<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended SEPTEMBER 30, 1997 Commission file number 0-1121
SOUTHERN CALIFORNIA WATER COMPANY
(Exact Name of Registrant as specified in its charter)
CALIFORNIA 95-1243678
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 EAST FOOTHILL BOULEVARD, SAN DIMAS, CALIFORNIA 91773
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (909) 394-3600
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 31, 1997, the number of shares outstanding
of the Registrant's Common Shares, Par Value $2.50,
was 8,957,671.
<PAGE> 2
SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1: Financial Statements 1
Balance Sheets as of September 30, 1997 and December 31, 1996 2 - 3
Statements of Income for the Three Months Ended
September 30, 1997 and September 30, 1996 4
Statements of Income for the Nine Months Ended
September 30, 1997 and September 30, 1996 5
Statements of Income for the Twelve Months Ended
September 30, 1997 and September 30, 1996 6
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and September 30, 1996 7
Notes to Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operation 9 - 18
PART II OTHER INFORMATION
Item 1: Legal Proceedings 18 - 19
Item 2: Changes in Securities 19
Item 3: Defaults Upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 5: Other Information 20
Item 6: Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
The basic financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included
in financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such rules and
regulations, although the Registrant believes that the disclosures are adequate
to make the information presented not misleading. In the opinion of management,
all adjustments necessary for a fair statement of results for the interim period
have been made.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto in the Registrant's
latest Annual Report on Form 10-K.
1
<PAGE> 4
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
(Unaudited)
(in thousands)
<S> <C> <C>
UTILITY PLANT, at cost
Water ................................ $ 424,415 $ 411,852
Electric ............................. 34,634 33,300
--------- ---------
459,049 445,152
Less - Accumulated depreciation ....... (123,107) (114,086)
--------- ---------
335,942 331,066
Construction work in progress ......... 38,364 26,710
--------- ---------
374,306 357,776
--------- ---------
OTHER PROPERTY AND INVESTMENTS .......... 1,470 774
--------- ---------
CURRENT ASSETS
Cash and cash equivalents ............. 2,881 3,783
Accounts receivable -
Customers, less reserves of $194
in 1997 and $387 in 1996 .......... 10,727 7,870
Other ................................. 2,344 1,713
Unbilled revenue ...................... 11,838 12,596
Materials and supplies, at average cost 1,450 1,292
Supply cost balancing accounts ........ 4,248 6,273
Prepayments and other ................. 7,006 6,933
Accumulated deferred income taxes - net 4,599 3,302
--------- ---------
45,093 43,762
--------- ---------
Regulatory tax-related assets ........... 22,632 23,201
Other deferred charges .................. 4,899 5,409
--------- ---------
27,531 28,610
--------- ---------
$ 448,400 $ 430,922
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------- ---------
(Unaudited)
(in thousands)
<S> <C> <C>
CAPITALIZATION
Common shareholders' equity ........... $150,275 $146,766
Preferred shares ...................... 1,600 1,600
Preferred shares subject to mandatory
redemption requirements ............. 480 480
Long-term debt ........................ 113,514 107,190
-------- --------
265,869 256,036
-------- --------
CURRENT LIABILITIES
Notes payable to banks ................ 19,000 16,000
Long-term debt and preferred shares
due within one year ................. 191 482
Accounts payable ...................... 10,983 12,865
Taxes payable ......................... 11,152 5,777
Accrued interest ...................... 2,407 1,772
Other accrued liabilities ............. 8,195 7,792
-------- --------
51,928 44,688
-------- --------
OTHER CREDITS
Advances for construction ............. 54,677 55,848
Contributions in aid of construction .. 28,317 28,158
Accumulated deferred income taxes - net 42,034 40,404
Unamortized investment tax credits .... 1,962 1,995
Regulatory tax-related liability ...... 3,269 3,337
Other ................................. 344 456
-------- --------
130,603 130,198
-------- --------
$448,400 $430,922
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
-------- --------
(in thousands, except per
share amounts)
<S> <C> <C>
OPERATING REVENUES
Water ..................................... $ 42,494 $ 42,362
Electric .................................. 3,206 2,856
-------- --------
45,700 45,218
-------- --------
OPERATING EXPENSES
Water purchased ......................... 13,300 12,169
Power purchased for pumping ............. 2,446 2,286
Power purchased for resale .............. 1,357 1,296
Groundwater production assessment ....... 1,800 1,646
Supply cost balancing accounts .......... 160 989
Other operating expenses ................ 2,896 3,759
Administrative and general expenses ..... 5,458 4,819
Depreciation ............................ 2,739 2,526
Maintenance ............................. 1,651 1,822
Taxes on income ......................... 3,912 4,229
Other taxes ............................. 1,596 1,714
-------- --------
37,315 37,255
-------- --------
Operating income ........................ 8,385 7,963
OTHER INCOME ................................ 197 68
-------- --------
Income before interest charges .......... 8,582 8,031
INTEREST CHARGES ............................ 2,538 2,621
-------- --------
NET INCOME .................................. 6,044 5,410
DIVIDENDS ON PREFERRED SHARES ............... (23) (24)
-------- --------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS .. $ 6,021 $ 5,386
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 8,958 7,864
======== ========
Earnings Per Common Share ................... $ 0.67 $ 0.68
======== ========
Dividends Declared Per Common Share ......... $ 0.31 $ 0.305
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
STATEMENTS OF INCOME
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996
--------- ---------
(in thousands, except per
share amounts)
<S> <C> <C>
OPERATING REVENUES
Water ..................................... $ 107,976 $ 106,866
Electric .................................. 9,273 8,642
--------- ---------
117,249 115,508
--------- ---------
OPERATING EXPENSES
Water purchased ......................... 30,897 29,287
Power purchased for pumping ............. 5,452 5,531
Power purchased for resale .............. 3,651 3,951
Groundwater production assessment ....... 5,382 4,532
Supply cost balancing accounts .......... 2,841 2,616
Other operating expenses ................ 9,698 10,075
Administrative and general expenses ..... 16,238 14,595
Depreciation ............................ 8,217 7,577
Maintenance ............................. 5,448 4,966
Taxes on income ......................... 7,215 8,771
Other taxes ............................. 4,714 4,450
--------- ---------
99,753 96,351
--------- ---------
Operating income ........................ 17,496 19,157
OTHER INCOME ................................ 457 316
--------- ---------
Income before interest charges .......... 17,953 19,473
INTEREST CHARGES ............................ 7,516 7,795
--------- ---------
NET INCOME .................................. 10,437 11,678
DIVIDENDS ON PREFERRED SHARES ............... (69) (71)
--------- ---------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS .. $ 10,368 $ 11,607
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 8,957 7,853
========= =========
Earnings Per Common Share ................... $ 1.16 $ 1.48
========= =========
Dividends Declared Per Common Share ......... $ 0.93 $ 0.915
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996
--------- ---------
(in thousands, except per
share amounts)
<S> <C> <C>
OPERATING REVENUES
Water ..................................... $ 141,108 $ 136,930
Electric .................................. 12,163 11,509
--------- ---------
153,271 148,439
--------- ---------
OPERATING EXPENSES
Water purchased ......................... 39,966 37,857
Power purchased for pumping ............. 7,632 7,845
Power purchased for resale .............. 5,525 5,485
Groundwater production assessment ....... 6,796 6,010
Supply cost balancing accounts .......... 2,289 1,517
Other operating expenses ................ 13,018 14,207
Administrative and general expenses ..... 22,191 18,365
Depreciation ............................ 10,743 9,690
Maintenance ............................. 8,226 6,284
Taxes on income ......................... 8,728 10,928
Other taxes ............................. 6,363 5,922
--------- ---------
131,477 124,110
--------- ---------
Operating income ........................ 21,794 24,329
OTHER INCOME ................................ 675 463
--------- ---------
Income before interest charges .......... 22,469 24,792
INTEREST CHARGES ............................ 10,220 10,383
--------- ---------
NET INCOME .................................. 12,249 14,409
DIVIDENDS ON PREFERRED SHARES ............... (92) (95)
--------- ---------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS .. $ 12,157 $ 14,314
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 8,720 7,851
========= =========
Earnings Per Common Share ................... $ 1.39 $ 1.82
========= =========
Dividends Declared Per Common Share ......... $ 1.24 $ 1.22
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 9
SOUTHERN CALIFORNIA WATER COMPANY
CASH FLOW STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
-------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM Operating Activities:
Net income ....................................... $ 10,437 $ 11,678
Adjustments for non-cash items:
Depreciation and amortization ................... 8,535 7,796
Deferred income taxes and
investment tax credits ......................... 800 (710)
Other - net ..................................... (881) 231
Changes in assets and liabilities:
Customer Receivables ............................ (2,857) (2,779)
Prepayments ..................................... (73) 393
Supply cost balancing accounts .................. 2,025 2,366
Accounts payable ................................ (1,882) 5,295
Taxes payable ................................... 5,375 4,059
Unbilled revenue ................................ 758 (2,888)
Accrued interest ................................ 635 249
Other ........................................... (387) (922)
-------- --------
Net Cash Provided ........................... 22,485 24,768
-------- --------
Investing Activities:
Construction expenditures ......................... (23,385) (21,111)
-------- --------
Net Cash Used ................................. (23,385) (21,111)
-------- --------
Financing Activities:
Issuance of securities ............................ 7,637 732
Receipt of advances and contributions ............. 826 2,334
Repayments of long-term debt and
redemption of preferred shares .................. (132) (15,377)
Refunds on advances ............................... (2,928) (2,603)
Net change in notes payable to banks .............. 3,000 25,500
Common and preferred dividends paid ............... (8,405) (7,279)
-------- --------
Net Cash Provided ........................... (2) 3,307
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (902) 6,964
Cash and Cash Equivalents, Beginning of period ..... 3,783 343
-------- --------
Cash and Cash Equivalents, End of period ........... $ 2,881 $ 7,307
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 10
SOUTHERN CALIFORNIA WATER COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. For a summary of significant accounting policies and other information
relating to these interim financial statements, reference is made to
pages 28 through 32 of the 1996 Annual Report to Shareholders under the
caption "Notes to Financial Statements."
2. Earnings per Common Share are based on the weighted average number of
Common Shares outstanding during each period and net income after
deducting preferred dividend requirements.
3. In November, 1996, Registrant filed an application with the California
Public Utilities Commission ("CPUC") seeking approval of its recovery
through rates of costs associated with its participation in the Coastal
Aqueduct Extension of the State Water Project ("SWP"). Registrant's
current investment in SWP is approximately $1.8 million and is included
in utility plant. Registrant is investigating alternative methods to
recover its investment in the SWP including, but not limited to, an
equivalent dwelling unit charge or other measurable unit for each new
hookup to Registrant's water systems. This recovery method also requires
CPUC approval and no assurance can be given that the CPUC will deny or
approve recovery through rates of all or any costs associated with such
participation.
4. Registrant implemented increased water rates in six of its rate-making
districts on January 1, 1996 and additional step increases were effective
in January, 1997. Water rates in two additional customer service areas
were increased on January 1, 1997, to recover costs associated with
capital projects in those areas. Registrant filed Notices of Intent to
increase water rates in three rate-making districts in January, 1997.
Registrant has received CPUC staff reports and is currently reviewing the
staff's position. 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. See the section entitled "Rates and
Regulation" for more information.
5. As permitted by the CPUC, Registrant maintains water and electric supply
cost balancing accounts to account for undercollections and
overcollections of revenues designed to recover such costs.
Recoverability of such costs are recorded in income and charged to
balancing accounts when such costs are incurred. The balancing accounts
are credited when such costs are recovered through rate adjustments.
6. In February, 1997, the Financial Accounting standards Board issued SFAS
No. 128, "Earnings per Share." This statement, which is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods, establishes simplified standards for computing
and presenting earnings per share ("EPS"). SFAS No. 128 requires dual
presentation of basic and diluted EPS on the face on the income statement
for entities with complex capital structures and disclosure of the
calculation of each EPS amount. Registrant does not anticipate that
adoption of SFAS No. 128 will have a significant impact on reported
earnings.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL
Southern California Water Company (the "Registrant") is a public
utility company engaged principally in the purchase, production, distribution
and sale of water (SIC No. 4941). The Registrant also distributes electricity in
one community (SIC No. 4911). The Registrant, regulated by the California Public
Utilities Commission ("CPUC"), was incorporated on December 31, 1929 under the
laws of the State of California as American States Water Services Company of
California as the result of the consolidation of 20 water utility companies.
From time to time, additional water companies and municipal water districts have
been acquired and properties in limited service areas have been sold. The
Registrant's present name was adopted in 1936.
The Registrant is organized into three regions operating within
75 communities in 10 counties throughout the State of California and provides
water service in 21 customer service areas. As of September 30, 1997, about 73%
of the Registrant's water customers were located in the greater metropolitan
areas of Los Angeles and Orange Counties. The Registrant also provides electric
service to the City of Big Bear Lake and surrounding areas in San Bernardino
County. The Registrant served 241,338 water customers and 20,591 electric
customers at September 30, 1997, or a total of 261,929 customers compared with
260,435 total customers served at September 30, 1996.
RESULTS OF OPERATION
Earnings per common share for the three months ended September
30, 1997 decreased by 1.5% to $0.67 per share as compared to $0.68 per share for
the comparable period last year. For the nine months ended September 30, 1997,
earnings per share were $1.16 as compared to $1.48 for the nine months ended
September 30, 1996, a decrease of 21.6%. Earnings for the twelve months ended
September 30, 1997 decreased by 23.6% to $1.39 per share as compared to $1.82
per share for the twelve months ended September 30, 1996. The decline in
recorded results is primarily attributable to increased supply costs during the
first and second quarters of 1997 as well as two months of the third quarter of
1997 as is more fully discussed below. Although Registrant anticipates
increasing the amount of pumped water in its resource mix during the last
quarter of 1997, earnings levels are anticipated to remain well below those
reported last year.
For the three months ended September 30, 1997, water operating
revenues increased slightly by 0.3% as compared to the three months ended
September 30, 1996. In contrast, water operating revenues increased by 1.0% and
3.1% for the nine and twelve months ended September 30, 1997 as compared to the
same periods last year due to increases of 3.4% and 1.3%, respectively, in water
sales volumes and rate increases during the period.
Kilowatt-hour sales of electricity increased by 3.4% and 1.1%
for the nine and twelve months ended September 30, 1997, respectively, as
compared to the same periods last year. Sales were unchanged for the three
months ended September 30, 1997 as compared to last year. As a result of
increased kilowatt-hour sales volumes and increased rates which were effective
in January 1, 1997, electric operating revenues for the three, nine and twelve
month periods ending September 30, 1997 increased by 12.3%, 7.3% and 5.7%,
respectively, over the comparable periods ending September 30, 1996.
9
<PAGE> 12
Purchased water costs increased by 9.3%, 5.5% and 5.6% over
1996, respectively, for the three, nine and twelve months ended September 30,
1997 reflecting increased amounts of purchased water in Registrant's resource
mix. Each of the comparisons are affected by refunds received by Registrant from
the MWD, which totaled approximately $1.984 million in the aggregate, and which
reduced recorded purchased water costs for the 1997 periods.
Costs of power purchased for pumping decreased by 1.4% and 2.7%,
respectively, for the nine and twelve months ended September 30, 1997 as
compared to the same periods ended September 30, 1996 due to reduced amounts of
water produced from pumped sources in Registrant's resource mix. In contrast,
due to Registrant's increased production of water from pumped sources in the
three months ended September 30, 1997, the costs of power purchased for pumping
increased by 7.0% as compared to the same period ended September 30, 1996.
As compared to the three and twelve months ended September 30,
1996, the costs of power purchased for resale increased by 4.7% and 0.7% for the
three and twelve months ended September 30, 1997, respectively, due to increased
kilowatt-hour sales. The increase in sales volumes was partially offset by
reduced costs from Registrant's energy supplier as compared to the same periods
last year. For the nine months ended September 30, 1997, the cost of power
purchased for resale decreased by 7.6% from the same period last year reflecting
savings from Registrant's energy supplier.
Groundwater production assessments are 9.4%, 18.8% and 13.1%
higher for the three, nine and twelve months ended September 30, 1997 as
compared to the same periods ended September 30, 1996 due to additional
assessment associated with increased pumping in Registrant's San Gabriel Valley
and San Dimas customer service areas which are recoverable through the balancing
account.
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 entries for the three, six and twelve months ended September 30, 1997
result 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 groundwater production assessments. The balancing
account mechanism insulates earnings from changes in costs of purchased water,
power purchased for pumping or resale and groundwater production assessments,
all of which are outside the immediate control of Registrant. However, the
balancing account mechanism is not designed to insulate earnings against changes
in supply mix, as occurred during the first and second quarters of 1997 and a
portion of the third quarter of 1997 as well. See the section entitled "Water
Supply."
Other operating expenses decreased by 23%, 3.7% and 8.4%,
respectively, for the three, nine and twelve months ended September 30, 1997 as
compared to the same periods ended September 30, 1996 due chiefly to reversals
associated with recovery of water quality costs through the CPUC's memorandum
account mechanism.
Administrative and general expenses increased by 13.3%, 11.3%
and 20.8% for the three, nine and twelve months ended September 30, 1997,
respectively, as compared to the same periods ended September 30, 1996. These
periods are each affected by an increases in labor costs, due to persons
charging some or all of their time to this category, as well as higher
personnel-related expenses such as health insurance, post-retirement medical
benefits, pension and 401-k plan costs.
10
<PAGE> 13
Depreciation expense increased by 8.4%, 8.4% and 10.9%,
respectively, for the three, nine and twelve months ended September 30, 1997
principally reflecting the effects of recording approximately $31 million in net
plant additions during 1996, depreciation on which began in 1997.
Taxes on income decreased by approximately 7.5%, 17.7% and
20.2%, respectively, for the three, nine and twelve months ended September 30,
1997 as compared to the same periods ended September 30, 1996 as a result of
lower pre-tax income.
For the nine and twelve months ended September 30, 1997, other
taxes increased by 5.9% and 7.4%, respectively, as compared to the same periods
ending September 30, 1996 primarily due to increased property taxes resulting
from higher valuation assessments. For the three months ended September 30,
1997, other taxes decreased by 6.9%, attributable to an increase in property tax
accruals during the last half of 1996 for which there is no corresponding
increase in 1997.
Maintenance expense increased by 9.7% and 30.9% for the nine and
twelve months ended September 30, 1997 as compared to the nine and twelve months
ended September 30, 1996 reflecting increased maintenance on wells, hydrants and
gate valves. For the three months ended September 30, 1997, maintenance expense
decreased by 9.4% since most planned maintenance was conducted in the first half
of 1997.
Interest expense for the nine and twelve months ended September
30, 1997 decreased by 3.2%, 3.6% and 1.6% over the same period last year
primarily due to reduced short-term bank borrowing during 1997.
LIQUIDITY AND CAPITAL RESOURCES
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 $34.2 million in
1997.
Registrant funds the majority of its operating expenses,
interest payments on its debt, dividends on its outstanding common and preferred
shares and makes its mandatory sinking fund payments through internal sources.
However, because of the seasonal nature of its water and electric businesses,
Registrant utilizes its short-term borrowing capacity on occasion to finance
current operating expenses.
Registrant continues to rely on external sources, including
short-term bank borrowing, the receipt of contributions-in-aid-of-construction
and advances for construction and install-and-convey advances, to fund the
majority of its construction expenditures. The aggregate short-term borrowing
capacity available to Registrant under its three bank lines of credit was $37
million as of September 30, 1997. As of September 30, 1997, Registrant had a
total of $19 million in borrowing outstanding under those bank lines of credit.
Registrant routinely employs short-term bank borrowing as an interim financing
source prior to executing either a long-term debt or equity issue. Registrant
anticipates issuing additional long-term debt in 1997, with the net proceeds
initially being used to repay short-term bank borrowings and, after that, fund
construction expenditures.
11
<PAGE> 14
Registrant has no derivative financial instruments, financial
instruments with significant off-balance sheet risks or financial instruments
with concentrations of credit risk.
WATER SUPPLY
For the three months ended September 30, 1997, Registrant
produced a total of 27,655,000 ccf of water. Of this amount, approximately 50%
came from pumped sources and 46% was purchased from others, principally the
Metropolitan Water District of Southern California ("MWD"). The remaining amount
was supplied by the Bureau of Reclamation (the "Bureau") under a no-cost
contract. During the three months ended September 30, 1996, Registrant produced
27,399,000 ccf of water, 54% of which came from pumped sources, 43% was
purchased and the remainder was supplied by the Bureau.
For the nine months ended September 30, 1997, Registrant
produced 68,112,000 ccf of water, 53% of which came from pumped sources, 45% was
purchased and the remaining amount was supplied by the Bureau. During the nine
months ended September 30, 1996, Registrant produced 65,786,000 ccf of water. Of
this amount, 57% came from pumped sources, 42% was purchased and the remainder
was provided by the Bureau.
During the twelve months ended September 30, 1997, Registrant
produced 86,893,000 ccf of water, 53% of which came from pumped sources, 45% was
purchased and the remaining amount was supplied by the Bureau. During the twelve
months ended September 30, 1996, Registrant produced 85,077,000 ccf of water,
57% of which came from pumped sources, 42% was purchased and the remainder came
from the Bureau.
The MWD is a water district organized under the laws of the
State of California for the purpose of delivering imported water to areas within
its jurisdiction. The Registrant has 52 connections to the water distribution
facilities of MWD and other municipal water agencies. MWD imports water from two
principal sources: the Colorado River and the State Water Project ("SWP").
Available water supplies from the Colorado River and the SWP have historically
been sufficient to meet most of MWD's requirements and MWD's supplies from these
sources are anticipated to continue to remain adequate through 1996. MWD's
import of water from the Colorado River is expected to decrease in future years
due to the requirements of the Central Arizona Project in the State of Arizona.
In response, MWD has taken a number of steps to secure additional storage
capacity and increase available water supplies, including effecting transfers of
water rights from other sources.
The 1996-1997 water year ended September 30, 1997 and was
labeled a "wet one" by the California Department of Water Resources, the state
agency which maintains and operates the State Water Project. Rainfall during the
water year was 120 percent of average, with runoff 145 percent of average which
kept storage reservoirs just above average through the summer and fall. The
outlook for water supply in 1998 remains favorable. In those customer service
areas of Registrant which pump groundwater, overall groundwater conditions
remain at adequate levels. However, certain of Registrant's groundwater supplies
have been affected to varying degrees by various forms of contamination which,
in some cases, has caused Registrant to utilize increasingly more purchased
water in its resource mix. Registrant believes that its available water supplies
from all sources are adequate to meet current year projected demand.
Hydrologists are cautious in making any predictions about the
effects of the "El Nino" weather pattern since weather patterns in the state of
California are generally unpredictable and the El Nino weather patterns do not
always repeat themselves. For example, the El Nino condition in 1982-1983
12
<PAGE> 15
produced one of the wettest winters this century, whereas the El Nino that
occurred in 1976 produced very wet conditions in August 1976 but the remainder
of the year, until April 1977, was well below normal in precipitation.
Registrant believes that, to the extent the El Nino weather pattern brings above
normal precipitation thereby reducing sales volumes, its revenues and earnings
may be negatively impacted.
ENVIRONMENTAL MATTERS
1996 Amendments to Federal Safe Drinking Water Act
On August 6, 1996, amendments (the "1996 SDWA amendments") to the
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 ("EPA") has been trying to implement for almost ten 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 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 regulations,
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
("MCL's"), 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, currently 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.
13
<PAGE> 16
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
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 EPA's Information Collection Rule, which
requires such water suppliers to monitor 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,
Registrant 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 the 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 use
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, Registrant does not believe that such regulations will impose significant
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. Although EPA originally had 180 days after enactment of the 1996
SDWA amendments to develop a plan to study ways to reduce arsenic health risk
uncertainties and was authorized to enter into cooperative agreements to carry
out the study, the studies are still being conducted. Depending on the MCL
eventually established for arsenic, compliance could cause 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.
14
<PAGE> 17
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 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.
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 tricholoroethylene. GenCorp
Aerojet has, by court decree, been responsible for all costs related to the
provision of well-head treatment. Although the ten-year agreement with Aerojet
Corporation expired in 1996, Aerojet Corporation has agreed to reimburse
Registrant for the continuing costs, if any, associated with well-head treatment
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. Registrant has taken the three wells detected
with ammonium perchlorate out of service. Although neither the EPA nor the DOHS
has established a drinking water standard for ammonium perchlorate, DOHS has
established an action level of 18 ppb which requires Registrant to notify
customers in its Arden-Cordova customer service area of detection of ammonium
perchlorate in amounts in excess of this action level. In April, 1997,
Registrant found ammonium perchlorate in three additional wells and had removed
those wells from service until it was determined that the levels were safe.
Registrant has been able, pursuant to establishment by DOHS of an interim MCL
for perchlorate, to return the three wells to service. Registrant provides
continual monitoring of these wells to ensure that levels of perchlorate are
below the action level currently in effect. GenCorp Aerojet has agreed to
reimburse Registrant for all necessary and reasonable activities in the
construction of a pipeline to for interconnection of the Folsom City and
Arden-Cordova water systems to provide an alternative source(s) of water supply
in Registrant's Arden-Cordova customer service area.
15
<PAGE> 18
Registrant and GenCorp Aerojet are in negotiations on other
matters related to procedures to address cleanup of the contaminated wells,
costs associated with the cleanup, costs associated with increased costs of
purchased water as compared to pumped sources and costs associated with new
sources of groundwater supply. 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 lies 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
October, 1996 to help in efforts to avoid further spread of the MTBE
contamination plume. Neither of these 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 Registrant 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 Registrant 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
customer service area.
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.
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
16
<PAGE> 19
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.
Registrant filed notices of intent to increase water rates in
four ratemaking districts in January, 1997 although only three applications were
actually filed. Registrant has received CPUC staff reports on the three pending
applications and believes that a settlement agreement on all issues related
thereto has been reached. Since the settlement agreement has yet to be signed by
all parties, Registrant is unable to predict whether the CPUC will authorize all
or any of the proposed increases, although it is not anticipated that new rates,
if approved, would be effective before January, 1998.
In November, 1996, Registrant filed an application with the CPUC
seeking recovery through rates of $1.8 million in costs associated with its
participation the coastal aqueduct extension of the State Water Project ("SWP").
Registrant is also pursuing alternative forms of recovery of its investment in
SWP including assessment of costs to new construction based on an equivalent
dwelling unit charge or other applicable unit of measurement, which assessment
will require CPUC approval. 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. See Notes to Financial Statements for more
information.
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.
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. There
can be no assurance that such 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.
ACCOUNTING STANDARD
In February, 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share." This statement, which is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods, establishes simplified standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 requires dual presentation
of basic and diluted EPS on the face on the income statement for entities with
complex capital structures and disclosure of the calculation of each EPS amount.
Registrant does not anticipate that adoption of SFAS No. 128 will have a
significant impact on reported earnings.
17
<PAGE> 20
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 Registrant "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe Registrant'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 other circumstance affecting anticipated revenues and costs.
PART II
ITEM 1. LEGAL PROCEEDINGS
On April 24, 1997, a complaint in multiple counts seeking
recovery for negligence, wrongful death, strict liability, trespass, public
nuisance, private nuisance, negligence per se, strict liability for
ultrahazardous activities and fraudulent concealment was filed in Los Angeles
Superior Court on behalf of approximately 145 plaintiffs (the "Adler matter").
After preliminary Demurrers and Motions to Strike, these same plaintiffs filed a
First Amended Complaint on or about October 16, 1997 seeking recovery on
essentially the same theories. Plaintiffs allege that they are, and at all
relevant times were, (1) customers of Registrant, (2) that Registrant has
provided and continues to provide them with allegedly contaminated water from
wells located in an area of the San Gabriel Valley that has been designated a
federal environmental (USEPA) superfund site, and (3) the maintenance of this
contaminated well water has resulted in contamination of the soil, subsurface
soil, and surrounding air, with trichloroethylene, perchloroethene, carbon
tetrachloride and other solvents. Plaintiffs further allege that Registrant's
actions have caused, and continue to cause, injuries to the plaintiffs' person,
personal property and financial interests in unspecified amounts. Plaintiffs
seek damages, including general, special, and punitive damages, according to
proof at trial, as well as attorney's fees on certain causes of action, costs of
suit, and other unspecified relief. Registrant was initially served with the
original Complaint on June 3, 1997.
On July 31, 1997, Registrant's Motion for A Change of Venue for
this matter from Downtown Los Angeles to Pasadena, California was granted. On
October 1, 1997, Registrant's Demurrers and Motions to Strike were granted in
part and denied in part, resulting in the filing of the Plaintiff's First
Amended Complaint on October 16, 1997. Registrant filed its second Demurrer and
Motion to Strike on November 4, 1997 and a hearing is scheduled for December 12,
1997. Registrant is unable to predict the outcome of any hearing on the First
Amended Complaint and other Motions.
Registrant has provided water service in portions of the San
Gabriel Valley for over 60 years along with over 30 other water purveyors.
Portions of the San Gabriel Valley have been designated a USEPA superfund site.
Registrant is not a potentially responsible party with respect to contamination
of the site or sites in the San Gabriel Valley which have been designated as
superfund sites. Registrant has commenced and is continuing a review and
evaluation of plaintiff's claims and its insurance coverage for these potential
liabilities allegedly arising over the past 30 years. In light of the breadth of
plaintiff's
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<PAGE> 21
claims, the lack of factual information regarding plaintiff's claims and
injuries, if any, the fact that no discovery has yet been completed, Registrant
is unable to determine at this time what, if any, potential liability it may
have with respect to these claims.
Registrant was served on November 3, 1997 as Doe I in the matter
of Santamaria v. Suburban Water Systems. The complaint makes claims based on
Negligence, Strict Liability, Trespass, Nuisance, Negligence per se, Absolute
Liability for Ultrahazardous Activity and Fraudulent Concealment. The complaint
makes allegations that Registrant sold, but did not create, contaminated water
to certain of the 379 individual plaintiffs claiming personal injury and
property damage. In addition, there are 10 wrongful death claims with 19
wrongful death plaintiffs. The complaint encompasses a geographical area which
includes, as far as can be ascertained, little of Registrant's systems. The
complaint differs from the Adler matter in that the plaintiffs have also named
Suburban Water Systems, Southwest Water Co., Covina Irrigating Co., California
Domestic Water Company, San Gabriel Valley Water Company, and certain of the
potential responsible parties in the Superfund Site effecting this area.
Plaintiff's attorneys have apparently not yet made a decision as to whether they
will serve the potentially responsible parties and no defendant has appeared in
this action yet. Registrant is in the very early stages of investigating this
matter.
Registrant is also subject to ordinary routine litigation
incidental to its business. Other than as disclosed above, no legal proceedings
are pending, except such incidental litigation, to which Registrant is a party
or of which any of its properties is the subject which are believed to be
material.
ITEM 2. CHANGES IN SECURITIES
As of September 30, 1997, earned surplus amounted to
$52,944,000. Of this amount, $27,466,000 was restricted, under the most
restrictive of the Registrant's credit agreements, as to payment of cash
dividends on the Common Shares of the Registrant.
As of June 30, 1997, authorized but unissued Common Shares
includes 89,226 and 71,408 Common Shares reserved for issuance under
Registrant's Dividend Reinvestment and Common Share Purchase Program and
Investment Incentive Program ("401-k"), respectively. Common Shares reserved for
the 401-k Plan are in relation to the matching contributions by Registrant and
for investment purposes by participants.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the third quarter of the fiscal
year covered by this report to a vote of security holders through the
solicitation of proxies or otherwise.
19
<PAGE> 22
ITEM 5. OTHER INFORMATION
On October 27, 1997, the Board of Directors of Registrant
declared a regular quarterly dividend of $0.315 per common share, an increase of
1.6%. In other actions, the Board of Directors declared regular quarterly
dividends of $0.25 per share, $0.265625 per share and $0.3125 per share on its
4%, 4-1/4% and 5% Cumulative Preferred Shares, respectively. The dividends will
be paid December 1, 1997 to shareholders of record as of the close of business
on November 17, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer and chief financial officer.
SOUTHERN CALIFORNIA WATER COMPANY
By : s/ McCLELLAN HARRIS III .
--------------------------------
McClellan Harris III
Vice President - Finance,
Chief Financial Officer and
Corporate Secretary
Date: November 12, 1997
21
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
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