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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 THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION REGISTRANT AND STATE OF INCORPORATION IRS EMPLOYE
FILE NO. ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
------------- ------------------------------------- ------------------
333-47647 American States Water Company 95-4676679
(A California Corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600
000-01121 Southern California Water Company 95-1243678
(A California Corporation)
630 East Foothill Boulevard
San Dimas, California 91773-9016
909-394-3600
Securities registered pursuant to Section 12(b) of the Act:
AMERICAN STATES WATER COMPANY
COMMON SHARES, $2.50 STATED VALUE NEW YORK STOCK EXCHANGE
- -------------------------------------- --------------------------------------
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether Registrant 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 and has been subject to such filing requirements for the
past 90 days.
American States Water Company Yes [x] No [ ]
Southern California Water Company Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the total voting stock held by non-affiliates of
American States Water Company was approximately $263,068,000 on March 20, 2000.
The closing price per Common Share on that date, as quoted in the Western
Edition of The Wall Street Journal, was $29-3/8. Voting Preferred Shares of
American States Water Company, for which there is no established market, were
valued on March 20, 2000 at $1,793,000 based on a yield of 4.80%. As of March
20, 2000, the number of Common Shares of American States Water Company, $2.50
Stated Value, outstanding was 8,957,671. As of that same date, all 100
outstanding Common Shares of Southern California Water Company were owned by
American States Water Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement will be subsequently filed with the Securities
and Exchange Commission as to Part III, Item Nos. 10, 11, 12 and 13, in each
case as specifically referenced herein.
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AMERICAN STATES WATER COMPANY
AND
SOUTHERN CALIFORNIA WATER COMPANY
FORM 10-K
INDEX
Page No.
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PART I
Item 1: Business 1
Item 2: Properties 2 - 3
Item 3: Legal Proceedings 3 - 5
Item 4: Submission of Matters to a Vote of Security Holders 5
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters 5 - 6
Item 6: Selected Financial Data 7
Item 7: Management's Discussion and Analysis of Financial Conditions and
Results of Operation 7 - 21
Item 7A: Quantitative and Qualitative Disclosures About Market Risk 22
Item 8: Financial Statements and Supplementary Data 23 - 48
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 49
PART III
Item 10: Directors and Executive Officers of Registrant 49
Item 11: Executive Compensation 49
Item 12: Security Ownership of Certain Beneficial Owners and Management 49
Item 13: Certain Relationships and Related Transactions 49
PART IV
Item 14: Exhibits, Financial Schedules and Reports on Form 8-K 49 - 56
Signature(s) 57 - 58
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ITEM 1. BUSINESS
This annual report on Form 10-K is a combined report being filed by two
separate Registrants: American States Water Company (hereinafter "AWR") and
Southern California Water Company (hereinafter "SCW"). References in this report
to "Registrant" are to AWR and SCW, collectively, unless otherwise specified.
SCW makes no representations as to the information contained in this report
relating to AWR and its subsidiaries, other than SCW.
GENERAL
AWR was incorporated in 1998 in connection with the formation of a
holding company by SCW and became a public company on July 1, 1998. AWR has no
material assets other than the common stock of SCW. SCW is a public utility
company engaged principally in the purchase, production, distribution and sale
of water (SIC No. 4941). SCW also distributes electricity in one customer
service area (SIC No. 4911). SCW is regulated by the California Public Utilities
Commission (CPUC) and was incorporated on December 31, 1929 under the laws of
the State of California. AWR has another subsidiary, American States Utility
Services, Inc. (ASUS) which contracts to lease, operate and maintain
governmentally owned water and wastewater systems and to provide other services
to local governments to assist them in the operation and maintenance of their
water and wastewater systems. Neither AWR nor ASUS are regulated by the CPUC.
SCW is organized into three regions and one electric customer service
area operating within 75 communities in 10 counties in the State of California
and provides water service in 21 customer service areas. Region I incorporates 7
customer service areas in northern and central California; Region II has 4
customer service areas located in Los Angeles; Region III incorporates 10 water
customer service areas. SCW also provides electric service to the City of Big
Bear Lake and surrounding areas in San Bernardino County. All electric energy
sold by SCW to customers in its Bear Valley Electric customer service area was
purchased under an energy brokerage contract with Sempra Energy Corporation from
March 26, 1996 to May 1, 1999, and with Illinova Energy Partners, currently
under the name of Dynegy Energy Services resulting from the merger of Dynegy and
Illinova, since May 1, 1999.
SCW served 244,086 water customers and 21,181 electric customers at
December 31, 1999, or a total of 265,267 customers, compared with 263,499 total
customers at December 31, 1998.
ACQUISITION OF PEERLESS WATER CO.
In December 1999, Registrant agreed to acquire Peerless Water Co., a
privately owned water company in Bellflower, California, subject to satisfaction
of certain conditions, including CPUC approval. The number of Common Shares to
be issued will be determined at the closing, but will in no event be greater
than 131,036 shares nor less than 107,538 shares.
ACQUISITION OF CHAPARRAL CITY WATER COMPANY
On March 10, 2000, Registrant entered into an agreement to acquire the
common stock of Chaparral City Water Company, a privately operated water company
serving approximately 10,000 customers in the town of Fountain Hills, Arizona
and portions of Scottsdale, Arizona for an aggregate value of $31.2 million,
including assumption of approximately $12 million in debt. Chaparral City Water
Company was purchased from MCO Properties Inc., a wholly-owned subsidiary of
MAXXAM Inc. This marks the first acquisition outside of California for
Registrant. The sale of Chaparral City Water Company requires notification to
the Arizona Corporation Commission and other conditions customary in
transactions of this type. The approval of Registrant's shareholders is not
required. It is anticipated that the transaction will close within one year.
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COMPETITION
The business of SCW is substantially free from direct and indirect
competition with other public utilities, municipalities and other public
agencies. AWR's other subsidiary, ASUS, actively competes with other
investor-owned utilities, other third party providers of water and wastewater
services, and governmental entities on the basis of price and quality of
service.
EMPLOYEE RELATIONS
Registrant had 492 employees as of December 31, 1999 as compared to 470
at December 31, 1998. Seventeen positions in SCW's Bear Valley Electric customer
service area are covered by a collective bargaining union agreement, which
expires in 2002, with the International Brotherhood of Electrical Workers. Sixty
positions in SCW's Metropolitan ratemaking district are covered by a collective
bargaining unit agreement, which expires in 2001, with the Utility Workers of
America. Registrant has no other unionized employees.
ITEM 2 - PROPERTIES
FRANCHISES AND CONDEMNATION OF PROPERTIES
SCW holds franchises from incorporated communities and counties which it
serves. SCW holds certificates of public convenience and necessity granted by
the CPUC in each of the ratemaking districts it serves. SCW's certificates,
franchises and similar rights are subject to alteration, suspension or repeal by
the respective governmental authorities having jurisdiction.
The laws of the State of California provide for the acquisition of
public utility property by governmental agencies through their power of eminent
domain, also known as condemnation. Registrant has not been, within the last
three years, involved in activities related to the condemnation of any of its
water customer service areas or in its Bear Valley Electric customer service
area.
ELECTRIC PROPERTIES
SCW's electric properties are all located in the Big Bear area of San
Bernardino County. As of December 31, 1999, SCW operated 28.7 miles of overhead
34.5 KV transmission lines, 0.6 miles of underground 34.5 KV transmission lines,
173.1 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 SCW's system.
OFFICE BUILDINGS
Registrant's general offices are housed in a single-story office
building located in San Dimas, California. The land and the building, which was
completed and occupied in early 1990, are owned by Registrant. The Registrant
also owns and occupies certain facilities housing regional, district and
customer service offices while other such facilities are housed in leased
premises.
WATER PROPERTIES
As of December 31, 1999, SCW's physical properties consisted of water
transmission and distribution systems which included 2,742 miles of pipeline
together with services, meters and fire hydrants and 436 parcels of land,
generally less than 1 acre each, on which are located wells, pumping plants,
reservoirs and other water utility facilities including five surface water
treatment plants.
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As of December 31, 1999, SCW owned 297 wells. Certain wells have been
removed from service due to water quality problems. (See Environmental Matters
to the Management's Discussion and Analysis) All wells are equipped with pumps
with an aggregate capacity of approximately 240 million gallons per day. SCW has
40 connections to the water distribution facilities of the Metropolitan Water
District of Southern California (MWD) and other municipal water agencies. SCW's
storage reservoirs and tanks have an aggregate capacity of approximately 97
million gallons. SCW owns no dams in its customer service areas. The following
table provides, in greater detail, selected water utility plant of SCW for each
of its water ratemaking districts:
Pumps Distribution Facilities Reservoirs
------------------------ ---------------------------------------------------- ------------------------
District Well Booster Mains Meters Services Hydrants Tanks Capacity
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Arden Cordova 27 17 476,694 3,392 8,452 1,186 3 4,000
Barstow 24 37 873,447 13,734 10,784 1,013 13 8,025
Bay Point 3 14 161,504 5,295 3,465 341 7 4,046
Calipatria 0 8 139,180 1,200 1,664 84 1 150
Claremont 28 35 721,021 14,139 11,184 1,176 13 16,061
Clearlake 0 13 192,298 2,743 954 75 4 847
Desert 16 20 750,004 7,492 4,570 575 13 1,477
Los Osos 8 10 201,408 3,973 1,466 167 5 1,134
Metro 79 83 4,799,404 171,815 109,478 7,719 41 25,209
Ojai 5 12 234,319 5,168 3,436 348 4 1,490
Orange 33 38 2,202,610 66,503 41,712 4,534 16 11,755
San Dimas 11 38 1,491,515 34,485 8,096 879 16 10,149
San Gabriel 23 8 553,449 11,298 13,073 792 3 1,520
Santa Maria 30 24 961,541 22,367 7,648 775 9 3,173
Simi 2 23 503,632 14,522 10,138 873 8 6,250
Wrightwood 8 5 216,809 5,464 680 76 7 1,546
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 297 385 14,478,835 383,590 236,800 20,613 163 96,832
Capacity is measured in thousands of gallons
MORTGAGE AND OTHER LIENS
As of December 31, 1999, Registrant had no mortgage debt outstanding,
and its properties were free of any encumbrances or liens securing indebtedness.
ITEM 3 - LEGAL PROCEEDINGS
WATER QUALITY-RELATED LITIGATION
SCW is a defendant in eleven lawsuits involving claims pertaining to
water quality. Nine of the lawsuits involve customer service areas located in
Los Angeles county in the southern portion of the State of California; two of
the lawsuits involve a customer service area located in Sacramento county in
northern California. See the section entitled "Risk Factor Summary" for more
information.
On September 1, 1999, the First District Court of Appeal in San
Francisco, in a published opinion entitled Hartwell Corporation v. The Superior
Court of Ventura County, held that the CPUC had pre-emptive jurisdiction over
regulated public utilities and ordered dismissal of a series of lawsuits
pertaining to water quality filed against water utilities, including SCW. Seven
out of eleven lawsuits against SCW have been ordered for dismissal by the state
Court of Appeals -- the Adler (Case No. 1), Santamaria (Case No. 2), Anderson
(Case No. 3), Dominguez (Case No. 4), Celi (Case No. 5), Boswell (Case No. 6),
and Demciuc (Case No. 7) Matters. On October 11, 1999, one group of plaintiffs
has
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appealed to the California Supreme Court. The Supreme Court has accepted the
petition. Management can not predict whether the plaintiffs will be successful
in the appeal.
On December 3, 1998, SCW was named as a defendant in a complaint in
multiple counts, styled Abarca, et al. v. City of Pomona, et al. (Case No. 8),
filed in Los Angeles Superior Court which seeks recovery for negligence,
wrongful death, strict liability, permanent trespass, continuing trespass,
continuing nuisance, permanent nuisance, negligence per se, absolute liability
for ultrahazardous activity, fraudulent concealment, conspiracy/fraudulent
concealment, battery and unfair business practices on behalf of 383 plaintiffs
(the Abarca Matter). Plaintiffs seek damages, including general and special
damages according to proof, punitive and exemplary damages, as well as
attorney's fees, costs of suit and other unspecified relief. SCW was served on
June 18, 1999.
SCW was named as a defendant, along with the City of Pomona,
California and Xerox Corporation in the matter styled Adejare, et al. v.
Southern California Water Company, et al. (Case No. 9), filed on July 22, 1999
in Los Angeles Superior Court which seeks recovery for wrongful death, battery
and fraudulent concealment (the Adejare Matter). Plaintiffs seek damages,
including general and special damages according to proof, punitive and
exemplary damages, as well as attorney's fees, costs of suit and other
unspecified relief.
In December 1997 SCW was named a defendant in the matter of Nathaniel
Allen, Jr., et al. v. Aerojet-General Corporation, et al. (Case No. 10), which
was filed in Sacramento Superior Court. The complaint makes claims based on
wrongful death, personal injury, property damage as a result of nuisance and
trespass, medical monitoring, and diminution of property values (the Allen
Matter). Plaintiffs allege that SCW and other defendants have delivered water to
plaintiffs which allegedly is, or has been in the past, contaminated with a
number of chemicals, including TCE, PCE, carbon tetrachloride, perchlorate,
Freon-113, hexavalent chromium and other, unnamed, chemicals. SCW filed
Demurrers and Motion to Strike in this matter on June 5, 1998. On August 31,
1998, the judge assigned to the Allen Matter, acting on the Court's own motion,
issued a stay of all proceedings in the Allen matter pending the outcome of the
CPUC's Order Instituting Investigation (OII) proceeding. The plaintiffs
petitioned the Third District Court of Appeal for a Writ of Mandamus to overrule
the stay. The Court denied the petition. Plaintiff's then petitioned the
California Supreme Court for relief from the Appellate Court's ruling. The
California Supreme Court denied plaintiff's petition. Thus the stay in the Allen
Matter remains in effect.
In March 1998, SCW was named a defendant in the matter of Daphne Adams,
et al. v. Aerojet General, et al. (Case No. 11) which was filed in Sacramento
Superior Court (the Adams Matter). The complaint makes claims based on
negligence, strict liability, trespass, public nuisance, private nuisance,
negligence per se, absolute liability for ultrahazardous activity, fraudulent
concealment, violation of California Business and Professions Code section 17200
et seq., intentional infliction of emotional distress, intentional spoilage of
evidence, negligent destruction of evidence needed for prospective civil
litigation, wrongful death and medical monitoring. Plaintiffs seek damages,
including general, punitive and exemplary damages, as well as attorney's fees,
costs of suit, injunctive and restitutionary relief, disgorged profits and civil
penalties, medical monitoring according to proof and other unspecified relief.
SCW filed its Demurrers and Motion to Strike in this matter on June 5, 1998. On
August 31, 1998, the judge assigned to the Adams Matter, acting on the Court's
own motion, issued a stay of all proceedings in the Adams matter pending the
outcome of the CPUC's OII proceeding. The plaintiff's petitioned the Third
District Court of Appeal for a Writ of Mandamus to overrule the stay. The Court
denied the petition. Plaintiff's then petitioned the California Supreme Court
for relief from the Appellate Court's ruling. The California Supreme Court
denied plaintiff's petition. Thus the stay in the Adams Matter remains in
effect.
In light of the breadth of plaintiffs' claims in these matters, the lack
of factual information regarding plaintiffs' claims and injuries, if any, and
the fact that no discovery has yet been completed, SCW is unable at this time to
determine what, if any, potential liability it may have with respect to these
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claims. Registrant believes there are no merits to these claims and intends to
vigorously defend against them.
ORDER INSTITUTING INVESTIGATION
In March 1998, the CPUC issued an OII to regulated water utilities in
the state of California, including SCW. The purpose of the OII is to determine
whether existing standards and policies regarding drinking water quality
adequately protect the public health and whether those standards and policies
are being uniformly complied with by those water utilities. The OII delineates
the constitutional and statutory jurisdiction of the CPUC and the California
Department of Health Services (DOHS) in establishing and enforcing adherence to
water quality standards. The CPUC's jurisdiction provides for the establishment
of rates which permit water utilities to furnish water service meeting the
established water quality standards at prices which are both affordable and
allow the utility to earn a reasonable return on its investment. SCW has
provided its response to a series of questions dealing with the adequacy of
current drinking water standards, compliance by water utilities with such
standards, appropriate remedies for failure to comply with safe drinking water
standards and whether increased enforcement and additional drinking water
standards are necessary.
On June 10, 1999, the CPUC issued an interim order which established
that the CPUC has jurisdiction to conduct the investigation regarding matters
related to water quality over those water utilities subject to its authority.
The Administrative Law Judge assigned to the OII has issued a draft decision
finding that water utilities, including SCW, have complied with DOHS regulation
and requirements. SCW is unable to predict whether the draft decision will be
approved in part or in its entirety by the CPUC. SCW anticipates a final
decision by the CPUC on this matter in 2000. See Note 8 to the Notes to
Financial Statements.
OTHER LITIGATION
Registrant is also subject to ordinary routine litigation incidental to
its business. Other than as disclosed above, no legal proceedings are pending,
except such incidental litigation, to which Registrant is a party or of which
any of its properties is the subject which are believed to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION RELATING TO COMMON SHARES -
Common Shares of American States Water Company are traded
on the New York Stock Exchange (NYSE) under the symbol AWR. The
high and low NYSE prices on the Common Shares for each quarter
during the past two years were:
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Stock Prices
-----------------------------------
High Low
-------------- ---------------
1999
First Quarter $ 30 $ 23 9/16
Second Quarter 29 1/4 22 3/16
Third Quarter 37 1/8 28 3/8
Fourth Quarter 39 3/4 31 3/4
1998
First Quarter $ 26 $ 23 1/16
Second Quarter 27 1/8 21 1/8
Third Quarter 27 23 1/4
Fourth Quarter 29 1/4 24 7/8
All of the Common Shares of Southern California Water
Company and American States Utility Services are owned by American
States Water Company. Hence, there is no market for the Common
Shares of either entity.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES -
As of March 6, 2000, there were 3,519 holders of record of
Common Shares of American States Water Company. All of the Common
Shares of Southern California Water Company are owned by American
States Water Company.
(c) FREQUENCY AND AMOUNT OF ANY DIVIDENDS DECLARED AND DIVIDEND
RESTRICTIONS
For the last three years, Registrant has paid dividends on
its Common Shares on March 1, June 1, September 1 and December 1.
The following table lists the amount of dividends paid on Common
Shares of American States Water Company for the last two years:
1999 1998
--------------- --------------
First Quarter $ 0.32 $ 0.315
Second Quarter 0.32 0.315
Third Quarter 0.32 0.315
Fourth Quarter 0.32 0.315
=============== ==============
Total $ 1.28 $ 1.260
=============== ==============
Registrant is not subject to any contractual restriction on
its ability to pay dividends.
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ITEM 6. SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
( in thousand, except per share amounts)
INCOME STATEMENT INFORMATION
Total Operating Revenues $173,421 $148,060 $153,755 $151,529 $129,813
Total Operating Expenses 144,907 122,999 130,297 128,100 108,425
Operating Income 28,514 25,061 23,458 23,429 21,388
Other Income 532 769 758 531 336
Interest Charges 12,945 11,207 10,157 10,500 9,559
Net Income 16,101 14,623 14,059 13,460 12,165
Preferred Dividends 88 90 92 94 96
Earnings Available for Common Shareholders 16,013 14,533 13,967 13,366 12,069
Basic Earnings per Common Share $ 1.79 $ 1.62 $ 1.56 $ 1.69 $ 1.54
Dividends Declared per Common Shares $ 1.28 $ 1.26 $ 1.25 $ 1.23 $ 1.21
Average Shares Outstanding 8,958 8,958 8,957 7,891 7,845
BALANCE SHEET INFORMATION
Total Assets $533,181 $484,671 $457,074 $430,922 $406,255
Common Shareholders' Equity 158,846 154,299 151,053 146,766 121,576
Long-Term Debt 167,363 120,809 115,286 107,190 107,455
Preferred Shares-Not subject to Mandatory 1,600 1,600 1,600 1,600 1,600
Preferred Shares-Mandatory Redemption 360 400 440 480 520
Total Capitalization 328,169 $277,108 $268,379 $256,036 $231,151
Book Value per Common Share $ 17.73 $ 17.23 $ 16.86 $ 16.52 $ 15.50
OTHER INFORMATION
Ratio of Earnings to Fixed Charges 3.27% 3.21% 3.35% 3.26% 3.19%
Ratio of Earnings to Total Fixed Charges 3.23% 3.17% 3.30% 3.21% 3.14%
Return on Average Common Equity 10.2% 9.6% 9.5% 10.7% 10.3%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Unless specifically noted, the following discussion and analysis
provides information on AWR's consolidated operations and assets. There are no
material differences between the consolidated operations and assets of AWR and
the operations and assets of SCW.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report (including the documents
incorporated herein by reference) are forward-looking statements intended to
qualify for the "safe harbor" from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as Registrant "believes," "anticipates," "expects" or words
of similar import. Similarly, statements that describe Registrant's future
plans, objectives, estimates or goals are also forward-looking statements. Such
statements address future events and conditions concerning capital expenditures,
earnings, litigation, rates, water quality and other regulatory matters,
adequacy of water supplies, liquidity and capital resources, opportunities
related to operations of municipally-owned water systems and accounting matters.
Actual results in each case could differ materially from those currently
anticipated in such statements, by reason of factors such as utility
restructuring, including ongoing local, state and federal activities; future
economic conditions, including
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changes in customer demand; future climatic conditions; legislative, regulatory
and other circumstances affecting anticipated revenues and costs.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Basic earnings per Common Share in 1999 increased by 10.5% to $1.79 per
share as compared to $1.62 per share for the comparable period of 1998. The
increase in the recorded results primarily reflects higher revenues at the SCW
unit during 1999 as is more fully discussed below.
Water operating revenues increased by 18.5% in 1999 to $159.7 million
from the $134.8 million reported in 1998. Water sales volumes in 1999 were 9.0%
higher than 1998 due primarily to the much drier and warmer weather conditions
throughout Southern California in 1999 than in 1998. Additional increases in
revenues were due to the general rate increases in six of Registrant's customer
service areas effective January 1, 1999, which were applicable to 65% of SCW's
water customers.
Electric operating revenues of $13.3 million were 1.0% higher in 1999 as
compared to 1998 due to a 2.7% increase in kilowatt-hour sales, primarily by
industrial power users. The sales increase was partially offset by the lower
billing rates of industrial customers relative to residential customers.
Other revenues increased from $65,000 to $390,000 in 1999 due to
increased management fees resulting from new ASUS service contracts established
in the year and increased activities with existing contracts.
Purchased water costs in 1999 increased to $36.1 million as compared to
$30.8 million in 1998 due to a 12.1% increase in volumes purchased. The increase
also reflects reduced reimbursements in 1999 from potentially responsible
parties related to groundwater contamination in SCW's Culver City customer
service area of approximately $570,000, compared with reimbursements of $1.7
million in 1998. See Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operation - Environmental Matters - Matters Relating to
Culver City System.
Costs of power purchased for pumping increased by 5.5% to $7.4 million
in 1999 chiefly as a result of an increase in pumped groundwater in SCW's water
supply mix due to increased sales volumes.
Costs of power purchased for resale in 1999 increased by 42.0% to $7.1
million from the $5.0 million recorded in 1998 due primarily to additional
energy demand charges from the energy supplier serving SCW's Bear Valley
Electric Service unit in 1999. As described below, most of this increase has
been included in the supply balancing account and that Registrant will seek to
recover these in future rate increases.
Groundwater production assessments decreased by 5.3% to $7.2. million in
1999 from $7.6 million in 1998 due to reduced quantity rates in SCW's
Metropolitan and San Dimas customer service areas.
A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs. Conversely, a
negative entry for the provision for supply cost balancing accounts reflects an
under-collection of previously incurred supply costs. In 1999, recovery of
previously under-collected supply costs was lower than 1998 due to the
previously discussed increase in energy demand charges, the effect of which was
partially offset by new rates effective January 1999 authorized to implement new
supply costs and to increase collection of previously under-collected costs.
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The balancing account mechanism insulates earnings from changes in the
unit cost of supply costs which are outside of the immediate control of
Registrant. However, the balancing account is not designed to insulate earnings
against changes in the actual supply mix as compared to that mix authorized for
recovery in rates. In 1999, SCW's overall supply mix improved favorably over
that mix authorized in rates resulting in additional income. There is no
assurance that the favorable mix can be sustained in future periods since actual
results are affected by availability and quality of water, both purchased and
produced from SCW's wells. See the section entitled "Water Supply."
Other operating expenses increased by 7.8% from the $14.5 million
recorded in 1998 due to increased costs for water treatment, and higher
uncollectible provisions as a result of increased revenues.
Administrative and general expenses increased by 30.0% to $28.6 million
in 1999 from the $22.0 million recorded in 1998. The increase is due to costs
associated with various acquisition projects, increased employee benefit costs,
and additional amounts reserved for certain legal proceedings.
In 1999, maintenance expense increased to the $9.8 million level
compared to the recorded $7.3 million in 1998 due principally to increased
maintenance on Registrant's water supply sources, and costs incurred on main
replacements. The wet weather conditions during the first part of 1998 also
hampered planned maintenance activities, thereby reducing maintenance expense in
1998.
Depreciation expense in 1999 increased by 8.9% to $13.7 million
reflecting the effects of recording approximately $38.2 million in net plant
additions during 1998, depreciation on which began in 1999.
Taxes on income increased by approximately 31.7% to $13.3 million in
1999 as compared to the $10.1 million in 1998 due to a 24.5% increase in pre-tax
income and a higher effective tax rate in 1999 resulting from the turn-around of
depreciation related temporary differences, the benefits of which were
previously flowed-through for ratemaking purposes.
Property and other taxes increased by 7.2% in 1999 to $6.6 million due
primarily to increased franchise fees resulting from higher revenues, and
increased payroll taxes from higher wages and additional personnel.
Other income decreased by 30.8% in 1999 due primarily to the
flow-through of tax benefits related to refinancing of long-term debt in
December 1998 for which there were no similar benefits in 1999.
Interest expense increased by 15.5% to $12.9 million primarily due to
the issuance of $40 million in long-term debt in January 1999, partially offset
by the retirement of $10 million of 10.10% Notes in December 1998.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Basic earnings per Common Share in 1998 increased by 3.8 % to $1.62 per
share as compared to $1.56 per share in 1997. Although wet weather significantly
impacted revenues in 1998, lower supply costs and modest increases in other
operating expenses partially offset the decline in revenues.
Water operating revenues decreased by 4.3% in 1998 to $134.9 million
from the $141.0 million reported in 1997. Water sales volumes in 1998 were 9.9%
lower than 1997 due to extremely wet weather during the first half of the year.
The decrease in sales was partially offset by rate increases effective during
1998.
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Electric operating revenues of $13.2 million were 3.4% higher in 1998 as
compared to 1997 due to the impact of a general rate increase effective January
1998, as well as a 2.0% increase in kilowatt-hour sales.
Purchased water costs decreased in 1998 to $30.8 million as compared to
$38.3 million in 1997 due to a 20.8% decrease in volumes purchased and refunds
received from Registrant's wholesale water supplier during 1998 of approximately
$1.4 million. Refunds of $2.0 million were received in 1997.
Costs of power purchased for pumping decreased by 7.2% to $7.0 million
in 1998 chiefly as a result of reduced energy costs from Registrant's suppliers.
Costs of power purchased for resale in 1998 decreased by 3.4% to $5.0
million from the $5.2 million recorded in 1997 due to reduced costs from
Registrant's energy providers offset by the effects of increased kilowatt-hour
sales volumes recorded during the year.
Groundwater production assessments increased by 10.5% to $7.6 million in
1998 from $6.8 million in 1997 due to the increased amounts of pumped water in
Registrant's supply mix as well as additional assessments associated with
increased pumping in Registrant's Metropolitan and Orange County customer
service areas.
A positive entry for the provision for supply cost balancing accounts
reflects recovery of previously under-collected supply costs. Conversely, a
negative entry for the provision for supply cost balancing accounts reflects an
under-collection of previously incurred supply costs. In 1998, recovery of
previously under-collected supply costs was lower than 1997 due to the
expiration, in January 1998, of a surcharge designed to recover those costs. The
new rates, effective January 1999, increased collection of these under-collected
costs. The balancing account mechanism insulates earnings from changes in the
unit cost of supply costs which are outside of the immediate control of
Registrant. However, the balancing account is not designed to insulate earnings
against changes in supply mix, as occurred during the first eight months of
1997.
Other operating expenses increased by 10.6% from the $13.1 million
recorded in 1997 due to employee time charged to this category. Reversals in
1997 of costs associated with recovery of water quality expenditures through the
CPUC's memorandum account mechanism also contributed to the increase. There were
no such reversals of equal magnitude in 1998.
Administrative and general expenses decreased slightly by 0.7% to $22.0
million in 1998 from the $22.1 million recorded in 1997. The decrease is due to
stability in costs associated with health insurance, post-retirement medical
benefits, pension and 401(k) plan costs and to a reduction of time charged by
employees to this category.
In 1998, maintenance expense remained at approximately the $7.3 million
level recorded in 1997 due principally to the wet weather conditions during the
first part of 1998 that hampered planned maintenance activity.
Depreciation expense in 1998 increased by 14.5% to $12.5 million
reflecting the effects of recording approximately $38 million in net plant
additions during 1997, depreciation on which began in 1998. In addition,
amortization of start-up and organizational costs associated with the formation
of AWR is reflected in 1998 and there were no similar amortization costs in
1997.
Taxes on income increased by approximately 3.1% to $10.1 million in 1998
as compared to the $9.8 million in 1997 due to a 5.7% increase in operating
income partially offset by a lower effective tax rate.
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Property and other taxes decreased by 2.5% in 1998 to $6.1 million due
primarily to reduced franchise tax payments directly attributable to reduced
revenues.
Other income increased by 1.5% in 1998 due principally to the
flow-through of tax benefits related to refinancing of long-term debt which was
partially offset by an increase in reserves against costs associated with a
non-regulated joint venture.
Interest expense increased by 10.3% to $11.2 million primarily due to
increased short-term bank borrowing and the issuance of $15 million in long-term
debt in March 1998.
LIQUIDITY AND CAPITAL RESOURCES
AWR funds its operating expenses, dividends on its outstanding Common
and Preferred Shares, and makes its mandatory sinking fund payments, principally
through dividends from SCW. AWR has filed a Registration Statement with the
Securities and Exchange Commission (SEC) for issuance, from time to time, of up
to $60 million in Common Shares, Preferred Shares and/or debt securities. The
proceeds will be used primarily for investment in its subsidiaries. No
securities had been issued under this Registration Statement as of December 31,
1999.
SCW funds the majority of its operating expenses, interest payments on
its debt and dividends on its outstanding Common Shares through internal
sources. SCW continues to rely on external sources, including short-term bank
borrowing, contributions-in-aid-of-construction, advances for construction and
install-and-convey advances, to fund the majority of its construction
expenditures.
Because of the seasonal nature of its water and electric operations, SCW
utilizes its short-term borrowing capacity to finance current operating
expenses. The aggregate short-term borrowing capacity available to SCW under its
three bank lines of credit was $47 million as of December 31, 1999, of which a
total of $21 million was outstanding. SCW routinely employs short-term bank
borrowing as an interim financing source prior to funding capital expenditures
on a long-term basis.
In 1998, SCW filed a Registration Statement with the SEC for issuance,
from time to time, of up to $60 million in long-term debt. In January 1999, SCW
issued $40 million of long-term debt pursuant to this Registration Statement,
leaving $20 million remaining for issuance at a later date. The funds were used
primarily to repay short-term bank borrowings, after which capital expenditures
were funded.
Registrant has no derivative financial instruments, financial
instruments with significant off-balance sheet risks or financial instruments
with concentrations of credit risk.
CONSTRUCTION PROGRAM
A program for water pipeline replacement is on-going throughout the 22
customer service areas, based on priority of leaks detected, fire protection
enhancements and reflection of the underlying replacement schedule. In addition,
general upgrades in SCW's water supply facilities are anticipated to be
on-going. SCW's board of directors has approved anticipated net capital
expenditures of $55.4 million in 2000. Neither AWR nor ASUS have material
capital commitments; however, ASUS actively seeks opportunities to own, lease or
operate municipal water and wastewater systems, which may involve significant
capital commitments.
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REGULATORY MATTERS
SCW is subject to regulation by the CPUC, which has broad powers with
respect to service and facilities, rates, classifications of accounts, valuation
of properties, the purchase, disposition and mortgaging of properties necessary
or useful in rendering public utility service, the issuance of securities, the
granting of certificates of convenience and necessity as to the extension of
services and facilities and various other matters. AWR and ASUS are not
regulated by the CPUC. The CPUC does, however, regulate certain transactions
between SCW and its non-regulated affiliates.
The 22 customer service areas (CSAs) of SCW are grouped into 16 water
districts and 1 electric district for ratemaking purposes. Water rates vary
among the 16 ratemaking districts due to differences in operating conditions and
costs. SCW monitors operations on a regional basis in each of these districts so
that applications for rate changes may be filed, when warranted. Under the
CPUC's practices, rates may be increased by three methods: general rate case
increases (GRC's), offsets for certain expense increases and advice letter
filings related to certain plant additions. GRC's are typically for three-year
periods, which include step increases for the second and third year. Rates are
based on a forecast of expenses and capital costs. GRC's have a typical
regulatory lag of one year. Offset rate increases typically have a two to four
month regulatory lag. The following table lists information on estimated annual
rate changes during 1999, 1998 and 1997.
($ in 000's) Supply Balancing General
Cost Account and Step Advice
Year Offset Amortization Increases Letters Total
- ------------ ---------- ------------ ----------- ---------- ----------
1999 $23 $1,349 $15,175 $657 $17,204
1998 $786 ($2,852) $3,590 $713 $2,237
1997 $183 $64 $1,332 ($126) $1,453
New water rates for six of SCW's customer service areas and recovery of
costs associated with SCW's general office functions were implemented in
January, 1999. Step increases in rates for Arden-Cordova, Bay Point and Los Osos
CSAs were also effective in January, 1999.
Applications to increase water rates were filed for four water
ratemaking districts in SCW's Region III in March 1999. A draft decision has
been issued by the Administrative Law Judge assigned to this matter that
supports the settlement on all issues reached between SCW and the CPUC Staff.
SCW has also filed an application with the CPUC to combine tariff schedules into
regional rates for the customer service areas that make up SCW's Region III. The
Administrative Law Judge assigned to this matter has issued a draft decision
that supports SCW's application. A final decision from the CPUC on both issues
is anticipated in the second quarter of 2000.
GRC step increase for Metropolitan CSA and General Office Allocation
step increases for Arden-Cordova, Bay Point, Simi Valley and Santa Maria CSAs
were effective beginning January, 2000. Attrition increases for Arden-Cordova
and Bay Point CSAs were also in effect beginning January, 2000.
A Notice of Intent to increase water rates by approximately $5.8 million
for ratemaking districts in SCW's Region I as well as to combine those tariff
schedules into regional rates were filed in February 2000. The application will
be submitted by end of March, 2000. The new rates, if authorized in total or in
part by the CPUC, would be effective January 1, 2001.
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An advice letter was filed with the CPUC on March 1, 2000 seeking
recovery of capital expenditures associated with Y2K readiness, not already
included in Registrant's water rates. See Note 13 to the Notes to Financial
Statements.
On April 22, 1999, the CPUC issued an order denying SCW's application
seeking approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement. SCW's
investment of approximately $9.5 million in SWP is currently included in Other
Property and Investments. The remaining balance of the related liability of
approximately $7 million is recorded as other long-term debt. SCW intends to
recover its investment in SWP through contributions from developers on a per-lot
or other basis, or the sale of its 500 acre-foot entitlement in SWP. See Note 8
to the Notes to Financial Statements.
ENVIRONMENTAL MATTERS
1996 Amendments to Federal Safe Drinking Water Act
On August 6, 1996, amendments (the 1996 SDWA amendments) to the Safe
Drinking Water Act (the SDWA) were signed into law. The 1996 SDWA revised the
1986 amendments to the SDWA with a new process for selecting and regulating
contaminants. The U. S. Environmental Protection Agency (EPA) can only regulate
contaminants that may have adverse health effects, are known or likely to occur
at levels of public health concern, and the regulation of which will provide "a
meaningful opportunity for health risk reduction." The EPA has published a list
of contaminants for possible regulation and must update that list every five
years. In addition, every five years, the EPA must select at least five
contaminants on that list and determine whether to regulate them. The new law
allows the EPA to bypass the selection process and adopt interim regulations for
contaminants in order to address urgent health threats. Current regulations,
however, remain in place and are not subject to the new standard-setting
provisions. The DOHS, acting on behalf of the EPA, administers the EPA's program
in California.
The 1996 SDWA amendments allow the EPA for the first time to base
primary drinking water regulations on risk assessment and cost/benefit
considerations and on minimizing overall risk. The EPA must base regulations on
best available, peer-reviewed science and data from best available methods. For
proposed regulations that involve the setting of maximum contaminant levels
(MCL's), the EPA must use, and seek public comment on, an analysis of
quantifiable and non-quantifiable risk-reduction benefits and cost for each such
MCL.
SCW currently tests its wells and water systems according to
requirements listed in the SDWA. Water from wells found to contain levels of
contaminants above the established MCLs is treated to reduce contaminants to
acceptable levels before it is delivered to customers.
Since the SDWA became effective, SCW has experienced increased operating
costs for testing to determine the levels, if any, of the constituents in SCW's
sources of supply and additional expense to lower the level of any contaminants
in order to meet the MCL standards. Such costs and the costs of controlling any
other contaminants may cause SCW to experience additional capital costs as well
as increased operating costs.
Registrant is currently unable to predict the ultimate impact that the
1996 SDWA amendments might have on its financial position or its results of
operation. The CPUC ratemaking process provides SCW with the opportunity to
recover prudently incurred capital and operating costs associated with water
quality. Management believes that such incurred costs will be authorized for
recovery by the CPUC.
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Proposed Enhanced Surface Water Treatment Rule
On July 29, 1994, the EPA proposed an Enhanced Surface Water Treatment
Rule (ESWTR) which would require increased surface-water treatment to decrease
the risk of microbial contamination. The EPA has proposed several versions of
the ESWTR for promulgation. The version selected for promulgation will be
determined based on data collected by certain water suppliers and forwarded to
the EPA pursuant to EPA's Information Collection Rule, which requires such water
suppliers to monitor microbial and other contaminants in their water supplies
and to conduct certain tests in respect of such contaminants. The EPA has
adopted an Interim ESWTR applicable only to systems serving greater than 10,000
persons. The long-term ESWTR, in any of the forms currently proposed, would
apply to each of SCW's five surface water treatment plants and is expected to be
promulgated by November 2000. However, because it is impossible to predict the
version of the ESWTR that will be promulgated, Registrant is unable to predict
what additional costs, if any, will be incurred to comply with the ESWTR.
Regulation of Disinfection/Disinfection By-Products
Registrant is also subject to the new regulations concerning
disinfection/disinfection by-products (DBP's), Stage I of which regulations were
effective in November, 1998 with full compliance required by 2001. Stage I
requires reduction of tri-halomethane contaminants from 100 micrograms per liter
to 80 micrograms per liter. Two of SCW's systems are immediately impacted by
this rule. SCW implemented modifications to the treatment process in its Bay
Point and Cordova systems. It is anticipated that both systems will be in full
compliance by 2001.
The EPA must adopt Stage II rules pertaining to DBPs, according to a
negotiated schedule by 2000. The EPA is not allowed to use the new cost/benefit
analysis provided for in the 1996 SDWA amendments for establishing the Stage II
rules applicable to DBPs but may utilize the regulatory negotiating process
provided for in the 1996 SDWA amendments to develop the Stage II rule. The final
rule is expected by 2002.
Ground Water Rule
By Spring 2000, the EPA is scheduled to propose regulations requiring
disinfection of certain groundwater systems and provide guidance on determining
which systems must provide disinfection facilities. The EPA may utilize the
cost/benefit analysis provided in the 1996 SDWA amendments to establish such
regulations. It is anticipated that the regulations will apply to several of
SCW's systems using groundwater supplies. While no assurance can be given as to
the nature and cost of any additional compliance measures, if any, Registrant
does not believe that such regulations will impose significant compliance costs,
since SCW already currently engages in disinfection of its groundwater systems.
Regulation of Radon and Arsenic
Registrant expects to be subject to new regulations regarding radon and
arsenic. It is anticipated that the EPA will propose a reduction in the federal
standard on arsenic from 50 parts per billion (ppb) to 5 ppb. This proposed
arsenic rule is expected to be released in March or April of 2000, with a 60-day
comment period. It is anticipated that EPA will propose 5 ppb as the lead
regulatory option, but will take comments on 3 ppb and 10 ppb options as well.
Compliance with an MCL of 5 ppb will require Registrant to implement costly
well-head treatment remedies such as ion exchange or, alternatively, to purchase
additional and more expensive water supplies already in compliance, for blending
with well sources.
The EPA has proposed new radon regulations following a National Academy
of Sciences risk assessment and study of risk-reduction benefits associated with
various mitigation measures. The National Academy of Sciences study is in
agreement with much of EPA's original findings but has
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slightly reduced the ingestion risk initially assumed by EPA. EPA established an
MCL of 300 picoCuries per liter based on the findings and has also established
an alternative MCL of 4000 picoCuries per liter, based upon potential mitigation
measures for overall radon reduction. The final rule will be effective in
August, 2000. The Registrant is currently conducting studies to determine the
best treatment for affected wells.
Voluntary Efforts to Exceed Surface Water Treatment Standards
SCW is a voluntary member of the EPA's "Partnership for Safe Water", a
national program designed to further protect the public from diseases caused by
cryptosporidium and other microscopic organisms. As a volunteer in the program,
SCW commits to exceed current regulations governing surface water treatment to
ensure that its surface treatment facilities are performing as efficiently as
possible.
Fluoridation of Water Supplies
Registrant is subject to State of California Assembly Bill 733 which
requires fluoridation of water supplies for public water systems serving more
than 10,000 service connections. Although the bill requires affected systems to
install treatment facilities only when public funds have been made available to
cover capital and operating costs, the bill requires the CPUC to authorize cost
recovery through rates should public funds for operation of the facilities, once
installed, become unavailable in future years.
Matters Relating to Arden-Cordova System
In January, 1997, SCW was notified that ammonium perchlorate in amounts
above the state-determined action level had been detected in three of its 27
wells serving its Arden-Cordova system. Aerojet-General Corp. has, in the past,
used ammonium perchlorate in their processing as an oxidizer of rocket fuels.
SCW took the three wells detected with ammonium perchlorate out of service at
that time. Although neither the EPA nor the DOHS has established a drinking
water standard for ammonium perchlorate, DOHS has established an action level of
18 parts per billion (ppb) which required SCW to notify customers in its
Arden-Cordova customer service area of detection of ammonium perchlorate in
amounts in excess of this action level. In April, 1997, SCW found ammonium
perchlorate in three additional wells and, at that time, removed those wells
from service until it was determined that the levels were below the
state-determined action level. Those wells were returned to service. SCW
periodically monitors these wells to determine that levels of perchlorate are
below the action level currently in effect.
In February 1998, SCW was informed that nitrosodimethylamine (NDMA) had
been detected in amounts in excess of the EPA reference dosage for health risks
in four of its wells in its Arden-Cordova system. Each of the wells has been
removed from service. Another well was also been removed from service in end of
September, 1999 due to the contamination. NDMA is an additional by-product from
the production of rocket fuel and it is believed that such contamination is
related to the activities of Aerojet-General Corp. Aerojet-General Corp. has
reimbursed SCW for constructing a pipeline to interconnect with the City of
Folsom water system to provide an alternative source(s) of water supply in SCW's
Arden-Cordova customer service area and has reimbursed SCW for costs associated
with the drilling and equipping of two new wells.
SCW and Aerojet-General Corp. are in negotiations on other matters
related to procedures to address cleanup of the contaminated wells, costs
associated with the cleanup, increased costs of purchased water as compared to
pumped sources and costs associated with developing new sources of groundwater
supply. SCW and Aerojet-General Corp. are attempting to negotiate an agreement
on these matters. As of December 31, 1999, Aerojet-General Corp has reimbursed
Registrant $4.5 million. The remainder of the costs is subject to further
reimbursement, including interest. The reimbursement from Aerojet-General Corp.
reduces SCW's utility plant and costs of purchased water.
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On October 25, 1999, SCW filed a lawsuit against the California Regional
Water Quality Control Board (CRWQCB) alleging that the CRWQCB has willfully
allowed portions of the Sacramento County Groundwater Basin to be injected with
chemical pollution that is destroying the underground water supply in SCW's
Rancho Cordova customer service area. In a separate case, also filed on October
25, 1999, SCW sued Aerojet General Corp. for causing the contamination.
Registrant is unable to predict what actions, if any, the CRWQCB or Aerojet
General Corp. will take in response to the lawsuits.
Matters Relating to Culver City System
The compound, methyl tertiary butyl ether (MTBE), has been detected in
the Charnock Basin, located in the city of Santa Monica and within SCW's Culver
City customer service area. MTBE is an oxygenate used in reformulated fuels. At
the request of the Regional Water Quality Control Board, the City of Santa
Monica and the California Environmental Protection Agency, SCW removed two of
its wells in the Culver City system from service in October, 1996 to help in
efforts to avoid further spread of the MTBE contamination plume. Neither of
these wells has been found to be contaminated with MTBE. SCW is purchasing water
from the MWD at an increased cost to replace the water supply formerly pumped
from the two wells removed from service.
On September 22, 1999, the U.S. EPA and the Los Angeles Regional Water
Quality Control Board ordered Shell Oil Company, Shell Oil Products Company and
Equilon Enterprises LLC to provide replacement drinking water to both SCW and
the City of Santa Monica due to MTBE contamination of the Charnock Sub-Basin
drinking water. The agencies are continuing to investigate the causes of MTBE
pollution and intend to ensure that all responsible parties contribute to its
clean up. Registrant is unable to predict the outcome of the EPA's enforcement
efforts. Pursuant to an agreement with SCW in December, 1998, two of the
potentially responsible parties (the Participants) have reimbursed SCW's legal
and consulting costs related to this matter and for increased costs incurred by
SCW in purchasing replacement water. However, a notice of termination from the
"Participants" to the settlement agreement and a conditional termination from
one of the responsible parties was received in October, 1999. SCW and such
parties are currently in the process of negotiation. No assurances can be given
that current or future negotiations will result in complete restoration of SCW's
water rights or that continued reimbursement of SCW's costs will be forthcoming.
Bear Valley Electric
SCW has been, in conjunction with the Southern California Edison unit of
Edison International, planning to upgrade transmission facilities to 115kv (the
115kv Project) in order to meet increased energy and demand requirements. The
115kv Project is subject to an environmental impact report (EIR) and delays in
approval of the EIR may impact service in SCW's Bear Valley Electric Service
customer service area. SCW has, however, taken other measures, including some
measures that will be enacted on an emergency basis, to meet load growth and
mitigate delays in approval of the EIR.
WATER SUPPLY
During 1999, Registrant supplied a total of 195,886 acre feet of water.
Of this amount, approximately 58.2% came from pumped sources and 40.2% was
purchased from others, principally the Metropolitan Water District of Southern
California (MWD). The remaining amount was supplied by the Bureau of Reclamation
(the Bureau) under a no-cost contract. During 1998, Registrant supplied 179,927
acre feet of water, 60.7% of which came from pumped sources, 39.0% was purchased
and the remainder was supplied 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. Registrant has 52 connections to the water distribution facilities
of MWD and other municipal water agencies. MWD imports water from two
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principal sources: the Colorado River and the State Water Project (SWP).
Available water supplies from the Colorado River and the SWP have historically
been sufficient to meet most of MWD's requirements and MWD's supplies from these
sources are anticipated to remain adequate through 2000. MWD's import of water
from the Colorado River is expected to decrease in future years due to the
requirements of the Central Arizona Project. In response, MWD has taken a number
of steps to secure additional storage capacity and to increase available water
supplies, by effecting transfers of water rights from other sources.
Registrant's water supply and revenues are significantly affected by
changes in meteorological conditions. New research data released in January 2000
show the Pacific Ocean may be undergoing a dramatic climate shift, known as the
Pacific Decadal Oscillation, that could alter global weather patterns and
perhaps lead Southern California into decades of drier than normal weather. The
changes signal that the Pacific is shifting to a "cool phase" could last for
decades, bring far more rain than usual to the Pacific Northwest and less to
Southland.
Water sales volumes have been impacted during the last two years by the
El Nino/La Nina Southern Oscillation phenomena. El Nino brings substantial
rainfall to Southern California and the opposite, La Nina, often means
diminished rainfall. During the '80s and '90s, El Nino increased precipitation
as much as 250% of normal for some Southern California Water Company service
areas, while La Nina conditions decreased rain levels 50% to 30% of normal.
In 1999, after the 1997-1998 El Nino heavy rain season, La Nina moved
rainfall to the North and substantially reduced rainfall in SCW's service areas
with some systems experiencing less than 32% of normal rainfall.
In spite of the anticipated La Nina conditions, the 2000 water year
supply outlook remains adequate. As of January 2000, California reservoirs stood
at 125% of average. This positive outlook is due to the fact that reservoirs
are still holding some of the El Nino surplus and groundwater levels are usually
not diminished by a single year of below normal precipitation. Although overall
groundwater conditions remain at adequate levels, certain of SCW's groundwater
supplies have been affected to varying degrees by various forms of contamination
which, in some cases, have caused increased reliance on purchased water in its
supply mix.
BUSINESS SEGMENTS
AWR currently has two principal business units: water service and
electric distribution utility operations conducted through its SCW subsidiary,
and its non-regulated activities through its ASUS subsidiary. All activities of
Registrant currently are geographically located within the State of California,
except for one contract for providing customer service and billing services to a
utility located in the state of Arizona. SCW is a regulated utility which
operates both water and electric systems. On a stand alone basis, AWR has no
material assets other than its investments in its subsidiaries. See Note 11 to
the Notes to Financial Statements.
ACQUISITION OF CHAPARRAL CITY WATER COMPANY
On March 10, 2000, Registrant entered into an agreement to acquire the
common stock of Chaparral City Water Company, a privately operated water company
serving approximately 10,000 customers in the town of Fountain Hills, Arizona
and portions of Scottsdale, Arizona for an aggregate value of $31.2 million,
including assumption of approximately $12 million in debt. Chaparral City Water
Company was purchased from MCO Properties Inc., a wholly-owned subsidiary of
MAXXAM Inc. This marks the first acquisition outside of California for
Registrant. The sale of Chaparral City Water Company requires notification to
the Arizona Corporation Commission and other conditions customary
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in transactions of this type. The approval of Registrant's shareholders is not
required. It is anticipated that the transaction will close within one year.
YEAR 2000 ISSUE
Registrant has no Y2K incidents, business disruptions, failures or legal
proceedings to report. There were no actual or anticipated effects or changes to
Registrant's operating trends or revenue patterns as a result of the transition
from December, 1999 to January, 2000.
SCW formally announced its 100% Y2K Ready status when it filed its
Compliance Report with the CPUC on November 1, 1999. Registrant's general
process for addressing the Y2K issue was (i) to inventory all systems that may
have a potential Y2K impact, (ii) to determine the materiality of these non-Y2K
ready systems, (iii) to replace and test, correct and test, or prepare for the
failure of material items that have been determined to be non-Y2K ready, and
(iv) to prepare contingency plans, which included, among other things, increased
staffing during critical periods, manual back-up for automated systems and the
use of portable generators capable of providing power during a black-out.
Not all Y2K problems were necessarily expected to surface in early 2000.
Registrant does not have, and may never fully have, sufficient information about
the Y2K exposure of third parties to adequately predict the risks posed by them
to Registrant. If the third parties later discover any Y2K problems that are not
remedied, resulting problems could include loss of utility services and
disruption of water supplies.
Costs incurred to address Y2K issues are estimated to be $7.5 million.
Registrant has incurred $4.8 million in costs associated with Y2K readiness at
end of January 2000, $4.0 million of which is in capital investments. On March
1, 2000, Registrant filed an advice letter with the CPUC for recovery of Y2K
related costs. Registrant believes that generally these capital expenditures as
well as the remaining Y2K-related investments will be recovered through rates,
but can give no assurance that the CPUC will authorize recovery of all or some
of these costs. See Note 13 to the Notes to Financial Statements.
RISK FACTOR SUMMARY
This section (written in plain English to comply with certain SEC
Standards) summarizes certain risks of our business that may affect our future
financial results. We also periodically file with the Securities and Exchange
Commission documents that include more information on these risks. It is
important for investors to read these documents.
Litigation
SCW has recently been sued in eleven water-quality related lawsuits:
- a suit filed on April 24, 1997 alleging personal injury and property
damage as a result of the sale of water from wells located in an
area of the San Gabriel Valley that has been designated a federal
superfund site
- a suit filed on July 29, 1997 alleging personal injury and property
damage as a result of the sale of water; few of our systems are
located in the geographical area covered by this suit
- a suit filed on December 8, 1997 alleging personal injury and
property damage as a result of the delivery of contaminated water in
SCW's Arden-Cordova service area
- a suit filed on February 2, 1998 alleging personal injury and
property damage as a result of the sale of water from wells located
in an area of the San Gabriel Valley that has been designated a
superfund site
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- a suit filed on February 4, 1998 alleging personal injury and
property damage as a result of the sale of water from wells located
in an area of the San Gabriel Valley that has been designated a
superfund site
- a suit filed in March 2, 1998 alleging personal injury and property
damage as a result of the delivery of contaminated water in SCW's
Arden-Cordova service area
- a suit filed on June 29, 1998 alleging personal injury and property
damage as a result of the sale of water from wells located in an
area of the San Gabriel Valley that has been designated a superfund
site
- two suits filed on July 30, 1998 alleging personal injury and
property damage as a result of the sale of water from wells located
in an area of the San Gabriel Valley that has been designated a
superfund site
- a suit filed on December 3, 1998 alleging personal injury and
property damage as a result of the sale of water from wells located
in an area of the San Gabriel Valley that has been designated a
superfund site
- a suit filed in July 22, 1999 alleging personal injury and property
damage as a result of the sale of water from wells located in an
area of the San Gabriel Valley that has been designated a superfund
site
On September 1, 1999, the First District Court of Appeal in San
Francisco, held that the CPUC had preemptive jurisdiction over regulated public
utilities and ordered dismissal of a series of lawsuits against water utilities,
including seven of the lawsuits against SCW. On October 11, one group of
plaintiffs appealed the decision to the California Supreme Court which has
accepted the petition. Management can not predict the outcome of the proceeding.
In March 1998, the CPUC issued an order instituting investigation (the
OII) as a result of these types of suits being filed against water utilities in
California. The CPUC is seeking to determine:
- whether existing standards and policies regarding drinking water
quality adequately protect the public health
- whether water utilities are following existing standards
The Administrative Law Judge assigned to the OII has issued a draft
decision finding that water utilities, including SCW, have complied with DOHS
regulation and requirements. SCW is unable to predict whether the draft
decision will be approved in part or in its entirety. The CPUC has authorized a
memorandum account for legal expenses incurred by water utilities, including
SCW, in the water quality lawsuits. Under the memorandum account procedure, SCW
may recover litigation costs from ratepayers to the extent authorized by the
CPUC. The CPUC has not yet authorized SCW to recover any of its litigation
costs. As of December 31, 1999, Registrant had incurred $860,120 in the
OII-related memorandum account.
Environmental Regulation
SCW is subject to increasingly stringent environmental regulations that
will result in increasing capital and operating costs. These regulations
include:
- the 1996 amendments to the Safe Drinking Water Act that require
increased testing and treatment of water to reduce specified
contaminants to minimum containment levels
19
22
- interim regulations expected to be adopted before the end of 2000
requiring increased surface-water treatment to decrease the risk of
microbial contamination; these regulations will affect SCW's five
surface water treatment plants
- additional regulation of disinfection/disinfection byproducts
expected to be adopted before the end of 2002; these regulations
will potentially affect two of SCW's systems
- additional regulations expected to be adopted before the end of 2000
requiring disinfection of certain groundwater systems; these
regulations will potentially impact several of SCW's systems using
groundwater supplies
- potential regulation of radon and arsenic
- new California requirements to fluoridate public water systems
serving over 10,000 customers
SCW may be able to recover costs incurred to comply with these
regulations through the ratemaking process for our regulated systems. We may
also be able to recover certain of these costs under our contractual
arrangements with municipalities. In certain circumstances, we may recover costs
from parties responsible or potentially responsible for contamination.
Rates and Regulation
SCW is subject to regulation by the CPUC. AWR and ASUS are not directly
subject to CPUC regulation. The CPUC may, however, regulate transactions between
SCW and AWR, including the manner in which overhead costs are allocated between
SCW and AWR and the pricing of services rendered by SCW to AWR.
SCW's revenues depend substantially on the rates that it is permitted to
charge its customers. SCW may increase rates in three ways:
- by filing for a general rate increase
- by filing for recovery of certain expenses
- by filing an "advice letter" for certain plant additions, thereby
increasing rate base
In addition, SCW recovers certain supply costs through a balancing
account mechanism. Supply costs include the cost of purchased water and power
and groundwater production assessments. The balancing account mechanism is
intended to insulate SCW's earnings from changes in supply costs that are beyond
SCW's control. The balancing account is not, however, designed to insulate SCW's
earnings against changes in supply mix. As a result, SCW may not recover
increased costs due to increased use of purchased water through the balancing
account mechanism. In addition, balancing account adjustments, if authorized by
the CPUC, may result in either increases or decreases in revenues attributable
to supply costs incurred in prior periods, depending upon whether there has been
an undercollection or overcollection of supply costs.
There are also a number of matters pending before the CPUC that may
affect our future financial results. These matters include:
- applications filed by SCW to increase rates in 4 of its 16
rate-making jurisdictions; a final decision is not expected until
second quarter of 2000 although a tentative settlement has been
worked out
- an application filed to consolidate the rate-making jurisdictions
located in SCW's Region III area into a single tariff
- the OII
- new guidelines under consideration by the CPUC for the acquisition
and merger of water utilities and for privatization transactions
20
23
Adequacy of Water Supplies
The adequacy of water supplies varies from year to year depending upon a
variety of factors, including
- rainfall
- the amount of water stored in reservoirs
- the amount used by our customers and others
- water quality, and
- legal limitations on use.
As a result of heavier than normal rainfall in the winter of 1998-1999,
most of California's reservoirs remain at or near capacity and the outlook for
water supply in the near term is generally favorable. Population growth and
increases in the amount of water used have, however, increased limitations on
use to prevent overdrafting of groundwater basins. The import of water from the
Colorado River, one of our important sources of supply, is expected to decrease
in future years due to the requirements of the Central Arizona Project. We also
have in recent years taken wells out of service due to water quality problems.
Water shortages could be caused by the above factors and may affect us
in several ways:
- they adversely affect supply mix by causing Registrant to rely on
more expensive purchased water
- they adversely affect operating costs
- they may result in an increase in capital expenditures for building
pipelines to connect to alternative sources of supplies and
reservoirs and other facilities to conserve or reclaim water
We may be able to recover increased operating and construction costs for
our regulated systems through the ratemaking process. Registrant may also be
able to recover certain of these costs under the terms of our contractual
agreements with municipalities.
In certain circumstances, we may recover these costs from third parties
that may be responsible, or potentially responsible, for groundwater
contamination. We are currently negotiating with Aerojet General Corporation
regarding costs associated with the cleanup of the groundwater supply for our
Arden-Cordova System and for the increased costs of purchasing water and
developing new sources of groundwater supply. We are also negotiating with two
participants on matters relating to the clean-up and purchase of replacement
water in the Charnock Basin located in the cities of Santa Monica and Culver
City. These two potentially responsible parties have previously reimbursed us
for replacement water and certain legal and consulting expenses. The Charnock
Basin is in SCW's service territory.
ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes a new model for
accounting for derivative and hedging activities, and supersedes and amends a
number of existing standards. Adoption of this statement, with an extended
effective date for fiscal years beginning after December 15, 1999, will not have
a significant impact on financial position or results of operation.
21
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Registrant has no derivative financial instruments, financial
instruments with significant off-balance sheet risks or financial instruments
with concentrations of credit risk. The disclosure required is, therefore, not
applicable.
22
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
American States Water Company
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Capitalization - December 31, 1999
and 1998
Consolidated Statements of Income - for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Common Shareholders'
Equity - for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - for the years ended
December 31, 1999, 1998 and 1997
Southern California Water Company
Balance Sheets - December 31, 1999 and 1998
Statements of Capitalization - December 31, 1999 and 1998
Statements of Income - for the years ended December 31, 1999,
1998 and 1997
Statements of Changes in Common Shareholders' Equity - for the
years ended December 31, 1999, 1998 and 1997
Statements of Cash Flows - for the years ended December 31,
1999, 1998 and 1997
Notes to Financial Statements
Report of Independent Public Accountants
23
26
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
1999 1998
--------- ---------
(in thousands)
ASSETS
UTILITY PLANT, AT COST
Water $ 532,007 $ 482,989
Electric 36,349 35,171
--------- ---------
568,356 518,160
Less - Accumulated depreciation (151,733) (138,423)
--------- ---------
416,623 379,737
Construction work in progress 32,972 35,016
--------- ---------
Net utility plant 449,595 414,753
--------- ---------
OTHER PROPERTY AND INVESTMENTS 10,583 1,077
CURRENT ASSETS
Cash and cash equivalents 2,189 620
Accounts receivable-Customers, less reserves of $487 in 1999;
$403 in 1998 10,135 7,626
Other account receivable 4,347 5,301
Unbilled revenue 11,345 9,303
Materials and supplies, at average cost 1,153 994
Supply cost balancing accounts 4,774 4,300
Prepayments 4,851 5,988
Accumulated deferred income taxes - net 5,546 5,156
--------- ---------
Total current assets 44,340 39,288
--------- ---------
DEFERRED CHARGES
Unamortized debt expense and redemption premium 6,811 6,635
Regulatory tax-related assets 19,941 21,506
Other 1,911 1,412
--------- ---------
Total deferred charges 28,663 29,553
--------- ---------
TOTAL ASSETS $ 533,181 $ 484,671
========= =========
The accompanying notes are an integral part of these financial statements
24
27
AMERICAN STATES WATER COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
1999 1998
-------- --------
(in thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $158,846 $154,299
Preferred Shares 1,600 1,600
Preferred Shares - mandatory redemption 360 400
Long-term debt 167,363 120,809
-------- --------
Total capitalization 328,169 277,108
-------- --------
CURRENT LIABILITIES
Notes payable to banks 21,000 38,000
Long-term debt and Preferred Shares - current 340 260
Accounts payable 13,777 10,218
Taxes payable 5,432 5,900
Accrued interest 1,584 1,405
Other 12,832 7,985
-------- --------
Total current liabilities 54,965 63,768
-------- --------
OTHER CREDITS
Advances for construction 57,485 54,743
Contributions in aid of construction 38,895 36,530
Accumulated deferred income taxes - net 48,302 46,902
Unamortized investment tax credits 3,064 3,155
Regulatory tax-related liability 1,861 1,906
Other 440 559
-------- --------
Total other credits 150,047 143,795
======== ========
TOTAL CAPITALIZATION AND LIABILITIES $533,181 $484,671
======== ========
The accompanying notes are an integral part of these financial statements
25
28
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
-------------------------
1999 1998
--------- ---------
(in thousands)
COMMON SHAREHOLDERS' EQUITY:
Common Shares, $2.50 stated value--
Authorized 31,071,408 shares
Outstanding 8,957,671 in 1999 and 1998 $ 22,394 $ 22,394
Additional paid-in capital 74,937 74,937
Earnings reinvested in the business 61,515 56,968
--------- ---------
158,846 154,299
--------- ---------
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 16,000 shares in 1999 and 17,600
shares in 1998, 5% Series 400 440
Less: Preferred Shares to be redeemed within one year (40) (40)
--------- ---------
360 400
--------- ---------
LONG-TERM DEBT
5.82% notes due 2003 12,500 12,500
6.64% notes due 2013 1,100 1,100
6.80% notes due 2013 2,000 2,000
8.50% fixed rate obligation due 2013 1,798 1,882
Variable rate obligation due 2014 6,000 6,000
Variable rate obligation due 2018 650 630
6.87% notes due 2023 5,000 5,000
7.00% notes due 2023 10,000 10,000
7.55% notes due 2025 8,000 8,000
7.65% notes due 2025 22,000 22,000
5.50% notes due 2026 8,000 8,000
6.81% notes due 2028 15,000 15,000
6.59% notes due 2029 40,000 --
9.56% notes due 2031 28,000 28,000
State Water Project due 2035 7,028 --
Other 587 917
--------- ---------
167,663 121,029
Less: Current maturities (300) (220)
--------- ---------
167,363 120,809
========= =========
TOTAL CAPITALIZATION $ 328,169 $ 277,108
========= =========
The accompanying notes are an integral part of these financial statements
26
29
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands, except per share amounts)
OPERATING REVENUES
Water $ 159,693 $ 134,794 $ 140,988
Electric 13,338 13,201 12,767
Other 390 65 --
--------- --------- ---------
Total operating revenues 173,421 148,060 153,755
--------- --------- ---------
OPERATING EXPENSES
Water purchased 36,143 30,833 38,318
Power purchased for resale 7,119 5,013 5,188
Power purchased for pumping 7,394 7,009 7,554
Groundwater production assessment 7,170 7,567 6,847
Supply cost balancing accounts (473) 28 2,813
Other operating expenses 15,594 14,459 13,074
Administrative and general expenses 28,600 21,987 22,138
Depreciation 13,650 12,538 10,952
Maintenance 9,799 7,311 7,301
Taxes on income 13,345 10,130 9,830
Property and other taxes 6,566 6,124 6,282
--------- --------- ---------
Total operating expenses 144,907 122,999 130,297
--------- --------- ---------
OPERATING INCOME 28,514 25,061 23,458
--------- --------- ---------
OTHER INCOME
Total other income - net 532 769 758
--------- --------- ---------
Income before interest charges 29,046 25,830 24,216
--------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 11,294 9,612 8,821
Other interest and amortization of debt expense 1,651 1,595 1,336
--------- --------- ---------
Total interest charges 12,945 11,207 10,157
--------- --------- ---------
NET INCOME 16,101 14,623 14,059
Dividends on Preferred Shares (88) (90) (92)
--------- --------- ---------
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 16,013 $ 14,533 $ 13,967
BASIC EARNINGS PER COMMON SHARE $ 1.79 $ 1.62 $ 1.56
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,958 8,958 8,957
The accompanying notes are an integral part of these financial statements
27
30
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Common Shares Earnings
-------------------- Additional Reinvested
Number Paid-in in the
of Shares Amount Capital Business
------- ------- ------- -------
(in thousands)
BALANCES AT DECEMBER 31, 1996 8,886 $22,215 $73,645 $50,906
Add:
Net Income 14,059
Issuance of Common Shares for public offering 72 179 1,292
Deduct:
Dividends on Preferred Shares 92
Dividends on Common Shares - $1.245 per share 11,151
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1997 8,958 $22,394 $74,937 $53,722
Add:
Net Income 14,623
Deduct:
Dividends on Preferred Shares 90
Dividends on Common Shares - $1.26 per share 11,287
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1998 8,958 $22,394 $74,937 $56,968
Add:
Net Income 16,101
Deduct:
Dividends on Preferred Shares 88
Dividends on Common Shares - $1.28 per share 11,466
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1999 8,958 $22,394 $74,937 $61,515
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements
28
31
AMERICAN STATES WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,101 $ 14,623 $ 14,059
Adjustments for non-cash items:
Depreciation and amortization 14,364 15,368 11,170
Deferred income taxes and investment tax credits 2,440 5,241 826
Other - net 1,066 1,394 873
Changes in assets and liabilities:
Customer receivables (1,555) 918 (673)
Supply cost balancing accounts (474) (14) 1,987
Accounts payable 3,559 (1,552) (1,095)
Taxes payable (468) (3,215) 3,338
Other - net 3,977 438 341
-------- -------- --------
Net cash provided 39,010 33,201 30,826
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (57,823) (43,623) (36,799)
-------- -------- --------
Net cash used (57,823) (43,623) (36,799)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares -- -- 1,472
Issuance of long-term debt and lease obligations 47,028 15,000 8,000
Receipt of advances for and contributions in aid of
construction 5,300 3,381 1,302
Refunds on advances for construction (2,957) (2,651) (2,957)
Retirement or repayments of long-term debt and
redemption of Preferred Shares - net (435) (9,488) (198)
Net change in notes payable to banks (17,000) 12,000 10,000
Common and preferred dividends paid (11,554) (11,386) (11,243)
-------- -------- --------
Net cash provided 20,384 6,856 6,376
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,569 (3,566) 403
Cash and Cash Equivalents, Beginning of Year 620 4,186 3,783
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,189 $ 620 $ 4,186
-------- -------- --------
TAXES AND INTEREST PAID:
Income taxes paid $ 12,137 $ 5,430 $ 6,338
Interest paid 11,834 11,391 9,451
-------- -------- --------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to
Company $ 4,096 $ 1,797 $ 2,082
======== ======== ========
The accompanying notes are an integral part of these financial statements
29
32
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
December 31,
-------------------------
1999 1998
--------- ---------
(in thousands)
ASSETS
UTILITY PLANT, AT COST
Water $ 532,007 $ 482,989
Electric 36,349 35,171
--------- ---------
568,356 518,160
Less - Accumulated depreciation (151,733) (138,423)
--------- ---------
416,623 379,737
Construction work in progress 32,972 35,016
--------- ---------
Net utility plant 449,595 414,753
--------- ---------
OTHER PROPERTY AND INVESTMENTS 10,233 763
--------- ---------
CURRENT ASSETS
Cash and cash equivalents 2,020 524
Accounts receivable-Customers, less reserves of $487 in 1999;
$403 in 1998 10,135 7,498
Other 4,275 5,272
Intercompany receivable -- 104
Unbilled revenue 11,345 9,303
Materials and supplies, at average cost 1,153 994
Supply cost balancing accounts 4,774 4,300
Prepayments 4,851 5,988
Accumulated deferred income taxes - net 5,573 5,173
--------- ---------
Total current assets 44,126 39,156
--------- ---------
DEFERRED CHARGES
Regulatory tax-related assets 19,941 21,506
Other 8,599 7,997
--------- ---------
Total deferred charges 28,540 29,503
--------- ---------
TOTAL ASSETS $ 532,494 $ 484,175
========= =========
The accompanying notes are an integral part of these financial statements
30
33
SOUTHERN CALIFORNIA WATER COMPANY
BALANCE SHEETS
December 31,
------------------------
1999 1998
-------- --------
(in thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $160,023 $155,721
Preferred shares -- --
Preferred shares - mandatory redemption -- --
Long-term debt 167,363 120,809
-------- --------
Total capitalization 327,386 276,530
-------- --------
CURRENT LIABILITIES
Notes payable to banks 21,000 38,000
Long-term debt and preferred shares - current 340 260
Accounts payable 13,615 10,054
Intercompany payable 4 --
Taxes payable 5,700 6,147
Accrued interest 1,584 1,405
Other 12,818 7,984
-------- --------
Total current liabilities 55,061 63,850
-------- --------
OTHER CREDITS
Advances for construction 57,485 54,743
Contributions in aid of construction 38,895 36,531
Accumulated deferred income taxes - net 48,302 46,901
Unamortized investment tax credits 3,064 3,155
Regulatory tax-related liability 1,861 1,907
Other 440 558
-------- --------
Total other credits 150,047 143,795
======== ========
TOTAL CAPITALIZATION AND LIABILITIES $532,494 $484,175
======== ========
The accompanying notes are an integral part of these financial statements
31
34
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CAPITALIZATION
December 31,
---------------------------
1999 1998
--------- ---------
(in thousands)
COMMON SHAREHOLDERS' EQUITY:
Common shares, no par value
Outstanding 100 in 1998 and 1999 $ 98,391 $ 98,391
Additional paid-in capital -- --
Earnings reinvested in the business 61,632 57,330
--------- ---------
160,023 155,721
--------- ---------
LONG-TERM DEBT
5.82% notes due 2003 12,500 12,500
6.64% notes due 2013 1,100 1,100
6.80% notes due 2013 2,000 2,000
8.50% fixed rate obligation due 2013 1,798 1,882
Variable rate obligation due 2014 6,000 6,000
Variable rate obligation due 2018 649 630
6.87% notes due 2023 5,000 5,000
7.00% notes due 2023 10,000 10,000
7.55% notes due 2025 8,000 8,000
7.65% notes due 2025 22,000 22,000
5.50% notes due 2026 8,000 8,000
6.81% notes due 2028 15,000 15,000
6.59% notes due 2029 40,000 --
9.56% notes due 2031 28,000 28,000
State Water Project due 2035 7,028 --
Other 588 917
--------- ---------
167,663 121,029
Less: Current maturities (300) (220)
--------- ---------
167,363 120,809
========= =========
TOTAL CAPITALIZATION $ 327,386 $ 276,530
========= =========
The accompanying notes are an integral part of these financial statements
32
35
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF INCOME
For the years ended December 31,
---------------------------------------------
1999 1998 1997
--------- --------- ---------
($ in thousands, except per share amounts)
OPERATING REVENUES
Water $ 159,693 $ 134,794 $ 140,988
Electric 13,338 13,201 12,767
--------- --------- ---------
Total operating revenues 173,031 147,995 153,755
--------- --------- ---------
OPERATING EXPENSES
Water purchased 36,145 30,833 38,318
Power purchased for resale 7,119 5,013 5,188
Power purchased for pumping 7,394 7,009 7,554
Groundwater production assessment 7,170 7,567 6,847
Supply cost balancing accounts (473) 28 2,813
Other operating expenses 15,475 14,434 13,074
Administrative and general expenses 28,077 21,884 22,138
Depreciation 13,516 12,270 10,952
Maintenance 9,794 7,311 7,301
Taxes on income 13,473 10,360 9,830
Property and other taxes 6,563 6,124 6,282
--------- --------- ---------
Total operating expenses 144,253 122,833 130,297
--------- --------- ---------
OPERATING INCOME 28,778 25,162 23,458
--------- --------- ---------
OTHER INCOME
Total other income - net 509 1,231 758
--------- --------- ---------
Income before interest charges 29,287 26,393 24,216
--------- --------- ---------
INTEREST CHARGES
Interest on long-term debt 11,294 9,612 8,821
Other interest and amortization of debt expense 1,651 1,595 1,336
--------- --------- ---------
Total interest charges 12,945 11,207 10,157
--------- --------- ---------
NET INCOME 16,342 15,186 14,059
Dividends on Preferred Shares -- (46) (92)
EARNINGS AVAILABLE FOR COMMON SHAREHOLDERS $ 16,342 $ 15,140 $ 13,967
BASIC EARNINGS PER COMMON SHARE $ 163,420 $ 151,400 $ 139,670
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
100 100 100
The accompanying notes are an integral part of these financial statements. All
information has been adjusted to reflect formation of holding company in 1998.
33
36
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Common Shares Earnings
------------------------ Additional Reinvested
Number Paid-in in the
of Shares Amount Capital Business
--------- ------- ------- -------
(in thousands)
BALANCES AT DECEMBER 31, 1996 8,886 $22,215 $73,645 $50,906
Add:
Net Income 14,059
Issuance of Common Shares for public offering 72 179 1,292
Deduct:
Dividends on Preferred Shares 92
Dividends on Common Shares - $1.245 per
share 11,151
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1997 8,958 $22,394 $74,937 $53,722
Add:
Transfer Preferred Shares & Investments $ 1,060
Net Income 15,186
Deduct:
Dividends on Preferred Shares 46
Dividends on Common Shares - $.63 per share
for 8,957,671 shares 5,643
Dividends on Common Shares - $58,890 per share
for 100 shares 5,889
------- ------- ------- -------
BALANCES AT DECEMBER 31, 1998 100 $22,394 $75,997 $57,330
Add:
Net Income 16,342
Deduct:
Dividends on Preferred Shares --
Dividends on Common Shares - $30,900 per share 3,090
Dividends on Common Shares - $30,500 per share 3,050
Dividends on Common Shares - $29,000 per share 2,900
Dividends on Common Shares - $30,000 per share 3,000
======= ======= ======= =======
BALANCES AT DECEMBER 31, 1999 100 $22,394 $75,997 $61,632
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements
34
37
SOUTHERN CALIFORNIA WATER COMPANY
STATEMENTS OF CASH FLOWS
For the years ended December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 16,342 15,185 $ 14,059
Adjustments for non-cash items:
Depreciation and amortization 14,229 15,100 11,170
Deferred income taxes and investment tax credits 2,430 5,224 826
Other - net 1,308 1,077 873
Changes in assets and liabilities:
Customer receivables (1,640) 1,046 (673)
Prepayments (1,137) 660 (743)
Supply cost balancing accounts (474) (14) 1,987
Accounts payable 3,561 (1,716) (1,095)
Taxes payable (447) (2,968) 3,338
Unbilled revenue (2,042) (197) 3,490
Accrued Interest 179 (463) 96
Other - net 7,074 362 (2,502)
-------- -------- --------
Net cash provided 39,383 33,296 30,826
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (57,823) (43,623) (36,799)
-------- -------- --------
Net cash used (57,823) (43,623) (36,799)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Shares -- -- 1,472
Issuance of long-term debt and lease obligations 47,028 15,000 8,000
Receipt of advances for and contributions in aid of
construction 3,883 3,381 1,302
Refunds on advances for construction (1,540) (2,651) (2,957)
Repayments of long-term debt and redemption of
Preferred Shares - net (395) (9,488) (198)
Net change in notes payable to banks (17,000) 12,000 10,000
Common and preferred dividends paid (12,040) (11,577) (11,243)
-------- -------- --------
Net cash provided 19,936 6,665 6,376
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,496 (3,662) 403
Cash and Cash Equivalents, Beginning of Year 524 4,186 3,783
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR 2,020 524 4,186
-------- -------- --------
TAXES AND INTEREST PAID:
Income taxes paid $ 12,241 $ 5,430 $ 6,338
Interest paid 11,834 11,391 9,451
-------- -------- --------
NON-CASH TRANSACTIONS:
Property installed by developers and conveyed to
Company $ 4,096 $ 1,797 $ 2,082
======== ======== ========
The accompanying notes are an integral part of these financial statements
35
38
NOTES TO FINANCIAL STATEMENTS
American States Water Company (AWR) is the parent company of Southern
California Water Company (SCW) and American States Utility Services, Inc.
(ASUS). SCW is a public utility engaged principally in the purchase, production,
distribution and sale of water as well as in the distribution of electricity in
several mountain communities. SCW is regulated by the California Public
Utilities Commission (CPUC) as to its water and electric business including
properties, rates, services, facilities and other matters. ASUS performs
non-regulated, water related services and operations on a contract basis. The
consolidated financial statements include the accounts of AWR, SCW and ASUS .
Virtually all of AWR's assets and revenues are those of SCW.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of AWR and
its wholly-owned subsidiaries, SCW and ASUS collectively referred to as
Registrant. Inter-company transactions and balances have been eliminated.
The accounting records for SCW are maintained in accordance with the
Uniform System of Accounts prescribed by the CPUC. The preparation of these
financial statements required the use of certain estimates by management in
determining Registrant's assets, liabilities, revenues and expenses.
Property and Depreciation: Registrant 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 1999, 1998 and 1997 the
aggregate provisions for depreciation approximated 2.91%, 2.79%, and 2.77% of
the beginning of the year depreciable plant, respectively.
Interest: Interest is generally not capitalized for financial reporting
purposes as such procedure is usually not followed for rate-making purposes.
Revenues: Revenues include amounts billed to customers and an amount of
unbilled revenue representing amounts to be billed for usage from the last meter
reading date to the end of the accounting period.
Basic Earnings Per Common Share: Basic Earnings per Common Share are
based upon the weighted average number of Common Shares outstanding and net
income after deducting preferred dividend requirements. There are no dilutive
securities. Accordingly, diluted earnings per share is not calculated.
Supply Cost Balancing Accounts: As permitted by the CPUC, 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 is recorded in income and charged to
balancing accounts when such costs are incurred. The balancing accounts are
reversed when such costs are recovered through rate adjustments. Registrant
accrues interest on its supply cost balancing accounts at the rate prevailing
for 90-day commercial paper.
Debt Issue Expense and Redemption Premiums: Original debt issue expenses
are amortized over the lives of the respective issues. Premiums paid on the
early redemption of debt which is reacquired through refunding are deferred and
amortized over the life of the debt issued to finance the refunding. The
redemption premium on debt reacquired without refunding is amortized over the
remaining period the debt would have been outstanding.
36
39
Other Credits: Advances for construction represent amounts advanced by
developers which are generally refundable at either a rate of 22% of the revenue
received from the installations for which funds were advanced or in equal annual
installments over a 40-year period. Contributions-in-aid of construction are
similar to advances, but require no refunding and are amortized over the useful
lives of the related property.
Cash and Cash Equivalents: For purposes of the Statements of Cash Flows,
cash and cash equivalents include short-term cash investments with an original
maturity of three months or less.
Financial Instrument Risk: Registrant does not carry any financial
instruments with off-balance sheet risk nor does its operations result in
concentrations of credit risk.
Fair Value of Financial Instruments: The table below estimates the fair
value of each represented class of financial instrument. For cash and cash
equivalents, accounts receivable and short-term debt, the carrying amount is
used. Otherwise, rates available to Registrant at December 31, 1999 and 1998 for
debt with similar terms and remaining maturities were used to estimate fair
value for long-term debt. Changes in the assumptions will produce differing
results.
1999 1998
------------------------- ----------------------------
CARRYING
AMOUNT FAIR VALUE Carrying amount Fair value
-------- --------- --------------- ----------
(dollars in thousands)
Financial assets:
Cash $ 2,189 $ 2,189 $ 620 $ 620
Accounts receivable 25,827 25,827 22,230 22,230
Financial liabilities:
Short-term debt 21,000 21,000 38,000 38,000
Long-term debt $167,663 $161,843 $120,809 $135,092
-------- -------- -------- --------
NOTE 2 - CAPITAL STOCK
All of the series of Preferred Shares outstanding at December 31, 1999
are redeemable at the option of Registrant. At December 31, 1999, the redemption
price per share for each series of $25 Preferred Shares was $27.00, $26.50 and
$25.25 for the 4%, 4 1/4% 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, 1999
is $40,000 each year.
In 1996, Registrant issued 1,000,000 Common Shares through a secondary
public offering. In January 1997, Registrant issued 71,500 Common Shares through
a secondary public offering. The net proceeds from this sale were used to repay
a portion of short-term debt then outstanding.
For the years ended December 31, 1999, December 31, 1998 and December
31, 1997, all shares issued under Registrant's Common Share Purchase and
Dividend Reinvestment Plan (DRP) and the 401(k) Plan were purchased on the open
market. There are 500,000 and 571,408 Common Shares reserved for issuance under
the DRP and the 401(k) Plan, respectively, at December 31, 1999. Shares reserved
for the 401(k) Plan are in relation to company matching contributions and for
investment purposes by participants.
As of December 31, 1999 there were no retained earnings restricted,
under any of Registrant's debt instruments, as to the payment of cash dividends
on Common Shares.
37
40
In 1998, the board of directors adopted a Shareholder Rights Plan
(Rights Plan) and authorized a dividend distribution of one right (a Right) to
purchase 1/1000th of Junior Participating Preferred Share for each outstanding
Common Share. The Rights Plan became effective in September 1998 and will expire
in September 2008. The Rights Plan is designed to provide shareholders'
protection and to maximize shareholder value by encouraging a prospective
acquirer to negotiate with the board.
Each Right represents a right to purchase 1/1000th of Junior
Participating Preferred Share at the price of $120, subject to adjustment (the
Purchase Price). Each Junior Participating Preferred Share is entitled to
receive a dividend equal to 1000 times any dividend paid on each Common Share
and 100 votes per share in any shareholder election. The Rights become
exercisable upon occurrence of a Distribution Date. A Distribution Date event
occurs if (i) any person accumulates 15% of the then outstanding Common Shares,
(ii) any person presents a tender offer which caused the person's ownership
level to exceed 15% and the board determines the tender offer not to be fair to
AWR's shareholders, or (iii) the board determines that a shareholder maintaining
a 15% interest in the Common shares could have an adverse impact on AWR or could
attempt to pressure AWR to repurchase the holder's shares at a premium.
Until the occurrence of a Distribution Date, each Right trades with the
Common Share and is not separately transferable. When a Distribution Date
occurs, AWR would distribute separately Rights Certificates to Common
Shareholders and the Rights would subsequently trade separate from the Common
Shares and each holder of a Right, other than the acquiring person whose Rights
will thereafter be void, will have the right to receive upon exercise at its
then current Purchase Price that number of Common Shares having a market value
of two times the Purchase Price of the Right. If AWR merges into the acquiring
person or enters into any transaction that unfairly favors the acquiring person
or disfavors AWR's other shareholders, the Right becomes a right to purchase
Common Shares of the acquiring person having market value of two times the
Purchase Price.
The board of directors may determine that in certain circumstances a
proposal which would cause a Distribution Date is in the best interest of AWR's
shareholders. Therefore, the board of directors may, at its option, redeem the
Rights at a redemption price of $0.01 per Right.
NOTE 3 - COMPENSATING BALANCES AND BANK DEBT
At December 31, 1999, SCW maintained $47 million in aggregate borrowing
capacity with three commercial banks with no compensating balances required. Of
this amount, $21 million was outstanding at year-end. Loans can be obtained at
the option of SCW and bear interest at rates based on floating prime borrowing
rates or at money market rates.
Short-term borrowing activities for the last three years were as follows:
December 31,
---------------------------------------
1999 1998 1997
------- ------- -------
(in thousands, except percent)
Balance Outstanding at December 31, $21,000 $38,000 $26,000
Interest Rate at December 31, 7.35% 5.86% 6.39%
Average Amount Outstanding 8,775 19,309 $15,678
Weighted Average Annual Interest Rate 5.11% 6.78% 6.27%
Maximum Amount Outstanding $21,000 $39,000 $32,000
------- ------- -------
38
41
NOTE 4 - LONG TERM DEBT
In March 1998, SCW sold the remaining $15 million under its Series B
Medium Term Note Program and in December 1998, SCW redeemed all of its
outstanding 10.10% Notes. In January 1999, $40 million of Series C Medium Term
Notes were sold. The funds were used initially to repay short-term bank
borrowings and, after that, to fund construction expenditures. Registrant has no
mortgage debt, and leases and other similar financial arrangements are not
material.
SCW has posted an Irrevocable Letter of Credit, which expires July 31,
2000, in the amount of $646,631 as security for its self-insured workers'
compensation plan. SCW has also provided an Irrevocable Letter of Credit, which
expires November 14, 2000, in the amount of $6,296,000 to a trustee with respect
to the variable rate obligation issued by the Three Valleys Municipal Water
District.
Annual maturities of all long-term debt, including capitalized leases,
amount to $303,356, $231,559, $246,528, $262,036 and $278,644 for the five years
ending December 31, 2000 through 2004, respectively.
NOTE 5 - TAXES ON INCOME
Registrant provides deferred income taxes for temporary differences
under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109), for certain transactions which are recognized for
income tax purposes in a period different from that in which they are reported
in the financial statements. The most significant items are the tax effects of
accelerated depreciation, the supply cost balancing accounts and advances for
and contributions-in-aid-of-construction. SFAS No. 109 also requires that
rate-regulated enterprises record deferred income taxes for temporary
differences accorded flow-through treatment at the direction of a regulatory
commission. The resulting deferred tax assets and liabilities are recorded at
the expected cash flow to be reflected in future rates. Since the CPUC has
consistently permitted the recovery of previously flowed-through tax effects,
SCW has established regulatory liabilities and assets offsetting such deferred
tax assets and liabilities.
Deferred investment tax credits are being amortized to other income
ratably over the lives of the property giving rise to the credits.
The significant components of deferred tax assets and deferred tax
liabilities, as reflected in the balance sheets, and the accumulated net
deferred income tax liabilities at December 31, 1999 and 1998 were:
December 31,
-------------------------
1999 1998
-------- --------
(dollars in thousands)
Deferred tax assets:
Balancing accounts $ (175) $ 33
State tax effect 5,721 5,123
-------- --------
5,546 5,156
-------- --------
Deferred tax liabilities
Depreciation (44,939) (43,442)
Advances and contributions 15,862 16,694
Other property related (10,007) (11,488)
Other non-property related (9,218) (8,666)
-------- --------
(48,302) (46,902)
-------- --------
Accumulated deferred income taxes - net $(42,756) $(41,746)
-------- --------
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42
The current and deferred components of income tax expense are as
follows:
December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands)
Current
Federal $ 9,360 $ 5,219 $ 7,205
State 2,799 1,727 2,287
-------- -------- --------
Total current tax expense 12,159 6,946 9,492
-------- -------- --------
Deferred - Federal and State:
Accelerated depreciation 3,405 3,319 2,996
Balancing accounts (207) 6 (871)
Advances and contributions -- -- (210)
California privilege year franchise tax (970) (544) (617)
Other (664) (398) (566)
-------- -------- --------
Total deferred tax expense 1,564 2,383 732
-------- -------- --------
Total income tax expense 13,723 9,329 10,224
-------- -------- --------
Income taxes included in operating expenses 13,345 10,130 9,830
Income taxes included in other income and expenses - net 378 (801) 394
-------- -------- --------
Total income tax expense $ 13,723 $ 9,329 $ 10,224
-------- -------- --------
Additional information regarding taxes on income is set forth in the
following table:
December 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands, except percent)
Federal taxes on pre-tax income at statutory rates $ 10,438 $ 8,470 $ 8,451
Increase (decrease) in taxes resulting from:
State income tax expense 2,605 1,654 1,864
Depreciation 1,184 944 853
Federal benefit of state taxes (912) (579) (652)
Adjustments to prior years' provisions 433 (97) (143)
Payment of premium on redemption 66 (813) --
Other - net (91) (250) (149)
-------- -------- --------
Total income tax expense $ 13,723 $ 9,329 $ 10,224
-------- -------- --------
Pre-tax income $ 29,824 $ 23,952 $ 24,145
-------- -------- --------
Effective income tax rate 46.0% 38.9% 42.3%
-------- -------- --------
NOTE 6 - EMPLOYEE BENEFIT PLANS
Registrant maintains a pension plan (the Plan) which provides eligible
employees (those age 21 and older, 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 (ERISA). At December 31, 1999, Registrant had 713 participants in
the Plan, 54 of these are employees covered by collective bargaining agreements,
the earliest of which expires in 2001.
Registrant also provides all active employees medical, dental and vision
care benefits through a medical insurance plan. Eligible employees who retired
prior to age 65, and/or their spouses, were able to retain the benefits under
the active plan until reaching age 65. Eligible employees upon reaching age 65,
40
43
and those employees retiring at or after age 65, and/or their spouses, receive
coverage through a Medicare supplement insurance policy paid for by Registrant
subject to an annual cap limit.
The CPUC has issued a decision which provides for the recovery in rates
of tax-deductible contributions made to a separately trusteed fund. In
accordance with that decision, SCW established two separate trusts in 1995, one
for those retirees who were subject to a collective bargaining agreement and
another for all other retirees. Registrant's funding policy is to contribute
annually an amount at least equal to the revenues authorized to be collected
through rates for post-retirement benefit costs. Post-retirement benefit costs
for 1993, 1994 and 1995 were estimated at a total of $1.6 million and have been
recorded as a regulatory asset for recovery over a 20 year period. The
unamortized balance at December 31, 1999 was approximately $610,000.
The following table sets forth the Plan's funded status and amounts
recognized in Registrant's balance sheets and the components of net pension cost
and accrued post-retirement liability at December 31, 1999 and 1998:
Pension Benefits Other Benefits
-------------------------- ------------------------
1999 1998 1999 1998
-------- -------- ------- -------
(dollars in thousands)
CHANGE IN BENEFIT OBLIGATION:
Benefit Obligation at beginning of year $ 38,572 $ 33,410 $ 4,363 $ 4,503
Service Cost 1,963 1,597 125 112
Interest Cost 2,538 2,278 305 283
Actuarial Loss/(Gain) (6,255) 2,514 (171) (368)
Benefits Paid (1,305) (1,227) (191) (167)
-------- -------- ------- -------
Benefit Obligation at end of year $ 35,513 $ 38,572 $ 4,431 $ 4,363
CHANGES IN PLAN ASSETS:
Fair Value of Plan Assets at beginning
of year $ 39,541 $ 33,433 $ 1,442 $ 1,104
Actual Return of Plan Assets 8,277 6,051 25 44
Employer Contributions 1,264 1,284 484 461
Benefits Paid (1,305) (1,227) (191) (167)
-------- -------- ------- -------
Fair Value of Plan Assets at end of year $ 47,777 $ 39,541 $ 1,760 $ 1,442
RECONCILIATION OF FUNDED STATUS:
Funded Status $ 12,263 $ 969 $(2,671) $(2,921)
Unrecognized Transition Obligation 57 114 6,288 6,707
Unrecognized Net Loss/(Gain) (10,683) 677 (1,869) (1,860)
Unrecognized Prior Service Cost 355 400 (3,228) (3,427)
-------- -------- ------- -------
Prepaid/(Accrued) Pension Cost $ 1,992 $ 2,160 $(1,480) $(1,501)
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31:
Discount Rate 7.75% 6.50% 7.75% 6.50%
Long-term Rate of Return 8.00% 8.00% 8.00% 8.00%
Salary Assumption 4.00% 4.00% -- --
A sliding scale for assumed health care cost increases was used for both
periods, starting at 8% in 1999 and then remaining at 6% thereafter.
The components of net periodic post-retirement benefits cost for 1999
and 1998 are as follows:
41
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Pension Benefits Other Benefits
----------------------- --------------------
(dollars in thousands) 1999 1998 1999 1998
------- ------- ----- -----
COMPONENTS OF NET PERIODIC BENEFITS COST
Service Cost $ 1,963 $ 1,597 $ 125 $ 112
Interest Cost 2,538 2,278 305 283
Actual Return on Plan Assets (8,277) (6,051) (25) (44)
Net Amortization 5,207 3,476 58 67
------- ------- ----- -----
Net Periodic Pension Cost $ 1,431 $ 1,300 $ 463 $ 418
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
1-Percentage-Point 1-Percentage-Point
(dollars in thousands) Increase Decrease
-------- --------
Effect on Total of Service and Interest Cost
Components $ 13 $ (12)
Effect on Postretirement Benefit Obligation 177 (156)
Registrant has a 401(k) Investment Incentive Program under which
employees may invest a percentage of their pay, up to a maximum investment
prescribed by law, in an investment program managed by an outside investment
manager. Company contributions to the 401(k) are based upon a percentage of
individual employee contributions and, for 1999, 1998 and 1997, totaled
$920,340, $874,113, and $785,687, respectively.
NOTE 7 - BUSINESS RISKS AND CONCENTRATION OF SALES
Registrant's utility operations are engaged in supplying water and
electric service to the public. SCW is required to provide service and grant
credit to customers within its defined service areas. Although Registrant has a
diversified base of residential, industrial and other customers, revenues
derived from commercial and residential water customers accounted for
approximately 90% of total water revenues in 1999 and 91% in 1998. Registrant
faces additional risks associated with weather conditions, adequacy and quality
of water supplies, regulatory decisions, pronouncements and laws, water-related
litigation, general business conditions and condemnation
Approximately 40% of the SCW's water supply is purchased from
wholesalers of imported water, with the remainder produced from company wells.
The long-term availability of imported water supplies is dependent upon, among
other things, drought conditions throughout the state, increases in population,
water quality standards and legislation that may potentially reduce water
supplies. SCW does not anticipate any constraints on its imported water supplies
in 2000.
NOTE 8 - CONTINGENCIES
In 1998, ASUS was formed to pursue non-regulated opportunities such as
long-term leases, and operation and maintenance contracts of
governmentally-owned water and wastewater systems. In 1999, Registrant
terminated its Golden State Water Company joint venture. Registrant expensed
approximately $336,000 against future losses and capital account adjustments in
1998. There was no significant financial impact in 1999 associated with the
termination.
On April 22, 1999, the CPUC issued an order denying SCW's application
seeking approval of its recovery through rates of costs associated with its
participation in the Coastal Aqueduct Extension of the State Water Project
(SWP). SCW's participation in the SWP commits it to a 40-year entitlement with a
42
45
value of approximately $9.5 million. SCW's investment in SWP is currently
included in Other Property and Investments. The remaining balance of the related
liability of approximately $7 million is recorded as other long-term debt. SCW
intends to recover its investment in SWP through contributions from developers
on a per-lot or other basis, and, failing that, sale of its 500 acre-foot
entitlement in SWP. SCW believes that its full investment and on-going costs
associated with its ownership will be fully recovered.
SCW has been named as a defendant in eleven lawsuits which allege that
SCW delivered contaminated water to its customers. Plaintiffs in these actions
seek damages, including general, special, and punitive damages, according to
proof of trial, as well as attorney's fees on certain causes of action, costs of
suit, and other unspecified relief. Nine of the lawsuits involve customer
service areas located in Los Angeles county in the southern portion of
California; two of the lawsuits involve a customer service area located in
Sacramento county in northern California. On September 1, 1999, the Court of
Appeal in San Francisco held that the CPUC had preemptive jurisdiction over
regulated public utilities and ordered dismissal of a series of lawsuits
pertaining to water quality filed against water utilities, including SCW. Seven
out of eleven lawsuits against SCW had been ordered for dismissal by the state
Court of Appeals. On October 11, 1999, one group of plaintiffs appealed the
decision to the California Supreme Court which has accepted the case. Management
is unable to predict the outcome of this proceeding but, in any event, does not
anticipate a decision prior to 2001.
In light of the breadth of plaintiff's claims, the lack of factual
information regarding plaintiff's claims and injuries, if any, the fact that no
discovery has yet been completed, SCW is unable to determine at this time what,
if any, potential liability it may have with respect to these claims. SCW
intends to vigorously defend itself against these allegations. Management can
not predict the outcome of these proceedings and if SCW is found liable, SCW
would pursue recovery through its insurance coverage providers.
In response to those lawsuits and similar actions, in March 1998 the
CPUC issued an Order Instituting Investigation (OII) directed to all Class A and
B water utilities in California, including SCW, into whether existing standards
and policies regarding drinking water quality adequately protect the public
health and whether those standards and policies are being uniformly complied
with by those water utilities. The OII notes the constitutional and statutory
jurisdiction of the CPUC and the DOHS to establish and enforce adherence to
water quality standards for water delivered by utilities to their customers and,
in the case of the CPUC, to establish rates which permit water utilities to
furnish water that meets the established water quality standards at prices which
are both affordable and that allow the utility to earn a reasonable return on
its investment. SCW has made its filing in this proceeding on a series of
questions dealing with the current drinking water standards, compliance by water
utilities with such standards, appropriate remedies for failure to comply with
drinking standards and whether stricter or additional drinking water standards
are required. The Water Division of the CPUC has issued its report based on
these filings by the utilities. A final decision in the OII is anticipated in
2000. The OII leaves open the possibility of evidentiary hearings and further
action by the CPUC. The Administrative Law Judge assigned to the OII has issued
a draft decision finding that water utilities, including SCW, have complied with
DOHS regulation and requirements. SCW is unable to predict whether the draft
decision will be approved in part or in its entirety by the CPUC.
Management believes that proper insurance coverage and reserves are in
place to insure against anticipated property, general liability and workers'
compensation claims.
43
46
NOTE 9 - CONSTRUCTION PROGRAM
SCW's 2000 construction budget provides for gross expenditures of
approximately $59 million, $3.6 million of which is anticipated to be obtained
from developers and others. Neither AWR nor ASUS have material capital
commitments; however, ASUS actively seeks opportunities to own, lease or operate
municipal water and wastewater systems, which may involve significant capital
commitments.
NOTE 10 - ALLOWANCE FOR DOUBTFUL ACCOUNTS
The table below presents SCW's provision for doubtful accounts charged
to expense and accounts written off, net of recoveries for the last three years.
December 31,
---------------------------------
1999 1998 1997
----- ----- -----
(dollars in thousands)
Balance at beginning of year $ 403 $ 466 $ 387
Provision charged to expense 852 631 707
Accounts written off, net of recoveries (768) (694) (628)
----- ----- -----
Balance at end of year $ 487 $ 403 $ 466
----- ----- -----
Neither AWR nor ASUS have established any provision for doubtful accounts.
NOTE 11 - BUSINESS SEGMENTS
Registrant has two principal business units: a water and electric
distribution unit, through its SCW subsidiary, and a non-regulated activity unit
through the ASUS subsidiary. All activities currently are geographically located
within California, except for one contract providing customer service and
billing services to a utility located in Arizona. SCW is a regulated utility
which operates both water and electric systems. AWR has no material operations
other than its SCW subsidiary. On a stand alone basis, AWR has no material
assets other than its investments in its subsidiaries. The tables below set
forth information relating to SCW's operating segments. SCW manages its
operations on a regional basis using the five categories below as broad-level
measures of profitability. Region I incorporates service areas in northern and
central California; Region II contains service areas throughout Los Angeles;
Region III encompasses water operations in eastern Los Angles County, Orange
County, San Bernardino County and Imperial County. SCW also provides electric
service to the City of Big Bear Lake and surrounding areas. Included in the
amounts set forth, certain assets, revenues and expenses have been allocated.
The identifiable assets are net of respective accumulated provisions for
depreciation.
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------
WATER
----------------------------------------
REGION I REGION II REGION III ELECTRIC TOTAL
-------- --------- ---------- -------- --------
(dollars in thousands)
Operating revenues $ 27,221 $ 70,770 $ 61,692 $13,348 $173,031
Operating income before income taxes 6,567 15,841 16,022 3,821 42,251
Identifiable assets 108,675 140,175 177,457 25,725 452,032
Depreciation expense 2,736 4,041 5,395 1,344 13,516
Capital additions $ 12,966 $ 21,926 $ 14,513 $ 2,173 $ 51,578
-------- -------- -------- ------- --------
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47
Year Ended December 31, 1998
-----------------------------------------------------------------------
Water
-----------------------------------------
Region I Region II Region III Electric Total
-------- --------- ---------- -------- --------
(dollars in thousands)
Operating revenues $24,927 $ 57,273 $ 52,584 $13,211 $147,995
Operating income before income taxes 6,799 11,732 13,144 3,847 35,522
Identifiable assets 97,463 123,044 169,264 24,981 414,752
Depreciation expense 2,551 3,378 4,701 1,640 12,270
Capital additions $13,302 $ 14,452 $ 15,795 $ 1,720 $ 45,239
------- -------- -------- ------- --------
Year Ended December 31, 1997
-----------------------------------------------------------------------
Water
-----------------------------------------
Region I Region II Region III Electric Total
-------- --------- ---------- -------- --------
(dollars in thousands)
Operating revenues $24,340 61,085 55,551 $12,779 $153,755
Operating income before income taxes 5,897 9,593 13,709 4,089 33,288
Identifiable assets 87,039 112,556 158,934 25,095 383,624
Depreciation expense 2,306 3,042 4,603 1,001 10,952
Capital additions $10,007 15,431 11,671 $ 2,116 $ 39,225
------- -------- -------- ------- --------
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly financial information presented below is unaudited. The
business of Registrant is of a seasonal nature and it is management's opinion
that comparisons of earnings for the quarter periods do not reflect overall
trends and changes in Registrant's operations.
Operating Revenues Operating Income Net Income Earnings per Share
------------------------ ---------------------- ---------------------- ------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- ------- ------- ------- ------- ----- -----
(in thousands, except per share amounts)
First Quarter $ 36,132 $ 29,955 $ 5,854 $ 4,382 $ 2,977 $ 1,843 $0.33 $0.20
Second Quarter 42,116 35,001 7,251 5,586 4,406 2,767 0.49 0.31
Third Quarter 51,597 47,002 10,266 9,432 6,690 6,374 0.74 0.71
Fourth Quarter 43,576 36,102 5,143 5,661 2,028 3,639 0.23 0.40
-------- -------- ------- ------- ------- ------- ----- -----
Year $173,421 $148,060 $28,514 $25,061 $16,101 $14,623 $1.79 $1.62
-------- -------- ------- ------- ------- ------- ----- -----
NOTE 13 - YEAR 2000 READINESS UPDATE
Registrant has no Y2K incidents, business disruptions, failures or legal
proceedings to report. There were no effects or changes to Registrant's
operating trends or revenue patterns as a result of the millennium turnover.
SCW formally announced its 100% Y2K Ready status when it filed its
Compliance Report with the CPUC on November 1, 1999. SCW will be submitting the
last CPUC report on this issue by March 1, 2000.
Registrant's general process for addressing the Y2K issue was (i) to
inventory all systems that may have a potential Y2K impact, (ii) to determine
the materiality of these non-Y2K ready systems, (iii) to replace and test,
correct and test, or prepare for the failure of material items that have been
determined to be non-Y2K ready, and (iv) to prepare contingency plans.
Registrant is significantly dependent on third party suppliers, such as
energy and telecommunication companies and wholesale water suppliers. In order
to conduct its business, Registrant initiated due diligence with certain of its
major service providers to address their Y2K readiness. In the event that such
suppliers might be adversely affected by Y2K, Registrant prepared its
contingency plan which included, among other things, increased staffing during
critical periods, manual back-up for
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automated systems and the use of portable generators capable of providing power
during a black-out. Several "dry runs" were exercised in 1999, which simulated
Y2K situations that implemented Registrant's contingency plan. The dry runs
proved to be effective exercises that identified areas of strength and weakness,
and provided real-life experience from which to make informed decisions about
Y2K preparation and contingency plan.
Not all Y2K problems were necessarily expected to surface in early 2000.
Registrant does not have, and may never fully have, sufficient information about
the Y2K exposure of these third parties to adequately predict the risks posed by
them to Registrant. If the third parties later discover any Y2K problems that
are not remedied, resulting problems could include loss of utility services and
disruption of water supplies.
On September 2, 1999, the CPUC issued an order denying regulated water
utilities the authority to create memorandum accounts for Y2K expenses. The
order, however, provides that, after January 1, 2000, regulated water utilities
may file for recovery of capital investment, not otherwise included in current
rates, associated with Y2K mitigation efforts. Y2K final expenditures have been
estimated at approximately $7.5 million. Registrant has spent $4.8 million at
January, 2000, $4.0 million of which is in capital investments. On March 1,
2000, Registrant filed an advice letter with the CPUC for recovery of Y2K
related costs. Registrant believes that these capital expenditures as well as
the remaining Y2K-related investments will be recovered through rates, but can
give no assurance that the CPUC will authorize recovery of all or some of these
costs.
NOTE 14 - SUBSEQUENT EVENT
On March 10, 2000, Registrant entered into an agreement to acquire the
common stock of Chaparral City Water Company, a privately operated water company
serving approximately 10,000 customers in the town of Fountain Hills, Arizona
and portions of Scottsdale, Arizona for an aggregate value of $31.2 million,
including assumption of approximately $12 million in debt. Chaparral City Water
Company was purchased from MCO Properties Inc., a wholly-owned subsidiary of
MAXXAM Inc. This marks the first acquisition outside of California for
Registrant. The sale of Chaparral City Water Company requires notification to
the Arizona Corporation Commission and other conditions customary in
transactions of this type. The approval of Registrant's shareholders is not
required. It is anticipated that the transaction will close within one year.
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REPORT OF MANAGEMENT
The consolidated financial statements contained in the annual report
were prepared by the management of American States Water Company, which is
responsible for their integrity and objectivity. The consolidated 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 consolidated financial statements and is also the
responsibility of management.
Registrant maintains systems of internal control which are designed to
help safeguard the assets of Registrant and provide reasonable assurance that
accounting and financial records can be relied upon to generate accurate
financial statements. These systems include the hiring and training of qualified
personnel, appropriate segregation of duties, delegation of authority and an
internal audit function which has reporting responsibility to the Audit
Committee of the board of directors.
The Audit Committee, composed of three outside directors, exercises
oversight of management's discharge of its responsibilities regarding the
systems of internal control and financial reporting. The committee periodically
meets with management, the internal auditor and the independent accountants to
review the work and findings of each. The committee also reviews the
qualifications of, and recommends to the board of directors, a firm of
independent accountants.
The independent accountants, Arthur Andersen LLP, have performed an
audit of the consolidated financial statements in accordance with generally
accepted auditing standards. Their audit gave consideration to Registrant's
system of internal accounting control as a basis for establishing the nature,
timing and scope of their work. The result of their work is expressed in their
Report of Independent Public Accountants.
/s/ Floyd E. Wicks /s/ McClellan Harris III
- ----------------------------------- -----------------------------------
President, Chief Executive Officer Chief Financial Officer,
Vice President - Finance,
Treasurer and Corporate Secretary
February 10, 2000
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of American States Water Company:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of American States Water Company and its
subsidiary, Southern California Water Company (California corporations), as of
December 31, 1999 and 1998 and the related consolidated statements of income,
changes in common shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Registrant's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
States Water Company and its subsidiary, Southern California Water Company, as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
- -----------------------------------
Arthur Andersen LLP
Los Angeles, California
February 10, 2000, except for
Note 14, as to which the date
is March 10, 2000
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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 responsive to Part III, Item 10 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and is incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to Part III, Item 11 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and "Performance
Graph" and is incorporated herein by reference pursuant to General Instruction
G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information responsive to Part III, Item 12 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and "Executive
Officers - Experience, Security Ownership and Compensation" and is incorporated
herein by reference pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responsive to Part III, Item 13 is included in the Proxy
Statement, to be filed by Registrant with the Commission pursuant to Regulation
14A, under the captions therein entitled "Election of Directors" and is
incorporated herein by reference pursuant to General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Reference is made to the Financial Statements incorporated
herein by reference to Part II, Item 8 hereof.
2. All required schedules may be found in the Financial Statements
and Notes to Financial Statements incorporated herein by
reference to Part II, Item 8 hereof or at the conclusion of this
Item. Schedules III, IV, and V are omitted as they are not
applicable.
(b) Exhibits -
3.1 By-Laws of American States Water Company incorporated herein
by reference to Registrant's Form 8-K, dated November 2, 1998.
Commission File No. 333- 47647.
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3.2 By-laws of Southern California Water Company incorporated by
reference to Registrant's Form 10-K for the year ended
December 31, 1998. Commission File No. 001-14431.
3.3 Amended and Restated Articles of Incorporation of American
States Water Company incorporated herein by reference to
Registrant's Form 8-K, dated November 2, 1998. Commission File
No. 333-47647.
3.3.1 Certificate of Amendment of Amended and Restated Articles of
Incorporation, dated August 25, 1998, of American States Water
Company incorporated by reference to Registrant's Form 10-K
for the year ended December 31, 1998. Commission File
No. 001-14431.
3.3.2 Certificate of Amendment of Amended and Restated Articles of
Incorporation of American States Water Company, dated
August 25, 1999.(1)
3.3 Restated Articles of Incorporation of Southern California
Water Company incorporated herein by reference to Registrant's
Form 8-K, dated January 20, 1999. Commission File
No. 000-01121.
4.1 Amended and Restated Rights Agreement, dated January 25, 1999,
by and between American States Water Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent incorporated by
reference to Registrant's Form 10-K for the year ended
December 31, 1998. Commission File No. 001-14431.
4.2 Indenture, dated September 1, 1993 between Southern California
Water Company and Chemical Trust Company of California
incorporated herein by reference to Registrant's Form 8-K.
Registration No. 33-62832.
10.1 Agreement of Merger dated as of June 25, 1998 by and among
Southern California Water Company, SCW Acquisition Corp. and
American States Water Company incorporated herein by reference
to Registrant's Form 8-K, dated July 1, 1998. Commission File
No. 333-47647.
10.2 Deferred Compensation Plan for Directors and Executives
incorporated herein by reference to Registrant's Registration
Statement on Form S-2. Registration No. 33-5151.(2)
10.3 Reimbursement Agreement, dated October 3, 1997, between
Southern California Water Company and The Bank of Nova Scotia
incorporated herein by reference to Registrant's Form 10-K
with respect to the year ended December 31, 1997. Commission
File No. 000-01121.
10.4 Second Sublease dated October 5, 1984 between Southern
California Water Company and Three Valleys Municipal Water
District incorporated herein by reference to Registrant's
Registration Statement on Form S-2. Registration No. 33-5151.
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10.5 Note Agreement dated as of May 15, 1991 between Southern
California Water Company and Transamerica Occidental Life
Insurance Company incorporated herein by reference to
Registrant's Form 10-Q with respect to the quarter ended June
30, 1991. Commission File No. 000-01121.
10.6 Schedule of omitted Note Agreements, dated May 15, 1991,
between Southern California Water Company and Transamerica
Annuity Life Insurance Company, and Southern California Water
Company and First Colony Life Insurance Company incorporated
herein by reference to Registrant's Form 10-Q with respect to
the quarter ended June 30, 1991. Commission File
No. 000-01121.
10.7 Loan Agreement between California Pollution Control Financing
Authority and Southern California Water Company, dated as of
December 1, 1996 incorporated by reference to Registrant's
Form 10-K for the year ended December 31, 1998. Commission
File No. 001-14431.
10.8 Agreement for Financing Capital Improvement dated as of June
2, 1992 between Southern California Water Company and Three
Valleys Municipal Water District incorporated herein by
reference to Registrant's Form 10-K with respect to the year
ended December 31, 1992. Commission File No. 000-01121.
10.9 Water Supply Agreement dated as of June 1, 1994 between
Southern California Water Company and Central Coast Water
Authority incorporated herein by reference to Registrant's
Form 10-K with respect to the year ended December 31, 1994.
Commission File No. 000-01121.
10.10 Amended and Restated Retirement Plan for Non-Employee
Directors of American States Water Company, dated as of
October 25, 1999.(1)(2)
10.11 Dividend Reinvestment and Common Share Purchase Plan
incorporated herein by reference to American States Water
Company Rule 424 (b) (3) filing dated October 27, 1999.
Commission File No. 333-88979.
10.12 Key Executive Long-Term Incentive Plan incorporated herein by
reference to Registrant's 1995 Proxy Statement, Commission
File No. 00 0-01121.(2)
10.13 Energy Management Services Agreement between Southern
California Water Company and Illinova Energy Partners, Inc.(1)
10.14 Amended and Restated Change in Control Agreements, dated as of
October 25, 1999, between American States Water Company,
Southern California Water Company and certain
executives.(1)(2)
10.15 Amended and Restated Change in Control Agreements, dated as of
October 25, 1999, between Southern California Water Company
and certain executives.(1)(2)
10.16 Southern California Water Company Pension Restoration
Plan.(1)(2)
10.17 American States Water Company Annual Incentive Plan.(1)(2)
13. 1999 Annual Report to Shareholders.(1)
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21. Subsidiaries of Registrant incorporated herein by reference to
Registrant's Form 10-K with respect to the year ended December
31, 1998. Commission File No. 001-14431.
23. Consent of Independent Public Accountants.(1)
27. Schedule UT.(1)
(d) None.
---------------------
(1) Filed concurrently herewith
(2) Management contract or compensatory arrangement
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To American States Water Company:
We have audited in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements included in this
Form 10-K, and have issued our report thereon dated February 10, 2000. Our
audits of the consolidated financial statements were made for the purpose of
forming an opinion on those basic consolidated financial statements taken as a
whole. The supplemental schedule listed in Part IV of this Form 10-K, which is
the responsibility of American States Water Company's management, is presented
for purposes of complying with the Securities and Exchange Commission's rules
and regulations, and is not part of the basic consolidated financial statements.
This supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
/s/ Arthur Andersen LLP
- -----------------------------------
Arthur Andersen LLP
Los Angeles, California
February 10, 2000
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AMERICAN STATES WATER COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF PARENT
CONDENSED BALANCE SHEETS
December 31,
---------------------------
1999 1998
--------- ---------
(in thousands)
ASSETS
Cash and equivalents $ 169 $ 96
Other current assets 4,003 139
--------- ---------
Total current assets 4,172 235
Investments in subsidiaries 160,370 156,035
Other deferred debits 123 50
========= =========
Total assets $ 164,665 $ 156,320
========= =========
LIABILITIES AND CAPITALIZATION
Accounts payable $ 4,116 $ 164
Other current liabilities (257) (143)
--------- ---------
Total current liabilities 3,859 21
Common shareholders' equity 158,846 154,299
Preferred shares 1,960 2,000
--------- ---------
Total capitalization 160,806 156,299
Total liabilities and capitalization $ 164,665 $ 156,320
========= =========
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CONDENSED STATEMENTS OF INCOME
For the Year Ended December 31, 1999, and the Six Months Ended December
31, 1998
1999 1998
-------- --------
(in thousands except
per share amount)
Operating Revenue And Other Income $ 413 $ (397)
Operating Expenses 654 166
-------- --------
Loss Before Equity in Earnings of Subsidiaries (241) (563)
Equity in Earnings of Subsidiaries 16,342 15,140
-------- --------
Net Income 16,101 14,577
Dividends on Preferred Shares (88) (44)
-------- --------
Earnings Available For Common Shareholders $ 16,013 $ 14,533
-------- --------
Weighted Average Number of Common Shares Outstanding 8,958 8,958
-------- --------
Basic Earnings Per Common Share $ 1.79 $ 1.62
-------- --------
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CONDENSED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1999, and the Six Months Ended December 31, 1998
1999 1998
-------- -------
(in thousands)
Cash Flows From Operating Activities $ 11,666 $ 5,793
-------- -------
Cash Flows Used in Financing Activities (11,593) (5,697)
-------- -------
Increase (Decrease) in Cash and Equivalents 73 96
Cash and Equivalents at Beginning of Period 96 --
-------- -------
Cash and Equivalents at the End of Period $ 169 $ 96
-------- -------
Cash dividends received from Southern California Water Company $ 12,040 $ 5,889
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN STATES WATER COMPANY
and its subsidiary
SOUTHERN CALIFORNIA WATER COMPANY
By: /s/ McCLELLAN HARRIS III .
--------------------------------
McClellan Harris III
Vice President - Finance, Treasurer,
Chief Financial Officer and Secretary
Date: March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
/s/ LLOYD E. ROSS . Date: March 15, 2000
- -----------------------------------
Lloyd E. Ross
Chairman of the Board and Director
/s/ FLOYD E. WICKS . March 15, 2000
- -----------------------------------
Floyd E. Wicks
Principal Executive Officer;
President, CEO and Director
/s/ McCLELLAN HARRIS III . March 15, 2000
- -----------------------------------
Clellan Harris III
Principal Financial and Accounting Officer;
CFO, VP - Finance, Treasurer and Secretary
/s/ LINDA J. MATLICK . March 15, 2000
- -----------------------------------
Linda J. Matlick
Controller - Southern California Water Company
/s/ JAMES L. ANDERSON . March 15, 2000
- -----------------------------------
James L. Anderson, Director
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/s/ JEAN E. AUER . March 15, 2000
- -----------------------------------
Jean E. Auer, Director
/s/ N. P. DODGE, JR. . March 15, 2000
- -----------------------------------
N. P. Dodge, Jr., Director
/s/ ANNE M. HOLLOWAY . March 15, 2000
- -----------------------------------
Anne M. Holloway, Director
/s/ ROBERT F. KATHOL . March 15, 2000
- -----------------------------------
Robert F. Kathol, Director
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