<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, 1996 Commission file number 0-1121
SOUTHERN CALIFORNIA WATER COMPANY
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 95-1243678
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 EAST FOOTHILL BOULEVARD, SAN DIMAS, CALIFORNIA 91773
- -------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (909) 394-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
------------------- -----------------------------------------
Common Shares, $2.50 Par Value New York Stock Exchange
- ------------------------------ -----------------------------------------
- ------------------------------ -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act: NONE
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 $185,271,000 on March 17, 1997. The closing
price per Common Share on that date, as quoted in the Western Edition of The
Wall Street Journal, was $20.625. Voting Preferred Shares, for which there is no
established market, were valued on March 17, 1997 at $1,283,000 based on a yield
of 6.60%. As of March 17, 1997, the number of the Registrant's Common Shares,
$2.50 Par Value, outstanding was 8,957,671.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Shareholders for the year
ended December 31, 1996 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 20, 1997 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 7 - 9
Item 3: Legal Proceedings 9
Item 4: Submission of Matters to a Vote of Security Holders 9
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 9 - 10
Item 6: Selected Financial Data 10
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operation 10
Item 8: Financial Statements and Supplementary Data 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 11
Item 11: Executive Compensation 11
Item 12: Security Ownership of Certain Beneficial Owners and Management 11
Item 13: Certain Relationships and Related Transactions 11
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
Exhibit Index 12 - 14
Signatures 15
</TABLE>
i.
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Southern California Water Company, hereinafter referred to as
Registrant, is a utility company engaged principally in the purchase,
production, distribution and sale of water (SIC No. 4941). Registrant also
distributes electricity in one community (SIC No. 4911). 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 been the subject of condemnation
proceedings. Registrant's present name was adopted in 1936.
At December 31, 1996, 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, 1996, 1995 and 1994, about 73% of Registrant's water customers were
located in the greater metropolitan areas of Los Angeles and Orange Counties.
Registrant provides electric service to the City of Big Bear Lake and
surrounding areas in San Bernardino County. Beginning in June, 1996, all
electric energy sold by Registrant to customers in its Bear Valley Electric
customer service area was purchased under an energy brokerage contract with
ENOVA Energy Management, Inc. Prior to June, 1996, all energy sold was purchased
from the Southern California Edison Company subsidiary of Edison International.
Registrant served 240,498 water customers and 20,546 electric customers
at December 31, 1996, or a total of 261,044 customers, compared with 259,437
total customers at December 31, 1995 and 258,236 total customers at December 31,
1994. For the years ended December 31, 1996, 1995 and 1994, approximately 92% of
Registrant's operating revenues were derived from water sales and approximately
8% were derived from the sale of electricity. Operating income before taxes on
income of the electric district was approximately 9%, 8% and 7% of Registrant's
total operating income before taxes for the years ended December 31, 1996, 1995
and 1994, respectively. The material contained in Note 11 Business Segments - of
the Notes to Financial Statements in the 1996 Annual Report to Shareholders
provides additional information on business segments while Note 12 - Selected
Quarterly Financial Data (Unaudited) - of the Notes to Financial Statements in
the 1996 Annual Report to Shareholders provides information regarding the
seasonal nature of Registrant's business. The Notes to Financial Statements
contained in the 1996 Annual Report to Shareholders are included herein by
reference.
During 1996, Registrant supplied, from all sources, a total of 194,397
acre-feet of water compared to 183,108 acre-feet supplied in 1995 and 185,490
acre-feet in 1994. Of the total water supplied in 1996, approximately 43% was
purchased from others, principally from member agencies of the Metropolitan
Water District of Southern California ("MWD"). The remaining amount was
furnished by the Bureau of Reclamation under contract, at no cost, to
Registrant's Arden-Cordova customer service area and to Registrant's Clearlake
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<PAGE> 4
customer service area by prescriptive rights to water extracted from Clear Lake.
The remainder of water supplied was produced from Registrant's owned wells.
MWD is organized to deliver imported water to areas within
its jurisdiction. Registrant has 52 connections to the water distribution
facilities of MWD and other municipal water agencies. MWD imports water from two
principal sources: the Colorado River and the State Water Project ("SWP").
Available water supplies from the Colorado River and the SWP have historically
been sufficient to meet most of MWD's requirements and MWD's supplies from these
sources are anticipated to remain adequate through 1997. MWD's import of water
from the Colorado River is expected to decrease in future years due to the
requirements of the Central Arizona Project in the State of Arizona. In
response, MWD has taken steps to secure additional storage capacity and increase
available water supplies, including effecting transfers of water rights from
other sources.
The recent storms during the 1996-1997 winter period provided
precipitation adequate to fill most of the state's reservoirs to near capacity
and the outlook for water supply in 1997 is favorable. In those districts of
Registrant which pump groundwater, overall groundwater conditions remain at
adequate levels, allowing Registrant to use groundwater in its resource mix and
decrease its dependence on increasingly expensive purchased water. Registrant
believes that its water supplies from all sources are adequate to meet current
year projected demands.
COMPETITION
The business of Registrant is substantially free from direct and
indirect competition with other public utilities, municipalities and other
public agencies.
WATER-RELATED OPPORTUNITIES
Registrant continues to pursue strategic opportunities related to the
operation of municipally-owned water systems. Registrant has pursued and
continues to pursue opportunities to bid on long-term leases and operation
contracts on a stand-alone basis or as part of a joint venture.
In December, 1996, Registrant and U.S. Water, L.L.C., a limited
liability company owned by United Infrastructure Company, a general partnership
formed by the Bechtel and Peter Kiewet organizations, and by Northwest Water
Holdings, Inc., a subsidiary of United Utilities PLC, a water and electric
utility based in the United Kingdom, formed Golden State Water Company LLC
("GSWC") for the purpose of pursuing potential opportunities to lease, or
operate and maintain, municipally owned retail water supply and distribution
systems and water treatment, wastewater collection and wastewater treatment
facilities in California. GSWC has submitted a bid to the City of Garden Grove
("Garden Grove") to operate and maintain its water system. The bid remains
subject to approval by Garden Grove. No assurance can be given that Garden Grove
will approve GSWC's bid or that GSWC will ultimately be retained to operate and
maintain the city's water system or perform any other services for Garden Grove.
There can be no assurance that any such other opportunities will materialize or
that, if they do, Registrant (either jointly with GSWC or alone) would be
successful in consummating any such lease and/or maintenance and operation
arrangements.
RATES AND REGULATION
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 Registrant are grouped into 16 water
districts and one electric district for ratemaking purposes. Registrant's water
rates vary among the 16 ratemaking districts due to differences in operating
conditions and costs. 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.
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<PAGE> 5
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 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. The attrition mechanism is to set 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.
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 authorized for Registrant.
General rate proceedings typically take about 12 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 the required notification and, after CPUC approval,
permits Registrant to include the costs associated with the facilities in rates.
During each of 1996, 1995 and 1994, Registrant's rates for most of 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 Registrant's Bear Valley Electric
customer service area were adjusted in 1996. The following table lists
information on estimated rate changes, by major type, for the last three years:
<TABLE>
<CAPTION>
SUPPLY BALANCING GENERAL AND STEP RATE BASE
COST ACCOUNT RATE OFFSET
YEAR OFFSET AMORTIZATION INCREASES AND OTHERS TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 $ 102,500 $ (757,700) $16,804,100 $ 2,305,100 $18,297,800
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
</TABLE>
In January, 1996, new rates were effective in six of Registrant's
rate-making districts which, among other things, authorized a rate of return on
common equity of 10.40%, increased depreciation rates, authorized recovery of
postretirement medical benefit costs, increased current recovery of labor and
labor-related expenses and resulted in an increase in annual water operating
revenues of approximately $15 million. Water rates in two additional ratemaking
districts were increased on January 1, 1997 to recover costs associated with
1996 and 1997 capital projects in those areas.
3
<PAGE> 6
Registrant filed notices of intent to increase water rates in four
ratemaking districts in January, 1997. Registrant is unable to predict if the
CPUC will authorize all or any of the proposed increases. However, it is not
anticipated that new rates, if approved, would be effective before January,
1998.
New rates were effective in May, 1996 in Registrant's Bear Valley
Electric customer service area. An additional step increase was effective in
January, 1997.
In November, 1996, Registrant filed an application with the CPUC
seeking recovery through rates of costs associated with its participation in the
coastal aqueduct extension of the State Water Project. Registrant is currently
unable to predict if the CPUC will authorize recovery of all or any of the costs
associated with its participation in the Project.
EMPLOYEE RELATIONS
Registrant had 463 employees as of December 31, 1996. Seventeen
employees in Registrant's Bear Valley Electric customer service area were
members of the International Brotherhood of Electrical Workers, hereinafter
referred to as the IBEW. Registrant's bargaining unit agreement with the IBEW
expired on December 1, 1996 but was extended until March 31, 1997. Registrant
and the IBEW are negotiating a new contract, but Registrant is unable at this
time to predict the final result of those negotiations. Fifty-three of
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 in March, 2001.
Registrant has no other unionized employees.
ENVIRONMENTAL MATTERS
1996 Amendments to Federal Safe Drinking Water Act
On August 6, 1996, amendments (the "1996 SDWA amendments") to the
federal Safe Drinking Water Act (the "SDWA") were signed into law. The 1996 SDWA
amendments amount to a rewrite of the law that the United States Environmental
Protection Agency (the "EPA") has been trying to implement for almost 10 years.
The amendments were developed with significant contributions from water
purveyors and regulators. The California Department of Health Services, acting
on behalf of the EPA, administers the EPA's program in California.
The 1996 SDWA amendments revise the 1986 amendments to the SDWA, which
required that the EPA set 25 new contaminant standards every three years, with a
new process for selecting and regulating contaminants. The EPA can only regulate
contaminants that may have adverse health effects, are known or likely to occur
at levels of public health concern, and the regulation of which will provide "a
meaningful opportunity for health risk reduction." The EPA must, within 18
months of the time that the 1996 SDWA amendments were signed into law, publish a
list of contaminants for possible regulation and must update that list every
five years. In addition, every five years, the EPA must select at least five
contaminants on that list and determine whether to regulate them. The new law
allows the EPA to bypass the selection process and adopt interim regulations for
contaminants in order to address urgent health threats. Current standards for
contaminants, however, remain in place and are not subject to the new
standard-setting provisions.
The 1996 SDWA amendments allow the EPA for the first time to base
primary drinking water regulations on risk assessment and cost/benefit
considerations and on minimizing overall risk. The EPA must base regulations on
best available, peer-reviewed science and data from best available methods. For
proposed regulations that involve the setting of maximum contaminant levels
("MCLs"), the EPA must use, and seek public comment on, an analysis of
quantifiable and non-quantifiable risk-reduction benefits and cost for each
such MCL.
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.
Since the SDWA became effective, Registrant has experienced increased
operating costs for testing to determine the levels, if any, of the contaminants
in Registrant's sources of supply and additional expense to lower the level of
any contaminants in order to meet the MCL standards. Such costs and the costs of
controlling any other contaminants may cause Registrant to experience additional
capital costs as well as increased operating costs.
Registrant is currently unable to predict the ultimate impact that the
1996 SDWA amendments might have on its financial position or its results of
operation. The ratemaking process provides Registrant with the opportunity to
recover prudently incurred capital and operating costs associated with water
quality. Management believes that such incurred costs will be authorized for
recovery by the CPUC.
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<PAGE> 7
Proposed Enhanced Surface Water Treatment Rule
On July 29, 1994, the EPA proposed an Enhanced Surface Water Treatment
Rule ("ESWTR"), which would require increased surface-water treatment to
decrease the risk of microbial contamination. The EPA has proposed several
different versions of the ESWTR for promulgation. The version selected for
promulgation will be determined based on data collected by certain water
suppliers and forwarded to the EPA pursuant to the EPA's Information Collection
Rule, which requires such water suppliers to monitor certain microbial and other
contaminants in their water supplies and to conduct certain tests in respect of
such contaminants. The EPA must adopt interim and final rules pertaining to
enhanced surface water treatment according to a negotiated schedule or as soon
as practicable. The ESWTR, in any of the forms currently proposed, would
apply to each of Registrant's five surface water treatment plants. However,
because it is impossible to predict the version of the ESWTR that will be
promulgated, the Company is unable to predict what additional costs, if any,
will be incurred to comply with the ESWTR.
Regulation of Disinfection/Disinfection By-Products
Registrant will also be subject to new regulations concerning
disinfection/disinfection by-products ("DBPs"), Stage I of which regulations are
expected to become effective in June, 1998. These regulations will require
reduction of tri-halomethane contaminants from 100 micrograms per liter to 80
micrograms per liter and are expected to affect two of Registrant's systems.
The EPA must adopt Stage II rules pertaining to DBPs according to a
negotiated schedule or as soon as practicable. The EPA is not allowed to utilize
the new cost/benefit analysis provided for in the 1996 SDWA amendments for
establishing the Stage II rules applicable to DBPs but may utilize the
regulatory negotiating process provided for in the 1996 SDWA amendments to
develop the Stage II rule.
Ground Water Disinfection Rule
By December, 1998, the EPA is scheduled to propose regulations
requiring disinfection of certain groundwater systems and provide guidance on
determining which systems must provide disinfection facilities. The EPA may
utilize the cost/benefit analysis provided in the 1996 SDWA amendments to
establish such regulations. It is anticipated that the regulations will apply to
several of Registrant's systems using groundwater supplies. While no assurance
can be given as to the nature and cost of any additional compliance measures, if
any, that will ultimately be necessitated by implementation of the proposed
regulations, Registrant does not believe that such regulations will impose
significant additional compliance costs, since Registrant already currently
engages in disinfection of its groundwater systems.
Regulation of Radon and Arsenic
Registrant will be subject to new regulations regarding radon and
arsenic. EPA must propose an arsenic rule by January 1, 2001 and adopt a rule
one year later. EPA has 180 days after enactment of the 1996 SDWA amendments to
develop a plan to study ways to reduce arsenic health risk uncertainties and is
authorized to enter into cooperative agreements to carry out the study.
Depending on the MCL eventually established for arsenic, compliance could
require 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 EPA must withdraw its proposed radon rule and arrange for the
National Academy of Sciences to conduct a risk assessment and a study of
risk-reduction benefits associated with various mitigation measures. EPA has 30
months from enactment of the 1996 SDWA amendments in which to seek comment on a
risk-reduction and cost analysis for potential radon standards, six more months
to propose a standard, and another year to adopt a standard. Although Registrant
is unable to predict what the standard for radon might eventually be, Registrant
itself is currently conducting studies to determine the best treatment for
affected wells, which treatment could range from simple aeration to filtration
through granular activated carbon.
Voluntary Efforts to Exceed Surface Water Treatment Standards
Registrant is a voluntary member of the "Partnership for Safe Water", a
national program to further protection of the public from diseases caused by
cryptosporidium and other microscopic organisms. As a volunteer in the program,
Registrant has committed to exceed current regulations governing surface water
treatment to ensure that its surface treatment facilities are performing as
efficiently as possible.
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Fluoridation of Water Supplies
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.
Matters Relating to Arden-Cordova System
Three of the 27 wells in Registrant's Arden-Codova system have, for
several years, been subject to contamination by trichloroethylene. GenCorp
Aerojet has, by court decree, been responsible for all costs related to the
provision of well-head treatment. Although a 10-year agreement with Aerojet
Corporation expired in 1996, Aerojet Corporation has agreed to reimburse
Registrant for the costs of backwash system modification at all three wells.
In January, 1997, Registrant was notified that ammonium perchlorate
had been detected in three of its wells in its Arden-Cordova system. GenCorp
Aerojet has, in the past, used ammonium perchlorate in their processing as an
oxidizer of rocket fuels. Although neither the EPA nor the DOHS has established
a drinking water standard for ammonium perchlorate, Registrant has notified
customers in its Arden-Cordova customer service area of detection of ammonium
perchlorate. Registrant and GenCorp Aerojet are in negotiations on matters
related to procedures to address cleanup of the contaminated wells as well as
costs associated with the cleanup. Registrant is unable to predict when the
negotiations will be completed or the likely outcome of such negotiations.
Matters Relating to Culver City System
The compound methyl tertiary butyl ether (MTBE) has been detected in
the Charnock Basin located in the City of Santa Monica and Culver City, which
lie within Registrant's service area. MTBE is an oxygenate used in reformulated
fuels. At the request of the Regional Water Quality Control Board, the City of
Santa Monica and the California Environmental Protection Agency, Registrant
removed two of its wells in the Culver City system from service in November 1996
to help in efforts to avoid further spread of the MTBE contamination plume.
Neither these wells nor any of Registrant's other wells have been found to be
contaminated with MTBE. Registrant is purchasing water from the Metropolitan
Water District at an increased cost to replace the water supply formerly pumped
from the two wells removed from service.
Several studies are under way to determine the possible sources and
causes of the MTBE contamination. The federal EPA is pursuing an enforcement
effort to reach a settlement with the potentially responsible parties on matters
relating to the cleanup of the contamination as well as to obtain reimbursement
from such parties for increased costs incurred by the Company in purchasing
replacement water. Registrant is unable to predict the outcome of the EPA's
enforcement effort, and no assurance can be given as to whether the Company will
obtain reimbursement for the increased costs of purchasing water to replace the
water formerly pumped from the affected wells in the Culver City system.
Bear Valley Electric
There have been no environmental matters that have materially affected
or are currently materially affecting Registrant's Bear Valley Electric Service
area.
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ITEM 2 - PROPERTIES
FRANCHISES, COMPETITION, ACQUISITIONS AND CONDEMNATION OF PROPERTIES
Registrant holds all necessary franchises from the incorporated
communities and the counties which it serves. Registrant holds certificates of
public convenience and necessity granted by the CPUC in each of the ratemaking
districts it serves. 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. Within the last three years, Registrant has
been involved in activities related to the condemnation of its Bay Point water
district by the Contra Costa Water District. Registrant and the Contra Costa
Water District have settled all matters related to this action.
WATER PROPERTIES
As of December 31, 1996, Registrant's physical properties consisted of
water transmission and distribution systems which included 2,603 miles of
pipeline together with services, meters and fire hydrants and 437 parcels of
land, generally less than one acre each, on which are located wells, pumping
plants, reservoirs and other water utility facilities including five surface
water treatment plants. Registrant's 41 water systems and operating properties
have been maintained and improved in the ordinary course of business.
As of December 31, 1996, Registrant owned and operated 292 active wells
equipped with pumps with an aggregate capacity of approximately 180 million
gallons per day. Registrant has 52 connections to the water distribution
facilities of the MWD and other municipal water agencies. Registrant's storage
reservoirs and tanks have an aggregate capacity of approximately 94 million
gallons. Registrant owns no dams in its customer service areas. The table on the
following page sets forth, in greater detail, a listing of selected water
utility plant by ratemaking district.
ELECTRIC PROPERTIES
Registrant's electric properties are all located in the Big Bear area
of San Bernardino County. As of December 31, 1996, 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 Registrant's system.
OFFICE BUILDINGS
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 Registrant. The Registrant
also owns and occupies certain facilities housing regional, district and
customer service offices while other such facilities are housed in leased
premises.
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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 15 455,364 2,868 7,637 1,125 2 2,000
Barstow 27 33 840,855 12,497 10,676 975 13 5,025
Bay Point 1 15 133,008 4,607 2,963 289 7 4,046
Calipatria 0 9 134,878 1,036 1,663 69 2 200
Claremont 26 36 706,912 13,907 10,818 1,148 18 17,367
Clearlake 0 14 188,068 2,544 818 72 4 867
Desert 19 24 744,998 6,853 4,520 563 12 1,500
Los Osos 10 11 195,811 3,639 1,371 149 8 1,423
Metropolitan 76 82 4,653,663 136,898 105,385 6,925 41 25,067
Ojai 5 13 234,001 5,004 3,408 348 6 1,536
Orange County 30 37 2,098,429 47,760 38,665 9,697 17 12,153
San Dimas 11 38 1,180,508 18,878 7,269 818 14 10,143
San Gabriel 22 10 546,192 12,071 12,576 769 3 1,520
Santa Maria 29 25 948,833 19,644 7,184 756 8 3,238
Simi Valley 1 19 468,754 13,680 9,453 811 6 6,210
Wrightwood 8 6 215,028 5,403 629 71 7 1,546
- ----------------------------------------------------------------------------------------------------------------------
Total 292 387 13,745,302 307,289 225,035 24,585 168 93,841
- ----------------------------------------------------------------------------------------------------------------------
Capacity is measured in thousands of gallons
</TABLE>
MORTGAGE AND OTHER LIENS
As of December 31, 1996, Registrant had no mortgage debt outstanding,
and its properties were free of any encumbrances or liens securing indebtedness.
FINANCING OF CAPITAL EXPENDITURES
Registrant's construction program is designed to ensure its customers
high quality service. 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, Registrant upgrades its electric
and water supply facilities and is aggressively scheduling meter replacements
that conform with CPUC requirements.
Registrant's Board of Directors has approved anticipated net capital
expenditures of approximately $27,500,000 in 1997. Registrant anticipates
capital expenditures of approximately $32,000,000 and $33,000,000 in 1998 and
1999, respectively, although such expenditures are subject to final approval by
Registrant's Board of Directors. Registrant anticipates that net capital
expenditures in excess of its internally generated cash will continue to be
financed through a combination of long-term debt and sales of additional Common
Shares.
Registrant issued 1,000,000 Common Shares in December, 1996 and an
additional 71,500 Common Shares in January, 1997 for aggregate net proceeds of
$22,062,000. Also during 1996, Registrant issued approximately 41,000 Common
Shares through its Dividend Reinvestment and Common Share Purchase and 401(k)
Plans for additional aggregate proceeds of approximately $904,000.
8
<PAGE> 11
In December, 1996, Registrant sold $8 million in tax-exempt debt that
was issued through the California Pollution Control Financing Authority. The
funds were deposited with a trustee and will be used to finance water main
replacements in several of Registrant's customer service areas.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this Report (including the documents
incorporated herein by reference) are forward-looking statements intended to
qualify for the safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as the Company "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe the Company's future
plans, objectives, estimates or goals are also forward-looking statements. Such
statements address future events and conditions concerning capital
expenditures, earnings, litigation, rate and other regulatory matters, adequacy
of water supplies, liquidity and capital resources, and accounting matters.
Actual results in each case could differ materially from those currently
anticipated in such statements, by reason of factors such as utility
restructuring, including ongoing state and federal activities; future economic
conditions, including changes in customer demand; future climatic conditions;
legislative, regulatory and competitive developments in markets in which the
Company operates; and other circumstances affecting anticipated revenues and
costs.
ITEM 3. LEGAL PROCEEDINGS
Registrant is subject to ordinary course litigation incidental to its
business. No legal proceedings are pending (except such incidental litigation)
to which Registrant is a party or to which any of its properties is subject
which are believed by Registrant to be material.
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 1996 Annual Report to Shareholders under the
caption "Stock Listing" located on page 36 thereof, filed by
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 17, 1997, there were 4,078 holders of record
of Common Shares.
(c) FREQUENCY AND AMOUNT OF ANY DIVIDENDS DECLARED AND DIVIDEND
RESTRICTIONS
Information responding to Item 201(c) of Regulation S-K is
included in the 1996 Annual Report to Shareholders, under the
caption "Stock Listing" and located on page 36, filed by
9
<PAGE> 12
Registrant with the Commission pursuant to Regulation 14A, and
is incorporated herein by reference pursuant to General
Instruction G(2). For each of the last three years,
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 1996 Annual Report to Shareholders, under Note
2 captioned "Capital Stock" located on pages 28 and 29 of the
Notes to Financial Statements, filed by 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 1996 Annual Report
to Shareholders, under the caption entitled "Selected Financial Data" located on
page 1, filed by 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 1996 Annual Report
to Shareholders, under the caption entitled "Management's Discussion and
Analysis" located on pages 19 through 22, filed by 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 on pages 23 through 33 of
the 1996 Annual Report to Shareholders under the captions listed below, which
Report was filed by Registrant with the Commission pursuant to Regulation 14A,
and is incorporated herein by reference pursuant to General Instruction G(2).
Report of Independent Public Accountants
Balance Sheets - December 31, 1996 and 1995
Statements of Capitalization - December 31, 1996 and 1995
Statements of Income - for the years ended December 31, 1996, 1995 and
1994
Statements of Changes in Common Shareholders' Equity - for the years
ended December 31, 1996, 1995 and 1994
Statements of Cash Flows - for the years ended December 31, 1996, 1995
and 1994
Notes to Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE> 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information responding to Item 10 is included in the definitive Proxy
Statement, filed by Registrant with the Commission on or about March 20, 1997
pursuant to Regulation 14A, under the captions entitled "Election of Directors,"
"Section 16(a) Beneficial Ownership Reporting Compliance," 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 definitive Proxy
Statement, filed by Registrant with the Commission on or about March 20, 1997
pursuant to Regulation 14A, under the captions entitled "Election of Directors,"
"Executive Officers - Experience, Security Ownership and Compensation," "Pension
Plan," "Deferred Compensation Plan for Directors and Executives," "Compensation
Committee Interlocks and Inside Participation," "Report on Executive
Compensation," and "Performance Graph," and 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 definitive Proxy
Statement, filed by Registrant with the Commission on or about March 20, 1997
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 definitive Proxy
Statement, filed by Registrant with the Commission on or about March 20, 1997
pursuant to Regulation 14A, under the caption entitled "Certain Relationships
and Related Transactions" 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. All other required schedules may be found in
Exhibit 13 filed herewith.
3. See (c) below.
(b) The Company filed a Current Report on Form 8-K dated December 9,
1996 relating to the Company's formation, together with U.S.
Water, L.L.C., of Golden State Water Company LLC. The Company
also filed a Current Report on Form 8-K dated December 16, 1996
to report that the Company entered into an Underwriting
Agreement, the form of which was attached as an exhibit to such
report.
(c) Exhibits -
11
<PAGE> 14
3.1 By-Laws as Amended to April 26, 1994*
3.2.1 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
3.2.2 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.
3.2.3 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.
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
4.1 Indenture, dated September 1, 1993 between Registrant and
Chemical Trust Company of California, as trustee, relating to
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
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 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 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.
10.5 Third Amendment to Reimbursement Agreement dated September 14,
1987 between 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.
12
<PAGE> 15
10.6 Fourth Amendment to Reimbursement Agreement dated September 22,
1988 between 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 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 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 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 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 Agreements 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 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 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.
10.15 Water Supply Agreement dated as of June 1, 1994 between
Registrant and Central Coast Water Authority incorporated herein
by reference to Registrant's Form 10-K with respect to the year
ended December 31, 1994. Commission File No. 0-1121.
13
<PAGE> 16
10.16 Retirement Plan for Non-Employee Directors of Southern
California Water Company, as amended, January 25, 1995
incorporated herein by reference to 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 Registrant's 1995 Proxy Statement, Commission File
No. 0-1121.
10.19 Energy Management Services Agreement between Registrant and
Enova Energy, Inc.
13. Portions of the Annual Report to Shareholders for the year
ended December 31, 1996 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
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, 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 14, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
/s/ W. V. CAVENEY . Date: March 14, 1997
- -------------------------------------------
W. V. Caveney
Chairman of the Board and Director
/s/ FLOYD E. WICKS . March 14, 1997
- -------------------------------------------
Floyd E. Wicks
Principal Executive Officer;
President, CEO and Director
/s/ JAMES B. GALLAGHER . March 14, 1997
- -------------------------------------------
James B. Gallagher
Principal Financial and Accounting Officer;
Vice President - Finance, CFO and Secretary
/s/ JEAN E. AUER . March 14, 1997
- -------------------------------------------
Jean E. Auer, Director
/s/ R. BRADBURY CLARK . March 14, 1997
- -------------------------------------------
R. Bradbury Clark, Director
/s/ N. P. DODGE, JR. . March 14, 1997
- -------------------------------------------
N. P. Dodge, Jr., Director
/s/ ROBERT F. KATHOL . March 14, 1997
- -------------------------------------------
Robert F. Kathol, Director
/s/ LLOYD E. ROSS . March 14, 1997
- -------------------------------------------
Lloyd E. Ross, Director
15
<PAGE> 1
EXHIBIT 3.1
BYLAWS
of
SOUTHERN CALIFORNIA WATER COMPANY
(a California corporation)
As Amended April 26, 1994
<PAGE> 2
INDEX
Page
----
ARTICLE 1 - Offices. 1
Section 1. Principal Executive Office. 1
Section 2. Other Offices. 1
ARTICLE II - Shareholders. 1
Section 1. Place of Meetings. 1
Section 2. Annual Meetings. 1
Section 3. Special Meetings. 2
Section 4. Notice of Annual or Special Meetings. 2
Section 5. Quorum. 2
Section 6. Adjourned Meetings and Notice Thereof. 3
Section 7. Voting. 3
Section 8. Record Date. 5
Section 9. Consent of Absentees. 5
Section 10. Action Without Meeting. 6
Section 11. Proxies. 6
Section 12. Inspectors of Election. 6
Section 13. Conduct of Meeting. 7
Section 14. Qualifications of Directors. 7
Section 15. Proper Business for Shareholder
Meetings. 8
ARTICLE III - Directors. 9
Section 1. Powers. 9
Section 2. Number of Directors. 9
Section 3. Election and Term of Office. 10
Section 4. Vacancies. 10
Section 5. Place of Meeting. 10
Section 6. Regular Meetings. 10
i
<PAGE> 3
Page
----
Section 7. Special Meetings. 11
Section 8. Quorum. 11
Section 9. Participation in Meetings by
Conference Telephone. 11
Section 10. Waiver of Notice. 11
Section 11. Adjournment. 12
Section 12. Fees and Compensation. 12
Section 13. Action Without Meeting. 12
Section 14. Rights of Inspection. 12
Section 15. Committees. 12
ARTICLE IV - Officers. 13
Section 1. Officers. 13
Section 2. Election. 13
Section 3. Subordinate Officers. 13
Section 4. Removal and Resignation. 13
Section 5. Vacancies. 14
Section 6. Chairman of the Board. 14
Section 7. President. 14
Section 8. Vice Presidents. 14
Section 9. Secretary. 14
Section 10. Chief Financial Officer. 15
ARTICLE V - Other Provisions. 15
Section 1. Inspection of Corporate Records. 15
Section 2. Inspection of Bylaws. 16
Section 3. Endorsement of Documents, Contracts. 16
Section 4. Certificates of Stock. 17
Section 5. Representation of Shares of
Other Corporations. 17
Section 6. Stock Purchase Plans. 17
Section 7. Construction and Definitions. 18
ii
<PAGE> 4
Page
ARTICLE VI - Indemnification.
Section 1. Indemnification of Directors 18
and Officers. 18
Section 2. Indemnification of Employees
and Agents. 19
Section 3. Right of Directors and Officers
to Bring Suit. 19
Section 4. Successful Defense. 20
Section 5. Indemnity Agreements. 20
Section 6. Subrogation. 20
Section 7. Non-Exclusivity Rights. 20
Section 8. Insurance. 20
Section 9. Expenses as a Witness. 20
Section 10. Nonapplicability to Fiduciaries of Employee
Benefit Plans. 20
Section 11. Separability. 21
Section 12. Effect of Repeal or Modification. 21
ARTICLE VII - Emergency Provisions. 21
Section 1. General. 21
Section 2. Unavailable Directors. 21
Section 3. Authorized Number of Directors. 21
Section 4. Quorum. 21
Section 5. Creation of Emergency Committee. 22
Section 6. Constitution of Emergency Committee. 22
Section 7. Powers of Emergency Committee. 22
Section 8. Directors Becoming Available. 22
Section 9. Election of Board of Directors. 22
Section 10. Termination of Emergency Committee. 23
ARTICLE VIII - Amendments. 23
iii
<PAGE> 5
4-26-94
BYLAWS
for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation,
of
SOUTHERN CALIFORNIA WATER COMPANY
(a California corporation)
ARTICLE 1. Offices.
Section 1. PRINCIPAL EXECUTIVE OFFICE. The corporation's principal
executive office shall be fixed and located at such place as the Board of
Directors (herein called the "Board") shall determine. The Board is granted
full power and authority to change said principal executive office from one
location to another.
Section 2. OTHER OFFICES. Branch or subordinate offices may be
established at any time by the Board at any place or places.
ARTICLE II. Shareholders.
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held
either at the principal executive office of the corporation or at any other
place within or without the State of California which may be designated either
by the Board or by the written consent of all persons entitled to vote thereat
given either before or after the meeting and filed with the Secretary.
Section 2. ANNUAL MEETINGS. The annual meetings of shareholders shall
be held on such date and at such time as may be fixed by the Board. At such
meetings, directors shall be elected and any other proper business may be
transacted in accordance with applicable law and these Bylaws.
1
<PAGE> 6
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by the Board, the Chairman of the Board, the President or
by the holders of shares entitled to cast not less than ten percent of the
votes at such meeting. Upon request in writing to the Chairman of the Board,
the President, any Vice President or the Secretary by any person (other than
the Board) entitled to call a special meeting of shareholders, the officer
forthwith shall cause notice to be given to the shareholders entitled to vote
that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five nor more than sixty days after
the receipt of the request. Such request shall be made in accordance with
applicable law and these Bylaws. If the notice is not given within twenty days
after receipt of the request, the persons entitled to call the meeting may give
the notice.
Section 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written notice of
each annual or special meeting of shareholders shall be given not less than ten
nor more than sixty days before the date of the meeting to each shareholder
entitled to vote thereat. Such notice shall state the place, date and hour of
the meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted, or (ii) in
the case of the annual meeting, those matters which the Board, at the time of
the mailing of the notice, intends to present for action by the shareholders,
but, subject to the provisions of applicable law and these Bylaws, any proper
matter may be presented at the meeting for such action. The notice of any
meeting at which directors are to be elected shall include the names of
nominees intended at the time of the notice to be presented by management for
election.
Notice of a shareholders' meeting shall be given either personally or
by mail or by other means of written communication, addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice, or, if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. Notice by mail shall be deemed to have
been given at the time a written notice is deposited in the United States
mails, postage prepaid. Any other written notice shall be deemed to have been
given at the time it is personally delivered to the recipient or is delivered
to a common carrier for transmission, or actually transmitted by the person
giving the notice by electronic means, to the recipient.
Section 5. QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders. If a quorum is present, the affirmative vote of a majority of
the shares represented and voting at the meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or voting
by classes is required by law or by the Articles, except as provided in the
following sentence. The shareholders present at a duly called or held meeting
at which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
2
<PAGE> 7
Section 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any shareholders'
meeting, whether or not a quorum is present, may be adjourned from time to time
by the vote of shareholders entitled to exercise a majority of the voting power
represented either in person or by proxy, but in the absence of a quorum
(except as provided in Section 5 of this Article) no other business may be
transacted at such meeting.
It shall not be necessary to give any notice of the time and place of
the adjourned meeting or of the business to be transacted thereat, other than
by announcement at the meeting at which such adjournment is taken; provided,
however, when any shareholders' meeting is adjourned for more than forty-five
days or, if after adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given as in the case of an
original meeting.
Section 7. VOTING. The shareholders entitled to notice of any meeting
or to vote at such meeting shall be only persons in whose name shares stand on
the stock records of the corporation on the record date determined in
accordance with Section 8 of this Article.
Subject to the following sentence and to the provisions of Section 708
of the California General Corporation Law, every shareholder entitled to vote
at any election of directors may cumulate such shareholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the shareholder's shares are
entitled, or distribute the shareholder's votes on the same principle among as
many candidates as the shareholder thinks fit. No shareholder shall be
entitled to cumulate votes for any candidate or candidates pursuant to the
preceding sentence unless such candidate or candidates' names have been placed
in nomination prior to the voting and the shareholder has given notice at the
meeting prior to the voting of the shareholder's intention to cumulate the
shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination.
Elections need not be by ballot; provided, however, that all elections
for directors must be by ballot upon demand made by a shareholder at the
meeting and before the voting begins.
In any election of directors, the candidates receiving the highest
number of votes of the shares entitled to be voted for them up to the number of
directors to be elected by such shares are elected.
Voting shall in all cases be subject to the provisions of Chapter 7 of
the California General Corporation Law, and to the following provisions:
(a) Subject to clause (g), shares held by an administrator,
executor, guardian, conservator or custodian may be voted by such holder either
in person or by proxy, without a transfer of such shares into the holder's
name; and shares standing in the name of a trustee may be voted by the trustee,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by such trustee without a transfer of such shares into the trustee's name.
3
<PAGE> 8
(b) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into the receiver's name if
authority to do so is contained in the order of the court by which such
receiver was appointed.
(c) Subject to the provisions of Section 705 of the California
General Corporation Law and except where otherwise agreed in writing between
the parties, a shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(d) Shares standing in the name of a minor may be voted and the
corporation may treat all rights incident thereto as exercisable by the minor,
in person or by proxy, whether or not the corporation has notice, actual or
constructive, of the nonage, unless a guardian of the minor's property has been
appointed and written notice of such appointment given to the corporation.
(e) Shares outstanding in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxyholder as the
bylaws of such other corporation may prescribe or, in the absence of such
provision, as the board of directors of such other corporation may determine
or, in the absence of such determination, by the chairman of the board,
president or any vice president of such other corporation, or by any other
person authorized to do so by the chairman of the board, president or any vice
president of such other corporation. Shares which are purported to be voted or
any proxy purported to be executed in the name of a corporation (whether or not
any title of the person signing is indicated) shall be presumed to be voted or
the proxy executed in accordance with the provisions of this clause, unless the
contrary is shown.
(f) Shares of the corporation owned by any subsidiary shall not be
entitled to vote on any matter.
(G) Shares held by the corporation in a fiduciary capacity, and
shares of the issuing corporation held in a fiduciary capacity by any
subsidiary, shall not be entitled to vote on any matter, except to the extent
that the settlor or beneficial owner possesses and exercises a right to vote or
to give the corporation binding instructions as to how to vote such shares.
(H) If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, husband and wife as community property, tenants by the entirety, voting
trustees, persons entitled to vote under a shareholder voting agreement or
otherwise, or if two or more persons (including proxyholders) have the same
fiduciary relationship respecting the same shares, unless the Secretary of the
corporation is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect:
4
<PAGE> 9
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so voting binds
all;
(iii) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in
question proportionately.
If the instrument is so filed or the registration of the shares shows that any
such tenancy is held in unequal interests, a majority or even split for the
purpose of this section shall be a majority or even split in interest.
Section 8. RECORD DATE. The Board may fix, in advance, a record date
for the determination of the shareholders entitled to notice of any meeting or
to vote or entitled to receive payment of any dividend or other distribution,
or any allotment of rights, or to exercise rights in respect of any other
lawful action. The record date so fixed shall be not more than sixty days nor
less than ten days prior to the date of the meeting nor more than sixty days
prior to any other action. When a record date is so fixed, only shareholders
of record on that date are entitled to notice of and to vote at the meeting or
to receive the dividend, distribution, or allotment of rights, or to exercise
of the rights, as the case may be, notwithstanding any transfer of shares on
the books of the corporation after the record date. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting unless the Board
fixes a new record date for the adjourned meeting. The Board shall fix a new
record date if the meeting is adjourned for more than forty-five days.
If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held. The record date for determining shareholders for any purpose
other than set forth in this Section 8 or Section 10 of this Article shall be
at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth day prior to the date of such other action,
whichever is later.
Section 9. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person at a meeting shall constitute a
waiver of notice of and presence at such meeting, except when the person
objects, at the beginning of the meeting, to the transactions of any business
because the meeting is not lawfully called or convened and except that
attendance at a meeting is not waiver of any right to object to the
consideration of matters required by the California General Corporation Law to
be included in the notice but not so included, if such objection is expressly
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made at the meeting. Neither the business to be transacted at nor the purpose
of any regular or special meeting of shareholders need to be specified in any
written waiver of notice, consent to the holding of the meeting or approval of
the minutes thereof, except as provided in Section 601(f) of the California
General Corporation Law.
Section 10. ACTION WITHOUT MEETING. Subject to Section 603 of the
California General Corporation Law, any action which, under any provision of
the California General Corporation Law, may be taken at any annual or special
meeting of shareholders, may be taken without a meeting and without prior
notice if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Unless a record date for voting purposes be fixed as provided in Section 8 of
this Article, the record date for determining shareholders entitled to give
consent pursuant to this Section 10, when no prior action by the Board has been
taken, shall be the day on which the first written consent is given.
Section 11. PROXIES. Every person entitled to vote shares has the
right to do so either in person or by one or more persons authorized by a
written proxy executed by such shareholder and filed with the Secretary. Any
proxy duly executed is not revoked and continues in full force and effect until
revoked by the person executing it prior to the vote pursuant thereto by a
writing delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or by attendance at the meeting and voting in person by the
person executing the proxy; provided, however, that no proxy shall be valid
after the expiration of eleven months from the date of its execution unless
otherwise provided in the proxy.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board may appoint inspectors of election to act at such
meeting and any adjournment thereof if inspectors of election be not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
chairman of any such meeting may, and on the request of any shareholder or
shareholder's proxy shall, make such appointment at the meeting. The number of
inspectors shall be either one or three. If appointed at a meeting on the
request of one or more shareholders or proxies, the majority of shares present
shall determine whether one or three inspectors are to appointed.
The duties of such inspectors shall be as prescribed by Section 707(b)
of the California General Corporation Law and shall include: determining the
number of shares outstanding and the voting power of each; determining the
shares represented at the meeting; determining the existence of a quorum;
determining the authenticity, validity and effect of proxies; receiving votes,
ballots or consents; hearing and determining all challenges and questions in
any way arising in connection with the right to vote; counting and tabulating
all votes or consents; determining when the polls shall close; determining the
result; and doing such acts as may be proper to conduct the election or vote
with fairness to all shareholders. If there are three inspectors of election,
the decision, act or certificate of a majority is effective in all respects as
the decision, act or certificate of all.
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Section 13. CONDUCT OF MEETING. The Chairman of the Board shall
preside as chairman at all meetings of the shareholders. The chairman shall
conduct each such meeting in a businesslike and fair manner, but shall not be
obligated to follow any technical, formal or parliamentary rules or principles
of procedure. The chairman's rulings on procedural matters shall be conclusive
and binding on all shareholders, unless at the time of a ruling a request for a
vote is made to the shareholders holding shares entitled to vote and which are
represented in person or by proxy at the meeting, in which case the decision of
a majority of such shares shall be conclusive and binding on all shareholders.
Without limiting the generality of the foregoing, the chairman shall have all
of the powers usually vested in the chairman of a meeting of shareholders.
Section 14. QUALIFICATIONS OF DIRECTORS. Only persons who are
nominated in accordance with the procedures set forth in these Bylaws shall be
qualified to serve as directors. Nominations of persons for election to the
Board may be made at a meeting of shareholders (a) by or at the direction of
the Board or (b) by any shareholder of the corporation who is a shareholder of
record at the time of giving of notice provided for in the Bylaw, who shall be
entitled to vote for the election of directors at the meeting and who complies
with the notice procedures set forth in this Bylaw.
Nominations by shareholders shall be made pursuant to timely notice in
writing to the Secretary. To be timely as to an annual meeting, a
shareholder's notice must be received at the principal executive offices of the
corporation not less than 75 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that if
the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the shareholder to be timely must be so received
not later than the close of business on the 10th day following the earlier of
the day on which notice of the date of the meeting was mailed to shareholders
or public disclosure of such date was made. To be timely as to a special
meeting at which directors are to be elected, a shareholder's notice must be
received not later than the close of business on the 10th day following the
earlier of the day on which notice of the date of the meeting was mailed to
shareholders or public disclosure of such date was made. Such shareholder's
notice shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to the shareholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such shareholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such shareholder and also which are
owned of record by such shareholder; and (c) as to the beneficial owner, if
any, on whose behalf the nomination is made, (i) the name and address of such
person and (ii) the class and number of shares of the corporation which are
beneficially owned by such person. At the request of the Board, any person
nominated by the Board for election as a director shall furnish to the
Secretary that information required to be set forth in the shareholder's notice
of nomination which pertains to the nominee.
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No person shall be qualified to serve as a director of the corporation
unless nominated in accordance with the procedures set forth in this Bylaw.
The Chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if the Chairman should so determine, that the
defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Bylaw, a shareholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set forth in this Bylaw.
Section 15. PROPER BUSINESS FOR SHAREHOLDER MEETINGS. At a meeting
of the shareholders, only such business shall be proper as shall be brought
before the meeting (a) pursuant to the corporation's notice of meeting, (b) by
or at the direction of the Board or (c) by any shareholder of the corporation
who is a shareholder of record at the time of giving of the notice provided for
in this Bylaw, who shall be entitled to vote at such meeting and who complies
with the notice provided for in the Bylaw, who shall be entitled to vote at
such meeting and who complies with the notice procedures set forth in this
Bylaw.
For business to be properly brought before a meeting by a shareholder
pursuant to clause (c) of the first paragraph of this Bylaw, the shareholder
must have given timely notice thereof in writing to the Secretary. To be
timely as to an annual meeting of shareholders, a shareholder's notice must be
received at the principal executive offices of the corporation not less than 75
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that if the date of the meeting is
changed by more than 30 days from such anniversary date, notice by the
shareholder to be timely must be received no later than the close of business
on the 10th day following the earlier of the day on which notice of the date of
the meeting was mailed to shareholders or public disclosure of such date was
made. To be timely as to a special meeting of shareholders, a shareholder's
notice must be received not later than the call of the meeting by the Board,
the Chairman of the Board or the President, or the date of receipt of a valid
request by a person (other than the Board) that the special meeting be called.
Such shareholder's notice shall set forth as to each matter the shareholder
proposes to bring before the meeting (a) a brief description of such matter and
the reasons for proposing such matters(s) at the meeting, (b) the name and
address, as they appear on the corporation's books, of the shareholder
proposing such business, and the name and address of the beneficial owner, if
any, on whose behalf the proposal is made, (c) the class and number of shares
of the corporation which are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any, on whose behalf the
proposal is made and (d) any material interest of such stockholder of record
and the beneficial owner, if any, on whose behalf the proposal is made in such
proposal.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be proper at a meeting unless brought before it in accordance with the
procedures set forth in this Bylaw. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by these Bylaws, and if the Chairman should so determine, that any
such
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business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw.
ARTICLE III. Directors.
Section 1. POWERS. Subject to limitations of the Articles, of these
Bylaws and of the California General Corporation Law relating to action
required to be approved by the shareholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board. Without
prejudice to such general powers, but subject to the same limitations, it is
hereby expressly declared that the Board shall have the following powers in
addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents and
employees of the corporation, prescribe the powers and duties for them as may
not be inconsistent with law, the Articles or these Bylaws, fix their
compensation and require from them security for faithful service.
(b) To conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor not inconsistent
with law, the Articles or these Bylaws, as they may deem best.
(c) To adopt, make and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such seal and of such
certificates from time to time, as they may deem best.
(d) To authorize the issuance of shares of stock of the corporation
from time to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Section 2. NUMBER OF DIRECTORS. The authorized number of directors
shall be not less than five nor more than nine until changed by Amendment of
the Articles or by a Bylaw duly adopted by the shareholders amending this
Section 2. The exact number of directors shall be fixed, within the limits
specified, by amendment of the next sentence duly adopted either by the Board
or the shareholders. The exact number of directors shall be six until changed
as provided in this Section 2.
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Section 3. ELECTION AND TERM OF OFFICE. The directors shall be
elected at each annual meeting of the shareholders, but if any such annual
meeting is not held or the directors are not elected thereat, the directors may
be elected at any special meeting of shareholders held for that purpose. Each
director shall hold office until the next annual meeting and until a successor
has been elected and qualified.
Section 4. VACANCIES. Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, the Secretary or
the Board, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation is effective at a future time, a
successor may be elected to take office when the resignation becomes effective.
Vacancies in the Board, except those existing as a result of a removal
of a director, may be filled by a majority of the remaining directors, though
less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified.
A vacancy or vacancies in the Board shall be deemed to exist in case
of the death, resignation or removal of any director, or if the authorized
number of directors be increased, or if the shareholders fail, at any annual or
special meeting of shareholders at which any director or directors are elected,
to elect the full authorized number of directors to be voted for at that
meeting.
The Board may declare vacant the office of a director who has been
declared of unsound mind by an order of court or convicted of a felony.
The shareholders, subject to applicable law and these Bylaws, may
elect a director or directors at any time to fill any vacancy or vacancies not
filled by the directors. Any such election by written consent, other than to
fill a vacancy created by removal, requires the consent of a majority of the
outstanding shares entitled to vote. Any such election by written consent to
fill a vacancy created by removal requires unanimous consent.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of the director's term
of office.
Section 5. PLACE OF MEETING. Regular or special meetings of the Board
shall be held at any place within or without the State of California which has
been designated from time to time by the Board. In the absence of such
designation, regular meetings shall be held at the principal executive office
of the corporation.
Section 6. REGULAR MEETINGS. Immediately following each annual
meeting of shareholders, the Board shall hold a regular meeting for the purpose
of organization, election of officers and the transaction of other business.
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Other regular meetings of the Board shall be held without call on such
dates and at such times as may be fixed by the Board. Call and notice of all
regular meetings of the Board are hereby dispensed with.
Section 7. SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, any Vice President, the Secretary or by any two directors.
Special meetings of the Board shall be held upon four days' written
notice or forty-eight hours' notice given personally or by telephone,
telegraph, telex, or other similar means of communication. Any such notice
shall be addressed or delivered to each director at such director's address as
it is shown upon the records of the corporation or as may have been given to
the corporation by the director for purposes of notice or, if such address is
not shown on such records or is not readily ascertainable, at the place in
which the meetings of the directors are regularly held.
Notice by mail shall be deemed to have been given at the time a
written notice IS deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated, in person or by telephone or wireless, to
the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly conununicate it to the
recipient.
Section 8. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board for the transaction of business, except to
adjourn as provided in Section 11 of this Article. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which
a quorum is present shall be regarded as the act of the Board, unless a greater
number be required by law or by the Articles. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 9. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members
of the Board may participate in a meeting through use of conference telephone
or similar communications equipment, so long as all members participating in
such meeting can hear one another.
Section 10. WAIVER OF NOTICE. Notice of a meeting need not be given
to any director who signs a waiver of notice or consent to holding the meeting
or an approval of the minutes thereof, whether before or after the meeting, or
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such director. All such waivers, consents
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
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Section 11. ADJOURNMENT. A majority of the directors present,
whether or not a quorum is present, may adjourn any directors' meeting to
another time and place. Notice of the time and place of holding an adjourned
meeting need not be given to absent directors if the time and place be fixed at
the meeting adjourned, except as provided in the next sentence. If the meeting
is adjourned for more than twenty-four hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment
Section 12. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted
to be taken by the Board may be taken without a meeting if all members of the
Board shall individually or collectively consent in writing to such action.
Such consent or consents shall have the same effect as a unanimous vote of the
Board and shall be filed with the minutes of the proceedings of the Board.
Section 14. RIGHTS OF INSPECTION. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records
and documents of every kind and to inspect the physical properties of the
corporation and also of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made IN person or by agent or attorney and
includes the right to copy and obtain extracts.
Section 15. COMMITTEES. The Board may appoint one or more
committees, each consisting of two or more directors, and delegate to such
committees any of the authority of the Board except with respect to:
(a) The approval of any action for which the California General
Corporation Law also requires shareholders' approval or
approval of the outstanding shares;
(b) The filling of vacancies on the Board or on any committee;
(c) The fixing of compensation of the directors for service on the
Board or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new
bylaws;
(e) The amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation except
at a rate or in a periodic amount or within a price range
determined by the Board; or
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(g) The appointment of other committees of the Board or the
members thereof.
Any such committee must be designated, and the members or alternate
members thereof appointed, by resolution adopted by a majority of the
authorized number of directors and any such committee may be designated an
Executive Committee or by such other name as the Board shall specify.
Alternative members of a committee may replace any absent member at any meeting
of the committee. The Board shall have the power to prescribe the manner in
which proceedings of any such committee shall be conducted. In the absence of
any such prescription, such committee shall have the power to prescribe the
manner in which its proceedings shall be conducted. Unless the Board or such
committee shall otherwise provide, the regular and special meetings and other
actions of any such committee shall be governed by the provisions of this
Article applicable to meetings and actions of the Board. Minutes shall be kept
of each meeting of each committee.
ARTICLE IV. Officers,
Section 1. OFFICERS. The officers of the corporation shall be a
President, a Secretary and a Chief Financial Officer. The corporation may also
have, at the discretion of the Board, a Chairman of the Board, an Executive
Vice President, a Senior Vice President, one or more Vice Presidents, a
Treasurer, one or more Assistant Secretaries, one or more Assistant Treasurers,
and such other officers as may be elected or appointed in accordance with the
provisions of Section 3 of this Article.
Section 2. ELECTION. The officers of the corporation, except such
officers as may be elected or appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by, and shall
serve at the pleasure of, the Board, and shall hold their respective offices
until their resignation, removal, or other disqualification from service, or
until their respective successors shall be elected.
Section 3. SUBORDINATE OFFICERS. The Board may elect, and may empower
the Chairman of the Board, if there be such an officer, or the President, to
appoint such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in these Bylaws or as the Board may from time to
time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by the Board at any time or, except in the case
of an officer chosen by the Board, by an officer upon whom such power of
removal may be conferred by the Board. Any such removal shall be without
prejudice to the rights, if any, of the officer under any contract of
employment of the officer.
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Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there
shall be such an officer, shall be the Chief Executive Officer of the
corporation unless, in its sole discretion, the Board should elect the
President to be such. The Chief Executive Officer is the general manager and
chief executive officer of the corporation and has, subject to the control of
the Board, general supervision, direction and control of the business and
officers of the corporation. The Chairman of the Board, if there shall be such
an officer, shall, if present, preside at all meetings of the shareholders and
the Board and exercise and perform such other powers and duties as may be from
time to time assigned by the Board.
Section 7. PRESIDENT. Subject to such powers, if any, as may be given
to the Chairman of the Board, if there be such an officer, the President shall
have the general powers and duties of management usually vested in the office
of the president of a corporation and such other powers and duties as may be
prescribed by the Board or the Chief Executive Officer, if other than the
President. In the absence of the Chairman of the Board, or if there be none,
the President shall preside at all meetings of the Shareholders and the Board.
In the absence or disability of the Chief Executive Officer, if other than the
President, the President shall perform all the duties of the Chief Executive
Officer and, when so acting, shall have all of the powers of, and be subject to
all the restrictions upon, the Chief Executive Officer.
Section 8. VICE PRESIDENTS. The Executive Vice President and Senior
Vice President, if any, and other Vice Presidents shall have (subject to the
authority of the Board) such powers and perform such duties as from time to
time determined by the Chief Executive Officer. In the absence or disability
of the President, the Vice Presidents, in the following order, shall perform
all the duties of the President and, when so acting, shall have all the powers
of, and be subject to all the restrictions upon, the President: the Executive
Vice President, if any, the Senior Vice President, if any, and the Vice
Presidents in the order of their rank as fixed by the Board, or if not ranked,
the Vice President designated by the Board. The Vice Presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them, respectively, by the Board.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept,
at the principal executive office and such other place as the Board may order,
a book of minutes of all meetings of shareholders, the Board and its
committees, with the time and place of holding, whether regular or special, how
authorized, the notice thereof given, the names of those present at Board and
committee meetings, the number of shares present or represented at
shareholders'
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meetings, and the proceedings thereof. The Secretary shall keep, or cause to
be kept, a copy of the Bylaws of the corporation at the principal executive
office or business office in accordance with Section 213 of the California
General Corporation Law.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, if one be appointed, a share register, or a duplicate share
register, showing the names of the shareholders and their addresses, the number
of classes of shares held by each, the number and date of certificates issued
for the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board and any committees thereof required by
these Bylaws or by law to be given, shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct accounts of the properties and business transactions of the
corporation, and shall send or cause to be sent to the shareholders of the
corporation such financial statements and reports as are by law or these Bylaws
required to be sent to them. The books of account shall at all times be open
to inspection by any director.
The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the Board. The Chief Financial Officer
shall disburse the funds of the corporation as may be ordered by the Board,
shall render to the President and the directors, whenever they request it, an
account of all transactions as Chief Financial Officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
ARTICLE V. Other Provisions.
Section 1. INSPECTION OF CORPORATE RECORDS.
(a) A shareholder or shareholders holding at least five percent in
the aggregate of the outstanding voting shares of the corporation or who hold
at least one percent of such voting shares and have filed a Schedule 14B with
the United States Securities and Exchange Commission relating to the election
of directors of the corporation shall have the absolute right to do either or
both of the following:
(1) Inspect and copy the record of shareholders'
names and addresses and shareholders during usual business
hours upon five business days' prior written demand upon the
corporation; or
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(ii) Obtain from the transfer agent, if any, for
the corporation, upon five business days' prior written demand
and upon the tender of its usual charges for such a list (the
amount of which charges shall be stated to the shareholder by
the transfer agent upon request), a list of the shareholders'
names and addresses who are entitled to vote for the election
of directors and their shareholdings, as of the most recent
complied or as of the date specified by the shareholder
subsequent to the date of demand.
(b) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written
demand on the corporation, for a purpose reasonably related to such
holder's interest as a shareholder or holder of a voting trust
certificate.
(c) The accounting books and records and minutes of
proceedings of the shareholders and the Board and committees of the
Board shall be open to inspection upon written demand on the
corporation of any shareholder or holder of a voting trust certificate
at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a shareholder or as a
holder of such voting trust certificate.
(d) Any inspection and copying under this Article may be
made in person or by agent or attorney.
Section 2. INSPECTION OF BYLAWS. The corporation shall keep in its
principal executive office in the State of California, or if its principal
executive office is not in such State at its principal business office in such
state, the original or copy of these Bylaws as amended to date, which shall be
open to inspection by shareholders at all reasonable times during office hours.
If the principal executive office of the corporation is located outside the
State of California and the corporation has no principal business office in
such state, it shall upon the written request of any shareholder furnish to
such shareholder a copy of these Bylaws as amended to date.
Section 3. ENDORSEMENT OF DOCUMENTS, CONTRACTS. Subject to the
provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance or other instrument in writing and any
assignment or endorsements thereof executed or entered into between the
corporation and any other person, when signed by the Chairman of the Board, the
President or any Vice President and the Secretary, any Assistant Secretary, the
Chief Financial Officer, the Treasurer or any Assistant Treasurer of the
corporation, shall be valid and binding on the corporation in the absence of
actual knowledge on the part of the other person that the signing officers had
no authority to execute the same. Any such instruments may be signed by any
other person or persons and in such manner as from time
16
<PAGE> 21
to time shall be determined by the Board, and, unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or amount.
Section 4. CERTIFICATES OF STOCK. Every holder of shares of the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman of the Board, the President or a Vice President and
by the Chief Financial Officer, the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. If any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if such person were an officer, transfer agent or registrar at
the date of issue.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board may provide; provided, however,
that on any certificate issued to represent any partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated.
Except as provided in this Section, no new certificate for shares
shall be issued in lieu of an old one unless the latter is surrendered and
cancelled at the same time. The Board may, however, if any certificate for
shares is alleged to have been lost, stolen or destroyed, authorize the
issuance of a new certificate in lieu thereof, and the corporation may require
that the corporation be given a bond or other adequate security sufficient to
indemnify it against any claim that may be made against it (including expense
or liability) on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chief
Executive Officer, the President or any other officer or officers authorized by
the Board or the Chief Executive Officer are each authorized to vote, represent
and exercise on behalf of the corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of the
corporation. The authority herein granted may be exercised either by any such
officer in person or by any other person authorized so to do by proxy or power
of attorney duly executed by said officer.
Section 6. STOCK PURCHASE PLANS. The corporation may adopt and carry
out a stock purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be fixed of its
unissued shares, or of issued shares acquired or to be acquired, to one or more
of the employees or directors of the corporation or of a subsidiary or to a
trustee on their behalf and for the payment for such shares in installments or
at one time, and may provide for aiding any such persons in paying for such
shares by compensation for services rendered, promissory notes or otherwise.
17
<PAGE> 22
Any such stock purchase plan or agreement or stock option plan or
agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold under
the plan or agreement, the number of shares which may be subscribed for, the
method of payment therefor, the reservation of title until full payment
therefor, the effect of the termination of employment, an option or obligation
on the part of the corporation to repurchase the shares upon termination of
employment, restrictions upon transfer of the shares, the time limits of and
termination of the plan, and any other matters, not in violation of applicable
law, as may be included in the plan as approved or authorized by the Board or
any committee of the Board.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the General Provisions of the California Corporations Code and in
the California General Corporation Law shall govern the construction of these
Bylaws.
ARTICLE VI. Indemnification,
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Indemnification. Each person who was or is a party or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or officer of the corporation, or of any predecessor corporation, or is
or was a director or officer who is or was serving at the request of the
corporation as a director, officer, employee or other agent of another
corporation, a partnership, joint venture, trust or other enterprise (including
service with respect to corporation-sponsored employee benefit plans), whether
the basis of such proceeding is alleged action or inaction in an official
capacity as a director or officer or in any other capacity while serving as a
director or officer, shall, subject to the terms of any agreement between the
corporation and such person, be indemnified and held harmless by the corporation
to the fullest extent permissible under California law and the corporation's
Articles, against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred or suffered by such person in
connection therewith; provided, however, that amounts paid in settlement of a
proceeding shall be payable only if the settlement is approved in writing by the
corporation. Such indemnification shall continue as to a person who has ceased
to be a director or officer for acts performed while a director or officer and
shall inure to the benefit of his or her heirs, executors and administrators.
Not withstanding the foregoing, the corporation shall indemnify any such person
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of the
corporation. The right to indemnification conferred in this Article shall
include the right to be paid by the corporation the expenses incurred in
defending any proceeding in advance of final disposition to the fullest extent
permitted by law; provided, however, that the payment under this Article of such
expenses in advance of the final disposition of a proceeding shall be
conditioned upon the delivery to the corporation of a written request for such
advance
18
<PAGE> 23
and of an undertaking by or on behalf of the director or officer to repay all
amounts so advanced if it shall be ultimately determined that such director or
officer is not entitled to be indemnified.
(b) Exclusions. Notwithstanding the foregoing or any other
provisions under this Article, the corporation shall not be liable under this
Article to indemnify a director or officer against expenses, liabilities or
losses incurred or suffered in connection with, or make any advances with
respect to, any proceeding against a director or officer: (i) as to which the
corporation is prohibited by applicable law from paying as an indemnity; (ii)
with respect to expenses of defense or investigation, if such expenses were or
are incurred without the corporation's consent (which consent may not be
unreasonably withheld); (iii) for which payment is actually made to the
director or officer under a valid and collectible insurance policy maintained
by the corporation, except in respect of any excess beyond the amount of
payment under such insurance; (iv) for which payment is actually made to the
director or officer under an indemnity by the corporation otherwise than
pursuant to this Bylaw Article, except in respect of any excess beyond the
amount of payment under such indemnity; (v) based upon or attributable to the
director or officer gaining in fact any personal profit or advantage to which
he or she was not legally entitled; (vi) for an accounting of profits made from
the purchase or sale by the director or officer of securities of the
corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law; or (vii) based upon acts or omissions
involving intentional misconduct or a knowing and culpable violation of law.
Section 2. INDEMNIFICATION OF EMPLOYEES AND AGENTS. A person who was
or is a party or is threatened to be made a party to or is involved in any
proceeding by reason of the fact that he or she is or was an employee or agent
of the corporation or is or was an employee or agent of the corporation who is
or was serving at the request of the corporation as an employee or agent of
another enterprise, including service with respect to corporation-sponsored
employee benefits plans, whether the basis of such action is alleged action or
inaction in an official capacity or in any other capacity while serving as an
employee or agent, may, upon appropriate action by the corporation and subject
to the terms of any agreement between the corporation and such person, be
indemnified and held harmless by the corporation up to the fullest extent
permitted by California law and the corporation's Articles, against all
expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
actually and reasonably incurred or suffered by such person in connection
therewith.
Section 3. RIGHT OF DIRECTORS AND OFFICERS TO BRING SUIT. If a claim
under Section 1 of this Article is not paid by the corporation or on its behalf
within 90 days after a written claim has been received by the corporation, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim, and, if successful in whole or in part,
the claimant also shall be entitled to be paid the expense of prosecuting such
claim.
19
<PAGE> 24
Section 4. SUCCESSFUL DEFENSE. Notwithstanding any other provision of
this Article, to the extent that a director or officer has been successful on
the merits or otherwise (including the dismissal of a proceeding without
prejudice or the settlement with the written consent of the corporation of a
proceeding without admission of liability) in defense of any proceeding
referred to in Section 1 or in defense of any claim, issue or matter therein,
such director or officer shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred in connection therewith.
Section 5. INDEMNITY AGREEMENTS. The corporation may enter into
agreements with any director, officer, employee or agent of the corporation
providing for indemnification to the fullest extent permissible under
applicable law and the corporation's Articles.
Section 6. SUBROGATION. In the event of payment by the corporation of
a claim under Section 1 of this Article, the corporation shall be subrogated to
the extent of such payment to all of the rights of recovery of the indemnified
person, who shall execute all papers required and shall do everything that may
be necessary or appropriate to secure such rights, including the execution of
such documents necessary or appropriate to enable the corporation effectively
to bring suit to enforce such rights.
Section 7. NON-EXCLUSIVITY RIGHTS. The right to indemnification
provided by this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, bylaw, agreement, vote
of shareholders or disinterested directors or otherwise.
Section 8. INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, a partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under California law.
Section 9. EXPENSES AS A WITNESS. To the extent that any director,
officer or employee of the corporation is by reason of such position a witness
in any action, suit or proceeding, he or she will be indemnified against all
costs and expenses actually and reasonably incurred by him or her or on his or
her behalf in connection therewith.
Section 10. NONAPPLICABILITY TO FIDUCIARIES OF EMPLOYEE BENEFIT
PLANS. This Article does not apply to any proceeding against any trustee,
investment manager or other fiduciary of an employee benefit plan in such
person's capacity as such, even though such person may also be an agent of the
corporation. The corporation shall have power to indemnify such trustee,
investment manager or other fiduciary to the extent permitted by subdivision
(f) of Section 207 of the California General Corporation Law.
20
<PAGE> 25
Section 11. SEPARABILITY. Each and every paragraph, sentence, term
and provision of this Article is separate and distinct so that if any
paragraph, sentence, term or provision shall be held to be invalid or
unenforceable for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of any other paragraph, sentence, term or
provision hereof. To the extent required, any paragraph, sentence, term or
provision of this Article may be modified by a court of competent jurisdiction
to preserve its validity and to provide the claimant with, subject to the
limitations set forth in this Article and any agreement between the corporation
and the claimant, the broadest possible indemnification permitted under
applicable law.
Section 12. EFFECT OF REPEAL OR MODIFICATION. Any repeal or
modification of this Article shall not adversely affect any right of
indemnification of a director, officer, employee or agent of the corporation
existing at the time of such repeal or modification with respect to any action
or omission occurring prior to such repeal or modification.
ARTICLE VII. Emergency Provisions,
Section 1. GENERAL. The provisions of this Article shall be operative
only during a national emergency declared by the President of the United States
or the person performing the President's functions, or in the event of a
nuclear, atomic or other attack on the United States or a disaster making it
impossible or impracticable for the corporation to conduct its business without
recourse to the provisions of this Article. Said provisions in such event
shall override all other Bylaws of the corporation in conflict with any
provisions of this Article, and shall remain operative so long as it remains
impossible or impracticable to continue the business of the corporation
otherwise, but thereafter shall be inoperative; provided that all actions taken
in good faith pursuant to such provisions shall thereafter remain in full force
and effect unless and until revoked by action taken pursuant to the provisions
of the Bylaws other than those contained in this Article.
Section 2. UNAVAILABLE DIRECTORS. All directors of the corporation
who are not available to perform their duties as directors by reason of
physical or mental incapacity or for any other reason or who are unwilling to
perform their duties or whose whereabouts are unknown shall automatically cease
to be directors, with like effect as if such persons had resigned as directors,
so long as such unavailability continues.
Section 3. AUTHORIZED NUMBER OF DIRECTORS. The authorized number of
directors shall be the number of directors remaining after eliminating those
who have ceased to be directors pursuant to Section 2, or the minimum number
required by law, whichever number is greater.
Section 4 . QUORUM. The number of directors necessary to constitute a
quorum shall be one-third of the authorized number of directors as specified in
the foregoing Section, or such other minimum number as, pursuant to the law or
lawful decree then in force, it is possible for the Bylaws of a corporation to
specify.
21
<PAGE> 26
Section 5. CREATION OF EMERGENCY COMMITTEE. In the event the number
of directors remaining after eliminating those who have ceased to be directors
pursuant to Section 2 is less than the minimum number of authorized directors
required by law, then until the appointment of additional directors to make up
such required minimum, all the powers and authorities which the Board could by
law delegate, including all powers and authorities which the Board could
delegate to a committee, shall be automatically vested in an emergency
committee, and the emergency committee shall thereafter manage the affairs of
the corporation pursuant to such powers and authorities and shall have all
other powers and authorities as may by law or lawful decree be conferred on any
person or body of persons during a period of emergency.
Section 6. CONSTITUTION OF EMERGENCY COMMITTEE. The emergency
committee shall consist of all the directors remaining after eliminating those
who have ceased to be directors pursuant to Section 2, provided that such
remaining directors are not less than three in number. In the event such
remaining directors are less than three in number the emergency committee shall
consist of three persons, who shall be the remaining director or directors and
either one or two officers or employees of the corporation, as the remaining
director or directors may in writing designate. If there is no remaining
director, the emergency committee shall consist of the three most senior
officers of the corporation who are available to serve, and if and to the
extent that officers are not available, the most senior employees of the
corporation. Seniority shall be determined in accordance with any designation
of seniority in the minutes of the proceedings of the Board, and in the absence
of such designation, shall be determined by rate of remuneration. In the event
that there are no remaining directors and no officers or employees of the
corporation available, the emergency committee shall consist of three persons
designated in writing by the shareholder owning the largest number of shares of
record as of the date of the last record date.
Section 7. POWERS OF EMERGENCY COMMITTEE. The emergency committee,
once appointed, shall govern its own procedures and shall have power to
increase the number of members thereof beyond the original number, and in the
event of a vacancy or vacancies therein, arising at any time, the remaining
member or members of the emergency committee shall have the power to fill such
vacancy or vacancies. In the event at any time after its appointment all
members of the emergency committee shall die or resign or become unavailable to
act for any reason whatsoever, a new emergency committee shall be appointed in
accordance with the foregoing provisions of this Article.
Section 8. DIRECTORS BECOMING AVAILABLE. Any person who has ceased to
be a director pursuant to the provisions of Section 2 and who thereafter
becomes available to serve as a director shall automatically become a member of
the emergency committee.
Section 9. ELECTION OF BOARD OF DIRECTORS. The emergency committee,
shall, as soon after its appointment as is practicable, take all requisite
action to secure
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<PAGE> 27
Section 10. TERMINATION OF EMERGENCY COMMITTEE. In the event, after
the appointment of an emergency committee, a sufficient number of persons who
ceased to be directors pursuant to Section 2 become available to serve as
directors, so that if they had not ceased to be directors as aforesaid, there
would be enough directors to constitute the minimum number of directors
required by law, then all such persons shall automatically be deemed to be
reappointed as directors and the powers and authorities of the emergency
committee shall be at an end.
ARTICLE VIII. Amendments.
These Bylaws may be amended or repealed either by approval of the
outstanding shares (as defined in Section 152 of the California General
Corporation Law) or by the approval of the Board; provided, however, that after
the issuance of shares, a bylaw specifying or changing a fixed number of
directors or the maximum or minimum number or changing from a fixed to a
variable number of directors or vice versa may only be adopted by approval of
the outstanding shares and a bylaw reducing the fixed number or the minimum
number of directors to a number less than five shall be subject to the
provisions of Section 212(a) of the California General Corporation Law.
23
<PAGE> 1
EXHIBIT 10.19
ENERGY MANAGEMENT SERVICES
AGREEMENT
================================================================================
between
Southern California Water Company
and
Enova Energy, Inc.
<PAGE> 2
ENERGY MANAGEMENT SERVICES AGREEMENT
BETWEEN
SOUTHERN CALIFORNIA WATER COMPANY
AND
ENOVA ENERGY, INC.
Table of Contents
-----------------
Section Page
- ------- ----
1. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Effective Date, Term and Cancellation of the Agreement . . . . . 1
4. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. Billing and Payment . . . . . . . . . . . . . . . . . . . . . . 4
7. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 4
8. Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. No Third Party Rights . . . . . . . . . . . . . . . . . . . . . 6
10. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
12. Uncontrollable Forces . . . . . . . . . . . . . . . . . . . . . 7
13. Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
14. Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . 8
15. Representatives and Notices . . . . . . . . . . . . . . . . . . 8
16. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
18. Proprietary Information and Ownership Rights . . . . . . . . . . 9
19. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
20. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 10
21. Signature Clause . . . . . . . . . . . . . . . . . . . . . . . . 11
Page i
<PAGE> 3
ENERGY MANAGEMENT SERVICES AGREEMENT
BETWEEN
SOUTHERN CALIFORNIA WATER COMPANY
AND
ENOVA ENERGY, INC.
1. PARTIES
This Energy Management Services Agreement (Agreement) is made between
Southern California Water Company (SCWC), a California corporation and
Enova Energy, Inc. (Enova), a California corporation, hereinafter sometimes
referred to individually as "Party" and collectively as "Parties."
2. AGREEMENT
The Parties agree as follows.
3. EFFECTIVE DATE, TERM AND CANCELLATION OF THE AGREEMENT
3.1 Effective Date: This Agreement is effective as of the date
when signed by the duly authorized representatives of both
SCWC and Enova.
3.2 Termination: Either Party may terminate this Agreement by
providing the other Party with six months (6) advance written
notice of such termination provided that such notice shall not
be given prior to December 31, 1996.
3.3 Cancellation:
3.3.1 SCWC's Rights: If Enova fails to perform any of its
material obligations or covenants in the manner
required under this Agreement, SCWC may terminate
this Agreement by giving Enova a thirty (30) day
notice (cure period) of its intention to terminate
the Agreement, specifying the default and the manner
of cure SCWC contends is required under the
Agreement. The termination notice shall be effective
to terminate this Agreement unless Enova has cured
the default within the cure period. If the default
is cured within the cure period, then SCWC shall
acknowledge the cure in writing.
Page 1
<PAGE> 4
3.3.2 Enova's Rights: Enova shall have the option to
terminate this Agreement effective upon thirty (30)
days' written notice to SCWC if (i) federal, state or
local statutes, regulations or other laws are
modified or interpreted in such a manner, or (ii)
SCWC enters into any energy supply agreement, which
is not an Enova Recommendation, so as to:
3.3.2.1 prohibit Enova from providing any of the
energy management services covered by this
Agreement;
3.3.2.2 adversely affect Enova's ability to perform
services in accordance with this Agreement;
or
3.3.2.3 adversely affect Enova's ability to achieve
cost savings for SCWC under this Agreement.
4. SERVICES
4.1 Resource Planning and Risk Management Services: Enova shall
provide integrated resource planning and risk management
services to SCWC. These services shall include the annual
development of a 5 year resource plan. Such resource plan
shall address:
4.1.1 energy cost and reliability;
4.1.2 the risks associated with i) long-term contracts and
potential stranded investment and ii) short-term
contracts and potential price volatility; and
4.1.3 the use of risk management products to minimize the
risks identified pursuant to Section 4.1.2.
4.2 Energy Management Services: Enova shall be the exclusive
provider of the following energy management services for SCWC:
4.2.1 For capacity, energy and transmission service
transactions of one (1) month or less in duration,
Enova shall:
4.2.1.1 perform the scheduling, dispatching and
accounting of SCWC's firm and non-firm energy
and transmission service purchases, sales
and exchanges. Enova shall act in the name
of SCWC as an independent contractor
utilizing SCWC's enabling contracts that
provide for the purchase, sale, and/or
exchange of capacity, energy, and
transmission service that now or in the
future may exist between SCWC and others for
the term hereof. Additionally, in order for
Enova to perform the accounting, SCWC shall
promptly provide Enova copies of all invoices
for such energy costs.
Page 2
<PAGE> 5
4.2.1.2 submit energy schedules to Southern
California Edison (SCE) pursuant to the terms
of the SCE control area import agreement.
4.2.2 For capacity, energy and transmission service
transactions of greater than one (1) month in
duration, Enova shall:
4.2.2.1 assess available energy markets, through
formal request for proposals (RFP) and
informal routine telephone contacts, to
identify feasible and economically beneficial
resource transactions;
4.2.2.2 analyze market trends, economic conditions,
legislation and regulatory actions affecting
the availability, cost and utilization of
bulk-power; and
4.2.2.3 develop, negotiate and administer contracts
for the procurement and/or sale of purchased
power or transmission services (each such
transaction must be agreed to in writing by
SCWC before being acquired for SCWC by
Enova).
5. Compensation
5.1 Monthly Service Fee: In recognition of the services provided
in Section 4 above, SCWC shall pay to Enova a monthly service
fee as specified below:
5.1.1 A fixed monthly service fee of $6,000.
5.1.2 A variable monthly service fee equal to $1.70/MWh
for all energy purchased by Enova on behalf of SCWC.
5.1.3 Beginning January, 1997, the fixed monthly service
fee shall be adjusted annually, effective January 1
of each calendar year thereafter, by multiplying the
previous year's ("Base Year") fixed monthly service
fee by a factor equal to the quotient of (i) the
average of the 12 month series of the CPI for Los
Angeles, Anaheim and Riverside ("CPI") or, if this
CPI is no longer available, the U.S. City Average
CPI, divided by (ii) the average of the 12 month CPI
series, or successor thereto, ending October 31 of
the fiscal year immediately prior to the Base Year.
5.2 Communication Equipment and Monthly Costs: SCWC shall be
responsible for the cost of establishing and maintaining
communications necessary to conduct energy management services
pursuant to Section 4.2 hereof. Such costs shall include one-
time hardware, software development if required, and monthly
communications facility costs. Such costs shall be discussed
and agreed to by the Parties before they are incurred.
Page 3
<PAGE> 6
6. Billing and Payment
6.1 General Billing: Commencing with the month immediately
following the month in which services have commenced pursuant
to Section 3.1, Enova shall by the seventh day of each month
provide SCWC a written statement of services rendered. Each
service shall be itemized and subject to the following billing
provisions.
6.1.1 Billing: Enova shall provide by the seventh (7th )
day of each month a bill to SCWC itemizing all
services for which there are charges that month.
6.1.2 Payment: Each month, by the twentieth (20th ) day,
SCWC shall pay to Enova the amount billed for that
month.
6.2 Energy Management Services: The monthly amount, pursuant to
Section 5.1 above, shall be noted on each monthly bill.
6.3 Communication Costs: Communication costs for equipment,
software and monthly services, pursuant to Section 5.2, shall
be itemized in the monthly statement submitted by Enova to
SCWC.
6.4 Late Payments: If either Party fails to make payment when the
same is due, interest thereon shall accrue and be payable at
the rate of one percent (1%) compounded per month or the
maximum legal rate, whichever is less, prorated by days until
payment is received. Interest shall be computed on the basis
of a thirty (30) day month and applied to the actual number of
days from the due date until payment is made.
6.5 Billing Disputes: In the event either Party (the "Disputing
Party") should in good faih dispute any portion of the
amount shown on any statement, the Disputing Party shall pay
all of that statement, including the disputed amount. Any
amount which is disputed by the Disputing Party in good faith
and which is thereafter determined not to be owing by the
Disputing Party, shall be refunded by the non-Disputing
Party, together with interest on such amount as provided in
Section 6.4, within twenty (20) days of final resolution of
such dispute by written agreement of the Parties or final
decision of the Arbiters if the disputes are submitted to
arbitration as provided in Section 16 hereof.
7. FURTHER ASSURANCES
7.1 Purchasing Practices: Each Party shall use its best
commercially reasonable efforts to take, or cause to be taken,
any action to do, or cause to be done, all things necessary,
proper or advisable under applicable laws to consummate and
make effective the transactions and activities contemplated by
this Agreement, including, but not
Page 4
<PAGE> 7
limited to, amendment of SCWC's current purchasing practices
and procedures to allow Enova to perform services pursuant to
this Agreement.
7.2 Allocation of Non-Firm Resources: Enova represents and SCWC
acknowledges that Enova shall provide similar services
contemplated by this Agreement for others, in addition to
SCWC. To avoid the appearance and the possibility of a
conflict of interest with SCWC or a claim that Enova may not
be acting in SCWC's best interests to reduce purchased power
costs, Enova shall allocate non-firm energy and non-firm
transmission, and other electric services, pro rata among
Enova's customers, including SCWC, on the basis of each
customer's megawatt-hour and, as appropriate megawatt
requirement during any hour of service; provided, however,
that SCWC's firm power and firm transmission resources shall
not be so allocated. SCWC acknowledges and agrees that the
allocation method described herein adequately addresses any
potential conflict with SCWC's interest which is served by
Enova and waives any and all claims it may have against Enova
arising from such allocation method.
7.3 Control and Payment of Subordinates: SCWC retains Enova on an
independent contractor basis and not as an employee. The
personnel performing the services contemplated by this
Agreement on behalf of SCWC shall at all times be under
Enova's exclusive direction and control and are not employees
of SCWC. Enova shall pay all wages, salaries, and other
amounts due such personnel in, connection with their
performance of services under this Agreement and as required by
law. Enova shall be responsible for all reports and
obligations regarding such personnel including, but not
limited to: social security taxes, income tax withholding,
unemployment insurance, and workers compensation insurance.
8. AUDITS
8.1 Right to Audit: Upon prior notice, either Party shall have the
right to designate its own employee representative(s) or its
contracted representative(s) with a certified public
accounting firm who shall have the right to examine those
accounts, books, records, or supporting documentation to
verify the accuracy of any statement, charge, computation or
demand made under or pursuant to this Agreement and related
capacity, energy, transmission or other electric services
agreements. Any such audit(s) shall be at the auditing
Party's expense and undertaken at reasonable times and in
conformance with generally accepted auditing standards. The
other Party agrees to fully cooperate with any such audit(s).
Page 5
<PAGE> 8
8.2 Audit Period: The right to audit shall extend during the
length of this Agreement and for a period of not more than one
(1) year following the month in which services were performed.
The Parties shall retain all necessary records and
documentation for the entire length of this audit period.
8.3 Remedy of Errors: In the event any exceptions are found during
an audit, the Party finding the exceptions shall promptly
notify the other Party of such exception in writing. The
Parties shall attempt to resolve all audit exceptions as soon
as possible thereafter. To the extent that resolution of an
audit exception involves a monetary payment from one Party to
the other, the Party making payment shall do so within sixty
(60) days of the audit exception resolution. The payment
amount shall include interest calculated at the rate of one
percent (1 %) compounded per month or the maximum legal rate,
whichever is less, of the unpaid balance prorated by days from
the date of resolution until payment is received. Interest
shall be computed on the basis of a thirty (30) day month and
applied to the actual number of days from the due date until
payment is made.
9. NO THIRD PARTY RIGHTS
Except as otherwise specifically provided in this Agreement, the
Parties do not intend to create rights in, or to grant remedies to,
any third party as a beneficiary of this Agreement or of any duty,
covenant, obligation or undertaking established herein.
10. WAIVERS
Any waiver at any time by either Party of its rights with respect to a
default under this Agreement, or with respect to any other matter
arising in connection with this Agreement, shall not be deemed a
waiver with respect to any subsequent default or other matter arising
in connection therewith or otherwise. Any delay, short of the
statutory period of limitation in asserting or enforcing any right,
shall not be deemed a waiver of such right.
11. ASSIGNMENT
No transfer or assignment of all or any part of this Agreement or any
rights, benefits or duties under it by any Party shall be effective
without the prior written consent of the other Party which consent shall
not be unreasonably withheld; provided, that this Section shall not
apply to interests which arise by reason of any deeds of trust,
mortgages, indentures or security agreements heretofore granted or
executed by a Party. Any successor to or transferee or assignee of the
rights of a Party, whether by voluntary
Page 6
<PAGE> 9
transfer, judicial sale, foreclosure sale, or otherwise, shall be
subject to all terms and conditions of this Agreement to the same
extent as though such successor, transferee or assignee were an
original Party.
12. UNCONTROLLABLE FORCES
Neither Party shall be considered in default in the performance of any
of its obligations under this Agreement (other than obligations of
said Party to make payments hereunder) when a failure of performance
shall be due to uncontrollable forces. A Party rendered unable to
fulfill any of its obligations under this Agreement by reason of an
uncontrollable force shall exercise due diligence to remove such
inability with all reasonable dispatch. Nothing contained herein
shall be construed so as to require a Party to settle any strike or
labor dispute in which it may be involved. For the purposes of this
Agreement, an uncontrollable force shall be any cause beyond the
control of the Party affected, including but not limited to, failure
of or threat of failure of facilities, flood, earthquake, storm, fire,
lightning, epidemic, famine, war, riot, civil disturbance or
disobedience, labor dispute, labor or material shortage, restraint by
court order or public authority, and action or non-action by, or
inability to obtain necessary authorizations or approvals from any
governmental agency or authority which, by exercise of due diligence
and foresight, such Party could not reasonably have been expected to
avoid and which, by exercise of due diligence, it has been unable to
overcome.
13. LIABILITY
13.1 Willful Action: Except for any loss, damage, claim, cost,
charge or expense resulting from willful action, no Party, its
directors, or other governing body, officers, or employees
shall be liable to the other Party for any loss, damage, claim,
cost, charge, or expense of any loss, damage, claim, cost,
charge, or expense of any kind or nature (including direct,
indirect, or consequential loss, damage, claim, cost, charge,
or expense) incurred by the other Party, resulting whether or
not from the negligence of any Party, its directors, or other
governing body, officers, employees, or any other person or
entity whose negligence would be imputed by such Party from the
performance or nonperformance of the obligations of any Party
under this Agreement.
13.2 Release: Except for any loss, damage, claim, cost, charge, or
expense resulting from willful action, each Party releases the
other Party, its directors, or other governing body, officers,
and employees, from any such liability referred to in Section
13.1.
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<PAGE> 10
14. COMPLETE AGREEMENT
This Agreement constitutes the complete and entire agreement between
the Parties. Any previous communications, representations, or
agreement, whether oral or written, with respect to the subject matter
thereof are withdrawn. There are no additions to, or deletions from,
or changes in, any of the provisions hereof, and no understanding,
representations, or agreements concerning any of the same, which are
not expressed herein. The invalidity of any part of this Agreement
shall not affect the validity of the remaining parts of the Agreement.
15. REPRESENTATIVES AND NOTICES
15.1 Representatives: Each Party shall designate an Authorized
Representative and an alternate who shall be authorized to act
on its behalf with respect to matters contained herein which
are the functions and responsibilities of the Authorized
Representatives. Within thirty (30) calendar days after
execution of this Agreement, each Party shall give written
notice to the other Party of its designation, and shall
promptly notify the other Party of any subsequent changes in
such designation. The Authorized Representatives shall have
no authority to modify any of the provisions of this
Agreement.
15.2 Notifications: Any notice, request, demand, or statement shall
be given in writing and delivered by prepaid first class mail,
facsimile, or by hand to a Party at the addresses provided
below or such other addresses as the Parties hereto may
designate in writing from time to time:
TO ENOVA: 12555 High Bluff Drive
Suite 155
San Diego, CA 92130
FAX Number: (619) 792-2926
TO SCWC: 2143 East D St., Suite 110
Ontario, CA 91761
FAX Number: (909) 390-5299
15.3 Timing of Notices: Notices or demands delivered personally or
by facsimile shall be deemed served as of actual receipt.
Mailed notices or demands shall be deemed served seventy-two
(72) hours after deposit in the United States mail.
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<PAGE> 11
16. ARBITRATION
16.1 If any controversy, dispute or claim arises out of this
Agreement which cannot be resolved by the personnel directly
involved, either Party may invoke this dispute resolution
procedure by giving written notice to the other Party. This
process shall be a compromise negotiation. All offers,
promises, conduct and statements, whether oral or written made
pursuant to this negotiation shall be confidential,
inadmissible, and not discoverable for any purpose, including
impeachment, in any subsequent arbitration between the
Parties.
16.2 If any dispute arises, as to any factual matter, the Parities
shall submit the factual dispute to binding arbitration. The
Party wanting to pursue such arbitration shall prepare and
serve on the other Party a detailed explanation of the
dispute, including the issues to be resolved and the requested
relief, to which the other Party shall reply within thirty
(30) days. Within ten (10) days after service of the reply,
each Party shall choose an arbitrator, who together shall
choose a third (neutral) arbitrator, and the three shall
determine the issues. In all other respects, the arbitration
shall be governed by the rules of the American Arbitration
Association. The arbiters shall render a decision in writing
not later than thirty (30) days after the matter has been
submitted to them, and the decision of a majority shall be
binding upon the Parties. The arbiters may, in their
discretion, award arbitration costs and attorneys' fees to
either Party. The Parties intend that this Agreement to
arbitrate be valid, enforceable, and irrevocable.
16.3 The decision of the arbiters shall be binding, final and
unappealable and shall have the effect of a judgment. If the
decision is not complied with by a Party within twenty (20)
days of the time of receipt of a written copy of the award of
the arbiters, the other Party may apply to a court of
competent jurisdiction for entry of a judgment based on such
award, together with the costs, including a reasonable
attorney's fee, incurred in obtaining such judgment.
17. SURVIVAL
Obligations and rights set forth in Sections 5, 6, 8, 10, 11, 12, 13,
16 and 19 hereof pertaining to or affecting each Party's obligation to
make payments hereunder shall survive until fully satisfied.
18. PROPRIETARY INFORMATION AND OWNERSHIP RIGHTS
18.1 Enova agrees to use reasonable steps to keep confidential all
information related to projects, methods of manufacture, trade
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<PAGE> 12
secrets or processes (except such information as may belong in
the public domain), and the business or affairs of SCWC which
may be acquired in the performance of work pursuant to Section
4 hereof, provided all such information requiring confidential
treatment has a legend to that effect on it at the time it is
given to Enova.
18.2 Previously developed reports, computer programs,
recommendations, specifications, drawings, technical data,
sketches and all the information used by Enova in connection
with its performance pursuant to Section 4 hereof shall remain
the exclusive property of Enova. Performance under Section 4
hereof shall not convey to SCWC any right to use (either
temporarily or permanently) such previously developed
materials unless specifically provided in writing as part of
this Agreement.
18.3 The reports, computer programs, recommendations,
specifications, drawings, technical data, sketches and all
other information developed and furnished by Enova in
connection with its performance pursuant to Section 4 hereof
shall remain the exclusive property of Enova, subject to
SCWC's permanent right to use same for its own purposes.
Enova shall have the unrestricted right to use and reproduce
all such information, unless such use would violate Enova's
obligation to SCWC pursuant to Section 18.1 hereof.
19. TAXES
In the event foreign, federal, state or local taxes (other than
corporate taxes) are assessed on any transaction undertaken by Enova
for and on behalf of SCWC which is contemplated by this Agreement,
SCWC shall reimburse Enova for the amount of such tax which shall be
invoiced in a separate statement to SCWC as an additional direct
expense under Section 6 hereof.
20. GOVERNING LAW
This Agreement shall be interpreted, governed by, and construed under
the laws of the state of California or the laws of the United States,
as applicable, as if executed and to be performed wholly in the state
of California.
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<PAGE> 13
21. SIGNATURE CLAUSE
The signatories hereto represent that they have been authorized to
enter into this Agreement on behalf of the Party for whom they sign.
BY /s/ DWAIN M. BOETTCHER DATE 3/26/96
--------------------------------- -------------------------
Dwain M. Boettcher
Vice-President
Enova Energy, Inc.
BY /s/ JOEL A. DICKSON DATE 3/25/96
--------------------------------- -------------------------
Joel A. Dickson
Vice President Customer Service
Southern California Water Company
Page 11
<PAGE> 1
EXHIBIT 13
Southern California Water Company Excerpts from 1996 Annual Report
<PAGE> 2
Southern California Water Company selected financial data 1
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------------------------
(in thousands, except per share amounts) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Operating Revenues $151,529 $129,813 $122,675 $108,506 $100,660
Total Operating Expenses 128,100 108,425 103,745 88,456 81,562
Operating Income 23,429 21,388 18,930 20,050 19,098
Other Income 531 366 236 354 934
Interest Charges 10,500 9,559 7,828 8,378 7,890
Net Income 13,460 12,165 11,338 12,026 12,142
Earnings Available for Common Shareholders 13,366 12,069 11,240 11,926 12,040
Earnings per Common Share 1.69 1.54 1.43 1.66 1.82
Dividends Declared per Common Share 1.23 1.21 1.20 1.19 1.15
Total Assets 430,922 406,255 383,627 358,533 312,491
Long-Term Debt 107,190 107,455 92,891 84,286 84,195
Preferred Shares-Mandatory Redemption 480 520 560 600 640
Total Capitalization $256,036 $231,151 $214,013 $202,949 $174,664
Average Share Outstanding 7,891 7,845 7,842 7,186 6,627
</TABLE>
<PAGE> 3
Southern California Water Company management's discussion and analysis 19
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, 1996 and 1995
Earnings per common share in 1996 increased by 9.7% to $1.69 per share as
compared to $1.54 per share for the comparable period last year. Earnings from
operations only were $1.62 per share in 1996, an increase of 8% from the $1.50
reported in 1995. Other income in 1996 increased by 75% to $0.07 per share as
compared to $0.04 per share last year.
Water operating revenues increased by 17.7% in 1996 to $140 million from
the $118.9 reported in 1995 due principally to the impacts of general rate
increases, which went into effect in January, 1996, and to a 7.5% increase in
water sales volumes in 1996 as compared to 1995.
Electric operating revenues of $11.5 million were 5.9% higher in 1996 as
compared to last year due to the impacts of a general rate increase effective in
May, 1996 as well as a 5% increase in kilowatt-hour sales.
Purchased water costs increased by 17.5% to $38.4 million in 1996
reflecting increases in purchased water rates, the latest series of which was
effective July 1, 1995, as well as increased purchased water volumes.
Costs of power purchased for pumping decreased by 3.2% to $7.7 million in
1996 chiefly as the result of increased usage of purchased water in the resource
mix.
In 1996, costs of power purchased for resale increased by 11.7% to $5.8
million due to increased kilowatt-hour sales and recovery of costs in the
electric supply cost balancing account.
Groundwater production assessments of $5.9 million in 1996 are 3.1% lower
due to the increased amount of purchased water in the resource mix.
A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs. Conversely, a
negative entry for the provision for supply cost balancing accounts reflects an
undercollection of previously incurred supply costs. The positive entry for 1996
results from approval by the CPUC of rate increases sufficient to recover
previously under-collected purchased water supply costs, supply costs for power
purchased for pumping and for resale and groundwater production assessments.
Although other operating expenses remained relatively unchanged in 1996 as
compared to last year, administrative and general expenses of $20.5 million were
20.7% greater than in 1995. This increase reflects an increase in the amount of
labor being charged to this category since, as a part of the settlement
stipulation for the rates that were effective January 1, 1996, the company began
expensing, and currently recovering, a greater percentage of labor for persons
engaged in general and administrative functions. Moreover, this category has
increased due to higher personnel-related expenses such as health insurance,
post-retirement medical benefits, pension and 401(k) plan costs and long-term
compensation expenses. In addition, in 1995, the company reversed approximately
$639,000 in costs related to its participation in the State Water Project for
which there is no corresponding entry in 1996.
Depreciation expense in 1996 increased by 19.1% to $10.1 million reflecting
the effects of recording approximately $30 million in net plant additions during
1995, depreciation on which began in 1996 as well as higher depreciation rates
authorized by the CPUC that became effective January 1, 1996.
Taxes on income increased by approximately 17.1% to $10.3 million in 1996
as compared to last year as a result of higher pre-tax income.
For 1996, other taxes increased by 25.4% due to increased franchise fees as
a result of increased revenues, as well as increased property taxes resulting
from higher valuation assessments in 1996.
Maintenance expense of $7.7 million in 1996 was 34.6% greater than last
year reflecting increased maintenance emphasis on pumping, hydrant and valve
equipment.
Other income increased by 58% in 1996 due principally to an increase 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 for 1996 increased by 9.8% to $10.5 million primarily as a
result of the sale in September, 1995 of $30 million in long-term debt as well
as increased short-term bank borrowing during 1996.
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,
<PAGE> 4
Southern California Water Company 20
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.
Financial Condition
Liquidity and Capital Resources
The company funds the majority of its operating expenses, interest payments on
its debt, dividends on its outstanding common and preferred shares and makes its
mandatory sinking fund payments through internal sources. However, because of
the seasonal nature of its water and electric businesses, the company utilizes
its short-term borrowing capacity on occasion to finance current operating
expenses. The company continues to rely on external sources, including
short-term bank borrowing, the receipt of contributions-in-aid-of-construction
and advances for construction and install-and-convey advances, to fund the
majority of its construction expenditures.
The aggregate short-term borrowing capacity currently available to the
company under its three bank lines of credit is $37 million. At December 31,
1996, the company had a total of $16 million in borrowing outstanding under its
bank lines of credit, leaving an unused short-term borrowing capacity of $21
million which management believes is sufficient to finance any current capital
requirements not funded from internal sources.
<PAGE> 5
Southern California Water Company management's discussion and analysis 21
The company routinely employs short-term bank borrowing as an interim financing
source prior to executing either a long-term debt or equity issue.
The company issued 1,000,000 new common shares in December, 1996 and an
additional 71,500 common shares in January, 1997 for aggregate net proceeds of
$22,062,000. These funds were used to repay a portion of then-outstanding
short-term bank debt. In December, 1996, the company sold $8 million in
tax-exempt debt which was issued through the California Pollution Control
Financing Authority. The funds were deposited with a trustee and will be used to
reimburse the company for costs incurred to replace water main facilities in
many of its customer service areas.
The company anticipates selling additional debt in 1997 with the net
proceeds initially being used to repay short-term bank borrowings and, after
that, to fund construction expenditures.
The company has no derivative financial instruments, financial instruments
with significant off-balance sheet risks or financial instruments with
concentrations of credit risk.
Construction Program
Net construction expenditures for 1997 are estimated at approximately $27.5
million. Capital expenditures for years after 1997 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
Rates to the company's customers vary among its 21 water customer service areas
due to differences in operating conditions and costs. The customer service areas
are currently grouped into 16 water districts for rate-making purposes. The
company's one electric customer service area is also a separate ratemaking
district. The company continuously monitors its operations in all of its
districts so that applications for rate changes may be filed, when warranted, on
a district-by-district basis in accordance with CPUC procedure. Under the CPUC's
practices, rates may be increased by three methods: general rate increases,
offsets for certain expense increases and advice letter filings related to
certain plant additions. General rate increases typically are for three-year
periods and include "step" increases in rates for the second and third years.
In January, 1996, new rates were effective in six water customer service
areas which, among other things, authorized a rate of return on common equity of
10.40%, increased depreciation rates, authorized recovery of postretirement
medical benefit costs, increased current recovery of labor expenses and resulted
in an increase in annual water operating revenues of approximately $15 million.
Water rates in two customer service areas were increased on January 1, 1997 to
recover costs associated with 1996 and 1997 capital projects in those areas.
The company filed notices of intent to increase water rates in four of its
customer service areas in January, 1997. The company is unable to predict if the
CPUC will authorize all or any of the proposed increases although it is not
anticipated that new rates, if approved, would be effective prior to January,
1998.
New rates were effective in May, 1996 in the company's Bear Valley Electric
customer service area. An additional step increase in electric rates was
effective in January, 1997.
In November, 1996, the company filed an application with the CPUC seeking
recovery through rates of costs associated with its participation the coastal
aqueduct extension of the State Water Project. The company is currently unable
to predict if the CPUC will authorize recovery of all or any of the costs
associated with the Project.
Environmental Matters
The 1996 amendments to the Safe Drinking Water Act ("SDWA") amount to a rewrite
of the law that the United States Environmental Protection Agency ("EPA") has
been trying to implement for almost ten years. In contrast to the 1986
amendments to SDWA, which were crafted with very little input from water
purveyors, the 1996 amendments were developed with significant contributions
from water purveyors and regulators. The California Department of Health
Services, acting on behalf of the EPA, administers the EPA's program.
The 1996 SDWA amendments replace the requirement that EPA set 25 new
standards every three years with a new process for selecting and regulating
contaminants. The EPA can only regulate contaminants that may have adverse
health effects, are known or are likely to occur at levels of public health
concern, and provide "a meaningful opportunity for health risk reduction." The
EPA must, within 18 months, publish a list of contaminants for possible
regulation and must update such list every five years. In addition, every five
years,
<PAGE> 6
Southern California Water Company 22
the EPA must select at least five contaminants on the list and determine whether
to regulate them. The new law allows the EPA to bypass the selection process and
adopt interim regulations for contaminants in order to address urgent health
threats. Current regulations, however, remain in place and are not subject to
the new standard-setting provisions.
The company 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 maximum
contaminant limits (MCL's) is either treated or blended before it is delivered
to customers.
Since the SDWA became effective, the company has experienced increased
operating costs for testing to determine the levels, if any, of the contaminants
in the company's sources of supply as well as additional expense to lower the
level of any contaminants in order to meet the MCL standards. Such costs and the
costs of controlling any other contaminants may cause the company to incur
additional capital costs as well as increased operating costs. However, the
rate-making process provides the company with the opportunity to recover
prudently incurred capital and operating costs associated with water quality,
and management believes that such prudently incurred costs will be authorized
for recovery by the CPUC.
There have been no environmental matters that have materially affected or
are currently materially affecting the company's Bear Valley Electric customer
service area.
Water Supply
During 1996, the company supplied from all sources, a total of 194,397 acre-feet
of water compared to 183,108 in 1995. Of the total water supplied in 1996, 56%
was produced from the company's wells and 1.5% 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 rights to water extracted from Clear Lake. The remainder was
purchased from the Metropolitan Water District of Southern California ("MWD").
MWD imports water from two principal sources: the Colorado River and the State
Water Project. Available water supplies from these sources have historically
been sufficient to meet MWD's requirements and MWD's supplies from these sources
are anticipated to continue to remain adequate through 1997. MWD's importation
of water from the Colorado River is expected to decrease in future years due to
the requirements of the Central Arizona Project in the State of Arizona. In
response, MWD has taken a number of steps to secure additional storage capacity
and increase available water supplies, including effecting transfers of water
rights from other sources.
The recent storms in the 1996-1997 winter period provided precipitation
adequate to fill most of the state's reservoirs to capacity and the outlook for
water supply in 1997 is favorable. In those customer service areas of the
company that pump groundwater, overall groundwater conditions remain at adequate
levels. The company believes that its water supplies from all sources are
adequate to meet projected current year demands.
Water-Related Opportunities
The company continues to pursue strategic opportunities related to the operation
of municipally owned water systems. The company has pursued and continues to
pursue opportunities to bid on long-term leases and operation contracts on a
stand-alone basis or as part of a joint venture. In 1996, the company formed
Golden State Water Company LLC to pursue these opportunities.
<PAGE> 7
Southern California Water Company balance sheets 23
<TABLE>
<CAPTION>
December 31,
------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Utility Plant, at cost
Water $ 411,852 $ 383,368
Electric 33,300 30,269
------------------------
445,152 413,637
Less - Accumulated depreciation (114,086) (103,018)
------------------------
331,066 310,619
Construction work in progress 26,710 24,349
------------------------
Net utility plant 357,776 334,968
------------------------
Other Property and Investments 774 755
------------------------
Current Assets
Cash and cash equivalents 3,783 343
Accounts receivable-- Customers, less 7,870 8,238
reserves of $387 in 1996 and $648 in 1995
Other 1,713 2,563
Unbilled revenue 12,596 11,035
Materials and supplies, at average cost 1,292 1,733
Supply cost balancing accounts 6,273 8,073
Prepayments 6,933 7,779
Accumulated deferred income taxes - net 3,302 3,206
------------------------
Total current assets 43,762 42,970
------------------------
Deferred Charges
Regulatory tax-related assets 23,201 22,986
Other 5,409 4,576
------------------------
Total deferred charges 28,610 27,562
------------------------
Total Assets $ 430,922 $ 406,255
========================
Capitalization and Liabilities
Capitalization
Common shareholders' equity $ 146,766 $ 121,576
Preferred shares 1,600 1,600
Preferred shares - mandatory redemption 480 520
Long-term debt 107,190 107,455
------------------------
Total capitalization 256,036 231,151
------------------------
Current Liabilities
Notes payable to banks 16,000 8,500
Long-term debt and preferred shares - current 482 15,624
Accounts payable 12,865 6,839
Taxes payable 5,777 5,562
Accrued interest 1,772 1,955
Other 7,792 8,061
------------------------
Total current liabilities 44,688 46,541
------------------------
Other Credits
Advances for construction 55,848 55,385
Contributions in aid of construction 28,158 27,745
Accumulated deferred income taxes - net 40,404 39,050
Unamortized investment tax credits 1,995 2,300
Regulatory tax-related liability 3,337 3,499
Other 456 584
------------------------
Total other credits 130,198 128,563
------------------------
Total Capitalization and Liabilities $ 430,922 $ 406,255
========================
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 8
Southern California Water Company statements of capitalization 24
<TABLE>
<CAPTION>
December 31,
------------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Shareholders' Equity:
Common shares, $2.50 par value--
Authorized 10,000,000 shares
Outstanding 8,886,171 in 1996 and
7,845,092 in 1995 $ 22,215 $ 19,613
Additional paid-in capital 73,645 54,753
Earnings reinvested in the business 50,906 47,210
-----------------------
146,766 121,576
-----------------------
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 20,800 shares in
1996 and 22,400 shares in 1995, 5% Series 520 560
Less: Preferred shares to be redeemed within one year (40) (40)
-----------------------
480 520
-----------------------
Long-Term Debt
4.30% notes due 1996 -- 2,200
6.40% notes due 1996 -- 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 2,018 2,077
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 8,000
7.65% notes due 2025 22,000 22,000
5.50% notes due 2026 8,000 --
less funds held by trustee (8,000) --
9.56% notes due 2031 28,000 28,000
Other 1,014 1,162
-----------------------
107,632 123,039
Less: Current maturities (442) (15,584)
-----------------------
107,190 107,455
-----------------------
Total Capitalization $ 256,036 $ 231,151
=======================
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 9
Southern California Water Company statements of income 25
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------
(in thousands, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------
Operating Revenues
<S> <C> <C> <C>
Water $ 139,997 $118,922 $ 112,087
Electric 11,532 10,891 10,588
-----------------------------------
Total operating revenues 151,529 129,813 122,675
Operating Expenses
Water purchased 38,355 32,629 30,768
Power purchased for resale 5,825 5,215 4,726
Power purchased for pumping 7,711 7,963 7,584
Groundwater production assessment 5,946 6,137 5,457
Supply cost balancing accounts 2,064 (1,146) 500
Other operating expenses 13,421 13,351 12,148
Provision for State Water Project -- (639) (193)
Administrative and general expenses 20,549 17,029 14,237
Depreciation 10,102 8,483 8,049
Maintenance 7,745 5,754 6,916
Taxes on income 10,283 8,784 8,865
Property and other taxes 6,099 4,865 4,688
-----------------------------------
Total operating expenses 128,100 108,425 103,745
-----------------------------------
Operating Income 23,429 21,388 18,930
-----------------------------------
Other Income
Net gain from sale of operating properties -- -- 313
Other - net 531 336 (77)
-----------------------------------
Total other income 531 336 236
-----------------------------------
Income before interest charges 23,960 21,724 19,166
Interest Charges
Interest on long-term debt 8,551 7,807 6,694
Other interest and amortization of debt expense 1,949 1,752 1,134
-----------------------------------
Total interest charges 10,500 9,559 7,828
-----------------------------------
Net Income 13,460 12,165 11,338
Dividends on Preferred Shares (94) (96) (98)
-----------------------------------
Earnings Available For Common Shareholders $ 13,366 $ 12,069 $ 11,240
===================================
Earnings Per Common Share $ 1.69 $ 1.54 $ 1.43
===================================
Weighted Average Number
of Common Shares Outstanding 7,891 7,845 7,842
===================================
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 10
Southern California Water Company statements of changes in 26
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, 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
Add:
Net Income 13,460
Issuance of Common Shares
for public offering 1,000 2,500 18,090
under Dividend Reinvestment and 401(k) Plans 41 102 802
Deduct:
Dividends on Preferred Shares 94
Dividends on Common Shares - $1.225 per share 9,670
- -----------------------------------------------------------------------------------------------------
Balances at December 31, 1996 8,886 $22,215 $73,645 $50,906
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 11
Southern California Water Company statements of cash flows 27
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C> <C> <C>
Net income $ 13,460 $ 12,165 11,338
Adjustments for non-cash items:
Depreciation and amortization 10,389 9,033 8,476
Deferred income taxes and investment tax credits 577 2,016 75
Gain on sale of properties - - (532)
Other - net (1,660) 416 (185)
Changes in assets and liabilities:
Customer receivables 368 651 (2,074)
Supply cost balancing accounts 1,800 (1,065) 14
Accounts payable 6,026 (1,609) (829)
Taxes payable 215 (73) 2,685
Other - net 122 (2,587) (1,393)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided 31,297 18,947 17,575
Cash Flows from Investing Activities
Construction expenditures (31,953) (25,808) (28,620)
Acquisition of water systems - - (100)
Proceeds from sale of properties - - 1,346
- --------------------------------------------------------------------------------------------------------------------
Net cash used (31,953) (25,808) (27,374)
Cash Flows from Financing Activities
Issuance of Common Shares 21,494 - -
Issuance of long-term debt and lease obligations - 30,000 13,000
Receipt of advances for and contributions in aid of construction 2,462 2,761 2,335
Refunds on advances for construction (2,088) (2,812) (2,694)
Repayments of long-term debt and
redemption of preferred shares (15,447) (4,477) (228)
Net change in notes payable to banks 7,500 (11,000) 7,500
Common and preferred dividends paid (9,825) (9,614) (9,496)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided 4,096 4,858 10,417
Net Increase (Decrease) in Cash and Cash Equivalents 3,440 (2,001) 618
Cash and Cash Equivalents, Beginning of Year 343 2,344 1,726
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 3,783 $ 343 $ 2,344
Taxes and Interest Paid
Income taxes paid $ 10,767 $ 6,955 $ 6,261
Interest paid 10,128 9,043 6,846
- --------------------------------------------------------------------------------------------------------------------
Non-Cash Transactions
Property installed by developers and conveyed to company $ 957 $ 2,764 $ 564
Capital leases - - 53
Acquisition of water system for common shares - - 673
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 12
Southern California Water Company notes to financial statements 28
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 1996, 1995 and 1994, the aggregate provisions for depreciation
approximated 2.71%, 2.52% and 2.50% 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 40-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, 1996 and
1995 for debt with similar terms and remaining maturities were used to estimate
fair value. Changes in the assumptions will produce differing results.
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------
Carrying Fair Carrying Fair
(in thousands) amount value amount value
- -------------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C>
Cash $ 3,783 $ 3,783 $ 343 $ 343
Accounts receivable 22,179 22,179 21,836 21,836
Financial liabilities:
Short-term debt 16,000 16,000 8,500 8,500
Long-term debt $107,632 $114,892 $123,039 $136,191
-----------------------------------------
</TABLE>
Note 2 Capital Stock
All of the series of Preferred Shares outstanding at December 31, 1996 are
redeemable at the option of the Company. At December 31, 1996, 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, 1996
is $40,000 each year.
During the year ended December 31, 1996, the company issued 20,228 and
20,851 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, 1995 and 1994 were purchased on the open market.
<PAGE> 13
Southern California Water Company 29
There are 89,226 and 71,408 Common Shares reserved for issuance under the
DRP and the 401(k) Plan, respectively, at December 31, 1996. Shares reserved for
the 401(k) Plan are in relation to company matching contributions and for
investment purposes by participants.
As of December 31, 1996, retained earnings of $28,228,000 were restricted
as to the payment of cash dividends on Common Shares.
Note 3 Compensating Balances and Bank Debt
At December 31, 1996, the company maintained $37,000,000 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
$37,000,000 aggregate borrowing capacity, $16,000,000 was outstanding at
December 31, 1996.
Short-term bank borrowing activities for the last three years were as
follows:
<TABLE>
<CAPTION>
(in thousands, except percent) 1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Balance Outstanding
at December 31, $16,000 $8,500 $ 19,500
Interest Rate at December 31, 6.17% 6.39% 7.53%
Average Amount
Outstanding $26,109 $17,897 $16,527
Weighted Average Annual
Interest Rate 5.97% 6.92% 4.65%
Maximum Amount
Outstanding $36,000 $27,500 $24,750
- ----------------------------------------------------------------
</TABLE>
Note 4 Long-Term Debt
In December, 1996, the company sold $8 million in tax-exempt debt that was
issued through the California Pollution Control Financing Authority. The funds
were deposited with a trustee and will be used to finance water main
replacements.
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, 1997, in the amount of $451,000 as 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 $442,000, $157,000, $163,000, $1,168,000 and $1,175,000 for each of
the years ending December 31, 1997 through 2001, respectively.
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, 1996 and 1995 were:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Balancing accounts $ 908 $1,706
State tax effect 2,394 1,500
-------- ---------
3,302 3,206
-------- ---------
Deferred tax liabilities
Depreciation (38,888) (36,604)
Advances and contributions 17,805 15,637
Other property related (10,170) (10,796)
Other non-property related (9,151) (7,287)
-------- ---------
(40,404) (39,050)
Accumulated deferred
income taxes - net $(37,102) $ (35,844)
-------- ---------
</TABLE>
<PAGE> 14
Southern California Water Company 30
The current and deferred components of income tax expense are as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 7,224 $ 5,432 $ 6,650
State 2,452 2,110 2,435
Total current tax expense 9,676 7,542 9,085
Deferred - Federal and State:
Accelerated depreciation 3,175 3,273 3,087
Balancing accounts (798) 472 (6)
State Water Project 296 (296) (116)
Advances and contributions (894) (477) (1,204)
California privilege year
franchise tax (683) (394) (1,085)
Adjustments to prior
year provision 410 (855) -
Other (732) (520) (476)
--------------------------------
Total deferred tax expense 774 1,203 200
--------------------------------
Total income tax expense $10,450 $ 8,745 $ 9,285
--------------------------------
Income taxes included in
operating expenses $10,283 $ 8,784 $ 8,865
Income taxes included in other
income and expenses - net 167 (39) 420
Total income tax expense $10,450 $ 8,745 $ 9,285
</TABLE>
Additional information regarding taxes on income is set forth in the
following table:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Federal taxes on pre-tax
income at statutory rates $ 8,368 $ 7,318 $ 7,217
Increase (decrease) in taxes
resulting from:
State income tax expense 2,051 1,725 2,022
Depreciation 716 426 321
Federal benefit of state taxes (718) (604) (708)
Adjustments to prior years'
provisions 254 76 342
Other - net (221) (196) 91
----------------------------------
Total income tax expense $ 10,450 $ 8,745 $ 9,285
----------------------------------
Pre-tax income $ 23,910 $ 20,910 $ 20,623
----------------------------------
Effective income tax rate 43.7% 41.8% 45.0%
----------------------------------
</TABLE>
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 1996 and 1995 were 7.5% and 4% and 7% and 4%
respectively. The expected long-term rate of return on assets, which consist
primarily of fixed income securities, was 8% for 1996 and 1995.
The following table sets forth the Plan's funded status and amounts
recognized in the company's balance sheets at December 31, 1996 and 1995 and the
components of net pension cost for 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested $ 21,078 $ 21,031
Nonvested 1,862 1,722
--------------------
Total $ 22,940 $ 22,753
--------------------
Projected benefit obligation for
service rendered to date $(28,733) $(28,712)
Plan assets at fair value 29,240 26,396
Unrecognized net loss/(gain) due to
past experience different from
assumptions made 936 3,194
Unrecognized net obligation at January 1,
1986 being recognized over 15 years 228 285
Unrecognized prior service cost
due to Plan amendments 489 533
--------------------
Accrued pension asset $ 2,160 $ 1,696
--------------------
Service cost benefits earned
during the period $ 1,406 $ 1,145
Interest cost on projected
benefit obligation 1,970 1,790
Return on Plan assets (2,169) (4,713)
Net amortization and deferral 165 3,133
--------------------
Net pension cost $ 1,372 $ 1,355
--------------------
</TABLE>
<PAGE> 15
Southern California Water Company notes to financial statements 31
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 the provisions 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 post-retirement benefit costs. Assets in these trusts amounted
to approximately $549,000 as of December 31, 1996.
The following table presents information on the plan's funded status and
the accrued postretirement liability as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees and dependents $ 2,248 $ 3,345
Other fully eligible participants 307 322
Other active participants 1,458 1,409
------------------
Total $ 4,013 $ 5,076
------------------
Plan assets at fair value $ 549 $ --
------------------
Accumulated postretirement benefit
obligation in excess of plan assets 3,464 5,076
Unrecognized transition obligation (7,545) (7,965)
Unrecognized prior service cost 3,826 4,026
Unrecognized net (gain)/loss 2,000 465
------------------
Accrued postretirement benefit liability $ 1,745 $ 1,602
------------------
</TABLE>
The components of net periodic postretirement benefits cost for 1996 are
as follows:
<TABLE>
<CAPTION>
December 31,
(in thousands) 1996
- ------------------------------------------------------------------
<S> <C>
Service cost - benefits earned during year $ 127
Interest cost on APBO 345
Actual return on plan assets -
Net amortization and deferral 220
-----------
Net periodic postretirement benefit cost $ 692
-----------
</TABLE>
Postretirement benefit costs for 1993, 1994 and 1995 were estimated at a
total of approximately $1.6 million and have been recorded as a regulatory asset
for recovery over a 20 year period. During 1996, approximately $52,000 was
recovered leaving a balance to be amortized of $1.55 million. The weighted
average discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1996 and 1995 was 7.5% and 7%, respectively. A
sliding scale for assumed health care cost increases starting at 11% in 1995
declining 1% per year for five 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, 1996
by $196,000 and the net periodic postretirement benefit cost for 1996 by
$23,000.
The company has a 401(k) Investment Incentive Program 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 1996, 1995 and 1994, totaled
$839,000, $389,000 and $222,000, respectively. Contributions in 1996 include
contributions for a short plan year in 1995.
Note 7 Business Risks and Concentration of Sales
The company's utility operations are engaged in supplying water and electric
service to the public. The company is required to provide service and grant
credit to customers within its defined service areas. Although the company has a
diversified base of residential, industrial and other customers, revenues
derived from commercial and residential water customers accounted for
approximately 90% of total company revenues in 1996 and 1995.
<PAGE> 16
Southern California Water Company 32
Approximately forty percent of the company's water supplies comes from
wholesalers of imported water with the remainder produced from company-owned
wells. The long term availability of imported water supplies is dependent upon,
among other things, drought conditions throughout the state, increases in
population, water quality standards and legislation that may potentially reduce
water supplies. SCW does not anticipate any constraints on its imported water
supplies due to the above average precipitation received in the 1996-1997 winter
period. The company continues to reduce its reliance on imported water supplies
by acquiring groundwater rights.
Note 8 Contingencies
On November 4, 1996, the company filed an application with the CPUC seeking
approval of recovery through rates of costs associated with its participation in
the State Water Project. SCW's current investment in the project is $1.8 million
and is included in utility plant. No assurance can be given that the CPUC will
authorize recovery of all or any of these costs.
Management believes that proper insurance coverage and reserves are in
place to insure against property, general and product liability and workers'
compensation claims.
Note 9 Construction Program
The company's 1997 construction budget provides for gross expenditures of
approximately $32,850,000. Management anticipates that $5,356,000 of the 1997
budgeted amount will be obtained from developers and others.
Note 10 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>
(in thousands) 1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 648 $ 419 $ 370
Provision charged
to expense 571 1,501 765
Accounts written off,
net of recoveries (832) (1,272) (716)
Balance at end of year $ 387 $ 648 $ 419
- ---------------------------------------------------------------
</TABLE>
Note 11 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 12 Selected Quarterly Financial Data (Unaudited)
The quarterly financial information presented below is unaudited. The business
of the company is of a seasonal nature and it is management's opinion that
comparisons of earnings for the quarterly periods do not reflect overall trends
and changes in the company's operations.
Business Segments
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Water Electric Water Electric Water Electric
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $139,997 $11,532 $118,922 $10,891 $112,087 $10,588
Operating income before income taxes 30,294 3,418 27,776 2,396 25,858 1,936
Identifiable assets 333,377 24,399 303,367 31,601 294,343 20,536
Depreciation expense 9,235 867 7,717 766 7,308 741
Capital additions 31,295 2,644 25,753 2,985 27,878 3,057
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Quarterly Operating Operating Earnings
Financial Data (in thousands, Revenues Income Net Income per Share
except per share amounts) 1996 1995 1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 30,397 $ 24,976 $ 4,710 $ 3,396 $ 2,168 $ 1,118 $0.27 $0.14
Second Quarter 39,894 32,372 6,486 5,268 4,102 3,027 0.52 0.38
Third Quarter 45,218 39,533 7,963 7,553 5,410 5,290 0.68 0.67
Fourth Quarter 36,020 32,932 4,270 5,171 1,780 2,730 0.22 0.34
- ------------------------------------------------------------------------------------------------------------------------------------
Year $151,529 $ 129,813 $23,429 $21,388 $ 13,460 $12,165 $1.69 $1.54
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
Southern California Water Company report of management 33
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 13, 1997
Southern California Water Company 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, 1996 and
1995 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, 1996. 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, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN, LLP
Arthur Andersen LLP
Los Angeles, California
February 13, 1997
<PAGE> 18
Southern California Water Company shareholder information 36
Annual Meeting of Shareholders
All shareholders are invited to attend the Annual Meeting on Tuesday, April 29,
1997, beginning at 10:00 am, at The Sheraton Suites Fairplex, 601 West McKinley
Avenue, Pomona, California, 91768. Notice of meeting and proxy materials will be
mailed.
Stock Listing
Common Shares of Southern California Water Company are traded on the New York
Stock Exchange under the symbol SCW. The high and low sales prices and dividends
paid on the Common Shares for the past two years were:
<TABLE>
<CAPTION>
Dividends
1996 High Low Paid
- ---------------------------------------------------------------
<S> <C> <C> <C>
First Quarter 22 18I $0.305
Second Quarter 22L 19I 0.305
Third Quarter 23K 19K 0.305
Fourth Quarter 24J 21 0.310
---------------------------
$ 1.225
---------------------------
Dividends
1995 High Low Paid
- ---------------------------------------------------------------
First Quarter 18G 15I $0.300
Second Quarter 19M 15M 0.300
Third Quarter 19K 16I 0.300
Fourth Quarter 21 18K 0.305
---------------------------
$ 1.205
---------------------------
</TABLE>
Independent Certified Public Accountants
Arthur Andersen LLP
633 West Fifth Street
Los Angeles, CA 90071
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
Attn: McClellan Harris iii
630 East Foothill Boulevard
San Dimas, CA 91773
Phone: (909) 394-3600, extension 705
Fax: (909) 394-0711
Shareholder Assistance
Shareholders with questions about replacement of dividend checks, transferring
stock, replacing lost or stolen certificates or other matters related to their
ownership of stock, should contact:
Chase Mellon Shareholder Services, Inc.
P.O. Box 30609
Los Angeles, CA 90030
(800) 522-6645
http://www.cmssonline.com
1997 Dividend Schedule
The following schedule shows the anticipated Common and Preferred Share record
and payment dates for 1997:
<TABLE>
<CAPTION>
Record Dates Payment Dates
- --------------------------------------------------
<S> <C>
February 10 March 1
May 12 June 1
August 11 September 1
November 17 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 Chase Mellon Shareholder Services.
Internet Address
http://www.scwater.com
<PAGE> 19
Southern California Water Company corporate information
Board of Directors
W. V. Caveney (70, 16) (a,c)
Chairman of the Board
Floyd E. Wicks (53, 7) (c,d)
President, Chief Executive Officer
Jean E. Auer (60, 2) (a,c,d)
Consultant and member of the
Board of Directors of the Water
Education Foundation
Hillsborough, California
R. Bradbury Clark (72, 27) (a,b,c)
Of Counsel to the law firm of O'Melveny & Myers
Los Angeles, California
N. P. Dodge, Jr. (60, 7) (a,b)
President, N.P. Dodge Company
Omaha, Nebraska
Robert F. Kathol (55, 2) (a,b)
Executive Vice President
Kirkpatrick, Pettis, Smith, Polian Inc.
Omaha, Nebraska
Lloyd E. Ross (55, 2) (a,c,d)
Managing Partner, Invermex L.P.
Irvine, California
(a) Member - Compensation Committee
(b) Member - Audit Committee
(c) Member - Business Opportunities Committee
(d) Member - Nominating Committee
Elected Officers
W. V. Caveney (70, 28)
Chairman of the Board
Floyd E. Wicks (53, 9)
President, Chief Executive Officer
Donald K. Saddoris (53, 29)
Vice President - Customer Service, Region I
Thomas J. Bunosky (42, 6)
Vice President - Customer Service, Region II
Joel A. Dickson (44, 6)
Vice President - Customer Service, Region III
James B. Gallagher (42, 9)
Vice President - Finance,
Chief Financial Officer and Secretary
McClellan Harris iii (45, 6)
Vice President and Treasurer
Randell J. Vogel (61, 4)
Vice President - Customer and Operations Support
Joseph F. Young (51, 19)
Vice President - Regulatory Affairs
(age, years of service)
<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 13,
1997 included in the 1996 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, 1996.
We further consent to the incorporation by reference of the
above-mentioned report, 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
Los Angeles, California
March 13, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND INCOME STATEMENTS FOR THE 12 MONTHS ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
(In thousands, except per share data)
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 357,776
<OTHER-PROPERTY-AND-INVEST> 774
<TOTAL-CURRENT-ASSETS> 43,762
<TOTAL-DEFERRED-CHARGES> 28,610
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 430,922
<COMMON> 22,215
<CAPITAL-SURPLUS-PAID-IN> 73,645
<RETAINED-EARNINGS> 50,906
<TOTAL-COMMON-STOCKHOLDERS-EQ> 146,766
480
1,600
<LONG-TERM-DEBT-NET> 107,190
<SHORT-TERM-NOTES> 16,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 62
40
<CAPITAL-LEASE-OBLIGATIONS> 1,014
<LEASES-CURRENT> 380
<OTHER-ITEMS-CAPITAL-AND-LIAB> 157,390
<TOT-CAPITALIZATION-AND-LIAB> 430,922
<GROSS-OPERATING-REVENUE> 151,529
<INCOME-TAX-EXPENSE> 10,283
<OTHER-OPERATING-EXPENSES> 117,817
<TOTAL-OPERATING-EXPENSES> 128,100
<OPERATING-INCOME-LOSS> 23,429
<OTHER-INCOME-NET> 531
<INCOME-BEFORE-INTEREST-EXPEN> 23,960
<TOTAL-INTEREST-EXPENSE> 10,500
<NET-INCOME> 13,460
94
<EARNINGS-AVAILABLE-FOR-COMM> 13,366
<COMMON-STOCK-DIVIDENDS> 9,670
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 31,297
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
</TABLE>
