are recorded at the expected cash flow to be reflected in
future rates. Since the CPUC has consistently permitted the recovery of
previously flowed-through tax effects, the company has established regulatory
liabilities and assets offsetting such deferred tax assets and liabilities.
Deferred investment tax credits are being amortized to other income
ratably over the lives of the property giving rise to the credits.
The significant components of deferred tax assets and deferred tax
liabilities, as reflected in the balance sheets, and the accumulated net
deferred income tax liabilities at December 31, 1995 and 1994 were:
<TABLE>
<CAPTION>
December 31, 1995 1994
- --------------------------------------------------------------
<S> <C> <C>
(in thousands)
Deferred tax assets:
Balancing accounts $ 1,706 $ 1,234
State tax effect 1,500 1,227
- --------------------------------------------------------------
3,206 2,461
- --------------------------------------------------------------
Deferred tax liabilities
Depreciation (36,604) (33,618)
Advances and contributions 15,637 13,761
Other property related (10,796) (10,344)
Other non-property related (7,287) (6,051)
- --------------------------------------------------------------
(39,050) (36,252)
- --------------------------------------------------------------
Accumulated deferred
income taxes - net $(35,844) $(33,791)
- --------------------------------------------------------------
</TABLE>
The current and deferred components of income tax expense are as
follows:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Current
Federal $ 5,432 $ 6,650 $ (2,503)
State 2,110 2,435 (92)
- --------------------------------------------------------------------------------------
Total current tax expense 7,542 9,085 (2,595)
- --------------------------------------------------------------------------------------
Deferred - Federal and State:
Accelerated depreciation 3,273 3,087 2,819
Balancing accounts 472 (6) 505
State Water Project (296) (116) 821
Excess use penalties - - 3,660
Advances and contributions (477) (1,204) (1,465)
California privilege year
franchise tax (394) (1,085) 142
Adjustments to prior
year provision (855) - -
Other (520) (476) (203)
- --------------------------------------------------------------------------------------
Total deferred tax expense 1,203 200 6,279
- --------------------------------------------------------------------------------------
Total income tax expense $ 8,745 $ 9,285 $ 3,684
- --------------------------------------------------------------------------------------
Income taxes included in
operating expenses $ 8,784 $ 8,865 $ 5,491
Income taxes included in other
income and expenses - net (39) 420 (1,807)
- --------------------------------------------------------------------------------------
Total income tax expense $ 8,745 $ 9,285 $ 3,684
- --------------------------------------------------------------------------------------
</TABLE>
Additional information regarding taxes on income is set forth in the
following table:
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Federal taxes on pre-tax income
at statutory rates $ 7,318 $ 7,217 $ 5,496
Increase (decrease) in taxes
resulting from:
State income tax expense 1,725 2,022 559
Depreciation 426 321 220
Federal benefit of state taxes (604) (708) (196)
Adjustments to prior years'
provisions 76 342 (1,067)
Payment of premium
on redemption - - (984)
Other - net (196) 91 (344)
- --------------------------------------------------------------------------------------
Total income tax expense $ 8,745 $ 9,285 $ 3,684
- --------------------------------------------------------------------------------------
Pre-tax income $20,910 $20,623 $15,710
- --------------------------------------------------------------------------------------
Effective income tax rate 41.8% 45.0% 23.5%
- --------------------------------------------------------------------------------------
</TABLE>
twenty-five
-----------
<PAGE> 14
Note 6
------
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 1995 and 1994 were 7% and 4% and 7.5% and 4%,
respectively. The expected long-term rate of return on assets, which consist
primarily of fixed income securities, was 8% for 1995 and 1994.
The following table sets forth the Plan's funded status and amounts
recognized in the company's balance sheets at December 31, 1995 and 1994 and
the components of net pension cost for 1995 and 1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
December 31, 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
(in thousands)
Accumulated benefit obligation:
Vested $ 21,031 $ 18,225
Nonvested 1,722 1,523
- --------------------------------------------------------------------
Total $ 22,753 $ 19,748
- --------------------------------------------------------------------
Projected benefit obligation for
service rendered to date (28,712) $(24,419)
Plan assets at fair value 26,396 22,157
Unrecognized net loss/(gain) due to
past experience different from
assumptions made 3,194 3,763
Unrecognized net obligation at
January 1, 1986 being recognized
over 15 years 285 342
Unrecognized prior service cost
due to Plan amendments 533 577
- --------------------------------------------------------------------
Accrued pension asset $ 1,696 $ 2,420
- --------------------------------------------------------------------
Service cost benefits earned
during the period $ 1,145 $ 1,019
Interest cost on projected
benefit obligation 1,790 1,623
Return on Plan assets (4,713) 785
Net amortization and deferral 3,133 (2,506)
- --------------------------------------------------------------------
Net pension cost $ 1,355 $ 921
- --------------------------------------------------------------------
</TABLE>
The company also provides all active employees medical, dental and
vision care benefits through a medical insurance plan. Eligible employees who
retired prior to age 65, and/or their spouses, were able to retain the benefits
under the active plan until reaching age 65. Upon reaching age 65, and for
those employees retiring at or after age 65, and/or their spouses, continued
coverage was provided through a Medicare supplement insurance policy paid for
by the company.
Effective January 1, 1993, the company adopted theprovisions of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." As a result, the company amended the retiree medical plan,
substantially reducing benefits for those current employees retiring after
September 30, 1995. No such benefits are available to employees hired on or
after February 1, 1995.
The CPUC has issued a decision which provides for the recovery in
rates of tax-deductible contributions made to a separately trusteed fund. In
accordance with that decision, the company established two separate trusts in
1995, one for those retirees who were subject to a collectively bargained
agreement and another for all other retirees. The company's funding policy is
to contribute annually an amount at least equal to the revenues authorized to
be collected through rates for postretirement benefit costs. Assets in these
trusts amounted to approximately $646,000 as of December 31, 1995.
The following table presents information on the plan's funded status
and the accrued postretirement liability as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
December 31, 1995 1994
- ------------------------------------------------------------
<S> <C> <C>
(in thousands)
Accumulated postretirement
benefit obligation (APBO):
Retirees and dependents $ 3,345 $ 3,364
Other fully eligible participants 322 572
Other active participants 1,409 1,142
- ------------------------------------------------------------
Total $ 5,076 $ 5,078
- ------------------------------------------------------------
Plan assets at fair value - -
Accumulated postretirement benefit
obligation in excess of plan assets 5,076 5,078
Unrecognized transition obligation (7,965) (8,384)
Unrecognized prior service cost 4,026 4,306
Unrecognized net (gain)/loss 465 -
- ------------------------------------------------------------
Accrued postretirement benefit
liability $ 1,602 $ 1,000
- ------------------------------------------------------------
</TABLE>
The components of net periodic postretirement benefits cost for 1995
are as follows:
<TABLE>
<CAPTION>
December 31, 1995
- -------------------------------------------------------
<S> <C>
(in thousands)
Service cost - benefits earned during year $ 92
Interest cost on APBO 370
Actual return on plan assets -
Net amortization and deferral 140
- -------------------------------------------------------
Net periodic postretirement benefit cost $602
- -------------------------------------------------------
</TABLE>
Postretirement benefit costs for 1993 and 1994, $500,000 per year,
which were estimated based upon the actuarially determined cost level for 1995,
and for 1995 have been recorded as a regulatory asset for recovery over a 20
year period.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1995 and 1994 was 7.0% and
7.5%, respectively. A sliding scale for assumed health care cost increases
starting at 12% in 1994 declining 1% per year for six years and then remaining
at 6% thereafter was used for both periods. A 1% increase in the health care
cost trend would increase the accumulated postretirement benefit obligation at
December 31, 1995 by $326,000 and the net periodic postretirement benefit cost
for 1995 by $49,000.
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 1995,
twenty-six
----------
<PAGE> 15
1994 and 1993, totaled $389,000, $222,000 and $197,000, respectively.
Note 7
------
Contingencies
As a result of a settlement agreement with the Contra Costa Water District
(CCWD) concerning CCWD's condemnation, initiated in July, 1992, of the
company's Bay Point customer service area, the company is responsible for
reimbursing CCWD for additional facilities to provide for a long-term
supplemental source of treated water supply for the company's system. The
estimated cost of the company's portion of these facilities, based upon the
company's current capacity needs, is approximately $2.6 million. One-half, or
$1.3 million, was paid in September, 1994 with the balance payable in 84
monthly installments following completion of the facilities, estimated to be in
1997. The terms of the agreement were approved by the CPUC in August, 1995.
The company has signed a Water Supply Agreement to participate in the
Coastal Aqueduct Extension of the State Water Project (the Project) at a level
of 500 acre-feet. The company's investment to date for this level of
participation is $1,032,000 and is included in net utility plant. The company
anticipates filing a request with the CPUC to include these and future costs
associated with this level of participation in rates pursuant to normal
regulatory procedures. In December, 1995, the company sold its remaining 2,500
acre-feet of entitlement for approximately $1.2 million. Proceeds from the sale
were received in February, 1996.
Note 8
------
Construction Program
The company's 1996 construction budget provides for gross expenditures of
approximately $31,300,000. Management anticipates that $6,300,000 of the 1996
budgeted amount will be obtained from developers and others.
Note 9
------
Allowance for Doubtful Accounts
The table below presents the company's provision for doubtful accounts charged
to expense and accounts written off, net of recoveries for the last three
years.
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
Balance at beginning of year $ 419 $ 370 $ 333
Provision charged
to expense 1,501 765 706
Accounts written off,
net of recoveries (1,272) (716) (669)
- ----------------------------------------------------------------------
Balance at end of year $ 648 $ 419 $ 370
- ----------------------------------------------------------------------
</TABLE>
Note 10
-------
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 rate-making 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 11
-------
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
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------
Business Segments 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Water Electric Water Electric Water Electric
Operating revenues $118,922 $10,891 $112,087 $10,588 $ 98,155 $10,351
Operating income before
income taxes 27,776 2,396 25,858 1,936 23,192 2,349
Identifiable assets 303,367 31,601 294,343 20,536 276,710 18,280
Depreciation expense 7,717 766 7,308 741 6,715 683
Capital additions 25,753 2,985 27,878 3,057 26,443 2,057
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Operating Operating Earnings
Revenues Income Net Income per Share
--------------------- ------------------ ------------------- -------------
Quarterly
Financial Data 1995 1994 1995 1994 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
First Quarter $ 24,976 $ 24,181 $ 3,396 $ 2,895 $ 1,118 $ 1,166 $0.14 $0.15
Second Quarter 32,372 30,494 5,268 4,263 3,027 2,327 0.38 0.29
Third Quarter 39,533 38,686 7,553 6,877 5,290 5,208 0.67 0.66
Fourth Quarter 32,932 29,314 5,171 4,895 2,730 2,637 0.34 0.33
- -----------------------------------------------------------------------------------------------------------------
Year $129,813 $122,675 $21,388 $18,930 $12,165 $11,338 $1.54 $1.43
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
twenty-seven
------------
<PAGE> 16
and changes in the company's operations.
1996 Annual Meeting of Shareholders
All shareholders are invited to attend the 1996 Annual Meeting on Tuesday,
April 30, 1996, beginning at 10:00 am, at Industry Hills Sheraton, One Industry
Hills Parkway, City of Industry, California.
Stock Listing
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
past two years were:
<TABLE>
<CAPTION>
Dividends
1995 High Low Paid
- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter 18 1/4 15 3/4 $0.300
Second Quarter 19 7/8 15 7/8 0.300
Third Quarter 19 3/8 16 3/4 0.300
Fourth Quarter 21 18 3/8 0.305
- -------------------------------------------------------
$1.205
- -------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dividends
1994 High Low Paid
- -------------------------------------------------------
<S> <C> <C> <C>
First Quarter 22 17 1/4 $0.300
Second Quarter 20 3/4 18 1/8 0.300
Third Quarter 18 7/8 16 0.300
Fourth Quarter 17 5/8 15 1/4 0.300
- -------------------------------------------------------
$1.200
- -------------------------------------------------------
</TABLE>
Independent Certified Public Accountants
Arthur Andersen LLP
First Interstate World Center
633 West Fifth Street
Los Angeles, CA 90071
Shareholder Assistance and Corporate Reports
Shareholders with questions, or who wish to obtain a copy of the company's
reports to the Securities and Exchange Commission without charge, should
contact:
Southern California Water Company
Office of the Treasurer
630 East Foothill Boulevard
San Dimas, CA 91773
Phone: (909) 394-3600, Extension 705
Fax: (909) 394-0711
Transfer Agent, Registrar and Dividend Paying Agent
First Interstate Bank of California
Stock Transfer Department
P.O. Box 30609
Los Angeles, CA 90030
(800) 522-6645
Replacement of Dividend Checks
If a dividend check is not received within seven working days after the
dividend payment date, or if a check is lost or has been destroyed, please
notify the transfer agent to stop payment and issue a replacement check.
1996 Dividend Schedule
The following schedule is the estimated Common and Preferred Share record and
payment dates for 1996:
<TABLE>
<CAPTION>
Record Dates Payment Dates
- --------------------------------------------------------
<S> <C>
February 12 March 1
May 13 June 1
August 12 September 1
November 15 December 1
</TABLE>
Dividend Reinvestment and Common Share Purchase Plan
The company has a Dividend Reinvestment and Common Share Purchase Plan that
offers shareholders of record a convenient way to increase their holdings by
reinvesting all or part of their cash dividends in additional Common Shares of
the company. The Plan also provides for receipt of optional cash payments for
the purchase of additional Common Shares. A prospectus and authorization form
may be obtained from the transfer agent.
Transferring Stock
A stock transfer is required whenever a shareholder changes the registration of
their stock. To transfer stock, fill in the name, address and taxpayer
identification number on the back of the certificate and sign exactly as it
appears on the front. The signature must be guaranteed by a member of the Gold
Medallion Signature Guarantee Program. A certificate, fully endorsed, should be
sent to the transfer agent by registered or certified mail.
Lost or Stolen Certificates
If a certificate should become lost, stolen or destroyed, notify the transfer
agent to issue a stop transfer order against the missing certificate. The
transfer agent will send documents required to replace the missing certificates
as well as providing any other requirements. A surety bond must be purchased in
order to protect the interests of all parties against the possibility of the
missing certificates returning to circulation. The fee for the surety bond is
approximately 2% of the current market value of the missing shares.
Duplicate Mailings
Some shareholders maintain separate accounts on the transfer agent's records
due to slight variations in the registered ownership. Even though the mailing
address and taxpayer identification numbers are identical, the transfer agent
is required to mail separate dividend checks, proxy material and annual and
quarterly reports to each account.
To maintain separate accounts but eliminate duplicate mailings, please
notify the transfer agent in writing, listing the account for which mailings
should continue and the accounts for which these mailings should be
discontinued. Dividend checks and proxy materials will still be sent to each
separate account.
To consolidate accounts into one, please notify the transfer agent in
writing as to which account is to remain open and which accounts are to be
consolidated. If it is necessary to reissue stock certificates to consolidate
the accounts, the shareholder will be notified in advance by the transfer
agent.
twenty-eight
------------
<PAGE> 1
EXHIBIT 23
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,
1996 included in the 1995 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, 1995 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 in the Southern California Water
Company Registration Statements which follow:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Registration Form File No. Effective Date
-------------------------------------------------------------------
<S> <C> <C>
S - 3 33-42218 August 22, 1991
S - 8 33-71226 November 4, 1993
S - 3 33-60441 August 11, 1995
-------------------------------------------------------------------
</TABLE>
/s/ Arthur Andersen LLP
-------------------------
ARTHUR ANDERSEN LLP
Los Angeles, California
March 19, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND INCOME STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED
HEREWITH AS EXHIBIT NO. 13.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 334,968
<OTHER-PROPERTY-AND-INVEST> 755
<TOTAL-CURRENT-ASSETS> 42,970
<TOTAL-DEFERRED-CHARGES> 27,562
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 406,255
<COMMON> 19,613
<CAPITAL-SURPLUS-PAID-IN> 54,753
<RETAINED-EARNINGS> 47,210
<TOTAL-COMMON-STOCKHOLDERS-EQ> 121,576
520
1,600
<LONG-TERM-DEBT-NET> 107,455
<SHORT-TERM-NOTES> 8,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 15,200
40
<CAPITAL-LEASE-OBLIGATIONS> 1,111
<LEASES-CURRENT> 384
<OTHER-ITEMS-CAPITAL-AND-LIAB> 149,869
<TOT-CAPITALIZATION-AND-LIAB> 406,255
<GROSS-OPERATING-REVENUE> 129,813
<INCOME-TAX-EXPENSE> 8,784
<OTHER-OPERATING-EXPENSES> 99,641
<TOTAL-OPERATING-EXPENSES> 108,425
<OPERATING-INCOME-LOSS> 21,388
<OTHER-INCOME-NET> 336
<INCOME-BEFORE-INTEREST-EXPEN> 21,724
<TOTAL-INTEREST-EXPENSE> 9,559
<NET-INCOME> 12,165
96
<EARNINGS-AVAILABLE-FOR-COMM> 12,069
<COMMON-STOCK-DIVIDENDS> 9,614
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 18,947
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
