1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended JUNE 30, 1995 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (909) 394-3600
--------------
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 31, 1995, the number of shares outstanding
of the Registrant's Common Shares, Par Value $2.50,
was 7,845,092.
2
SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-Q
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1: Financial Statements 1
Balance Sheets as of June 30, 1995 and December 31, 1994 2 - 3
Statements of Income for the Three Months Ended
June 30, 1995 and June 30, 1994 4
Statements of Income for the Six Months Ended
June 30, 1995 and June 30, 1994 5
Statements of Income for the Twelve Months Ended
June 30, 1995 and June 30, 1994 6
Statements of Cash Flows for the Six Months Ended
June 30, 1995 and June 30, 1994 7
Notes to Financial Statements 8 - 9
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operation 10 - 16
PART II OTHER INFORMATION
Item 1: Not Applicable in this Amendment No. 1
Item 2: Changes in Securities 16
Item 3: Not Applicable in this Amendment No. 1
Item 4: Not Applicable in this Amendment No. 1
Item 5: Not Applicable in this Amendment No. 1
Item 6: Not Applicable in this Amendment No. 1
Signature 18
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PART I
ITEM 1. FINANCIAL STATEMENTS
The basic financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included
in financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such rules
and regulations, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair statement of results for the
interim period have been made.
It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto in the Registrant's
latest Annual Report on Form 10-K.
1
4
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
1995 1994
----------- --------------
(Unaudited)
(in thousands)
UTILITY PLANT, at cost
Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 361,463 $ 356,666
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,943 26,642
---------- ----------
389,406 383,308
Less - Accumulated depreciation . . . . . . . . . . . . . . . . . . . (97,821) (92,679)
---------- ----------
291,585 290,629
Construction work in progress . . . . . . . . . . . . . . . . . . . 32,193 24,250
---------- ----------
323,778 314,879
---------- ----------
OTHER PROPERTY AND INVESTMENTS . . . . . . . . . . . . . . . . . . . . 920 921
---------- ----------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 4,890 2,344
Accounts receivable -
Customers, less reserves of $335
in 1995 and $419 in 1994 . . . . . . . . . . . . . . . . . . . . 8,818 8,889
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,079 2,015
Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 10,088 9,560
Materials and supplies, at average cost . . . . . . . . . . . . . . 1,253 1,232
Supply cost balancing accounts . . . . . . . . . . . . . . . . . . . 6,598 7,008
Prepayments and other . . . . . . . . . . . . . . . . . . . . . . . 5,259 6,578
Accumulated deferred income taxes - net . . . . . . . . . . . . . . 2,592 2,461
---------- ----------
40,577 40,087
---------- ----------
DEFERRED CHARGES
Regulatory tax-related assets . . . . . . . . . . . . . . . . . . . 22,999 23,105
Other deferred charges . . . . . . . . . . . . . . . . . . . . . . . 5,479 4,635
---------- ----------
28,478 27,740
---------- ----------
$ 393,753 $ 383,627
========== ==========
The accompanying notes are an integral part of these financial statements.
2
5
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
JUNE 30, DECEMBER 31,
1995 1994
---------- ------------
(Unaudited)
(in thousands)
CAPITALIZATION
Common shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,350 $ 118,962
Preferred shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,600 1,600
Preferred shares subject to mandatory
redemption requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 560 560
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,645 92,891
---------- ----------
198,155 214,013
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CURRENT LIABILITIES
Notes payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,000 19,500
Long-term debt and preferred shares
due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,524 4,624
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,318 8,448
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,221 5,635
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,746 1,885
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,276 6,504
---------- ----------
70,085 46,596
---------- ----------
OTHER CREDITS
Advances for construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,446 54,503
Contributions in aid of construction . . . . . . . . . . . . . . . . . . . . . 26,986 25,567
Accumulated deferred income taxes - net . . . . . . . . . . . . . . . . . . . . 37,553 36,252
Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . 3,541 3,582
Regulatory tax-related liability . . . . . . . . . . . . . . . . . . . . . . . 2,322 2,352
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665 762
---------- ----------
125,513 123,018
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$ 393,753 $ 383,627
========== ==========
The accompanying notes are an integral part of these financial statements.
3
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SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED JUNE 30, 1995 AND 1994
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
-----------------------------------
1995 1994
---------- ----------
(in thousands, except
per share amounts)
OPERATING REVENUES
Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,096 $ 28,080
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,276 2,414
---------- ----------
32,372 30,494
---------- ----------
OPERATING EXPENSES
Water purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,582 7,063
Power purchased for pumping . . . . . . . . . . . . . . . . . . . . . . . . . . 1,605 1,545
Power purchased for resale . . . . . . . . . . . . . . . . . . . . . . . . . . 1,047 770
Groundwater production assessment . . . . . . . . . . . . . . . . . . . . . . . 1,572 1,698
Supply cost balancing accounts . . . . . . . . . . . . . . . . . . . . . . . . 992 1,479
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,169 3,074
Provision for State Water Project . . . . . . . . . . . . . . . . . . . . . . . - 128
Administrative and general expenses . . . . . . . . . . . . . . . . . . . . . . 4,062 3,848
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,171 2,016
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,560 1,649
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,256 1,703
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,088 1,258
---------- ----------
27,104 26,231
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Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,268 4,263
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 (46)
---------- ----------
Income before interest charges . . . . . . . . . . . . . . . . . . . . . . . . 5,336 4,217
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,309 1,890
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,027 2,327
DIVIDENDS ON PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) (25)
---------- ----------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . $ 3,003 $ 2,302
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . 7,845 7,845
========== ==========
Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.38 $0.29
========== ==========
Dividends Declared Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . $0.30 $0.30
========== ==========
The accompanying notes are an integral part of these financial statements.
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SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE SIX MONTHS
ENDED JUNE 30, 1995 AND 1994
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
---------------------------------
1995 1994
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(in thousands, except
per share amounts)
OPERATING REVENUES
Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,795 $ 49,292
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,554 5,383
---------- ----------
57,349 54,675
---------- ----------
OPERATING EXPENSES
Water purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,964 13,805
Power purchased for pumping . . . . . . . . . . . . . . . . . . . . . . . . . . 3,055 2,766
Power purchased for resale . . . . . . . . . . . . . . . . . . . . . . . . . . 2,550 2,231
Groundwater production assessment . . . . . . . . . . . . . . . . . . . . . . . 2,866 2,332
Supply cost balancing accounts . . . . . . . . . . . . . . . . . . . . . . . . 390 259
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,132 6,013
Provision for State Water Project . . . . . . . . . . . . . . . . . . . . . . . - 263
Administrative and general expenses . . . . . . . . . . . . . . . . . . . . . . 8,049 7,373
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,295 4,030
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,215 3,457
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,045 2,494
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,124 2,495
---------- ----------
48,685 47,518
---------- ----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,664 7,157
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 (5)
---------- ----------
Income before interest charges . . . . . . . . . . . . . . . . . . . . . . . . 8,738 7,152
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,593 3,660
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,145 3,492
DIVIDENDS ON PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . (48) (49)
---------- ----------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . $ 4,097 $ 3,443
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . 7,845 7,839
========== ==========
Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.52 $0.44
========== ==========
Dividends Declared Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . $0.60 $0.60
========== ==========
The accompanying notes are an integral part of these financial statements.
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SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
FOR THE TWELVE MONTHS
ENDED JUNE 30, 1995 AND 1994
(Unaudited)
TWELVE MONTHS ENDED
JUNE 30,
------------------------------
1995 1994
---------- ----------
(in thousands, except
per share amounts)
OPERATING REVENUES
Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 114,590 $ 101,860
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,758 10,530
---------- ----------
125,348 112,390
---------- ----------
OPERATING EXPENSES
Water purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,927 31,799
Power purchased for pumping . . . . . . . . . . . . . . . . . . . . . . . . . . 7,869 7,543
Power purchased for resale . . . . . . . . . . . . . . . . . . . . . . . . . . 5,050 3,128
Groundwater production assessment . . . . . . . . . . . . . . . . . . . . . . . 5,990 4,553
Supply cost balancing accounts . . . . . . . . . . . . . . . . . . . . . . . . 630 (4,804)
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,219 11,396
Provision for State Water Project . . . . . . . . . . . . . . . . . . . . . . . (456) 1,174
Administrative and general expenses . . . . . . . . . . . . . . . . . . . . . . 14,955 14,471
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,315 7,732
Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,680 6,877
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,416 5,071
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,317 4,988
---------- ----------
104,912 93,928
---------- ----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,436 18,462
---------- ----------
OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 388
---------- ----------
Income before interest charges . . . . . . . . . . . . . . . . . . . . . . . . 20,750 18,850
INTEREST CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,761 7,862
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,989 10,988
DIVIDENDS ON PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . (97) (99)
---------- ----------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . $ 11,892 $10,889
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . . . . . . . . . 7,845 7,773
========== ==========
Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.52 $1.40
========== ==========
Dividends Declared Per Common Share . . . . . . . . . . . . . . . . . . . . . . . . $1.20 $1.20
========== ==========
The accompanying notes are an integral part of these financial statements.
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SOUTHERN CALIFORNIA WATER COMPANY
CASH FLOW STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1995 1994
--------- ---------
(in thousands)
CASH FLOWS FROM -
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,145 $3,492
Adjustments for non-cash items:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 4,461 4,229
Deferred income taxes and
investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,183 311
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (447) (1,475)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,007 (2,591)
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,319 1,393
Supply cost balancing accounts . . . . . . . . . . . . . . . . . . . . . . . . 410 265
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,130) (1,340)
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586 166
Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (528) (1,717)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408 1,900
--------- ---------
Net Cash Provided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,414 4,633
--------- ---------
Financing Activities:
Receipt of advances and contributions . . . . . . . . . . . . . . . . . . . . . . 1,651 1,883
Repayments of long-term debt and
redemption of preferred shares . . . . . . . . . . . . . . . . . . . . . . . . (4,347) (97)
Refunds on advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (942) (2,360)
Net change in notes payable to banks . . . . . . . . . . . . . . . . . . . . . . 13,500 12,750
Common and preferred dividends paid . . . . . . . . . . . . . . . . . . . . . . . (4,719) (4,748)
--------- ---------
Net Cash Provided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,143 7,428
--------- ---------
Investing Activities:
Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,011) (12,865)
--------- ---------
Net Cash Used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,011) (12,865)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . . 2,546 (804)
Cash and Cash Equivalents, Beginning of period . . . . . . . . . . . . . . . . . . 2,344 1,726
--------- ---------
Cash and Cash Equivalents, End of period . . . . . . . . . . . . . . . . . . . . . $4,890 $922
========= =========
The accompanying notes are an integral part of these financial statements.
7
10
SOUTHERN CALIFORNIA WATER COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. For a summary of significant accounting policies and other
information relating to these interim financial statements,
reference is made to pages 24 through 28 of the 1994 Annual
Report to Shareholders under the caption "Notes to Financial
Statements."
2. Earnings per common share are based on the weighted average
number of Common Shares outstanding during each period and net
income after deducting preferred dividend requirements.
3. In June, 1994, the Registrant signed a Water Supply Agreement to
become a participant in the Coastal Aqueduct Extension of the
State Water Project (the "Project") at a level of 500 acre-feet.
The Registrant's current investment for this level of
participation is $935,000 and is included in utility plant.
The Registrant intends to file an application with the
California Public Utilities Commission ( the "CPUC") seeking
approval of its participation in the Project and authorizing
recovery through rates of costs associated with that
participation. No assurance can be given that the CPUC will
authorize participation in the Project or whether the CPUC will
deny or approve recovery through rates of all or any costs
associated with such participation.
The Registrant has substantially completed negotiations for the
sale of the remaining 2,500 acre-feet of its total 3,000 acre-
foot entitlement in the Project, which sale is expected to be
approved by the CPUC.
4. The Registrant and the Contra Costa Water District ("CCWD") have
entered into an agreement which settles CCWD's condemnation
action regarding the Registrant's Bay Point water system. Under
the terms of the settlement, the Registrant will continue to own
and operate the Bay Point system and CCWD withdrew its
condemnation action. CCWD is obligated to construct certain
facilities which will be interconnected to the Registrant's
system in order to provide a long-term source of supplemental
supply for the system. The Registrant will reimburse CCWD for
the cost of constructing these facilities. The Registrant's
portion of the current estimated cost of the facilities is $2.6
million. One-half, or $1.3 million, of this amount was paid to
CCWD in September, 1994 with the balance due in seven equal
annual installments beginning with completion of the facilities,
anticipated in 1996. The total project cost is estimated at $5
million.
The initial contribution of $1.3 million was made from a portion
of the proceeds of $2.3 million received from the County of
Contra Costa for its condemnation of the Registrant's Madison
Treatment Plant. The remaining $1 million of proceeds from the
condemnation was credited to the Registrant's supply cost
balancing account to offset a portion of the higher cost of
purchased water from the City of Pittsburg immediately following
the Registrant's loss of the Madison plant capacity in 1993.
The terms of the settlement with CCWD are subject to CPUC
approval. The Registrant is unable to predict the outcome of the
CPUC's consideration of this matter.
8
11
5. The Registrant filed for increased rates in six of its water
districts in March, 1995 and anticipates filing for increased
rates in its electric district during the third quarter of 1995.
The Registrant does not anticipate significant rate relief from
such filings until early 1996. In July, 1995, the Division of
Ratepayer Advocates issued its report on the Registrant's rate
filing. See the section entitled "Rates and Regulation" for more
information.
6. Effective January 1, 1993, the Registrant adopted Statement of
Financial Accounting Standards ("SFAS") No. 106 - Employers'
Accounting for Postretirement Benefits Other Than Pensions, which
requires accrual of the expected costs of providing benefits such
as retiree health care over the employees' years of service. As
a result, the Registrant amended its retiree medical plan
substantially reducing benefits for those current employees
retiring after September 30, 1995. No such benefits will be
available to employees hired on or after February 1, 1995.
Based on a study performed by the Registrant's health care
actuary, using a 7.5% discount rate and a sliding scale for
health care cost trends starting at 12%, declining by 1% annually
for the next six years and remaining at 6% thereafter, the
transition obligation for the Registrant's post-retirement
medical plan, after giving effect to the changes discussed above,
is estimated to be approximately $5.1 million. A one percent
(1%) increase in the anticipated health care cost trend
assumption results in an estimated increase of approximately
$656,000 in the accumulated postretirement benefits obligation
("APBO"). The Registrant estimates that its Net Periodic
Postretirement Benefit Costs, under the plan as amended, would
approximate $600,000, including amortization of the transition
APBO over a 20-year period.
The Registrant, for the six-month period ended June 30, 1995, has
capitalized an additional $250,000 of its anticipated Net
Periodic Postretirement Benefit Costs for 1995. The CPUC has
previously issued a decision which provides for the recovery in
rates of tax-deductible contributions to a separately trusteed
fund and the Registrant is evaluating presently available funding
vehicles. Due to the amendments to the Registrant's plans as
described above, it is estimated that substantially all of the
SFAS No. 106 costs will ultimately be currently recoverable in
rates.
7. Effective January 1, 1995, the Registrant is subject to SFAS No.
119 - Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments. The Registrant has no derivative
financial instruments, financial instruments with off-balance
sheet risk or financial instruments with concentrations of credit
risk and, therefore, this standard will have no present impact on
the Registrant's results of operation or financial condition.
8. In March 1995, the FASB issued SFAS No. 121 - Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of. This Statement imposes stricter criteria for
regulatory assets by requiring that such assets be probable of
future recovery at each balance sheet date. The Registrant
anticipates adopting this standard on January 1, 1996 and does
not expect that adoption will have a material impact on the
financial position or results of operations of the Registrant
based on the current regulatory structure in which the Registrant
operates.
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9. As permitted by the CPUC, the Registrant 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. In October 1995, the Registrant
identified and adjusted for an error in the recording of offset
revenue into its electric balancing account. The error arose as
a result of the input in August 1994 of an incorrect rate into a
system which generates the amount of offset revenue to be
recorded. This resulted in a misstatement of the overcollection
in the balancing account and, thus, an understatement in recorded
income. For 1994, income was understated by approximately
$336,000 or $0.043 per common share. The impact of the adjustment
for 1994 was not material and the cumulative effects of the
adjustment through March 31, 1995 were included in first quarter
results. For the second quarter of 1995, income was understated
by approximately $140,000 or $0.018 per common share. For the
six months ended June 30, 1995, income was understated by
approximately $351,000 or $0.045 per common share. The error did
not affect actual billings to customers.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
Southern California Water Company (the "Registrant") is a
public utility company engaged principally in the purchase, production,
distribution and sale of water (SIC No. 4941). The Registrant also distributes
electricity in one community (SIC No. 4911). The Registrant, regulated by the
California Public Utilities Commission ("CPUC"), was incorporated on December
31, 1929 under the laws of the State of California as American States Water
Services Company of California as the result of the consolidation of 20 water
utility companies. From time to time, additional water companies and municipal
water districts have been acquired and properties in limited service areas have
been sold. The Registrant's present name was adopted in 1936.
At June 30, 1995, the Registrant, organized into three
regions operating within 75 communities in 10 counties throughout the State of
California, provided water service in 21 customer service areas. 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 also
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 238,209 water customers and 20,194 electric customers at June 30, 1995,
or a total of 258,403 customers compared with 257,695 total customers at June
30, 1994.
RESULTS OF OPERATION
Earnings per common share for the three months ended June
30, 1995 increased by 31.0% to $0.38 per share as compared to $0.29 per share
for the comparable period last year. For the six months ended June 30, 1995,
earnings per share were $0.52 as compared to $0.45 for the six months ended
June 30, 1994. Earnings for the twelve months ended June 30, 1995 increased by
8.6% to $1.52 per share as compared to $1.40 per share for the twelve months
ended June 30, 1994.
As compared to the comparable periods last year, water sales
volumes for the three and six months ended June 30, 1995 decreased by 4.3% and
3.8%, respectively. However, water sales volumes for the twelve months ended
June 30, 1995 increased by 4.3% compared to the same period last year. Water
operating revenues increased by 7.2%, 5.1% and 12.5%, in each of the three
periods ended June 30, 1995 respectively, over the same periods of last year as
a result of the impact of general, step and attrition rate increases as well as
the effects of approximately $13 million in supply cost offset rate increases.
Kilowatt-hour sales of electricity decreased by 5.9%, 1.5%
and 0.3% for the three, six and twelve months ended June 30, 1995,
respectively, as compared to the same periods last year. Electric operating
revenues for the three months ended June 30, 1995 decreased by 5.7% as compared
to the same period last year due to the decrease in kilowatt-hour sales.
Electric operating revenues for the six and twelve month periods ending June
30, 1995 increased by 3.2% and 2.2% over the comparable periods last year as a
result of a slight shift in kilowatt-hour sales volumes from industrial
customers in favor of residential and commercial customers who have a higher
unit rate.
Purchased water costs are 6.1% and 5.9% less, respectively,
for the six and twelve months ended June 30, 1995 as compared to the same
periods last year reflecting reduced amounts of purchased water in the
Registrant's resource mix. For the three months ended June 30, 1995,
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purchased water costs increased by 7.3% principally as a result of increased
purchased water rates.
The costs of power purchased for pumping increased by 10.4%
and 4.3%, respectively, for the six and twelve months ended June 30, 1995 as
compared to the same periods ended June 30, 1994 due to increased pumped water
volumes in the Registrant's resource mix.
As compared to the three, six and twelve months ended June
30, 1994, the costs of power purchased for resale increased by 36.0%, 14.3% and
61.4% for the three, six and twelve months ended June 30, 1995, respectively.
The three and six month ended comparisons are affected by approximately
$315,000 in refunds from SCE in 1994 for which there were no counterparts in
1995. The twelve month comparison is also affected by additional refunds from
SCE of approximately $2 million; there were no such refunds in 1995.
Groundwater production assessments are 7.4% lower for the
three months ended June 30, 1995 as compared to June 30, 1994 due principally
to a decrease in the amount of pumped water in the Registrant's resource mix
during the second quarter in 1995. For the six and twelve months ended June
30, 1995, groundwater production assessment increased by 22.9% and 31.6%,
respectively, as compared to prior year periods due primarily to the effects of
additional supply from pumped sources.
In October 1995, the Registrant identified and adjusted for
an error in the recording of offset revenue into its electric balancing
account. The error arose as a result of the input in August 1994 of an
incorrect rate into a system which generates the amount of offset revenue to be
recorded. This resulted in a misstatement of the overcollection in the
balancing account and, thus, an understatement in recorded income. For 1994,
income was understated by approximately $336,000 or $0.043 per common share.
The impact of the adjustment for 1994 was not material and the cumulative
effects of the adjustment through March 31, 1995 were included in first quarter
results. For the second quarter of 1995, income was understated by
approximately $140,000 or $0.018 per common share. For the six months ended
June 30, 1995, income was understated by approximately $351,000 or $0.045 per
common share. The error did not affect actual billings to customers. A
positive entry for the provision for supply cost balancing accounts reflects
recovery of previously under-collected supply costs. The positive entries for
three, six and twelve months ended June 30, 1995 result from approval by the
CPUC of rate increases to collect purchased water supply costs, supply costs
for power purchased for pumping and resale and groundwater production
assessments which had previously not been collected through rates.
Other operating expenses increased by 3.1%, 2.0% and 7.2%,
respectively, for the three, six and twelve months ended June 30, 1995 as
compared to the same periods ended June 30, 1994 due chiefly to a shift in
costs for personnel involved in various operating and customer service
functions as well as certain expenses associated with relocation of personnel.
The Registrant had reserved a maximum of $2.1 million
against previously incurred costs related to its participation in the Coastal
Extension of the State Water Project (the "Project") due to denial by the CPUC
of the Registrant's requests for participation in the Project and recovery of
costs related thereto; presently the reserve is $1.7 million. The Registrant
has signed an agreement to participate in the Project at a level of 500
acre-feet and anticipates selling its remaining 2,500 acre-feet entitlement
which may result in a reversal of a portion of the amounts previously reserved.
See Note 3 of the Notes to Financial Statements.
Administrative and general expenses increased by
5.6%, 9.2% and 3.3% for the three, six and twelve months ended June 30, 1995,
respectively, as compared to the same periods
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ended June 30, 1994. These periods are each affected by increased
personnel-related expenditures such as health insurance and employee savings
plan contributions as well as increased customer accounting costs. In
addition, the six month comparison includes amounts associated with severance
benefits paid in 1995.
Depreciation expense, increased by 7.7%, 6.6% and 7.5%,
respectively, for the three, six and twelve months ended June 30, 1995
reflecting, among other things, the effects of recording approximately $22
million in net plant additions during 1994, depreciation on which began in
January, 1995.
Taxes on income increased by approximately 32.5%, 22.1% and
85.7%, respectively, for the three, six and twelve months ended June 30, 1995
as compared to the three, six and twelve months ended June 30, 1994 as a result
of higher pre-tax income. In addition, the twelve months ended June 30, 1994
is affected by a reversal of approximately $1.3 million in previously
established tax reserves during the last quarter of 1993 for which there is no
counterpart affecting the twelve months ended June 30, 1995.
For the three, six and twelve month periods ending June 30,
1995, other taxes decreased by 13.5%, 14.9% and 13.5%, respectively, as
compared to the same time periods ending June 30, 1994 primarily due to lower
property taxes resulting from reduced valuation assessments in 1994 which are
applicable in 1995.
Maintenance expense decreased by 5.4%, 7.0% and 2.9% for the
three, six and twelve months ended June 30, 1995 as compared to the three, six
and twelve months ended June 30, 1994. These decreases are a result of work
performed in the prior year periods on the Registrant's water pumping
equipment, emphasis on hydrant maintenance and extensive main flushing and
valve exercise programs for which there is no counterpart this year.
Interest expense for the three, six and twelve months ended
June 30, 1995 increased by 22.2%, 25.5% and 11.4%, respectively, over the
comparable 1994 time periods. These increases are primarily the result of the
Registrant's issue in April, 1994 of $13 million in long-term debt as well as
increased short-term bank borrowing in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant funds the majority of its operating expenses,
interest payments on its debt, dividends on its outstanding common and
preferred shares and makes its mandatory sinking fund payments through internal
sources. However, because of the seasonal nature of its water and electric
businesses, the Registrant utilizes its short-term borrowing capacity on
occasion to finance current operating expenses.
The Registrant continues to fund the majority of its
construction expenditures through external sources including short-term bank
borrowing, the receipt of contributions-in-aid-of-construction and advances for
construction and install-and-convey advances. For the quarter ended June 30,
1995, receipts of contributions-in-aid-of-construction and advances for
construction were $333,000 although refunds on prior advances for construction
during the quarter amounted to $915,000. For the three months ended June 30,
1995, the Registrant recorded approximately $101,000 in install-and-convey
contracts as compared to $58,000 for the prior year quarter ended June 30,
1994.
The aggregate short-term borrowing capacity currently
available to the Registrant
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under its three bank lines of credit is $37,063,000. At June 30, 1995, the
Registrant had a total of $33,000,000 in borrowing outstanding under its bank
lines of credit, leaving an unused short-term borrowing capacity of
approximately $4,063,000. The Registrant reduced its outstanding bank
borrowing to $29,000,000 as of August 1, 1995.
The Registrant routinely employs short-term bank borrowing
as an interim financing source prior to executing either a long-term debt or
equity issue. On June 21, 1995, the Registrant filed a registration statement
with the Securities and Exchange Commission with respect to the proposed sale
to the public of up to $70,000,000 in securities. The Registrant intends to
issue Medium Term Notes under the foregoing registration statement once it is
declared effective. The Registrant's Medium Term Notes have been rated A+/A2 by
Standard & Poor's Corporation and Moody's Investors Service, respectively. The
net proceeds from the sale of debt securities will be used primarily to repay
then outstanding short-term bank borrowing.
The Registrant anticipates that it will be necessary, in
order to continue to finance its capital expenditure program, while maintaining
an equal balance between equity and debt in its capital structure, to issue
additional common equity in 1996.
The Registrant has filed an application with the California
Pollution Control Financing Authority for $8 million in tax-exempt debt to
finance replacement of water mains in certain of the Registrant's customer
service areas.
ACCOUNTING STANDARDS
Effective January 1, 1995, the Registrant is subject to the
reporting requirements contained in the Financial Accounting Standards Board's
Statement of Financial Accounting Standards ("SFAS") No. 119 - "Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments." The Registrant has determined that SFAS does not presently apply
since the Registrant has no derivative financial instruments, financial
instruments with off-balance sheet risk or financial instruments with
concentrations of credit risk. See Note 7 of the Notes to Financial Statements.
In March 1995, the FASB issued SFAS No. 121 - "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of." This Statement imposes stricter criteria for regulatory assets by
requiring that such assets be probable of future recovery at each balance sheet
date. The Registrant anticipates adopting this standard on January 1, 1996 and
does not expect that adoption will have a material impact on the financial
position or results of operations of the Registrant based on the current
regulatory structure in which the Registrant operates. See Note 8 of the Notes
to Financial Statements.
WATER SUPPLY
For the three months ended June 30, 1995, the Registrant
produced a total of 45,900 acre-feet of water as compared to 48,217 acre-feet
for the three months ended June 30, 1994. Of the total 45,900 acre-feet of
water produced during the second quarter of 1995, approximately 58.9% came from
pumped sources and 40.9% was purchased from others, principally the MWD. The
remaining 0.2% came from the Bureau of Reclamation (the "Bureau") under a
no-cost contract.
For the six months ended June 30, 1995, the Registrant
produced 77,246 acre-feet of water as compared to 83,222 acre-feet for the same
period last year. Of this total amount produced, 59.1% came from pumped
sources, 40.7% was produced from purchased sources and the remaining
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amount was supplied from the Bureau.
During the twelve months ended June 30, 1995, the Registrant
produced 179,509 acre-feet of water. The Registrant produced 181,354 acre-feet
produced during the twelve months ended June 30, 1994. During the twelve month
period ended June 30, 1995, 57.8% of total supply came from pumped sources,
40.8% was purchased and the remaining was produced by the Bureau.
The MWD is a water district organized under the laws of the
State of California for the purpose of delivering imported water to areas
within its jurisdiction. The Registrant has 52 connections to the water
distribution facilities of MWD and other municipal water agencies. MWD imports
water from two principal sources - the Colorado River and the State Water
Project ("SWP"). Available water supplies from the Colorado River and the SWP
have historically been sufficient to meet most of MWD's requirements and the
significant precipitation during the last quarter of 1994 and first half of
1995 bode well for continued adequate water supplies through 1995.
While precipitation patterns have returned to more normal
conditions recently, the State of California experienced unusually heavy
precipitation during the first four months of 1995. As of June, 1995, the
Northern Sierra 8-station index has recorded seasonal rainfall 161% of the
average water year which began October 1, 1994 and, statewide, the snowpack
water content is 255% of average. Storage in the State's 8 major reservoirs
has increased to almost 90% of capacity. In those districts of the Registrant
which pump groundwater, overall groundwater conditions have improved and remain
at adequate levels. As such, the Registrant believes that its water supplies
are adequate to meet projected current year demands.
WATER QUALITY
The United States Environmental Protection Agency ("USEPA"),
under provisions of the Safe Drinking Water Act as amended (the "SDWA"), is
required to establish maximum contaminant levels ("MCLs") for the 83 potential
drinking water contaminants initially listed in the SDWA in 1972, and for an
additional 25 contaminants every three years thereafter. The California
Department of Health Services, acting on behalf of the USEPA, administers the
USEPA's program. The Registrant currently tests 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.
The Registrant, like any provider of water from surface
supplies, has a risk of contamination from Cryptosporidium, a microscopic
organism widely present in the environment, reaching the water supply. The
Registrant's risk is greatly reduced, however, due in part to the high quality
of source water where, according to the MWD, measured amounts of
Cryptosporidium are 100 to 1000 times less than the national average.
Also, the Registrant is a voluntary member of the "Partnership
for Safe Water", a national program developed in conjunction with the USEPA,
the National Association of Water Companies and the American Water Works
Association to further protect the public from diseases caused by
Cryptosporidium and other organisms. As a volunteer in the program, the
Registrant has committed to go above and beyond current regulation governing
surface water treatment to ensure that its treatment facilities are performing
as efficiently as possible.
The Registrant continues to implement the lead and copper rules
as promulgated by the USEPA. The second round of sampling for small water
systems was completed with second annual
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reduced monitoring in effect for medium-sized and large water systems. All 41
of the Registrant's water systems are in compliance with the lead and copper
rules.
The Registrant will also be subject to new rules regarding MCLs
for radon and arsenic pending implementation by the USEPA. With respect to the
radon rule, the USEPA did not meet its October 1, 1993 deadline for
implementation of the rule. As a result, the radon rule was to be considered
as part of the re-authorization of the SDWA presently before the United States
Congress. The 1994 Congress adjourned prior to taking any action with respect
to the radon rule. The Registrant believes the USEPA will consequently
establish a MCL of 1,000 pico-curies per liter, which would affect a relatively
small number of the Registrant's wells. The Registrant is currently conducting
studies to determine the best treatment for the affected systems which could
range from simple aeration to filtration through granular activated carbon.
Implementation of the MCL, however, is postponed for at least a year pending
budget appropriation of funds for the USEPA to monitor compliance with the
rule. The Registrant is currently unable to predict what ultimate effects, if
any, this rule will have on its financial condition or results of operation
until the MCL is established.
The USEPA is continuing its review of data before implementing
the arsenic rule. In January, 1995, the USEPA filed in U.S. District Court
for a six-year delay of the arsenic rule. While the Registrant is unable to
predict the outcome of that action, it is believed that, if required to do so
without further research, the USEPA will establish a MCL near 2 to 5 micrograms
per liter. At this level, nearly all of the Registrant's wells and water
systems will be affected. Depending on the circumstances associated with each
individual well and water system, compliance with such a standard could cause
the Registrant to implement costly wellhead remedies such as ion exchange or,
alternatively, to purchase additional, and more expensive, water supplies
already in compliance for blending with well sources. The Registrant is
currently unable to predict what ultimate effects, if any, this rule will have
on its financial condition or results of operation until the MCL is
established.
The Registrant will also be subject to the new USEPA rules
concerning Disinfection/Disinfection By-Products and the Enhanced Surface Water
Treatment Rule. Stage 1 of the Disinfection/Disinfection By-Products Rule has
been published with an effective date of June, 1998. This rule reduces
tri-halomethane contaminants from 100 micrograms per liter to 80 micrograms per
liter and affects only two of the Registrant's systems. As part of its January,
1995 filing in U.S. District Court, the USEPA requested an extension of time to
complete this rule.
The proposed Information Collection Rule, originally expected in
October, 1994 and which will affect only two of the Registrant's water systems
with minor paperwork costs, is anticipated by the end of 1995. In addition, a
set of primary standards, referred to as "Phase VI," has been postponed
indefinitely.
Since promulgation of the SDWA, the Registrant has
experienced increased operating costs for testing to determine the levels, if
any, of the contaminants in the Registrant's sources of supply and additional
expense to lower the level of any contaminants found to a level that meets the
MCL standards. Such costs and the control of any other pollutants may cause
the Registrant to experience additional capital costs as well as increased
operating costs. The rate-making process provides the Registrant with the
opportunity to recover capital and operating costs associated with water
quality, and management believes that such costs are properly recoverable,
although no assurance can be given that the CPUC will authorize all or any of
such costs in rates.
RATES AND REGULATION
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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 among its 21 customer
service areas due to differences in operating conditions and costs. The
customer service areas are currently grouped into 16 water districts and one
electric district 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"
and "attrition" increases in rates for the second and third years.
Rates currently in effect include approximately $13.1 million
in increases authorized by the CPUC during the last twelve months for recovery
of previously uncollected supply costs including purchased water, electric and
natural gas costs for pumping, electric energy for resale and groundwater
production assessments. These increased revenues do not produce additional
earnings although they significantly increase the Registrant's cash flow. Step
and attrition year rate increases, authorized in previous general rate cases
and effective in 1995, are expected to result in additional annualized revenues
of approximately $1.2 million.
In May, 1995, the CPUC granted the Registrant a general rate
increase of approximately $936,000, including step and attrition year
increases, in its Arden-Cordova customer service area.
In March, 1995 the Registrant filed applications for general
rate relief, including step and attrition increases, in six of its water
rate-making districts. The March, 1995 filings included $2.2 million associated
with recovery of costs associated with implementation of recommendations
included in the management audit. In July, 1995 the Division of Ratepayer
Advocates ("DRA") of the CPUC issued its report on the Registrant's
applications. The Registrant has concluded settlement negotiations with the
DRA, with all issues, including establishing a return on common equity of
10.40%, being settled. The stipulation of the parties will be presented to the
administrative law judge ("ALJ") assigned to the case. The ALJ's proposed
decision is anticipated in September, 1995 although the Registrant is unable to
predict at this time whether or not the ALJ will accept the settlement
agreement in total or in part. No assurance can be given that the CPUC will
ultimately authorize all or any of the rates for which the Registrant applied.
However, given established CPUC procedure, the Registrant does not anticipate
significant rate relief from the rate filings made in 1995 until early 1996.
As a result, earnings from operations in 1995 are expected to remain at or
possibly below levels experienced in recent years.
The Registrant filed a Notice of Intent to file an
application for general rate relief in its electric customer service area on
July 31, 1995. Rate relief from this application is not anticipated until
mid-1996.
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PART II
ITEM 2. CHANGES IN SECURITIES
As of June 30, 1995, earned surplus amounted to $43,985,000.
Of this amount, $24,890,000 was restricted as to payment of cash dividends on
the Registrant's common shares.
As of June 30, 1995, authorized but unissued common shares
includes 109,454 and 92,259 common shares reserved for issuance under the
Registrant's Dividend Reinvestment and Common Shares Purchase Program and
Investment Incentive Program ("401-k"), respectively. Common Shares reserved
for the 401-k Plan are in relation to the matching contributions made by the
Registrant and for investment purposes by participants.
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned duly authorized officer and chief financial officer.
SOUTHERN CALIFORNIA WATER COMPANY
By : s/ JAMES B. GALLAGHER
-----------------------------------
James B. Gallagher
Vice President - Finance,
Chief Financial Officer and
Secretary
Date: November 9, 1995
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