-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, IgknzwW/bjmV8N6IlJbWehDwn2DY3xZ5S4fNCW1KQEjSHs0iv9um5KTHslY99kLP q2eUhyWlj5Q0jtMPJimftg== 0000950150-94-000449.txt : 19940404 0000950150-94-000449.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950150-94-000449 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CALIFORNIA WATER CO CENTRAL INDEX KEY: 0000092116 STANDARD INDUSTRIAL CLASSIFICATION: 4941 IRS NUMBER: 951243678 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-01121 FILM NUMBER: 94519696 BUSINESS ADDRESS: STREET 1: 630 E FOOTHILL BLVD CITY: SAN DIMAS STATE: CA ZIP: 91773 BUSINESS PHONE: 9093943600 10-K 1 FOR THE YEAR ENDED 12/31/93 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended December 31, 1993 Commission file number 0-1121 SOUTHERN CALIFORNIA WATER COMPANY ------------------------------------------------------------ (Exact Name of Registrant as specified in its charter) California 95-1243678 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 630 East Foothill Boulevard, San Dimas, California 91773 -------------------------------------------------- ----- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (909) 394-3600 -------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Shares, $2.50 Par Value ------------------------------ Title of Each Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [x] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $136,770,000 on February 28, 1994. The closing price per Common Share on that date, as quoted in the Western Edition of The Wall Street Journal, was $17.38. Voting Preferred Shares, for which there is no established market, were valued on February 28, 1994 based on a yield of 7.60%. As of February 28, 1994, the number of the Registrant's Common Shares, $2.50 Par Value, outstanding was 7,845,092. 2 DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Annual Report to Shareholders for the year ended December 31, 1993 as to Part I, Item 1 and Part II, Items 5, 6, 7 and 8, in each case, as specifically referenced herein. (2) Portions of the Proxy Statement to be filed with the Securities and Exchange Commission on or about March 18, 1994 as to Part III, Items 10, 11, 12 and 13, in each case, as specifically referenced herein. 3 SOUTHERN CALIFORNIA WATER COMPANY INDEX
Page No. Part I Item 1: Business 1 - 4 Item 2: Properties 4 - 6 Item 3: Legal Proceedings 6 - 7 Item 4: Submission of Matters to a Vote of Security Holders 7 Part II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 7 Item 6: Selected Financial Data 7 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operation 8 Item 8: Financial Statements and Supplementary Data 8 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8 Part III Item 10: Directors and Executive Officers of the Registrant 8 Item 11: Executive Compensation 9 Item 12: Security Ownership of Certain Beneficial Owners and Management 9 Item 13: Certain Relationships and Related Transactions 9 Part IV Item 14: Exhibits, Financial Schedules and Reports on Form 8-K 9 - 20 Signatures 21
i 4 PART I Item 1. Business General Southern California Water Company (the "Registrant") is a public utility company engaged principally in the purchase, production, distribution and sale of water. The Registrant also distributes electricity in one community. The Registrant, regulated by the California Public Utilities Commission ("CPUC"), was incorporated in 1929 under the laws of the State of California as American States Water Services Company of California as the result of the consolidation of 20 water utility companies. From time to time additional water companies and municipal water districts have been acquired and properties in limited service areas have been sold. The Registrant's present name was adopted in 1936. At December 31, 1993, the Registrant provided service in 17 separate operating districts, 16 of which were water districts and one an electric district, located in 75 communities in ten counties throughout the State of California. Total population of the service areas on December 31, 1993 was approximately 1,000,000. As of that date, about 73% of the Registrant's water customers were located in the greater metropolitan areas of Los Angeles and Orange Counties. The Registrant provided electric service to the City of Big Bear Lake and surrounding areas in San Bernardino County. All electric energy sold is purchased from Southern California Edison Company ("SCE") on a resale rate schedule. The Registrant served 236,985 water customers and 20,131 electric customers at December 31, 1993, or a total of 257,116 customers compared with 255,966 total customers at December 31, 1992. For the year ended December 31, 1993, approximately 90% of the Registrant's operating revenues were derived from water sales and approximately 10% from the sale of electricity, ratios which are generally consistent with prior years. Operating income before taxes on income of the electric district was 9.2% of the Registrant's total operating income before taxes. The material contained in Note 12 of the Notes to Financial Statements included in the 1993 Annual Report to Shareholders provides additional information on business segments while Note 13 provides information regarding the seasonal nature of the Registrant's business. Page 15 of the 1993 Annual Report to Shareholders lists the geographical distribution of customers. During 1993, the Registrant supplied, from all sources, a total of 178,196 acre feet of water compared with 172,500 acre feet for the previous year. Of the total water supplied in 1993, approximately 43% was purchased from others, principally from member agencies of the Metropolitan Water District of Southern California ("MWD"), and 1% was furnished by the Bureau of Reclamation under contract, at no cost, for the Registrant's Arden-Cordova District and to the Registrant's Clearlake district by prescriptive right to water extracted from Clear Lake. These amounts reflect a continued reduction in reliance on imported water supplies. 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 which includes most of coastal Southern California from the County of Ventura south to and including San Diego County. The Registrant has 52 connections to the water distribution facilities of 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 even though the State's major reservoirs were significantly impacted by six years of drought. The drought officially ended in February, 1993. The price of water purchased from MWD, however, is expected to continue to increase. MWD announced a 7% rate adjustment on March 8, 1994, effective for the 1994-1995 fiscal year. 1 5 In those districts of the Registrant which pump groundwater, overall groundwater conditions continue to maintain at adequate levels. The Registrant drilled six new wells during 1993 in order to improve the Registrant's ability to use more groundwater in its resource mix and further decrease its dependence on purchased water. The Registrant is continuing its efforts to become a participant in the Coastal Aqueduct extension of the State Water Project (the "Project"). The Registrant believes that participation in the Project is necessary in order to provide another source of water for its Santa Maria water district. Should the Registrant be allowed to participate in the Project at a 500 acre-foot level, the Registrant will prepare a filing with the CPUC in order to recover costs associated with that participation under normal rate-making methods. A final decision of the CPUC on the application would not be anticipated until late 1994 or early 1995. Rates and Regulation The Registrant is subject to regulation by the CPUC as to its water and electric business and properties. The CPUC has broad powers of regulation over public utilities with respect to service and facilities, rates, classifications of accounts, valuation of properties and the purchase, disposition and mortgaging of properties necessary or useful in rendering public utility service. It also has authority over the issuance of securities, the granting of certificates of convenience and necessity as to the extension of services and facilities and various other matters. Water rates of the Registrant vary from district to district due to differences in operating conditions and costs. Each operating district is considered a separate entity for rate-making purposes. The Registrant continuously monitors its operations in all of its districts so that applications for rate changes may be filed, when warranted, on a district-by-district basis in accordance with CPUC procedure. Under the CPUC's practices, rates may be increased by three methods - general rate increases, offsets for certain expense increases and advice letter filings related to certain plant additions. General rate increases typically are for three year periods and include "step" increases in rates for the second and third years. General rate increases are established by formal proceedings in which the overall rate structure, expenses and rate base of the district are examined. Rates are based on estimated expenses and capital costs for a forward two-year period. A major feature of the proceeding is the use of an attrition mechanism for setting rates for the third of the three year test cycle assuming that the costs and expenses will increase in the same proportion over the second year as the increase projected for the second test year increased over the first test year. The step rate increases for the second and third years are allowed to compensate for the projected cost increases, but are subject to tests including a demonstration that earnings levels in the district did not exceed the latest rate of return authorized for the Registrant. Formal general rate proceedings typically take about twelve months from the filing of a Notice of Intent to increase rates to the authorization of new rates. Rate increases to offset increases in certain expenses such as costs of purchased water, energy costs to pump water, costs of power purchased for resale and groundwater production assessments are accomplished through an abbreviated "offset" procedure that typically takes about two months. CPUC regulations require utilities to maintain balancing accounts which reflect differences between specific offset cost increases and the rate increases authorized to offset those costs. The balancing accounts are subject to amortization through the offset procedure or through general rate decisions. 2 6 An advice letter, or rate base offset, proceeding is generally undertaken on an order of the CPUC in a general rate proceeding wherein the inclusion of certain projected plant facilities in future rates is delayed pending notification that such facilities have actually been placed in service. The advice letter provides such notification and, after CPUC approval, permits the Registrant to include the costs associated with the facilities in rates. During 1993, 1992 and 1991, the Registrant's rates for all water districts were increased, among other reasons, to directly offset increases in certain expenses, principally purchased water, as well as increased levels of capital improvements. The Registrant decreased rates in its Bear Valley electric district by approximately 28% in November, 1991 as a result of amortizing large refunds from the Registrant's wholesale power supplier. The following table lists information related to the Registrant's rate increases for the last three years:
General Supply Rate Base Other and Cost Advice Advice Step Offset Letter Letter Year Increases Increases Increases Increases Total ---- --------- --------- --------- --------- ----- 1993 $2,270,700 $ 37,600 $ 0 $ 50,000 $ 2,358,300 1992 $7,767,700 $2,540,200 $ 673,900 $ 18,400 $11,000,200 1991 $5,030,700 $2,483,100 $ 276,300 $ 212,700 $ 8,002,800
The Registrant filed an application for general rate increases in six of its water operating districts in May, 1992. In June, 1993, the CPUC issued its decision and the Registrant requested rehearing on two matters - the rate of return on rate base and an authorized rate increase for the Registrant's Bay Point water district. The CPUC granted the Registrant's request for rehearing on the two issues and established an interim rate of return on rate base of 9.5% applicable for certain attrition, step rate filings and other earnings test filings with respect to the Registrant's other operating districts. For further information, please see the caption "Rates and Regulation" under Management's Discussion and Analysis herein and Note 10 of the Notes to Financial Statements in the 1993 Annual Report to Shareholders. The Registrant has filed its case on the two matters set for rehearing, which was held on March 15, 1994. Prior to commencement of hearings, the Registrant and the Division of Ratepayer Advocates ("DRA") of the CPUC had stipulated to a rate of return on common equity of 10.10%. In addition, DRA had agreed that an increase in rates applicable to the Registrant's Bay Point water district was appropriate with certain modifications as to the level of rate base. A final decision on these matters, however, is still subject to the CPUC and is not expected until the Summer of 1994. The Registrant anticipates filing applications with the CPUC in July, 1994 for rate increases, effective in 1995, in all of its operating districts for certain cost-effective recommendations resulting from the recently completed Management Audit of the Registrant conducted under the auspices of the CPUC. In addition, the Registrant will file a general rate case in one of its water operating districts. The requested annual increase in rates will also seek step increases for 1996 and 1997. No assurance can be given that the CPUC will authorize any or all of the rates for which the Registrant applies. 3 7 Industrial Relations The Registrant had 486 paid employees as of December 31, 1993. Seventeen employees in the Bear Valley Electric District were members of the International Brotherhood of Electrical Workers. Their present labor agreement is effective through June 30, 1994. Seventy-three of the Registrant's water utility employees, unionized under the Utility Workers of America ("UWA"), are covered by a contract which expires March 31, 1996. The Registrant has no other unionized employees. Environmental Matters The Environmental Protection Agency ("EPA"), under provisions of the Safe Drinking Water Act, as amended, is required to establish Maximum Contaminant Levels ("MCL's") for the 83 potential drinking water contaminants initially listed in the Act, and for an additional 25 contaminants every three years thereafter. The California Department of Health Services ("DOHS"), acting on behalf of the EPA, administers the EPA's program. The Registrant continues to test its wells and water systems for more than 90 contaminants. Water from wells found to contain levels of contaminants above the established MCL's has either been treated or blended before it is delivered to customers. Only 2 of the Registrant's 306 wells have been permanently taken out of service due to high levels of contamination. The Registrant is aware of two new rules pending implementation by the EPA which may significantly affect the Registrant: the Radon Rule and the Arsenic Rule. The EPA did not meet the October 1, 1993 deadline for establishing an MCL for radon. Because of this inaction, the rule is presently in the hands of the United States Congress where it is believed that an MCL will be established primarily to implement the regulation. However, the 1994 budget as drafted by the Appropriations Committee has specifically excluded funds for further work on radon regulation, basically setting a moratorium on the regulation. The EPA is continuing its review of data on the Arsenic Rule although the Registrant anticipates an MCL will be proposed by September, 1994. The Registrant is unable to predict, until the MCL's are established, what effects, if any, these new rules will have on its financial condition or results of operation. The Registrant has experienced increased operating costs for testing to determine the levels (if any) of the contaminants in the Registrant's source of supply and costs to lower the level of any contaminants found to a level that meets standards. Such costs and the control of any other pollutants may include capital costs as well as increased operating costs. The rate-making process provides the Registrant with the opportunity to recover capital and operating costs associated with water quality, and management believes that such costs are properly recoverable. Item 2 - Properties Franchises, Competition, Acquisitions and Condemnation of Properties The Registrant holds the required franchises from the incorporated communities and the counties which it serves. The Registrant holds certificates of public convenience and necessity granted by the CPUC in each of the 17 districts it serves. 4 8 The business of the Registrant is substantially free from direct competition with other public utilities, municipalities and other public agencies. The Registrant's certificates, franchises and similar rights are subject to alteration, suspension or repeal by the respective governmental authorities having jurisdiction over such matters. The laws of the State of California provide for the acquisition of public utility property by governmental agencies through their power of eminent domain, also known as condemnation. The Registrant has been, within the last three years, involved in activities related to the condemnation of its Big Bear and Bay Point water districts. The Registrant continues to oppose the condemnation actions with respect to its Bay Point water district initiated by the Contra Costa Water District in 1992. Note 8 of the Notes to Financial Statements contained in the 1993 Annual Report to Shareholders herein describes condemnation actions related to the Registrant's properties in greater detail. Water Properties As of December 31, 1993, the Registrant's physical properties consisted of water transmission and distribution systems which included over 2,560 miles of pipeline together with services, meters and fire hydrants and approximately 438 parcels of land (generally less than 1 acre each) on which are located wells, pumping plants, reservoirs and other utility facilities. The Registrant's operating properties have been maintained and improved in the ordinary course of business. As of December 31, 1993, the Registrant owned and operated 306 wells equipped with pumps with an aggregate capacity of 265.7 million gallons per day ("MGD"). Other production facilities include filter plants with an aggregate capacity of 29.4 MGD and 52 connections to the water distribution facilities of the MWD and other municipal water agencies. The Registrant's storage reservoirs and tanks have an aggregate capacity of 156.6 million gallons. There are no dams in the Registrant's system. Electric Properties The Registrant's electric properties are all located in the Big Bear area of San Bernardino County. As of December 31, 1993, the Registrant operated 28.8 miles of overhead 34.5 KV transmission lines, 0.6 miles of underground 34.5 KV transmission lines, 172.7 miles of 4.16 KV or 2.4 KV distribution lines, 41.7 miles of underground cable and 14 sub-stations. There are no generating plants in the Registrant's system. Other Properties The Registrant's general offices are housed in a single-story office building located in San Dimas, California. The land and the building, which was completed and occupied in early 1990, are owned by the Registrant. Certain of the Registrant's district offices are housed in leased premises. During 1993, the Registrant refinanced a significant portion of its then outstanding debt in order to lower interest costs. In doing so, the Registrant redeemed all outstanding First Mortgage Bonds. In early 1994, the Trustee filed for release of the lien of an indenture securing the previously outstanding First Mortgage Bonds. As of December 31, 1993, the Registrant had no mortgage debt outstanding. 5 9 Financing of Construction Expenditures The Registrant's construction program is designed to ensure its customers with high quality service. The Registrant has an ongoing distribution main replacement program, throughout its service areas, based upon the priority of leaks detected, fire protection enhancement and a reflection of the underlying replacement schedule. In addition, the Registrant upgrades its electric and water supply facilities and is aggressively scheduling meter replacements. The Registrant anticipates gross capital expenditures of $26,700,000, $17,500,000 and $34,500,000 in 1994, 1995 and 1996, respectively. During 1993, the Registrant issued 1,107,000 Common Shares (on a post-split basis) in two separate public offerings for aggregate net proceeds of $23,935,000. The net proceeds were applied against then outstanding short-term bank borrowing incurred to temporarily finance construction expenditures. The Registrant issued additional common equity through its Dividend Reinvestment and Common Share Purchase Plan and its 401-k Plan. The Registrant issued 47,828, 28,416 and 29,146 shares under the Dividend Reinvestment and Common Share Purchase Plan in the three years ended December 31, 1993, 1992 and 1991, respectively. The Registrant issued 7,741 and 7,102 Common Shares under the 401-k Plan in the two years ended December 31, 1993 and 1992. The Registrant did not issue any Common Shares through its 401-k Plan in the year ended December 31, 1991. During 1993 and 1992, the Registrant did not undertake any long-term debt financing to provide additional funds for construction. In 1993, however, the Registrant did refinance $37 million of its long-term debt, in order to reduce interest expense, through its Medium Term Note Program. In 1992, the Registrant entered into a $2,247,000 fixed rate obligation due 2013 for financing construction of a new reservoir serving one of the Registrant's water operating districts. In May, 1991, the Registrant completed the sale of $28,000,000 in long-term Notes Due 2031, $13,500,000 of which was used to repay then outstanding short-term bank loans which had been used to fund the Registrant's construction program. In addition, in December, 1991, the Registrant redeemed, at a premium, $6,000,000 principal amount of 11-3/4% Notes. The remainder of the proceeds from the May, 1991 issue was utilized to fund the Registrant's capital expansion program. Item 3. Legal Proceedings On October 20, 1993, the Registrant and the Internal Revenue Service ("IRS") reached a tentative settlement on the results of the IRS examination of the Registrant's 1987, 1988 and 1989 tax returns. Based on the settlement, the Registrant remitted an additional $438,000 in taxes. The Registrant anticipates signing the final agreement in late March, 1994. On March 8, 1994, the Registrant and the Contra Costa County Board of Supervisors (the "County") reached a tentative settlement of issues related to the County's taking on the Registrant's Madison Treatment plant in its Bay Point water district. The County's Highway Department had taken possession of the property on June 24, 1993. The tentative settlement of $2.3 million includes remuneration to the Registrant for the value of the property taken, severance damages, if any, and reimbursement for treated water purchased from the City of Pittsburg. The amount determined as remuneration for the value of the property taken is to be applied against the value of the Registrant's Bay Point district, currently under condemnation by the Contra Costa Water District ("CCWD"). 6 10 The Registrant and CCWD, however, are continuing their negotiations concerning the CCWD's condemnation of the Registrant's Bay Point water district. At this time, however, the Registrant is unable to predict the final outcome of these negotiations. In 1993, water revenues from the Registrant's Bay Point water district were approximately $2.7 million or 2.75% of its total annual water revenues. There are no other material pending legal proceedings, other than litigation incidental to the ordinary course of business, to which the Registrant is a party or of which any of its properties is the subject. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders through the solicitation of proxies or otherwise. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters (a) Market Price for Common Shares Information responding to Item 5(a) is included in the 1993 Annual Report to Shareholders, under the caption "Trading of Stock" located on the inside back cover, filed herein by the Registrant with the Commission pursuant to Regulation 14A and is incorporated herein pursuant to General Instruction G(2). (b) Approximate Number of Holders of Common Shares As of February 28, 1994, there were 4,342 holders of record of Common Shares. (c) Frequency and Amount of Any Dividends Declared and Dividend Restrictions Information responding to Item 5(c) is included in the 1993 Annual Report to Shareholders, under the caption "Trading of Stock" located on the inside back cover, filed herein by the Registrant with the Commission pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(2). For the last three years, the Registrant has paid dividends on its Common Shares on March 1, June 1, September 1 and December 1. Additional information responding to Item 5(c) is included in the 1993 Annual Report to Shareholders, under Note 3 of the Notes to Financial Statements captioned "Common Share Dividend Restriction" on page 31, filed herein by the Registrant with the Commission pursuant to Regulation 14A and is incorporated herein by reference pursuant to General Instruction G(2). Item 6. Selected Financial Data Information responding to Item 6 is included in the 1993 Annual Report to Shareholders, in the section entitled "Financial Information" under the caption "Statistical Review from 1989 to 1993" on Page 36, filed herein by the Registrant with the Commission pursuant to Regulation 14A and is incorporated herein by reference pursuant to General Instruction G(2). 7 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation Information responding to Item 7 is included in the 1993 Annual Report to Shareholders, under the caption "Management's Discussion and Analysis" on Pages 17 through 23, filed herein by the Registrant with the Commission pursuant to Regulation 14A and is incorporated herein by reference pursuant to General Instruction G(2). Item 8. Financial Statements and Supplementary Data Information responding to Item 8 is included in the 1993 Annual Report to Shareholders, under the captions contained on Pages 24 through 35, filed herein by the Registrant with the Commission pursuant to Regulation 14A and is incorporated herein by reference pursuant to General Instruction G(2). Balance Sheets - December 31, 1993 and 1992 Statements of Capitalization - December 31, 1993 and 1992 Statements of Income for the years ended December 31, 1993, 1992 and 1991 Statements of Changes in Common Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991 Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991 Notes to Financial Statements Report of Independent Public Accountants Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant Information responding to Item 10 was included in the Proxy Statement, under the caption "Executive Officers Experience and Compensation", filed by the Registrant with the Commission on or about March 18, 1994 pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(3). 8 12 Item 11. Executive Compensation Information responding to Item 11 was included in the Proxy Statement, under the captions "Executive Officers Experience and Compensation" and "Board Report on Executive Compensation", filed by the Registrant with the Commission on March 18, 1994 pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(3). Item 12. Security Ownership of Certain Beneficial Owners and Management Information responding to Item 12 was included in the Proxy Statement, under the captions "Election of Directors" and "Executive Officers Experience and Compensation", filed by the Registrant with the Commission on March 18, 1994 pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(3). Item 13. Certain Relationships and Related Transactions Information responding to Item 13 was included in the Proxy Statement, under the caption "Election of Directors", filed by the Registrant with the Commission on March 18, 1994 pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(3). PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Reference is made to the Financial Statements incorporated herein in Item 8. 2. Schedules V, VI and VIII, not included in the 1993 Annual Report to Shareholders, and the related report of independent public accountants, are included after Item 14 in Part IV herein. Information required for Schedule IX and X has been included in the financial statements in the 1993 Annual Report to Shareholders. Expenses for advertising and royalties represented less than 1% of total revenues. Schedules I, II, III, IV, VII, XI, XII and XIII are omitted as they are not applicable. 3. See (c) below. (b) No events have been reported on Form 8-K during the last quarter of the period covered by this report.
9 13 (c) Exhibits - 3.1 By-Laws of the Registrant as Amended to April 30, 1991 (incorporated herein by reference to Registrant's Form 10-Q with respect to the quarter ended March 31, 1991). 3.2 Restated Articles of Incorporation of the Registrant as Amended to December 4, 1990 (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 3.3 Certificate of Ownership dated August 10, 1978 (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 3.4 Certificate of Amendment of Articles of Incorporation of the Registrant dated December 3, 1992 (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1992). *3.5 Certificate of Amendment of Articles of Incorporation of the Registrant dated February 17, 1994. 4.1 First Mortgage Indenture dated May 1, 1947 between the Registrant and Bank of America, N.T. & S.A. (incorporated herein by reference to Registrant's Registration Statement No. 2-68485 on Form S-7). 4.2 Supplemental Indenture dated July 1, 1982 between the Registrant and Bank of America, N.T. & S.A. (incorporated herein by reference to Registrant's Registration Statement No. 33-5151 on Form S-7). 4.3 Schedule of Omitted Supplemental Indentures (incorporated herein by reference to Registrant's Registration Statement No. 33-5151 on Form S-2). 4.4 Indenture, dated September 1, 1993 between the Registrant and Chemical Trust Company of California, as trustee, relating to the Registrant's Medium Term Notes, Series A (incorporated herein by reference to Registrant's Form 8-K dated September 1, 1993). 10.1 Deferred Compensation Plan for Directors and Executives (incorporated herein by reference to Registrant's Registration Statement No. 33-5151 on Form S-2). 10.2 Reimbursement Agreement dated November 1, 1984 between the Registrant and Barclays Bank International Limited (incorporated herein by reference to Registrant's Registration Statement No. 33-5151 on Form S-2).
10 14 10.3 First Amendment to Reimbursement Agreement dated January 1, 1986 between the Registrant and Barclays Bank PLC (incorporated herein by reference to Registrant's Registration Statement No. 33-5151 on Form S-2). 10.4 Second Amendment to Reimbursement Agreement dated April 9, 1987 between the Registrant and Barclays Bank PLC (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 10.5 Third Amendment to Reimbursement Agreement dated September 14, 1987 between the Registrant and Barclays Bank PLC (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 10.6 Fourth Amendment to Reimbursement Agreement dated September 22, 1988 between the Registrant Barclays Bank PLC (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 10.7 Fifth Amendment to Reimbursement Agreement dated March 9, 1990 between the Registrant and Barclays Bank PLC (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 10.8 Sixth Amendment to Reimbursement Agreement dated November 29, 1990 between the Registrant and Barclays Bank PLC (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 10.9 Second Sublease dated October 5, 1984 between the Registrant and Three Valleys Municipal Water District (incorporated herein by reference to Registrant's Registration Statement No. 33-5151 on Form S-2). 10.10 Note Agreement dated as of February 1, 1989 between the Registrant and First Colony Life Insurance (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 10.11 Schedule of Omitted Note Agreements (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1990). 10.12 Note Agreement dated as of May 15, 1991 between the Registrant and Transamerica Occidental Life Insurance Company (incorporated herein by reference to Registrant's Form 10-Q with respect to the quarter ended June 30, 1991). 10.13 Schedule of Omitted Note Agreements (incorporated herein by reference to Registrant's Form 10-Q with respect to the quarter ended June 30, 1991).
11 15 10.14 Agreement for Financing Capital Improvement dated as of June 2, 1992 between the Registrant and Three Valleys Municipal Water District (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1992). 10.15 Retirement Plan for Non-Employee Directors of Southern California Water Company (incorporated herein by reference to Registrant's Form 10-K with respect to the year ended December 31, 1992). *13. Annual Report to Shareholders for the year ended December 31, 1993 (except for those portions which are expressly incorporated herein by reference, such Annual Report is furnished solely for the information of the Commission and is not deemed to be "filed" herein). 22. Subsidiaries of Registrant Exhibit not included as subsidiaries in the aggregate are not significant. *24. Consent of Independent Public Accountants. 28. Dividend Reinvestment and Common Share Purchase Plan incorporated herein by reference to Registrant's Post-Effective Amendment No. 1 to Form S-3 (Registration No. 33-42218). (d) None.
_____________________ * Filed herewith 12 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON THE SUPPLEMENTAL SCHEDULES To the Shareholders and the Board of Directors Of Southern California Water Company: We have audited, in accordance with generally accepted auditing standards, the financial statements included in Southern California Water Company's 1993 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 15, 1994. Our audit was made for the purpose of forming an opinion on those basic financial statements taken as a whole. The supplemental schedules listed in Part IV of this Form 10-K, which are the responsibility of the company's management, are presented for purposes of complying with the Securities and Exchange Commission's rules and regulations and are not part of the basic financial statements. These supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Los Angeles, California February 15, 1994 13 17 SOUTHERN CALIFORNIA WATER COMPANY SCHEDULE V - TANGIBLE & INTANGIBLE PROPERTY, PLANT & EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993
Balance at Additions Deductions Beginning at for Sales and Balance at Description of Year Cost(1) Retirements Transfers End of Year ----------- --------- --------- ----------- --------- ----------- (Dollars in Thousands) Utility plant Water department- Intangible plant $ 8,536 $ 0 $ 0 $ 0 $ 8,536 Land and land rights 4,087 92 0 (692) 3,487 Source of supply plant 10,248 2,001 (103) 0 12,146 Pumping plant 26,401 5,308 (482) (515) 30,712 Water treatment plant 9,220 1,036 (70) (1,033) 9,153 Transmission & distribution plant 237,243 12,601 (790) (22) 249,032 General plant & undistributed assets 24,122 4,362 (208) 96 28,372 -------- ------- ------- ------- -------- Total water department 319,857 25,400 (1,653) (2,166) 341,438 -------- ------- ------- ------- -------- Electric department- Intangible plant 31 245 0 0 276 Transmission plant 1,914 56 (5) 0 1,965 Distribution plant 19,233 1,987 (340) 64 20,944 General plant 1,349 287 (1) 0 1,635 -------- ------- ------- ------- -------- Total electric department 22,527 2,575 (346) 64 24,820 -------- ------- ------- ------- -------- Construction work in progress (2) 13,014 0 0 526 13,540 -------- ------- ------- ------- -------- Total utility plant $355,398 $27,975 $(1,999) $(1,576) $379,798 ======== ======= ======= ======= ======== Investment in other physical property $ 804 $ 80 $ (21) $ (273) $ 590 ======== ======= ======= ======= ========
(1) Includes property added under install and convey contracts of $819,000. (2) Additions to Construction Work in Progress are net of transfers to plant in service which are shown as additions to the various operating plant classifications. 14 18 SOUTHERN CALIFORNIA WATER COMPANY SCHEDULE V - TANGIBLE & INTANGIBLE PROPERTY, PLANT & EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1992
Balance at Additions Deductions Beginning at for Sales and Balance at Description of Year Cost(1) Retirements Transfers End of Year ----------- --------- --------- ----------- --------- ----------- (Dollars in Thousands) Utility plant Water department- Intangible plant $ 6,262 $ 2,274 $ 0 $ 0 $ 8,536 Land and land rights 3,985 107 0 (5) 4,087 Source of supply plant 9,736 533 (2) (19) 10,248 Pumping plant 23,516 3,053 (196) 28 26,401 Water treatment plant 7,374 1,852 (6) 0 9,220 Transmission & distribution plant 224,621 12,613 (1,168) (9) 236,057 General plant & undistributed assets 23,871 1,959 (521) 0 25,309 -------- ------- ------- ----- -------- Total water department 299,365 22,391 (1,893) (5) 319,858 -------- ------- ------- ----- -------- Electric department- Intangible plant 29 2 0 0 31 Transmission plant 1,846 69 (1) 0 1,914 Distribution plant 17,453 1,821 (41) 0 19,233 General plant 1,296 202 (149) 0 1,349 -------- ------- ------- ----- -------- Total electric department 20,624 2,094 (191) 0 22,527 -------- ------- ------- ----- -------- Construction work in progress (2) 10,525 0 0 2,489 13,014 -------- ------- ------- ----- -------- Total utility plant $330,514 $24,485 ($2,084) $2,484 $355,399 ======== ======= ======= ====== ======== Investment in other physical property $ 796 $ 8 $ 0 $ 0 $ 804 ======== ======= ======= ====== ========
(1) Includes property added under install and convey contracts of $3,119,000. (2) Additions to Construction Work in Progress are net of transfers to plant in service which are shown as additions to the various operating plant classifications. 15 19 SOUTHERN CALIFORNIA WATER COMPANY SCHEDULE V - TANGIBLE & INTANGIBLE PROPERTY, PLANT & EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1991
Balance at Additions Deductions Beginning at for Sales and Balance at Description of Year Cost(1) Retirements Transfers End of Year ----------- --------- --------- ----------- --------- ----------- (Dollars in Thousands) Utility plant Water department- Intangible plant $ 6,262 $ 0 $ 0 $ 0 $ 6,262 Land and land rights 2,755 1,242 0 (12) 3,985 Source of supply plant 8,577 1,213 (61) 7 9,736 Pumping plant 21,105 2,835 (382) (42) 23,516 Water treatment plant 5,864 1,577 (67) 0 7,374 Transmission & distribution plant 210,859 14,677 (935) 20 224,621 General plant & undistributed assets 14,298 18,059 (211) (8,275) 23,871 -------- ------- ------- ------- -------- Total water department 269,720 39,603 (1,656) (8,302) 299,365 -------- ------- ------- ------- -------- Electric department- Intangible plant 4 25 0 0 29 Transmission plant 1,447 415 (16) 0 1,846 Distribution plant 15,666 1,963 (176) 0 17,453 General plant 1,137 161 (2) 0 1,296 -------- ------- ------- ------- -------- Total electric department 18,254 2,564 (194) 0 20,624 -------- ------- ------- ------- -------- Construction work in progress (2) 11,950 0 0 (1,425) 10,525 -------- ------- ------- ------- -------- Total utility plant $299,924 $42,167 $(1,850) $(9,727) $330,514 ======== ======= ======= ======= ======== Investment in other physical property $786 $10 $0 $0 $796 ======== ======= ======= ======= ========
(1) Includes property added under install and convey contracts of $1,398,000. (2) Additions to Construction Work in Progress are net of transfers to plant in service which are shown as additions to the various operating plant classifications. 16 20 SOUTHERN CALIFORNIA WATER COMPANY SCHEDULE VI - RESERVES FOR ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 1993
Other Physical Water Electric Total Property ------- -------- -------- -------- (Dollars in Thousands) Balance at beginning of year $70,884 $6,990 $77,874 $34 Add - Depreciation (1): Charged to expense 6,715 683 7,398 0 Charged to clearing and other accounts 1,245 72 1,317 0 Charged to contributions in aid of construction 512 21 533 0 ------- ------ ------- --- Subtotal 79,356 7,766 87,122 34 Less - Retirements, sales and cost of removal, less salvage (1,848) (466) (2,314) 0 ------- ------ ------- --- Balance at end of year $77,508 $7,300 $84,808 $34 ======= ====== ======= ===
(1) A remaining life method of calculating depreciation is used by the Company with rates varying from a minimum of .01% to a maximum of 27.73%, for 1993. The annual calculation is based on depreciable plant at the beginning of each year. 17 21 SOUTHERN CALIFORNIA WATER COMPANY SCHEDULE VI - RESERVES FOR ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 1992
Other Physical Water Electric Total Property ------- -------- -------- -------- (Dollars in Thousands) Balance at beginning of year $65,499 $6,457 $71,956 $34 Add - Depreciation (1): Charged to expense 5,894 632 6,526 0 Charged to clearing and other accounts 975 77 1,052 0 Charged to contributions in aid of construction 532 20 552 0 ------- ------ ------- --- Subtotal 72,900 7,186 80,086 34 Less - Retirements, sales and cost of removal, less salvage (2,016) (196) (2,212) 0 ------- ------ ------- --- Balance at end of year $70,884 $6,990 $77,874 $34 ======= ====== ======= ===
(1) A remaining life method of calculating depreciation is used by the Company with rates varying from a minimum of .05% to a maximum of 27.73%, for 1992. The annual calculation is based on depreciable plant at the beginning of each year. 18 22 SOUTHERN CALIFORNIA WATER COMPANY SCHEDULE VI - RESERVES FOR ACCUMULATED DEPRECIATION FOR THE YEAR ENDED DECEMBER 31, 1991
Other Physical Water Electric Total Property ------- -------- -------- -------- (Dollars in Thousands) Balance at beginning of year $58,079 $6,133 $64,212 $33 Add - Depreciation (1): Charged to expense 5,468 559 6,027 1 Charged to clearing and other accounts 3,308 61 3,369 0 Charged to contributions in aid of construction 450 18 468 0 ------- ------ ------- --- Subtotal 67,305 6,771 74,076 34 Less - Retirements, sales and cost of removal, less salvage (1,806) (314) (2,120) 0 ------- ------ ------- --- Balance at end of year $65,499 $6,457 $71,956 $34 ======= ====== ======= ===
(1) A remaining life method of calculating depreciation is used by the Company with rates varying from a minimum of .05% to a maximum of 26.91%, for 1991. The annual calculation is based on depreciable plant at the beginning of each year. 19 23 SOUTHERN CALIFORNIA WATER COMPANY SCHEDULE VIII - RESERVES FOR UNCOLLECTIBLE ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Description 1993 1992 1991 ----------- ----- ----- ----- Balance at beginning of year $ 333 $ 261 $ 429 Add (deduct) - Provisions charged to expense 706 489 291 Accounts written off, net of recoveries (669) (417) (459) ----- ----- ----- Balance at end of year $ 370 $ 333 $ 261 ===== ===== =====
20 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SOUTHERN CALIFORNIA WATER COMPANY By : s/ JAMES B. GALLAGHER . ----------------------------- James B. Gallagher Secretary, Treasurer and Chief Financial Officer Date: March 25, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. s/ W. V. CAVENEY . Date: March 25, 1994 - ------------------------------------- W. V. Caveney Chairman of the Board and Director s/ FLOYD E. WICKS . March 25, 1994 - ------------------------------------- Floyd E. Wicks Principal Executive Officer: President and Chief Executive Officer and Director s/ JAMES B. GALLAGHER . March 25, 1994 - ------------------------------------- James B. Gallagher Principal Financial Officer and Principal Accounting Officer: Secretary, Treasurer and Chief Financial Officer s/ DONALD E. BROWN . March 25, 1994 - ------------------------------------- Donald E. Brown, Director s/ R. BRADBURY CLARK . March 25, 1994 - ------------------------------------- R. Bradbury Clark, Director s/ N. P. DODGE, JR. . March 25, 1994 - ------------------------------------- N. P. Dodge, Jr., Director s/ WILLIAM M. KIZER . March 25, 1994 - ------------------------------------- William M. Kizer, Director
21 EX-3.5 2 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORP. 1 EXHIBIT 3.5 CERTIFICATE OF AMENDMENT OF RESTATED ARTICLES OF INCORPORATION OF SOUTHERN CALIFORNIA WATER COMPANY a CALIFORNIA CORPORATION Floyd E. Wicks and James B. Gallagher certify that: 1. They are the duly elected and acting President and Secretary, respectively, of the Southern California Water Company (the "Corporation"). 2. The Restated Articles of Incorporation of the Corporation shall be amended by striking in its entirety the first full paragraph of Article IV of the Articles of Incorporation which now reads: "This Corporation is authorized to issue three classes of stock to be designated, respectively, '$100 Preferred Shares,' 'Preferred Shares,' and 'Common Shares'. The total number of shares which this Corporation is authorized to issue is 10,242,800 shares and the aggregate par value of such shares is $42,320,000; all shares of each class are to have a par value; 150,000 shares are to be $100 Preferred Shares with a par value of $100 per share and an aggregate par value of $15,000,000; 92,800 shares are to be Preferred Shares with a par value of $25 per share and an aggregate par value of $2,320,000; and 10,000,000 shares are to be Common Shares with a par value of $2.50 per share and an aggregate par value of $25,000,000." 1 2 and substituting therefor the following paragraph to read in full as follows: "This Corporation is authorized to issue three classes of stock to be designated, respectively, '$100 Preferred Shares,' 'Preferred Shares,' and 'Common Shares'. The total number of shares which this Corporation is authorized to issue is 10,239,600 and the aggregate par value of all such shares is $42,240,000; all shares of each class are to have a par value; 150,000 shares are to be $100 Preferred Shares with a par value of $100 per share and an aggregate par value of $15,000,000; 89,600 shares are to be Preferred Shares with a par value of $25 per share and an aggregate par value of $2,240,000; and 10,000,000 shares are to be Common Shares with a par value of $2.50 per share and an aggregate par value of $25,000,000." 3. The foregoing amendment was one which may be adopted with the approval by the Board of Directors alone, because the amendment is required by Section 510 of the California Corporation Code to reflect the reacquisition of a portion of the Corporation's Preferred Shares, 5% Series, $25 par value, in accordance with the sinking fund provisions thereof. Such reacquired Preferred Shares cannot be reissued. We further declare, under penalty of perjury under the laws of the State of California, that the matters set forth in this Certificate are true and correct of our own knowledge. 2 3 IN WITNESS WHEREOF, the undersigned have executed this Certificate in San Dimas, California on this 1st day of February, 1994. FLOYD E. WICKS ---------------------------------- FLOYD E. WICKS, President JAMES B. GALLAGHER ---------------------------------- JAMES B. GALLAGHER, Secretary 3 EX-13 3 ANNUAL REPORT 1 EXHIBIT 13 Annual Report 1993 Southern California Water Company Investing in the Future COVER PICTURE 2 COMPANY OVERVIEW Southern California Water Company (SCWC) is the second largest investor-owned water company in California and the fifth largest in the United States. The company provides water service to approximately 1 out of 30 Californians in 75 communities and electricity to more than 20,000 customers in the Bear Valley mountain communities. The company's daily operations are administered by 22 district offices grouped into five divisions which are supported by the general office, production and construction departments. SCWC was established in 1929 to acquire and consolidate a group of privately-owned California water companies operating in the middle of a population boom and severe drought. When California voters authorized mass funding for state-wide water projects three years later, SCWC was well positioned to expand its sphere of influence. The company continues to respond to California's growing need for high-quality domestic water and electric service through its Excellence in Service commitment to Customers, Shareholders, Employees, and the Communities it serves. ABOUT THE COVER: Like the barometer, the management at SCWC must continually monitor and forecast change. These forecasts enable us to better plan for and invest in the future. 3 1993 HIGHLIGHTS
Change 1993 vs. 1992 -------------------- Increase 1993 1992 (Decrease) Percent - ------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) Total Revenues $ 108,506 $ 100,660 $ 7,846 7.79% Total Operating Expenses 88,456 81,562 6,894 8.45% Operating Income 20,050 19,098 952 4.98% Other Income 354 934 (580) (62.10)% Interest charges 8,378 7,890 488 6.19% Net Income 12,026 12,142 (116) (0.96)% Net Income Applicable to Common Stock 11,926 12,040 (114) (0.95)% Earnings per Common Share 1.66 1.82 (0.16) (8.79)% Dividends Paid per Common Share 1.19 1.15 0.04 3.26% Book Value per Common Share 14.92 13.28 1.64 12.35% Total Assets 358,533 312,491 46,042 14.73% Total Capitalization $ 202,949 $ 174,664 $ 28,285 16.19% Average Shares Outstanding 7,186 6,627 559 8.42%
PICTURE PAGE 1 1 4 TO OUR SHAREOWNERS [PHOTO]--PAGE 2 Floyd E. Wicks President, Chief Executive Officer W.V. Caveney Chairman 2 5 LETTER FROM THE PRESIDENT: The barometer on the front cover of this year's Annual Report suggests a vital message: Southern California Water Company is changing...for the better. We are changing in ways that will improve customer service, develop employee potential, enhance communication and position us for the future. 1993 OVERVIEW In 1991, the California Public Utilities Commission (CPUC) staff strongly recommended a management audit of the company's general office. The company recommended that the scope of the audit be expanded to include field operations, consisting of 22 districts in 10 counties, and that the audit be deferred to 1993. An agreement was reached between the company and the CPUC staff, and a comprehensive management audit was conducted by an independent consultant during 1993. Prior to completion of the audit, the company developed a Plan for Service Excellence which will serve as a blueprint for improving our operations throughout California. The theme of this report, "Investing in the Future," reflects our renewed commitment to excellence as we approach the 21st century. During 1993, SCWC invested in a number of areas that will enable the company to more readily respond to and manage change. These investments will help us to achieve our goal of Service Excellence throughout the company, to our customers, to our communities, and to our shareholders. They will also enable us to improve customer service, increase employee productivity, and make better business decisions in a more timely manner. The most noteworthy investment is not in equipment or technology, it is in our people. While SCWC has always provided employee training, this year we formalized the process by establishing a new Employee Development Department. The primary goal of this department is to "upgrade" the skills and knowledge of our employees. This formalized focus on employee development enhances performance in current jobs and prepares employees for growth within the company. We know that well trained employees are more motivated, more cost effective, and better equipped to forecast, plan for and manage change. SCWC achieved several milestones during 1993, many of them resulting from prior years of management and planning. Because of our financial track record, Standard & Poors and Moody's gave SCWC "A" and "A2" ratings, respectively, on unsecured debt. The Los Angeles Times named SCWC one of the 3 6 "Top 100 Best Performing Companies in California". And of special interest to investors, we expanded the use of the company's Dividend Reinvestment Plan to enable participating shareowners to invest up to an additional $12,000 annually in new shares, without incurring brokerage fees. In addition, the company listed on the New York Stock Exchange in June 1993. We also expanded operations during 1993, by adding approximately 1,150 new customers, including 480 with the acquisition of Lemon Heights Mutual Water Company in Orange County. We drilled several new wells state-wide, further increasing groundwater reliability. 1993 FINANCIAL RESULTS Earnings per common share of $1.66 in 1993 are 8.8% lower than the $1.82 recorded in 1992. Earnings from operations of $1.61 per share in 1993 are 4.2% lower than the record 1992 operating earnings of $1.68 per share. Earnings from other income decreased to $0.05 per share in 1993 compared to $0.14 in 1992. The above figures for 1993 reflect $0.28 per share in reserves against earnings for the company's participation in the Coastal Aqueduct Project and a portion of the company's Clearlake Treatment Plant investment. The decision to create reserves for these two projects followed two separate adverse CPUC decisions. The CPUC believed the Water Supply Agreement, required for participation in the Coastal Aqueduct Project, was too onerous (despite 24 other water agencies' participation on the same terms and conditions). The CPUC also disallowed $1.6 million of the company's investment in its Clearwater Treatment Facility, claiming that the new plant was over-built, and that the original engineer's estimate was exceeded by the same $1.6 million amount. The company provided expert testimony that certain plant components were over-sized, as dictated by sound engineering practices, costing only $66,000. Further, much of the cost overrun was incurred as a result of State Health Department requirements. The company has been negotiating with adjacent water utilities regarding their interest in purchasing treatment capacity from the company's non-utility portion of the plant. To date, negotiations have not been fruitful. While we strongly disagreed with the CPUC decisions, the company did not appeal to the California Supreme Court, believing that it was highly unlikely that the Court would accept these matters for review. Total operating revenues increased by 7.8% to $108.5 million in 1993, from $100.7 million in 1992. This was due primarily to offsetting increases in revenue triggered by increases in the cost of purchased water and power and the full effects of rate increases from last year. 4 7 Operating expenses increased by 8.5% from $81.6 million in 1992, to $88.5 million in 1993. This increase was significantly affected by increased water and electric supply expenses, an increase in personnel and personnel-related costs, and increased maintenance expenses as we continue to perform proper maintenance of our water and electric systems. In a regulated business such as SCWC, returns to our shareowners are directly linked to the level of return authorized by the CPUC. With the decline in interest rates over the past several years, the CPUC has also reduced the authorized returns on equity for all utilities. In the past few years, the company's earnings have been maintained at record levels due to short-term exogenous factors such as a condemnation gain and higher-than-forecasted sales volumes. As these factors disappear, the relative level of authorized return becomes more important in achieving earnings levels. With the currently reduced return levels and the delay in obtaining rate relief from the CPUC, earnings for 1994 may not achieve the record levels enjoyed for the past two years. However, absent unforeseen circumstances, this should not have an impact on the company's current dividend level. PHOTO PAGE 5 BUSINESS PLAN During 1994, SCWC will continue investing in programs that improve customer service, employee productivity and our ability to forecast and manage change. By the end of 1994 our Customer Service Center will be fully operational, ensuring a consistent quality of service. Centralizing telephone calls will also free-up local customer service representatives to give uninterrupted service to walk-in customers. We will also have completed installation of a Wide Area Network (WAN) that connects districts throughout the state to our general office, thus improving communications and service capabilities. We will enhance communications programs to inform the public about the value and the actual costs of providing high-quality water. However, costs are rapidly increasing because water must undergo more sophisticated treatment and analysis than ever before. By communicating these, and other issues affecting the cost of providing water service, we believe customers will place a higher value on the service they receive and better understand when the need arises for increasing rates. 5 8 As in years past, we will continue to pursue appropriate acquisitions located near existing company operations. Many local municipalities and small water companies are finding it increasingly difficult to operate due to higher costs and associated risks of increasing regulations. By serving more customers, we can cost-effectively expand through economies of scale. We will continue our organization and strategic planning to realize our mission of Service Excellence. Since California regulation allows forecasting costs over three years as part of a general rate case, our planning and forecasting abilities are crucial. A management team with strong forecasting and implementation skills will improve our efficiency and responsiveness in a changing industry. CHALLENGES The future is never without challenges. Facing challenges pragmatically and positively is another way of "Investing in the Future". We believe we will ultimately receive CPUC approval to participate in the Coastal Aqueduct Project if it can be shown that local water resources are being managed more efficiently. And, we are currently evaluating all options available to us in our Bay Point District so we may continue to serve the residents of this Contra Costa County community. Even before the management audit was completed this year, SCWC prepared an implementation plan addressing each of the 114 recommendations for improvement. In fact, we began implementing many of the recommendations prior to the audit's completion. We believe the company's Plan for Service Excellence will make us the best service-oriented utility in the business. Many "teams" of SCWC employees worked diligently in preparation of the plan and we look forward to improved relations with the CPUC and our customers. SUMMARY Like the barometer, the management at SCWC must continually monitor and forecast change. These forecasts enable us to better plan for and invest in the future. Change has been, and will continue to be, inherent in the water and utility industries. Authorized rates of return for regulated utilities have been dropping since 1991 due to continued lower interest rates. Federal Safe Drinking Water amendments have increased testing requirements to include 83 different chemical elements in the water--45 more elements than were required just ten years ago. Energy utilities are faced with competition for maintaining their respective customer base. Water supply shortages are continuing, caused by forces competing for available supplies. Increasing uses of reclaimed 6 9 wastewater will present new environmental challenges and a need for higher levels of consumer education. Such realities increase the risks of doing business. However, SCWC's response is to become the industry leader in meeting these challenges. SCWC is an investor-owned utility dedicated to providing quality services benefiting our customers, shareowners, employees and communities. In pursuit of customer service excellence, SCWC is committed to exceeding customer expectations for value and high-quality service. To achieve excellence in our performance to shareowners, SCWC is committed to safeguarding and enhancing its assets and to achieving a fair rate of return. In our treatment of employees, SCWC is committed to fostering excellence by providing competitive and equitable compensation and by supporting employee development in a professional work environment. And to meet the needs of the communities we serve, SCWC is committed to cultivating excellent communications and to promoting mutual cooperation. With our focus on "Investing in the Future", our Plan for Service Excellence will serve as a blueprint to guide us into the 21st century and beyond. Your continued support of Southern California Water Company is most welcome, and deeply appreciated. /s/ Floyd E. Wicks Floyd E. Wicks President, Chief Executive Officer /s/ W. V. Caveney W.V. Caveney Chairman 7 10 INVESTING IN THE FUTURE PHOTO PAGE 8 8 11 SCWC's financial track record has been consistent with our mission of Excellence. We have provided stockholder dividends for 63 years and increased annual dividend payouts each year for the last 40 consecutive years. One of the main reasons for this past performance is continuous monitoring of changes and developments within the company, within the water industry, and in the general economy. We have then developed and implemented plans that take these changes into consideration, focusing always on our mission of Excellence. INVESTMENTS IN FINANCIAL EXCELLENCE In 1993, SCWC listed its Common Shares on the New York Stock Exchange (ticker symbol SCW). This gives us greater stability in the trade-to-trade and day-to-day stock price and provides the opportunity to attract a wider base of mutual fund and institutional investors. Additionally, SCWC split the company's Common Shares 2-for-1. This positions the stock in a price range more competitive with other publicly traded water companies. This year we issued 1,107,000 new Common Shares (post split) to the public. SCWC refinanced a significant portion of long-term debt and reduced interest expense through its Medium Term Note (MTN) program. While resulting in lower costs to ratepayers, the refinancing also enabled us to retire the first mortgage, in effect since 1947, fourteen years early. The retirement of this secured debt on all SCWC assets will help to lower the cost of financing on future unsecured debt issues. It will also eliminate time-consuming, costly reporting and compliance requirements and give us greater flexibility in acquiring and selling non-operating properties. PHOTO PAGE 9 As a result of our financial planning and performance, Standard & Poors and Moody's gave SCWC "A" and "A2" ratings, respectively, on its unsecured debt. These ratings provide SCWC access to the public debt market. 9 12 PHOTO PAGE 10 By the end of 1994, we will complete additional upgrades to the SCWC computer system, enhancing our abilities to budget and forecast and providing more timely and complete information to our managers. We will also broaden our Investor Relations Program to increase our visibility to the investing public, thereby attracting more investors and enhancing shareholder value. INVESTMENTS IN SERVICE EXCELLENCE SCWC is primarily in the service business. Like any other service organization, our profitability is heavily dependent on our level of Service Excellence. We must continually improve our ability to serve our customers efficiently and cost effectively. During 1993 we made several changes directly impacting service excellence. We upgraded our Customer Information System, for example, enabling our Customer Service Representatives to more efficiently and consistently provide a higher quality of service. More than half of our water districts now have access to backup telephone support supplied by our new centralized Customer Service Center. This support enables more customers to receive prompt attention whenever they call. By mid-1994, all 22 district offices will be supported by the Customer Service Center. All Customer Service Representatives will have completed an intensive customer training program by that time, further ensuring a consistent level of quality service. By the end of 1994, the Customer Service Center will have expanded service hours, and it will be linked to our 24-hour emergency 800 hotline. Customers will consistently be able to reach Customer Service Representatives quickly. We also plan to conduct customer satisfaction surveys for each district so that specific areas and activities requiring improvement may be incorporated into SCWC's business plan. Ultimately, to maintain our high standard of service excellence, one of our most important investments in the future is in developing employee excellence. 10 13 INVESTMENTS IN EMPLOYEE EXCELLENCE With 486 employees serving 10 California counties covering 41 different water systems and one electric system, SCWC averages one employee for every 530 customers. Many other non-investor-owned water utilities do not service such a widely diverse area and population, but average one employee for every 200-400 customers. This means that SCWC is a very lean operation with excellent employees already in place. Our continued investments in Employee Excellence are critical to achieving excellence in customer service, company growth, and profitability. We encourage employees to apply for advancement to management positions which fosters individual employee growth. We also place decision-makers in the field to give the kind of response necessary at the local level that customers and community leaders demand. It is essential to continue building on this in-house talent core for future leadership. In 1993, SCWC introduced a formal program to further our goals for employee excellence and development. We call it "The Southern California Water Company University." This program ensures that training is an on-going process, enabling employees to continually sharpen their skills, make intelligent business decisions, and advance within the company. Our new Employee Development Department is currently training the first group of in-house instructors through the "Train-the- Trainer Program." These instructors will be certified as in-house instructors by mid-1994. They will introduce a new training program focusing on Collaboration, Communication, and Cooperation: encouraging employees to "Work Smart." The "Work Smart" program will deliver training on topics relating to customer service, interpersonal skills, the environment, supervisory management, self- motivation, and other employee development areas that will increase employee excellence and productivity. In 1993 SCWC also began a complete overview of the company's compensation and performance PHOTO PAGE 11 11 14 evaluation system. Consultants received input from employees on the existing performance evaluation system, critiqued the existing system, and developed specific recommendations for matching performance to compensation levels. Recommendations for changes will be made and implemented during 1994. Creating a meaningful system that ties performance to compensation levels should help improve accountability and productivity. INVESTMENTS IN PRODUCT EXCELLENCE SCWC currently owns 306 wells, which supplied approximately 56% of our customer's demands for water during 1993. Effective utilization of ground-water resources has reduced the necessity and cost of purchasing water from wholesalers. We drilled six new wells in 1993, and plan to drill several more in the future to further reduce our costs of purchased water. Investments in wells also represents a significant investment in our own self-sufficiency. [GRAPH P.12] Approximately 95% of all the water we supply is used for non-drinking purposes, such as watering lawns, washing cars, and light industrial use. Much of this water could be supplied from reclaimed water sources rather than the water produced to meet drinking standards. We supplied two new customers with reclaimed water in 1993 and believe we can continue to grow significantly in this area in the future. In 1994 and the years to come we expect the number of reclaimed water customers to significantly increase as costs escalate for meeting increasingly higher drinking water standards. As rules for drinking water standards become increasingly more stringent, costs for treating water naturally increase. We must now test for 83 elements compared to only 45 elements just ten years ago. Every three years 25 new elements are to be added. All of our water systems meet all current federal and state mandates. However, as technology for testing water purity improves, our ability to meet lower and lower standards will decline. Thus 12 15 future costs to test for and, as necessary, provide treatment for elements will escalate, with questionable benefit to the customer. It is, therefore, critical that SCWC provide the public with information regarding government regulations as they relate to water quality and future rate increases. SCWC has a responsibility not only to deliver a high-quality product, but also to provide it at a reasonable cost to consumers. Our Conservation Management and Governmental Relations Department not only reviews and updates SCWC water management plans, it is also responsible for coordinating the company's "legislative watch" efforts. This department is working with other water industry representatives to achieve a reasonable balance between regulating water quality and costs associated with meeting the ever changing purity standards. We have also met with representatives of the California State Legislature requesting that the CPUC be given the legal basis to direct private water utilities to charge property owners for vacant land fronting water utility pipelines. These pipelines are an asset for vacant land owners and the cost-sharing approach will be fair to all parties. As a result of our commitment to Service Excellence, the investments in the future outlined herein will better position SCWC to forecast and benefit from the impending changes ahead. [GRAPH P.13] MANAGEMENT AUDIT AND PLAN FOR SERVICE EXCELLENCE We are pleased to report that the independent Management Audit has been completed and that SCWC has launched an ambitious program to improve the company's organizational structure, operations and service to our 257,000 customers. The Management Audit, which was completed in December, was conducted by Barrington-Wellesley Group (BWG), a nationally recognized management consulting firm. It took more than six 13 16 months and included interviews with more than 150 SCWC employees, the company's Board of Directors, customers, community representatives and members of the CPUC staff. It also included review and analysis of almost 300 internal documents, as well as visits to many of our major facilities. The Audit represents a major turning point for SCWC, for it was the primary stimulus behind our Plan for Service Excellence--a comprehensive road map to follow for continually improving our company. The Plan is a blueprint designed to help lead us into the 21st century. [Picture P.14] The Plan for Service Excellence details the steps SCWC is taking to implement the 114 recommendations made by BWG. It is the product of exhaustive effort. Employees, assembled from virtually every department in the company, devoted thousands of hours to its development and the results demonstrate their talent, energy and commitment. It addresses every aspect of the company, from engineering and customer service to communications and regulatory relations. We are extremely proud of this program and have shared both the Plan for Service Excellence and the Management Audit report with employees, elected officials, the news media and community leaders throughout California. We're excited to begin implementation and are enthusiastic about its potential long-term impact. The Plan for Service Excellence powerfully illustrates yet another way SCWC is investing in the future. Earnings per Share
- -------------------------------------------------------- Other Year Operations Income Total - -------------------------------------------------------- 1993 $ 1.61 $ 0.05 $ 1.66 1992 1.68 0.14 1.82 1991 1.40 0.94 2.34 1990 1.31 0.09 1.40 1989 1.13 0.25 1.38 - --------------------------------------------------------
14 17 OPERATING DISTRICTS BY COUNTY [Map P.15]
Number of Customers Served at December 31, 1993 1992 Lake Clearlake 2,111 2,121 Contra Costa Bay Point 4,475 4,473 Sacramento Arden-Cordova 12,588 12,363 San Luis Obispo Los Osos 3,028 3,045 Santa Barbara Santa Maria 12,040 11,928 Ventura Ojai 2,742 2,731 Simi Valley 11,852 11,851 Los Angeles San Gabriel Valley 11,601 11,535 Metropolitan 97,176 97,193 San Dimas 15,082 15,080 Claremont 10,266 10,271 San Bernardino Desert 3,149 3,180 Barstow 8,541 8,503 Wrightwood 2,450 2,439 Bear Valley* 20,131 20,039 Orange Orange 38,735 38,075 Imperial Calipatria-Niland 1,149 1,139 Total Customers 257,116 255,966
* Electric Customers Total Population Served Estimated at 1,000,000 15 18 FINANCIAL REVIEW [Photo P.16] 16 19 MANAGEMENT'S DISCUSSION AND ANALYSIS The Company is an investor-owned public utility subject to the jurisdiction of the California Public Utilities Commission (CPUC) as to its water and electric business and properties. The CPUC has broad powers of regulation over the Company with respect to service and facilities, classification of accounts, rates, valuation of properties and the purchase, disposition and mortgaging of properties necessary for the Company to render its services. The CPUC also has authority over the issuance of securities, the granting of certificates of necessity and convenience and various other matters. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1993 AND 1992 Earnings per common share of $1.66 in 1993 are 8.8% lower than the $1.82 recorded during 1992. Earnings from operations of $1.61 per share in 1993, however, are only 4.2% lower than 1992 operating earnings of $1.68 per share. Non-operating income contributed $0.05 per share in 1993 compared to $0.14 per share in 1992. Water operating revenues of $98.2 million increased 8.3% from $90.6 million in 1992, attributable to a 1.2% increase in the volume of water sold, an increase in the average number of customers and increased water rates associated with general rate case decisions and other supply and rate base offset decisions. In addition, the Company recorded approximately $1.4 million in revenue related to the recoverability of net revenue losses, due to drought conditions, and extraordinary conservation expenses. Electric operating revenues increased by 3.2% to $10.4 million from $10.0 million as a result of a 0.8% increase in kilowatt- hour sales between the two periods and a change in the mix of those sales during 1993 from industrial, which has a lower rate per kilowatt-hour, to commercial which has a higher rate. Purchased water expense increased by 30% to $29.4 million from $22.6 million in 1992, largely as a result of increases in purchased water rates, the most recent of which was effective in July, 1993. Continued water conservation, coupled with increased costs to supply, have caused wholesale water rates in the State of California to increase significantly. In addition, the Company purchased approximately 3.2% more imported water during 1993 as compared to 1992. Expenses for power purchased for resale increased by 35.5% to $3.3 million in 1993 as compared to $2.4 million in 1992. This increase is primarily attributable to a 36% rate increase from Southern California Edison Company, effective January 1, 1993. The costs of power purchased for pumping increased by 9.2% to $8.1 million in 1993 from $7.5 million in 1992 primarily as a result of a 5.5% increase in the amount of water produced from pumped sources. Groundwater production assessments of $5.3 million, 23.6% higher in 1993 compared to the $4.3 million recorded in 1992, reflect general increases in pumping assessment rates as well as the increased amount of water produced from pumped sources. A credit for the provision for supply cost balancing accounts reflects an undercollection of water and electric energy supply costs. The credit in this category results from the higher supply costs as evidenced by increases in purchased water costs, power purchased for pumping and resale and groundwater production assessments. Other operating expenses increased by 3.7% to $10.9 million in 1993 from $10.5 million in 1992 primarily as a result of a net increase in the number of personnel involved in operating and customer service functions. In 1993, the Company established a reserve of approximately $1.9 million against previously incurred costs related to the Coastal Aqueduct extension of the State Water Project. For further details, see Note 10 of the Notes to Financial Statements. 17 20 Administrative and general expenses of $13.5 million in 1993 increased by 12.6% from $12.0 million in 1992. The increase between the two years primarily reflects an increase in payroll and personnel-related costs due to the addition of 41 persons charging all or some of their time to this category as well as an average 4% increase in wages granted to employees during 1993. The additional personnel are necessitated by increasing regulatory, operational and customer service considerations. In 1992, the Company recorded an additional reserve of $1.1 million for liability claims; no such additional reserve was necessary during 1993. Depreciation expense increased by 13.4% from $6.5 million in 1992 to $7.4 million in 1993 reflecting, primarily, the effects of recording approximately $28 million in plant in 1992, depreciation on which is fully reflected during 1993. Maintenance expense of $6.5 million in 1993 increased by 26.7% from $5.1 million in 1992 caused by increased work performed on the Company's water pumping equipment, main flushing programs and maintenance on the Company's Bear Valley electric system during early 1993 resulting from abnormal weather. Taxes on income, down by 29.5% to $5.5 million in 1993 from $7.8 million in 1992, reflect both the reversal of approximately $1.3 million in previously established tax reserves and reduced pre-tax book income, which were partially offset by an increase in the corporate tax rate to 35% from 34% effective January 1, 1993. Total interest expense increased by 6.2% to $8.4 million in 1993 from $7.9 million in 1992 primarily as a result of increased short-term borrowing. YEARS ENDED DECEMBER 31, 1992 AND 1991 Earnings per share in 1992 of $1.82 were 22.2% lower than earnings per share of $2.34 in 1991. Earnings per share from operations, however, increased by 20% to $1.68 in 1992 as compared to $1.40 in 1991. Non-operating earnings were $0.14 per share in 1992 compared to $0.94 per share in 1991. Water operating revenues increased to $90.6 million or 15.8% from the $78.3 million in 1991. This change is attributable to an increase in the average number of customers and a 6.5% increase in water sales volumes, coupled with rates authorized in CPUC general rate case decisions and other supply cost and rate base offset decisions. Electric operating revenues decreased by 18.9% to $10 million in 1992 from $12.4 million in 1991, primarily as a result of a rate decrease effective November, 1991 reflective of full collection of previously unrecovered amounts in the electric balancing account. The decrease in electric operating revenues occurred in spite of the fact that electric sales volumes increased by 3.4%. Purchased water costs increased to $22.6 million, or 24.6%, in 1992 as compared to $18.1 million in 1991. This increase reflects the effects of increased water rates from the Company's wholesale water suppliers as well as a 4.9% increase in the amount of such water purchased during 1992. Expenses for power purchased for resale increased 63.2% to $2.4 million in 1992 as compared to $1.5 million in 1991 due to a 3.4% increase in kilowatt-hour sales during 1992 and approximately $2.7 million in refunds received during 1991 from the Company's wholesale supplier which reduced 1991 expense. During 1992, however, the Company received an additional $1.6 million in refunds. Power purchased for pumping expense increased by 2.4% to $7.5 million in 1992 as compared to $7.3 million in 1991 primarily as a result of a 5.9% increase in the volume of pumped water produced. Groundwater production assessments increased to $4.3 million in 1992 from $3.1 million in 1991, or 38.1%, due to both the increase in the amount of water supplied from pumped sources as well as 18 21 general increases in assessment rates, 100% in the Company's Metropolitan district, which were effective during 1992. A credit in the supply cost balancing account in 1992 reflects an undercollection of production costs, due chiefly to increases in wholesale water rates and increases in groundwater production assessment rates. The 9.8% increase in other operating expenses to $10.5 million in 1992 from $9.6 million in 1991 results from three factors: an increase in customer accounting expenses associated with the acquisition in August, 1991 of four water systems from the County of Los Angeles; an increase to reserve for uncollectible accounts of $200,000; and increased expenses associated with water pumping operations. Administrative and general expenses increased by 28.8% from $9.3 million in 1991 to $12.0 million in 1992, largely as a result of recording approximately $1.1 million in additional insurance reserves related to a review of several general liability claims and claims pending, all of which occurred in the ordinary course of business and none of which were significant individually. Depreciation expense increased by 8.3% from $6.0 million in 1991 to $6.5 million in 1992 reflecting, primarily, the effects of recording approximately $32 million in plant in 1991, depreciation on which is fully reflected during 1992. Taxes on income increased to $7.8 million in 1992, or 45.9%, over the $5.3 million in 1991 as a result of significantly higher pre-tax book income and an increase of approximately $650,000 to reserves. Other income decreased by 84.7% to $934,000 in 1992 compared to $6.1 million in 1991 due primarily to the recording of a $5.5 million gain on the sale of the Big Bear water systems in 1991. An additional $849,000 in gain was recorded in 1992. Total interest expense of $7.9 million in 1992, 4.0% higher than the $7.6 million recorded in 1991, reflects increased short-term borrowing in 1992 as compared to the prior year. YEARS ENDED DECEMBER 31, 1991 AND 1990 Earnings per share in 1991 of $2.34 were 67.1% higher than earnings per share of $1.40 in 1990. Earnings from operations increased by 6.9% to $1.40 per share in 1991 as compared to $1.31 per share in 1990. Earnings from non-operating income of $0.94 per share compared to $0.09 per share recorded in 1990. For 1991, Company-mandated and customer-initiated conservation measures resulted in a 16.5% decrease in water sales volumes from the prior year. Notwithstanding the decline in sales volumes, water operating revenues increased 2.6% to $78.3 million in 1991 compared to $76.3 million in 1990 as a result of increased water rates approved by the CPUC and recording the recoverability of approximately $3.3 million in net revenue losses resulting from the Company's water rationing program. Electric operating revenues in 1991 increased to $12.4 million, or 11.9% from the $11.1 million recorded in 1990, as a result of rate increases approved by the CPUC to cover supply cost increases. However, the Company's electric rates were reduced in November, 1991 in recognition of recovery of the supply costs due most significantly to receipt of approximately $2.7 million in refunds from the Company's wholesale electric supplier. Electric sales decreased slightly by 1.5%. Purchased water expense decreased by 17.5% to $18.1 million in 1991 from $22.0 million in 1990 reflecting the conservation-induced reduction in water sales volumes as well as a change in the mix of water supplied from purchased water in favor of pumped water sources. Power purchased for resale decreased significantly to $1.5 million in 1991, a decrease of 81% from the $7.8 million recorded in 1990. This decrease is the 19 22 result of approximately $2.7 million in refunds from the Company's wholesale electric supplier, reduced electric rates generally as a result of settlement of issues in the wholesale supplier's FERC rate case and reduced electric sales volumes. Power purchased for pumping expense increased by 0.9% to $7.3 million in 1991 as compared to $7.2 million in 1990. Even though pumped water supplied 6.2% more of total water sold, due to conservation and rationing, total pumped water volumes produced remained virtually unchanged between the two years. Groundwater production assessments, up by 36.9% to $3.1 million in 1991 compared to $2.3 million in 1990, reflect the assessments associated with the additional amounts of water supplied from pumped sources in 1991. A charge in the supply cost balancing accounts reflects an over-collected position resulting from a combination of the $2.7 million in refunds, generally reduced wholesale power rates from the Company's wholesale electric supplier and the rate increase designed to recover under-collected amounts. Other operating expenses of $9.6 million in 1991 increased by 12.6% over the $8.5 million recorded in 1990 and is affected by three factors. First is increased operation costs associated with pumping as the Company shifted its resource mix away from purchased sources. Second is the level of expense associated with water treatment. Lastly, 1991 was affected by a period of abnormally cold weather during the winter months which increased both electric and water operating expense in its aftermath. General and administrative expense increased by 15% to $9.3 million in 1991 from $8.1 million in 1990 due primarily to an increase in the number of employees, a 5% pay increase granted to employees and approximately $542,000 in expenses related to management of the Company's water conservation and rationing programs. With respect to the latter, there was virtually no such expense in 1990. Depreciation expense increased by 16.5% from $5.2 million in 1990 to $6.0 million in 1991 reflecting, primarily, the effects of recording approximately $27 million in plant in 1990, depreciation on which is fully reflected during 1991. Maintenance expense increased by 3.3% to $5.2 million in 1991 from $5.0 million in 1990. This increase is primarily associated with pumping equipment and reflects the accelerated pace of pump maintenance early in 1991 necessary for preparations to maximize production from Company-owned wells during the summer months. The significant increase in other income results from booking approximately $5.5 million of the total net gain on the condemnation of the Big Bear water systems. Total interest expense of $7.6 million in 1991 increased by 18.1% over the $6.4 million recorded in 1991 as a result of the issuance in May, 1991 of $28 million in 9.56% Notes due 2031. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES The Company funds the majority of its operating expenses, interest on its outstanding debt, sinking fund requirements on its outstanding debt and preferred shares and dividends on its outstanding common and preferred shares through internal sources. These internal sources consist of retained earnings, deferred taxes, amortization of deferred charges and depreciation. However, due to the seasonal nature of its water and electric businesses, the Company utilizes its short-term borrowing capacity on occasion to finance its current operating costs. As in recent years, the Company continues to rely on external sources to fund the majority of its capital expenditures program. The Company expects to incur net construction expenditures of approximately $24.6 million, 20 23 $15 million and $32 million in 1994, 1995 and 1996, respectively. Because these estimates are subject to review, actual expenditures may vary and, in the case of 1995 and 1996, the estimates are subject to approval by the Board of Directors. The Company relies on short-term bank borrowing to temporarily finance its construction expenditures which are ultimately financed with equity or long-term debt. At December 31, 1993, the Company had utilized $12,000,000 of its aggregate short-term borrowing capacity of $27,063,000. Of its total short-term borrowing capacity, $8,063,000 is also available to support letters of credit. It is anticipated that borrowing under the three bank lines of credit will increase during 1994. The Company received approximately $2.2 million in advances and contributions in aid of construction during 1993. Refunds on advance contracts totaled approximately $2.9 million in 1993. The Company sold 1,000,000 Common Shares in July, 1993 and an additional 107,000 Common Shares in September, 1993 for aggregate net proceeds to the Company of approximately $23,935,000. These funds were utilized to retire $21,000,000 in then outstanding short-term bank borrowing. The Company anticipates selling long-term debt in 1994 to finance its continuing construction requirements. In 1993, the Company implemented an enhanced feature to its Dividend Reinvestment Plan that allows participants in the Plan to make additional investments in the Company's Common Shares, with no brokerage fees or commissions. The Company received $1.1 million during 1993 through operation of the Plan. During 1993, the Company refinanced approximately $37,000,000 of its outstanding debt in order to lower its interest expense. The net effect of the refinancing efforts was to lower the weighted average cost of debt to approximately 7.6% from 8.7% and to extend the weighted average life of the debt to almost 24 years from 19 years. The Company paid approximately $2.6 million in premiums on redemption of its higher coupon debt which will be amortized over the lives of the new issues of debt. As part of its refinancing efforts, the Company was able to refinance its entire remaining first mortgage bonds and close the indenture on its properties so that all of the Company's presently outstanding debt is predominantly in the form of unsecured notes. On January 17, 1994, an earthquake in Southern California affected 1 of the Company's 41 water systems resulting in damage to Company facilities in excess of $1 million. The Company does not expect that this event will have a material impact on liquidity or results of operation due to the opportunity to recover costs associated with this event through previously established procedures of the CPUC. RATES AND REGULATIONS Water rates of the Company vary among its operating districts due to differences in operating conditions, capital investment and costs. Each operating district is considered as a separate entity for rate-making purposes. The Company continuously monitors its operations in each district so that applications for rate changes, when warranted and as permitted, may be filed on a district-by-district basis with the CPUC. Under the CPUC's practices, rates may be increased by three methods: general rate increases, offsets for certain supply costs increases and advice letter filings related to certain plant additions. General rate increases typically are for three year periods and include "step" increases in rates for the second and third years. The Company filed an application for general rate increases in six of its operating districts in May, 1992. In June, 1993 the CPUC issued its decision and the Company requested rehearing on two matters, the rate of return on rate base and an authorized rate increase for the Company's Bay Point water district. The CPUC granted the 21 24 Company's request for rehearing on the two issues and establishing an interim rate of return on rate base of 9.5% applicable for certain attrition, step rate filings and other earnings test filings with respect to the Company's other operating districts. The decision also disallowed $1.6 million, or approximately one-half, of the cost of constructing a water treatment plant in the Company's Clearlake water district. The Company has filed its case on the two matters set for rehearing, which is scheduled for March, 1994. The interim rate of return on rate base of 9.5% is estimated to yield a return on common equity of 10.15%. Should the 10.15% return on common equity be upheld, or, in light of reductions in interest rates since June, 1993, lowered on rehearing, the ability of the Company to generate additional cash flow through future filings would be adversely and significantly affected due to the rate of return benchmark used for earnings tests. In response to the CPUC's disallowance of $1.6 million in investment costs associated with the water treatment plant in the Company's Clearlake water district, the Company transferred that amount to non-utility plant undertaking efforts to sell either capacity from the plant or a portion of the plant itself to other utilities. Discussions with these utilities have, to date, not produced any firm agreement. Therefore, the Company has reserved fully against the $1.6 million in investment costs. The Company expects to receive approval from the CPUC to increase rates in several of its operating districts to recover increases in its supply operating expenses. While these increases do not affect earnings, they do improve cash flow. The Company intends to file with the CPUC for recovery of the costs of implementing certain recommendations made in the recently completed management audit. ENVIRONMENTAL MATTERS The Company is subject to regulations established by the Environmental Protection Agency (EPA) and administered by the California Department of Health Services (DOHS) regarding water quality issues. The Safe Drinking Water Act (SDWA) requires the EPA to set standards for contaminants and water treatment processes. To date, the EPA has promulgated national primary drinking water standards for 83 identified water contaminants and must establish standards for an additional 25 contaminants every three years thereafter. Two regulations, establishing maximum contaminant levels (MCL) for arsenic and radon, are pending which could affect both the availability and costs of the Company's groundwater supplies. However, because treatment of groundwater supplies would vary with different MCL's potentially established for these two contaminants, the Company is unable to predict the effect that the new standards will have on the costs and availability of its groundwater supplies. To date, the Company has not been significantly affected, from an operational standpoint, from contamination of its pumped water supplies and water purchased from its wholesale suppliers is generally delivered already treated. Costs associated with the testing and treatment of water supplies in response to these new standards has, however, increased by approximately 113% since 1988. The rate-making process provides the Company with an opportunity to recover these costs although no assurance can be given that the CPUC will authorize all or any part of the rate increases necessary to do so. There have been no material environmental matters affecting the Company's Bear Valley electric district. WATER SUPPLY Water supplies in the State of California continue to maintain at pre-drought levels, although 22 25 current precipitation levels are far below last year. Precipitation for the first three months of the water year, which begins October 1, have been much lower than normal with seasonal rainfall about 60% of average on a statewide basis and about 70% in the northern Sierra Nevada mountain range. Seasonal runoff statewide is just under 40% of normal. The State of California's 155 major reservoirs showed storage to be 22.5 million acre-feet, or approximately 101% of average. Long-term imported water supplies continue to be affected by environmental concerns and restrictions in the California Delta area, stemming from the Endangered Species Act. Current estimates indicate that approximately 1.6 million acre-feet of water will be available as compared to the 4.2 million acre-feet entitlement of the State Water Project (SWP) during the water year ending September 30, 1994. Inasmuch as the Department of Water Resources bases its allocations on the maximum annual water demands since 1980, agricultural agencies are expected to receive approximately 50% of their requirements while urban agencies will receive about 31% of their requirements. On this basis, the Metropolitan Water District (MWD) of Southern California and its various sub-agencies, from which the Company purchases its wholesale water supplies, expects to receive an allocation of 0.72 million acre-feet from the SWP. Projected demands on the MWD in 1994 are 1.8 to 1.9 million acre-feet. However, full allocation of 1.3 million acre-feet from the Colorado River Aqueduct, together with the SWP allocation, will allow MWD to meet its water demand requirements in 1994. To the extent that continued legislation forces a reduction in the amount of water available from Northern California, the MWD and its various agencies will continue to intensify their efforts to secure contracts for water transfers and conjunctive use of local groundwater basins. Conservation and reclamation projects play an important part in MWD's integrated resource planning efforts. Overall groundwater conditions, in those water districts of the Company which pump groundwater, continue to maintain at adequate levels. The Company drilled six new wells during 1993. ACCOUNTING STANDARDS Effective January 1, 1994, the Company is subject to the reporting requirements contained in SFAS No. 112--Employers' Accounting for Post-employment Benefits. The Company has determined that, SFAS No. 112 does not apply since there are no benefits other than those properly accounted for under other reporting requirements. Effective January 1, 1994, the Company is subject to the reporting requirements contained in SFAS No. 115--Accounting for Certain Investments in Debt and Equity Securities. The Company has determined that it has no debt security investments that are held-to-maturity or any debt or equity security investments that are trading securities or available-for-sale securities, therefore, as of December 31, 1993, it will not be necessary to report any such investments under this reporting requirement. 23 26 BALANCE SHEETS ASSETS
At December 31, (in thousands) 1993 1992 ==================================================================================================== UTILITY PLANT, AT COST Water $ 341,438 $319,858 Electric 24,820 22,527 - ---------------------------------------------------------------------------------------------------- 366,258 342,385 Less: Accumulated depreciation (84,808) (77,874) - ---------------------------------------------------------------------------------------------------- 281,450 264,511 Construction work in progress 13,540 13,014 - ---------------------------------------------------------------------------------------------------- 294,990 277,525 - ---------------------------------------------------------------------------------------------------- OTHER PROPERTY AND INVESTMENTS 921 1,114 - ---------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents 1,726 442 Accounts receivable-- Customers, less reserves of $370 in 1993 and $333 in 1992 6,815 8,030 Other 1,520 4,248 Unbilled revenue 8,106 6,523 Materials and supplies, at average cost 1,275 1,279 Supply cost balancing accounts 7,022 3,224 Prepayments 6,787 5,005 Accumulated deferred income taxes--net 1,279 3,520 - ---------------------------------------------------------------------------------------------------- 34,530 32,271 - ---------------------------------------------------------------------------------------------------- DEFERRED CHARGES Regulatory tax-related asset 23,198 ---- Other 4,894 1,581 - ---------------------------------------------------------------------------------------------------- 28,092 1,581 - ---------------------------------------------------------------------------------------------------- $ 358,533 $312,491 ====================================================================================================
The accompanying notes are an integral part of these financial statements. 24 27 CAPITALIZATION AND LIABILITIES
At December 31, (in thousands) 1993 1992 ==================================================================================================== CAPITALIZATION Common shareholders' equity $116,463 $88,229 Preferred Shares 1,600 1,600 Preferred Shares subject to mandatory redemption requirements 600 640 Long-term debt 84,286 84,195 - ---------------------------------------------------------------------------------------------------- 202,949 174,664 - ---------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Notes payable to banks 12,000 14,668 Long-term debt and Preferred Shares due within one year 417 1,013 Accounts payable 9,277 6,739 Taxes payable 2,950 5,990 Rationing penalty reserve ---- 5,015 Accrued interest 1,178 1,450 Other 6,846 5,724 - ---------------------------------------------------------------------------------------------------- 32,668 40,599 - ---------------------------------------------------------------------------------------------------- OTHER CREDITS Advances for construction 55,295 56,458 Contributions in aid of construction 25,011 24,669 Accumulated deferred income taxes--net 34,969 10,625 Regulatory tax-related liability 2,389 ---- Unamortized investment tax credits 3,664 3,747 Other 1,588 1,729 - ---------------------------------------------------------------------------------------------------- 122,916 97,228 - ---------------------------------------------------------------------------------------------------- $358,533 $ 312,491 ====================================================================================================
25 28 STATEMENTS OF CAPITALIZATION
At December 31, (in thousands) 1993 1992 ====================================================================================================== COMMON SHAREHOLDERS' EQUITY: Common Shares, $2.50 par value-- Authorized 10,000,000 shares Outstanding 7,805,495 shares in 1993 and 6,642,926 in 1992 $19,514 $16,607 Additional paid-in capital 54,179 32,234 Earnings reinvested in the business 42,770 39,388 - ------------------------------------------------------------------------------------------------------ 116,463 88,229 - ------------------------------------------------------------------------------------------------------ PREFERRED SHARES: $25 PAR VALUE Authorized 64,000 shares Outstanding 32,000 Shares, 4% Series 800 800 Outstanding 32,000 shares, 4-1/4% Series 800 800 - ------------------------------------------------------------------------------------------------------ 1,600 1,600 - ------------------------------------------------------------------------------------------------------ PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS: $25 PAR VALUE Authorized and outstanding 25,600 in 1993 and 27,200 in 1992, 5% Series 640 680 Less: Preferred Shares to be redeemed within one year (40) (40) - ------------------------------------------------------------------------------------------------------ 600 640 - ------------------------------------------------------------------------------------------------------ LONG TERM DEBT: First Mortgage Bonds: 4-3/4% Series due 1995 ---- 2,220 4.65% Series due 1995 ---- 2,220 5.10% Series due 1996 ---- 2,250 6.8% Series due 1997 ---- 2,805 10% Series due 2004 ---- 2,656 8.5% Series due 2007 ---- 2,750 Other Long-term Debt: 3.90% Notes due 1995 2,100 ---- 4.16% Notes due 1995 2,100 ---- 4.30% Notes due 1996 2,200 ---- 8.75% Notes due 1996 ---- 9,500 9.25% Notes due 2001 ---- 2,790 5.82% Notes due 2003 12,500 ---- 10.03% Notes due 2004 ---- 8,000 10.10% Notes due 2009 10,000 10,000 6.64% Notes due 2013 1,100 ---- 6.80% Notes due 2013 2,000 ---- 8.50% Fixed Rate Obligation due 2013 2,179 2,247 Variable Rate Obligation due 2014 6,000 6,000 10.375% Notes due 2016 ---- 3,264 6.87% Notes due 2023 5,000 ---- 7.00% Notes due 2023 10,000 ---- 9.56% Notes due 2031 28,000 28,000 Other 1,484 466 - ------------------------------------------------------------------------------------------------------ 84,663 85,168 Less: Current maturities (377) (973) - ------------------------------------------------------------------------------------------------------ 84,286 84,195 - ------------------------------------------------------------------------------------------------------ $ 202,949 $174,664 ======================================================================================================
The accompanying notes are an integral part of these financial statements. 26 29 STATEMENTS OF INCOME
Years Ended December 31, (in thousands, except per share amounts) 1993 1992 1991 ===================================================================================================== OPERATING REVENUES Water $ 98,155 $ 90,625 $ 78,282 Electric 10,351 10,035 12,378 - ----------------------------------------------------------------------------------------------------- 108,506 100,660 90,660 - ----------------------------------------------------------------------------------------------------- OPERATING EXPENSES Water purchased 29,375 22,591 18,126 Power purchased for resale 3,282 2,422 1,484 Power purchased for pumping 8,139 7,452 7,276 Groundwater production assessment 5,284 4,274 3,095 Supply cost balancing accounts (7,960) (1,430) 4,454 Other operating expenses 10,923 10,537 9,594 Provision for State Water Project 1,854 ---- ---- Administrative and general expense 13,509 11,995 9,315 Depreciation 7,398 6,526 6,027 Maintenance 6,450 5,091 5,147 Taxes on income 5,491 7,791 5,340 Property and other taxes 4,711 4,313 3,977 - ----------------------------------------------------------------------------------------------------- 88,456 81,562 73,835 - ----------------------------------------------------------------------------------------------------- Operating income 20,050 19,098 16,825 - ----------------------------------------------------------------------------------------------------- OTHER INCOME Net gain from sale of operating properties ---- 849 5,463 Provision for non-operating assets (943) ---- ---- Other--net 1,297 85 658 - ----------------------------------------------------------------------------------------------------- 354 934 6,121 - ----------------------------------------------------------------------------------------------------- Income before interest charges 20,404 20,032 22,946 - ----------------------------------------------------------------------------------------------------- INTEREST CHARGES Interest on long-term debt 7,607 7,256 7,200 Other interest and amortization of debt expense 771 634 383 - ----------------------------------------------------------------------------------------------------- 8,378 7,890 7,583 - ----------------------------------------------------------------------------------------------------- NET INCOME 12,026 12,142 15,363 Dividends on Preferred Shares 100 102 104 - ----------------------------------------------------------------------------------------------------- EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 11,926 $ 12,040 $ 15,259 - ----------------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE $ 1.66 $ 1.82 $ 2.34 - ----------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,186 6,628 6,518 =====================================================================================================
The accompanying notes are an integral part of these financial statements. 27 30 STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Common Shares ----------------------- Additional Earnings Number Paid-in Reinvested in of Shares Amount Capital the Business =============================================================================================================== Balances at December 31, 1990 (in thousands) 6,290 $ 15,722 $ 28,566 $ 26,853 Add: Issuances of Common Shares in conversion of $3,477,000 of 10.5% Convertible Subordinated Notes 288 724 2,714 under Dividend Reinvestment Plan 30 73 397 Net Income 15,363 Deduct: Dividends on Preferred Shares (104) Dividends on Common Shares--$1.10 per share (7,146) - --------------------------------------------------------------------------------------------------------------- Balances at December 31, 1991 6,608 $ 16,519 $ 31,677 $ 34,966 Add: Issuances of Common Shares under Dividend Reinvestment & 401-k Plans 34 88 557 Net Income 12,142 Deduct: Dividends on Preferred Shares (102) Dividends on Common Shares--$1.15 per share (7,618) - --------------------------------------------------------------------------------------------------------------- Balances at December 31, 1992 6,642 $ 16,607 $ 32,234 $ 39,388 Add: Issuances of Common Shares for Public Offering in July 1,000 2,500 19,025 for Public Offering in September 107 268 2,142 under Dividend Reinvestment & 401-k Plans 56 139 778 Net Income 12,026 Deduct: Dividends on Preferred Shares (100) Dividends on Common Shares--$1.1875 per share (8,544) - --------------------------------------------------------------------------------------------------------------- Balances at December 31, 1993 7,805 $ 19,514 $ 54,179 $ 42,770 ===============================================================================================================
The accompanying notes are an integral part of these financial statements. 28 31 STATEMENTS OF CASH FLOWS
Years Ended December 31, (in thousands) 1993 1992 1991 ================================================================================================= CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 12,026 $ 12,142 $ 15,363 Adjustments for non-cash items: Depreciation and amortization 7,682 6,823 6,243 Deferred income taxes and investment tax credits 5,693 1,977 (1,152) Gain on sale of properties ---- (1,418) (8,259) Other--net (830) (876) (2,480) Changes in Assets and Liabilities Customer receivables 1,215 1,884 (281) Supply cost balancing accounts (3,798) (1,721) 4,276 Rationing penalty reserve (5,015) 615 4,400 Accounts payable 2,538 1,112 (4,796) Taxes payable (3,040) (2,611) 5,791 Other--net, including reserves (309) (1,998) (1,276) - ------------------------------------------------------------------------------------------------- 16,162 15,929 17,829 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Common Shares 24,852 646 471 Issuance of long-term debt and lease obligations 38,143 358 28,000 Debt issuance costs (427) ---- ---- Receipt of advances for and contributions in aid of construction 2,157 2,414 5,442 Repayment of long-term debt and redemption of Preferred Shares (233) (3,247) (599) Early retirement of long-term debt (41,103) ---- (6,235) Refunds on advances for construction (2,903) (2,985) (2,419) Net change in notes payable to banks (2,668) 14,668 (7,500) Common and Preferred dividends paid (8,651) (7,754) (7,267) - -------------------------------------------------------------------------------------------------- 9,167 4,100 9,893 - -------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (22,248) (23,048) (24,164) Acquisition of water systems (1,797) ---- (3,310) Proceeds from sale of properties ---- 2,298 2 - -------------------------------------------------------------------------------------------------- (24,045) (20,750) (27,472) - -------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,284 (721) 250 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 442 1,163 913 - -------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,726 $ 442 $ 1,163 - -------------------------------------------------------------------------------------------------- TAXES AND INTEREST PAID: Income taxes paid $ 1,484 $ 10,799 $ 6,316 Interest paid 8,354 7,458 7,489 - -------------------------------------------------------------------------------------------------- NON-CASH TRANSACTIONS: Property installed by developers and conveyed to Company $ 818 $ 3,119 $ 1,398 Capital leases 1,142 2,606 ---- Conversion of 10.5% Convertible Subordinated Notes ---- ---- 3,477 ==================================================================================================
The accompanying notes are an integral part of these financial statements. 29 32 NOTES TO FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the California Public Utilities Commission (CPUC). PROPERTY AND DEPRECIATION--The Company capitalizes as utility plant the cost of additions and replacements of retirement units. Such cost includes labor, material and certain indirect charges. Depreciation is computed on the straight-line, remaining-life basis. For the years 1993, 1992 and 1991, the aggregate provisions for depreciation approximated 2.47%, 2.39% and 2.40% of beginning of the year depreciable plant, respectively. Interest is generally not capitalized for financial reporting purposes as such procedure is generally not followed for ratemaking purposes. REVENUES--Revenues include amounts billed to customers and an amount of unbilled revenue representing amounts to be billed for usage from the last meter reading date to the end of the accounting period. EARNINGS PER COMMON SHARE--Earnings per Common Share are based upon the weighted average number of Common Shares outstanding during each period and net income after deducting preferred dividend requirements. All per share amounts reflect the 2-for-1 stock split effective September 23, 1993. SUPPLY COST BALANCING ACCOUNTS--As permitted by the CPUC, the Company maintains water and electric supply cost balancing accounts to account for under-collections and over-collections of revenues designed to recover such costs. Recoverability of such costs are recorded in income and charged to balancing accounts when such costs are incurred. The balancing accounts are credited when such costs are recovered through rate adjustments. DEBT ISSUE EXPENSE AND REDEMPTION PREMIUMS--Original debt issue expenses are amortized over the lives of the respective issues. Premiums paid on the early redemption of debt which is reacquired through refunding are deferred and amortized over the life of the debt issued to finance the refunding. The redemption premium on debt reacquired without refunding is amortized over the remaining period the debt would have been outstanding. OTHER CREDITS--Advances for construction represent amounts advanced by developers which are generally refundable at either a rate of 22% of the revenue received from the installations for which funds were advanced or in equal annual installments over a forty year period. Contributions in aid of construction are similar to advances, but require no refunding and are amortized over the useful lives of the related property. CASH AND CASH EQUIVALENTS--For purposes of the Statements of Cash Flows, cash and cash equivalents include short-term cash investments with an original maturity of three months or less. FINANCIAL INSTRUMENT RISK--The Company does not carry any financial instruments with off-balance-sheet risk nor do its operations result in concentrations of credit risk. FAIR VALUE OF FINANCIAL INSTRUMENTS--The following methods and assumptions were used to estimate the fair value, as shown in the table below, of each class of financial instrument for which it is practicable to estimate that value: Cash and Cash Equivalents: The carrying amount. Accounts Receivable and Short-term Debt: Due to their short-term nature, the carrying amount. Long-term Debt: Rates available to the Company at December 31, 1993 and 1992 for debt with similar terms and remaining maturities were used to estimate the fair value of existing debt.
- --------------------------------------------------------------------------------- 1993 1992 -------------------------------------------- Carrying Fair Carrying Fair amount value amount value - --------------------------------------------------------------------------------- (in thousands) Financial assets: Cash $ 1,726 $ 1,726 $ 442 $ 442 Accounts receivable 16,441 16,441 18,801 18,801 Financing liabilities: Short-term debt 12,000 12,000 14,668 14,668 Long-term debt 84,663 58,916 85,168 70,511 - ---------------------------------------------------------------------------------
NOTE 2: CAPITAL STOCK All of the series of Preferred Shares outstanding at December 31, 1993 are redeemable at the option of the Company. At December 31, 1993, the redemption price per share for each series of $25 Preferred Shares was $27.00, $26.50 and $25.25 for the 4%, 41/4% and 5% Series, respectively. To each of the redemption prices must be added accrued and unpaid dividends to the redemption date. The $25 Preferred Shares, 5% Series, are subject to mandatory redemption provisions of 1,600 shares per year. The annual aggregate mandatory redemption requirements for this Series for the five years subsequent to December 31, 1993 is $40,000 each year. The Company sold 1,000,000 Common Shares in a public offering in July, 1993 and an additional 30 33 107,000 Common Shares in a follow-on offering in September, 1993. In September, 1993, at a Special Meeting of Shareholders, amendments to the Company's Restated Articles of Incorporation were approved to effect a 2-for-1 split of the Company's Common Shares. The stock split was effective for shareholders of record as of September 23, 1993 and the distribution of shares was made on October 5, 1993. During the three years ended December 31, 1993, the Company issued 47,828, 28,416 and 29,146 Common Shares under the Dividend Reinvestment Plan (DRP). The Company issued 7,741 and 7,102 Common Shares under the 401-k Plan in 1993 and 1992, respectively. There are 109,454 and 92,259 Common Shares reserved for issuance under the DRP and the 401-k plan, respectively. Shares reserved for the 401-k are in relation to Company contributions under the 401-k and for investment purposes by participants in the 401-k plan. NOTE 3: COMMON SHARE DIVIDEND RESTRICTION As of December 31, 1993, under the most restrictive covenant in the Company's Articles of Incorporation and debt instruments, retained earnings of $28,021,000 were restricted as to the payment of cash dividends on Common Shares. NOTE 4: LONG-TERM DEBT During 1993, the Company issued a total of $37 million of unsecured Notes. These notes were used to redeem and refinance all of the Company's outstanding First Mortgage Bonds and certain high coupon debt prior to their maturity. With the redemption of all of the first Mortgage Bonds, the Company has closed the lien of record under which substantially all of its properties were subject and title to all property was conveyed to the Company. Leases and other similar financial arrangements are not material. The Company has posted an Irrevocable Letter of Credit in the amount of $1,183,219 as security for its self-insured workers' compensation plan which expires July 31, 1994. Management anticipates that the letter of credit will be renewed on expiration. The Company has also provided an Irrevocable Letter of Credit in the amount of $6,296,000 to a Trustee with respect to the variable rate obligation due 2014 issued by the Three Valleys Municipal Water District. (TVMWD). The Company, during 1992, entered into a $2,247,000 fixed rate obligation due 2013 payable to the TVMWD for construction of a new reservoir necessary to serve one of the Company's operating districts. Annual maturities of all long-term debt amount to $377,000, $4,584,000, $2,591,000, $349,000 and $271,000 for each of the years ended December 31, 1994 through 1998, respectively. NOTE 5: COMPENSATING BALANCES AND BANK DEBT At December 31, 1993, the Company maintained lines of credit for short-term borrowings with three commercial banks. Loans can be obtained at the option of the Company and bear interest at rates based on floating prime borrowing rates or at money market rates. Compensating balances are maintained on one line of credit on an annual average but are not restricted as to withdrawal. Of the aggregate borrowing capacity of $27,068,000, $12,000,000 was outstanding at December 31, 1993. Short-term bank borrowing activities for the last three years are as follows:
- --------------------------------------------------------------------- 1993 1992 1991 (dollars in thousands) - --------------------------------------------------------------------- Balance Outstanding at December 31, $12,000 $14,668 ---- Interest Rate at December 31 3.76% 4.37% ---- Average Amount Outstanding 9,862 3,916 4,208 Weighted Average Annual Interest Rate 3.76% 4.23% 7.67% Maximum Amount Outstanding 21,500 14,668 14,100 - ---------------------------------------------------------------------
NOTE 6: TAXES ON INCOME The Company provides deferred income taxes for certain transactions which are recognized for income tax purposes in a period different from that in which they are reported in the financial statements. The most significant items are the tax effects of accelerated depreciation, the supply cost balancing accounts and advances for and contributions in aid of construction. Deferred Investment Tax Credits (ITC) are being amortized to other income ratably over the lives of the property giving rise to the credits. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109--Accounting for Income Taxes. SFAS No. 109 requires a change from the deferred method to the asset and liability method of accounting for income taxes. The effect of the new standard was an increase in assets and liabilities of approximately $22 million, as of January 1, 1993, and $23 million, as of December 31 34 31, 1993, as the result of recording additional deferred taxes which were offset by the recording of a regulatory asset. The CPUC has consistently permitted the recovery of previously flowed-through tax benefits. Therefore, the Company believes that adoption of SFAS No. 109 will not have a significant impact on the Company's results of operations. The current and deferred components of income tax expense are as follows:
- --------------------------------------------------------------------- December 31, 1993 1992 1991 - --------------------------------------------------------------------- (in thousands) Current: Federal (1,854) $ 5,691 $ 8,621 State 80 1,836 1,863 - --------------------------------------------------------------------- Total current tax expense (1,774) 7,527 10,484 - --------------------------------------------------------------------- Deferred--Federal and State Accelerated depreciation 2,819 2,473 2,013 Balancing accounts 505 571 (1,892) Excess use penalties 3,660 126 (1,905) Advances and contributions (1,465) (1,557) (2,584) Gain on sales of operating properties (43) 526 3,181 Gain on installment sale ---- (695) ---- Privilege year franchise tax 142 (317) (590) Other (160) (232) 35 - --------------------------------------------------------------------- Total deferred tax expense 5,458 895 (1,742) - --------------------------------------------------------------------- Total income tax expense 3,684 8,422 8,742 - --------------------------------------------------------------------- Income taxes included in operating expenses 5,491 7,791 5,340 Income taxes included in other income and expense--net (1,809) 631 3,402 - --------------------------------------------------------------------- Total income tax expense $ 3,684 $ 8,422 $ 8,742 - ---------------------------------------------------------------------
Additional information regarding taxes on income is set forth in the following table: - ---------------------------------------------------------------------
- --------------------------------------------------------------------- December 31, 1993 1992 1991 - --------------------------------------------------------------------- (in thousands) Federal taxes on pre-tax income at statutory rates $ 5,496 $ 6,992 $ 8,195 Increase (decrease) in taxes resulting from: State income tax expense 559 1,534 1,798 Federal benefit of state taxes (196) (521) (611) Adjustments to prior years' provisions (1,067) 650 ---- Unamortized ITC (82) (82) (665) Payment of premium on redemption (984) (3) (80) Other--net (42) (148) 105 - --------------------------------------------------------------------- Total income tax expense $ 3,684 $ 8,422 $ 8,742 - --------------------------------------------------------------------- Pre-tax income $15,703 $20,565 $24,105 - --------------------------------------------------------------------- Effective tax rate 23.5% 41.0% 36.3% - ---------------------------------------------------------------------
On October 20, 1993, the Company and the Internal Revenue Service (IRS) reached a tentative settlement on the results of the IRS examination of years 1987, 1988 and 1989. Based on the settlement the Company remitted additional taxes in the amount of $438,000 out of assessments made by the IRS of almost $5,000,000. A final settlement agreement is expected to occur in early 1994. NOTE 7: EMPLOYEE BENEFIT PLANS The Company maintains a pension plan (the Plan) which provides eligible employees (those age 21 with one year of service) monthly benefits upon retirement based on average salaries and length of service. The normal retirement benefit is equal to 2% of the five highest consecutive years average earnings multiplied by the number of years of credited service, up to a maximum of 40 years, reduced by a percentage of primary social security benefits. There is also an early retirement option. Annual contributions are made to the Plan which comply with the funding requirements of the Employee Retirement Income Security Act. The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations for 1993 and 1992 were 7% and 8%, and 4% and 5%, respectively. The expected long-term rate of return on assets, which consist primarily of fixed income securities, was 7.5% for 1993 and 8% for 1992. The following tables set forth the pension plan's funded status and amounts recognized in the Company's balance sheet at December 31, 1993 and 1992 and the components of net pension cost for 1993 and 1992.
- --------------------------------------------------------------------- December 31, 1993 1992 - --------------------------------------------------------------------- (in thousands) Accumulated benefit obligation: Vested 16,744 13,656 Nonvested 1,307 1,006 - --------------------------------------------------------------------- Total 18,051 14,662 - --------------------------------------------------------------------- Projected benefit obligation for service rendered to date (22,162) (18,577) Plan assets at fair value 22,796 20,880 Unrecognized net loss/(gain) due to past experience different from assumptions made 723 (1,352) Unrecognized net obligation at January 1, 1986 being recognized over 15 years 409 468 Unrecognized prior service cost due to Plan amendments 706 756 - --------------------------------------------------------------------- Accrued pension asset $2,472 $2,175 - --------------------------------------------------------------------- Service cost benefits earned during the period $ 795 $ 708 Interest cost on projected benefit obligation 1,447 1,401 Return on Plan assets (1,912) (1,535) Net amortization and deferral 345 (106) - --------------------------------------------------------------------- Net pension cost $ 675 $ 468 - ---------------------------------------------------------------------
32 35 The Company also provides health care benefits to 160 qualified retired employees and/or their spouses. These benefits are provided through an insurance company whose premiums were based on experience ratings and potential Medicare coverage. Effective January 1, 1993, the Company adopted SFAS No. 106, "Employer's Accounting for Post-retirement Benefits Other than Pensions." The transition obligation for benefits accumulated as a result of employees' past service to December 31, 1992 was $9,344,000 using an 8% discount rate and an 8% health care cost trend rate. A one percent (1%) increase in the anticipated health care cost trend assumption results in an estimated increase of $1.9 million in the accumulated post-retirement benefits obligation (APBO). The annual benefit cost accrual for 1993, including an amortization of the transition obligation over a 20 year period, was $1,873,000. Pursuant to a CPUC order regarding treatment of SFAS No. 106 liabilities, the Company has recorded an offseting regulatory asset. The Company has deferred any funding of its SFAS No. 106 liability pending the results of a detailed study of its existing and alternate post-retirement medical plans. Should the annual benefit accrual be reduced as a result of any plan changes, the regulatory asset will be correspondingly reduced. The Company is unable to predict what impact any national health care program will have on the Company's medical plans. The Company has a 401-k Investment Incentive Program (the 401-k) under which employees may invest a percentage of their pay, up to a maximum investment prescribed by law, in an investment program managed by an outside investment manager. Company contributions to the 401-k are based upon a percentage of individual employee contributions and for 1993, 1992 and 1991, totalled $197,000, $167,000 and $121,000, respectively. NOTE 8: CONDEMNATIONS AND SALES OF OPERATING PROPERTIES On July 9, 1992, the Contra Costa Water District (CCWD) filed a condemnation action seeking to acquire the Company's Bay Point water district. The Company believed its position in this matter was improved following adoption of a new state law, known as the "Necessity Bill", which allows utilities to rebut the presumption that the property is being condemned for a more necessary purpose. After a hearing on this matter, the court issued its ruling which upheld CCWD's Resolution of Necessity. In recent elections, however, several prior members of CCWD's Board of Directors were replaced which might lead to abandonment of the condemnation action. The Company is unable at this time to predict the course of action yet to be pursued by CCWD, but, if necessary, intends to vigorously defend itself against any takeover attempts. On May 4, 1993, the Board of Supervisors of Contra Costa County adopted a resolution to acquire the Company's Madison Water Treatment Plant. On September 1, 1993, the Contra Costa County Highway Department took possession of the property. The Company is seeking recovery of just compensation but is currently unable to predict the outcome. Neither of these actions is expected to have a material adverse effect on the Company's financial condition. NOTE 9: DROUGHT RELATED ISSUES In October, 1991, the CPUC authorized water utilities, including the Company, to recover net revenue losses reflected in previously established drought memorandum accounts less an amount equal to a 20 basis point reduction in the most recently authorized return on equity to reflect a perceived lower risk due to the availability of the memorandum account mechanism. In 1993, the Company recorded the recoverability of $1,414,000 in net revenue losses and extraordinary conservation expenses relating to 1991 and 1992 pursuant to the CPUC decision. NOTE 10: CONTINGENCIES During 1993, the Company, on two separate occasions, requested that the CPUC authorize recovery of costs associated with participation in the construction of the Coastal Aqueduct extension of the State Water Project (the "Project"). The Project would provide additional water supplies to areas of San Luis Obispo and Santa Barbara Counties, including the Company's Santa Maria District. On both occasions, the CPUC denied the Company's request for recovery of costs on the terms contained in the Company's applications. Through December 31, 1993, the Company had incurred approximately $1.9 million in costs on the Project and, in addition, had deposited approximately $1.7 million against future costs of redesigning the Project, should the Company withdraw from participation in the Project. Any redesign costs associated with the Company's withdrawal from the Project would be borne by the Company although the state agency overseeing the construction has estimated that the actual redesign costs will be significantly lower 33 36 than the amount deposited. The excess deposit will be refunded to the Company with interest. In light of the CPUC actions and the uncertainty of the Company's participation in the project, the Company has established reserves of approximately $1.9 million against its previously recorded investment in the Project and the estimated redesign costs. In June, 1993, the CPUC issued a decision which disallowed $1.6 million of the approximately $3.1 million cost of constructing a water treatment plant (the "Sonoma Facility") in the Company's Clearlake water district. The Company had transferred the disallowed portion of the Sonoma Facility's costs to non-utility assets with CPUC staff approval. Efforts continue to lease a portion of the capacity in the Sonoma Facility or, alternatively, the sale of treated water to nearby utilities. Discussions with these utilities have, to date, not produced any firm agreement. Therefore the Company has reserved against the $1.6 million associated with the non-utility portion of the Sonoma Facility. NOTE 11: CONSTRUCTION PROGRAM The Company's 1994 construction budget provides for expenditures of approximately $26,709,000. Management anticipates that $2,116,000 of the 1994 budgeted amount will be obtained from developers and others. NOTE 12: BUSINESS SEGMENTS The table below sets forth information relating to the Company's operating segments; however, the Company is a regulated public utility and such information does not reflect the ratemaking treatment allowed by the regulatory agency. In addition to amounts set forth, certain assets have not been allocated. The identifiable assets are net of respective accumulated provisions for depreciation. NOTE 13: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The quarterly financial information presented below is unaudited. The business of the Company is of a seasonal nature and it is management's opinion that comparisons of earnings for the quarterly periods do not reflect overall trends and changes in the Company's operations. Business Segments
- ------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Water Electric Water Electric Water Electric - ------------------------------------------------------------------------------------------------------------------------- Operating revenues $ 98,155 $ 10,351 $ 90,625 $ 10,035 $ 78,282 $ 12,378 Operating income before income taxes 23,192 2,349 24,193 2,696 19,553 2,612 Identifiable assets 276,710 18,280 260,712 16,813 243,800 14,758 Depreciation expense 6,715 683 5,894 632 5,468 559 Capital additions 26,443 2,057 25,382 2,780 29,909 2,563 - ------------------------------------------------------------------------------------------------------------------------- Quarterly Financial Data - -------------------------------------------------------------------------------------------------------------------------
Quarters Ended March 31, June 30, Sept. 30, Dec. 31, 1993 1993 1993 1993 - ------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues $ 22,177 $ 28,614 $ 31,729 $ 25,986 Operating income 3,667 5,078 6,243 5,062 Net income 1,542 2,988 4,339 3,157 Primary EPS 0.23 0.44 0.57 0.42 - -------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------- Quarters Ended March 31, June 30, Sept. 30, Dec. 31, 1992 1992 1992 1992 - ------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating revenues $ 20,945 $ 24,142 $ 30,180 $ 25,390 Operating income 3,894 4,390 5,700 5,114 Net income 1,925 2,452 3,793 3,972 Primary EPS 0.29 0.36 0.57 0.59 - -------------------------------------------------------------------------------------------------------------------------
34 37 REPORT OF MANAGEMENT The financial statements contained in this annual report were prepared by the management of Southern California Water Company, which is responsible for their integrity and objectivity. The financial statements were prepared in accordance with generally accepted accounting principles and include, where necessary, amounts based upon management's best estimates and judgments. All other financial information in the annual report is consistent with the financial statements and is also the responsibility of management. The Company maintains systems of internal control which are designed to help safeguard the assets of the Company and provide reasonable assurance that accounting and financial records can be relied upon to generate accurate financial statements. These systems include the hiring and training of qualified personnel, appropriate segregation of duties, delegation of authority and an internal audit function which has reporting responsibility to the Audit Committee of the Board of Directors. The Audit Committee, composed of three outside directors, exercises oversight of management's discharge of its responsibilities regarding the systems of internal control and financial reporting. The committee periodically meets with management, the internal auditor and the independent accountants to review the work and findings of each. The committee also reviews the qualifications of and recommends to the Board of Directors a firm of independent accountants. The independent accountants, Arthur Andersen & Co., have performed an audit of the financial statements in accordance with generally accepted auditing standards. Their audit included a review of the Company's system of internal accounting control as a basis for establishing the nature, timing and scope of their work. The result of their work is expressed in their Report of Independent Public Accountants. Floyd E. Wicks James B. Gallagher President and Chief Executive Officer Secretary, Treasurer and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and the Board of Directors of Southern California Water Company: We have audited the balance sheets and statements of capitalization of Southern California Water Company (a California corporation) as of December 31, 1993 and 1992 and the related statements of income, changes in common shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southern California Water Company as of December 31, 1993 and 1992 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 6 and 7 to the financial statements, and as required by generally accepted accounting principles, the Company changed its methods of accounting for income taxes and post-retirement benefits other than pensions in 1993. Arthur Andersen & Co. Los Angeles, California February 15, 1994 35 38 STATISTICAL REVIEW FROM 1989 TO 1993
1993 1992 1991 1990 1989 ================================================================================================= FINANCIAL INFORMATION (in thousands, except per share amounts) Revenues By Classification Residential and Commercial $ 86,918 $ 82,112 $ 68,063 $ 69,161 $ 67,404 Industrial 1,134 1,110 1,019 1,021 1,074 Fire Service 1,149 1,067 927 954 785 Other 8,954 6,336 8,273 5,150 4,909 Total Water 98,155 90,625 78,282 76,286 74,172 Electric 10,351 10,035 12,378 11,054 10,043 Total operating revenues 108,506 100,660 90,660 87,340 84,215 Net income 12,026 12,142 15,363 8,907 8,730 Earnings available for common shareholders 11,925 12,040 15,259 8,801 8,622 Earnings per Common Share 1.66 1.82 2.34 1.40 1.38 Dividends declared per Common Share 1.19 1.15 1.10 1.08 1.04 Total assets 358,533 312,491 293,444 268,028 254,346 Total utility plant 294,990 277,525 258,558 235,713 214,465 Capital additions 28,500 28,162 32,472 27,077 25,726 Long-term debt 84,621 84,195 82,634 67,246 67,767 Preferred Shares-- mandatory redemption 600 640 680 720 760 Investment Per Customer $ 1,480 $ 1,388 $ 1,297 $ 1,213 $ 1,125 OPERATIONAL INFORMATION Water Sold By Classification (MG) Residential and Commercial 48,033 47,541 44,528 51,696 51,841 Industrial 679 699 737 937 966 Fire Service 33 23 11 50 25 Other 4,019 3,890 3,807 4,511 4,635 Total Water 52,764 52,153 49,083 57,194 57,467 Total Electric Sales (MWH) 106,234 105,346 101,923 103,376 97,583 Customers By Classification Residential and Commercial 231,966 230,956 230,175 221,888 220,876 Industrial 322 330 347 376 385 Fire Service 2,877 2,846 2,779 2,610 2,562 Other 1,820 1,795 1,812 1,819 1,813 Total Water 236,985 235,927 235,113 226,693 225,636 Electric 20,131 20,039 19,780 19,559 19,215 Total Company 257,116 255,966 254,893 246,252 244,851 Water Production By Source (MG) Purchased 25,156 24,377 23,221 31,021 32,189 Pumped-Electric 32,056 30,406 28,640 28,923 29,733 Pumped-Gas 195 177 245 270 306 Gravity and Surface 658 1,249 1,046 1,255 361 Total Supply 58,066 56,209 53,153 61,469 62,589 Miles of Main In Service 2,560 2,549 2,535 2,517 2,488 Number of Employees 486 445 422 410 388 =================================================================================================
MG = Millions of Gallons MWH = Millions of Kilowatt Hours 36 39 ANNUAL MEETING The 1994 Annual Meeting of Shareholders will be held Tuesday, April 26, 1994 at 11:00 a.m. at The Sheraton Suites Fairplex, 601 West McKinley Avenue, Pomona, California 91768. Notice of meeting and proxy material will be mailed. TRADING OF STOCK Common Shares of Southern California Water Company are traded on the New York Stock Exchange under the symbol SCW. Common Share prices and dividends for the last two years were:
========================================================= DIVIDENDS PERIOD HIGH LOW PAID - --------------------------------------------------------- 1993 First Quarter 21 3/4 19 5/8 $ 0.2875 Second Quarter 24 21 1/4 0.3000 Third Quarter 23 11/16 21 1/4 0.3000 Fourth Quarter 24 3/8 21 3/4 0.3000 - --------------------------------------------------------- $ 1.1875 =========================================================
========================================================= DIVIDENDS PERIOD HIGH LOW PAID - --------------------------------------------------------- 1992 First Quarter 17 3/4 16 1/2 $ 0.2875 Second Quarter 17 7/8 16 0.2875 Third Quarter 20 5/8 17 1/8 0.2875 Fourth Quarter 20 3/8 18 5/8 0.2875 - --------------------------------------------------------- $ 1.1500 - ---------------------------------------------------------
All information adjusted to reflect 2-for-1 stock split. SHAREHOLDER ASSISTANCE AND CORPORATE REPORTS. If you have any questions concerning your investment with Southern California Water Company or wish to obtain a copy of the Company's reports to the Securities and Exchange Commission, we will be pleased to assist you. Please submit your request to: James B. Gallagher Secretary, Treasurer and Chief Financial Officer Southern California Water Company 630 East Foothill Boulevard o San Dimas, CA 91773 (909) 394-3633 TRANSFER AGENT AND DIVIDEND PAYING AGENT For questions regarding dividend payments, change of address or other shareholder account matters, please contact: First Interstate Bank of California Stock Transfer Department P.O. Box 30609 o Los Angeles, CA 90030 (800) 522-6645 DIVIDEND REINVESTMENT The Company has a Dividend Reinvestment Plan which is open to all holders of Company common shares. Dividends of participants are reinvested in common shares of the Company. The Plan also provides for receipt of optional cash payments for the purchase of additional common shares. For a copy of the Plan prospectus and an enrollment card, contact First Interstate Bank at the address shown above. 1993 DIVIDENDS Dividends on common and preferred shares are expected to be paid on: March 1 June 1 September 1 December 1 BOARD OF DIRECTORS William V. Caveney Chairman of the Board Floyd E. Wicks President, Chief Executive Officer Donald E. Brown Senior Vice President Kirkpatrick, Pettis, Smith, Polian, Inc. Omaha, Nebraska R. Bradbury Clark Attorney at Law; Retired Partner in the law firm of O'Melveny & Myers Los Angeles, California N.P. Dodge, Jr. President, N.P. Dodge Company Omaha, Nebraska William M. Kizer Chairman of the Board and Director of Central States Health & Life Company Omaha, Nebraska ELECTED OFFICERS William V. Caveney Chairman of the Board Floyd E. Wicks President, Chief Executive Officer Joel A. Dickson Vice President--Regulatory Affairs and Utility Business Development Randell J. Vogel Vice President--Administration Thomas J. Bunosky Vice President--Operations James B. Gallagher Secretary, Treasurer and Chief Financial Officer FIELD MANAGEMENT J. Leroy Barker Foothill Division Ronald E. Mullen Metropolitan Division John F. Redding Mountain/Desert Division Donald K. Saddoris Northern/Coastal Division Patrick R. Scanlon Orange County Division COUNSEL O'Melveny & Myers 400 South Hope Street Los Angeles, CA 90071-2899 AUDITORS Arthur Andersen & Co. 633 West Fifth Street Los Angeles, CA 90071 38 40 Southern California Water Company 630 East Foothill Boulevard o San Dimas, California 91773 41 APPENDIX Cover - ----- A 3.5" by 5.5" picture of a barometer. Page 1 - ------ Picture of a barometer. Page 2 - ------ A 4" by 5.5" picture of W.V. Caveney, Chairman and Floyd E. Wicks, President, and Chief Executive Officer. Page 5 - ------ A 2.5" by 3.5" picture of a barometer. Page 8 - ------ A collage of various devices and tools used by water and electric utilities including an electric meter, a water meter, a pipe wrench, a lightning arrestor, a hard hat, 3 water specimen bottles, a hand held meter reading device, work glove, and several circular pressure charts. Page 9 - ------ A collage displaying several Southern California Water Company common stock certificates, a plaque commemorating the 1991 issuance of $28,000,000 in Long-term Notes, and a medallion memorializing Southern California Water Company's (SCW) original listing on the New York Stock Exchange on June 17, 1993. Page 10 - ------- A collage displaying various meter devices such as an electric meter, a water meter, and a hand held meter reading device. Page 11 - ------- A collage displaying a hard hat, a pipe wrench, and work gloves. Page 12 - ------- A graph displaying Dividends Per Share from 1989 through 1993. Southern California Water Company paid Dividends Per Share of $1.04 in 1989, $1.08 in 1990, $1.10 in 1991, $1.15 in 1992, and $1.19 in 1993. This graph is accompanied by another graph displaying the Company's Total Capitalization from 1989 through 1993. Southern California Water Company's Total Capitalization was $138,729,000 in 1989, $140,707,000 in 1990, $168,076,000 in 1991, $174,664,000 in 1992, and $202,949,000 in 1993. 42 Page 13 - ------- A graph displaying Total Utility Plant from 1989 through 1993. Southern California Water Company's Total Utility Plant was $214,465,000 in 1989, $235,713,000 in 1990, $258,558,000 in 1991, $277,525,000 in 1992, and $294,990,000 in 1993. This graph is accompanied by another graph displaying the Company's Total Revenues from 1989 through 1993. Southern California Water Company's Total Revenues was $84,215,000 in 1989, $87,340,000 in 1990, $90,660,000 in 1991, $100,600,000 in 1992, and $108,506,000 in 1993. Page 14 - ------- A 3.5" by 2" inch picture of a barometer. Page 15 - ------- A map of California is displayed upon this page. Highlighted on the map are the counties within which Southern California Water Company's Operating Districts are located. Page 16 - ------- A collage displaying the various financial related resources used by our Company including several Southern California Water Company common stock certificates, a plaque commemorating the 1991 issuance of $28,000,000.00 in Long-term Notes, a medallion memorializing Southern California Water Company's (SCW) original listing on the New York Stock Exchange on June 17, 1993, several compact disks, two reels of computer tape, and a personal computer keyboard. EX-24 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 24 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated February 15, 1994, included in the 1993 Annual Report to Shareholders of Southern California Water Company. It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1993 or performed any audit procedures subsequent to the date of our report. We further consent to the incorporation by reference of the above-mentioned Report of Independent Public Accountants, incorporated by reference in this Annual Report on Form 10-K, and to the incorporation by reference of our report (the Report of Independent Public Accountants on Supplemental Schedules), appearing on page 13 of this Annual Report on Form 10-K, in the Southern California Water Company Registration Statements which follow:
Registration Form File No. Effective Date ----------------- -------- -------------- Form S-3 33-42218 August 22, 1991 Form S-3 33-62832 June 2, 1993 Form S-8 33-71226 Nov. 4, 1993
ARTHUR ANDERSEN & CO. Los Angeles, California March 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----