<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 THE QUARTERLY PERIOD ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
COMMISSION REGISTRANT AND STATE OF INCORPORATION IRS EMPLOYER
FILE NO. ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
- ------------------ ---------------------------------------------- ---------------------
<S> <C> <C>
333-47647 American States Water Company 95-4676679
(A California Corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600
000-01121 Southern California Water Company 95-1243678
(A California Corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600
</TABLE>
Indicate by check mark whether 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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
American States Water Company Yes [x] No [ ]
Southern California Water Company Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 5, 2000, the number of Common Shares outstanding, No Par Value
with Stated Value of $2.50, of American States Water Company was 8,957,671,
all of which are listed on the New York Stock Exchange.
As of May 5, 2000, all of the 100 outstanding Common Shares of Southern
California Water Company are owned by American States Water Company.
<PAGE> 2
AMERICAN STATES WATER COMPANY
AND
SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1: Financial Statements 1
Consolidated Balance Sheets of American States Water Company as of
March 31, 2000 and December 31, 1999 2 - 3
Consolidated Statements of Income of American States Water Company for
the Three Months Ended March 31, 2000 and March 31, 1999 4
Consolidated Statements of Income of American States Water Company for
the Twelve Months Ended March 31, 2000 and March 31, 1999 5
Consolidated Statements of Cash Flow of American States Water Company for
the Three Months Ended March 31, 2000 and March 31, 1999 6
Consolidated Balance Sheets of Southern California Water Company as of
March 31, 2000 and December 31, 1999 7 - 8
Consolidated Statements of Income of Southern California Water Company for
the Three Months Ended March 31, 2000 and March 31, 1999 9
Consolidated Statements of Income of Southern California Water Company for
the Twelve Months Ended March 31, 2000 and March 31, 1999 10
Consolidated Statements of Cash Flow of Southern California Water Company for
the Three Months Ended March 31, 2000 and March 31, 1999 11
Notes to Financial Statements 12 - 14
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operation 15 - 29
Item 3: Quantitative and Qualitative Disclosures About Market Risks 29
PART II OTHER INFORMATION
Item 1: Legal Proceedings 29 - 31
Item 2: Changes in Securities 31
Item 3: Defaults Upon Senior Securities 31
Item 4: Submission of Matters to a Vote of Security Holders 31 - 32
Item 5: Other Information 32
Item 6: Exhibits and Reports on Form 8-K 32
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
General
The basic financial statements included herein have been
prepared by 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 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 latest Annual
Report on Form 10-K of American States Water Company.
Filing Format
This quarterly report on Form 10-Q is a combined report being
filed by two separate Registrants: American States Water Company (hereinafter
"AWR") and Southern California Water Company (hereinafter "SCW"). For more
information, please see Note 1 to the Notes to Financial Statements and the
heading entitled General in Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operation. References in this report to
"Registrant" are to AWR and SCW, collectively unless otherwise specified. SCW
makes no representations as to the information contained in this report relating
to AWR and its subsidiaries, other than SCW.
1
<PAGE> 4
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
UTILITY PLANT, at cost (in thousands)
<S> <C> <C>
Water ...................................... $ 537,558 $ 532,007
Electric ................................... 36,349 36,349
--------- ---------
573,907 568,356
Less - Accumulated depreciation ............ (156,000) (151,733)
--------- ---------
417,907 416,623
Construction work in progress .............. 37,736 32,972
--------- ---------
455,643 449,595
--------- ---------
OTHER PROPERTY AND INVESTMENTS ............... 11,486 10,583
--------- ---------
CURRENT ASSETS
Cash and cash equivalents .................. 1,994 2,189
Accounts receivable -
Customers, less reserves of $575
in 2000 and $487 in 1999 ............... 7,054 10,135
Other .................................... 5,051 4,347
Unbilled revenue ........................... 10,113 11,345
Materials and supplies, at average cost .... 1,165 1,153
Supply cost balancing accounts ............. 5,840 4,774
Prepayments and other ...................... 4,571 4,851
Accumulated deferred income taxes - net .... 6,169 5,546
--------- ---------
41,957 44,340
--------- ---------
DEFERRED CHARGES
Regulatory tax-related assets .............. 19,550 19,941
Other deferred charges ..................... 9,228 8,722
--------- ---------
28,778 28,663
--------- ---------
$ 537,864 $ 533,181
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
2
<PAGE> 5
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CAPITALIZATION
Common shareholders' equity ................ $158,852 $158,846
Preferred shares ........................... 1,600 1,600
Preferred shares subject to mandatory
redemption requirements .................. 360 360
Long-term debt ............................. 167,332 167,363
-------- --------
328,144 328,169
-------- --------
CURRENT LIABILITIES
Notes payable to banks ..................... 25,000 21,000
Long-term debt and preferred shares
due within one year ...................... 340 340
Accounts payable ........................... 9,594 13,777
Taxes payable .............................. 7,611 5,432
Accrued interest ........................... 3,388 1,584
Other accrued liabilities .................. 11,857 12,832
-------- --------
57,790 54,965
-------- --------
OTHER CREDITS
Advances for construction .................. 58,801 57,485
Contributions in aid of construction ....... 39,145 38,895
Accumulated deferred income taxes - net .... 48,694 48,302
Unamortized investment tax credits ......... 3,042 3,064
Regulatory tax-related liability ........... 1,850 1,861
Other ...................................... 398 440
-------- --------
151,930 150,047
-------- --------
$537,864 $533,181
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
---------------------
2000 1999
------- -------
(in thousands, except
per share amounts)
<S> <C> <C>
OPERATING REVENUES
Water ........................................ $34,587 $32,213
Electric ..................................... 4,011 3,873
Other ........................................ 151 46
------- -------
38,749 36,132
------- -------
OPERATING EXPENSES
Water purchased .............................. 7,555 6,948
Power purchased for pumping .................. 1,461 1,442
Power purchased for resale ................... 1,975 1,191
Groundwater production assessment ............ 2,253 1,710
Supply cost balancing accounts ............... (1,067) (474)
Other operating expenses ..................... 3,887 3,538
Administrative and general expenses .......... 5,913 6,384
Depreciation ................................. 3,802 3,510
Maintenance .................................. 2,557 2,138
Taxes on income .............................. 2,412 2,267
Other taxes .................................. 1,799 1,624
------- -------
32,547 30,278
------- -------
Operating income ............................. 6,202 5,854
OTHER INCOME/(LOSS) .............................. 13 99
------- -------
Income before interest charges ............... 6,215 5,953
INTEREST CHARGES ................................. 3,320 2,976
------- -------
NET INCOME ....................................... 2,895 2,977
DIVIDENDS ON PREFERRED SHARES .................... (22) (22)
------- -------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS ....... $ 2,873 $ 2,955
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING .... 8,958 8,958
======= =======
Basic Earnings Per Common Share .................. $ 0.32 $ 0.33
======= =======
Dividends Declared Per Common Share .............. $ 0.32 $ 0.32
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
OPERATING REVENUES
Water ......................................... $162,068 $140,840
Electric ...................................... 13,475 13,284
Other ......................................... 495 112
-------- --------
176,038 154,236
-------- --------
OPERATING EXPENSES
Water purchased ............................... 36,751 32,512
Power purchased for pumping ................... 7,413 7,145
Power purchased for resale .................... 7,903 4,817
Groundwater production assessment ............. 7,713 7,797
Supply cost balancing accounts ................ (1,065) (129)
Other operating expenses ...................... 15,942 14,739
Administrative and general expenses ........... 28,128 23,006
Depreciation .................................. 13,942 13,073
Maintenance ................................... 10,218 7,613
Taxes on income ............................... 13,490 10,928
Other taxes ................................... 6,741 6,203
-------- --------
147,176 127,704
-------- --------
Operating income .............................. 28,862 26,532
OTHER INCOME/(LOSS) ............................... 446 725
-------- --------
Income before interest charges ................ 29,308 27,257
INTEREST CHARGES .................................. 13,288 11,501
-------- --------
NET INCOME ........................................ 16,020 15,756
DIVIDENDS ON PREFERRED SHARES ..................... (87) (89)
-------- --------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS ........ $ 15,933 $ 15,667
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ..... 8,958 8,958
======== ========
Basic Earnings Per Common Share ................... $ 1.78 $ 1.75
======== ========
Dividends Declared Per Common Share ............... $ 1.280 $ 1.265
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 8
AMERICAN STATES WATER COMPANY
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
------- --------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM
Operating Activities:
Net income ............................................ $ 2,895 $ 2,977
Adjustments for non-cash items:
Depreciation and amortization .......................... 3,948 3,640
Deferred income taxes and
investment tax credits ............................. 127 802
Other - net .......................................... (2,744) (751)
Changes in assets and liabilities:
Accounts receivable .................................. 3,468 736
Prepayments .......................................... 280 48
Supply cost balancing accounts ....................... (1,067) (474)
Accounts payable ..................................... (4,183) (595)
Taxes payable ........................................ 2,179 567
Unbilled revenue ..................................... 1,232 242
Other ................................................ (274) 2,404
------- --------
Net Cash Provided .................................. 5,861 9,596
------- --------
Investing Activities:
Construction expenditures ............................... (9,850) (8,887)
------- --------
Net Cash Used ..................................... (9,850) (8,887)
------- --------
Financing Activities:
Issuance of securities ................................. -- 40,000
Receipt of advances and contributions .................. 3,173 2,128
Repayments of long-term debt, net of
redemption of preferred shares ....................... (32) (340)
Refunds on advances ................................... (459) (409)
Changes in notes payable to banks ...................... 4,000 (38,000)
Common and preferred dividends paid .................... (2,888) (2,888)
------- --------
Net Cash Provided ................................. 3,794 491
------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ..... (195) 1,200
Cash and Cash Equivalents, Beginning of period ........... 2,189 620
------- --------
Cash and Cash Equivalents, End of period ................. $ 1,994 $ 1,820
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 9
SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
UTILITY PLANT, at cost (in thousands)
<S> <C> <C>
Water ...................................... $ 537,558 $ 532,007
Electric ................................... 36,349 36,349
--------- ---------
573,907 568,356
Less - Accumulated depreciation ............ (156,000) (151,733)
--------- ---------
417,907 416,623
Construction work in progress .............. 37,736 32,972
--------- ---------
455,643 449,595
--------- ---------
OTHER PROPERTY AND INVESTMENTS ............... 10,140 10,233
--------- ---------
CURRENT ASSETS
Cash and cash equivalents .................. 1,614 2,020
Accounts receivable -
Customers, less reserves of $575
in 2000 and $487 in 1999 ............... 7,139 10,135
Other .................................... 6,029 4,275
Unbilled revenue ........................... 10,113 11,345
Materials and supplies, at average cost .... 1,165 1,153
Supply cost balancing accounts ............. 5,840 4,774
Prepayments and other ...................... 4,571 4,851
Accumulated deferred income taxes - net .... 6,198 5,573
--------- ---------
42,669 44,126
--------- ---------
DEFERRED CHARGES
Regulatory tax-related assets .............. 19,550 19,941
Other deferred charges ..................... 8,931 8,599
--------- ---------
28,481 28,540
--------- ---------
$ 536,933 $ 532,494
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 10
SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CAPITALIZATION
Common shareholders' equity ................ $159,757 $160,023
Long-term debt ............................. 167,331 167,363
-------- --------
327,088 327,386
-------- --------
CURRENT LIABILITIES
Notes payable to banks ..................... 25,000 21,000
Long-term debt and preferred shares
due within one year ...................... 340 340
Accounts payable ........................... 9,594 13,619
Taxes payable .............................. 7,898 5,700
Accrued interest ........................... 3,388 1,584
Other accrued liabilities .................. 11,714 12,818
-------- --------
57,934 55,061
-------- --------
OTHER CREDITS
Advances for construction .................. 58,801 57,485
Contributions in aid of construction ....... 39,145 38,895
Accumulated deferred income taxes - net .... 48,675 48,302
Unamortized investment tax credits ......... 3,042 3,064
Regulatory tax-related liability ........... 1,850 1,861
Other ...................................... 398 440
-------- --------
151,911 150,047
-------- --------
$536,933 $532,494
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 11
SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
($ in thousands, except
per share amounts)
<S> <C> <C>
OPERATING REVENUES
Water ......................................... $34,587 $32,213
Electric ...................................... 4,011 3,873
------- -------
38,598 36,086
------- -------
OPERATING EXPENSES
Water purchased ............................... 7,555 6,948
Power purchased for pumping ................... 1,461 1,442
Power purchased for resale .................... 1,975 1,191
Groundwater production assessment ............. 2,253 1,710
Supply cost balancing accounts ................ (1,067) (474)
Other operating expenses ...................... 3,830 3,528
Administrative and general expenses ........... 5,781 6,322
Depreciation .................................. 3,802 3,376
Maintenance ................................... 2,553 2,137
Taxes on income ............................... 2,430 2,316
Other taxes ................................... 1,798 1,623
------- -------
32,371 30,119
------- -------
Operating income .............................. 6,227 5,967
OTHER INCOME/(LOSS) ............................... 13 99
------- -------
Income before interest charges ................ 6,240 6,066
INTEREST CHARGES .................................. 3,320 2,976
------- -------
NET INCOME ........................................ 2,920 3,090
DIVIDENDS ON PREFERRED SHARES ..................... -- --
------- -------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS ........ $ 2,920 $ 3,090
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ..... 100 100
======= =======
Basic Earnings Per Common Share ................... $29,200 $30,900
======= =======
Dividends Declared Per Common Share ............... $32,000 $30,900
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 12
SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
($ in thousands, except
per share amounts)
OPERATING REVENUES
<S> <C> <C>
Water ......................................... $162,068 $140,840
Electric ...................................... 13,475 13,284
-------- --------
175,543 154,124
-------- --------
OPERATING EXPENSES
Water purchased ............................... 36,751 32,512
Power purchased for pumping ................... 7,413 7,145
Power purchased for resale .................... 7,903 4,817
Groundwater production assessment ............. 7,713 7,797
Supply cost balancing accounts ................ (1,065) (129)
Other operating expenses ...................... 15,777 14,702
Administrative and general expenses ........... 27,536 22,842
Depreciation .................................. 13,942 12,672
Maintenance ................................... 10,210 7,612
Taxes on income ............................... 13,588 11,207
Other taxes ................................... 6,737 6,201
-------- --------
146,505 127,378
-------- --------
Operating income .............................. 29,038 26,746
OTHER INCOME ...................................... 423 1,186
-------- --------
Income before interest charges ................ 29,461 27,932
INTEREST CHARGES .................................. 13,290 11,500
-------- --------
NET INCOME ........................................ 16,171 16,432
DIVIDENDS ON PREFERRED SHARES ..................... -- (23)
-------- --------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS ........ $ 16,171 $ 16,409
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ..... 100 100
======== ========
Basic Earnings Per Common Share ................... $161,710 $164,090
======== ========
Dividends Declared Per Common Share ............... $121,500 $118,004
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 13
SOUTHERN CALIFORNIA WATER COMPANY
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH ENDED
MARCH 31,
----------------------
2000 1999
------- --------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM
Operating Activities:
Net income ............................................ $ 2,920 $ 3,090
Adjustments for non-cash items:
Depreciation and amortization .......................... 3,948 3,506
Deferred income taxes and
investment tax credits ............................. 106 799
Other - net .......................................... (1,574) (867)
Changes in assets and liabilities:
Accounts receivable .................................. 2,996 633
Prepayments .......................................... 280 48
Supply cost balancing accounts ....................... (1,067) (474)
Accounts payable ..................................... (4,021) (549)
Taxes payable ........................................ 2,198 620
Unbilled revenue ..................................... 1,232 242
Other ................................................ (1,070) 2,550
------- --------
Net Cash Provided .................................. 5,948 9,598
------- --------
Investing Activities:
Construction expenditures ............................... (9,850) (8,887)
------- --------
Net Cash Used ..................................... (9,850) (8,887)
------- --------
Financing Activities:
Issuance of securities ................................. -- 40,000
Receipt of advances and contributions .................. 3,173 2,128
Repayments of long-term debt, net of
redemption of preferred shares ....................... (18) (340)
Refunds on advances .................................... (459) (409)
Changes in notes payable to banks ...................... 4,000 (38,000)
Common and preferred dividends paid .................... (3,200) (3,090)
------- --------
Net Cash Provided (Used) .......................... 3,496 289
------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ..... (406) 1,000
Cash and Cash Equivalents, Beginning of period ........... 2,020 524
------- --------
Cash and Cash Equivalents, End of period ................. $ 1,614 $ 1,524
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 14
AMERICAN STATES WATER COMPANY
AND
SOUTHERN CALIFORNIA WATER COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. American States Water Company (AWR) was incorporated in 1998 in connection
with the formation of a holding company by Southern California Water
Company (SCW) and became a public company on July 1, 1998. AWR has no
material assets other than the common stock of Southern California Water
Company (SCW). SCW is a public utility company engaged principally in the
purchase, production, distribution and sale of water, and the distribution
and sale of electric energy in several mountain communities. Unless
otherwise stated in this report, the term Registrant applies to both AWR
and SCW, collectively.
2. For a summary of significant accounting policies and other information
relating to these interim financial statements, reference is made to pages
24 through 31 of the 1999 Annual Report to Shareholders of AWR under the
caption "Notes to Financial Statements."
3. Basic earnings per common share are calculated pursuant to SFAS No. 128
Earnings per Share - and are based on the weighted average number of
common shares outstanding during each period and net income after
deducting preferred dividend requirements. Registrant has no dilutive
securities outstanding and, accordingly, diluted earnings per share is not
shown.
4. On April 22, 1999, the CPUC issued an order denying SCW's application
seeking approval of its recovery through rates of costs associated with
its participation in the Coastal Aqueduct Extension of the State Water
Project (SWP). SCW's participation in the SWP commits it to a 40-year
entitlement with a value of approximately $9.5 million. SCW's investment
in SWP is currently included in Other Property and Investments. The
remaining balance of the related liability of approximately $7 million is
recorded as other long-term debt. SCW intends to recover its investment in
SWP through contributions from developers on a per-lot or other basis,
and, failing that, sale of its 500 acre-foot entitlement in SWP. SCW
believes that its full investment and on-going costs associated with its
ownership will be fully recovered. See the section entitled "Rates and
Regulation" for more information.
5. In March 2000, SCW has filed applications to increase rates for ratemaking
districts in SCW's Region I as well as to combine those tariff schedules
into regional rates. Applications for new rates for four water ratemaking
districts in SCW's Region III and to combine tariff schedules into
regional rates for the customer service areas that make up SCW's Region
III were filed in March 1999 and are pending a final decision from the
CPUC. See the section entitled "Rates and Regulation" for more
information.
6. As permitted by the CPUC, SCW maintains water and electric supply cost
balancing accounts to account for under-collections and over-collections
of revenues designed to recover such costs. Recovery or refund of such
over/under collections are recorded in income when received from customers
and charged to balancing accounts when such costs are incurred. The
balancing accounts are reversed when such costs are recovered through rate
adjustments.
12
<PAGE> 15
7. AWR has two principal business units: a water and electric distribution
unit, through its SCW subsidiary, and a non-regulated activity unit
through the American States Utility Services (ASUS) subsidiary. All
activities currently are geographically located within California, except
for one contract providing customer service and billing services to a
utility located in Arizona. SCW is a regulated utility, which operates
both water and electric systems. AWR has no material operations other than
its SCW subsidiary. On a stand-alone basis, AWR has no material assets
other than its investments in its subsidiaries. The tables below set forth
information relating to SCW's operating segments. SCW manages its
operations on a regional basis using the five categories below as
broad-level measures of profitability. Region I incorporates service areas
in northern and central California; Region II contains service areas
throughout Los Angeles; Region III encompasses water operations in eastern
Los Angles County, Orange County, San Bernardino County and Imperial
County. SCW also provides electric service to the City of Big Bear Lake
and surrounding areas. Included in the amounts set forth, certain assets,
revenues and expenses have been allocated. The identifiable assets are net
of respective accumulated provisions for depreciation.
<TABLE>
<CAPTION>
(dollars in thousands) For The Three Months Ended March 31, 2000
- ------------------------------------ ---------------------------------- ----------- -----------
Water
---------------------------------- Total
Region I Region II Region III Electric SCW
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues $5,472 $16,937 $12,178 $4,011 $38,598
Operating income before income taxes 977 3,509 2,755 1,417 $8,658
Identifiable assets 109,291 141,535 178,914 25,903 $455,643
Depreciation expense 732 1,200 1,520 350 $3,802
Capital additions $3,952 $2,787 $3,149 $577 $10,465
---------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) For The Three Months Ended March 31,1999
- ------------------------------------ ----------------------------------------------------------
Water
---------------------------------- Total
Region I Region II Region III Electric SCW
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues $5,322 $14,873 $12,018 $3,873 $36,086
Operating income before income taxes 818 2,914 2,918 1,633 $8,283
Identifiable assets 100,478 126,049 170,099 25,105 $421,731
Depreciation expense 683 1,009 1,348 336 $3,376
Capital additions $3,721 $4,307 $2,392 $471 $10,891
---------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) For The Twelve Months Ended March 31, 2000
- ------------------------------------ ----------------------------------------------------------
Water
---------------------------------- Total
Region I Region II Region III Electric SCW
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues $27,372 $72,838 $61,858 $13,475 $175,543
Operating income before income taxes 6,727 16,436 15,859 3,604 $42,626
Identifiable assets 109,291 141,535 178,914 25,903 $455,643
Depreciation expense 2,778 4,239 5,569 1,356 $13,942
Capital additions $13,663 $20,869 $13,545 $2,278 $50,355
---------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) For The Twelve Months Ended March 31, 1999
- ------------------------------------ ----------------------------------------------------------
Water
---------------------------------- Total
Region I Region II Region III Electric SCW
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues $25,613 $60,035 $55,196 $13,284 $154,128
Operating income before income taxes 6,861 12,142 14,783 4,167 $37,953
Identifiable assets 100,478 126,049 170,099 25,105 $421,731
Depreciation expense 2,601 3,538 4,818 1,715 $12,672
Capital additions $13,936 $16,312 $14,273 $1,846 $46,367
---------- ----------- ----------- ----------- -----------
</TABLE>
13
<PAGE> 16
8. On March 10, 2000, Registrant entered into an agreement to acquire the
common stock of Chaparral City Water Company, a privately operated water
company serving approximately 10,000 customers in the town of Fountain
Hills, Arizona and portions of Scottsdale, Arizona for an aggregate value
of $31.2 million, including assumption of approximately $12 million in
debt, Chaparral City Water Company was purchased from MCO Properties Inc.,
a wholly-owned subsidiary of MAXXAM Inc. this marks the first acquisition
outside of California for Registrant. The sale of Chaparral City Water
Company requires notification to the Arizona Corporation Commission and
other conditions customary in transactions of this type. The approval of
Registrant's shareholders is not required. It is anticipated that the
transaction will close within one year.
14
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report (including any documents
incorporated herein by reference) are forward-looking statements intended to
qualify for the "safe harbor" 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 or 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 that are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed or implied
in the statements. Such statements address future events and conditions
concerning capital expenditures, earnings, litigation, rates, water quality and
other regulatory matters, adequacy of water supplies, liquidity and capital
resources, opportunities related to operations of municipally-owned water
systems 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 local, state and
federal activities; future economic conditions, including changes in customer
demand and changes in market conditions for debt and equity; future climatic
conditions; legislative, regulatory and other circumstances affecting
anticipated revenues and costs; the number and effectiveness of competitors in
Registrant's markets; changes in legislation; the nature and pace of
technological changes; Registrant's ability to identify future markets and
successfully expand existing ones; the mix of products and services offered in
Registrant's target markets; and abilities of other companies to remain or
become year 2000 ready. These important factors should be considered in
evaluating any statement contained herein and/or made by Registrant or on its
behalf.
GENERAL
American States Water Company (AWR) was incorporated in 1998 in
connection with the formation of a holding company by Southern California Water
Company (SCW) and became a public company on July 1, 1998. AWR has no material
assets other than the common stock of SCW. SCW is a public utility company
engaged principally in the purchase, production, distribution and sale of water
(SIC No. 4941). SCW also distributes electricity in one customer service area
(SIC No. 4911). SCW is regulated by the California Public Utilities Commission
(CPUC) and was incorporated on December 31, 1929 under the laws of the State of
California. AWR has another subsidiary, American States Utility Services, Inc.
(ASUS) which contracts to lease, operate and maintain governmentally owned water
and wastewater systems and to provide other services to local governments to
assist them in the operation and maintenance of their water and wastewater
systems. Neither AWR nor ASUS are regulated by the CPUC.
SCW is organized into three regions and one electric customer service
area operating within 75 communities in 10 counties in the State of California
and provides water service in 21 customer service areas (CSAs). Region I
incorporates 7 CSAs in northern and central California; Region II has 4 CSAs
located in Los Angeles; Region III incorporates 10 water CSAs. SCW also provides
electric service to the City of Big Bear Lake and surrounding areas in San
Bernardino County. All electric energy sold by SCW to customers in its Bear
Valley Electric CSA was purchased under an energy brokerage contract with Sempra
Energy Corporation from March 26, 1996 to May 1, 1999, then with Illinova Energy
Partners (Illinova) from May 1, 1999 to April 30, 2000, and with Dynegy Energy
Services (Dynegy) since May 1, 2000 as a result of the merger of Dynegy and
Illinova.
15
<PAGE> 18
SCW served 244,214 water customers and 21,183 electric customers at
March 31, 2000, or a total of 265,397 customers, compared with 263,780 total
customers at March 31, 1999.
SCW's utility operations exhibit seasonal trends. Although SCW's water
utility operations have a diversified customer base, revenues derived from
commercial and residential water customers accounted for approximately 96.3% and
90.9% of total water revenues for the three and twelve months ended March 31,
2000, respectively as compared to 94.0% and 90.8% for the three and twelve
months ended March 31, 1999, respectively.
ACQUISITION OF PEERLESS WATER CO.
In December 1999, Registrant agreed to acquire Peerless Water Co., a
privately owned water company in Bellflower, California, subject to satisfaction
of certain conditions, including CPUC approval. The number of Common Shares to
be issued will be determined at the closing, but will in no event be greater
than 131,036 shares nor less than 107,538 shares.
ACQUISITION OF CHAPARRAL CITY WATER COMPANY
On March 10, 2000, Registrant entered into an agreement to acquire the
common stock of Chaparral City Water Company, a privately operated water company
serving approximately 10,000 customers in the town of Fountain Hills, Arizona
and portions of Scottsdale, Arizona for an aggregate value of $31.2 million,
including assumption of approximately $12 million in debt. Chaparral City Water
Company was purchased from MCO Properties Inc., a wholly-owned subsidiary of
MAXXAM Inc. This marks the first acquisition outside of California for
Registrant. The sale of Chaparral City Water Company requires notification to
the Arizona Corporation Commission and other conditions customary in
transactions of this type. The approval of Registrant's shareholders is not
required. It is anticipated that the transaction will close within one year. See
Notes to Financial Statements for more information.
RESULTS OF OPERATION
Basic earnings per common share for the three months ended March 31,
2000 decreased by 3.0% to $0.32 per share as compared to $0.33 per share for the
comparable period last year for various reasons as discussed below. Basic
earnings for the twelve months ended March 31, 2000 increased by 1.7% to $1.78
per share as compared to $1.75 per share for the twelve months ended March 31,
1999 primarily reflecting higher revenues as is more fully discussed below.
As compared to last year, water operating revenues increased by 7.4% and
15.1% for the three and twelve months ended March 31, 2000, respectively, due to
the increase in water volumes sold and increases in rates authorized by the
CPUC. Water sales volumes for the three and twelve months ended March 31, 2000
were 4.2% and 6.8% higher than the same periods of last year, respectively.
Additional increases in revenues for the three months ended March 2000 reflected
the general rate case (GRC) step increase for Registrant's Metropolitan customer
service area effective January 1, 2000. New rates in four customer service areas
and implementation of regional rates in the customer service areas that comprise
SCW's Region III are pending a final decision from the CPUC, which is expected
during the second quarter of 2000. The delay resulted in a loss of approximately
$900,000 in revenues during the three months ended March 31, 2000. See the
section entitled "Rates and Regulation" for more information.
Kilowatt-hour sales of electricity decreased by 2.9% and 0.4%,
respectively, for the three and twelve months ended March 31, 2000 as compared
to the same periods ended March 31, 1999 due principally to more winter snows
experienced in Registrant's service area during the first quarter of this year,
which decreased the use of snow making machines during off-peak hours. Despite
the decrease in
16
<PAGE> 19
sales, electric operating revenues for the three months and twelve months ended
March 31, 2000 increased by 3.6% and 1.4%, respectively, due to a shift in the
composition of sales towards commercial and residential usage which have
relatively higher rates than industrial power users.
Purchased water costs increased by 8.8% for the three months ended March
31, 2000 as compared to the same period ending in 1999 due to a 7.2% increase in
volumes purchased resulting from higher sales, and reduced reimbursements from
potentially responsible parties related to contamination in SCW's Culver City
CSA of approximately $66,000 received during the three months ended March 31,
2000, compared with reimbursements of $286,000 received during the first quarter
of 1999. As compared to the twelve months ended March 31, 1999, purchased water
costs increased by 13.0% reflecting a 9.7% increase in volumes purchased. The
twelve-month comparison is also affected by a decline in the receipt of
reimbursements related to contamination as previously discussed. Registrant
received approximately $1,145,000 during the twelve months ended March 31, 1999
as compared to reimbursements of $352,000 received during the period ended March
31, 2000. See the section entitled "Environmental Matters - Matters Related to
Culver City System."
Cost of power purchased for pumping increased by 1.3% and 3.8% for the
three and twelve months ended March 31, 2000, respectively, due to an increase
in pumped groundwater in SCW's water supply mix.
As compared to the three and twelve months ended March 31, 1999, the
cost of power purchased for resale increased by 65.8% and 64.1%, respectively,
for the three and twelve months ended March 31, 2000 due primarily to additional
demand charges from Registrant's energy supplier in 1999. An additional accrual
for these demand charges was recorded in April 1999.
Groundwater production assessments are 31.8% higher for the three months
ended March 31, 2000 due primarily to an accrual to reflect excess pumping
penalty assessments particularly associated with increased pumping in SCW's San
Dimas and San Gabriel customer service areas. Although SCW anticipates incurring
additional groundwater production assessments during the second quarter of 2000,
these charges are offset through the balancing account and will be recovered in
future offset rate increases. See the section entitled "Regulatory Matters" for
more information.
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
under-collection of previously incurred supply costs. Registrant currently has a
net under-collection position. A net under-collection of balancing accounts for
the three months ended March 31, 2000 reflects previously discussed increase in
energy demand charges and excess pumping penalty accruals. As compared to the
twelve months ended March 31, 1999, the effect of increased energy demand
charges for the twelve months ended March 2000 was partially offset by new rates
effective January 1999 authorized to implement new supply costs and to increase
collection of previously under-collected costs.
Other operating expenses increased by 9.9% and 8.2% for the three and
twelve months ended March 31, 2000, respectively, as compared to the same
periods of last year. The increases were due to increased costs for water
treatment, higher amounts accrued for uncollectible accounts as a result of
increased revenues, and an increase in the amount of labor hours being charged
to this category.
Administrative and general expenses decreased by 7.3% for the three
months ended March 31, 2000 as compared to the same period ended March 31, 1999
due to reduced accruals for litigation in 2000. As compared to the twelve months
ended March 31, 1999, administrative and general expenses increased by 22.3% due
to increased employee benefit costs, and additional amounts reserved for certain
legal proceedings. See the section entitled "Legal Proceedings" for more
information.
17
<PAGE> 20
Depreciation expense increased by 8.3% and 6.6%, respectively, for the
three and twelve months ended March 31, 2000 reflecting, among other things, the
effects of recording approximately $52 million in net plant additions during
1999, depreciation on which began in January 2000. In addition, amortization of
start-up and organizational costs associated with the formation of AWR was
reflected in the twelve months ended March 31, 1999. There were no similar
amortization costs for the twelve months ended March 31, 2000.
As compared to the three and twelve months ended March 31, 1999,
maintenance expense increased by 19.6% and 34.2%, respectively, due principally
to increased maintenance on Registrant's water supply sources, and costs
incurred on main replacements. The wet weather conditions during 1998 also
hampered planned maintenance activities, thereby reducing maintenance expense
for the twelve months ended March 31, 1999.
Taxes on income increased by 6.4% and 23.4% for the three and twelve
months ended March 31, 2000, respectively, as compared to the three and twelve
months ended March 31, 1999 due to a higher effective tax rate resulting from
the turn-around of depreciation-related temporary differences, the benefits of
which were previously flowed-through for rate-making purposes. As compared to
the twelve months ended March 1999, the increase was also due to a 12.0%
increase in pre-tax operating income.
Other taxes increased by 10.8% and 8.7%, respectively, for the three and
twelve months ended March 31, 2000, respectively, as compared to the same
periods last year reflecting increased franchise fee payments resulting from
higher revenues, increased property taxes due to higher property valuation
assessments, and increased payroll taxes due to higher labor costs and newly
established annual incentive plan, distributed during the first quarter of 2000.
As compared to the same periods ended March 31, 1999, other income for
the three months ended March 31, 2000 decreased by 86.9%. The decrease was due
to the effect of recording the State Water Project entitlement with a value of
approximately $9.5 million, amortization on which began January 2000. As
compared to the twelve months ended March 31, 1999, other income decreased by
38.43% in the comparable period ended March 31, 2000 due principally to the
flow-through of tax benefits related to refinancing of long-term debt, partially
offset by costs incurred in December 1998 associated with termination of the
non-regulated joint venture agreement. There were no similar tax benefits and/or
such costs in the twelve months ended March 2000. See the section entitled
"Rates and Regulation" for more information.
Interest expense increased by 11.6% and 15.6%, respectively, for the
three and twelve months ended March 31, 2000 as compared to the three and twelve
months ended March 31, 1999, primarily due to additional short-term borrowing to
finance construction expenditures.
LIQUIDITY AND CAPITAL RESOURCES
AWR funds its operating expenses, dividends on its outstanding Common
and Preferred Shares, and makes its mandatory sinking fund payments, principally
through dividends from SCW. AWR has filed a Registration Statement with the
Securities and Exchange Commission (SEC) for issuance, from time to time, of up
to $60 million in Common Shares, Preferred Shares and/or debt securities. The
proceeds will be used primarily for investment in its subsidiaries. No
securities had been issued under this Registration Statement as of March 31,
2000.
SCW funds the majority of its operating expenses, interest payments on
its debt and dividends on its outstanding Common Shares through internal
sources. SCW continues to rely on external sources,
18
<PAGE> 21
including short-term bank borrowing, contributions-in-aid-of-construction,
advances for construction and install-and-convey advances, to fund the majority
of its construction expenditures.
Because of the seasonal nature of its water and electric operations, SCW
utilizes its short-term borrowing capacity to finance current operating
expenses. The aggregate short-term borrowing capacity available to SCW under its
three bank lines of credit was $47 million as of March 31, 2000, of which a
total of $25 million was outstanding. SCW routinely employs short-term bank
borrowing as an interim financing source prior to funding capital expenditures
on a long-term basis.
In 1998, SCW filed a Registration Statement with the SEC for issuance,
from time to time, of up to $60 million in long-term debt. As of March 31, 2000,
$20 million remained for issuance as needed.
SCW's construction program is designed to ensure its customers high
quality service. SCW 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, SCW upgrades its electric and water supply facilities in
accordance with industry standards, local requirements and CPUC requirements.
SCW's Board of Directors has approved anticipated net capital expenditures of
approximately $55.4 million for 2000. Of the amount authorized, $8.8 million has
incurred as of March 31, 2000. Neither AWR nor ASUS have material capital
commitments; however, ASUS actively seeks opportunities to own, lease or operate
municipal water and wastewater systems, which may involve significant capital
commitments.
WATER SUPPLY
For the three months ended March 31, 2000, SCW supplied a total of
16,541,000 ccf of water as compared to 16,118,000 ccf for the three months ended
March 31, 1999. Of the total 16,541,000 ccf of water supplied during the first
quarter of 2000, approximately 60.6% came from pumped sources and 39.4% was
purchased from others, principally the Metropolitan Water District of Southern
California (MWD) and its member agencies. For the three months ended March 31,
1999, 62.2%, 37.8% was supplied from pumped sources and purchased from MWD,
respectively.
During the twelve months ended March 31, 2000, SCW supplied 85,750,000
ccf of water as compared to 80,609,000 ccf supplied during the twelve months
ended March 31, 1999. During the twelve months ended March 31, 2000, pumped
sources provided 57.9% of total supply, 40.5% was purchased from MWD and its
member agencies. The remaining 1.6% of total supply came from the United States
Bureau of Reclamation (the "Bureau) under a no-cost contract. For the twelve
months ended March 31, 1999, 60.6%, 39.3% and 0.1%, respectively, was supplied
from pumped sources, purchased from MWD and the Bureau.
The MWD is a water district organized under the laws of the State of
California for the purpose of delivering imported water to areas within its
jurisdiction. 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 2000. 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 response, MWD has taken a number of steps to
secure additional storage capacity and to increase available water supplies, by
effecting transfers of water rights from other sources.
19
<PAGE> 22
Registrant's water supply and revenues are significantly affected, both
in the short-run and the long-run, by changes in meteorological conditions. For
the three months ended March 31, 2000, SCW's customer service areas experienced
more rainfall and slightly cooler temperatures as compared to the same period
ended March 31, 1999. The 2000 water year supply outlook remains adequate. This
positive outlook is due to wetter-than-anticipated spring, the fact that
reservoirs remain at significantly high levels, and groundwater levels are
usually not diminished by a single year of below normal precipitation as was
experienced during 1999. Although overall groundwater conditions remain at
adequate levels, certain of SCW's groundwater supplies have been affected to
varying degrees by various forms of contamination which, in some cases, have
caused increased reliance on purchased water in its supply mix.
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 revised the
1986 amendments to the SDWA with a new process for selecting and regulating
contaminants. The U. S. Environmental Protection Agency (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 has published 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 DOHS, acting on behalf of the EPA, administers the EPA's program
in California.
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.
SCW currently tests its wells and water systems according to
requirements listed in the SDWA. Water from wells found to contain levels of
contaminants above the established MCLs is treated to reduce contaminants to
acceptable levels before it is delivered to customers.
Since the SDWA became effective, SCW has experienced increased operating
costs for testing to determine the levels, if any, of the constituents in SCW'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 SCW 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 CPUC ratemaking process provides SCW 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.
20
<PAGE> 23
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 has
adopted an Interim ESWTR applicable only to systems serving greater than 10,000
persons. EPA will publish the proposed the Long Term 1 Enhanced Surface Water
Treatment Rule and Filter Backwash Rule (LT1FBR) in the Federal Register in
Spring, 2000. This proposed rule will apply to each of SCW's five surface water
treatment plants and basically extends the requirements of the ESWTR to systems
serving less than 10,000 persons and will require some systems to institute
changes to the return of recycle filter backwash flows within the treatment
process to reduce the effects of recycle on compromising microbial control.
Registrant is presently unable to predict the ultimate impact of the LT1FBR, but
it is anticipated that all five plants will achieve compliance within the three
year to five-year time frames identified by EPA.
Regulation of Disinfection/Disinfection By-Products
Registrant is also subject to the new regulations concerning
disinfection/disinfection by-products (DBP's), Stage I of which regulations were
effective in November, 1998 with full compliance required by 2001. Stage I
requires reduction of trihalomethane contaminants from 100 micrograms per liter
to 80 micrograms per liter. Two of SCW's systems are immediately impacted by
this rule. SCW implemented modifications to the treatment process in its Bay
Point and Cordova systems. It is anticipated that both systems will be in full
compliance by 2001. A third SCW plant will require treatment modifications in
order tom comply with this rule. The Registrant is preparing to conduct studies
in Calipatria to determine the best treatment methods to comply with this rule.
The EPA must adopt Stage II rules pertaining to DBPs, according to a
negotiated schedule by 2000. 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. The final
rule is expected by 2002.
Ground Water Rule
By Spring 2000, 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
SCW'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 SCW already currently engages in disinfection of its groundwater systems.
Regulation of Radon and Arsenic
Registrant expects to be subject to new regulations regarding radon and
arsenic. It is anticipated that the EPA will propose a reduction in the federal
standard on arsenic from 50 parts per billion (ppb) to
21
<PAGE> 24
5 ppb. This proposed arsenic rule is expected to be released in spring of 2000,
with a 60-day comment period. It is anticipated that EPA will propose 5 ppb as
the lead regulatory option, but will take comments on 3 ppb and 10 ppb options
as well. Compliance with an MCL of 5 ppb will require Registrant to implement
costly well-head treatment 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 has proposed new radon regulations following a National Academy
of Sciences risk assessment and study of risk-reduction benefits associated with
various mitigation measures. The National Academy of Sciences study is in
agreement with much of EPA's original findings but has slightly reduced the
ingestion risk initially assumed by EPA. EPA established an MCL of 300 Pico
Curies per liter based on the findings and has also established an alternative
MCL of 4000 Pico Curies per liter, based upon potential mitigation measures for
overall radon reduction. The final rule will be effective in August 2000. The
Registrant is currently conducting studies to determine the best treatment for
affected wells.
Voluntary Efforts to Exceed Minimum Surface Water Treatment Requirements
SCW is a voluntary member of the EPA's "Partnership for Safe Water", a
national program designed to further protect the public from diseases caused by
cryptosporidium and other microscopic organisms. As a volunteer in the program,
SCW commits to exceed minimum operating requirements governing surface water
treatment, optimize surface water treatment plant operations and ensure that its
surface water 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
In January 1997, SCW was notified that ammonium perchlorate in amounts
above the state-determined action level had been detected in three of its 27
wells serving its Arden-Cordova system. Aerojet-General Corp. has, in the past,
used ammonium perchlorate in their processing as an oxidizer of rocket fuels.
SCW took the three wells detected with ammonium perchlorate out of service at
that time. Although neither the EPA nor the DOHS has established a drinking
water standard for ammonium perchlorate, DOHS has established an action level of
18 parts per billion (ppb) which required SCW 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, SCW found ammonium
perchlorate in three additional wells and, at that time, removed those wells
from service until it was determined that the levels were below the
state-determined action level. Those wells were returned to service. SCW
periodically monitors these wells to determine that levels of perchlorate are
below the action level currently in effect.
In February 1998, SCW was informed that nitrosodimethylamine (NDMA) had
been detected in amounts in excess of the EPA reference dosage for health risks
in four of its wells in its Arden-Cordova system. Each of the wells has been
removed from service. Another well was also been removed from service in end of
September 1999 due to the contamination. NDMA is an additional by-product from
the production of rocket fuel and it is believed that such contamination is
related to the activities of Aerojet-
22
<PAGE> 25
General Corp. Aerojet-General Corp. has reimbursed SCW for constructing a
pipeline to interconnect with the City of Folsom water system to provide an
alternative source(s) of water supply in SCW's Arden-Cordova customer service
area and has reimbursed SCW for costs associated with the drilling and equipping
of two new wells. As of March 31, 2000, Aerojet-General Corp. has previously
reimbursed Registrant $4.5 million. The remainder of the costs is subject to
further reimbursement, including interest. The reimbursement from
Aerojet-General Corp. reduces SCW's utility plant and costs of purchased water.
SCW and Aerojet-General Corp. were in negotiations on other matters
related to procedures to address cleanup of the contaminated groundwater basin,
costs associated with the cleanup, increased costs of purchased water as
compared to pumped sources and costs associated with developing new sources of
groundwater supply.
On October 25, 1999, SCW filed a lawsuit against the California Regional
Water Quality Control Board (CRWQCB) alleging that the CRWQCB has willfully
allowed portions of the Sacramento County Groundwater Basin to be injected with
chemical pollution that is contaminating the underground water supply in SCW's
Rancho Cordova customer service area. In a separate case, also filed on October
25, 1999, SCW sued Aerojet General Corp. for causing the contamination. On March
22, 2000 Aerojet General Corp. filed a cross complaint against SCW for
negligence and constituting a public nuisance. Registrant is unable to determine
at this time what, if any, potential liability it may have with respect to the
cross complaint, but intends to vigorously defend itself against these
allegations. Management cannot predict the outcome of these proceedings. See the
section entitled "Legal Proceedings" for more information.
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 within SCW's Culver
City customer 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, SCW 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 has been found to be contaminated with MTBE. SCW is purchasing water
from the MWD at an increased cost to replace the water supply formerly pumped
from the two wells removed from service.
Pursuant to an agreement with SCW in December 1998, two of the
potentially responsible parties (the Participants) have reimbursed SCW's legal
and consulting costs related to this matter and for increased costs incurred by
SCW in purchasing replacement water. However, a notice of termination from the
Participants to the settlement agreement was received in October 1999 claiming
overpayments for replacement water in excess of SCW's water rights. No
assurances can be given that future negotiations will result in complete
restoration of SCW's water rights or that continued reimbursement of SCW's costs
will be forthcoming.
On September 22, 1999, the U.S. EPA and the Los Angeles Regional Water
Quality Control Board ordered Shell Oil Company, Shell Oil Products Company and
Equilon Enterprises LLC to provide replacement drinking water to both SCW and
the City of Santa Monica due to MTBE contamination of the Charnock Sub-Basin
drinking water. The EPA has ordered Shell Oil to reimburse SCW for water
replacement costs. The agencies are continuing to investigate the causes of MTBE
pollution and intend to ensure that all responsible parties contribute to its
clean up. Registrant is unable to predict the outcome of the EPA's enforcement
efforts.
23
<PAGE> 26
Bear Valley Electric
SCW has been, in conjunction with the Southern California Edison unit of
Edison International, planning to upgrade transmission facilities to 115kv (the
115kv Project) in order to meet increased energy and demand requirements. The
115kv Project is subject to an environmental impact report (EIR) and delays in
approval of the EIR may impact service in SCW's Bear Valley Electric Service
customer service area. SCW has, however, taken other measures, including some
measures that will be enacted on an emergency basis, to meet load growth and
mitigate delays in approval of the EIR.
REGULATORY MATTERS
SCW is subject to regulation by the CPUC, which has broad powers with
respect to service and facilities, rates, classifications of accounts, valuation
of properties, the purchase, disposition and mortgaging of properties necessary
or useful in rendering public utility service, the issuance of securities, the
granting of certificates of convenience and necessity as to the extension of
services and facilities and various other matters. AWR and ASUS are not
regulated by the CPUC. The CPUC does, however, regulate certain transactions
between SCW and its non-regulated affiliates.
The 22 customer service areas (CSAs) of SCW are grouped into 16 water
districts and 1 electric district for ratemaking purposes. Water rates vary
among the 16 ratemaking districts due to differences in operating conditions and
costs. SCW monitors operations on a regional basis in each of these districts so
that applications for rate changes may be filed, when warranted. Under the
CPUC's practices, rates may be increased by three methods: general rate case
increases (GRC's), offsets for certain expense increases and advice letter
filings related to certain plant additions. GRC's are typically for three-year
periods, which include step increases for the second and third year. Rates are
based on a forecast of expenses and capital costs. GRC's have a typical
regulatory lag of one year. Offset rate increases typically have a two to four
month regulatory lag.
Applications to increase water rates were filed for four water
ratemaking districts in SCW's Region III in March 1999. A draft decision has
been issued by the Administrative Law Judge assigned to this matter that
supports the settlement on all issues reached between SCW and the CPUC Staff.
SCW has also filed an application with the CPUC to combine tariff schedules into
regional rates for the customer service areas that make up SCW's Region III. The
Administrative Law Judge assigned to this matter has issued a draft decision
that supports SCW's application. A final decision from the CPUC on both issues
is anticipated in the second quarter of 2000. Pending receipt of the final
decision, implementation of rates has been delayed.
GRC step increase for Metropolitan CSA and General Office Allocation
step increases for Arden-Cordova, Bay Point, Simi Valley and Santa Maria CSAs
were effective beginning January, 2000. Attrition increases for Arden-Cordova
and Bay Point CSAs were also in effect beginning January 2000.
Applications to increase water rates by approximately $5.8 million for
ratemaking districts in SCW's Region I as well as to combine those tariff
schedules into regional rates were filed in March 2000. The new rates, if
authorized in total or in part by the CPUC, would be effective January 1, 2001.
An advice letter was filed with the CPUC on March 1, 2000 seeking
recovery of capital expenditures associated with Y2K readiness, not already
included in Registrant's water rates.
24
<PAGE> 27
Registrant is unable to predict if the CPUC will authorize recovery of any or
all of the costs. See the section entitled "Year 2000 Issue" for more
information.
On April 22, 1999, the CPUC issued an order denying SCW's application
seeking approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement. SCW's
investment of approximately $9.5 million in SWP is currently included in Other
Property and Investments. The remaining balance of the related liability of
approximately $7 million is recorded as other long-term debt. SCW intends to
recover its investment in SWP either through contributions from developers on a
per-lot or other basis, or from the sale of its 500 acre-foot entitlement in
SWP. See the Notes to Financial Statements for more information.
YEAR 2000 ISSUE
Registrant has no Y2K incidents, business disruptions, failures or legal
proceedings to report. There were no actual or anticipated effects or changes to
Registrant's operating trends or revenue patterns as a result of the transition
from December 1999 to January 2000. SCW formally announced its 100% Y2K Ready
status when it filed its Compliance Report with the CPUC on November 1, 1999.
Registrant has filed its final Compliance Report with the CPUC in March 2000.
Not all Y2K problems were necessarily expected to surface in early 2000.
Registrant does not have, and may never fully have, sufficient information about
the Y2K exposure of third parties to adequately predict the risks posed by them
to Registrant. If the third parties later discover any Y2K problems that are not
remedied, resulting problems could include temporary loss of utility services
and disruption of water supplies.
Costs incurred to address Y2K issues are estimated to be approximately
$5.2 million. On March 1, 2000, Registrant filed an advice letter with the CPUC
for recovery of Y2K related costs. Registrant believes that generally these
expenditures will be recovered through rates, but can give no assurance that the
CPUC will authorize recovery of all or some of these costs.
RISK FACTOR SUMMARY
This section (written in plain English to comply with certain SEC
Standards) summarizes certain risks of our business that may affect our future
financial results. We also periodically file with the Securities and Exchange
Commission documents that include more information on these risks. It is
important for investors to read these documents.
Litigation
SCW has recently been sued in eleven water-quality related lawsuits:
- a suit filed on April 24, 1997 alleging personal injury and property
damage as a result of the delivery of contaminated water from wells
located in an area of the San Gabriel Valley that has been designated
a federal superfund site
- a suit filed on July 29, 1997 alleging personal injury and property
damage as a result of the delivery contaminated of water; few of our
systems are located in the geographical area covered by this suit
- a suit filed on December 8, 1997 alleging personal injury and property
damage as a result of the delivery of contaminated water in SCW's
Arden-Cordova service area
25
<PAGE> 28
- a suit filed on February 2, 1998 alleging personal injury and property
damage as a result of the delivery of contaminated water from wells
located in an area of the San Gabriel Valley that has been designated
a superfund site
- a suit filed on February 4, 1998 alleging personal injury and property
damage as a result of the delivery of contaminated water from wells
located in an area of the San Gabriel Valley that has been designated
a superfund site
- a suit filed in March 2, 1998 alleging personal injury and property
damage as a result of the delivery of contaminated water in SCW's
Arden-Cordova service area
- a suit filed on June 29, 1998 alleging personal injury and property
damage as a result of the delivery of contaminated water from wells
located in an area of the San Gabriel Valley that has been designated
a superfund site
- two suits filed on July 30, 1998 alleging personal injury and property
damage as a result of the delivery of contaminated water from wells
located in an area of the San Gabriel Valley that has been designated
a superfund site
- a suit filed on December 3, 1998 alleging personal injury and property
damage as a result of the delivery of contaminated water from wells
located in an area of the San Gabriel Valley that has been designated
a superfund site
- a suit filed in July 22, 1999 alleging personal injury and property
damage as a result of the delivery of contaminated water from wells
located in an area of the San Gabriel Valley that has been designated
a superfund site
On September 1, 1999, the First District Court of Appeal in San
Francisco, held that the CPUC had preemptive jurisdiction over regulated public
utilities and ordered dismissal of a series of lawsuits against water utilities,
including seven of the lawsuits against SCW. On October 11, one group of
plaintiffs appealed the decision to the California Supreme Court, which has
accepted the petition. Management cannot predict the outcome of the proceeding.
In March 1998, the CPUC issued an Order Instituting Investigation (the
OII) as a result of these types of suits being filed against water utilities in
California. The CPUC is seeking to determine:
- whether existing standards and policies regarding drinking water
quality adequately protect the public health
- whether water utilities are in compliance with existing standards
The Administrative Law Judge assigned to the OII has issued a draft
decision finding that water utilities, including SCW, have complied with DOHS
regulation and requirements. SCW is unable to predict whether the draft decision
will be approved in part or in its entirety. The CPUC has authorized a
memorandum account for legal expenses incurred by water utilities, including
SCW, in the water quality lawsuits. Under the memorandum account procedure, SCW
may recover litigation costs from ratepayers to the extent authorized by the
CPUC. The CPUC has not yet authorized SCW to recover any of its litigation
costs. As of March 31, 2000, Registrant had incurred $866,000 in the OII-related
memorandum account.
Environmental Regulation
SCW is subject to increasingly stringent environmental regulations that
will result in increasing capital and operating costs. These regulations
include:
26
<PAGE> 29
- the 1996 amendments to the Safe Drinking Water Act that require
increased testing and treatment of water to reduce specified
contaminants to minimum containment levels
- interim regulations expected to be adopted before the end of 2000
requiring increased surface-water treatment to decrease the risk of
microbial contamination; these regulations will affect SCW's five
surface water treatment plants
- additional regulation of disinfection/disinfection byproducts expected
to be adopted before the end of 2002; these regulations will
potentially affect two of SCW's systems
- additional regulations expected to be adopted before the end of 2000
requiring disinfection of certain groundwater systems; these
regulations will potentially impact several of SCW's systems using
groundwater supplies
- potential regulation of radon and arsenic
- new California requirements to fluoridate public water systems serving
over 10,000 customers
SCW may be able to recover costs incurred to comply with these
regulations through the ratemaking process for our regulated systems. We may
also be able to recover certain of these costs under our contractual
arrangements with municipalities. In certain circumstances, we may recover costs
from parties responsible or potentially responsible for contamination.
Rates and Regulation
SCW is subject to regulation by the CPUC. AWR and ASUS are not directly
subject to CPUC regulation. The CPUC may, however, regulate transactions between
SCW and AWR, including the manner in which overhead costs are allocated between
SCW and AWR and the pricing of services rendered by SCW to AWR.
SCW's revenues depend substantially on the rates that it is permitted to
charge its customers. SCW may increase rates in three ways:
- by filing for a general rate increase
- by filing for recovery of certain expenses
- by filing an "advice letter" for certain plant additions, thereby
increasing rate base
In addition, SCW recovers certain supply costs through a balancing
account mechanism. Supply costs include the cost of purchased water and power
and groundwater production assessments. The balancing account mechanism is
intended to insulate SCW's earnings from changes in supply costs that are beyond
SCW's control. The balancing account is not, however, designed to insulate SCW's
earnings against changes in supply mix. As a result, SCW may not recover
increased costs due to increased use of purchased water through the balancing
account mechanism. In addition, balancing account adjustments, if authorized by
the CPUC, may result in either increases or decreases in revenues attributable
to supply costs incurred in prior periods, depending upon whether there has been
an undercollection or overcollection of supply costs.
There are also a number of matters pending before the CPUC that may
affect our future financial results. These matters include:
- applications filed by SCW to increase rates in 4 of its Region III
rate-making jurisdictions; a final decision is not expected until
second quarter of 2000 although a tentative settlement has been worked
out
27
<PAGE> 30
- an application filed to consolidate the rate-making jurisdictions
located in SCW's Region III area into a single tariff
- the OII
- applications filed by SCW to increase rates and consolidate all of its
Region I rate-making jurisdictions
- an advice letter filed to seek recovery of capital expenditures
associated with Y2K readiness
- new guidelines under consideration by the CPUC for the acquisition and
merger of water utilities and for privatization transactions
- new guidelines under consideration by the CPUC for the use of
regulated assets for non-regulated activities
Adequacy of Water Supplies
The adequacy of water supplies varies from year to year depending upon a
variety of factors, including
- rainfall
- the amount of water stored in reservoirs
- the amount used by our customers and others
- water quality, and
- legal limitations on use.
As a result of heavier than normal rainfall in the winter of 1998-1999
as well as the rains during the first quarter of 2000, most of California's
reservoirs remain at or near capacity and the outlook for water supply in the
near term is generally favorable. Population growth and increases in the amount
of water used have, however, increased limitations on use to prevent
overdrafting of groundwater basins. The import of water from the Colorado River,
one of our important sources of supply, is expected to decrease in future years
due to the requirements of the Central Arizona Project. We also have in recent
years taken wells out of service due to water quality problems.
Water shortages could be caused by the above factors and may affect us
in several ways:
- they adversely affect supply mix by causing Registrant to rely on more
expensive purchased water
- they adversely affect operating costs
- they may result in an increase in capital expenditures for building
pipelines to connect to alternative sources of supplies and reservoirs
and other facilities to conserve or reclaim water
We may be able to recover increased operating and construction costs for
our regulated systems through the ratemaking process. Registrant may also be
able to recover certain of these costs under the terms of our contractual
agreements with municipalities.
In certain circumstances, we may recover these costs from third parties
that may be responsible, or potentially responsible, for groundwater
contamination. As of March 31, 2000, Aerojet General Corp. has previously
reimbursed Registrant approximately $4.5 million for costs associated with the
cleanup of the groundwater supply for our Arden-Cordova System and for the
increased costs of purchasing water
28
<PAGE> 31
and developing new sources of groundwater supply. On October 25, 1999, we sued
the California Regional Water Quality Control Board (CRWQCB) alleging that it
has willfully allowed portions of the Sacramento County Groundwater Basin to be
injected with chemical pollution that is contaminating the underground water
supply in our Rancho Cordova customer service area. In a separate lawsuit, also
filed on October 25, 1999, we sued Aerojet General Corp. for causing the
contamination. On March 22, 2000 Aerojet General Corp. filed a cross complaint
against us for negligence and constituting a public nuisance. We cannot predict
the outcome of these lawsuits but we will defend ourselves against these
allegations. Two potentially responsible parties on matter relating to the
clean-up and purchase of replacement water in the Charnock Basin located in the
cities of Santa Monica and Culver City have previously reimbursed us for
replacement water and certain legal and consulting expenses. The Charnock Basin
is in our Culver City customer service area.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Registrant has no derivative financial instruments, financial
instruments with significant off-balance sheet risks or financial instruments
with concentrations of credit risk. The disclosure required is, therefore, not
applicable.
PART II
ITEM 1. LEGAL PROCEEDINGS
SCW is a defendant in eleven lawsuits involving claims pertaining to
water quality. Nine of the lawsuits involve customer service areas located in
Los Angeles County in the southern portion of the State of California; two of
the lawsuits involve a customer service area located in Sacramento County in
northern California. See the section entitled "Risk Factor Summary" for more
information.
On September 1, 1999, the First District Court of Appeal in San
Francisco, in a published opinion entitled Hartwell Corporation v. The Superior
Court of Ventura County, held that the CPUC had preemptive jurisdiction over
regulated public utilities and ordered dismissal of a series of lawsuits
pertaining to water quality filed against water utilities, including SCW. Seven
out of eleven lawsuits against SCW have been ordered for dismissal by the state
Court of Appeals -- the Adler (Case No. 1), Santamaria (Case No. 2), Anderson
(Case No. 3), Dominguez (Case No. 4), Celi (Case No. 5), Boswell (Case No. 6),
and Demciuc (Case No. 7) Matters. On October 11, 1999, one group of plaintiffs
has appealed to the California Supreme Court, which has accepted the case.
Management is unable to predict the outcome of this proceeding but, in any
event, does not anticipate a decision prior to 2001.
On December 3, 1998, SCW was named as a defendant in a complaint in
multiple counts, styled Abarca, et al. v. City of Pomona, et al. (Case No. 8),
filed in Los Angeles Superior Court which seeks recovery for negligence,
wrongful death, strict liability, permanent trespass, continuing trespass,
continuing nuisance, permanent nuisance, negligence per se, absolute liability
for ultrahazardous activity, fraudulent concealment, conspiracy/fraudulent
concealment, battery and unfair business practices on behalf of 383 plaintiffs
(the Abarca Matter). Plaintiffs seek damages, including general and special
damages according to proof, punitive and exemplary damages, as well as
attorney's fees, costs of suit and other unspecified relief. SCW was served on
June 18, 1999.
SCW was named as a defendant, along with the City of Pomona, California
and Xerox Corporation in the matter styled Adejare, et al. v. Southern
California Water Company, et al. (Case No. 9), filed on July 22, 1999 in Los
Angeles Superior Court which seeks recovery for wrongful death, battery and
fraudulent concealment (the Adejare Matter). Plaintiffs seek damages, including
general and
29
<PAGE> 32
special damages according to proof, punitive and exemplary damages, as well as
attorney's fees, costs of suit and other unspecified relief.
In December 1997 SCW was named a defendant in the matter of Nathaniel
Allen, Jr., et al. v. Aerojet-General Corporation, et al. (Case No. 10), which
was filed in Sacramento Superior Court. The complaint makes claims based on
wrongful death, personal injury, property damage as a result of nuisance and
trespass, medical monitoring, and diminution of property values (the Allen
Matter). Plaintiffs allege that SCW and other defendants have delivered water to
plaintiffs which allegedly is, or has been in the past, contaminated with a
number of chemicals, including TCE, PCE, carbon tetrachloride, perchlorate,
Freon-113, hexavalent chromium and other, unnamed, chemicals. SCW filed
Demurrers and Motion to Strike in this matter on June 5, 1998. On August 31,
1998, the judge assigned to the Allen Matter, acting on the Court's own motion,
issued a stay of all proceedings in the Allen matter pending the outcome of the
CPUC's Order Instituting Investigation (OII) proceeding. The plaintiffs
petitioned the Third District Court of Appeal for a Writ of Mandamus to overrule
the stay. The Court denied the petition. Plaintiff's then petitioned the
California Supreme Court for relief from the Appellate Court's ruling. The
California Supreme Court denied plaintiff's petition. Thus the stay in the Allen
Matter remains in effect.
In March 1998, SCW was named a defendant in the matter of Daphne Adams,
et al. v. Aerojet General, et al. (Case No. 11) that was filed in Sacramento
Superior Court (the Adams Matter). The complaint makes claims based on
negligence, strict liability, trespass, public nuisance, private nuisance,
negligence per se, absolute liability for ultrahazardous activity, fraudulent
concealment, violation of California Business and Professions Code section 17200
et seq., intentional infliction of emotional distress, intentional spoilage of
evidence, negligent destruction of evidence needed for prospective civil
litigation, wrongful death and medical monitoring. Plaintiffs seek damages,
including general, punitive and exemplary damages, as well as attorney's fees,
costs of suit, injunctive and restitutionary relief, disgorged profits and civil
penalties, medical monitoring according to proof and other unspecified relief.
SCW filed its Demurrers and Motion to Strike in this matter on June 5, 1998. On
August 31, 1998, the judge assigned to the Adams Matter, acting on the Court's
own motion, issued a stay of all proceedings in the Adams matter pending the
outcome of the CPUC's OII proceeding. The plaintiff's petitioned the Third
District Court of Appeal for a Writ of Mandamus to overrule the stay. The Court
denied the petition. Plaintiff's then petitioned the California Supreme Court
for relief from the Appellate Court's ruling. The California Supreme Court
denied plaintiff's petition. Thus the stay in the Adams Matter remains in
effect.
In light of the breadth of plaintiffs' claims in these matters, the lack
of factual information regarding plaintiffs' claims and injuries, if any, and
the fact that no discovery has yet been completed, SCW is unable at this time to
determine what, if any, potential liability it may have with respect to these
claims. Registrant believes there are no merits to these claims and intends to
vigorously defend against them.
ORDER INSTITUTING INVESTIGATION
In March 1998, the CPUC issued an OII to regulated water utilities in
the state of California, including SCW. The purpose of the OII is to determine
whether existing standards and policies regarding drinking water quality
adequately protect the public health and whether those standards and policies
are being uniformly complied with by those water utilities. The OII delineates
the constitutional and statutory jurisdiction of the CPUC and the California
Department of Health Services (DOHS) in establishing and enforcing adherence to
water quality standards. The CPUC's jurisdiction provides for the establishment
of rates, which permit water utilities to furnish water service meeting the
established water quality standards at prices, which are both affordable and
allow the utility to earn a reasonable return on its investment. SCW has
provided its response to a series of questions dealing with the adequacy of
current drinking water standards, compliance by water utilities with such
standards,
30
<PAGE> 33
appropriate remedies for failure to comply with safe drinking water standards
and whether increased enforcement and additional drinking water standards are
necessary.
On June 10, 1999, the CPUC issued an interim order, which established
that the CPUC has jurisdiction to conduct the investigation regarding matters
related to water quality over those water utilities subject to its authority.
The Administrative Law Judge assigned to the OII has issued a draft decision
finding that water utilities, including SCW, have complied with DOHS regulation
and requirements. SCW is unable to predict whether the draft decision will be
approved in part or in its entirety by the CPUC. SCW anticipates a final
decision by the CPUC on this matter in 2000.
OTHER LITIGATION
On October 25, 1999, SCW filed a lawsuit against the California Regional
Water Quality Control Board (CRWQCB) alleging that the CRWQCB has willfully
allowed portions of the Sacramento County Groundwater Basin to be injected with
chemical pollution that is destroying the underground water supply in SCW's
Rancho Cordova customer service area. In a separate case, also filed on October
25, 1999, SCW sued Aerojet General Corp. for causing the contamination. On March
22, 2000 Aerojet General Corp. filed a cross complaint against SCW for
negligence and constituting a public nuisance. Registrant is unable to determine
at this time what, if any, potential liability it may have with respect to the
cross complaint, but intends to vigorously defend itself against these
allegations. Management cannot predict the outcome of these proceedings.
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 March 31, 2000, earned surplus amounted to $61,521,000, none of
which was restricted as to payment of cash dividends on Registrant's Common
Shares by any terms of Registrant's debt instruments.
As of March 31, 2000, authorized but unissued Common Shares include
500,000 and 571,408 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 SCW and for investment purposes by
participants.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On or about March 24, 2000, common and preferred shareholders of AWR
were mailed a Notice of Annual Meeting and a Proxy Statement. Shareholders were
requested to vote their shares for two items:
1. Election of a slate of four Class II directors to serve for a two-year
term expiring at the end of the Annual Meeting of Shareholders in 2002, or
until their successors are chosen and qualified. The
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<PAGE> 34
following table presents the results of the election presented at the
Annual Meeting of Shareholders held on May 2, 2000:
<TABLE>
<CAPTION>
PERCENT VOTE
NAME "FOR" "WITHHELD"
- ---------------- ------------ ------------
<S> <C> <C>
Jean E. Auer 98.22% 1.78%
N.P. Dodge, Jr. 98.15% 1.85%
Robert F. Kathol 98.20% 1.80%
Lloyd E. Ross 98.41% 1.59%
</TABLE>
2. Consideration of a proposal to approve a stock incentive plan. The purpose
of the "2000 Plan" is to promote the success of Registrant by attracting,
motivating, rewarding, retaining and aligning the interests of
Registrant's employees, including officers, with those of shareholders
generally. The results of the voting are presented in the table below:
<TABLE>
<CAPTION>
PROPOSAL "FOR" "AGAINST" "ABSTAIN"
- --------- ------ --------- ---------
<S> <C> <C> <C>
2000 Plan 75.50% 22.84% 1.66%
</TABLE>
ITEM 5. OTHER INFORMATION
On May 1, 2000, the Board of Directors of Registrant declared a regular
quarterly dividend of $0.32 per common share. The dividend will be paid June 1,
2000 to shareholders of record as of the close of business on May 12, 2000. In
other actions, the Board of Directors declared regular quarterly dividends of
$0.25 per share, $0.265625 per share and $0.3125 per share on its 4%, 4-1/4% and
5% Cumulative Preferred Shares, respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
Exhibit 10.18 American States Water Company 2000 Stock Incentive Plan. (Submitted in
electronic format only to the Securities and Exchange Commission.)
Exhibit 27. Schedule UT. (Submitted in electronic format only to the
Securities and Exchange Commission.)
</TABLE>
No Reports of Form 8-K were filed during the period covered by this report.
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<PAGE> 35
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.
AMERICAN STATES WATER COMPANY
and its subsidiary
SOUTHERN CALIFORNIA WATER COMPANY
By : s/ McClellan Harris III
----------------------------------
McClellan Harris III
Vice President - Finance,
Chief Financial Officer,
Treasurer and Secretary
By : s/ Linda J. Matlick
----------------------------------
Linda J. Matlick
Controller
Southern California Water Company
Dated: May 8, 2000
33
<PAGE> 1
EXHIBIT 10.18
AMERICAN STATES WATER COMPANY
2000 STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
1. THE PLAN......................................................... 1
1.1 Purpose..................................................... 1
1.2 Administration and Authorization; Power and Procedure....... 1
1.3 Participation............................................... 2
1.4 Shares Available for Awards; Share Limits................... 2
1.5 Grant of Awards............................................. 2
1.6 Award Period................................................ 2
1.7 Limitations on Exercise and Vesting of Awards............... 3
1.8 Acceptance of Notes to Finance Exercise..................... 3
1.9 No Transferability; Limited Exception to Transfer
Restrictions................................................ 3
2. OPTIONS.......................................................... 4
2.1 Grants...................................................... 4
2.2 Option Price................................................ 4
2.3 Limitations on Grant and Terms of Incentive Stock Options... 4
2.4 Limits on 10% Holders....................................... 5
2.5 Option Repricing/Cancellation and Regrant/Waiver of
Restrictions................................................ 5
2.6 Effects of Termination of Employment; Termination of
Subsidiary Status; Discretionary Provisions................. 5
3. RESTRICTED STOCK AWARDS.......................................... 6
3.1 Grants...................................................... 6
3.2 Restrictions................................................ 6
3.3 Return to the Corporation................................... 6
4. OTHER PROVISIONS................................................. 6
4.1 Rights of Eligible Employees, Participants and
Beneficiaries............................................... 6
4.2 Adjustments; Acceleration................................... 7
4.3 Effect of Termination of Service on Awards.................. 8
4.4 Compliance with Laws........................................ 9
4.5 Tax Matters................................................. 9
4.6 Plan Amendment, Termination and Suspension.................. 9
4.7 Privileges of Stock Ownership............................... 10
4.8 Effective Date of the Plan.................................. 10
4.9 Term of the Plan............................................ 10
4.10 Governing Law/Construction/Severability..................... 10
4.11 Captions.................................................... 10
4.12 Stock-Based Awards in Substitution for Stock Options or
Awards Granted by Other Corporation......................... 11
4.13 Non-Exclusivity of Plan..................................... 11
4.14 No Corporate Action Restriction............................. 11
4.15 Other Company Benefit and Compensation Program.............. 11
5. DEFINITIONS...................................................... 11
5.1 Definitions................................................. 11
</TABLE>
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AMERICAN STATES WATER COMPANY
2000 STOCK INCENTIVE PLAN
1. THE PLAN
1.1 Purpose
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of Awards to attract, motivate,
retain and reward key employees, including officers, whether or not directors,
of the Company with awards and incentives for high levels of individual
performance and improved financial performance of the Company. "Corporation"
means American States Water Company and "Company" means the Corporation and its
Subsidiaries, collectively. These terms and other capitalized terms are defined
in Article 5.
1.2 Administration and Authorization; Power and Procedure
(a) Committee. This Plan shall be administered by and all Awards to
Eligible Employees shall be authorized by the Committee. Action of the Committee
with respect to the administration of this Plan shall be taken pursuant to a
majority vote or by written consent of its members.
(b) Plan Awards; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan, the Committee shall have the authority:
(i) to determine eligibility and, from among those persons determined
to be eligible, the particular Eligible Employees who will receive an
Award;
(ii) to grant Awards to Eligible Employees, determine the price at
which securities will be offered or awarded and the amount of securities to
be offered or awarded to any of such persons, and determine the other
specific terms and conditions of such Awards consistent with the express
limits of this Plan, and establish the installments (if any) in which such
Awards shall become exercisable or shall vest, or determine that no delayed
exercisability or vesting is required, and establish the events of
termination or reversion of such Awards;
(iii) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and Participants under this Plan,
further define the terms used in this Plan, and prescribe, amend and
rescind rules and regulations relating to the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all outstanding
Awards held by Eligible Employees, subject to any required consent under
Section 4.6;
(vi) to accelerate or extend the exercisability or extend the term of
any or all such outstanding Awards within the maximum ten-year term of
Awards under Section 1.6; and
(vii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for the
administration of this Plan and the effectuation of its purposes.
(c) Binding Determinations/Liability Limitation. Any action taken by, or
inaction of, the Corporation, any Subsidiary, the Board or the Committee
relating or pursuant to this Plan and within its authority hereunder or under
applicable law shall be within the absolute discretion of that entity or body
and shall be conclusive and binding upon all persons. Neither the Board nor any
Committee, nor any member thereof or person acting at the direction thereof,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith in connection with this Plan (or any Award made
under this Plan), and all such persons shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage or expense
(including, without limitation, attorneys' fees) arising or resulting therefrom
to the
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fullest extent permitted by law and/or under any directors and officers
liability insurance coverage that may be in effect from time to time.
(d) Reliance on Experts. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the case may
be, may obtain and may rely upon the advice of experts, including professional
advisors to the Corporation. No director, officer or agent of the Company shall
be liable for any such action or determination taken or made or omitted in good
faith.
(e) Delegation. The Committee may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
1.3 Participation
Awards may be granted by the Committee only to those persons that the
Committee determines to be Eligible Employees. An Eligible Employee who has been
granted an Award may, if otherwise eligible, be granted additional Awards if the
Committee shall so determine.
1.4 Shares Available for Awards; Share Limits
(a) Shares Available. Subject to the provisions of Section 4.2, the capital
stock that may be delivered under this Plan shall be shares of the Corporation's
authorized but unissued Common Stock. The shares may be delivered for any lawful
consideration.
(b) Share Limits. The maximum number of shares of Common Stock that may be
delivered pursuant to Awards granted to Eligible Employees under this Plan shall
not exceed 250,000 shares (the "Share Limit"). The maximum number of shares of
Common Stock that may be delivered pursuant to options qualified as Incentive
Stock Options granted under this Plan is 125,000 shares. The maximum number of
shares subject to those options that are granted during any calendar year to any
individual shall be limited to 15,000 and the maximum individual limit on the
number of shares in the aggregate subject to all Awards that during any calendar
year are granted under this Plan shall be 15,000. Each of the four foregoing
numerical limits shall be subject to adjustment as contemplated by this Section
1.4 and Section 4.2.
(c) Share Reservation; Replenishment and Reissue of Unvested Awards. No
Award may be granted under this Plan unless, on the date of grant, the sum of
(i) the maximum number of shares issuable at any time pursuant to such Award,
plus (ii) the number of shares that have previously been issued pursuant to
Awards granted under this Plan, other than reacquired shares available for
reissue consistent with any applicable legal limitations, plus (iii) the maximum
number of shares that may be issued at any time after such date of grant
pursuant to Awards that are outstanding on such date, does not exceed the Share
Limit. Shares that are subject to or underlie Awards which expire or for any
reason are canceled or terminated, are forfeited, fail to vest, or for any other
reason are not paid or delivered under this Plan, as well as reacquired shares,
shall again, except to the extent prohibited by law, be available for subsequent
Awards under the Plan. Except as limited by law, if an Award is or may be
settled only in cash, such Award need not be counted against any of the limits
under this Section 1.4.
1.5 Grant of Awards
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Award and the
price (if any) to be paid for the shares or the Award. Each Award shall be
evidenced by an Award Agreement signed by the Corporation and, if required by
the Committee, by the Participant. The Award Agreement shall set forth the
material terms and conditions of the Award established by the Committee
consistent with the specific provisions of this Plan.
1.6 Award Period
Each Award and all executory rights or obligations under the related Award
Agreement shall expire on such date (if any) as shall be determined by the
Committee, but in the case of Options or other rights to acquire Common Stock
not later than ten (10) years after the Award Date.
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1.7 Limitations on Exercise and Vesting of Awards
(a) Provisions for Exercise. Unless the Committee otherwise expressly
provides, no Award shall be exercisable or shall vest until at least six months
after the initial Award Date, and once exercisable an Award shall remain
exercisable until the expiration or earlier termination of the Award.
(b) Procedure. Any exercisable Award shall be deemed to be exercised when
the Secretary of the Corporation receives written notice of such exercise from
the Participant, together with any required payment made in accordance with
Section 2.2.
(c) Fractional Shares/Minimum Issue. Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may determine in
the case of Eligible Employees that cash, other securities, or other property
will be paid or transferred in lieu of any fractional share interests. No fewer
than 100 shares may be purchased on exercise of any Award at one time unless the
number purchased is the total number at the time available for purchase under
the Award.
1.8 Acceptance of Notes to Finance Exercise
The Corporation may, with the Committee's approval, accept one or more
notes from any Eligible Employee in connection with the exercise or receipt of
any outstanding Award; provided that any such note shall be subject to the
following terms and conditions:
(a) The principal of the note shall not exceed the amount required to
be paid to the Corporation upon the exercise or receipt of one or more
Awards under the Plan and the note shall be delivered directly to the
Corporation in consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the Committee;
provided that the term of the note, including extensions, shall not exceed
a period of five years.
(c) The note shall provide for full recourse to the Participant and
shall bear interest at a rate determined by the Committee but not less than
the interest rate necessary to avoid the imputation of interest under the
Code.
(d) If the employment of the Participant terminates, the unpaid
principal balance of the note shall become due and payable on the 10th
business day after such termination; provided, however, that if a sale of
such shares would cause such Participant to incur liability under Section
16(b) of the Exchange Act, the unpaid balance shall become due and payable
on the 10th business day after the first day on which a sale of such shares
could have been made without incurring such liability assuming for these
purposes that there are no other transactions (or deemed transactions in
securities of this Corporation) by the Participant subsequent to such
termination.
(e) If required by the Committee or by applicable law, the note shall be
secured by a pledge of any shares or rights financed thereby in compliance with
applicable law.
(f) The terms, repayment provisions, and collateral release provisions of
the note and the pledge securing the note shall conform with applicable rules
and regulations of the Federal Reserve Board as then in effect.
1.9 No Transferability; Limited Exception to Transfer Restrictions
(a) Limit On Exercise and Transfer. Unless otherwise expressly provided in
(or pursuant to) this Section 1.9, by applicable law and by the Award Agreement,
as the same may be amended, (i) all Awards are non-transferable and shall not be
subject in any manner to sale, transfer, anticipation, alienation, assignment,
pledge, encumbrance or charge; Awards shall be exercised only by the
Participant; and (ii) amounts payable or shares issuable pursuant to an Award
shall be delivered only to (or for the account of) the Participant.
(b) Exceptions. The Committee may permit Awards to be exercised by and paid
only to certain persons or entities related to the Participant, including but
not limited to members of the Participant's immediate family, or trusts or other
entities whose beneficiaries or beneficial owners are members of the
Participant's immediate family, pursuant to such conditions and procedures as
the Committee may establish. Any permitted transfer shall be subject to the
condition that the Committee receive evidence satisfactory to it that
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<PAGE> 6
the transfer is being made for essentially estate and/or tax planning purposes
on a gratuitous or donative basis and without consideration (other than nominal
consideration or in exchange for an interest in a qualified transferee).
Notwithstanding the foregoing or anything to the contrary in Section 1.9(c),
ISOs and Restricted Stock Awards shall be subject to any and all additional
transfer restrictions under the Code.
(c) Further Exceptions to Limits On Transfer. The exercise and transfer
restrictions in Section 1.9(a) shall not apply to:
(i) transfers to the Corporation,
(ii) the designation of a beneficiary to receive benefits in the event
of the Participant's death or, if the Participant has died, transfers to or
exercise by the Participant's beneficiary, or, in the absence of a validly
designated beneficiary, transfers by will or the laws of descent and
distribution,
(iii) transfers pursuant to a QDRO order if approved or ratified by
the Committee,
(iv) if the Participant has suffered a disability, permitted transfers
or exercises on behalf of the Participant by his or her legal
representative, or
(v) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the purpose of (or
who otherwise facilitate) the exercise of Awards consistent with applicable
laws and the express authorization of the Committee.
2. OPTIONS
2.1 Grants
One or more Options may be granted under this Article to any Eligible
Employee. Each Option granted shall be designated in the applicable Award
Agreement, by the Committee as either an Incentive Stock Option, subject to
Section 2.3, or a Non-Qualified Stock Option.
2.2 Option Price
(a) Pricing Limits. The purchase price per share of the Common Stock
covered by each Option shall be determined by the Committee at the time of the
Award, but shall not be less than 100% (110% in the case of an ISO granted to a
Participant described in Section 2.4) of the Fair Market Value of the Common
Stock on the date of grant.
(b) Payment Provisions. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full at the
time of each purchase in one or a combination of the following methods: (i) in
cash or by electronic funds transfer; (ii) by check payable to the order of the
Corporation; (iii) if authorized by the Committee or specified in the applicable
Award Agreement, by a promissory note of the Participant consistent with the
requirements of Section 1.8; (iv) by notice and third party payment in such
manner as may be authorized by the Committee; or (v) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant, provided,
however, that the Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by delivering such shares, and
provided further that any shares delivered which were initially acquired upon
exercise of a stock option must have been owned by the Participant at least six
months as of the date of delivery. Shares of Common Stock used to satisfy the
exercise price of an Option shall be valued at their Fair Market Value on the
date of exercise.
2.3 Limitations on Grant and Terms of Incentive Stock Options
(a) $100,000 Limit. To the extent that the aggregate "Fair Market Value" of
stock with respect to which incentive stock options first become exercisable by
a Participant in any calendar year exceeds $100,000, taking into account both
Common Stock subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as Nonqualified Stock Options. For this purpose, the
"Fair Market Value" of the stock subject to options shall be determined as of
the date the options were awarded. In reducing the number of options treated as
incentive stock options to meet the $100,000 limit, the most recently granted
options shall be reduced first. To the extent a reduction
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<PAGE> 7
of simultaneously granted options is necessary to meet the $100,000 limit, the
Committee may, in the manner and to the extent permitted by law, designate which
shares of Common Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
(b) Option Period. Each Option and all rights thereunder shall expire no
later than 10 years after the Award Date.
(c) Other Code Limits. Incentive Stock Options may only be granted to
Eligible Employees of the Corporation or a Subsidiary that satisfies the other
eligibility requirements of the Code. There shall be imposed in any Award
Agreement relating to Incentive Stock Options such other terms and conditions as
from time to time are required in order that the Option be an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.4 Limits on 10% Holders
No Incentive Stock Option may be granted to any person who, at the time the
Option is granted, owns (or is deemed to own under Section 424(d) of the Code)
shares of outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation, unless the
exercise price of such Option is at least 110% of the Fair Market Value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five years from the date such Option is granted.
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions
Subject to Section 1.4 and Section 4.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may authorize,
generally or in specific cases only, for the benefit of any Eligible Employee
any adjustment in the exercise or purchase price, the vesting schedule, the
number of shares subject to, the restrictions upon or the term of, an Award
granted under this Article by cancellation of an outstanding Award and a
subsequent regranting of an Award, by amendment, by substitution of an
outstanding Award, by waiver or by other legally valid means. Such amendment or
other action may result among other changes in an exercise or purchase price
which is higher or lower than the exercise or purchase price of the original or
prior Award, provide for a greater or lesser number of shares subject to the
Award, or provide for a longer or shorter vesting or exercise period.
2.6 Effects of Termination of Employment; Termination of Subsidiary
Status; Discretionary Provisions
(a) Options -- Resignation or Dismissal. If the Participant's employment by
the Company terminates for any reason (the date of such termination being
referred to as the "Severance Date") other than Retirement, Total Disability or
death, or for Cause (as determined in the discretion of the Committee), the
Participant shall have, unless otherwise provided in the Award Agreement and
subject to earlier termination pursuant to or as contemplated by Section 1.6 or
4.2, three months after the Severance Date to exercise any Option to the extent
it shall have become exercisable on the Severance Date. In the case of a
termination for Cause, the Option shall terminate on the Severance Date. In
other cases, the Option, to the extent not exercisable on the Severance Date,
shall terminate.
(b) Options -- Death or Disability. If the Participant's employment by the
Company terminates as a result of Total Disability or death, the Participant,
Participant's Personal Representative or his or her Beneficiary, as the case may
be, shall have, unless otherwise provided in the Award Agreement and subject to
earlier termination pursuant to or as contemplated by Section 1.6 or 4.2, until
12 months after the Severance Date to exercise any Option to the extent it shall
have become exercisable by the Severance Date. Any Option to the extent not
exercisable on the Severance Date shall terminate.
(c) Options -- Retirement. If the Participant's employment by the Company
terminates as a result of Retirement, the Participant, Participant's Personal
Representative or his or her Beneficiary, as the case may be, shall have, unless
otherwise provided in the Award Agreement and subject to earlier termination
pursuant to or as contemplated by Section 1.6 or 4.2, until 12 months after the
Severance Date to exercise any Option to the extent it shall have become
exercisable by the Severance Date. The Option, to the extent not exercisable on
the Severance Date, shall terminate.
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(d) Committee Discretion. Notwithstanding the foregoing provisions of this
Section 2.6, in the event of, or in anticipation of, a termination of employment
with the Company for any reason, other than discharge for Cause, the Committee
may, in its discretion, increase the portion of the Participant's Award
available to the Participant, or Participant's Beneficiary or Personal
Representative, as the case may be, or, subject to the provisions of Section
1.6, extend the exercisability period upon such terms as the Committee shall
determine and expressly set forth in or by amendment to the Award Agreement.
3. RESTRICTED STOCK AWARDS
3.1 Grants
The Committee may, in its discretion, grant one or more Restricted Stock
Awards to any Eligible Employee. Each Restricted Stock Award Agreement shall
specify the number of shares of Common Stock to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not less than
the minimum lawful consideration under applicable state law) by the Participant,
the extent (if any) to which and the time (if ever) at which the Participant
shall be entitled to dividends, voting and other rights in respect of the shares
prior to vesting, and the restrictions (which may be based on performance
criteria, passage of time or other factors or any combination thereof) imposed
on such shares and the conditions of release or lapse of such restrictions. Such
restrictions shall not lapse earlier than six months after the Award Date,
except to the extent the Committee may otherwise provide. Stock certificates
evidencing shares of Restricted Stock pending the lapse of the restrictions
("Restricted Shares") shall bear a legend making appropriate reference to the
restrictions imposed hereunder and shall be held by the Corporation or by a
third party designated by the Committee until the restrictions on such shares
shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award and Section 1.7. Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further assurance and
documents as the Committee may require to enforce the restrictions.
3.2 Restrictions
(a) Pre-Vesting Restraints. Except as provided in Section 3.1 and 1.9,
restricted shares comprising any Restricted Stock Award may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions on such shares have lapsed
and the shares have become vested.
(b) Dividend and Voting Rights. Unless otherwise provided in the applicable
Award Agreement, a Participant receiving a Restricted Stock Award shall be
entitled to cash dividend and voting rights for all shares issued even though
they are not vested, provided that such rights shall terminate immediately as to
any Restricted Shares which cease to be eligible for vesting.
(c) Cash Payments. If the Participant shall have paid or received cash
(including any dividends) in connection with the Restricted Stock Award, the
Award Agreement shall specify whether and to what extent such cash shall be
returned (with or without an earnings factor) as to any restricted shares which
cease to be eligible for vesting.
3.3 Return to the Corporation
Unless the Committee otherwise expressly provides, Restricted Shares that
remain subject to restrictions at the time of termination of employment or are
subject to other conditions to vesting that have not been satisfied by the time
specified in the applicable Award Agreement shall not vest and shall be returned
to the Corporation in such manner and on such terms as the Committee shall
therein provide.
4. OTHER PROVISIONS
4.1 Rights of Eligible Employees, Participants and Beneficiaries
(a) Employment Status. Status as an Eligible Employee shall not be
construed as a commitment that any Award will be made under this Plan to an
Eligible Employee or to Eligible Employees generally.
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<PAGE> 9
(b) No Employment Contract. Nothing contained in this Plan (or in any other
documents under this Plan or in any Award) shall confer upon any Eligible
Employee or Participant any right to continue in the employ or other service of
the Company, constitute any contract or agreement of employment or other service
or affect an employee's status as an employee at will, nor shall interfere in
any way with the right of the Company to change a person's compensation or other
benefits, or to terminate his or her employment or other service, with or
without cause. Nothing in this Section, however, is intended to adversely affect
any express independent right of such person under a separate employment or
service contract other than an Award Agreement.
(c) Plan Not Funded. Awards payable under this Plan shall be payable in
shares or from the general assets of the Corporation, and (except as provided in
Section 1.4(c)) no special or separate reserve, fund or deposit shall be made to
assure payment of such Awards. No Participant, Beneficiary or other person shall
have any right, title or interest in any fund or in any specific asset
(including shares of Common Stock, except as expressly otherwise provided) of
the Company by reason of any Award hereunder. Neither the provisions of this
Plan (or of any related documents), nor the creation or adoption of this Plan,
nor any action taken pursuant to the provisions of this Plan shall create, or be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and any Participant, Beneficiary or other person. To the extent that a
Participant, Beneficiary or other person acquires a right to receive payment
pursuant to any Award hereunder, such right shall be no greater than the right
of any unsecured general creditor of the Company.
4.2 Adjustments; Acceleration
(a) Adjustments. Upon or in contemplation of any reclassification,
recapitalization, stock split (including a stock split in the form of a stock
dividend) or reverse stock split; any merger, combination, consolidation, or
other reorganization; any spin-off, split-up, or similar extraordinary dividend
distribution ("spin-off") in respect of the Common Stock (whether in the form of
securities or property); any exchange of Common Stock or other securities of the
Corporation, or any similar, unusual or extraordinary corporate transaction in
respect of the Common Stock; or a sale of all or substantially all the assets of
the Corporation as an entirety ("asset sale"); then the Committee shall, in such
manner, to such extent (if any) and at such time as it deems appropriate and
equitable in the circumstances:
(1) proportionately adjust any or all of (a) the number and type of
shares of Common Stock (or other securities) that thereafter may be made
the subject of Awards (including the specific maxima and numbers of shares
set forth elsewhere in this Plan), (b) the number, amount and type of
shares of Common Stock (or other securities or property) subject to any or
all outstanding Awards, (c) the grant, purchase, or exercise price of any
or all outstanding Awards, (d) the securities, cash or other property
deliverable upon exercise of any outstanding Awards, or (e) (subject to
limitations under Section 4.10(c)) the performance standards appropriate to
any outstanding Awards, or
(2) make provision for a cash payment or for the assumption,
substitution or exchange of any or all outstanding share-based Awards or
the cash, securities or property deliverable to the holder of any or all
outstanding share-based Awards, based upon the distribution or
consideration payable to holders of the Common Stock upon or in respect of
such event.
The Committee may adopt such valuation methodologies for outstanding Awards
as it deems reasonable in the event of a cash or property settlement and, in the
case of Options, but without limitation on other methodologies, may base such
settlement solely upon the excess if any of the amount payable upon or in
respect of such event over the exercise or strike price of the Award.
In each case, with respect to Awards of Incentive Stock Options, no
adjustment shall be made in a manner that would cause the Plan to violate
Section 422 or 424(a) of the Code or any successor provisions without the
written consent of holders materially adversely affected thereby.
In any of such events, the Committee may take such action prior to such
event to the extent that the Committee deems the action necessary to permit the
Participant to realize the benefits intended to be conveyed with respect to the
underlying shares in the same manner as is or will be available to shareholders
generally.
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(b) Possible Early Termination of Accelerated Awards. If any Option or
other right to acquire Common Stock under this Plan has been fully accelerated
as required or permitted by Section 4.2(c) but is not exercised prior to (1) a
dissolution of the Company, or (2) an event described in Section 4.2(a) that the
Company does not survive, or (3) the consummation of an event described in
Section 4.2(a) involving a Change of Control Event approved by the Board, such
Option or right shall terminate, subject to any provision that has been
expressly made by the Board or the Committee, through a plan of reorganization
or otherwise, for the survival, substitution, assumption, exchange or other
settlement of such Option or right.
(c) Acceleration of Awards Upon Change in Control. Unless prior to a Change
in Control Event the Committee determines that, upon its occurrence, benefits
under any or all Awards shall not be accelerated or determines that only certain
or limited benefits under any or all Awards shall be accelerated and the extent
to which they shall be accelerated, and/or establishes a different time in
respect of such Event for such acceleration, then upon the occurrence of a
Change in Control Event:
(1) each Option shall become immediately exercisable, and
(2) Restricted Stock shall immediately vest free of restrictions.
Any discretion with respect to these events shall be limited to the extent
required by applicable accounting requirements in the case of a transaction
intended to be accounted for as a pooling of interests transaction.
The Committee may override the limitations on acceleration in this Section
4.2(c) by express provision in the Award Agreement and may accord any Eligible
Employee a right to refuse any acceleration, whether pursuant to the Award
Agreement or otherwise, in such circumstances as the Committee may approve. Any
acceleration of Awards shall comply with applicable legal requirements and, if
necessary to accomplish the purposes of the acceleration or if the circumstances
require, may be deemed by the Committee to occur (subject to Section 4.2(d)) a
limited period of time not greater than 30 days before the event. Without
limiting the generality of the foregoing, the Committee may deem an acceleration
to occur immediately prior to the applicable event and/or reinstate the original
terms of an Award if an event giving rise to an acceleration does not occur.
(d) Possible Rescission of Acceleration. If the vesting of an Award has
been accelerated expressly in anticipation of an event or upon shareholder
approval of an event and the Committee or the Board later determines that the
event will not occur, the Committee may rescind the effect of the acceleration
as to any then outstanding and unexercised or otherwise unvested Awards.
(e) Acceleration Upon Termination of Service Following a Change in Control.
(1) Termination After Change in Control. If any Participant's
employment is terminated by the Company upon or within one year after a
Change in Control Event, and the termination is not the result of death,
Total Disability, Retirement or a termination for Cause, then, subject to
the other provisions of this Section 4.2 (including without limitation
Section 4.2(b) and Section 4.4), all outstanding Options and other Awards
held by the Participant shall be deemed fully vested immediately prior to
the Severance Date, irrespective of the vesting provisions of the
Participant's Award Agreement, unless the Award Agreement specifies a
different result in the case of a Change in Control Event.
(2) No Extension Beyond Expiration. Notwithstanding the foregoing, in
no event shall an Award be reinstated or extended beyond its final
expiration date.
4.3 Effect of Termination of Service on Awards
(a) General. The Committee shall establish the effect of a termination of
employment on the rights and benefits under each Award under this Plan and in so
doing may make distinctions based upon the cause of termination.
(b) Events Not Deemed Termination's of Service. Unless Company policy or
the Committee otherwise provides, the employment relationship shall not be
considered terminated in the case of (i) sick leave, (ii) military leave, or
(iii) any other leave of absence authorized by the Company or the Committee;
provided
8
<PAGE> 11
that unless reemployment upon the expiration of such leave is guaranteed by
contract or law, such leave is for a period of not more than 90 days. In the
case of any Eligible Employee on an approved leave of absence, continued vesting
of the Award while on leave from the employ of the Company shall be suspended,
unless the Committee otherwise provides or applicable law otherwise requires. In
no event shall an Award be exercised after the expiration of the term set forth
in the Award Agreement.
(c) Effect of Change of Subsidiary Status. For purposes of this Plan and
any Award, if an entity ceases to be a Subsidiary a termination of employment
shall be deemed to have occurred with respect to each Eligible Employee in
respect of the Subsidiary who does not continue as an Eligible Employee in
respect of another entity within the Company.
4.4 Compliance with Laws
This Plan, the granting and vesting of Awards under this Plan, the offer,
issuance and delivery of shares of Common Stock, the acceptance of promissory
notes and/or the payment of money under this Plan or under Awards are subject to
compliance with all applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law and federal
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. In addition, any securities
delivered under this Plan may be subject to any special restrictions that the
Committee may require to preserve a pooling of interests under generally
accepted accounting principles. The person acquiring any securities under this
Plan will, if requested by the Company, provide such assurances and
representations to the Company as the Committee may deem necessary or desirable
to assure compliance with all applicable legal and accounting requirements.
4.5 Tax Matters
(a) Provision for Tax Withholding or Offset. Upon any exercise, vesting, or
payment of any Award or upon the disposition of shares of Common Stock acquired
pursuant to the exercise of an Incentive Stock Option prior to satisfaction of
the holding period requirements of Section 422 of the Code, the Company shall
have the right at its option to (i) require the Participant (or Personal
Representative or Beneficiary, as the case may be) to pay or provide for payment
of the minimum amount of any taxes which the Company may be required to withhold
with respect to such Award event or payment or (ii) deduct from any amount
payable in cash the minimum amount of any taxes which the Company may be
required to withhold with respect to such cash payment. In any case where a tax
is required to be withheld in connection with the delivery of shares of Common
Stock under this Plan, the Committee may in its sole discretion (subject to
Section 4.4) grant (either at the time of the Award or thereafter) to the
Participant the right to elect, pursuant to such rules and subject to such
conditions as the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the appropriate
number of shares valued at their Fair Market Value, to satisfy such minimum
withholding obligation, determined in each case as of the trading day next
preceding the applicable date of exercise, vesting or payment. Shares in no
event shall be withheld in excess of the minimum number required for tax
withholding under these provisions.
4.6 Plan Amendment, Termination and Suspension
(a) Board Authorization. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part. No Awards
may be granted during any suspension of this Plan or after termination of this
Plan, but the Committee shall retain jurisdiction as to Awards then outstanding
in accordance with the terms of this Plan.
(b) Shareholder Approval. To the extent then required under Sections 162,
422 or 424 of the Code or any other applicable law, or deemed necessary or
advisable by the Board, any amendment to this Plan shall be subject to
shareholder approval.
(c) Amendments to Awards. Without limiting any other express authority of
the Committee under (but subject to) the express limits of this Plan, the
Committee by agreement or resolution may waive conditions of or limitations on
Awards to Participants that the Committee in the prior exercise of its
discretion has imposed, without the consent of a Participant, and (subject to
the requirements of Section 1.2(b)) may make other
9
<PAGE> 12
changes to the terms and conditions of Awards that do not affect in any manner
materially adverse to the Participant, the Participant's rights and benefits
under an Award.
(d) Limitations on Amendments to Plan and Awards. No amendment, suspension
or termination of this Plan or change of or affecting any outstanding Award
shall, without written consent of the Participant, affect in any manner
materially adverse to the Participant any rights or benefits of the Participant
or obligations of the Company under any Award granted under this Plan prior to
the effective date of such change. Changes contemplated by Section 4.2 shall not
be deemed to constitute changes or amendments for purposes of this Section 4.6.
4.7 Privileges of Stock Ownership
Except as otherwise expressly authorized by the Committee or this Plan, a
Participant shall not be entitled to any privilege of stock ownership as to any
shares of Common Stock not actually delivered to and held of record by the
Participant. No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to such date of delivery.
4.8 Effective Date of the Plan
This Plan is effective as of January 27, 2000 the date of approval by the
Board. The Plan shall be submitted for and subject to shareholder approval.
4.9 Term of the Plan
No Award will be granted under this Plan after January 26, 2010 (the
"termination date"). Unless otherwise expressly provided in this Plan or in an
applicable Award Agreement, any Award granted prior to the termination date may
extend beyond such date, and all authority of the Committee with respect to
Awards hereunder, including the authority to amend an Award, shall continue
during any suspension of this Plan and in respect of Awards outstanding on the
termination date.
4.10 Governing Law/Construction/Severability
(a) Choice of Law. This Plan, the Awards, all documents evidencing Awards
and all other related documents shall be governed by, and construed in
accordance with the laws of the State of California.
(b) Severability. If a court of competent jurisdiction holds any provision
invalid and unenforceable, the remaining provisions of this Plan shall continue
in effect.
(c) Plan Construction.
(1) Rule 16b-3. It is the intent of the Corporation that the Awards
and transactions permitted by Awards be interpreted in a manner that, in
the case of Participants who are or may be subject to Section 16 of the
Exchange Act, satisfies the applicable requirements for exemptions under
Rule 16b-3. The exemption will not be available if the authorization of
actions by any Committee of the Board with respect to such Awards does not
satisfy the applicable conditions of Rule 16b-3. Notwithstanding the
foregoing, the Corporation shall have no liability to any Participant for
Section 16 consequences of Awards or events under Awards.
(2) Section 162(m). It is the further intent of the Company that (to
the extent the Company or Awards under this Plan may be or become subject
to limitations on deductibility under Section 162(m) of the Code), Options
granted with an exercise or base price not less than Fair Market Value on
the date of grant will qualify as performance-based compensation or
otherwise be exempt from deductibility limitations under Section 162(m) of
the Code, to the extent that the authorization of the Award (or the payment
thereof, as the case may be) satisfies any applicable administrative
requirements thereof.
4.11 Captions
Captions and headings are given to the sections and subsections of this
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
this Plan or any provision thereof.
10
<PAGE> 13
4.12 Stock-Based Awards in Substitution for Stock Options or Awards
Granted by Other Corporation
Awards may be granted to Eligible Employees under this Plan in substitution
for employee stock options, stock appreciation rights, restricted stock or other
stock-based awards granted by other entities to persons who are or who will
become Eligible Employees in respect of the Company, in connection with a
distribution, merger or other reorganization by or with the granting entity or
an affiliated entity, or the acquisition by the Company, directly or indirectly,
or all or a substantial part of the stock or assets of the employing entity.
4.13 Non-Exclusivity of Plan
Nothing in this Plan shall limit or be deemed to limit the authority of the
Board or the Committee to grant awards or authorize any other compensation, with
or without reference to the Common Stock, under any other plan or authority.
4.14 No Corporate Action Restriction
The existence of the Plan, the Award Agreements and the Awards granted
hereunder shall not limit, affect or restrict in any way the right or power of
the Board or the shareholders of the Corporation to make or authorize: (a) any
adjustment, recapitalization, reorganization or other change in the
Corporation's or any Subsidiary's capital structure or its business, (b) any
merger, amalgamation, consolidation or change in the ownership of the
Corporation or any subsidiary, (c) any issue of bonds, debentures, capital,
preferred or prior preference stock ahead of or affecting the Corporation's or
any Subsidiary's capital stock or the rights thereof, (d) any dissolution or
liquidation of the Corporation or any Subsidiary, (e) any sale or transfer of
all or any part of the Corporation or any Subsidiary's assets or business, or
(f) any other corporate act or proceeding by the Corporation or any Subsidiary.
No participant, beneficiary or any other person shall have any claim under any
Award or Award Agreement against any member of the Board or the Committee, or
the Corporation or any employees, officers or agents of the Corporation or any
Subsidiary, as a result of any such action.
4.15 Other Company Benefit and Compensation Program
Payments and other benefits received by a Participant under an Award made
pursuant to this Plan shall not be deemed a part of a Participant's compensation
for purposes of the determination of benefits under any other employee welfare
or benefit plans or arrangements, if any, provided by the Corporation or any
Subsidiary, except where the Committee or the Board expressly otherwise provides
or authorizes in writing. Awards under this Plan may be made in addition to, in
combination with, as alternatives to or in payment of grants, awards or
commitments under any other plans or arrangements of the Company or the
Subsidiaries.
5. DEFINITIONS
5.1 Definitions
(a) "Award" means an award of any Option or Restricted Stock, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.
(b) "Award Agreement" means any writing setting forth the terms of an Award
that has been authorized by the Committee.
(c) "Award Date" means the date upon which the Committee took the action
granting an Award or such later date as the Committee designates as the Award
Date at the time of the Award.
(d) "Award Period" means the period beginning on an Award Date and ending
on the expiration date of such Award.
(e) "Beneficiary" means the person, persons, trust or trusts designated by
a Participant or, in the absence of a designation, entitled by will or the laws
of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan in the event of a Participant's death, and shall
mean the Participant's executor or administrator if no other Beneficiary is
designated and able to act under the circumstances.
(f) "Board" means the Board of Directors of the Corporation.
11
<PAGE> 14
(g) "Cause" with respect to a Participant means (unless otherwise expressly
provided in the applicable Award Agreement or another applicable contract with
the Participant) a termination of employment based upon a finding by the
Company, acting in good faith and based on its reasonable belief at the time,
that the Participant:
(1) has failed to render services to the Company where such failure
amounts to gross negligence or misconduct of the Participant's
responsibility and duties; or
(2) has committed an act of fraud or been dishonest against the
Company or any affiliate of the Company; or
(3) has been convicted of a felony or other crime involving moral
turpitude.
A termination for Cause shall be deemed to occur (subject to reinstatement
upon a contrary final determination by the Committee) on the date on which the
Company first delivers written notice to the Participant of a finding of
termination for Cause.
(h) "Change in Control Event" means any of the following events
(1) the dissolution or liquidation of either the Company, unless its
business is continued by another entity in which holders of the Company's
voting securities immediately before the event own, either directly or
indirectly, more than 50% of the continuing entity's voting securities
immediately after the event;
(2) any sale, lease, exchange or other transfer (in one or a series of
transactions) of all or substantially all of the assets of either the
Company, unless its business is continued by another entity in which
holders of the Company's voting securities immediately before the event
own, either directly or indirectly, more than 50% of the continuing
entity's voting securities immediately after the event;
(3) any reorganization or merger of the Company, unless the holders of
the Company's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the continuing or surviving
entity's voting securities immediately after the event;
(4) an acquisition by any person, entity or group acting in concert of
more than 50% of the voting securities of the Company, unless the holders
of the Company's voting securities immediately before the event own, either
directly or indirectly, more than 50% of the acquirer's voting securities
immediately after the acquisition; or
(5) a change of one-half or more of the members of the Board of
Directors of the Company within a twelve-month period, unless the election
or nomination for election by shareholders of new directors within such
period constituting a majority of the applicable Board was approved by the
vote of at least two-thirds of the directors then still in office who were
in office at the beginning of the twelve-month period.
(i) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(j) "Commission" means the Securities and Exchange Commission.
(k) "Committee" means the Board or one or more committees appointed by the
Board to administer all or certain aspects of this Plan, each committee to be
comprised solely of one or more directors or such number as may be required
under applicable law.
(l) "Common Stock" means the Common Shares of the Corporation and such
other securities or property as may become the subject of Awards, or become
subject to Awards, pursuant to an adjustment made under Section 4.2 of this
Plan.
(m) "Company" means, collectively, the Corporation and its Subsidiaries.
(n) "Corporation" means American States Water Company, a California
corporation, and its successors.
12
<PAGE> 15
(o) "Eligible Employee" means an officer (whether or not a director) or key
employee of the Company, including participants in the American States Water
Company Annual Incentive Plan.
(p) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(q) "Fair Market Value" on any date means (1) if the stock is listed or
admitted to trade on a national securities exchange, the closing price of the
stock on the Composite Tape, as published in the Western Edition of The Wall
Street Journal, of the principal national securities exchange on which the stock
is so listed or admitted to trade, on such date, or, if there is no trading of
the stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (2) if the stock is not listed or admitted to trade on a national
securities exchange, the last price for the stock on such date, as furnished by
the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ
National Market Reporting System or a similar organization if the NASD is no
longer reporting such information; (3) if the stock is not listed or admitted to
trade on a national securities exchange and is not reported on the National
Market Reporting System, the mean between the bid and asked price for the stock
on such date, as furnished by the NASD or a similar organization; or (4) if the
stock is not listed or admitted to trade on a national securities exchange, is
not reported on the National Market Reporting System and if bid and asked prices
for the stock are not furnished by the NASD or a similar organization, the value
as established by the Committee at such time for purposes of this Plan.
(r) "Incentive Stock Option" means an Option which is intended, as
evidenced by its designation, as an incentive stock option within the meaning of
Section 422 of the Code, the award of which contains such provisions (including
but not limited to the receipt of shareholder approval of this Plan, if the
Award is made prior to such approval) and is made under such circumstances and
to such persons as may be necessary to comply with that section.
(s) "Nonqualified Stock Option" means an Option that is designated as a
Nonqualified Stock Option and shall include any Option intended as an Incentive
Stock Option that fails to meet the applicable legal requirements thereof. Any
Option granted hereunder that is not designated as an incentive stock option
shall be deemed to be designated a nonqualified stock option under this Plan and
not an incentive stock option under the Code.
(t) "Option" means an option to purchase Common Stock granted under this
Plan. The Committee shall designate any Option granted to an Eligible Employee
as a Nonqualified Stock Option or an Incentive Stock Option.
(u) "Participant" means an Eligible Employee who has been granted an Award
under this Plan.
(v) "Personal Representative" means the person or persons who, upon the
disability or incompetence of a Participant, shall have acquired on behalf of
the Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan and who shall have become the legal
representative of the Participant.
(w) "Plan" means this 2000 Stock Incentive Plan, as it may be amended from
time to time.
(x) "QDRO" means a qualified domestic relations order.
(y) "Restricted Shares" or "Restricted Stock" means shares of Common Stock
awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting (which may include, among
others, the passage of time, specified performance objectives or other factors)
and such transfer and other restrictions as are established in or pursuant to
this Plan and the related Award Agreement, for so long as such shares remain
unvested under the terms of the applicable Award Agreement.
(z) "Retirement" means retirement from active service as an employee or
officer of the Company on or after attaining age 65.
(aa) "Rule 16b-3" means Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act, as amended from time to time.
13
<PAGE> 16
(bb) "Section 16 Person" means a person subject to Section 16(a) of the
Exchange Act.
(cc) "Securities Act" means the Securities Act of 1933, as amended from
time to time.
(dd) "Subsidiary" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
(ee) "Total Disability" means a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions or conditions as the Committee by rule may include.
14
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEETS AND INCOME STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS FILED
HEREWITH.
</LEGEND>
<CIK> 0000092116
<NAME> SOUTHERN CALIFORNIA WATER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 455,643
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<OTHER-ASSETS> 0
<TOTAL-ASSETS> 537,864
<COMMON> 22,394
<CAPITAL-SURPLUS-PAID-IN> 74,937
<RETAINED-EARNINGS> 61,521
<TOTAL-COMMON-STOCKHOLDERS-EQ> 158,852
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<LONG-TERM-DEBT-NET> 167,058
<SHORT-TERM-NOTES> 25,000
<LONG-TERM-NOTES-PAYABLE> 0
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<LONG-TERM-DEBT-CURRENT-PORT> 175
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<CAPITAL-LEASE-OBLIGATIONS> 574
<LEASES-CURRENT> 125
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<TOT-CAPITALIZATION-AND-LIAB> 537,864
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<TOTAL-OPERATING-EXPENSES> 32,547
<OPERATING-INCOME-LOSS> 6,202
<OTHER-INCOME-NET> 13
<INCOME-BEFORE-INTEREST-EXPEN> 6,215
<TOTAL-INTEREST-EXPENSE> 3,320
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<EARNINGS-AVAILABLE-FOR-COMM> 2,873
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