ML17300A312
| ML17300A312 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 08/06/1986 |
| From: | ARIZONA PUBLIC SERVICE CO. (FORMERLY ARIZONA NUCLEAR |
| To: | |
| Shared Package | |
| ML17300A311 | List: |
| References | |
| NUDOCS 8608080114 | |
| Download: ML17300A312 (347) | |
Text
{{#Wiki_filter:ARIZONA PUBLIC SERVICE COMPANY Sale and Leaseback Transactions with respect to Palo Verde Nuclear Generating Station Unit 2 (Docket No. STN-529)
,, Financial Information with respect to Prospective Equity Investors August 6 1986 0~()~~4
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6728.10.2898. 03:1
TABLE OF CONTENTS Security Pacific Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 1985 Report on Form 10-Q for-the quarter ended March 31, 1986 Safety-Kleen Corp. 1985 Annual Report Report on Form 10-Q for the twelve weeks ended March 22, 1986 Report on Form 10-Q for the twelve weeks ended June 14, 1986 British-American Tobacco Company Limited Reports and Accounts for .the Year to December 31, 1985 Citizens Utilities Company Annual Report on Form 10-K for the fiscal year ended December 31, 1985 Quarterly Report on Form 10-Q for the quarter ended March 31, 1986 6728. 10.2898 03: 1
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o TABLE OF CONTENTS p PART I PR CG h ITEM I. ~ BUSINESS......... ...............'...................-............-.------. ~ California Banking and Real Estate Industries System ...... California Branch Ban4ng Group... California Busdncsr Bankmg Diwsaon ... Bank.Rckatcd Business Diwsron. Rehlraah IM h 'yac ~ u ... 1 Capital Markets Systena .. olfcrrhant Banisng Group................ 1 fntcrnanonat Bun4ng and lnacstntcnrs Group 1
.= ='..'.
Domestic Sccuntscs Group System,....................'....
. Fhaancfa!Seniccs
.,,...........,...,..=.....,. ....... 2 Copnm'crrtal Finance and Leasing Group.. '
2 Coehu P h raCapralG 3 uayGroup p r
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........ .. =... --.. 3 3 Security Pacilic Automation Company 3
.*, ~ .. Other Actbities 3 Foreign Risk"Manigcmcnt and International Operations ...................-..." ...... 3 Consoiklatcd Average Balance Sheet and Analysis of Domestic and laternational Nct Interest Income........................................... h 4
. Loans snd Lease Financing...a .. '..........................'.......... .............
8" Credit Risk Manugcmcnt .........,....,'....:,.......,.........,....., 8
.Von Performing Loans and Lcascs........;....:,............'..'...,...,.....,...,..... 8
~ Resene for Credit Losses................................................ IO o
h '.'..... Depos Ies....... l2 Short.Term Borroaaings................................... I3 Competition....., l3 Rupolyl loe d Raa I l'..........,...........,...: .:.... l3 EKcct of Governmental Poiicics......................................... ~ !5 a 1 Ih" V y h ' or h h 3 I
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TABLE OF CONTENTS t Continued > ts ae ITEM 2, PROPERTIES .. -- ~ - ~...... -."-...:....o. ---.----- ---" -------.
~~ ~ L I5 ITEM 3. 'EGAL PROCEEDINGS...:. If
....ITEIiL 4.. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............".. l5'6 ITE!it 4(A). FYECUTIVE OFFICERS OF THE REGISTRA.'4T.........................................
PART II
'TEht MARKET FOR kEGISTRANTS COMMON EQUITY AND
~c>., -. 'TOCKHOLDER $. MATTERS........... RELATED l8 ITEM 6. SELECTED FINAi4CIALDATA ...... IS ITEM 7., MAI4AGEMEI4TS DfSCUSSION *ND A'4ALYStS OF FII4A;4CIAL CON-DION Ai4D RESULTS OF OPERATION........................................................ l8 ITEM S. FII4ANCIALSTATEMENTS AND SUPPLEMENTARY DATA....................... 18 '>>,t>>>>>>>>t,
- ITEM 9. DISAGREEME.'41S ON ACCOUiNTING AI4D FINA'4CIALDISCLOSURE ... I8
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'e LW PART Hl ITEM IO. DIREMOItS AND EXECUTlVE OFFICERS OF THE REGISTRANT. l9 ITEM I I.-- EXECUTIVE COMPENSA110>>4 l9 ITEM l~. SECURITY OWNERSHIP OF CERTAII4 BENEFICIAL OWNERS A>>4D MA>>4AGFVIENT l9 ITEM l3. CERTAIN RELATIONSHIPS AND RELATED TRANSACTtOYS .. l9
<<A>>e>> PART IV ITEM l4, EXHIBITS>> FINANCIALSTATEMENT SCHEDULES *ND REPORTS Oi i FORM S.K.............;........................................ 20. ~~gS /e
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':Security Paciffc Corporation,'"SPC") is a Delaware corporation organized in 1971 and registered as a rbank holding company under thc Bank Hoiding Company Act of 1956. as amended. SPC's principal asset
'.is the capital stock of Security Paciffc National Bank (" Bank" ), wluch became its subsidiary oa Junc 30,
.. -.1972. The Bank was founded in 1871 and provides a fuU line of commercial banking and 6duciary
'servicesr lt has the second largest branch banking system in both the.United States and in California as m'easured by number ol'tUccs.
; SPC and its subsidiarics'engage in a Ml'range of financial services activities. The administration of
~
these activiucs was reorganized in 1985 as set forth beiow. Unles's otherwise indicated, information herein
's'as of December 31. 198S.'or additional discussion of the business oi SPC and its subsidiaries. see Review" at- Pages IS through 36. and "Financial Reports" at Pages 37 through S9, ol SPC's '"Financial
"'198S Annual Report to Stockholders ("Annual Report" ), which are incorporated in this item 1 by
-'. reference.
Banldng aud Real Estate btdustrlea Systeta 1'aUfornla
~ The California Banking and Real Estate lndustrics System administers the Bank's network of
. approximately 640 banking office and business banhng centers. in California. offering customers both rctiU. and commercial banking faciliYies and providing access to the fbU range of SPC's services. The
~ Systetn a!so administas Securiry Padffc State Bank which was established as a subsidiary of SPC in 1984.
Securit Paaffc State Bank is organized under the laws of CaUfo~ and engages in a broad range ot
". zetaU and wholesale banking activiYics.
- 'he l Califorma Banhng and Real Estate Industries System is administered through thc foUowing prgcnizanon5 4 Brartch Bankfng Group. I'alifornia
"~ 'Thc California Branch Banking Group provides services which iadude personal and commerdal
'h'eeking accounts. interest/cuecking accounts. savings and time'deposit accounts, personal aud business loaris. money transfer services, and safe deposit facilities.. TMs 'Group has approximately 1.3 nuUion
.perional checking accounts, 0.3 rciUion interest/checking accounts and 1.6 million perwnal nine and savings deposit accounts.
Cal%~ia Business Bartklng Divtsiolt
. The California Business Banking Division s:ives the needs ol'miJdle-market business customers and
- prospects through strategicaUy locate J buthiess banking centers. This Division suppons a tow! bankintr
- . ieladoaship with its customers by ofcring cash management services. extensions of credit and wite transfer and intcrnauonal banking services. induding leuers ol'redit.
', , 'Bank-Related Business Divtsfon'.
.The Bank-Related Business Division provides broad customer.services. induding financial rnanagc
'iueni, trust, estate. tax planning and income tax preparation. and investment advisory services, and
.. ad junIstcrs the Bank's precious metals busir ~
'.'rhl Estate l.uiurrrics Group The Real Estate Industrics Group was formed in 198$ e admmister both SPC's and the Bank's real estate activities throughout California and the United States.. These activities indude commcrdal real
. estate lending, mortgage banking, and real cstatc advisory services.
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0 Capiial Markets System The'worldvide activities of SPC and the Bank in du'. areas of wholesale banking. capital markets.
. investments and secunnes are administered through the Capnal Wlarkcts System. The Capital hlarkcts System is comprised ol'he following three major groups:
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'ercham Banking Group i
The Merchant Banking Group provides loan. debt and equity securities and I'orngn exchange originauon. tradmg. brokerage and distribuuon services in domesnc and international nnancial markets.
. Thc,Group engages in a broad range,ol'corporate and investment banking acnvtties. incluaing lendmg, 4'.r. -. corporate finance. mterest rate and currency swaps. foreign exchange. public .'inance. fi nds manageinent.
-. and investment advisory and merger and acquistuon services. Iu addition, through li anted investments this Group engages in imcrnauonal sccuitu<<s brokerage; research and portfolio management services. These
. acuvtucs are conducted through the Bank and other SPC and Bank substdiancs. Thc Group also services c~'t' 'hc financtal requirements of correspondent banks throughout thc United States and admmistcrs the Bank's dealer.related acuvities in foreign exchange. government securitie, money market instruments. and tax~xempt state and municipal secunucs.
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International Banking and Invrsrmsnrs Group
'Pn it \ The majon.z of the Bank's international subsidiarie and investments in wholesale financia0y-
" oriented compamcs abroad are supervised by ihe international Banking and lnvcstmenis Group. The Group administers l'ull'ervice commercial and. merchant banks outside the Urutcd States and also proiades private banking and trust services to individuals worldwide. In addiuon. the Group operates SPC
, subsidiaries which engage in a/orfais and countcitrade, arrange intnnational trades and counteru-dci.
and provide other related senrices. indudir g thc arranging of international trade financing.
-" = ' 'he Intcrnadonal Banking and investments Group also provides financial products and scrvicn.
, primaril wholesale in nature, to Ioreign governments, international banking and financial organizauons.
and corporate enuties. induding United States and foreign mulunariional corporations and foreign corporations in selected markets. The Group provides compleic commercial banking services. funding, ~ refinancing, lnters of credit. documentary business and clearing. and cash management snsriccs. lnte.aauonal customers also, have acoess to a full range of other SPC services through this r Group.
"Domestic Securities Group.
The Domestic Securities Group otfers a variety of senices to banks. securiYics firms and financial ~
, insututtons. mcluding custody. clearing and credit. as well as money market. hxed income and equity
- securit brokerage and other invcsiment-rehted snvices. ln addition. the Domestic Securiues Group
~ otl'eis corporate trust services. induding stock transfer. bond indcmure and employee benctit trust services.
and engages in investmcnt management acuvities for individual as well u institutional customers. The-Group also'develops. licenses and sells trading. securiues deaitng, money uar~fc'- and other securities-
. onentcd rccordkeeping and operations systems. These scmrices are provided thtough the Bank and other SPC and Bank subsidiaries.
s r Financial Services System t r The'inancial Services System provides wr 4dwide distribution of tinancial products and senrices
-,; primarily through subsidianes of SPC. ahhough th>> Bank and tts subsidiaries also provide some of these services. Tlus System operates through ihc following three major gmups:
io Commercial Finance'and Leasing Group r
. TherCommercial Finance and Leasing Group is responsible for'domestic and intcrnauonal asset; based tinancing. ThiiGrous orferr a broa J range of rlnancing activities. mduding accounts receivable and inventory tinanang. indusi, "- term loans. factoring, major equipment leasing, real estate financing,
'ntanufactured housing and automobile financing for manufanurcrs. dealers and consumers. and consumer V'Y.t automobile leasing;
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'.r 'g Conrtuiter Services Group perianal I~
The Consumer Services Group oficrs domesuc consumer finance produas and services. induding saJcs financing, residential mortgage loans, credit-related insurance produas and private brand financing. In addition. this Group otfcrs personal loans, first and second mortgagcs and leasing C',~i> services in England. West Germany, Hong Kong, Spain and Japan, and is awaiting approval froin Eng! and's'Department of Trade and Indusuy to engage in general life insurance underwriung and related reinsurance aaiviues m England.
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Vceuro CopiroJ Group The Venture Capital Group <<ngages in all aspects of venture capital fiuanring throughout the United
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States under the S--di Business Invesunent Aa of 1958 and other! aws.
, 'ecurity Pacilic Autotaatloa Company Pacific Automation Company ("SPAC"), lorrnerly the Automated Data Processing Depart-
'entSecurity ol'the Bank, was created as a division of the Bank in l984 to pursue new business opportunities in the g information processing and services btdustry. SPAC's aaivities. which are conduaed through the Bank, SPC subsidiaries and subsidiarie of Seauity Paafic State Bank. indudc transaction procesr>ng, tele--
',communications. advmty savices, sohware development and turnkey sy. tems, and software and training for pmonal computers. SPAC is also responsible for the development of advanced technology systems for worldwide aaivities and the administration of data processing funaions for SPC and its subsidiaries. 'PC's Giber*
Activities In August 1985..SPC announced that the Boards of Directors ol'PC and Arizona Bancwest
'orporation ("ABC") had unanimously approved an agreement providing lor the acquisiYion of Arizona Bancwest by SPC. On November 6, 1985, thc agreemcnt was approved'by the shareholders of ABC. This acquisiYion is expeaed.to be consummated in thc fourth quancr of 1986. after state and federal regulatory approvals have been obtained.
In 1984. SPC filed applicaaons with the Comptroller ol'he Currency for charters with respea to 20 " ' ncw national banks in 19 states other ihan Calilornia. These national banks would provide a full range of g commeraal and osnsumcr banking services, cxdusive of accepting deposits that thc depositor has a legal. to rAthdraw on demand. Because 'demand deposits will not be accept+i, thee entidcs will not be 'ight
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"banks" as defined by Jic Bank Holding Company.<a ol'956, and. accordingly, willjiot bc subjea to the Act's geographic limitations applicable to the ownership of"banks" by bank holding companies. SPC has
'recaved preliminary approval from thc Comptroller with respect to some of these ncw national banks. S<<e "Super)~n and Regulation" below'.
Fordgn Illsk Management and International Operations
'Foreign risk management indudes several risk considerations not found in domestic operations. One,'f these involves the handling of foragn exchange trading aaivides. A well defined system of tiaNng limits and >x)ntrois has been established for each trading uni! to bahnce incoine opportunitics against loss exposure. A second risk charaaeristic of international operations exists wL'cn SPC acquires assca or liabilities denominated in a foreign currency. If the asset and liability positions in a currency are not in
. ', balance.ihcyarefrequendy hedged throughoifsetung forcignexchangecontraas. Invcsunentsincapital positions of loreign branches and in equiry ownership of overseas alfiliatcs represent a special category of this type of risk md are l'requently hedged based on Management's asscssinent of the cost of hedging wit.. " 'ontraas as contrast with thc oudook lor changes in the value ol'hc cunency.-
'For a discussion of SPC's international operarions. induding polidcal and economic risks associated with international lending and certain data concerning the distribudon of internauonal loans. acceptances'nd other earning assets. see "International Nct Interest Income" at Page 21, "Credit'Risk!v(anagcment" at Pages 31 through 34, Nlotc,g ol'Notes to Financial Statements" at Pages 49 and 50, and "Analysis of Domestic and. Inter)iational Nct Interest'income" at Pages 56 and 57, of the Annual Report. + t)V v V. r V 'Qi 3
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~pits fc, 4 54 I g'-'4 Consolidated gversge Balance Sheet snd Analysis of eLW W
. 'Domestic and international 5Vet Interest income For information concerning consolidated daily average bahnces along with rehtcd avcrave >iefds for earning assets and average interest rata for interest bearing liabilities. ice "Consolidated Aver:ge Balan' g Sheet and Related Yields md Rates" at Pages 54 and 55 of the Annual Report. These data show SPC's
, . growth over the last 8ve years as well as changes in the composiuon of thc asset and liability structure.
Additional details on various asset and liability categories are included in the following section and in the f; ~
~ .'".Balance Sheet Analysis" at Pages 26 thrpugh 34 of thc Annual Rcport.
.'.,: . ~ 'he table on the lollowing pages provides informadon on nct interest income lor t" east three years.
-". showing net interest income lor domestic and internauonal operations separately. The t olc aim anributes
. ', changes between l985 and l984 and br tween l984 and l983 in imerest income and expense for various categories ol'arning assets and sources of funds to changeS m balances outstanding and to changes in average rat'es earned and paid on thw respective balances. Because of numerous and simultane us
'4 .chinges in both balances outstanding and rates'earned and paid during any year, it is impossible to 4focatc precisely the chinges in ne~ mterest income between changes in balances and changes in rates.
- - For purposes of this table. thc chanc'e duc to change m average balance is iniYiaUy calculaied 35 the cnf Qge in average balance times the averaie rate in the preceding year. while the change duc to change in average
". rate:ii iniYially calculated as the qnange in average rate times the average balance in the preceding year.
, Any change wmatning unallocati!d after thes two steps is allocated to these two categories b~d on their relauve absolute magnitudes. g'ccause the changes in income and expense duc to balance .har ges and rate
. changes are calculated indepcld endy for each line in the table. the totals are not necessarily the sum of the
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Astalysis of Dotnestlc and International Net interest (nconte (Dot)era la Mtltkas) Interest Astraea ht crest hvcrece Average tacoma? Rate Ass'race 'Incemel Rate Balance Kryease 'sisoce Exyeaoe C DObt ESTIC OPKRATIO)tS( I ) '/ Estnmg assctu Lotos $ 26J57 53.064A) I.64 $ 22 773 52.922.S )Lb) Lease gnsnctng. 1,194 24?J IS.TS 1,414 212.f 14A I
- lovestmcot scetuiucs ),1?A 1.0.9 9.69 1.419 119.9 9.49 Federal funds sold 1.114 4.03 949 94.9 10.42 Trsdsog account auea. )67 3%6 9.lf 192 22.3 I I AI a>> rmas beats-mtctest besnng )26 25.3 1.76 394 41.9 10.52 T I ~ 31.722" 3.631.3 ' I IA4 27.605 ).47E3 12AO hfct sources of Ibods(2)t Demand dcpoua 3.$ 49 3.473 tntetestr cbceting dcpoua ),7)1 104.6 6.)5 ),490 100.3 6.73 Insured moocy msttct sccotm 4.126 177.6 6.13 ),796 3) I. I 4.72 Otber ssvtngs dcpoua ~ I,T49 96J 5.34 ).741 96.5 SAI Time dcpoua under 5 IOOANO. 3.45 5 3lL5 9.62 L I 91 3)9.0 10.62 llT& &I Bonneted f
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~I /0/// ~ 14.931 5.921 "415.0 54L9 5.46 9.14 IL732, 4.941 461'&9 52$ .2 nt.'6 6JI 10.69 9.140 143.2 4.5l T.N2 I 0J1 Fends suppbed byor(lo) iatcrnsoonsl pertuoas 43 24.9 435 51.1 Toul oct dcpouts aod bonus/ed funds so.ob I '2.171A) 7.22 H,1 70 &.164A SJ9 AB other seta res of ibods 1.641 1.4)5 Tout soutees of (beds $ 3).721 2.17 1.0 6.44 $ 27.605 2.164A 7.45 Domestic oct mtcrest income sod mstbm $ 1.460 J 4AO $ 1 J09.9 4.75
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u 1& INTERNATIONAL OPERATIO)4$ ( I ) ~ 'snung sssctu Loans S fJ91 $ 600 J I I J5 & 4,49$ $ 611. t )L50 Lease gnsncing 537 79.9 14.49 '71 16JO lavestmcat sccunocs 152 15A IL IS 96 1.0 TJ2 Transit 4 account ssscts 1$ 0 20.) I t.15 I IS I)A) s)JO 0 ft && 2.65 5 244.4 9JT F045 232.1 11 JS Total csnuog assets SA I 5 964 J 10.94 TJ3) 921A) 12.31
&tet saunce or Auxhl 2);
b?o~tcren bcanog dcpoua Ibg tn. teton bcsnog dcpoua 6.461 r 569.7 6JIO 67RT 10.76
- 19) J J 4.42'1.64
).660 I.lib 130 I L65 su ppbcd by or I to) domcsoc opcrsuoos 143) (24.9) (435) ( 51.7)
DOMESTICATED Total net dcpoua aod bonus/ed funds tounes or lttods 4 J61 f44 1l4A) 4.47 7.165 1ST J 10.57 366 Toul sonnet of funds 5 SJlf 7)4.0 SJ3 5 7.5)I 757.2 10.06 lotcnunonsl nct interest ioeomc sod margso $ 230.5 L61 5 169.4 L25 TOTAL INTKRVAT)O)4AL OPERATIONS( I ) / Ksnuo assca $40 J)7 $ 4J95/4 I I 34 $ 35.1)6 $ 4.40f.3 )2.54 fomees or ruods $ 40 J31 2.905.0 7.17 535.136 2.925.6 4 J3 / Total oct inatest uxome sod msrgto $ ).590.4 4.1, $ 1.419.7 ( I ) lodudcs sd jutuncoa ss foUouu. To coovcrt noo-uxsole uxomc to fsdty tsasbk
'qusvatcnt S. lLS Pretsx cqusvsscot or iaveiuncnt ua ctedta oa k asm g scuvs 50J 34.4 T~ 5 SLT' 5 65.1 (2) AIL'cducnag liest sad kgsl reserves.
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Analysis of Domes(le nnd )nternnltonnl Net ln(crest Income (DoUars ln iNIUloas I latcrast Avvrace Islsrcst Average Average (ere<eel Rate Average locomcl Rate 8alaoce Erocow Uatsoce Ezpcsoe DOMEb IICOPERATIONS( I ) Earmog avactx. Loans $ ?6357 $ 3.068.0 11.64 522 773 SL9?LS 12.Sl
~ 'ease dnantmg 1.794 24v 3 13.78 1,474 ? ILS 14.41 lnvesaocot sceunacs I,764 I. L9 9.69 1.819 179.9 9.69 pp+~-=-.",44f%k@
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Fcdcral (unds sold Total cerning assets I I 1.114 3d7 32d 3 I. ~ 21 ')A)ID Stk? 33.6 25.3 8.03 9.15 7.76 11.44 949 192 398 27A05 98.9 2L) 419 3.4783 10.41 11.61 1051 IL60
)ret totuccs o('uodst 2 L Dcmaod dcpooa 3.849',l
),473 Intcrettlchcc(arcg dcpoots II 108.6 6.3$ 1.490 100.) 6.73
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4.(?d 1,789 3.455 = 277.6 9(k) 33?8 6.73 5.38 9.62 3,796 1,782
).191 96.5 3)9.0
$ .42 10.6?
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<<PI<I<If,l I I P 14,9) I f.927 9,180 43 ~
81$ .0 54).9 78).1 28.9 I 5.46 9.18 8.53 IL731 4.941 7.061 435
'66.9 f?L?.
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$ 1.7 6.) I 10.69 10.21 Tots( nct dcpottta anal honoured funds ao.0 8 1 1.1'71.0 Q ~
16, 110 1 ISSA 8.29 AU other sou.ccs o( funds IA41 IA3$ Total sources of funds $ 31.721 2.171.0 6.84 $ 27.605 P ?. I dSA P.gf D I FI 51.460.l I &r
$ 1 J09.9 4.7$
INTERi(ATIO.(ALOFERATIOI4S(
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Esnungatsctx Loans S $ 291 S 6009 I MS'4.89 & 4.898 5 6ILI !LSO . Lease dnaoang $ 17 799 )77 6L2 16.50 lncsrmcm scconocs 152 !5A IC.) 5 96 7.0 1,32 D f b I- <<<<<<I Trading account assets I. 2.655 180 20.1 24%8 I I.I 5 9.ll 115
?P45 I).0 23L7 t I.)0 I)ve Total cerate 8 assets 8.81$ 10.94 74) I 9273) 11.31
<<rct sourccs of funds(2)t
- Noo>>ntcrctt beano 171:
8 dcposns 188 lotercst bcanng dcposra 6.462 569.7 8.82 6 J IO 678.'7 10.76 Bvtovved (unds 1.660 19)? I).64 ~ 1.1 IS 130.1' '11.65 Funds w ppbcd by or ( so I domcsoc opcraoons. (4J) (2L9) (435) 51.7)
'5 Total nct dcpovtts and borrov>cd funds '?dl 7348 8.87 7.165" 72 10.57 AU OtbCr Snurtet Of(anna 548 '66 Total sources of funds 5 S.SI5 '34.0 8.3 3 5 7.5)I 7$ 7.2 10.06 latctoaoonal nct interest tncome and margtn $ 230 3 ~ 61 5 169.8 225 TOTAL DOMESTIC AND ICE%.'CATIOHAL
" OFERATIONS( I) >
Eanua& assets, Srodll ., $ 4.595.8 II J4 535.136 $ 4.4053 )2.54 Sources o( funds $ 40Sll L905.0 7.17 $ 35.136 2.925.6 8.33 Total oct mtcrcst iocorae and margtn 51.d90.8 4.17 $ 1.479.1'.21 ( I ) (ndudcs sdrustmeots sa
. To cooven cncuvalcot
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tacoma to (cUy taaable
, $ 325 8 ')03
~ pretsa cqvuvataot o( tnvesuncnt tsx crcdto on..
, b ~ icatang scavvocs 50.2 34.8 Tora) ~ 5 ~
8?.7 8 6$ .1
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k The lollowing table provides aa analysis of aoa.performing loans and. leases as of December 3l for each of thc last five years. In addition to aoa-performing loans and leases. the table also presents other
~ ~ ', loans and Icascs morc than 90 day past duc as of December 31, l985. 1984 and l983, and more than 60
' days past due as of Decetaber 3l, 1982 and l98l. During the fourth quattcr of l983, SPC changed the
;, " ~ '.time at which business loans are normally placed on aoa.accrual statics from 60 days past duc to 90 days past due. For funher iaformation concerning non-performing loans and leases, and for informauon on
; ~ .' loans to Mexico and BraziL see "Non-Performing Loans aad Leases: Other Problem Assets" at Page 33, and "International Lending" at Pages 33 and 34, of the Annual Rcport.
lie Mauoee I Decaesuc tkeeae Real Real tacace Esca co Deceosbee 3 L 1905 R etc cod Ocbec Tora) tl) k Noo pcrfonldoc: N>>accroat $ 10$ $ 560 $ 66$
5 )9 b 19 $ 211 5 14 5 961
~ ~
" ' ~ ~ Rc senses aced 153 14 167 167
, $ 261 $ 574 5$ )5 5 )9 5 19 $ 217 5 14 Sl,l)4 stoic'T
~
r OChrk 90 days or moro pass dw 5 47 $ 9! $ 145 5 S4 5 51 5 10 5 6 $ 156
'k
~
~
eeeesbeec S I, 1954 l I ytoo pcifoimma: 5131 $ 510 5657 $ 7 $ 17$ 5 I $ 96$
~ Resciocr ared ~ 1st 4 155 155 k
$ 11$ 5524 $ 311 5 25 5 1'27$ 5 I 51,123
.1
~
Debar. 90 days pace doe or mocc 5 11 5 59 5 So.- 5 1$ 5 44'13 $ 1 5 167 eeccesbec 3L 19a) kkP Noo.pnfor4doS: 51 16 ~ $ 453 $ 599 . $ 41 5 .1= $ 115 5 I 5 $ 63 Rcscrcsccored 1 1 Ted $ 146 $ 455 $ 601 $ 41 5- 7 $ 215 5 I 5 SO5 tbbcr. 90 days or more 5 1 $ 32 $ 39 . $ 17 551 $ 19 $ 1 199 December S I, 19az Noo perfonoios:
~g N $ 12$ '272 $ 400 $ 177 5 2 $ 609 Rcsclocxllfcd 5 51 57 10 67 IJ
$ 133 5324 $ 5 30 slay $ 2 5 676 k k Ocber. 60 days or more 457'1)l k /
pass d "5 43 sss 5 $2 ~ ~
$ 103 $ 129 5 5 5 4)0
~ .: ~ " December St. 1961 Neo'pccfonoios: i
'2,'$ t
~
5, 60 $ 146 5106 . 5 IS 5 5 53 3 $ 177 Rcscccsccoced 6 56
~ k Tocal $ 62 r $ 194 $ 256 ~ 5 15 5 59 5 3 5 333 ik 4
0 .60day pass d w~ 5 13 $ 76 5, $ 9' $ 42 $ 61 5 3 $ 5 20)
~"cP k A k~
k ( I ) Pcrmaaent loans secured by first:nottgagcs or the equivalent. Coastrucuon loans are included under "Business Loans". '
,9 k k
'I k
k k V f r t s c C r t s
0 0
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'=,wjpg Thc foL'owing table provides an analysis of the reserve tor internadonal credit losses for the past Svc yei(ls. The data included in the table contain only ihe reserve derived I'rom expense provisions feet(~~
'. charged to intctnational opcrauons. As a result. the cndhtg reserve does not represent the toial rescrvc
', available for intelnat!onal credits. For further information on the reserve allocated to internadonal credits, scc thc tab!e at Page 10 of this Form 10-K. 1 gg 1955 19ao '9as 1 la Multcoa)
I 953 .1951
. Balance, beginning, of period... $ 106.5 '92.6 $ 76.0 $ 61.9 $ 43.3 Provision Ior. credit losses charged
. to expense 29.1 28.6 20.4 18.& 6.8
;, .'.~
Other(l) . ~ 4.8' ~ 23 ~ (0.3) ( I.I) '.9
'oli rara( 140.4 123.5 96.1 =.
79.6 55.0 Amouardrrrcedoe .. (33.1) '194) (125) (6.8) ($ 7) ~ac Recovcrlee Net credit (losses) rccovcrics . Balance, end ol'period(2)
... 82 (24.9)
Sl I 5.5 2.4 ( 17.0) 106.5'92.6 (3.5,'.9 9.0 32 (3.6)
$ 76.0 12.6
$ 61.9 r
'8
'e 4
- a. '
I) Indudes additions from acquis!tions and foreign currency translation adjustments. (2) Inc!udes $ 21.3 million in 198$ , $ 72 million in 1984 and $ 2.0 million in 1983 of Allocated Transfer Risk Reserve.' ~~W".+,58qS fr/>~~ 24~, Deposits For a iisussion concerning deposits, sce "Consolidaml Average. Balance Sheet and Analysis of
~ *, ...'.,' Domesuc and International Het Interest Income" above, and "Sources and Uses of Funds Trends" at Pages 26 and 27, and "Liquidityand interest Rate SensiYivity Management" at Pages 27 through 29, of the epP' Annual Rcport. Most internadional deposits arc in amounts of $ 100,000 or tnore.
Thc ibllowing table shows the maturity disaibutioa of domestic time deposits-$ 100,000 and over. SC5 4 I to Mtutodro ) Dcccobce 3 t. 19S5 eeco8abce 31. 1954 Cee(Neo(co Cceitnca(oo c or Deooati Oibce Toial or Deaocte OSbce Total Maturing"ttu 4'YA I month or less . $ 1,4$ 4 S'49 S2,003 $ 1,533 $ 451 S 1,984 1-3 months.=
= .. 1,455 400 1.855
'86 1,021 336 1357 341raoada 6 12 moada.,
"'Over 12 months....
Total ...'.... 556 416 849
$ 4,730
'6 .
'1.381 (03'23 229 . 385 945
$ 6,111 388 1.146
$ 4.774 222 156 58
$ 1223 908 S44 1304
$ 5,997 9~A" udice'1(uca
'T" :-'-4:-="..-=
/ 8 4
A,t ~ gfet ~tea Itrr
'12, f2 e
R\ 8 vve
@W'"t-u Ave'
l Rp M4W% (yQ 4 ShOrt-Term BOrrcsrhtgS The following table shows additional information for the last three years for short-term botmwings t Dpi(ara la Mlllloaai rg
~
h1 aglaSaav
~ Kadt or perta4 ~
Maal~aa Average dpi t'ert04
~ ',
. * twas 0
Average R Oa888aadttag Da Stile Pert04 0 ~ Average R Federal funds purchased and sccurtries, undu'repurchase agreemcnts...
'ommercial paper
'4.689
... 2.687 '.0 9.6% $ 4.689 3,082
$ 3,596, 2,558 7.9%
8.8 . F 4,
~ cade'r repcrcaere aerrcmcaa CRRRI ~ I eral paper
=
Federal Nnds purchased and sccuriries
. '2.833 2670 8 4%
90
$ S.OOS 2488 '
S3.121 1,784 10.1% 10.6 r...
, 8
'aaaccadal
'under'repurchase agreen:cuts.
par'cr
'2.770, Federal funds purchased and sccuriues
'1.846 10.1%
9.4
$ 3,46S $ 2,582 9.0%
92 r 1.846 1.467 I Competltha ~ The businesses in which SPC and its subsidiaries are engaged are highly compcnYive. Th>> Bank . '2~+4Np~<p" competes for core deposits, and SPC. thc Bank and other SPC subsidiaries compete 1'or other sources of funds, in a variety of domestic and intcrnanonal markets with both 6nancial and non-5nancial insritunons.
~, ln locaL narional and international markets, there is intense competition with all types of 5nancial Grms, and with many other types of companies, lor the diverse financial pmducts and services offered by SPC and its subsidiaries.
Supcrvtskn and Regulation SPC, as a bank holding company, is subject to regulation under the Bank Holding Company Act of 1956 ("Act"). Under thc Act, every bank holding company must obtain the prior approval of the Federal
"'eserve Board belore acquiring substanrially all the assets of any bank or acquiring direct or indirect, ownership or contml of more than 5% of the voting shares of any bank. Approval by the Federal Rcscrvc Board of an acqtrisirion ol'oring shares or substanrially all the assets of any "bank" located in any state other than the state in which thc operariions of such, bank holding company's banhng subsidiarie are P -
principally located, is contingent upon thc laws of such staie speciltcally authorizing thc acqtrisiYion. For E this purpose, a "bankee is dcfincd by the Act as an institution that both makes commercial loans and accepts demand deposits. Legal proceedings are pending in which it h contended that the Comptmller of the Currency does not have thc legal authoriry to grant a chatter for a national bank that will.engage in only onc, but not both banking functions. Federal legislarion and regulatory acrions have been pmposcd that would extend the geographic limits oi'the Act to all oanks, and a number ol'staies have enacted or are, P~~,'~pact considerin legislation that prohibits ownership of banks'witlin thc state unless the bank both mala ph commercial loans and accepts demand deposits. See "Other Acrivirics" above. As contemplated by the Act. many states have enacted laws. and many other states are considerin pmposals, specigcJ.'y authorizing the acquhition of banks located within thc state by bank hoMing companies located in other states: The State of Arizona has enacted legis'iariion permitring bank holding
.companies located in all c Jter states to acquire banks located in Arizona on or after October 1, 1986. Scc,i"-'p+R~45Y"..'!,
~ . '.. ."Other AcrivIrics" ahorse".. Thc Asscn:bly of the State,of California has passed a bill that authorize the 4
.13 44 1/
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~ . rcd'~ES Seecdac. 898'A
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acquisidon ot'California banks by bank holding companies located in other states that extend reciprocal rights to bank holding coinpanies located in California. The Senate of the Sum of Calilornia has pasted a substantiaUy similar bill except that the Senate bill provides that until I'edcral legislation permits bank
'olding companies located in California to acquire banks located in all other states. the authorization is testrictcd to those bank holding companies located in the Twet Mt Federal Rcscrve District. It is uncertain whether the Assembly bilL thc Senate bilL or a modificadon of <<ithcr will be enacted by thc Catsfornta
'"Legislature. s
. Under the Aet, SPC tnay noi engage in any busutess other than inanaging or conuoUing banks or Iuitdshing services to its subsidiaries. except that it may engage in certain domestic activities which. in the opinion md with the approval of the Federal Reserve Board. are so closely related to banking or to S'SI or controUing banks as to be incidental thereto. AddiYionally, SPC may acquirc direct or 'anaging s indirect ownership of not more than 5% of the vodng shares of any company engaged in domestic actividcs and. with prior approval of thc Federal Reserve Board. may acquuc more than 5% of the voting s."ares of any company engaged in banking related activities. With the approval of ihe Federal Rcscrve Board, SPC may engage in those toreign activides which thc Federal Reserve Board considers rouune when eonducdng banking or other financial uansacdons abroad. For some time, thc Federal Reserve Board has foUowch a rcstricdve policy in permiuing thc enuy or expansion of bank holding companies and other bank af6Uatcs i.s'mujp~.
into domestic and foreign banking and banking-related activities. Thc Act does,not place territorial restricdons on the actrPiYies ot'on-banx subsidiaries of bank holding companies. Arizona Bancwest Corporation ("ABC"),as a bank holding company, is presently, and subsequent to its acquisition by SPC s will contutuc io be. subject io thc same reguladon as SPC; sce "Other AcdviYiesss above. II P I Fed:ral ta>> significandy tunits the extent m which the Bank and Security Pacific State Bank ("SPSB") may supply funds to SPC and its non.bank subsidiarie, whether through dheer extensions of M ~s~y credit or duough purchasss of sccurides, issuances of guarantees or the like. Generally, SPC and its non-subsidtarics may tot borrow from the Bank or SPSB unless such loans ate secured by s pccificd kinds 'ank of coUateraL such as obligations ot'r guarantees by the US. Govcmment or its agencies. or by certain bank deposits. Unless in each case Amply secured, any loan made by thc Bank or by SPSB to SPC or any ssss other single non-bank subsidiary is limited to l0% of such bank's capiul and surplus {as defined), and all such loans in the aggregate are limited to 20% of such bank's capital and surplus. Similar limitadons also apply to loans made by any other bank subsidiaries of SPC to SPC or any of its non.bank 'ouldi subsidiarics: sce "Other Activities" above. AddiYionaUy, a national bank may not declare a dividend that cxcceds its undivided profits. Further, the approval of thc Compuottcr of thc Currency is required ifthe
. total ot'aU dividends declared in any calendar year exceeds thc bank's net profits (as defined) for that year s combined with its retained nct profit for the preceding two calendar years. Under these rcstrictions, the P Bank expects that it can decare dividends at any tiine in !986 without approval from thc CompuoUer of the Currency of approximately S300.000,000 plus an addiYional amount equal to ihe deference between (i) the Bank's net profits for l986 up to the date of any such ditddcnd dectaradon and (ii) dividends P declared prior to sthat date. The ComptroUcr aso has the authority to tltrther limit a national bank's paymeni of dividends under certain circumstances.
ss The Bank and its domestic subsidiaries and foreign branches are under the supervision of. and subject to examination by. the CompuoUcr of thc Currency. SPSB is generally subject under Calitotnia law to restricdons similar io those imposed on national banks and is subject to supervision and.examination by the California Superintendent ol'anks. The Arizona Bank. the piincipat subsidiary of ABC, is, and will conunuc io be subsequent to thc acqtusidon of ABC by SPC, gereraUy subject under Arizona law to resuicr'ons similar to ihosc imposed on national banks and subject to superv'sion and examinauon by the Arizona Superintendent of Banks. In addiuon, all banking subsidiaries are subject to the rules and r;~. regtdations ol'he Federal Deposit insurance Corporation. and the Bank's foreign branches and internationat subsidiaries are also subjrct to the rides and reguladons of the Federal Retetve Board. As io tjp operations in other counirics, the Bank and.its foreign branches and.international subsidiaries arc also s shbject.to various restricdons imposed by the taws and banking authorities of such countries. Any new' national bank subsidiaries of SPC would be subj<<ct io the same supervision and regulauon as the. Bank. I 'I I l4 s+s~s'sl'hg$ Qrl
)P'i'y~P~VQS~
I+ Y+r
v 'I wy t yb S r yw As to many of SPC's non-baak subsidiaries. thc laws of many of thc jurisdictions ia which they operate impose restriction on their activities and the amounts of, and interest rates on, thc credit they pmvide.
. ~ ~
. ~ '. ' ...'their '., The GlassStcagall Aa limits the domestic securitie <<ctivitics of SPC aad its subsidiarie by restricang ability to engage in securitie underwriting. other than thc underwriting of obligations of the United
, ~ ."
States. or general obligariioas of any State or of aay polirical subdivision thereof. and 'iiiaiting afflliations
'ith organizations that urderwrite, dhtributc or scil securitie. Addidonally, thc Securitie Exchange Act ol'1934 imposes rcgulatoty and rcporring requirements oa various securitie activities conducted by banks, induding beneflcial ownership ol'enain securities, dealing ia municipal r~tics, acting as a transfer
" .. 'agent,andptovidingcenaintypcsofinvesanentmanagemeatservices. CcttainSPCandBaaksubsidiarics
~
axe also subject to the rules and regulations ol'he self regulatory orgaaizatioas of which they are m abets. y *
. "'. ~,;...;, Efcct of Govcramental
~
Polieica,
') btfyly@gr The earaings and business of SPC arc atfcctcd by thc poiicics of various regulatory authoritics of the United States, foreign governments and international agencies, induding, in the United States, thc Federal Resctve BoanL The Federal Rcscrvc Board utilizes instruments of moactaty policy to regulate thc supply
~: of money and to deal with gcu:raI annomic condiuons ia the United States. These insuumcnts influenc
~ thc overall levels of iavcsaneats, Ioaas. and other extensions of credit aad of deposits, as well as the
- - interest rates paid on liabilirics aad earned oa assets.
~ \
a discussioa of core deposits and cenain factors alfccting them, sec "Sources and Uses of Funds
'or
~- ."-'.'reads" at Pages 26 and 27, and "Liquidity and Interest Rate Scnsiriivity Management" at Pages 27 thmugh 29, of thc Aaaual Repon.
' Various legislative aad regulatory pmposais are being coasidered at the federal and state level which, , bbt 3~~ptrr. yyy
- ifadopted, would aifcct thc eataings aad business uf SPC and its subsidiarie. They include wide ranging -,P~+V~<'.-,
pmposals aifecting deregulaaoa of the baaking industry, interstate banking. consumer pmtection and
~ ..' . comprehensive tax reform. It cannot be predicted <<hethcror in what form anyof these pmposals wiII ko v
..y .:." adopted or the <<ztcat to which the busiacss of SPC aad its subsidiarie may be aifcctecL
,b.
ITEM 2. PROPERTIES., No single pmpeny of SPC and its subsidiaries is of material imponance to SPC. For Iafonaarioa concerning invesuneats in premises, see Note 7 of "Notes to Financial Statcmeats" at Page 49 of the Annual Report. which is incorporated herein by reference. I ITEM 3. LEGAL PROCEEDINGS. For infonnariion coaccrniag legal pmceedings, see thc third paragraph of Note 1S of "Notes to y ~
'yb Financial Statements" at Page S2 of thc Aanual Rcpon, which is incorporated hereia by teferc-. ".
,, "',". ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
I Noae.. yyyb+4y b) E. y \ r'Il.y ' ~ y y~@i yrf'g b y r ~ brr y y 0 ~
~ r )j~'by'.tg.".
y."i&,"v '. ~ (<m:
v
'TEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRAf'fT.
As of March 18. 1986. the principal execudive of5cers of SPC are N~ Cumst Oisces Richard J. FIamsoa Ill'hainaaa of ihc Board and Chef Execunve 5'I OSccr ~ Pi&gr~7r +v+PVi
, George F. President and Chief 55 Moody'obcn Operating OfHcer H. Vice Chairman of the Boar 50 F.
Smith'illiam Ford'oy Chairman 'ice 61 rl D. Hanmann' ~ Vice'Chairman 58 George IL Beater." Jr. Executive Vice President r Nicholas IL Binkley Executive Vice President 40 l h Walter S. Fisher, Jr. Executive Vice President 53 and Auditor Russcfi A. Freeman Executive Vice President
. John W. Haacock
.. and General Counsel Exccurive Vice President 53 49 Sidney Ipaktchian Execurive Vice Presidcat 52 John F. Kookcn Execunve Vice President. '54 ', ~
$'i-Mki~
"sh" u and Chief Financial OfHcer David R. Lovejoy Execurive Vice Prcsideat %7 living Margol ~ Executive Vice President 55 r and Personnel Director DuWayae J. Pct soa Exccurive Vice President 53 Richard A. Warner Executive Vice President 50 Kraig A. Westia Executive Vice President 42 aad Treasurer Member of the OSce of the Chairman.
Scctioa 4 of Anicfc VIIof SPC's By-Laws provides that the Chainnaa of'the Board holds ofHce for thc
' term for which he was elected a Director, unless he sooner resigns. becomes dfsquali5ed or is removed. All other oScers hold ofHce at ihe pleasure of th'e Board of'irectors. Directors are elected aanually.
'Ihere is ao f'amily relationship between any'of the above named ofHcers or any of SPC's directors. Sct forth below is a brief descripdon of the business experienc of each of thc above named ofHcers during the past Hve yeats:
Mr. Fiamson has served as Chairman of the Board and Chief Executive OScer of SPC since January
. i981: hc has also served as Chairman of the Board of thc Bank since Jun>> 1985 and Chairman of the Board and Chief Executive OfHcer of thc Bank prior to that.
~ Mr. Moody has scrvcd as President aad Chief Operating OSccr and a director of SPC since January 1981: hc has also served as President and Chief Exccurive OfHcer aad a director of'he Bank since June
. 1985 aad President and Chief Operating Of5cer aad a director ot'he Bank prior to that.
Mr. Smith has served as Vice Chairmaa of the Board of'SPC aad Vice Chairman of the Board aad
, Chief Operating OScer of the Bank since Juac 1985, a Vice Chairman of SPC and the Bank from March 1984 to June 1985, and'an Exccurive. Vice President of the Bank prior to that.
Mr. Ford has s rved as a Vlcc.Chairman of SPC and the Bank since March 1984, aa Executive Vice President of SPC aad the Bank from June '.981 to!vfarch 1984, and as Chairman of the Board. President and Chief Exccuuvc OfHcer of Security. Pacific Finance Corp.. an SPC ao'n-bank subsidiary, prior to that. r 16 ~ r r . r r
','t 7
,1r ot r~
0 ann has served at, a Vice Chaittnan of SPC and the Bank since October 19&1. and an tiv tce President of the Bank prior to that. Mr. Beater has served as an Executive Vice President of SPC and the Bank since January 1986, an uve Vice President of thc Bank fmm July 1983 to January 1986, a Senior Vice President of the Bank tom February 1981 to July 1983 and of SPC from May 1978 to October 1981. and a l'ice President of the prior to that..
+~+g@$ ~+~~~.
,Mr.Binklcy has served as-an Exccurivc Vice President of SPC and the Bank since June 1985. a Senior ice President of SPC and the Bank from June 1984 to June 1985, a First Vice President of SPC and thc
~
from June 1983 ta June 1984, and'a Vice President of the Bank prior to that.
'ii Mr. Fisher has sctved as Ex rive %ce President and Auditor of SPC and Executive Vice President d General Auditor of the Bank since Octooer 1985, and Auditor of SPC and Senior Vice President and cncral Auditor of the Bank prior to that.
. Mr. Freeman has served as Executive Vice President and General Counsel of SPC and the Bank since bcr 1981, and General Counsel and Assistant Sccretaty ol'SPC and Senior Vice President and Counsel f the Bank prior to that.
',i ', Hancock has served as an Executive Vice President of SPC since July 1985 and of the Bank since tember 1984, and a Senior Vke President of the Bank prior to that.<
Mr. '.;:-: ..an has served since Octa'.".< ..;2,'nd as an Exccurivc Vice President.ol'SPC since Ju.'y 19&5 and a Senior Vice President of the Bank prior to that. of thc Bank w~g'Q Mr. Kookcn M served as Execuriive Vice President and Chief FInancial 015cer of SPC and the Bank since March 1984, an Excretive Vice Ptesident of SPC Crom October 19& 1 to March 1984 and of the Bank from June 1981 m Match 1984, Execurive Vice President and Treasurer ofSPC from June 19& 1 to October 19& 1, and Corporate ConttoUer ol'SPC and Senior Vice President and ConttoUcr of the Bank prior to that. Mr. Lovejoy has served as an Executive Vice President of SPC since April 1985 and of the Bank since Match 1984, Exccurive Vice President and Treasuter of SPC from March 1984 m April 198$ , Senior Vice President and Treasurer. of SPC and a Senior Vice President of the Bank from October 19& 1 to March 1984 Vice Ptesittcnt and Assistant Treasurer of SPC and a Vice President of the Bank prior to that. h gol has setved as Executive Vice President and Personnel Director ol'SPC and an Executive Vlcc ent of the Bank since October 19& 1,'nd a Senior Vice President of the Bank prior to that." Mr. Peterson has served as an Executive Vice President of SPC since September 1984 and an Exccurive Vice President of the Bank prior to that. Mr. Warner has served as an Executive Vice President of SPC and thc Bank since Fcbntary 1985, and a Senior Vice'President ol'he Bank prior to that. Mr. tVcsua has served as Executive Vice President and Treasurer of SPC since April 198$ , an Execurive Vice President of the Bank since October 19& l. and a Senior Vice President of thc Bank prior to that.
" 'h<= ~ ~ <<<<<t I
0 0
4
<@i EI I/ e
..r.
Mr. Hanmana has served as a Vice Chairman of SPC aad thc 3aak since October 1981, and aa
. Executive Vice President of the Bank prior to that.
Mr. Benter has served as aa Execuuve Vice President of SPC aad the Bank since January 1986, an
, . Exccuuve Vice Presidcat of the Bank from July 1983 to January 1986, a Senior Vice President of the Bank
..: frotn February 1981 to July 1983 and of SPC from May 1978 to October 1981. aad a Vice President of the Bank prior to that.
' Mr. Binklcy has served as an Exccuivc Vice President of SPC aad the Bank'since June 1985. a Senior
.',Vice Presideat of SPC and thc Bank from June 1984 to June 1985, a First Vice President of SPC and the Barik from Junc 1983 to Junc 1984, and a Vice President of the Bank prior to that.
'r. Fisher has served as Executive'Vice President and Auditor of SPC aad Executive Vice President and General Auditor of the Bank since October 1985, and Auditor of SPC aad Senior Vice President aad
~
Geaeral Auditor of the Bank prior to that.
* 'E E Mr. Freeman has served as Executive Vice President aad General Counsel of SPC and the Baak since October 1981, aad General Counsel and Assistant Secretary of SPC aad Senior Vice Presideat and Counsel
", '... of the Bank prior to that.
i!.. Hancock has served as aa Execuivc Vice President of SPC siacc July 1985 an'd of the Bank since September 1984, aad a Senior V!ce President of the Bank prior to that. Mr. 'r'. ~ii '..ta has served as an Executive Vice President of SPC since Jtay 1985 aad of the Bank
-- ~ 'since Octt >-. !" '3, and a Senior Vice President of thc Bink prior to that.
~
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. since Mr. Kooken h ~ served as Execuive Vice President aad Chicl'Financial Ot5cer of SPC and the Bank March 1984nan Ex~tive Vice President of SPC from October 1981 to March 1984 aad of the Baak fmm Junc 1981 to March 1984, Exccuive Vice Presidcat and Treasurer ol'SPC l'rom June 1981 to October
...'. " 1981, and Corporate Coauo0er of SPC and Senior Vice President and Controller of the Bank prior to that.
Mr. Lovejoy has served as an Exccuiivc Vice President of SPC since April 198S and of thc Bank since
- ~ " '= '.Match 1984. Executive Vice President aad Treasurer of SPC from March 1984 Ai April 198S. Senior Vice
,:; 4 'resident and Treasurer of SPC aad a Senior Vice President of the Bank from October 1981 to March
. 1984, and a Vice Ptesittent and Assistant Treasurer of SPC.and a Vice President of the Baak prior to than p
Mr. Margol has saved as Executive Vice President aad Personnel Director of SPC and an Execuiivc
...-" Vice President of the Bank since October 1981, and a Senior Vice President of the Bank prior to that.
Mr. Peterson has served as aa Executive Vice President ol'PC siace September 198( and aa
.: ', Execuive Vice Prcsidcnt of the Bank prior to that.
Mr. Warner has served as an Execuive Vice Presideiit of SPC and the Bank since Februaty 1985, aad i '. a Senior Vice President of the Bank prior to that. Mr. West'as served as Execuuvc Vice President and Treasurer of SPC since April 1985, aa Excwtive Vice Prcsidcat of ihc Bank since October 1981, and a Senior Vice President of the Bank prior to
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a r ~ PART ll tQ ~ ITEM 5. MARKET FOR REGIST14hNT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. V~ For.inl'ornation concerning SPC's Common Stock and related stockholder mauers. see "Capital and
~,
Dividends" at Pages 29 and 30, "Sclccted Quarterly Data" at Page 36, and Note 14 of"Notes to Financial Statements" at Page 52, ol'he Annual Rcport, which are incorporated herein by reference, and "Supavisioc and Regulation" under the heading "Rein l. Business" above. At February 18, 1986, them were 28357 holdets of record of SPC Common Stock. ITEM 6. SELECIED FINANCIALDATA. For scleaed financial data concerning SPC, see "Highlights" at Pages 16 through 19 of the Annual Report.,which is incorporated herein by teference.
'TEM'. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATION.
For Management's discussion and analysis of financial condign and results of operatiou, see "Financial Review" at Pages 15 through 36, and the six year financial summaries appearing at Pages S4
. through 59, of thc Annual Rcport, which arc incorporated herein by reference.
The principal restriaions on thc ability of its subsidiaries to transfer fbnds to SPC are indudcd in Note 14 of "Notes to Financial Statcmentsaa at Page 52 ol'the Annual Rcport, which is incorporated herein by
...rcferenc>>. These resuiaions have not had. and are not expcaed to have, any impaa cn the abihtv of SPC to meet its cash obligitions. For addiYional discussion concerning these ~triaions, sec "Supervision and.
. RegWation" under the heading "ltan l. Business", above.
r
'TEM L FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.
For financial statements of SPC and subsidiaries and SPC (Parent Company), together with the related notes. sc'Financial Reportsaa at Pages 37 through 41 and 43 through 52 of the Annus! Repen, which is incorporated herein by reference.* Sce Page 21 of this Form 10-K for the related rept:tt of Feat."
,Marwick, Mitche0 dt Co., independent cerrificd public accountants..S~ "Item 14. Exhibits. Financial Statement SchcdWcs. and Reports on Form 8-Kaa below Ior the exhibits filed as patt of this Form 10.K.
For.ccttaln supplementary data. see "Sllcacl Quatteriy Data" at Page 36. and "Supplementary InQaiion Adjusted Data" at Pages 3S anu ., ol ache Annual Report. wluJt are incorporated herein by rcfaence.
. "~ -
The following table provides ratios of earnings to fixed charges for the last five years: lsas !904, twas tsar tt3at Consolidated( 1 ):
' '.68 Excluding interest on deposits...........
1.4o 1.52 1.48 1.44
- Including.interest nn deposits.... "
Payaah aaah'paay apl",I I I. 1.17 I.ll '.l 1.1S 1.18 I 20 1.12 I.ly 1.11 I.lp (1) For purposes nl'omputing the consolidated ratios, earnings represent income befoi>> income taxes
-'lus 6xcd charges. For purposes of computing'arent company rarios, earnings represent incom=
before income tax benefit and equity in undisuibuted income of subsidiarie, plus 6xcd charges. For all radios. 6xed charges include interest expense, the estimated interest component of nct rental payments and the pre-tax equivalent of'referred stock dividends. J 9 a ffEM 9.'ISAGREEME".ITS ON ACCOUNTINC A3 (D FV(ANCIALD:SCLOSURE
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PART III RECTORS AND EXEC(ITIVE OFFICERS OF THE RECISTRANT. For information concerning directors aad executive oflcers of SPC, sec "Elccuoa of Directors" at ages 2 through 8 ol SPC's definitive proxy statement dated March 7, 1986 ("Proxy Statement") which is
~
corporatcd herein by reference, and -item 4(*). Excretive Ol5ccts of the Registrant" above. TK.'VI 11. EXECUTIVE COMPENSA t ION. Mor"information concerning executive compensation, sce "The Board'of Directors and its Con:- nittccs". -Executive Cotnpeasauon". and "Other Compensation" at Pages 8 through 17 of the Proxy tatcment, which'are incorporated herein'y relerence. TEM IL SECURITY O~VNERSHIP OF CERTALV tlENKFICIAI OWNERS AND MAN ACEMF (T. For information coaccnung security own'ctship ol'crtain beneficial owners and Maaagetnent..sce '.Voting Securities and Principal Stockholders" aad "Election of Directots" at Pages 2 through 8 of th'oxy Statemeat, wldch are incorporated herein by reference..
- 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning certain relationships aad related transactions, sce "Transrmoa with irectors, Execudve 015cers aad Associates" at. Pages 18 aad 19 of thc Proxy Star"".ent. which is ncorporated herein by reference. I t
>> 'I r
PART IH ITCH 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. I'u For infonaation concerning directors and execuuvc olcers of SPC, sec "Election of Directors" at Pages 2 through 8 of SPC's definitive proxy statement dated March 7, l 986 ("Proxy Statement" ), which is
~ >> .incorporated herein by reference, and "Item 4(A). Exccudive Of5ccrs of the Rcgisuaat" above.
; ITEM I I. EXECUTIVE COMPENSATION.
For iat'ormation concenung executive compcasadoa, see "'lhe Board of directors and its Coa:-
- . mitiees".'Execudive Compensation". and "Other Compensatioa" at Pages 8 through l7 nf the Proxy
~ . "'. 'tatement, which are incospor~~d herein by referenc".
ITEM 12. SECURITY OWNERSHIP OF CERTAL ( sIKNKFICIALOWNERS AND iMNAGEMENT. For infonaauon coaocnung sccuriry ownership of rcnain beacslcial owners aad Management. see
~,.-: s Voting Securities and Principal Stockholders" and "Election oi Directors" at Pages 2 through 8 cf th" Proxy Statemeat, which are incorporated herein by rei'ereace.
ss
.* "'TEM 13. CERTALV'RELATIONSHIPS AND RELATED TRANSACTIONS.
For ialonnadion conceraing cenaia relationships and related tsansacuons, see ".ransa won with
-... Disectors. Exccudivc 05ccrs and Associates" at Pages Ig.aad 19 of the Proxy Stat-.~~t, which is
.'" incorporated heseia by rcfcreace.
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PART IV. 1TE31 14 FXHIBITS, FINANCIAL STATEilIENT SCIIEDI 'LES. AND REPORTS ON FORM 8-K.'a)
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Exhibits and riaancial sta'enicnt schedulest ( I) The following financial statements of SPC and subsidiaries and SPC (Parent Company) and the s.apA>~ related notes to fiaancial statements. iadudcd ia the Annual Rcpon, arc incorporated herein by reference. Page number relcrences are to the Anaual Repon.
~ I'cce Security Pacific Corporatioa and Subsidiarier.
Consolidated Batance Sheet-December 31. 1985 and 1984 ............ 38 Consolidated Staiement of Earnings Ior thc Three Yeats Ended Dccclilbef 31 ~ 1985.~ ....,....~....., . w .....:.:e-. -..... 39 Consolidated Statement of Changes in Stockholders'quity for the Three Years meded December 31. 1985................................................. 40
'onsolidated Statement of Changes in Financial Positiiit. for thc
, ", Three Years Ended 0 ccmbcr 31, 1985....................................... 41 Sccuciry Pacific Corporauon ( Parent Company):
Balance Sheec-December 31. 1985 and 1984 ........'.......... 43
, . Statemencof Earnings for thc Three Ycacs Endeh December 31,1985...............................
IO-K.'&i Statemenc of Changes in Stockholders'quity for the Three Years Ended December 31. 1985" Statement of Changes in Financial Position Ior the Three Years Ended December31,1985.... .. ............,: Thc related Accountants'cport is submined herewith at Page 21 Notes to Finincial Statemenn ................................................................... of this Form IO-K. 44 40 45 46 7~v~w;4) ~ (2) All schedules are omined beause they are not appliable. aoc material or bcausc thc information is Included m thc financial smtements or the notes thereto. (3) Exhibits:
- - Sce index to Exhibits at Page 24 of this Form (b) Reports oa Form 8.Kt During the last quaner of 198S. the following rcpons on Form 8-K were died with the SccuriYics and Exchange Cominissiom
~ ~
( I ) Form 8-K dated October 4. 1985, which rcponed that on September 30. 1985, SFC agreed io sell 150 shares of its Slbi'tay Viarket Cumulative Preferred Stw,k. Scrie A and l50 sham of ics
, Money market Cumulative Preferred-Stock. Series B:
(2) Form 8.K dated november 22. 1985. which rcponed thac ( i ) on October 25, I 985. cenaia legal proceedings were commenced against SPC and one of its subsidiaries. and. in the opinion of SPC's management. the: dispositioa ol'these proceedings will not have a material ctfcct on the consolidated financial position of SPC, and "I ii) on November 19. 1985, SPC agreed to sell
$ 3.500,000 aggrcgatc pnncipal amount of 8.80% Fixed Rate Viotcs duc Dcccrnbcr 2, 1987:
(3)'Form 8 K dated December I I. 1985. which reponed thaton November 20. 1985. SPC agreed to scil $ 30.000.000 aggregate principal amount of 8.77% Fixed Rate Icotcs Due December IS. 1981. and on December 9. 1985, SPC agreed to scil $ 25.000.000 aggregate principal amount of 9.0% Fixed Rate.Notes Due December IS, 1988: C (4) Form 8'K dated D ccmbcr 24.'985. which reoorted that on December 17. 19SS. SPC agreed to scil $ 50,000,000 aggregate'principal amount of 8.75% Intermediate-Term Notes Due 1989. 20.
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P Y v, r 'tti py- ~ ACCOVNTANTS'EPORT To the Stockholders and the Board of Directors
,PP'P Security Pacific Corporauont
~c~P'~~~a We have examiaed the finaacial statcinents of Security PacLtc Corporation and subsidiaries and Security Pacific Corporatioa (Parent Company), as listed in the accompanying index. These finaacial statements are contained in the 1985,annual report to stockholders and arc incorporated by reference in P the aanual report oa Form 10-K for the year 1985. Our excavations were made in awrdaace with generally accepud auditing standards aad, acco~'ugty, induded such tests of the acoountiag records and "I y such other audiYing procedures as =: ~astdprcd accessary in the circumstances.
I p',txQ4 Ia our opinion, the aforcmeatioacd 6nancial statements present fairly the Gaancial position of Security Pacific Corporation (both consolidated and Parent Company) at December 31, 1985 and 1984 and the results ot their operauoas aad changes in their financial posiYioa for each of the yean in thc three yea: P'I'gWPP period ended December 31, 1985. in conformity with generally accepted accouatiag principles applied on
~ " '
. a consistent basis.
I I P ~ I I
~ - " PEAT, MARWICK MITCHELL& CO.
'os Angeles. California
,c.'"' Jaauaty23, 1986
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t Jh t'ai I +~V'IJ. F. 3' hh POWER OF ATTORNEY
-Each person whose signature appears below hereby authorizes each of Richard J. Flamson III,
. George F. Moody, Robert H. Smith, John F. Kookea, Linda Judd Foss. Russell A. Frcctaan, Edward J.
McAniff,Ftednick B. McLanc, Michael T. Masin aad Michael J. Fairdough. as anorney-ia-fan. to sign in h
'is og her behalf, individually and in each capacity stated below, and to 5le, all amendments and/or h supplemcact to this Annual Report on Form IO.K.
h
- h I Si G NATTIRES
'h ~
h Pursuant to the requirements of Senioa l3 or IS(d) of'he Securities Exchange An of l934, thc registrant has duly caused this report to bc sigtted on its behalf by the undersigned, thereunto duly authorized, on the l8th day of March, 1986.
'ECURITY PACIFIC CORPORATION
( Registrant) h t Iy JOHN F. KOOKHN Joha F. Kookea Fxecutive Vice President and Chid'inancial Of5cer Pursuant to the requirements of thc SecutiYies Exchaage An of l934, this report has been signed below by Jte following persons on behalf of the registrant in the capacities indicated on March lg, l986. RICHARD J. FLAMSON IH Chainaaa of the Itoard Richard J. Flamson III and Chief Executive Of5cer ' (Principal Exccutivc Of5cer) JOHN F. KOOKEN Executive Vice President and John F. Kookca Chief Financial Of5ccr ( Principal F K ~ Financial aad Accouating Ot5ccr) t h JOSEPH F. ALIBRANDl Direnor h Joseph F Aiibraadf h'. Direnor Anderson J. G. BOSWELL II Ditcnor J. G. Boswell II 22
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4A'C 4; C ht M I PA 'I TIS4 lrhh WALDO H. BURNSIDE Direaor ply~ xvcc Waldo H. Burnside EARL CLARK Direaor
- .SFh Earl Clark TIMM F. CRULL Direaor Timm F. Crull h
CAMILLAC. FROST Direaor Camiila C. Frost DONALD E. GVINN Direaor Donald F Guinn F CARL E. HARTNACK: Dimaor "Vts
~ Carl F Hartnack .
FRANK L HOPE, JR. ger Frank L Hope, Jr. LAWRENCE O. KITCHEN Direaor Lawrence O. Kitchen HOWARD W. KOCH Dircaor Howard W. Koch S GEORGE F. MOODY Diieaor Ahc;. George F. Moody 'FSI~ht, IEj>>, 1 vre ivS tag')h.tO<. JR E
- ct' FRED W. O'GREEN Direaor Fred W. 0 careen
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HENRY T. SEGERSTROM Director SP llenty T. Scgersuom Or H. RUSSELL SMITH Direaor H. Russell Smith
- ROBERT H. SMITH Direcior S h, Robert H. Smith
'=iK 4e JACQUES S. YEAGER Direaor Wl~~TH r Jacques S. Yeager. ,<<JSL JAMES H. ZUMBERGE Direaor James IL 2umbcrge 23 I ~
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s I 444 a. .py% ~~>Q tt~ q*'i INDEX TO EXH BITS Er (2)(a) Agreemcnt dated August 20. 1985, between SPC and Arizana Dancwest Corporation ("ABC") providing 1'or thc acquisition of ABC by SPC through the merger of ABC with and into SPC Acquisiuon, lnc., a wboUy owned subsidhry of SPC, lor a total cash purchase price of approximately
$ 480,000,000.'greement 0 (2)(b) dated September 6,,l985. berfvcen SPC ScauiYies Scrviccs fg . of the issued and outs~ding ~
Corp., a whollywwncd subsidiary of SPC, and The Bank of New York
. Company, Inc., providing for thc saleol'hc by SPC ScauiYies Services Corp. of all '
common stock of RMJ Securiues
. Corp. for a cash purchase price of $ 52,500,000, subjea to certain adjust-rllcnts a 44+
Cenificate ol'Incorporation of SPC as amended to date.
~,
4 (3)(a) +JQ (3)(b) By-rows of SPC as amended to date.
"" ~ (3)(c) Anides of Association of thc Bank as amended to date.
(3)(d) By-Laws of th>> Bank as amended to dat>>. 4 (4) SPC has outstanding cenain long-term debt. Sce Note 10 of "Nous to Financial Statementsff at Pages 50 and 51 of the Annual Repon. Such long-tenn debt docs not exceed 10% of the total assets of SPC and its coasolidatcd subsidiaries: therefore, copies of constiment insuuments de- .~p' fining the rights of holders of such long-term debt are not induded as exhibits. SPC agrees to Ibnush copies of such utsm'ments to thc SeauiYies
~- l and Exchange Commission upon request.
(10)(a) : Agreement dated as of May I, 1981, by and bctw~ Security Pacific National Bank and Carl E. Harmack as amended to date.
. (10)(b) Seauity Pacific Corporation Performance lnccnrive Plan as amended to g~yg J.
(10)(c) Security Pacific Corpotauon Stock 0puon Plan as amended to date. Computation of consolidated earnings per common share.
~.
(11) (12) Computation of ratio of earnings to fixe charges.
. (13) SPC's annual report to stockholders'or the fiscal year ended December 31, 1985.
(22) . Subsidiaries of SPC. (24) Consent of Peat, Marwick. Mitchell gt Co. (25) Power oi'uorncy of ccnain officers and directon (iud uded on Page 22). Previously fiied as Exhibit 28 to Report on Form 8-K dated August 29. 1985, and incorporated herein by reference. Previously filed as Exhibit 28 to Repon on Form 8-K dated Scptcmber 18, 1985, and incorporated MNCN 4 I herein by reference.
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~ I ~ 5 CERTIFICATE OF INCORPORATION ARTICLE I Pacific Corporation.
,The name of thh Corporation is Security ARTICLE II the State of Dehware is located at The address ofits cegisteredofice in ot'
.=* l4umber ICO West Tenth Street. in the City vf Witmington. County
~
agent at su".h address is The i Icw Cas Je. The name of its registered Cocpocation Trust Company. ARTICIS 111 any hwt'ul act or
.,The purpose of thc Corporation is tu engage in under the General which cocporations may be ocganizcd activity for P
'orporation Lsw of Dehware.
ARTICLE IY all chsscs o fcs pica) stock which the (h) The total number ofshares of issue is two hundred hvc million Corporauon shall have the authority to (205.000,000) shares, of which f(ve million (5.000.000) sttaces shall be Stock of no par value thereins()ere" lied "Preferred
- shares of Preferred million (200000000) shares shall bc shares Stock" ) and two hundred (heceina(ter called sharc Stock of the par value of $ (000 per ol'ocnmon
'Common Stock" ), ~
shares ofs dass sha)I be entitled to (9) The holders of the outstsnding ifthe amendment would scnendment vote as a chss upon a proposed or Increase or decrease the par value of the shares of such chss, or s)tct preferences. or spechl eights of the shares of such change the powers. wouk) any proposed amendment dass so as to affect thecn adversely. If rights ol'one or more or special alter or change the powers. preferences. adversely. but shall not so atfect series of any chss so as to a(feet them
'i L
Rev. 4/85
'GIIBX. > (a)
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.the.entin: cLsss, then only the shares of thc serie so affected by" the amendment shall be considered a separate c(ass for the'urposes of this .. paragraph. Thc number of authortxcd shares ofany such class or classes of stock may be increased or decreased by the atTirmative vote or the
~ hoMers ofa majority of the stock of thc Corporauon cntidcd to vote. (0 The designations and the powers. pteferences and right, and the
'qualifications. limitations or. restrictions thereof, of the Preferred Stock
'i shall be as foUows:
"-(l) Thc Board, of Directors is express)y authorise at any time.
and from time to'time. to provide lor the issuance of shares of Preferred Stock in one ur more scries. with such voting powers. Cull
~
or,limited but not to ex<<ced one vote per share, or without voung powers, and with such designations, preferences and relative,
~, 'articipating, optional or other special rights. and qualificxtions, limitadonsor restrictions thief. as shall be stated and expressed in the reiolution or resolutioni providing for the issue thereof adopted and by the Board ol'Directors, and as are not stated and ex pressed in this Certificat of Incorporation. or any amendmcnt thereto. including - (but without limiting thc gencraliiy of the loregoing) the following (a) the designation oCand numberol'shares constitudtngsuch series; (b) the dividend rate ofsuch serie. the conditions and dates prices upon which such div,dends shall be payable. the preference or relation which such dividends shall bear to the dividends payabtc on any other class or c(asses or of any other series of capital stock. and whether such dividends shall be cumulative or noncumulative (cl whether the shares of such scries shall be subject to redcrnption by the Corporation. and. ifmade subject to such redemption. thc times. othe terms and conditions of such redemption:
{d) the terms arid amount of any sinking, l'und provided for the purchase or redemption ui the shares of such sertes: 4
e
(e) whether or not the shares of such series shall be coaverublc iato or exchangeable forshansofaayother chssordasses orofany other scnesof any chssor classesofcapital stock ofthe Corporation, aad.if pro; isionbe
~,, mad= for eoaversioa or exchange, tbe times. prices, tates, adjusuaents, aad other terms aad coadilioiis of such coaveisioa of xchaagct
<< ~ I (f)diccxtrat,ifany, towhichthchoMcrsoftheshans ofsuchscricsshall
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becaudcd to vote as a chss or otherwisc with respect to tbc election ofthe i Dinciois or otherwise; provided. that in ao cveat shall any hoMcrofaay series of Prefeind Stock be end tied to more thaa one vote for each shue of such Pnfcrnd Stock held by him: i (g) Thc nsuictioas, ifaay, on thc issue or reissue of aay additional I Prcfctnd Stock I VI' (h) the rights of the holders of the shans of such series upon thc I v dissolutioa of. orupon the distributioa of assets of thc Corporauon. s (2) Euept as otherwise required by law'od except for such vodag
, powers with nspcct to the ciceuon of Directors or other matters as may be stated in the resolutions of the Board of Dinctors creating aay series of Pnfcrnd Stock, thc holders ofay.such series shall have'ao voting
'ower whatsoever.
(D) No stockholder ofthis Corporation shall have any p~ptive or preferential right of subscriptioa to any shans of any stock of this Corporation, or to aay obligations convertible into stock of this Corporation, issued or sold, aura"y right of subscription to any thereof other than such, ifany, as the Board ofDinctorsof this Corporation in its discndoa from time to time may determine. aad thc Board of Mectoes may issue stock of this Corpoiauon, or obligauons convertible into stock, without offering such issue of stock, cithe.- in whole or ia part, to the stockholders of this Corporauoa. The ~ce of stock in tbi Corporation shall be a waiver of any such pre~ptive or prefcrr v>>! T1 rights which in the absence ofthis ptoviYion might otherwisc be asserted by stockholders of this Corporation or any of them. u 3 I ~ 4 V1 1
I ll H
h I whose name any This Corporation shall bccatitlcdto treat thc person in owner the+of. for all purposes. and studl not be share is registered as tbe bound to recognize any equitable or other daim to. or interest in. such shareon the pstt ofaayother person, wt~or not this Corporation shall save as pmvidcd by the laws of thc State of have aotice thereof, expressly Delaware. r ARTICLE V are as foUows: Thc names and places ofresidence of the incorporators Name Address Edwin H. Corbin l0tl North Grand hvcauc Pasadena. California 9 l t03
'rederic G. Larkin, Jr.. 77l South Wtndsor Boulevard Los Angeles, California 9000$
Wi5am E Siege l l $ 20 Sca Rema Drive r Pacific Palisades, California 90272 under the The Corporation shall. to the Cull extent permitted l of Tide of the Delaware Code. as amended provisions of Sccuon SS 8
'am Corporauon's By-dme mtimc. and ia the mannerpcrmittedby the oificeunul under that Section Laws, indemnify ail persons whom it may htdcmnify and pursuant to said By-Laws.
ARTICLE VII fixcd and may bc Tbc number of Directors ofthis Corpomtion shall be By-Laws. ln case of ahcred from'time to time as may be provided in the additional Directors may be any increase in the number of Directors. the th hold clcctcdby a majorityofthe Directots then in once. to of the stockhotdets and until their successors are acxt innual meeting Board of Directors. elected and qua!ificd. ln case of vacancies in the i
~
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1 r ' a majoricy of thc retnaining, membcts of <he Board may elect Directors to fdl such vacancies. Any Director may bctcmovcd by a malority vote oftne stockholders cn titled to vote at any annual or speal meeting thereof, for atty cause deemed sUSCI cut by the s~~locrs present or represented at
. such mccting. Thc DirectorsoAhis Corpontionnccd not be stockholders therein.
'AR'1ICLE VHI'he stockholders and Boartl of Directors sttatl h" ve power. il'the By-Laws so provide. to hold thrir meeungs and to keep the books of this Corporadon (except such as are required by the hw of thc State of Dchware to bc kept in Delaware) and documents and papers ol'his Corporation outside the State of Dehware.
p
'" ARTICLE IX AQ of the powers of this Corporadon, insofar as d.e same may bc iawhlly vested by this Cerdhcatc of incorporation in the Board of Directors. are hereby conferred upon the Board of Directors of this Corpontion. ln futthcnncc and not in limitation of that power, the Boani of Directors shall have power to make. adopt, alter. amend and repeal from time to titnc By. Laws of this Corporation. subject to the right ofthc stockholders entidcd to vote with respect thereto to alter and repeal By-Laws made by the Board of Directors.
I ARTICLE X Whenever a compromise or arnngcment is pro posed between this
, Corpontion and its creditors or any clasi of them and/or 'xtwccn this Corporation ind its stockholders or any chss of them, any court of equitable jurisdiction within the State of Delaware may, on the appiicauon in a summary way ol'this Corporation or ofany creditor or stockhoUer thereof. or on thc application of any receiver or res overs appointed for this Corporation under the provisions of Section 29l of Tide 8 of the Dchware Code or on the application of trustees in dissolution or ofany receiver or rccei vers appointed for this Corpontion under the provisions ol'rction 279 of Title 8 of th>> Delaware Code.
/
and/or of the
'L order a meeting of thc creditors or class of creditors, of Corporation as the case may stockholders or class of stockholders Gus to bc summoned in such manner as the said court directs. If a majority bc.
' creditors or class
- ~ ~ in number represenung three-fourths in value of thc atu&or of th>> stockholdcri or dass of stockholders of this ol'reditors, arrangement Corporation, as thccnse may be, agree to any compte)nise or consequence of such and to any reorganization of ttus Cotpotauon as a
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corn pronusc or arrangement, the said comprontise the said reorganizadon shall. ifsanctioned by the court or arrangcmcnt and to which the said made, be bindiug on all tl. creditots or dass of appltca&n has been
~
" credit)rs, and/or on all the stockholders or dass of stockholders, of this Corporauoo. m the case may be, and also on dus Corpotation.
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. ARTICLE 2iL add tn or This Corpotauon reserves thc right to amend, alter, change, rcpealanyproviYioncontaincdinthisCcrti6catcoflncorporation.inthc
..'anner now or hcreaher prescribe by statute, and all on an powers stockholders. Directors conferred by this Ccrtihcatc of Incorporation and officers are grmtcd subject to this reservation.
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C l1 SECURITIES AND EXCHANGE COMMISSION
<,) (IJ Washington, D.C. 20549 C)
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1 Quarterly Report Under Section 13>>~6$ d)=-~,.oO~ of the Securities Exchange Act .of 4 "-3 O~...
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*,For'Quarter Ended March 31, 1986 Commission File No. 1-7393 I
I SECURITY 'PACZFZC CORPORATION (Exact name of registrant as spocified in its charter)
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."'" (State or DELAWARE other jurisdiction of incorporation or organization).
',, ~ 95-2741988 (Z.R..S. Employer Identification No.)
I 333 SOUTH HOPE STREET , ~
. 90071 LOS ANGELES, CALIFORNIA " '
~
(Zip Code) (Address of principal executive offices) ,
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Registrant's telephone number, including area code: (213) 613-4540 C Indicate by check mark whether the registrant (1) has filed all
,";. reports roquired to be filhd by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pzoceding 12 months (or for such shorter Wig~ period tha't tho registrant was required to file such reports), and (2)
I ~ has been sub)oct to such. filing requirements for the past: 90 days.
~ C~ ..." ',-. Yes~. No
~ ~
Approximate number of. shares, outstanding of the registrant's .common stock, as of May 2,'986. ~ r P. P 1
'+r COMMON- STOCK $ 10.00 PAR VALUE 76,874,140 (TITLE OF CLASS) (SHARES OUTSTANDING)
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4 wP iWJ PART, I ~ " FZNANCZrVu ZNFCRMATZON
'tem 1. Financial Statements.
... Certain of the unaudited consolidated financial statements for the Registrant and its subsidiaries required by this Item are set forth at Pages',. 9, 10 and 14 of the Security Pacific Corporation Quarterly Report for the quarter ended March 31, 1986 (the "Quarterly Report" ), and are incorporated herein by reference. The Consolidated Statement of Changes in Financial Position for the three months ended March 31, 1986
*,. and March 31, 1985, and an additional Note to the Consolidated Financial Statements, are set forth at Pages 2 and 3 of this Form 1O-Q.
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9 o I SECURITY PACIFIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES ZN FINANCIAL POSITION (Unaudited) (Zn Millions) 4 <<<<" Q r1 3 Months c 3
~86 ~85
'nancial Resources Were Provided by (applied to) erations: 4 tet ZnCOn4eo 0 0 Cash
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 9 ~ ~ ~ ~ ~ ~ ~ I~
dividends.................................. o ~ ~ ~ ~ ~ ~ ~ o o ~ ~
~ 9 ~27 '
S 87 60 7 posits and other financing activities." De p 0 S itS~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 ~ ~ ~ ~ 6 ~ ~ ~ ~ ~ ~ 0 ~ 0' Short-term funds borrowed (1)..................
~ 4<< ~ ~ ~ ~ 9 ~ ~ ~ ~ ~
~ ~ (2,979 89.9
') (268 ~ 2)
(456. 5)
~<4 Intermediate-term debt and long-tern debt (2).. 588 ' 194.8
~4
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Common stock issued (net).....'......... ~ ~ 1.3 0.4 Net treasury stock transactions........"........ 7 0
~~&21
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I er activities: Cash and dueAfrom banks........ ..'....... ~ ~ ~ 855 5 295 ' 'Tb= ~i. Translation adjustments........'................ 0.5 (0. 1) >>6r'l<<4I 0 ther6 neto ~ ~ ~ ~ ~ , ~ 0 ~ ~ ~ ~ 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ \~~9~
~ ~
o ~ ~ ~ ~ ~ ~ ~ ~ ~07
~48 8 ~62i~8 t
T04 alo ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~' ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~' ~ ~ ~ ~1684. 8 cre e (Decrease) in Earning Assets: 4<<IA D m hanks-interest bearing...... ......... (595.4) ' (43 2) I ent securities and trading account
~ ~
(406. 2) (220 ~ 6) sold................... ......... ~8 S ~ ~ ~ ~ ~ ~ ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Federal funds 41.1 (86. 6) Net loans and TOt a 1 ~ ~ o2 ~ ~ ~ ~ lease-financing....,.....".........
~ ~ 9 ~ ~ ~ ~ ~ 0 ~ ~
9'
~
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
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~ ~ ~09.1 684.8 99.
~446. 2
~l'l'440 6y;>><<72r4.
0/.'<<648 4 Q8 4<<. Includes federal funds purchased and securities under repurchase agreements, commercial paper and other short-term funds borrowed. Includes subordinated capital notes. 4' I e Accompanying Note to Financial Statements I "2
. >4416' I A<<8444 kg)>>..., l ~7) s/4+>>)C .,<<0>>)0)(gp>> yQ p.Q>'22$y>>@ q<< .9f'~ ) So, <
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42A 9 4 ~ 2l,4r4>>A~.4
~2
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SECURITY PACIFIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (Unaudited) (Zn Millions) 3 Months e c 3 h
~98 6
", 2.Financial Resources Were Provided by (applied to):
.Operations:
; Net Income.. ~ ~ 9 ~ o<<o. ~ ~ ~ ~ ~ ~ 9 ~ ~ ~ ~ 9 ~ ~ oo ~ ~ ~ ~ ~ ~ ~ ~ 87.9 $ 73 '
- Cash dividends................................... ~ ~ ~ ~ ~ ~ S 27.7
'.-'."Deposits and other financing activities:
~ Deposits ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 9 ~
" .'-Short-term funds borrowed
" .;:Zntermediate-term debt and long-tenn debt (1)....................
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
(2).... 89 (2,979 ') 588.0 (268 2)~ (456. 5) 194.8
,Common stock issued (net)....;......,............ 1.3 0.4
'...'.-Net treasury stock transactions................. 7.0 2 4 h 8
~I~9~3.
.... Other activities:
. -'Cash and due from. banks.........'..'........-..... 855.5 295.6
..: .'. Translation adjustments.................... . .. 0.5
=
~,V Ot<<<<erg net<< ~ ~ o 9 9 ~ 9 ~ 9 ~ ~
~ ~ ~ ~ ~ 9 ~ ~ ~ .9 o. ~ !~ ~ ~ 9 ~ ~ ~
~ ~
~ ~ ~ ~ ~ ~0748.2 .8 ~68. 8 (0. 1)
.Total ~ 9 ~ ~ ~ 9 ~ o ~ ~ ~ 8 ~ 9' ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ <<o ~ 9 ~ 8 ~ ~ ~ ~ ~ ~ ~ ~ ~ 1 684.8 446.2
.'. "Increase (Decrease) in EarninghAssets:
-....'ue from hanks-interest bearing............-....
':-'Znvestment securities and trading account S (595 ') S (43 ')
....Federal funds assets........................................
sold.......;................. -'.... (220.6) (406 ~ 2)
'- Net loans and lease financing................... ~09 41.1
. ~8. (86. 6) 8 Totals ~ ,~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 9 ~ ~ ~ ~. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 1 684.8 446. 2
~ -, 4 78 8
;; 1), .Includes federal funds purchased and securitie s u nder repurchase agreements, commercial paper and other short-t rm funds borrowed.
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'.2) Includes subordinated capital notes. '
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-.See Accompanying Note to Financial Statements
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r tp p, jL k~ k"'QA$ r I pt NOTE TO CONSOLIDATED FINANCIAL STATEMENTS Zn the opinion of management; the unaudited consolidated iinancial statements of S~cu=ity Pacific Corporation and its subsidiaries as of March 31, 1986. and 1985, and the three months I* then ended, reflect'll adjustments (which consist only of normal'ecurring adjustments) necessary for a fair presentation.
'I Ztem 2. Management's Discussion.and Analysis of Financial Condition and Results of operation: . I+~l -,The information for the Registrant and'ts subsidiaries required- by thi's. Item is set forth at Pages 4 through 7 of the Quarterly Report and is incorporated r
herein by reference. pPcOj l' r
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4 PART II. OTHER INFORMATIOH Item 4. Submission of Matters to a Vote of Security Holders.
'(a) The annual meeting of stockholders of the Registrant was held April 15, 1986.
(b) In addition to the election of. directors and the ratification pfcrfr
'of'he selection of auditors, the following action was taken at the. annual meeting of stockholders held April 15, 1986: Stock-
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~,, holders approved an amendment to the Registrant's Stock Option Plan by an affirmative vote of 60,674,974 votes, with 1,869,063
".-votes against'he proposal.
I Item 6. Exhibits and'Reports on Form 8>>K. f f (a) Exhibits. (11) Computation of Consolidated Earnings Per Share. f gg "kP.
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(b) quarter
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(12) Computation of. Ratio of Earnings to Fixed Charges. (20) Security Pacific Corpc ation Quarterly Report for the ended March 31, 1986. Reports on. Form 8-K. During the quarter ended March 31, 1986, the Registrant filed the following Current Reports on Form 8-K: Qf'c w* .l. Report dated January 21, 1986, stating under Item 5 that, in connection with Registration Statement Ho. 2-82946 and other presently effective registration statements under the Securities f)g Act of 1933 filed with the Securities and Exchange. Commission by
- the Registrant, certain information for and financial statements of the Registrant and its subsidiaries were to be incorporated
~ff~~r~f, by reference therein, and reporting the filing of such 4iP Q information and unaudited finan'cial statements which had not fr&+, been previously filed with the Securities and Exchange
'ri Commission; The financial statements are described below:
- a. Earnings Summary of Security Pacific Corporation and subsidiaries for the three months and. twelve months f ended December 31, 1985. and 1984; and , .
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- b. Balance Sheet. Summary of Security Pacific Corporation
<<~V+ and subsidiaries for the twelve months ended December 31 g 1985 and 1984 ".~?'>;. g
- 2. Report dated January 31, 1986, which indicates under Item 5 that (a) on January 22, 198>>, Registrant and Salomon Brothers Znc. entered into an Underwriting Agreement relating,to the issue and sale of certain, debt securities registered under Registration statement No. 2-82946; and (b) on January 22, 1986, Registrant agreed to sell A$ 175,000,000. aggregate principal amount of Floating Rate Australian Dollar Notes Due 1991;
- 3. Report dated February 26, 1986, stating under Iten 5 that, in connection with Registration Statement No. 2-82946 and other presently effective registration statements under the securities Act of 1933 filed with the Securities and Exchange Commission by the Registrant, certain information for and financial statements of the Registrant and its subsidiaries were to be incorporated by reference therein, and reporting the filing of such
,,'nformation
" been previously and unaudited, financial statements which had not filed with .the Securities and Exchange Commission. The financial statements are described below:
~ '
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, a. Consolidated balance sheet of Security Pacific
,>> Corporation and subsidiaries as of December 31, 1985 and 1984 and the related consolidated statement of
- earnings for the three months and twelve month" then ended; and
- b. Consolidated statement of changes in
~ ~
of Security Pacific Corporation and stockholders'quity
-'ubsidiaries for the twelve months ended December 31, 1985 and 1984; and 4 ~ 4. Report dated March 3, 1986, which indicates under Item 5 that
~
on February 26, 1986, the" Registrant agreed to sell
$ 150,000,000 aggregate principal amount of 8 7/8% Notes due March 1, 1996.
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SZGNATURES Pursuant to the requirements of the SPcurities Exchange Act of 19 'P,
.the Registrant- has duly caused this report to be signed the undersigned thereunto duly authorized, on the 8th dayon ofitsHay, behalf by 198G.
SECURZTY PACZFZC CORPORATZON
.(Registrant)
By QOHN . KOOHEN Executive Vice President and Chief Financial Officer (Principal Financial >>and Accounting Officer) By REBECCA H. FZSCHER Assistant Secretary (Authorized Officer) 'P Iee
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0 INDEX TO EXHIBI S Exhibit Seauentially Numbered esc t c Pa e 11 Computation of Consolidated Earnings Per Share... 12" Computation of. Ratio of Earnings to Fixed Charges.'0 Security Pacific Corporation Quarterly Report for Ne Quarter ended March 31, 1986.
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+V+ 8"
-SECURITY PACIFIC CORPORATION AND SUBSZDIARIES COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE (In Millions, Except Por Common Share Amounts) 3 Months lldod a 3
~86 ~8
.". Computation of Net Income, Applicable to Common Stock:
,'-.',':- Consolidated'et income (1)......................
.; Xess preferred dividends.............,'.........,.'.
'Totalo ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
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$ 87.9 585. 9 ~73. 5
.; Ccmputation o Common Shares and Share Equ'valonts:
sighted average number of shares outstanding.... 76.7 73.1
', "".Meightod average number o+share units,'warded
.":under incentive Di1utive effect of outstanding stock plans.;........................ options.......
0.2 0'2
-. Weighted average number of shares and share
-",equivalents for primary
.".-" earnings per common sharc......."'....;....;....:, 77.1 73.5
.: Earnings Per'ommon Share:
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~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~1 0 0
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'1),"Amounts agree with C;. -.il dated Statement of Earnings.
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h SECURITY PACIFIC CORPORATION AND SUBSIDIARIES (COtlSOLIDATED) SECURITY PACIFIC CORPORATIOntl (PARENT COMPAtlY) COMPUTATION OF RATIO OF EARNINGS TQ FIXED CHARGES (Dollars in t<illions) 4 Three Months . A,gv H
,4 Endet
~or ~3~~86 4 p~~wc,l <<-
A. Security Pacific Corporation and Subsidiares (Consolidated):
. Earnings:
,l. Income before income taxes.................... $ 128.6
,2. Plus interest expense. (a)..............'........ 737 4 ." .-'..ggQ 3'arnings including interest on deposits....... 866. 0 4.. Less interest on deposits.....;............... ~45 8
.5.: Earnings excluding interes" on deposits....... ~41 1 . 2 Fixed'harges:
., 6.,
- Zncluding interest on deposits (Line 2)........
Plus'referred dividends (b) ..................
- 8. Fixed charges..............................;..
$ 737.4 4~
741.6 r.7
". 9. ~ Less interest on deposits (Line 4)............ ~44. 8
- 10. Excluding interest on deposits................ .~286. 8
~
" *'- Ratio of Earnings to Fixed Charges:
.,Including interest on deposits (Line 3 -: Line 8), 1. 17 ~>4'f~Y. -<<p4" Excluding interest on deposits (Line 5 Liro710)
-: 1 43
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B; Security Pacific Corporation (Parent Company) Earnings:
@7 ll, Income before income taxes and equity 'n undistributed income of subsidiaries.. ~ ~ ~ ~ ~ ~ $ 37.8 12..Plus interest expense...................
4
+7 ~ ~ ~ ~ ~ ~
" . 13.. Earnings including interest expense..... ~ ~ ~ ~ ~ ~ , .~157.6 Fixod charges:
- .14. Interest Expense (Line 12)............... $ 119.8
- 15. Plus preferred dividends (b)............ ~ ~ ~ ~ ~ ~ 4 16., Fixed charges...........................
~
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~ ~ ~ ~ ~ ~124.0 Ratio of, Earnings to 'Fixed .Charges (Line 13 .'ine 16)...,.......................- 1.27
<cp 444 (a) Includes amoun s represonting.the estimated inter est componont of .net rental:payments.
(b) *'Pre-.tax equivalent. 4 0: ~ 4 Exhibit l2 r~nl 6 6 .644
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4 '> ~ 4> j> tt44>++~ 774 ~H.+8~~~4iff+ffpt4ft 4A Pffttpp{+ . jg@ '7 . P4$ 4~48P4 PPy g ', .'ft,p; +0 V~. 4ff <+ fp 7'5&gAQ~
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~ Klghllghts arisrrlii'knv/ir( ccrfrkrrur(nn urtd Suhudrunrc Inkffckr II)Afc'Jwn 3 hfonfhf Ended hfarfh 31 Ikl(r (4'i5 Sin"krru lhrnings <<ere up 20 pcrecnt finJ to(ale J 587.9 millioi.. On 5kn aJla>>kk ckkcfircc sew Je,>>rrkck u per common share basis. net income incr<<as<<d I I pcr.
=
Net income 5 87.9 5 735 S I'4 70 cent. Thc CJlifornia Ilanking and 11c.il Its(a(c Indus(( iesk S}stem an J Ihe L'apital hlafkets has(em co(fir(buted Io Ihc
~ Common dividends 25.7 22.3 3, I 15 earnings gains.
pcr comff4sn share. A stri>ng increase in non.intcri>>t ineonie and soli J Net income 5 '1.11 5 1.00 5 0 I: > I growth in net in(crest llleolllevlsffe fespilllsihle Iiir the ividends 0.335 0 305 0.03 10 'arnings improiemcnt. These fai<<rahle Ihetois <<ere par-Book vaiue (pef ed end) 30.69 27,52 ~ 3 i2 ':ally o(I'set by an increase in non.interest espense an J a larger provision fiir credit Io>>e<< htf hfarrh 3I At hlafeh 31. 1986. stiiekholder's equity <<iis 53.5L( S a arak>>w . million. up S491 million. or 24 person(. from 0 year ago. Assets 550.104 S45.222 S4.682 11 Approximately one.hall'of the increase resulted friiiiithe issuance of prcl'erred an J corn(non s(oek Juring the 1985
'eposf(s 32.963 30.738 2.225 7 fourth quarter.
Loans and lease Iinanong '0,191, 33,102 3.089 9 ,On April IS. 1986. thc Board ot Directors increased the nV65(men( sesai riteS 2.329 '.925 '04 21 qua( tcrly dividen J 10 percent to 50.37 fr<<m S0.335 pcr
~ Stockhoidersn equ tg 2.508 . 2.017 491 24 share. payablc on Stay 20. 1986. to stockhol Jcrs of rid~>rJ on April 29. 1986. Th(s rcpngcnts Ihe (anth amsccutive
)car ol'dividend growth.
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~y,4 5 k c~g irfrrInfomr I'rr Common Sharr Rrrurn on hrrfagc Common Equi(y 8120' I
I, ' 1.10;
'08'14 j
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'(60
~ 16 II c 155 100; 1~ 8 1~ 9 i 7>>
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~wM; Annual Meeting
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.On April IS. I986. approximately 400 pc!sons aucndcd thc Cunri<<ucd Chvnga' g~Q~
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annual meeting nfsiocLholdcrs at Sa urity I acif<e I'lava in - Los Angeles. representing over 85 percent ni sharcinut.
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standing. Opening thc proacdings. Chairnian ot'thc Board and Chief Fxccutivc Otliccr Richard 3. Flamsnn III " announced that the Board of Dirixtors had earlier that morning approved an increase in the quarterly dividen J
-'fn put ihc lait tcn icar. in pc!sp<ciic." t'L<>i>s 4 a 7! -.
ued.' -wc h<ie hnl.' t<> 'say ihc lc<<t ' rapi:I) < "' tinanciai cnvir<>nmcnt.'! hi next li' u<ng and rapiJlv aa ilcratin" ~
's ...<n:i 8 prn!n<<c au>tin c cha . in market<.ihangcs in rules. and d>angus in customer ralutra <en!i. I'hi, chan cs arc going tn give riic to a <t tfc;.nt cnr.:,- ti<<>c i
v>'bi
+ I'rom 50335 to 5037 per share. a l04 percent inircaic.
Iandsivp<<. including nc>> products and scrvi<s~. nc>> This rcp<escnts thc tenth amsccutive annual increase in n>a<Let ge<>gf Jphics and den>ographia. higher levels of
~ 'he amount ol'ividends paid to Security I ac<tie tcchnolng) an J a ncal tbr new aml vasily dill>>rent skills stoekholde!s. ~
and abilities. Rch of the three items on the meeting'agenda was "The financial servimhusin ~ i. cha i at <
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ppmH: thc reelection ol'the 20 incumbent'members io crating pace on h,>th ih whole." lc a d ct; il I cls. I the Board of Dirc.tors: an ainendment to the Stock Option VIan incrcasing the number of shares of Sl'C Commnn every fa<<t nl'our bu. nIess. w ha i ucts and scrviccs. i<nponant nc<<markets n ~
, J ialof4 500++. important n'<<x>mpctit< rs I lams<>usa sha~; and ratification of thc select on ol'Peat. hlarwick. those ncw a>mpetitnrs do not opcr<te und r ihc mmc legal g
that disauvaniage is thc single most important issue facing the indusiry toJay..
'-4+" - . '.. , FIamson highlighted thc Corporation's progress during I985, a period of challenge and opportunity I'or ihc Cinan- Brmfirs ofDcrczzulvr<'<><<
's cial services industry.'"Because the natureof our business subject to tluctuations in national and international "Ii is ahun Janily clear that deregulation is the solution. not ihc cause. for many of thc problems of thc banking indus- ~gW <~'->~:~
'.A economies, we have carel'ully Planned and built diversity and balance into our operations in terms of products and
~
t~.- Flamson remarked Thc bcneliis o fderegulation "include diversi!ication o f W<ggf>~+'
.
- geogral)hy. Flamson fur ers a aL "'
a"ce' belieic. has been pivotal in our ability to capitalize on new
'arnings streams. substantial synergy utilixing established;;..~~~>'>z-.
customer bases, maximization of existing delivery systems oPPortunities to exPand our business."... >g"~~+'p>>
<<4p>> 'ear Flamson nnted that l985 <<es the eleventh consccutivc ol'strong profit growth fo7 Security Pacilic. AAcr.tax
~n>>gs increased I I percent to 5323 million <<hich "
an J economics of scale that drop unit a>sts to remarkably . j,~>>'gj-~ Y4 low Icvcls. Security Pacific has dcmonsiratcd the valiJity of those benefits ol deregulation
-To further demonstrate thai point. last year 43 pirccnt
~~~lp
. pLsnd Security PaciCicscvcnth a:nong thc a>untry's largest of our total corporate earnings came from non.bank sub.
lYJnk hoMing comPanics. Earnings Pcr sharc werc 54.35 a "'idiarics ihai n>ostly didn't exist tcn years ago." I<!am>on
' ten pcrccnt incrcasc from thc previous year. noted. -That includes leasing. consumer and a>mmcrcial ~~+>>.
Qg 'During the past twelve months." Flan>><>n continued. financc. vcnturc capital and so on. Thai's whai pro Juct ~~".'r c)X+%
"wc haic taken some decisive steps to ensure ihc strength
~ " and st~bility of this Corporation which will have historic and geographical diversification has meani to us sn far.
"ln buildin the basic business ofbanl in". one of)he w'=~ig~$~g
~9:~~ <<~
significance to the future ol'Security Pacilic." These include the agrccmcnt to acquirc Arizona Bane<<est Cor-most onerous industrv restraints Ls ihe intcrsta<c iiiuc." Flams,>n nted -The SlcFadden Aci and ihc Dnglas g
'ory poration. holding a>mpany lor Thc Arizona Itank. ihe " Aniendmcnt. both of which prcvint growth acrois state third largest bank in that state. The agreemcnt. to take lines, arc uniquely American amccpts which don'i exist I...
clfeet in October l986 following state and federal regula. clscwherc. Thc maintcr ance of thoie laws is short.s>ghtcd. g">i++'" " aPProval. will give Security Pacific-a vcr)'igh qual. incfiicient. and antleonsumcr. ~ ."'"'.<<I~A iiy prcscncc in a very high quality market." saiJ I'lamson.
"The ~'<;='4-<vlk The April completion of thc acquisition of an 83 percent original rationale fnr Binsc interstate restraints is just not vah J todav. and I'm nnt sure thai it cvcr <<Js, share in Hoare Govctt Limitid.one of thc most prestigious .
Flamson continued. "With thoic limitation~. American '>~".~~p:-' and competent securities firms based in London, is another banks cannot reasonably hc cxpcctcd to am>pete on an signiCicant stcP for Security Pacific. Fhmson additionally equal f<>oting with their international cnuntcrparii. In rcmarLcd. "wc have substantially incrcascd our Icvcl oC, Japan, Qcrmanv, France. England and < anada. a small ~;-~P~~~ . market prcsencc in Canada. in Australia and in other number of rclat'tvciy large hanks con>pete cila:iivcly in ",:b~.-'.R+cy " mature and important financial markets. both domcsi.c and micrnational markets.
"BuiMing I'rom ourstrong and growing base herc in "Lonking I'orward I'lamson observed. -we tbcl very ~'$<:;.v~'~-
.'P+~ ' Californi," Flamson said. "<<c scc our growing global optimisiic about'thc future. Cali fi>rnia amtinuci tn be a
~t~~ng and dynamic ma customers in thc rapidly evolving financial scrviccs able to move cll'caivcly into other key husincii and Iinan- .,';--<;~'>~~,>< -.
cial ma'ikeis in thc U S. an J'<>vers>>a<. hlcn Jing traditional banking ext>crtisc and ncw, leading algc tlnancial service;. !<~ ~t-ip~+:- That diversity of scrvicc an J geography places Sccuriiy . i; ':~~Ps +~<>>- squarely and solidly on thc frontlinc of<bc tinanci <I <.':- jk-'.q',.4'civiaa
'acilic industry as wc move Co<ward i
r ~~ 2 i ' ve~~' g
,i r
,cy C ~+Jl o
be um
../
p~~ F~~~f..
<<j .>, ~
. .~;, 'eorge '. At the conclusion vfhis rcmacks. Iylamsb>n intrvJuccd I'. hfvvdy. I'cs>>IJcnt an J Chief Operating OAirer.
<<'hO dibeuSSed (hC PrineiPal VPCrating SyStemS Vt'tl>e CV'r-ing and manufactun J hvubing Iinancing." b>bfbx>dysai J.
"Il>cse a>n>panib>> and suhuidiafll>> I>parole I'rvm appri>xi-inately 5(C0 VtlieeS in 4(l 'btutb>> Jn J a Jbblen Ibrelmn IX>UII ~
<q~<....-.".;- .. '.porativnin l985. ~
tries. An cn(rcprcneuri;>I spirit Jri>b>> ihc I>inancial Q'WQ "
.'.: . ',0>ha>>fzacfo>>af Ilafa"ce '
~ Services Sbsten> anJ alihvu h each husincyus(unctivnsas '~~W -~r .
= ~ ~ an independent prv(it center. their interrelationships create:>:;~<<.y>q A large part of our sos~scan bc attrihutcJ tv (he bal- pro(it and gr>bwth vpix>rtuniiics I'vr Ihc gfvup as a of our organization." bloody@>n>n>en(ed. "Over the "A(lcrdeducting Ix>r!x>rate cxpcnse. thc Financial whole.'ance past decade we have sucseessfully construcicd an J n>unaging Services S>>tcm ea~rnsxl S !39 million in I985. This rcprc-a balanced linancial services institution. sentcd 43 percent vt'the Corporation's net income. I>ur-
'The California Banking anJ Real L'sta(e Industries .thermore. this group vl'a>n>panis>> produced about ISO System f(>cus>us on (hc California retail and>x>mmeraal basis points return on poets last year. In 1984. <<c refx>i(cd;~d:m"i~~.
markets through thc California Branch Bankin- Group. Aic Iyinanaal Scrvia~ System as producing 30 p<<rbncnt
~ 'hich has approximately
- .'. ".."-'" 'erving over 2 5 million custvme(s." hfvody said.-The
. 600 banking vA!a>> statewide. the total corporate earnings. The jump tv 43 j>creen( of o('jr;m~
total carnines in l985 is the result of'very solid growth.
~
~
focus in thc California bank continues to bc ihe develop- combined wifn a restructuring which addc J about 4 pcr-
'Y~ ~
5 r .." ment of low~I. high. quality dclivcry systems. (Vc are cent or 5 percent to (he 43 pecbeent contribution.
.;, g;e+;b>.'k.s
.capitalizing on opportunitics to provide a full line vf finJn-, -Security Pacilic Automation Company I'Sl'AC'). thc
'. cial scnices, coupled with high quality customer service( " - fourth major componcn( of Security Pacilic Corporation, is "OveralL thc California Dankmg(k Real Estate Indu~- a division of(he Dank. In l985 Sl'AC moved beyond pro. ~ 5'<~~r..
'trieS S3wtem COntribu(Cd rOughly44 pCrCCnt Of SeCuriiy Viding data prveeSS!ng and teleevmmunieationx SCrVieeS tO p'ZI>~
l9S5 proA(s, earning $ 140.6 million. This <<>san 'ecurity Pacific and into (he cxtcrnal macketplasx.. Thc = g'lcm~'acilic's 0,irA<<~~~ ><jul II pcrccnt increase over l984 earnings. Furthermore. the return on assetlof 80 basis points reAects a consis(ently . company has bccomc an important supplier vf a broad range of technology.base J scrvics>> to other companies in improving trend over the past several yeacs. The Cali(omia ihc financial services industry. 8~:Prpj '.
+&<4 .-..:; banking units have always been our top priority and . "As part ol'its sti!I embryonic ex(crnal marketing a>xivi-hrgest contributor tv earnings. They have provided the "
found!ation'for our profitable diversification Jurine ihe tii>>, SPAC sold SI4 million ofscrviccs tv oihcr f>nancial
'service companies. The con>pany currently has plans io
>~ad" ~Q$ 's
- past decade. further develop its expertise in spccializcd fielJs. In l986.
; - ~
"Thc restructured Capital Markets Sysiem administer>>
. . thc <<x>c!dwidc activiYics of thc Corporation and thc Bank'ecome SPAC is cxpec(e J (o nearly double its oubide rcvcnucs and a new source vt pro(its for Security Pacilic."
~i/~~
in the areas of wholesale banking. capital markets. invest-' " ments and sccuri(i'" Moody c'xplained. "Security PaciAc, Security'aris Empfalvrs has dcvelopcd a strong toundauon of'corpomt and inter-. Balance. diversity and adaptability have played key roles 'pg-+4k~. J.. national banking skills. foreign exchange and sccuriiies in thc success of Security Paci(ic. IIowcvcr. "onc very trading operations. and invcs(ment banking capabilities. During thc past year >m>'ave made significant investments important element must nvt hc forgotten." bs rcmarkcil,
-Thc 30.000 people of Security I"ucigc dcscnre p>".
->p~ei~s>
,. in staA'and technology. Wc also continue to monitor and much of tt>e~m~tfvr the sucks of tlbc Cvrporaiivn.
4+Q;- '.-".. cvaluateglobalmarkets.dcvclopingncwfinancialins(ru- 'hcirtcamwork.Acx> .'.Iuyandpcrsevcrancearcrb>>lx>nsi-
..'..='.'ents
~
and strategies (v satisfy Ihe needs ofourclients ' iiv Pacific. "A~><<r around ihc <<x>rl "For Ihe I'ull year l485. the Capital Iviarkets System
~ -
ble for (hc proercss achicvc J a1 "Our employees'con(rib>itivns gv bc>br,. at <<x>ck." hc continued. "In aJdition to managing u
'at they do
.- pg,r~~~f -$~ m ed b utseoodtdon.ortspemuntoft tnluccuity, proremtonet po ibid . of ur pt t . n. -".'mbf "p<>~, ~ ~ - ~
Pacific profits, That co>nt>aies w>th $ 67 million. or 23 pcr- tribute actively to their commun!iles. Secor!Tean>. our cvr-
-'.y+:,>:" ".-
'tb-w.
'; 'or cent of total SPC pcvA(s in l984." This income measure, omdd i(dc ntty trmtcdbyt ntomesu d . ccruub.
porate volunteer program. is a g(x>d example vf'thc commtt emtb rs st>lb lid dbtcmpb>> esb c
'... example. Ihc Capital h(arke(s Svstem absorbed SI75 . to theircommuni(is>>. During l985. SccuriTeam's 3.000 ~>bP~', ~ .
million. or 49 percent of loan losses. as well as'a majority sharc of the S I09 million cost of carrying non-accruals 1985. "We expect thc Capital Markets System to improve its profit contribution in !9F6 Ior t<<x> reasons." bloody in, '"
'ast mcmbcrs <<x>eked on l67 prvlects. voluntccrirg nearly 30.000 hours of their own iime."
Moody added that at a special White I!ouse ccrcmvny lone. hc <<eas proud to accept a private sector iniiiativc
~b;.~bg~~<j~>2c.
stated. "Fist, we cxt>cct profit growth from our mcr- " award I'rom Prcsidcnt Reagan. on behalf of Security chant banking, activity. Second, wc anticipate fe<<wr loan: Pacific. Thc award recognizes thc Corporation for its vut-losses and lower costs associa(ed with thc level of non- -,
'The stan Jing comrnuni(y invvlvemcn( in supporting
('~~,~" loans. ' I inancial Services System, a group ofnon-bank..
'olutions to public. social and economic problems.
private'erforming
~ . In closing. Moody rcmarkcd tostockholJcrs. "it is domestic and international subsidiaries, oAbrs u variety innovaiivc products and services such as consumer and of, important that you rcalizc your ac(ivc su p port of Sccucity Pacific and your confidcncc in this vrganizaiion arc impvr-commercial finance, leasing. venture capital, insurance. tant clemcnts in our su>ress, 'fhank vou for ihat support e,"u'igu-'~, .!i+
;,'.,; "..., 'ortgage banking. disa>unt brvkcragc. au(o dealer financ- and u>of>dence."
I
\ +~
k'C. Ck c
'ke fh>anchl Review aac g ineaime fa>r,the lir. t quar(er ol'986 iot Jle J 587.9 .
million. 20 percent Jboaae (he 573.5 million (cpa>naxl fair I III: re(ufn ikn Jaer I 'i'aaa'la aa la() 7>I Iia'raaent in ()rat Itu incr aximp >red lo I> 6') f orient ra Iaaana J (iir )ill ihi'986
- a> j rkskgggi.
the (irxt quanir Of I')85. On a pCr as>a>luau> ah;iie bN>s. net lit'985.'I hc Ja1hne in il>c rcturll akll,>a a'IJ "i aaallll>lail> inax>n>e was S I.l I. up I I pcravn( (riim a sear ago. The ati>ckholdeis aquila" friin> 155 percent tor.ill of I')85 Io Ia>wei aarning>> per ahare growih ra(e uaa intluei>ax: J by the 14.9 peravnt ill the 1986 lira> quarto> re()ca'la Ihe iaau.ince ol u fout th quar(er 1985 issuance of pre)irri'J an J axinuuam 583 milliiinI>('aaan>in>an a>aavL i<<>he 1985 fanirth qu;ir(cr.
>>toi'kk SiocLhol Jers'qui(a (otalc J 52.5.)kx million at Slarch 31.
A sirong increase in non into(ca( inax>>nc an Jsuili J 198(i. up '4 percent Iron> a aelir ag.i. I hc inure.>ae includca growth in nct intcrikst inax>n>e <<'ire responsible f'r ihc ba>th thc pra>ax:axis lrom the isauai>>cot commie> ati>eL anJ
- ~ . 'amings improvement bctuvcn lir. t quancr . Thegrou(hk thc 1985 lourih q(> Jner issuance oiSI SO million iil pri-in non interesi inca>mc uas a8'ikete J by the ('orp iration s lbrra1I sta>a'k. The ak>ek AJs I. aua.'J in antiiipalion aa(;>ax)ni-gain from (hc previously announaked a;>lc of RSI) S<<curi- si(ia>nc, pfiniqpJ)la'll/a>na BJna'I 'a.'al ( aifIH>flit>>Ill, I he a ties Corp. and by incrcasak>> in gains on sales ot investment prin>ary aJpital rJtio arJa 7.03 p lax:nt Ji %(arab 31. )98(a.
u sa1aiiities. loan Icc>> and foreign cxihange gaina. Net inter. base J i>n pcrioJ.in J capital and quarto(la aaaeraike aaae(a. k
*'et c>>t income incrax>se J duc to earning asset groaa (h. >i>> the interest margin remained virtually unchanged I'rom Ihc ax>mpaied to fi.75 pera".>I a sear a o and 738) pc(oem at a~us(
*:.'. ',, . yxrJr-Jgo quarter. These favorJhle tJitor werc parti Jlly offset by an Inere~~ in na>n-inter>k>>t expense Jnd a larger provision for era1II( loase>>..
t)a1aember 31. 198ac. 11>e total a Jpital ratio u>ia 8.4(> percent compared to 7.55 peravnt a a car ago an J 1.95 pere at at sear-cnd 1985. k ci
, Organise(innally. the nc( inca>mc ol'hc ( a lifornia Bank- I>'c( Inrcrcsr Inavunc e ing and Real Lkatatc Industriik>> Sy>>tcm un J thc Capital Taxable equivalent nel intekikst income totaled 544).3 Markets System incraJsed 44 and 40 pc>nnt. rcspeetiax:Iy.- million in thc lir t quarter of 1986. Jn ina riaae <<I'12 pcr-
Net
.bctween lirst quarters. Thc California Banking anJ RaJ) een( from the sear.ago quarter. The increaae alas Jtfrihut-Es(ate lndu>>inik>> Sastcm cxpcricnaaed graiwth in. both net able (o earning asset granvth of 12 pcraent. aa thc nei
.', 'Intern( income and non intcrcst inakome. Thc Capi(aDIar-kets System benefited fra>m incrcasa1I no.> ~ interest incom'i.
interest margin at 4.09 perecn( was vinualla'nchanged from 4.08 pcnxnt in 1985. which included the gJin I'rom the sale ol'RM3 Seiurities The negative impact <<f non.perl'orming loans and leasi>> Corp. These favorable items were panially oil'>>et in boih on ax>n>>olidatcd net interest ineaiine anuiuntad to 525.5
, organizations by a larger pn>vision for cridit Ioase>> an J million (50.17 pcr aha rc. aller taxea) in ih<<1986 lii.i kk higher rion.interest expense. Nct income ol'ihc Ilinancial quancr. down from 527.8 million (50.19 per ahJre. al'ter kn
- Services Sys(cm declined 9 perakcn(. This dec)inc was pri ~ taxca) a year ago. Substantially all ol'the neg Jtive impact wkS, QQP k,
manly m the Vcn(ure Capnal Group as a result of Iugher ra eapi(al gains in the tlrst quarter of )985. a CICauk, k k
/ca Yg<
Earn>'ngs Sun>n>c>r) I kn nkcukek Net inteleS) inCOmeau '...~...,',
~
! aa nihk I nska) akrkhyi.
S441.3
'94.0
'" 9".'3 Ink>is cct>cc>ckKI at~Lnl 5-'90 I'acacnl 12
;-A4~
e
'3.4
~
Non..n',e(es(inccine ., 2'.6 7 . 613 30
'ess pcovisx)n for cre(f>t lasses ..' -.1162 '8.8 314 (7 el a
~v~u~ans,
~
Lm; otner non interest expend Stal'. expense. Other expel>se . 239.0 228.1 2162 1895 ',
. '28 36,6 (i
r 467.1 '05 7 61-' 5 a>1>>
'Income before mccme taxes "
152.0 13'.5 1 5 13
'9.0 1
Less a "Iusaneni . -. 23 Le>>S Ii>Come taxeS 4C.7 42.0 (I 31 (3)
~
- A~~c Neth"moire niicklutc
~
eel 4 L,cuu a ccnkuknakikaunaCnn ekicakhkinaacnc.recncnla'mucnkC'a J uc'Le' 5 87.9 N LJ&k
. S 735 s~ L-k c~k a ~ . 'lc ee>Ckn Slull) i>anskck(uka>knl>k>u cnJL.ZSI>he(ca.uaca>ukaakna<J 5144 nac uncnl 20
.-'sa k >ca)kic ke kckknc ski>a>cack n an>crea> >naacn"
~
>X;;
p-' u~
A sQ Sr Li~h'.s4
~~ SU ii, rs 'ss'C'w@rsS.
<<us Ihe result of domi>>tic non.pcr('orming credit<< lb(al .9uurrr( lind I'srs uf %(sssh Ih l ",: (t int '
'rie pcrflirming hiani aml Icali>> <<ere S I,(171 milli<<n. <<r I'unsll firuhvh Ivsi 4'ess '
3.(1 pc(sent ol'otal loans an J Ieasi>>. at hi<<rib 31. 198(s. 4 c.s 0'
~own 563 million from l)ccemhcr jap
'4-s~r
- 31. 1985. h(TJ'S I 18 million fro(n March 31. 1985. Ihith lhuni>>tic an J interna-
. tional non.perlbrming loans and Icosi>> decline J I'rsml sot."I( QSS(st
-'sn; ense oem>s:S h S49,763 43s(04 15863 ar
'" r
"':nC
~s Dccemhir 31. 1985. Thc don(untie deereaie <<as iu ',"4 ratruituri>>I lii(ns. primarily usa rault ot'a loan that linus ssssfs Qe 13(9 435 rcnegotiatcd to a market ra(i o('interi>>t. I"artially oil<<:(ting 5.OC(oiusu' S 's sl 2.487 ";c " 105 4
thi>> decrcasc was an increase in non-accrual credits. printarily in the energy and "other- categories. 'I'he dei'line In international ere J its wus mainly relate J to Argen(ine International net interest income totali J 559.8 million in loans. Detail of nun.pcrlorming llianl and Ieasi>> tiir thc thc (its( quarter o('1986. up 3'percent I'rom a lear ags). I hc past,live quarter>> is shuwn in thtoe (able on page sis. increase fi>>UI(i'd I'rom earning asset grliwlh ol 19 pc(cent. Domatic net intirest income at S381.5 million <<us 14 as Ihe ne( interest margin declined. Average in(crnatiimal
, percent above the prior-year lir. I quarter. The increase hians increased 18 perixnt between Iir. t quartes primarily between quarters <<as duc to un I I percent increase in re(lecting continued gro<<th and cquid(ions in indigenous average earning assets and a higher net interest margin o('.54 banking ac(ivities in Aust(alta unJ ('ana Ja ai well as in thc person( iompared Io 4.40 pcrccnt in the 1985 Iirst Corporation's finance subsidiaries.
l'Uaftcr, Tlie decline in the international nct interest ntargin from
- r. All major domestic earning asset eategiiria were above 2.91 pcrccnt to 2A9 pc'riant in thc 1986 (ir. t quarter year.ago levels. Although consumer loans cspcrieniseJ raulted in part from signilieant growth in invcitment sccu-:
strong gro<>and trading account assets <<hiih have lower sprea Js ecut higher. Ihc'rate of growth has slosved sins': mid-1985. Ihan do other earning assets. 'I'hc net interest margin was Domestic business loans increased 6 percent. while real abu negativily a(fee(ed by a decline in non-interl>>(-
~ cstatc loins mcreaseJ 3 percent between quarters. Average bea ring deposits.
nct core deposits grew 9 pcrant between list quart<<rs.
'with thc largat in:rcasa in demand dcpo. it(. up 14 per- iv'un.lnrrrrsr Inromr JL ~
cent. an J interest/checking deposits. up 19 periculo. Non.interest inelmtc totaled 5294.0 million ir. the Iir. I The dome tic nct in(erat margin improved from a year- quarter ol'1986. un increase of 567.3 Inillion. ur 30 percent,
'ago as interest rata paid on funding sources declined morc osci thc same perioJ last year. In additiun to a S34;7 rapidly than caming asset yields. This relationship is not .",-cCc-.
espxtcd to continue as Ihe decline in cunsumir deposit js 4+ < rates modcratcs. s(r
+%
3 Wktsiss fh444 %(4ss(s 4(, Irhirl<<itlssis4~ i Anoljsf( ofA'rr Intrrrrr inrun(r" I - IV(sh
~
I tt4 lh:stShl IVSSthi (,4 tssss es s s Domrsrir Oprrorions 5 3'43 ~A'~qf Net 4>>! crest income 38'I 5 5 4IP 11 Ave(age eaiprN3 assets 533.747 S30,5:0 S3,237 11 Net interest marge( 4.549o -'0>> ~ 0 14lv In(rrnorionol Ogrrorions Net interest income Average eounirig assets S 5 9.618 59.8, 5 5 6 056 530, "
.5 S1.562 18 3 19 n
iVel int.rest margsr( " 2.49% 2 9lr>> (042)c 8.~ r rol Net m(ernSI inCC m
~ - -
S 4413 ', S 3923 s
~ ~
5 490
-. ~ >>. ss-12
'C' .-...
Ave(ego earning asses S43,365 . S38.566 S '.799 'i2 W" maigin; Net inte(ns( ' 4.09% -'8is 4&2' 0 O'I"'. tv~ r
's P4 O ~ %' uh" V 4 4 '4
IIsIUI(\ ULsMCss(vss4<hltsssss r' ~+@.,~gpP+.sr(
4 Financial krtvrtt ronrlnurtl
.,..;,""'his million prc.tas gain <in the sate of IOI3 Securities Ciirp..
category invluJcd SI5 9 million ot'g iins i>>i <<iles of businc>> dctelopmtnit etl'orts in the laucr p.irt tit)84. It is expected (liat tliese lt<<ivi <<ill droit t~tl'I (ter in thc star.
~
', ',' ~
', investment secuiitit~. up I'rom S().3 million in thc 2ear.ago quarter. Other increases included loan ties. up S7.8 million.anJ forci nesvhangegains.up 554 million.
', A( Sdarvh 31. Lt>56. (lie re.vite lair credit lti.ses ttus S591.3 million. an increase ot'571, I inilliiin1'rtoil ll 'Le.tr ago.'Ihc ratioot'the resene tbrercdit loiisn tolotits.tttd
~ ~ -
. Sccuri(iv~-related transactiiin fees tlcclineJ 55.4 million leases tiutstamtin! <<a! 1.61 percent at Slarvh 31. I')S..
',' generating thee fees esperienccd gro<<th. (iains on i(les ofcquitysowitia.primarilvin the Yen(ore(apital
- Group. (otaled 58 <.million in (he'19)(6 tir. t quarter. dotvn
..0))I<<i(bn l<<rrr'r igvP<<tr Total non-.'a(crest espcttsc tor the tluartcr 4a. 5467.1
. fnim the lirst quarter 1985 level ol'Sit).5 million., million. up S61.4 milliiin.or 15 percent. from thc 1985 list quarter.
Prort'sion for Crrtiill.osvrs
~ ', .. s
~
~
Total stall cspensc at 5239.() million inerci<<al I I pcr-
.-'Thc provision ftir creJit Itisses increase 537 4 nt tllion from cent Irom thc prior year (i(st quarter. Average I'ull (imc the comparable 1985 pcriwl to SI 162 million in the lint equivalent stat!'increase J 2 percent from the prittr.vicar quar(cr ol'191(6. The provision esa edcd nct credi( Ittsscs quarter to 3() 595 per~>ns.
byS29.5 million anJ furthcrstrcngthcned the reserve tiir..'thcrespensc<<as S228.1 million.up 20 percent from crvdit losses. Yct crcJit ktssv>> in thc 19)(6 (list quarter '. - ihc eimiparablc I')85 quarter. Sion( m tjor ctt tegoriev ot'
. '; - tutalcd S86.7 million compared to 570> million in ihc 1985. other espcnsc tvcre above list quarter 19((5 levels.
Iirst quarter. Thc increase <<as etinccntrtited in thc con. r samer loan and lease eategorit~. Thc largest increase <<zs
. in Ready Resefvhvvount jt:barged ear J loans tvhich.re(loots The provision I'or income tunes declined bet<<teen (ir. t quar(ers. re(lee(ing a decline in thc etfective tas rate to
~
@t('4 3I 6p rvint from 364 pcrvtcnt in theycar agoquar(cr.'fh C
i tr, 1 s ~ ~
~ ~ t 4 turb io<s Fint - (awnh I ttno Scots lint fNo Pcrf if t.w Atwsf 0wnct E)wttn t)~intr Vssntt l)wtttt 1 ae oval.<<i t ~ t Et)d ol pe(ed.
Non aocrual loans a".4) (6ases a,m&Pv Dc'Act(4:
'55 Peatestateretatedbusiness' S 100 108 147 5 128 5 136 9
~
'24, Energy,, is 194 280 316 291
' ... " 149,
'Ag.tcutture Otnt~ (primarily bus ness)
'-,' ' "~
356 194 128
. 319 218
'.16 857 2'4, . 346 248
.116 256 233 In!ernationat - . .
"Total ndn<CCfual RuflS arid )eases 1.054 967 1.( 44 1. 162 1.032 P,w<-n
-. ~
. ~;,
. Res(ice;ared Runs and teavA; Oo~tc:
Peal i<ate retated 0:bei (oranam. custnw' t)t wm-tcansand ~ases
', . ~:
~
~,',
9 8, 17
~
153 14 167 '71 - 152, 19 153 151 15'3, l57
'4 v~ '1.071..... S1.134
.&~
4'otalresttuctuted
.St 319 St.(89 -
p '," v .~ (, "
=
r.. gr~ To(etna otidlorm~<toansand A ...Cvt.aseS
.j4.;x~c
" ~
vs?
~
~
AKA~.'t 06S' 51 315
.tnt u A-Th
'r 3 atJ AS a lj;t tn I OI (O(a(IOans and i+'aae IttV(nCrA)', 2 96% '" 79 3 92
~ -' t
~
t(e!r~~4<<rteninnttetesttncotne r,~zsA " 'v' . <<t
~tLTMttssn
. T 25.5 a 4'ed.M', 5 123 L
5 3'8 x sion l " 5rvu 342 'w"2l.ii, ~ 5 t i I t (4int se Tvr sdvn 4 i itin~i~.
'I 4~sx~.
g~-t ,6
dt>>linc~ultid primarily I'romhhieherproportionof public, icch>f t>utitan Jin i. ot'<<hiih 67 million rcpfc-
~ income heing talccl at thc lo<<cr capital gaini rale. iit>lcd >I'>tcfcit a>t J 6 I tt>> lhi>!> fcptcict>teil pf>t>i'>p>l.
'lotal outitandings to Braril at hlarvh 3I. Iugf>. <<crc
. Sfarus of Signi/iranr Infrrnarionul Crrdirs approximately SSit> million. subitantialli:>II of <<hiih
";Total outstandings to hfcxia> at March 3l. I9g6. werc <<crc to governmental '.tnd financial inittiutit>n<<!it>o-approximately SS IS million. of <<hich approximately per fofn>ing Brarilian lt>ans werc Sf3 million >t Starch 3I.
; ~
S3I 5 millii>n and S200 million werc to thc public icitor. l9Ã6. unchanged frotn I )i>>vt>>hcr 3l. IVRS.
.. which inclu Jcs banks. an J thc private si>>tort reipcctively. During thc quarter. Bmril an J iti Bank Advi<<>ry (ir<<up Interest pa>ments on t>uhlic-sector debt <<ccrc generally reached agrccmcnt on a INS-R6 financial plan <ich pro-cuffcnL Non-perform>ng hfcxican private.sector loans vides Ior a new S3I billion debt rctinancing package. This
-'otaled S22 m>llion at March 3l. f986. ct>mpareJ to S23 prop>>sal <<ould rearucturc INS Jcht maturnics I'or a million at Dcccmbcr 3l. 19SS. scvcn year'erl>>d pfov>Jc J onc)caf pt>ntponcmcnt of
'Thc hfcxican government. thc International Monetary I9II6 principal maturities and u one year extension of trade
' I und (IMF). anJ the lVorld Bank are currently holJing and interbank credit lines. Under thii ncw tinancial pack-
, discussions concerning the hfexican government s tinancial age, t otltractuaf spfca Js otl those Jcht n>atufitlcs <<ould requirements. Mexico's llnancial rcqucst fi>r IN6 may average I'> f percentage pointi above thc London Inter-approximate S6 billion due to thc impact of'declining bank OITcrcJ Rate ILI>IOR).The agrccn>cnt ii subject to
<<orid oil prices. In addition. the hfexican government may thc approval of thc individual banks winch tx>mprisc thc, "seek intcrcst rate onni~~ions cn its foreign Jcbt. Once an lending group.
"~ agrecfncnt is reachc J with the ISIF and the LVorld BanL. I)urlng the lira quarter of l986>. the Ct>rporation rca>g.
will begin <<ith tht. commercial banks com-" nizcd apprnxin>ately SIS million in interi>>t income on
' negotiations prising the lending group. Brasf lian outstan Jings. Thc Corporatit>n rccciiicd cash D'uring thc Ilrst quarter of l9S6. the Corporation recog; payments of abt>ut S IS million on Bmrilian outstandingc.
nizcd approximately S7 million in intcrcst >ncome on all of which "rcprcscnte J intcru>>t paymenti. Mexican public-sector outstandings. The Corporation . ivcd cash payments ol'about Sg million on hfcxican c Wji Pnmr, Frdhrnl Funds, and ln> urfdhfonry hfarkrf drrount Ru(n Domestic ¹f Infrrrsfhfaq;in J. r: '; uwttcttl A<ctnfci 16'V k
'I I
i
'I
~ '
n>r I
~t
- l
\
<<c'cri t>
'2
>n >985 N88 >985 c
.- ~ Ptin>c R>tc ~ ltc>l a>> fntntnf Auc<<
~ I cl/ctlt I ntntt Rntc ' tntctcit tlwut I.t>ah fur tatntnf Aims vjJI, . n tnwttit Stunt> Ms>It> Actin>nt Rntc. n iict >ntcrc<<%4>I in i>r ~
"c>t n>p
~ t
0
ConsoBrfated Balance Sheet ryan~ ~r. Sn <<arri i Ihr<<P<<avfe<<ver>tat<<em I eater'a<<Ji~rrv<< pter i'e ii h<<l 5 <<d xtef>n I ana <<r4>rve n<< fj)g(! rfxrvrr Msh aand tt"c froni banks Cue frO>nbankS-en;Crest <<bearing
'"5'4.423 2,135
':." 5 BIII
<<5 aul Invcsut<<cifl sccur<<t>CS ~ 2,329 ., I 9"5 404
. rarug aLcount ..sets 911 5 '>:<<0<< <<371 Federal tune sokf.3rd securtt>CS under rCSa>e agreen!ntS 962 <<320 Loans 33.481 30,<<I73 2:608 Lease frLtrrcii<< 2.710 2.2?9 -'81 total loans and kase fxiancfng 36,191 33. I 0? 3 089 te~+~<< LWS rCSenre fOr Credtl eSSeS . 591 GZO 7'I f4et loans wd Ieasc ftnanctng " ,, 35.500 3?.582 3 018 Premises'and equip>hunt 684 GIG G8 vee e Customers'cceplance t>ab<<t<<ty .991. I.r 75 <284)
Earned rnt'e>CSI reCC vabk. 410 4'e 7 (7) 5$<<~ ..* . -, Aea! i@ate ox>M 158 127 31 p Cetalel OSSCIS,' 1.501 QO'> 598 To<<tat assets S50.104 545.222 5 '.882
~s> 'rib>fina Demand depos>ts in domestc otticeS ~ S '7.704 S 6.209 SI.'95 Interest/checking depos ts in domestic oftices 2.408 2,019 389 Insured nioney fnarket accounts in dorrestc oftces 4,394 4?55 129 Dthcr saingsaccoun'.s in domestc otfces 1,906 'I .737 'IG9 Txne depos ts'in domeslc otf>ccs-.under 5/00.000 3.565 ~ 3.4 I e 154
~
. ~ Txt>e depo~ts in dlrestc otfCeS-5 too OOG and acr 6.205 I I0 95 To'!al dcpos>ts in dort'cshc 0'tccs 26.182 23.751 2.431 Decoct<< totdcnnancnaa a. d te oat<<net a neat a nte 6.781 6.987 r?06) gA vxp-;N-ffc't<<.
to tat dr con '.a . 32.963 >a
<<. ~ 4<<r 2.?25 Federal funds purchased and sccuntics urcer repurchase agrecnicnts 2.424 .2. '85 . (Gl)
Co tllmcrcial'papLv 2.528 9 306 22? Other shorl term funds borrovrcd 2.300 I 775 525 Inter~ate term debt 2,752 I;707 I 045 Long term debt 844 <<43 40I Sucord;nated capttai no! Cs 500 500 Acceptances outstaru,ng 991 . 1.275> (284) Accrued interest, laxes and other expanse 1,283 1,16'12 119 Gtncr '1.011 '199 rgt>Atm<'otat Ieabr<<hes 47.596, "3.205 L391
'Err>r)rfrr>ldcrx'EqrriO .
Preferred stock-w.nout par value sreva . sn'r>ere<<5 'Qxr>a'<<5."AO SONON SW<w <<<<de<<r l'ot<<6 "ao COre VnOn StOCk-Slo'Par Vahre Vnv r<<~~ >5'-dOOOr>r>O'I SrV~ veen<<>N> >f>ea rer >ISO ter I'ra ~ i%5-<<tX<<txfOOIO rs. l '5 YA 769 737 37
* '66 Surp.'us 519 ~ 53 a<<x Una~<.d OrOhlS 1.070 '. 825 255 <<1 ffy'"n>r><< ~
Lrm comnon stock iii treasury. at cost, raax "ts 5>e.vv5 2.508 . Z,o?8 I I, f80 . r I I! octal Stoohho<<CC>S Cgu>ty 2.5OB Z.OI7 .:91 . )
>'wp Total rdbtr>hes grad StockhoUeis 'outlv 550.104 & b,Z?2 S4.8t)2 8 ~
LJ I t
ConsoGI)a(art Statement ol Earn)ngs Srcrcnli' c'tl/Ir C cr/cccnal'ctralid$ 1hctcrcdrlt'\ ~
~ VV c'" ~
rice 5tttctctn*e<<ccccrtrctciccc ctcc ~oct IM!h 'ta'linicicci
. '/nrr!esrt/neome
. Loaiis 951,8 PJ/
~
..': - ~
Balances due from banks S 476 e cn 5 ('i23)
.State and munccpat cnvc~.mo nt sc<<:ur>,~e 4,4 -') ~t04)
~ ..." '!hrn invc'.stincnt secu!tl es ~
45.5 376 / \j I) accrg OCCOunl OSSets 23.3 Gl 1/2 Leave linanci = c ~ 71.3 63'/ /6 Total J!fclclst nicome . ),143.9 ).094 2 '9 / c* lnre!esr Erprnsr
"'- OITNstts .
454.8 c 493 2 (38:)
-...'- -, Fcdera'. funds'puiChascd and securities, CC urdcr rt<<nsr chase agreemems 69. I 769 (7 8)
Conrnel cvat pape, 53.3 :95 38 n ~
... ". '.Other snort term tunds borlo ved 43.4 298 136
'. ",tntermedcateaerm debt ~ .. -"- 77.0 509 26;1
;:. LOn term debt 28.4 206 7.8 Total inlet est expense 726.0 720 9
' C
~ Net Interest.income 417.9 373 3 446
~-
Prorision for Crer/ir Losses 116 2 788 3 c t<et interest income fc~ prov s'on for credit pcs 301.7 44 5 72
/Ion'Intr!esl Insome
'.:- ." Lo-nlees C 43.8 36 0 7.8
. ~..." SeNICO c."arges on de pcs:1 acco'unts 43.0 397 33
-'Secur;t es reia',ed transac:ion lees 35.5 40,9 (5,4)
Fiduciary and investment management fees ~, 22.9 180. 49 )c()r;'c lC,
...)ntetna:enai fees and Otr:er Income A 19.3 168
'. Inve. n~t secunties gams 2.5'3 15.9 1 5.6 Charge card merchant lm 14.0 ~
8 2?
/,
1
~;, Cast On Sa'e Ot brttrty Se:urcheS 8.5 145 (11 0)
'. ~ TcpCcng a~unt pfofeS 4.6 6,6 (2 0)
Qrhr<< income 86.5 37 I Tata) non cnÃ<<est crtcoire 294.0 226 67 3 Orb rr Noir-Intr!esr Erpen!e Slat t orpensc 2390 2I62 228 Sc'
- .,': -Nct occupartcy-prehvsw
' 46.5 423 Furnihire and equcpmcnt ecpense 37.2 28.
' 88 e~mVraneasons esoen4e 'I 16.0 13 3. 2,/
gCOCC ..Qaier op. atak) er pcn.e" 'P
)28.4 )055 229
.;, 'Otal t"
~ ~ othr<<nCn interest Crpe.ive 467.1 405 / 614
'Income B%!e income Tclrs
'llCOCC CC .C 128.6: 15 5 13 )
c wu 40.7 42.0 Nrr Income S 87.9. 5 73 5
/tc'ei C
Nct incom oopvcablc to common stock vccc~~&RSKRF~~~ Inrome Per Common Shore Rtt'~ r C 5 85.9 5 735
)rv) 5 124 5 111 5 5 011 i ",j AVt!!c5nu Corrsricfi Shafts a'tu Siuifu t<<ltrlVc,"CntilinitrtonSI 77.), '1
/3 5 T ci 3 G C
""s' 1 ~ tc r> c uci
%ST urn a ~PA 'c"
~4 ha3 >) scar rg~A <pent
's~
ia
~
Consolidated Statement of Changes in Stockhotcfela'qutty
.'an
~
anti Itic>iI>cavp>rett<<v. vncr!iahvdivnca I w aw>tea Bahanco. van>tuut>9 oi pe>a>d
. Net income Cotnmths dvtdends Pteterred dNrdet>ds IsSuanCe of Cennen S:OCk (net)
Net tteamty stock transactens Ttanstaton adkustrnenls I Seance. Common Stoca Oata-per Share Stock ptce"': H>t)lt' Lon,
~a end ot peed End ot peted Book value Dividendpatd DN>dend ytekj'ta Net income Price to earn rate)
'.66x'33
~a.c
"~
C x..
'.'l
'71'e S taaa fit>a-t)lliticf 38!r 38.L 530.69
$ 0.335,":,
3.47 S 1.11 I>
~,
aaraaa-.rsmmeacwwaaaaaawta S I~ I 3tri 25"t 3l t 529 90 S0335 S 4 A d I 'rva' ar>6,')c>cital tracftcr
'ia...'0'r It.a '
113
~
I a~~a>ca S a ttata 31!i 23'a S29 12 50'335, S i 533>a-l,t>>' 583x
'a
~
62 a I'>xa
~
t390
$ 2 508 0 iaic aa clcclua 52o 30 50335 U
r)7 9 I25 7) {2,0) 13 7.0 05 3)'c, 76
'39is 10d 728>
a a cicaraaanraaacccc~~aacvaa "i I ~ 'ca stre.a
'c'
~
S
~
c't. I
~
c?.0: 0 6 I >tat
'30~
100 70?x a\ c Jh') I.>2 a> Ii 24
)0 I)
~
P3, c
-.".~~-a,ye~~
~cggr+4tc'I'vn Irw
- -~~
chl". tttaa~alaiaal waf pnrac rcpactcaawah>ct'aw>p wuc Icpccaapa>ac*ca iai"c ucacra I a tartar II>cuchtaorcct I wcart j%~s a r1 itccwat >ca o il pr>ar caa caaa tvca aca>acaa rate et caa aW rrtaar I) t ttcwat aia aaaa rcccar arche ttawtha tcractcd act >aaaw>c ca J ena au pen at.aiL prir. r ha
.'a'arrs ter (r>navfidvrrd Ilnunriul t>rurrtnrnrs f,aa
.a>'rl In<vt>tr I cr Cc>tnntvn a>lturrl
'The aeeracc number aif aharca uael m thc <<>mputat in of net incr>n>eI>elavmmon iharq Iiai bein adluitcJ fair thc ihare cqhfaafcnta from Ihe aaaumcd cxeraae ait Jtlut tae atocL aipuoni and inirmiii plan auar Ji At>>. tor the pulp>~ of this a3>mputation. net incr>me ii daicreaud by thc anu>unt of preferred ata>ak Jiiidcndi.
4 ~c-i~~P Icttc>san Inresttnenl Sea urilia's riutnil I>or Ihc three monthi cndal Starch 31. Iaaci rclcucJ loio uritici pine in l9gt'> werc 5ht I mt If>a>n an J in Icha'5 u ere
. Stt.l million. " ' * - ~
r aalu I lisu'nc'c'a>fin(c'nt>rclicrtcctnd lactn;.li mt I)alit a
~'
Inlanuary'I9sf>. Itic ('orpc>ratia>n iaaucdctppro(intatcfytUS I 593 niillii>na'>f 1)utch guilder tloating rate noti~ alui I 'nu. ary31. 1996. The na>tci <<ire iiiucd at par anJ nisi n>>t bi radccn>cd pri ir to maturiti;
. In Itibruary 19S6. thc ('c>rpi>ratia>n iiiuad apprinintateti ILLS I 5I35 rnilluin i f ta> t tralian d<<ILu hi>cating rate r a>tci Jue I'cbrual) I. I'l9!. The notes uire iiiu6I at par an J may bc n JecmeJ in whole or in part aan ana mtcrcit pa mant a Jate aller itabruali !969.
In hlarch I9th6. the ( a>rpopatic>n iiiucd 5lc0 million of th 't'otci'duc starch ' I, 1996. I bc na>ta~ uerc iiiuiJ at c39<'c
- ofparanJntayhercJccmcJin<<holcorinpaltonairafterhlarih.l:1993.
- tA
~ 4+ a
~ '5'chic ctl.yttl>tidiurte i
( In a>>falah 1966. Ihc a>iporatia>n ud J R'nfl Se uritica (orpa a ac~a Ya>rL baied ILS.gc>aelnmcnt ur>critic>> broLcr. faar ~5-p~ a'aah totaling appra>iaimatcly $ 54 ntillion. 'I hi u tc rciultcJ m a pret'ain a>f approximatcli 534 7 millii n.
~ c " ~
, 10
Conso8daled Statement ol Cond(I(on
'Sccvr>ri'r'vc>pc .>Ct>rv~l rr~vk c>tcv.c'>vl 4 Jtvrt;4 lt Clf r 5 tv 44)444>>> )%>4 tltt i -<<C>
. J(sscrs Cash and due from b:el.s S 4.386
. Oue frow hanks-.>nk)rCSI Oeareg 1,791 i' tci
~ InVCStA'."rt) SCCuctttes 4 Pc'fc&v'cx v I<<>>>>>>>
4 U.S. Treasury sccucttes'ther 1.282 ', >G > 4 i ><< US,gottcireient secor>tres ., 9 ~ 03 (cS.I) . State and munkxpat securities 306 340 (3<<) t>>ttt4 CCC444. Ct 495 176 319 Tota! >r>vestment sent es 2.092 . ) 744'.
'7.704 Trading account.fsscts 894 p) ~
o80 Federal funds so d nod secur .ies under rca e agreem erils 1.157 I 002 15r C&t Loans P
~ 27.521 26.) 9) 1.330 Lease feancv~ 2,121 l.Mb ~ 186 CCttt CCCC 4 tC t>C& 4444444>>> 29,642 26,126 ).516
. Less reseve lor crcdtl losses 460 <<22 38
'et foarc und )eau teanceg 29.182 1.478 4 ~@Ã ~e Preircrses and coutpmcnt 605 542 . 63 Customers'cceptance )>abtrty 991 1,27ii (284) 4 Earned inlereSI rece'Yah' 371 389 ()8)
SReatestateavr>ed 119 Ill 8 Liab>7(rirs Othe assets Total assets 4 M~'R~~~ ~~~ ~ 678 S42.268 303
.39. if> o 4
'17 53.
375 4 Demand dege ts e domestic offices S 7.672 S b.201 51.471 lnterc:ticheCking depos>ts in domestic olllCCS '.406 2,018 380 Insured neney market accounts e domcstc offices 4.390 4 262 )23 Olhcr savings dcpos>fs e ()omeslc off>ces 1.905 I 737 '>8 Trme depOS>tS in dnrrmtC OtfioeS'-under S)00.000 3.563 3 )08 '155 Time dcpostts in domestic olttces-S100.000 ano over 6.226 6 )15 Ill
'97 5 Iota) dcposas in domes>JC offices 26.162 23.7<<1 2.421 Deposits e forcx)n o: .ches and internatenal sobstdertes G,683 G,r>9". (3) 6) depos ts 32.845 30 740 ?.I')5 rtt)ccc (79'otal I ederal tunds purchased and securi'. es unde r repurcww agreements 2.398 ? )77 ~ '4 Subordinated lor:g tcim notes payao'e lo'par enl company )9o V
Suterr"'!ed Capital nOteS payaO!e tO parent company 398>> 398 [
'Other funds oorro>vcd 10)4
'9, C
1.989 . at44 >> Acccptar.ces oufstandeg ", 991 I 275 j284) Accrued iotcrest, taxes and other cxpenSC 1,098. I 0) 9 Other csab>holies " Tete>l tiautkt c>>s J)53 40369 37 J 34'
978 )!2 Srr>cki>r>kfcr's Erivio'ommon stock-Slg oar value
~v>>: vt>two o ~r o J><<vcr rent>r> ster xrr>s-ss o>c 0$ 4 5>>
4 Sur P'UC>> h 553 rSr>0 U ded prukiS 796, . 6GO, )3G Total stockholder 's ertulty
'v'~~~~ ~
1,899 ~ 1.760 139 J RL > ~~ Tota'iao!ttes a>id stockholder's i%oily cvc&~~c ' >r
>42,268
' 5-9.)o), o2 I i 7
)C at ~
5 c>
i 0 0
~ I ~h."V%"
2?. p
?/
4? 'r t /
/'<<
I /t ~ t /1
?
gl
~ ~
tt I ~ V)ht V I
//h
?S (f'<
I' Ji ' 1't
~ t".
~,
)~ <<
~
4
~ 'I, V l ( i<< '
~
t' ~
?
I? t
+4
/ / I
<<l I tl I
?
5~ I Y 'I
~~a I I I/ I
- I C
gh I J, ( C I V
-?
~ ~"
V /<<0 3 M<<
~ gP',
I
,t.
rl(
* ,1<< ~
C
/
'I lt I
~ \
I ~
'I ~.
I ~ I IC I V'<</
/P J(V
~ II' I
?P
?C ?V
~ J' V
/
1 ~
y,7'muham<< r
. 'natys}s ot gusrterty Earnfn9s ficta(ri tr /ttt (/ir e iver/a uuniin un J Suhii Jiunm Iuic 5 lil (naIL ai Fi(it Qwnct I 'rlis
(/( ((ct I k..c l/ i(i(it l 'u I i/ ai ni1 rnV 5~
, Eanrt((tf/J Sar((r(tail(
tntC(CSI itloonlein $ 1.167.3 =I 106.'1 C ( I 5 i. I! fi: 5 I 113 2 ~<<~i%'ll-Interest elPense Nr I tntnr CSI inCOme 4413 !~ ra i I
~
IJon inteie& (ncomc 294.0 :>u c 244: 226.7
/ Ii-",~4 Less prov(sen for c(OC(t losses 116.2 ~ 'rJ 830 67<( /80 Less other non intC(est exPease:
r << ~ StaN expense 239.0 726 5
$5
- ~ . Oiher expenSe- 228.1 209
%~a,loin C
Toul '46 income before inc(Lme taxes 152.0 "- 145.8 I 151 2 134 5 Less adiustment " 24 I '3.4 200 '96 190 Less income taxes 40.7 . "".6 <<2 I 524 420
., Net(ncomc ~
S 87.9 S 86: 5 84 0 5 /". 2 5 /3.5 'i~-'J- " ~ E (It(itgr //orion'n Rar(os ro armyt aucrr: Net (nte(cst nCO(ne' 3.52% 3 60.r 3 53( Nonqnterest income 225 242. 215 Less p(055sen fo( c(cel losses 0.93 ' 1.22 0 LOSS Othe f(On tnteest exPenSe:
.-Stat> cape:se Other e pcnse 1.91 1.90 ',83 I 94 69',91 196 181
',95 I 71 J(A Tota( 3.73 3.8 I '3,77 '3,77 3 66 Income beto(e income taxes Nc'nrJtme o io.
1.21 0.70 l9 12n 0.70 13l 069 1 0'66 ifar/oo ncrioronroror
'60i '56'o Aveage common couity Aveace total equity r 14.9%
14.3 15.5'.o 149 '60 ~ 156 IJ8i 1'8 n",irc J~o,~ g4,q'r:i Capital Adequacy Measures t(nt ~ I'wi l Iili(J Sixiv(J I l(it
'/c <<~~WC,.
Qwncr ir o(((( 'Qual(t loot(C( ()nlnll PH>gn'-~
~
~, fnaotpe'ed.
Vjk ~ 5: '-':
<<orat~a. "
.. StocLhotde(s'equity S2.4:'5 S20/5 m+XV5an m
~, 'nrna(y cap(tal n
$ 2.508 "Jud: 'ui '089 . 52.017
=
3.561 1.031
"' Total capital" ~ 4.288 3.5.i2 .3:I: 6 3, "4 3.3(90 a I RateS ta ~neny average asSetS""
Stockho'xtcrs'equity Primary capita(
.. ~ '.95% 7.03
. 'I A
Joo
~:
43". -" 66' 4 4'o '91o 6 75
<tat cap(tat ~ 8.46 7 35 / 0( 7.37 7 55 Rates to end ol pe((xt assctst("
StookheateS(equ(ty.... Prt/I(aty capdat Total cap(tal
. - ..495(ff(
7.03 8.46
~
451no, 6.'I 728
~
4 27'o 6.32 6'81
29'.
'., 6 38 7 12
' I ( l(n(uJci Jnawnn tnncnctt (nci toit(uc o(nianc. Icunonll <<iunnco (ni'aanctnI ~ (uui tati(or un o(cnt haui an J Li rJJ lsc Ivc(oi niuti Jcn( I J taimln(cnt la i 4 Jl "c 6 63 7 '1 cq i(CA(iia( Icri( it aicti i tie ni intc(cit i(noun".,
('I arian ate tiawJ irn annul(ltnr lail nlc onJ citiil(K. C'f Jt ~4mà o l ()(In ICJcilnath JJc(i ciluitl &cmcncfi(wcJnLnw<<monJotiulninicnbkA(craJnu(am(i ialitcu, i
+era
,l \ 'ilnctuJmrnmc(i cafiitotrnJ Swbfl(ng Lu(S ((un: JcN; (1 l no<1( un a J!uu(J niwli ai A(innl I 7 too nL (crulonui.
t'2 cr vV+'o/ i r
V 1 0 f
~ <<
'r '.
+~~¹~ ~4..
Inatysfs of fton4ntcresf income and Expense Srrwir r I'u ili<<jr<- v<iro o <irt<l.y<<h<i<<Sour< I<<! i I oun'j<ji! <<.)<<j ' i <i
- r. 1<x<<e<<<< I,il'<iiri 0 J<fi,l 0
+f, , <u<r Oj<<<1!i
~
Jyoir.lorrrrxr fr)rorno Loan Iei. S $~+v<P~g~5
.. Domestc:
4< 0 Us'fess 26.8 0< + ti 4 cW:f'.~. ij)<'. <<j<je . <G 4,7 0 ~ 34 Consumer 9,8 106 '09 108 G5
~
ln'.einalx)na: btar
. bericechargeSor CepoS.taCcountS 2.5 4".8 43.0 454 20
'6.3 2)8 wg 3 430 41 45.1 19
'60 21 39,7 Secur<lm retated tranmctx)n tees 35.5 <<8 u 506 52.2 409
~ . FKfuc)ary and iiN<xts'dnent management fees 2'0 231 21,8 180 22.9'.0
'nternatonal tees arrd other )ncome.
V 48 Fpre)gn exchange gains 7 6 , 2,8 26 AN Othe 11,3'4.0 136 I '0 129 14 2
)<<'<< r<<
;gp< Charge caidmerchant tees 132 132 '12.0, 118 Trading account protits 4,6 7.5 25 5,2 66 ~$)b~zPPT)
Mortgage can servic)ng fees 3.3 5.2 I6 Ct)mmercfal seivce tees 2.8 2.8 2.9 2.6 28
,:BcIorr tees 1.8 I 7 1,8 1,6 1.5'5.9 Mcunties Qa'is
'nvestmenl 3,4 0.1 ~ .0 0.3 Gains on satn ot equity scour)t)es 8.5 286 20.3 -5.6 19.5 AN other 78.9 55,4 26.5 354 266 Total ' S 294.0 5 296 < 5 256 6 5 2<4 4 5 226 7
. and otner compensaton 5 201.2 ~ 5 202.5 5 198.6 5 190.7 S 1828
. nandotherbenetits 37.8 30.8 32.6 35 8 33,4
<0'lal S 239.0 S 233.3 S 231.2 S 226.5 S 2162 Average tua time equiva'eit slat t "0.595 30.380 30.593 30.~28 29.930 Average annu ai stall expense S31.250 530.712 S30,240 ~
S29.676 528,890
'lhrr Erprrur f)tet occupancy-prem~ 5 46.5 5 '4.9 "S 439 466 5 '23 Furniture and equipment 37.2 36.5 34 6 32.5 28 Tetecommun)ca sons 16.0 :79 .;,66 13 3
'30 POStage and det)very 10.5 104 !04 9.7 10,0 Advert)seg and promoten '.0 .90 96 84 94 Statoneiy and supprrs 10.0 9.9 9.7 98 8,1 Travel 7.8 92
' 9 9.1 7.1 AN otl'er 91.1 951 850 80.3 709 S 228.1 5 232.9 '5 2186 5 .09,4 S 189.5
~ fP-'-'~~*, I arja~a <<v= ~Q f'<<;tTIi- ) V
>>! < )<<!l < . <A<~i' < << ." <r ~ 4 w<<<)' .<", +,a<,.ij - <j) ~ ~ ' <<I" v ~ 'I'<<<<i,.x ~< ~ <<, < ~ ',
<<jjrAoQ < fg(Q+<x ~~ < 9 R <<gi@<<<4<<3@tN,A<)PQ+4 gw@jjkg+'+gy@$<wl fry ~EQtj<<rA'eF )~P<vyr<p+rp<<x<)<<<<<j<<<gz+j< o~~j'g+Q<<4v. QLg) g< -J ++@> 4< k'y'aery<<lhtx jp Tg<Qi'< x<
<of j<)r<<<<rQ- %s'urj~k'%Y<<xft<<'<<<44w+g<<
<<<)%Qg8
<I p ~ .
'x)" '+)
'e
c C I Consolidated Balance Sheet irvf'rrrrrrnrrnrfyrrhrrJirrr,vi tvrrt rvs 4 5 ra rrNnl m Stxrrb ) t. Iktvrrrrvr!I, bq rvrrrlvr br l'ash and due irombankS 5 4.423 5 5279 5 1 7.'ly S 3.ii<<3 5 3.u 'u Due from banks-interest bcanng 2.i35 2 730 3 ri" 3 049
'nVeStmenl SCCurrtieS . 2.329 Lrf!5 Trading acaountasseis ' 1 911 1.457 862 ~
n5 II r
'7:
~
~ Federal fun<<ts sotd ana sccu.rtr<<N ~ae iesarc agr<'emcnts 962 921 4 V
'oans An.481 34. '82, 32.307 40,8l 3
'Lease financing ':. 2.710 2.582 ' 2.388 2.229 ~
)ivT;N~Q TOtal ~mnS aid feaSe tntanorng 3u.191 37.064~ 34 695 33.662 ~ 32 102 ~~~~
L858 llrl << lOf C idl lOSSIIS "~~i~+i'5.600 htet loanS and tease t<<anceg 36.5'10 34 153 <<0,'u fvemrses anrf equyrncnt 684 689,; 664 635 Customers'cceptance t ability 991 1,218 . 1,102 i45 Earned interest receNab c 410 459 '2fr Real estate own4 158, 1 'l4 1 Ag t32 Other assets'~ < 1 t93 1.776 Total assets' ~ . 550.104 SS3.503.
" '49 594 S47 874 545 222 "Demand aeposrtS in domeStC OffCes S 7.704 S 7.849 5 6.865 S 6.32 5 6209
<<Q$~j~~
'.2'4 ':
Interest -checking acres ts n acrostic offhesf. 2.408 2.293 - 2.".6 . 2.073 2,01'9 . insured money marxet accounts in dome.tc olfccs 4.394 ~ 4.263 4.230 4,265 d~tc Other savegs accounts in Tine aenos ts rn domcstx."o!icos-under St00.000 of trees Time de posts rn aomwtc otfx;es-5100.000 ar d over
, 3.565 6.205 3,465
',111 3.544
'383 3 52o 6,236 3 411 6, i'0 1
~>>Q~PAc;~
Total aefesrtS iri domestic 4 'fees 26.182 25.fi40, . 25.055; 2 '.19 ' 23. 51 +~)>.~w'~st,tc'v. ts in foreign branches and trolklt Subsrd Qfies 6.781 7.033
' ~ 6.956 7.028 6.987 r deposits" 32.963 32.8i3 ~
32.01 1 31.222 30 735 funds purchased and securrtes under repurchase.agreements 2,424 3.'181 CcmmerCel pape:- . 2.528 2.656 Cther shon.tern'funds borrowed 2.300 2 235 Interri eaiate-term debt 2.752 2 406 . 1.930 1.788
'50 Long term debl" 844 603 440 Suboro ~ted cap tat no'.es 500
'3'0'
'500 503
~~~.-;:K'rfy
'cceptances'outstanantg 991 1.341... 1.102 1.145 Accruedinteest: taxes and other expense, 1 283 1,334; '-'.255 1 '76 0'ther tiab trtrCS', , 1.011 1 456 TOtal tiabrtrtrea 47.59& 5 51 064 ', 47.452 45.799 '3.205 +~>.'LMrp+>
i il 'ir ilr
. Preferred stock ~ 150
"." '68
, Comm'onstorpi
'Surplus,
'ndrxraea prOfna.
519 ,. 1,070
'.007' S19 ~
'69,
'66 .
'43 739 738,
-'66:66 b80 47 825.
2.444:,, 5'."'.14'1 i:=
'r
~
2.508, 2.148 2.084 . 20."8
. Less convnon stocfn>n.treasuN. al cost i 7 9
'Olal SiOCkhOfd C S'quity TOtat tiabrtdeS and StOCkhctaerS'eeuty v I'z --
~~ '~ 'zn SSO 104 2.508 " 2.439 S53.503.
iv S49 594 t 2.075,2.01 547 874 ri 5 5 222 7 r 14 l'
0 7<<metic Osteal,~dms V e quarterly Consolidated Balance Sheet SCCunr T>>S Tpe'.leesf >>>>nt>>T uerrl yreh>>JS>>nCO r<<RS
<<V~ ~
t a msdtm<<R Std ters 3 I r4vsst<<dd sr wsvrTTIIORS.. res<<'vor terse,r:;r
'dfriie
, . Cash and due frombanks ~ 5 4.423 5 5ui+ Sniii S>>u Due frombanks-rnterest bear rng 2.135 I 2,7:3 tnvcktrnent securrttes 2.329 ared ~
) nd i
..: Traaeg account assets
,Feae'rar funds sold and securrttes r.na~~
911 .I ceded resa!e agrr.~nrs OO, I mm
'" Loans 33,481 34.4ri. 32 307 3r. Ol 30 Ss:s s Lease ftnance", 2.710 '.582 2.388 O'GI ~ 2 2.9 'rr t>>& 'O!at kkrnSavf teaSe teanCTng, 36,191 37,GO-'4.6'. 33.r.6's.:02 is.+> 'IOV ttty,,
++a- sfro Less reservilor Cred I losses 591 Net loaf TS ana teaSe feanCTng 35.600 36,c>>'.0
~ ~
~
~
'i)3 33,'35 32 582 Fvemaes and 4quTPment 684 Gri T661< 635 6S6 Customers'cceptance bab 991 .1.218 Earnedrnterest recervabre
' ' =
410 "59, ~ ~ 426 417 Real eState evnea 158 ~+<<II Other assets I 93 2,03 594 903 T 1,501 TG
-'- . d 3swsm" m
Totatassets S50.104 Z~L~" 553,03 r7 S<<9
"- t
o7<< O-'fabilirics
. 55 ".22 Demand depos ts e auwstc offces 5 7.704 S 7.8-9 5'6 855 5 6.".27 S 6.209
'nterestl checkeg ae;os ts w aomestc o.'tees 2.408 2293, 2.'.S6 2 073 2.0:9 kqr.
, Insured money maoet accounts e domestc oftces'ther 4.394- t 2oa 4263 -'30 <<.265 PgRo S&ngS aCCOuntS<<n d JmeSIC OtfCeS 1.906 1.872 1.864 I 800 I.S37 Tme depostrS rn domestc otfces-under 5100,000 3.565 3 '65 3.5-'4 3 528 3.4 I T me dern<<to m damestm at toes-'s lao oM s rt o sr 6.205 6,1'I I 6,383 -6.236 6.1:0
'Tool dmststs m do<<estd I 'K<< 26.182 '5.6>>'0 . 25.G55 2'.S94 - 23.151 h
, Deposes e foregn branches and e;ernatrorar svosdtares 6,781 7.033,. 6.956 7 028
'Total oepostts 32.963 "'2.8 3, ~
3Z.OI 'I 31,22 30 TiS Federal lunds purchased and secuntm
'nder repu~ChaSeagreementS 2.424 I 4 639 3 669
'I rr ~ 2 '85 Cow~ercraf paper 2.528
' 2637 3,082
- 2 655 Z.3C6 et!ter short lerm tunas borroaed 2,300 2.856 2 '-5 <<7 C I 775
':. pgjreamr " 'nterrr eeate lerrnaebt 2.752
~
Zcty5 1,930 ~ 4
'.,'RB'40 I 707 Long term dept 844 " , 60i :3'00
. Subordtnated capttat notes 500 500, c00 550 I 3':
; <<e.g;kt.,
e
~
~
. 'CCeptanCes OufStanaeg Accrued eterest
' Other IrabttttteS tares and otner expense.
991 1,283 '.33 r.775 '.011 I.S02
~
25
.22
, ~ du t 275 t Ie>>
612
~ ~ ~
TOtat habrtsttmS 47.596 51 064 47.457 . 45 799 Eral haldra'EqrrilJ. P eterredStOCk . 150 'ISO Q <<++SR Common stock . 769 768 739 7 8 737 Surpfus 519 519 "eu ~:66
'.508 9'3 Unde@ed prO!aS 1.070 1.007 BBTJ 82 2.508 ~, 2 444 2.1'3 ZC>>~- 20:c
'Less common sto Jc e treasury.I at cost
" 5 Waf SIOCkhbkfefS'nutfy
,TOtal Ieb4 teS and StOCkhOkfeTS'rtu ty: R'
- '50.104 S53 SG3 549 5",4 5 17 87-'ado 222 I
14
- s. "(~sof.
v.4v~ e~ O<<P)'I
y c + asar ~ Analysis ol Loans and Resene for Credit Losses Scvurcfcsn cfsc' ssrtss nuss n r nJ.aiut>>c tsures a Ivsn S sn nussayau Stccch ll, Ih cc.cu 'I h 'ar.auc . I na Scclah C!
'".-'i~~~i. <<at 'Conrposifion ofLoan Pnfffolio iP-<f' cn Oomcstcc toasts'uscwmbans ComfneCcal and cnduatlul bans S 9,543, CJi JdaLu s J J' 9,'s07 i Const.ucten loans 1.703: o53r I.',I45 yn Loans fof Pulchascng of cacfyang secor Leans fo fcnanc4iJ I"SlctutccnS ~
Offset occscness bans stces 609 '57 I.I69,"'.(I59 1.605 I "'."6 5:9 I. ': 5
s3 I
o'~'4('.399
'69 1.235 1.333 Total huscfeSS lOanS 14.423. 15.110 I4 12/. I3.626 l,c.9'.1 s
Heat estate bans." cstnca~ 1-4 fannty feScdentcat pfCeelt CS 3.875'91 J 3cJ89 ',025 ,h Sly
~ = Other real wtacc kuns aa
- t. 306, I.226 I.l35 403'.334 1.087 To;al feat estate kuns 5.209 J 22'I 5 215c o t63 .091 Consumer kuns.
Ready RcsevAccounf, charge cafe loans 869.. Hca Rcsg 873. 869
. Other consumer kuns Totat consume loans
'7.454 6.953
'8 6 853 6.562 ". 6.258
' 826 a'usts 7.822 "
1 767 c, 131 6.695
'otatdomestsc kuns, 698 26.794 26,117 2J,743 fntcfnatenat loans
. TOtat
~
~
... '.027 S33.481 cc icts 53-'.482 fJ S32.307 5s 'c "cJ ~ '
J.'IJ30. 8 5 a 30 53 .813 . 3 r
'yas a
~
" ' FicN Iacnck ItucJ hraaycJ I'ccu "ofiltstrctfot r(naltscs Ba',anCC. hegcnn.ng Ol Cttdct Lossts periad ', "'
~ Qucncc, S, 554.4 ltwlcm 541 6 c Jwcccc 5 5?7.3 S owccrc 5202
'" S l)wncc 5! 98 Pfovcsen lof losses ctcacgcd lo expense
~ hs hg
. 'lhef" 116.2 7,4, 1497 2,5 830 14 2 679 186 02
~
"Afnounl charged otl (101.9)
(151 8) (69.3) (87-3'l '99 2)
~ ' RCCOvelcCS 15.2 . 184 192 2?3 206 Nel Cfedst lOSSeS (86.7) . l 139,4l '70 I I ' (650) (78 6)
~
Balances end of peed S 591.3: S 55-'cJ 5 5:16 527" 5 5202 End Of PCfed reSerVe IOc Clods IOSSCS aS PerCent Ol Total bar s and tease fcnancsng 1.63% I '0'. 156'n 151 I 57c ar n " Adit. Ied total toans and cease ffnanc no'c ~ 1.83 I 67 I 16 I 18 1.79 rhy a V S Xl,nl>a
'JrJ Wlscah Cl.
r(nal>vis of iss'tt Cftctit Lossti In!
'OmeStcc kufCS; Buscness bans S 487 S. 509 Ready'Rcs JfvAccounitctufgc cardbans 10.2 6 JG Other consumer toans 18.1 IGG, Reat estate bans;,r Infefnatefu! leans Total net kun bsses Lease tcnan~
'.l0.2 81.3 li 0,1 3
~ mrz 5.4 rs 3
To',at net cled I bsses "n -- a (IcIVlmcra'nl I unaacaucrJ ha Cache nu ntnca~au chrratuaarkrl m ' .rmc ~-'.. . S- 86.7
.nwmun'.
- '5 186
=""-
s lmlccJca n JJnu usa fcyn <<quaascaa ana rnJ Ps cancans au crena a lcm as,sea yc J Jluuna crea s' ll aatuJa~ thnncncnl eccl caulc ionhaauncnl I a I 4 nmaa ccasJcnccst lcarccac&%. l5
I s ~
~ ~
4 S ~ P ~
~ S I~
~ '
~ ~
~ ~
~ I
~ ~ 4 S ' ~
~ ~
~ ~
S ~
' ~
~ S ~, '
~ ~ S S
~ ~ I ~ s ~
~ ~
~~
~ ~ ~ ~
~ S ~ o I I~I
~ ~ ~ II I ~ I < ~
~ ~
~ '
~ S S ~
~ ', ~ ~
~ ' ~
~ ~ ~~ ~ ~
~ ~ I~
~
' ~ ~
~ ~
~ ~
~"
>> w ' ~
C" r%
~ >>
h'>>re I'IM
.Y~LI>>4r4 kris I'>> I
~
h>><l CA->> 4 r,r. ~ Ouinrr IP4III>>r OU>>II 'I I/O>> li>> f I I'>>4>>III I 8.19 6 0 PJ 'II >>J ~ 9.68 962 9 I'6 980 964 9.72 932 9 r55 966 'IO 22 r 9.72 9.59. 985 Ilr 10 9.59 9,25 . 1006 rQ 41 10 18 h 7.38 7 83>> 780 787 8 '5 9.29 999 . 950 10 00 IO,I I ~cc'+~r 10.74 10.7' l 00 10 99 10 95 18.9S 19,23 ' IS 77 18 73 19,29 C~ 14.67 14.87;, '5 05 >>5 29 15 64
. 11.21 ll 64 ll 42 11 70 Il 82 10.83 '0'93 '
1022 . I095 '1.72
~,
14.09; 14 87 15,41 16 23 1665" 11.17, I I 28 10 69 11 37 12.05
>><< 11.21', l l 57 l 30 '
I 65 II 86
',1400 12.77 ~
14.22 '1369 14.27 rr
'I r>>>>>>r , 11.50
'10.88 11.94 11 24 4 ~
11.64:
. ~
~
I I 06 ', I 99 12.21 I'6
- 11.40
,4
>>I ~
h
~-,r4P,
>>7~~~ri 5.18 522 ., '23 53Q 5.46 6.09 5.38 8.83 6 12 5.38 9 08
'.37 6.13 9.49 6,71 539 971 727
'5.3o 10.25 re: 'h ~
lh r 8.43 . '854 ~ . 869 930 9.63 825 8.29 8 46 '8.97 7.49'60 ., ','l4 957 8jDW
-,.775 8.19 862 5.89 ,',96 650 ~ 6'85
~s~ 7.45 7,73 7,63 7,79 836 8.40 8.61 ' 46 9.29 9,02 Cw 'r, '". ">> '; -
.1140
~ 10 20
'1,84 IG 43 966 928
'09 11.39 11.93 88 p '
11 9.42'>> 985 978 9.9,8 10 30'80 790 803 840 ~ C. P-Crg >>>>
.gE I
17
ur sh4'unsnap eppes>.',' -"/pe r'tnrnp@++'..g s~s'nvs+gp s$ r v sr 'P;sah"~>>.
talysfs tfc and tntemaL'anal Ket Interest Income alai>'att s>etr>et V'sen >J>J>ere I s>
Iveh i I)l>J>>CI iq)gg+pg I sate tsht hsrtnh X 'Y I r< K J<<" )i"'r Ves'In'tnrns<<r h sn an>inn ith'Isee tnssric Opnttrions'.
'l' ' '
farnsttg assets e Loans 527.623 5 766.3 11.21 s<<. qy e'en Lease t>nanc ng 1.953 61 I 12.52 tm~ntent secusslires 1.799 394 883>>tg~~, .-'s),",idnky" .ftu Federal funds so>d 1.399 23.3 738 pi +~go'eu
'ue Trading account assets .
from banks-tn;crest
, Total eath>no assets
- Net sources of funds i",
Marvy ~ ~
= ~
33.747 766 207 e 911.8 178 3,9
'10'.91 f4."
J gEQQ Demand depos>ts .4.071 IntereSI;CrhteCking depOS.IS Insured nmoy market accounts Other savings depos is 1.895 4.253 1.875
'5.7 29.0 24.9 6.20 6 27 5.39 gj4Pl
'0:her tahe deposas-unoer 5:00.030 3.491 76 0 8 83 TOtal Core depOS:tS 15.585 1956 5.09
,Tine'depos>ts-$ 100000 and over Borraved funds-
'.031 10.121 '99:5 127.3 8 56 7.99 y w punps supp>up w no> oe naonal opera'ns- (29), 7.9 Total e~ 3 1.708 530.3 6.78 Al othet sources of tiinds 2.039 1'Ota.'SOurCeS Ot fundS $33.747 'e 530.3 6.37 Domestic net interest income andma>;n 5'81.5 4.54 ssnarionat Opsntrions"
. ~ ~
farneg assets;
>r~
6Q.'a flS 5 5.945 S 1638 11.17 from banks-interest beating b 2.152 43.8 8.25 .)pg fsnanu>ng 711 23.9 13.47 Trad>n< account assets; 371 9.4 10.20 se tnvestmcnt securit'es 439 14.6 . 13 27 Total eh!nsn assets 9.618 255.5 I 0.74 Nel sources of funds'. Non interest beatmg depos ts 132 Interest beanrig deposits 6.473 13'1.9 8,27 Borrow& funds 2.481 71.7 11.73
'u FundS Supp!:ed b)r Or tlo) dotneSI>C Operatso>IS e
- 29 (7 9) .;rrhp Total 9,115 155.7 . 8.71
~
Alother sourCesot funCS *. ~
. 503
~ Total sources ol funds 5 9.618 ~ 195.7 . 8 25 Internal>onal net interest nCOene and z ' mainin . ' s~ 5 59.8 2.49 atDontssrio a>ni InrssnarionaiOpnarionr A.
f arning assCS $43.365 S1.167.3
~
10 88 Sources ot funds- 726.0 6,79
" S43.365 ~
Total net aiterest >ncome and marg>n I>I I"rSaarS no>Sr>>S>hn>I>art+stare - hs e
. " >>'2 aw -
.a J %.
>> "".. '..F, $ 4473 . 409 ss I> CO>re>t r~rhtSeW e r ~ ense J'eat $ 107 rhctas rassreSMt r>r rerpvt. ms! IJe Viuenas rona J O'V ere+
" 12.7 R ~ ~
S 23.4'r~ tuse trssa n'eS>>1 ia r ps>i> ~pre 18 it. C. , wf +ha@su'S r e
1
~
I ftnatysh ot Oomcsttc and Internal!onal )tet Interest Income
%'n nag pass(is' Dotnrrrio Op<<ra(iaaf" I
I
~
~
~
~
2 s<<,sslrl
-rp <<>>Ii.~ ar<<l So>> i>><<rn<>is<<sets:
Loans LeaSO t<<ranoeg IAV(!SVACAI S(sou;it>>es' Federal funds scat - 7(ading aCCOunt saese(S
~
Due troin tanks- r terest beareg,
-. Netsourcwotfuris I.
earnino assets Demard deposits Interest,'checking Ccpos.'s I A I
~
I'
~
~, "
527.623
*'ota(
rrrstsis.v 1.953 1.399 33.747 766 207 4.071 1.895 1 ss I ()WISCI I s~'II>>'I 5 7663 61.'I 23.3 17.d 911.8 3,9 29,0 As<<irrs 11.21 883,:.
%~~f~~
9.30 L)I<<,~~ 7.53 Y '4-.m" 10.91 6.20 ~" p~ 2<<A~
'r>>st('<<ss<<IA(
~ v<<AIM
-gi ga;~
~fidius<<
2<<r,"m~ m 12,52,~w.,g 7.38 a.;;>>~~~
~v'-,
~
Insi;rcdmoney market accounts-I, ..
~
"~
OthC( Sainngs depos>>S Dhcrtanedepos.s-unders:00000 Total core depos:s" Time dCposils'100000 and Overs
',, ~,
<<15.585 ~
I 875 3491 6031 24 9 760 195 6 1273>>A 856 539 883
'.09;--.m'~
"~%~4 I!Lulls<< A
'33.747
~
Borrorsed tunds
.10.121 199.5, 7.99 aber
. Funds su Ied trv or tto) eterna;ena'.orna::OAS
, ~ . ~"
~: >>r Atl 0'>>her
~
I sources ot II;Ads Tota(sources cd funds Domestic net eterest income grat marce
-31.708.
530.3 530.3 S 381.5
~
6.78 6.37
'I';""-
~4 %ca&
4.54:~s,'r'~ Ws>>>><< A>>>>
~ .: 'a(orna(ion>>i Opnarionr<<
~
':": Earnrngassets:.
Loans 5 5.945 S 1638 11.17 t' Due trom banks-e:Crest beareg 2.152 43.8 8.25 s Lease kranceg . ~ 7I I '3,9 13.47 Traded account assets 371 9.4 10.20
' Ir In~ment secur>>.cs- 439 14.6 13,27 Total eamin asse:s 9.618 255.5 '.0.74
. Ifet SOurCCSOI tunCS"
'. :'.473 S<>
Non.interest bearrrg Cepos ts 132
.. ~ ~
Interest beareg de pcs ts ~
~
131.9 8 27 Borrowed funds "
' . ' 2.481 71.7 11.73 Funds suppkcd b) or I to) dor ACSte Operat:OAS 29 (7(9) 9.115 195.7 8.71
~
Atl O'.her SOu~CeS Ot tuACS I
~
503
'.25
~
"-, ' Totatsourcesol fur ds "-' '
~
* ~
9.618 195.7
' InternatenalnelinterestLAc(Lmeandmargln - ~ - 5 598 249
~,
A
-.,'r Total Do(antic and Inrmraiional Dporrtrionr" - ' ' ~ ~
flam(ng assets S43.365 51,167.3 10,88 Sources ol funds
~, 543.365 726.0 6.79 L~~
Tohd ncl eterest ecome and marce - ". " '
<<5~ J Z '&>> =
S 441.3
~ - ~
4.09 MA,
. ~ . ~
~ AS . OL A ~ SL A "T"<<
( 2 I rsrsl>>S(I 5 Oarsf>><<srrs A <<S Wrrs sac(rs.<<risrss>>ss:t>>se<<smnrtrrir LSALrrreqr I<<%. -
. 5 IO.I Pt2(I ~ Srr<<Iso'r<<S( Cl Ain'S. IAA>>S( (22 VSYS OSS rr <<2 'r(OS .
il- 12.7, aL s 2 2, ', sn &Tie<<.,A, - '<<'\An, . :, 2<< ts'A ' ~ I' (1 I AQ<<r<<v'+Iris( ls<<22 <<Art A<<+ l(sr<<ssg r
'I
I) ii'
'I Ihwnh ()CII!cr I)e!IJ i)8877(i nree>>n. eee I~ I IDI(fce( Ale(J)c Ir(crc I lfJvl In.cr(" heefJ.( fi l 'i.
~ ~ e he~. 'bcfcgc ID eefnce . KJ(c 74cf 8fc ID,IN'Ie I ~ Iei( k IC ~ k ~ 7 ~ I(J>>
A$c" KJIlsà Ife(DK I I(84Dec I,'l)eeneK I ~
)--- - ~
/I /
7.198 1.866 S 196,1 GG 2 '4 1164 18 SZG 8 IG I.833 S /10,9 GIJ i
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74,1 7
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. 5 53.6 2.3G 5'39, 2.51 ' 5 580 291 I i
$ 42.281 '1,196 I 'I! 24 $ 41.330 $ ).150,2. I'I 06 '. $ 39.967 Sl ~ l36.a, 11 '0 %8 566 Sl,l)3 2 ' I 66 S42.28) 730.5 ~ 6 85 S41.330 . 727,9 . 6.98 $39.9G7 ~ 725 7 7 28 $38.566 120 9 'i 58 4S S 465,6 4.39 -" S. 422.3 '.08
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ZA~. Analysts ol Investment Securities Portfolio" LI<f.hvar
.yn unl) pu<<f<<' <rf/t rn)I<r>>I u<<rf noh<)<lrur< <>> uc.~ c, +P I~ ~
Krrluf<<< +pc I'< Ch<h In<<, f L.<I rc I ) fur I Lent Kl r <<I< f)no <r<<at h <cLI'r %<n) ') <c' ~ b'hL V"<<," Le<1 I, ~ )>> rl ~ Wfrr
*- VS Ti<';.m:) Sor.l 8 )18 .1)4 < 66 5
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~<mLJ~ .gocclnrncnt <<r<I 4,. I . c" lo 34 8,60 -
95 665 '9 'l063 I '9 \~ 0 ff I
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Slate an J nlun<c'pm Othef bo)as/notes af'ul Eh:t)LrnrJ res . Federal < <'ncfvc Bash 5
~ '6 og gin;g an IO 89/ <J c,'8 i1)92'I '/ 391 3 r'.
and OI.K. Stuctf cA)lal 5731' 24 5963 9
' 5'"'858 u I'7 285 42 8"-' gt 305 Sx 319
" G" Olstributton ol I(et Incon e By Organiaatlon
~g 'tc< Intr>><<c Ihnfnlrff Ifclo<nrt< ~>>ta".
! Xrft<)rr. I nur>>l 'W)1 e,lr. I .>><4<ho'< c< I<cfkcc %<<n\
ISCI< 1>>1$ IOfrr I>>cf .
~
4 Lt 4<m>>a 521,4 3544 . 23c 0.68m O 484) u'cn>'iu~ri CabtornLI Banhu)g aha Real Estate Industres System 530.9 - 33.0 23,6 37 32 0.62
' '9 Capel I/@frets Syslem
'0
~ -'.'. -
4anchst Scribes Sys:em Other
~ 27.8 3.8) 30.6
'2,1) 32 (4) 42 131 IKII 1.27 I 78
. ~
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' ' 0 664<
u I flnascLat Services System-I(et Income
~par !c<c Intr<<<<c
! WL>><<ht I'nu.<I SIC<,lr!I
$ w <nn'"at I oro Ioxf I'87.9 Q/churner SCNlCCS g<<V<IP t Consun)er I<nanc,c 571 562 Insurance ser.cw ~ 3.9 29 Other (1.0) = '0 I )
Total
- 10.0 90 Con)fncrcat I<nance 6 teas)ng group I.easng 10.2 9.2 Bus)I)css clcC I " 4.2 25 Auto Iuhhwc, 3,1 50 I. I 01 yclul 18.6 168 Ven'.urc cnplal grnuP ~ r
~ 4.9 86 I tnd<sll<buted corpofa<e expense" (5.7) . (3 8)
IIIY<cLI <>>< full! Intu(off<Ill<<4)cnr k<t<% -~ 4< <~ nn< ~ ~~l4na S27 8 c~ M~a vxnurS306
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III:,:,; ChasmanoltheBoardar<aCh. 0 wecct<<ei'r i. Ot "Fc iara J. Ffamsotr . . Ch vii".uc't theu.araCftt:eBO~X mila c. Fros( ' " ., cha 1!I<an of bin Boarri of T us!i~. Los A."pe~ co<<'icv vu5<pJrn ot rrr;
+>>'v<rx 'dE..GUinn ~ S: Ctr"-"rranol II~Bcard andC!bet E.ecu!r OO<fcer. Pac!c Tnt<SO ovp (con<rruncaboAs pfoovc's arid seN'ces) r)E.'Harlnack cnarrmanoftheExextyer ervn:.IeesotspcandtneBa<n'",-Charmai)Ot rf,; -*-
the RXUr<tj FXr!C frrleinatrcnar Bca J l< ~ rL< r!L. Hopo Jr. ",' "
. (anaarrsory cernsheeto!'tieBowaotOrec:esot th Bank)-
Chavman. Hope Consu erg Grouo(arch tee!orat and erg reerirg f~m)
<y<v'g ivferceO,Kitchen;.; ':.',';, Cha<rmn o) tr'e Board and Ct ie(Execu'rve Otfcei;" cckir ed Cepeat<on V
(aeOSpaCe. e'WucnCS. Shrphua ng a .a rirlematon Se!VCeS) <r<
)vara vI. Koch ~ ." ~ .:. '. 'naepwfwt Mcbon pctuie 0<rec or arid produce'..attila'.ea N th pa:i~e ".: pcr c corp.:
' 'e F<MOOdy . Preskfqn! and Cniet Ooera!ing CtCer Ol SPC
!v. 0'Green:" ': Prescient ana Cn:et Eiecu!ne Or leer ol Jre Bank
~ .chavman ot the orna<a add ch et executive otfcer.'L<',!Cn In>> "t<<w, lnc, (muib <nduslr y rranu< vcruie!) ,f: w.
nri T iom "..= Manag ng Partner. C.J. Rgers'!en ASons rane s lco real es<ate pannershpl H( Rus Cha! man cl ttra &ccubve Ce".im 1! e<< Avery tnernatx)r)at Ceooratcn n (ma".Ufacturer ot st adhesive u eius) .C;y ceo H. Smnh, ~
~ vce Chairman cf the Board ol SoC Vce Chanman ct th<. Bear ~~ Ctsef Gperat g Oi'.cer cl lne Bank
. uesS, Ycager .
'",'rmlent. .', E.L.Ya~er x:nCenpany,fnc lt eavye~neeregcon;:;uct<nn)
.es H,Zumberge ..." Presden<."e<es'.) e Sou!bern Casfeno vend Aenvestment and 0 vneisof Security Pac'c Coipcratcn ce!vnon s'os trav ter vol th'N cash c'vra<'rkfs)n <"<
f k Purohase Plan,r. ~
~ .', =, as .,add
~ Kvea t<cnal Sita eS Oi SF C CCrrrro:1 S OCk at a tne PerCent d~<.rit lrOm trie m.')<)e! Prr.e. <<S m<rke'Cpt'0:Qt crab pay<CKIS i<or Shares <n "I'iou'om <Ss<cns Or Ser<'Ce Clra<rre<;
<Ass<<
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F q4 g< Stockhokfers svho'a'e not let o".<c"nl m r"c Crr aend nesivesbrent ana S'.ocw pu:ch <s. Plan. a- vrelt as hrcv<<rs ana cu":,cairns in ho rx)'a cc~sn s',cck le csents. rruy co:a:n a prospectus and en.'!trent ca'c OI <<rc<ng c< ca I rig Sc~rr 1) Pae c YiaMwr'anx. Spc,o~vdend Reinves:ment <sfc 5:c.rr purchase p:an. po Bo<35a6 <crena< Anrex.. LOS A+JeieS. Car<tenra.90051 (I) IS) 501.22]5.
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~ <nit fci tgr)5. Or a& ~it titter!alon con'v'I Jay S. GMd.
e Presraeni. H9 50 PO Bcx 909T vxnnvra< Arnes. Los A~i-..' Car fenv) 9tyJ5I, ci te<epricre(913}613 5!58 . <<,
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44 4 (rtepJitrnent and Sffe". "';I iul;Cx S'.Cr S) Earl Clark Vice Clrurrnan cf tne Board. Reccrd fru14'Aci4ic'J Co'.pc;u: crc. Chu.rl."-<<irl!ne Bixra The Clack.Agency (i<<st lance agencyl Timm F.'Crut!- Ccnloaiil " Presxtent anrl Ch el Execu!re C!I cer ICav is teil Co<<city (food ara cela'.ea pcOC. ctS fxosesSor) Rchard J. Ffamson Itt CllaucAlflof the Board a."d r riel Execu!we O'! "er ol SrC
, Chaunan ot the Board ot,!hc Bank
" Camrfta C. Frost Charmian of t w Board ot Trustrm. Los Argeu I '4'useurcin'. Ait
~ ', Donald E. Gu,'qn Chauman Ot!r o. BOaid and Chief EXeCu e G'.reer, PuC! C rima O'.Cut) i (corrmuncatx)ns proau" s ana schicesl Cart E. Har!nack Cha rman ot the Execctve Covxrxtteeso! SPC anJ the Bank r Chaxrran of the Se:urrty Pacific tnterna'.rona! Boa;a
' (an adnsory corrxnctee to tre Bcea o: Ouecors ot:he Bank}
Frank L Hopo, Jr. = Chauman. Hope Consu:ting Group(archcecturat and errxineecrrg tirrn)
* . Lawrerce0. Kitchen Cha'oman ot tl.e Boaca and Cfxef Execute Otfce<ILcci heed Coi po a! x)n (aeospace. etc!cones. Shipbu!k!ng aM intornafion service},
g+I Howard lV.'Koch Lndepcnaenf I fctron picture D rec:or and Producer a'.limed v.nn pa.amoun: pe!ores corp. .f~frr4>> 'eorge F.h,toady Presaen! ana Chief Ope.atxig Otl.crr o! SPC <<4 Frea N O'Green
,, Presxfent and Chief.& ecutne Otfcer ct:ne Bank Chaurnan ot the Boaid ana Ch 8 Executr e Offcer. Lilicn Indu fries. Inc.
(mura.industry manutaciurer}
. Her ry T,;Segerstrom Managing panner. c, J. sege:s:rom 8 sons!Cwesifed ceal esca'.e partnerswp! .
H, pusMI Smrth Cha'rman Cf the EXeou'rre Ccmm !tee AVery tntematiOnal Cepcratrcn
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(manufachrrer of se,'I acheswe prcductsl
$ $4gt Rr~ H. Smith Vioe Chairman Of tr e Board Of SPC vice Chairman ct tne Boa " -"c Ctiicl Op.ratuxJ Offer ct!ne Bank c Jacques S Yeager . President. E.L.'IeJge, xu . '.ion Corrpany ir:c I!reap engineering cor.".!r<<ctron)
Jan.es H. Zumbcrgc Pres'xfeciL ~rver"ty ct ho<<4!bern Catlornxc 4
, Owners ol S~rity Pac."fic Corpo:ation common s'.ock may ceuiuiw ther costi avxfiuias ir Oihnderd Renvesfmcnt and
':cck Purchase Plan addi!enal scrarcs ol SFC corrigan s!ock at a me percent CXArJnf from tice mar> el p re. as swes as mane op!ionai costi pcx)inenfs or CiaicS4u4>trio<<t COmrrxsSons 0; SeiVCc Crwges Stocktekfers wte a e not cet en c".ed in b e 0 wee>>a Reinxos',nant and S! ock Purchase
. plan.us vel! as brokers and cu".,'aaians wte rekt cownon s txJc tor carits.crt ob a ri a pr~tuS and enra:tniC4nt Ca C bl iirrteg Or Cae.ng Seo 'ty PaCrtiC NaaO."ar Bank, SPC Dnnderd Reinves;ment anc S&k Pu.'chase Plan, PO Box 35!6:erinnai Anrex.
Los Angeles. Ca!ifornra 9005l (8!8} 50i'cc! !5. Annuli"'i 4 4 4 farm IO A; und rfdCiciiinul Infisrmucion'"
'+., rcr oppies ot security pacific corporalion's Fpmr 10 K port fo l985. or accit'onat in!o ra!x)n, cor:,.Ict Jay s Gou'J.
-4:"e President!H9 50. Po Box 20'37. Termrnai Amex. Los A-cu <, car fornia 90()5l: cr tekphone czt3}BI3 <<'. ('8 it!. 4 4
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Safety-Kleen Corp. Annual Report 1985
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>%$ ~ I I ag ~ ~ 'f~ ' ~ ll ~ I ~ w I I II 'I I Il ~ mII ~ I ~ I 4 I ' i, >>" J,,<<J>> J QIII+I+fIIs QINi ~ ~ I~ ~ <>JL$ l ICA U'l ~ ~ ~ m ~ 11 ~ ~ )~i ~ 1 ~ EI lmI,III ~ ~ 11111 ~ ~ I )'$>>1:%II(af "- -* '.=.'=;..'- '-:-"".-=. . ) -: =*.-.:-"'--.':-.. ". - '=::; --"--'..-";':-= >>-i* . ~, *' . *J ~ P k I 'q Financial Highlights Fiscal Year Ended December 28. 1985 December 29. Service revenues and sales S185.630,000 1984'221,080.000 Net earnings S 27,185,000' 19.428.000 Workfng ca pitaf S 46,182.000 S 36.921.000 Total assets S176.885.000 8140.537.000 Shareholders'quity S1 13.643.000 S 89.230.000 iVumber of common shares outstanding at year-end 21.441,528 14. 1 14.01 1 Flnancfal Ratios Net earnings to revenues and sales 10.5% Net earnings to be<fnnfn shareholders'quity 12.3%'0.5%'.5 27.6o~o Current ratio to 1 2.4 to 1 Number of Employees 2.898 2.635 Per Common Share2 Net earnings S1.26' S.93 Cash dividends .28 S.20 '985 net earnings Include S3,706.000 (S.17 per share) for the cumulative effect of change in accounting for investment tax credits. 'Allper share data has been restated for a three-for-two stock spilt on December 9. 1985. The December 29, 1984 Consolidated Balance Sheet has been restated for the acquisition of Custom Organics, Inc. as more fully described in iVote 2 to the Consolfdated Financial Statements, appearing on page 38. Market and Dividend Information The Company's common stock fs traded on the New York Stock Exchange. The approvf-mate number of record holders of the Company's common stock at December 28. 1985, was 2,628. The following table shows the range of common stock prices and cash dividends for the calendar quarters indicated. The quotations represent the high and low prices on the iVew York Stock Evchange as reported by The Wall Street Journal. All data has been restated for the three-for-two stock splits in December. 1984. and December. 1985. 1985 1984 Quarter Prices Cash Divfdends PAces Cash Dividends Ended High Low Paid High Low Paid March 31 S22.33 S16.17 S.066 S15.67 S13.00 S.044 Sune 30 23.83 20.50 .067 15.50 13,45 .044 September 30 25.58 21.42 .067 18.55 14.44 .045 December 31 27.25 21.38 .080 18.05 15.50,067 S.280 S.200 The Company has continuously paid quarterly cash dividends since %larch. 1979. Tfii Company evpects to continue its policy of paying regular ciish dividends. <<Irho>> >'h ihr rc is no assurance as to I'uture dividends. as they are dependent upon I'uiurc camin rs. ciipiiiii requirements. Anancfaf condf(ion of'the Company ind other factors. Thi is subject to the restrictions described in Vote 6 to the Coiisoiiiliiicd f:Iiiu>>ci;il payiricrurii'ividends Statements. appearing on page 39. r 1 History of Growth'ervice (Amounts. except per share amounts. expressed in thousands) Net iVet Shareholders'eturn on Equity Revenues Earnings Earnings (Loss) Equity (beginning and Sales (Loss) Per Share (end of year) of year) "gF 1985 8221,080 S27 1852 S 1.262 SI 13.643 30% 89.230'8 pig 1984 185.630 19.428 .93 1983 162,771 15.759 .76 70.302 28 1982 1981 1980 149,244 134.887 115.648 13.024 ,10.97T 7.906 - .55'4. .64 .40 55.946 34.529 120 30 32 29 1979 89.471 6. 180 .32 27.428 36 1978 '0,185 4.486'26'7,061 37 1977 56.066 . 3,430 .20, . 12.228 39 1976 47,495 2,728 .16 8.r99 1975 36.998 2. 165 .13 6. 143 QQ 1974 29.037 1.786 .11 3.930 84 1973 2 1, 137 1.476 .09 2.136, 210 1972 1971 1970 13.436 7.592 3.978 '53 929 (219) .06 .02 (.01) 702 (232) (536) 1 1969 1 199 5 ~ (400) (.02) (3 18) 'All data has been restated to reflect a two-for-one stock split on i november 25. 1980. a three-for-two stock split on December 6. 1982. a three-for-two stock split on December 10. 1984, a three-for-two stock split on December 9. 1985. and the acquisition of American Impacts Corporation in 1980, accounted for on a pooling of interests basis. The Decem-ber 29. 1984 Consolidated Balance Sheet has been restated for the acquisition of Custom Organics. Inc. as more fully described in iVote 2 to the Consolidated Financial Statements. appearing on page 38. '1985 net earnings include S3.706,000 (S.17 per share) for the cumulative effect of change in accounting for investment tax credits. 31981 net earnings include S975.000 (S.05 per share) for U.S. income tax benefits resulting from the sale of the Company's West German subsidiary. 'A special bonus in the aggregate amount of S700.000 was approved by the Company's shareholders and paid.to three executive officers in 1978. 'Negative amount. Service Revenues and Sales 's \ Millions) Net Earnings 26 V, t 'yW 'I (S Millions) L 24 175 22 20 150. . 18 125 16 14 r',+'*I 100 12 10 50 25 0 0 +Cmw~t 69 '7 l '73 '75 '77 '79 'Sl '83 '85 69 '71 '73 '75 '77 '79 '81 '83 '85 I ~<i( 2 II interim Results of Operations {Unaudited) (Expressed in thousands. except per share amounts) Interim Revenues and Sales Gross Pro(it Net Earnings Per Share Period 1985 1984 1985 1984 1985 19843 1985 1984 First (12 weeks) S 47,610 S 40.367 S15.615 S12.930 S 8.625'S 4.069 S .40'.19 Second (12 weeks) 50.898 42,691 16.994 14. 140 5.474 4.619,25 .22 Third (12 weeks) - 52,117 43.889 17.142 14.626 5.596 4.686 .26 .23 Fourth (16 weeks) 70,455 58.683 24.007 19.706 7,490 6.054 .35 .'29 Total '221,080 S185.630 S73.758 S61.402 S27.185'S19.428 S1.26'.93 'Includes net earnings of S3.706.000 or S.17 per share for the cumulative effect of change in accounting for investment tax credits as more fully described in Note 1 to the Consoli-dated Financial Statements appearing on page 37. 'Restated for three-for-two stock split on December 9. 1985. in the i'orm of a 50 percent stock dividend. ffthe (low-through method of accounting for investment tax credits had been in effect in years prior to 1985. net earnings would have been S440.000 (S.02 per share) higher for the full year 1984. Shareholders'quity, (s M}II}oLLs} Total Assets (S ibfl}l}one 110 140 90 N 80, L20 'iy~ 70 LOO 60 80 50 Lc>~ 40 30 20 20 10 0 '89 '71 "73 '75 '77 '79 '81 '83 '85 '89 '71 '73 '75 '77 ' 9 '8l '83 't Company is already serving over 30,000 customers In shares. This was the sixth dividend increase the this market. initial public offering. In August. the Company acquired Custom Organics, Inc. Outlook. Our established long-range goals are to ach Located in Chicago. Custom Organics was a recycler average growth of 15o/o to 20oo per year in revenues and of solvents and chemical intermediates. The facility is to 25o/o In net earnings over the next five years. At the capable of recycling a broad range of industrial solvents beginning of this report. we said that In 1985 net eami including chloHnated, fluorinated and flammable solvents grew in excess of 20<<o for the flfteenth consecutive ye and thus has added a new dimension to Safety-Kleen's To gain a better perspective of this record. we recently recyclfng capabilities. The addition of Dr. Gilbert Gavlln, researched data on all industrial companies who flle rep Custom's founder, and his professional staff has also with the Securities And Exchange Commission (some enhanced Safety-Kleen's technological base. 6,500 companies) and found that only two other com-panies have ever recorded fifteen or more consecutive Capital Expansion. Capital expenditures fn 1985 totaled years of20% earnings growth (before extraordinary ite almost S33 million. We anticipate 1986 expenditures to Those companies are Automatic Data Processing, Inc. exceed S40 million. These expenditures are primarily for and McDonald's Corp. Both achieved sixteen consecu expansion and improvements to our solvent recycle centers years of 20o/o or more earnings grouch. It Is gratifying and branches and for additions and replacements of field be fn such dfstinguished companv. We hope that service vehicles. In addition, we are currently fn the process Safety-Kleen will be able to tie the records of these tw of adding 18 "accumulatfon centers." These centers will fine companies in 1986. service branches, collecting drums of waste from the dry cleaner program and other future small quantity generator This record has not gone unnoticed by the invesunent programs. As truckload quantfUes are collected, they community. Each month. Kidder. Peabody 8 Co. publfs willbe transported from the accumulaUon centers to the a list of the 50 highest PHce/Earnings ratio stocks on recycle centers. Eventually, we anticipate approximately View York Stock Exchange. Safety-Kleen has been on 25 accumulation centers. We belfeve that the combina- top 50 list each month since listing on the iVew York St tion of 162 branches and 25 accumulation centers In the Exchange in June, 1983. United States, all of which will be permitted as hazardous We are confident that our established long-range sales waste transfer and storage facifitfes, willput us in a unique and earnings goals can be achfeved over the n ye ~ positfon to serve small quantity generators of hazardous To attain these goals. we believe that the core e wastes. We know of no other company in the United States service can grow in real terms at the rate of fiv 'eve
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that has such a network of facilities. percent per year with price increases approximating Director Changes. Robert Burns and Clfnton Youle will rate of inflation. Over thfs time peHod. we expect the net both retire as Directors effecUve with the May 9, 1986 services to grow in revenues at the rate of 25 to 30o/o p Shareholders'eeting. Both have served as Directors since year in the aggregate. These newer services accounted 1974, the year in which Safety-Kleen was spun-off from approximately 23o/o of revenues in 1985. By 1990, we ex Chicago Rawhide. the former parent company. Both Bob them to account for almost one-third of total revenues and Clint have provided many years of valuable guidance With the continued support of our customers. share-to the Company. We thank them for their distinguished holders. employees and suppliers, we look forward to service and wish them the best In their retirement. bright future for Safety-Kleen.
Richard T. Farmer, Chairman of the Board and Chfef Executive Officer of Clntas Corporation, will stand for election as a new Director at our May 9, 1986 Shareholders'eeUng.
Mr. Farmer has been with Clntas since 1957 and has served in his present position since 1968. Under his leadership. Clntas has experienced very rapid and profi-tabl growth. We are very pleased that he has agreed to serve as a Safety-Kleen Director. Russell A. G willim Stock Split. On November 14. 1985. the Board of Directors Chairman of the Board declared a three-for-two stock split which was issued to shareholders on December 9. 1985, In the form of a 50%
stock dividend. On January 6. 1986. the Company paid a quarterly cash dividend of S.08 per common share on the post-splft shares. The stock split was the Company's fourth since the iniUal public offering in April, 1979, following a two-for-one split In iVovember. 1980. and three-I'or-two splits in December, f982 and December. 1984. The cash dividend represents a 20% increase in the payout. The Donald W. Brinckman Company previously paid S.10 per share on the pre-split President and Chief Executive OITicer 6
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The Problem-Proper Waste Disposal Over the last twenty years. there has been increasing In Yovember198~. Cont<ress re iuthorized RCRA. and awareness that our waste disposal methods have been this time, instructed the EPA to add further regulations detrimental to a clean. healthy environment. In the 1960's. covering a group of ge>>erators called "Small Qiiantity the primary concern centered on air quality. In the 1970's. Generators (or SQC>'s). This group includes any business this concern was extended to include contamination of or person that generates from 220 to 2200 pounds (100 our lakes and streams. Additionally. we became aware to 1000 kilograms) oi'hazardous waste in any single thatour "ample"'petroleum supply was not unlimited. In calendar month.
the 1980's. the contamination of groundwater was added The typical SQG businesses that are most affected by the to the list of concerns-a common supply that half the n< w ru)es are s<<n ice stations and ot)ier automotive repair population of the U.S. depends upon for its everyday needs. I'acilities: manufacturing Arms that use cleaning or de-Public concern is now centering on what to do to recUfy greasing solvents in their operations: and dry cleaner this situation. In 1976. Congress enacted the Resource plants Orat generate stil I bottoms or used fllter cartridges Conservauon and Recovery Act (RCRA) that directed the as part of the cleaning process.
U.S. Environmental Protection Agency (EPA) to issue These firms are required to dispose of the hazardous regulations that would stop or reduce further indiscrimi- material in a responsible manner. Ii'the waste is taken nate dumping of material found to be hazardous. Genera- off-site for processing or disposal. a manifest must also be tors of hazardous waste material were required to dispose completed to accompany the shipment, to the final treat-of defined hazardous wastes properly. ment or disposal site. As the Resource ConservaUon and In addition, generators of hazardous waste were held Recovery Act did in 1976. the reauthorized version again responsible for their waste from its "cradle to grave." This aNrmed that generators oi'azardous waste are respon-provision of the law meant that the generator was liable sible for their waste from "cradle to grave."
f 'aste and any environmental damage this waste In those states authorized by the Federal government to
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operate the hazardous waste regulatory program. the "L e QuanUty Generators" (those generating more than states may have even more stringent regulaUons governing 2200 pounds or1000 kilograms of hazardous waste in a hazardous waste generators than is called for in the federal single month) were also required to complete a manifest legislaUon. The laws of these states take precedence over describing the hazardous waste content for each shipment. the regulaUons of the U.S. EPA. There are even four states
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The environmental statutes are meant to do two Uiings-conserve resources and protect the environment. Indis--
criminate disposal ofhazardous waste is no longer an opUon available to the generator. and proper disposal oi the waste is everyone's concern.
The Congressional Budget Office recently estimated. using figures for)983, that the United States annually generates nearly 266 million metric tons oi'hazardous waste. This quantity: almost beyond the limits oi compreiiension.
points out the magnitude of the problein. It, certainly wi)l not go away by itself, because it has been ignored ior years whi)e the quanUues of hazardous wastes have been mulUplying.
Ifthe environment is suffering because of this wasie-and we now know that it is-industry and a responsible Man and nature haue worked together in the past to pre- populace must face the challenge and respond to it.
serve the environment in such a way that eueryone and Safety-Kleen has. for over seventeen years. been doirig its e rything can enjoy the beauty of our natural, uncon- part through services to its customers. and disposal of the ated sunoundings. Safety-K/een's altemaUue to waste through reclamation. To Safety-Kieen. these wastes and contamination-reclamation-overs the best are a precious resource that can be used agai>>-and the so udon to the problem of disposal. environment is protected from further damage.
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The Response Serving Customers'eeds The potential environmental problems posedibi'azard- th<< inh<<r<<ni b<<nefii ol'<<cl;iniatioi> of tl><<ir sp<<iit solvent.
ous wastes require a positive response by all who generate. The Imm<<rsion Cl<<an<<r s<<rvic <<proi ides a s<<al<<d drum transport. store. or dispose of these wastes. Saf<<ty-Kleen containing an air motor agitat<<d parts bask<<t. along with has developed specific services for customers that not a blend of chlorinated solvents. to iirins having il need to only help them solve their requirements for proper dis- remove hean buildups oi'arnisl> and guin from such posal in an environmentally sound manner, but also metal items as carburetors and automotive transmis-contribute to the conservation of valuable resources. sion parts. When the chlorinated blend is spent. the As a result. Safety-Kleen has experienced rapid groaW Saf<<ty-Kleen rep supplies cl<<an solvent and returns the over the past seventeen years. The Company has shown sp<<ni. material to th<<branch. This material is also r<<-
that doing small tasks well. while performing needed claimed by the Company.
services for customers. can be done profitably-with a A newer. light-iveight parts cleaner. designed for the vast positive impact on the environment. "do-it-yourself handyman market as well as low-volume Safety-Kleen offers five services, In each one, resources repair shops not requiring larger paris cleaners or more are recovered and used again. What follows is a descrip- frequent solvent service. is a more recent addition to the tion of each of these services oAered to distinct customer parts cleaner service. The customer purchases the unit.
groups. and their relation to the Company's overall which consists of a cleaning sink and sell'-contained emphasis on reclamation as the way to both preserve the solvent reservoir. from a local automotive or industrial environment. and conserve valuable resources. distributor. When the user needs fresh solvent. he simply detaches the reservoir and returns it to his distributor for Parts Cleaner Service. The core of Safety-Kleen's services a tank of clean solvent.
be an with two sizes of parts cleaners in 1968, and a unique Periodically. the Safety-Kleen branch serving the distrib-ting concept. In this service, the Safety-Kleen rep utor delivers clean solvent to him. and retrieves spent provide the customers with a parts cleaner for his material for reclamation. This service provides the indi-u . deliver a drum of clean mineral-spirits solvent to vidual consumer with an alternative to the old "brush and clean the parts; inspect and maintain the machine; and bucket of gasoline" method of parts cleaning. The adverse finally::remove the spent mineral-spirits solvent from the environmental impact of the many thousands who are customer's premises. Today. the basic parts cleaner ser- still using this method for cleaning parts is significant vice remains. from the customer's viewpoint, essentially and Safety-Kleen offers an economical and better disposal unchanged. alternative to this type of environmental contamination.
Safety-Kleen has also established a parts cleaner service There are over 279,000 businesses served by to users who own their own machines. This service. Safety-Kleen's parts cleaner service. They include auto-known as Customer Owned Machine Service (COMS). motive repair facilities and small manufacturing opera-provides solvent service to these customers. along with tions as well as large industrial firms: These businesses are served by 1.120 Safety-Kleen sales repres<<ntatives operating out of 230 branches worldivide After the Safety-Kleen rep performs his services at these numerous businesses each day. a large amount of spent solvent has been collected. All of the solvent is stored at the branch. under conditions that meet or etc<<ed govern-mental regulations. until a sch<<dul<<d Saiety-Kl<<en trucl loads it for transportation to the recycle center, Through the Safety-Kleen rep and the branch n<<twork.
the Company delivers and recovers the mineral-spirits and chlorinated solvents used by its customers in the Safety-Kleen 's parts cleaner service ls used by over parts cleaner service. Instead of disposing of hazardous 279.000 businesses throughout the United States. waste cleaning solvent in an environmenia!iy damag>>ig C ada. the United Kingdom, 1Vest Germany. France. way, Safety-Kleen offers an alt<<mat iv<< tn thes<<busiriess<<s and Puerto Rico. Geographically, these customers that is economical, practical and safe. A disposal probi<<m cated in small hamlets or large metropolitan centers. is thus eliminated because of the Compai>y's r<<c!amauon
'1 ey are served by l120 sales representatfves tvho program. Natural resources are conserved. and the operate out of 230 branches ivor(divide. environment. is protected from further contamination.
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( '9 mach i ne,freshsol ve nt. and m ac hi n e maintenance . Firn.
engaged in automotive repair are th elargest gr I I customers using the Company's pa rts cleaner ~
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edetermined interval, the Safety-Kleen rep services t achine and provides clean solvent for customer use. The spent solvent is removed from the premises.
13
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environment An increasing number ofpans cleaners are being <<sed by industry for cleaning and degreasing metal parts.
Safety-Kieen provides this service for one or one-h red machines-performing a task that is both necess industrial users. and beneficial to the
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Spent mineral-spirits soluent is collected at branches until a scheduled Safety-Kleen tanker picks it up for transport to the recycle center.
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I Safety-Kleen provides restaurants u,ith recyclable Fire- I Shield'" aluminum grease filters, and Soaking Centers containing a biodegradable solution used for remr 'ng !
polymerized greasefrom kitchen cooku'are. Thi.
sary servicefits the Company's philosophy of cot ng resources and helping protect the ennuironment.
Restaurant'Service. Some years ago. Safety-Kk h <
entered thr restaurant service. industry in selected U.S.
metropolitan areas. The original concept was to provide cleaning sen ices for the greasy mesh exhaust filters that were I'ound in almost all iood preparation establishments at that time. Another concept so vital to the new business was the necessity of having a support organization in place during the Arst critical years. Thanks to the branch network established ior the core parts cleaner service. 'uter restaurant services had a solid base from which to grow.
After entering the market. Saiety-Kleen developed a new c h bye of Alter-the UL-listed Fire-Shield'" grease filter. rJ.
Because the Alter holds less grease. it minimizes the prop-agation of flames into the duct work should a Are start in the cooking area. In addition. these aluminum filters are recyclable, keeping with Safety-Kleen's stated philosophy of resource recovery.
During a typical service call. the Safety-Kleen rep installs
,'evi Fire-Shield'" baNe filters in the kitchen's cooking exhaust svstem. Greasy used filters are taken to the branch'and compacted into bales. Periodically. a supply from one of the Company's six distribution centers off supplies and loads the used filter bales for trans-p back to the distribution center for sale to smelters.
In 1985. a hood and duct cleaning service was added to the restaurant services program. This service provides i'or the removal of accumulated grease from hoods. ducts.
blower motors and fans that are part of the kitchen exhaust system. and includes the application of a fire retardant for further protection. It is now being offered in selected major metropolitan areas. and is expected to expand
, in.1986.
Another service offered to restaurants is the Soaking Center that removes polymerized grease from virtually all metal and glass kitchen cookware. In 1985," there were some10,400 units ln use at over10.000 restaurants throughout the country.
At the end of 1985. restaurant'services was established in.
85 branches In the U.S. that served over 32.400 customers.
"In 1986. the Company plans to imple'ment the program-in, ll additional branches.
Fire-Shield" grease Jil ters collect grease that isfunneled to a retention cup-away from cooking Jlames. This reduces the risk of fire spreading into the exhaust system. The filters are replaced by the Safety-K/een rep at predeter-ined intervals. Dirtyfilters are then collected and sold elters for their aluminum content.
Nationwide. ouer 32,000 customers are served by Safety-Kleen's restaurant services.
17
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Paint Refinishing. This is another service buift t'ij)on Safety-Kleen's existing branch network. In addition. it is a service that fits the material recovery philosophy,oi'the Conipany.
Independent autobody repair shops. automobile dealer-ships, auto assembly plants. fiberglass boat manufactur-ers and marble products companies use Safety-Kleen's wool buffing pad service in their Anishing or manui'actur-ing operations.
Clean buffing pads are supplied to customers at pre-set intervals. Dirty pads no longer usable by the Arm are col-lected during the service call. and taken to the branch where they are stored until one of Safety-Kleen's over-the-road trucks picks them up I'r delivery to one of the five company-owned pad processing plants.
Because Safety-Kleen's buffing pads are reclaimed. cus-tomers~benefit in hvo ways. First. they have a choice lengths that allow selecting the best pad for a specific of'uft situation to obtain faster and better results. Second. since the pads are less expensive. more pads can be used on a jo o do it right.
. the Abrasive Blaster service for use by autobody to remove paint and rust from hard-to-reach sur-faces was introduced into the paint refinishfng program.
The Abrasive Blaster service includes the use of the blasting machine. a supply oi'the abrasive material. and periodic machine inspection and maintenance by the Safety-Kleen paint reAnishing specialist.
For some time. the Company has been aware of the hazardous waste generated by body shops and spray painters to clean spra> guns. As 1985 ended, Safety-Kleen began to study the feasibility oi reclaiming this waste, and will continue to do so In 1986.
Safety-Kleen's paint refinishing service had about. 31.000 customers at the end of1985. They were served by reAnishing specialists working out of142 branches.
144'aint, This service again demonstrates the Company's commit; ment to reclaiming and reusing resources to the maxi-mum level possible. By doing so. resources are conserved.
in labor and material costs..' ..',"
and customers realize better quality results and,savings At each seruice call. the paint refinishing specialist delivers clean pads and other allied products, and picks up used pads for cleaning.
dition to automobile dealers, independent body
.. and automobile manufacturers, other customers de marble product firms and fiberglass boat manufacturers.
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4 'I Through proper disposal of solvents. further contam- I ination of our streams, lakes and ground<<Iater can Safety-Kleen's industrial solvents programbe,'educed.
reclaims soluent u.aste streams from large-t:olt cd(
trial users through recycling into their discrett, The recycled material is then sold for us~, dna o-'ents.
I 20 I
Indus&al'Solvents. Saiety-ICleen's many years of experi-ence in handling and processing mineral-spirits and chlorinated solvents became the basis for a program to reclaim bulk quantities of'industrial solvents.
In this service. the Company concentrates on Arms en-gaged in metalworking. electronics. aeronautics and tool-and-die manufacture. Typically. these Arms use large quanUties oi'chlorinated solvents to remove grease and dirt prior to plating, coating. bonding or painung metal surfaces. Safety-ICleen collects their large hazardous ivaste solvent streams. recycles them. and sells the finished product for use again.
At the heart of the program are Safety-Kleen's specially trained industrial sales engineers. They call on industrial buyers and environmental engineers, counseling them on proper ways to segregate and identify their solvent waste for maximum recovery levels. In addlUon. they assist the customer in the complex matter of manifest preparation.
The sales engineer arranges for the removal of the cus-tomer's waste solvent for reclamaUon. He also sells virgin a recycled solvents in any quantity needed by the mer-from a few drums to a tanker load.
- 85. Safety-Kleen added to its industrial solvents recycling capability through the acquisition of Custom Organics. Inc., a Chicago-based recycling company. In addition to chlorinated solvents. the Company can now reclafm fluorinated and other exotic industrial waste streams that are puriAed dlrectlv to high quality products.
or converted chemically to still higher i alue products.
In 1986. the Company intends to continue building on this expanded capability. By providing a needed service to-larger quanUty generators of hazardous waste, Sai'ety-Kleen is assuring that the waste is handled properly-through the, process of reclamation-I'or the benefit of everyone.
Piecision formed parts are commonly stripped ofoils by uapor degreasers using industnai cleaning soiuent.
Safety-Kleen's industrial soluents program is oriented towards businesses that use large quantities of cleaning soluents to clean and degrease metal pans before paint-ing, coaiing, plating or bonding metal surfaces. The pany's sales engineers cali on thesefirms to counsel on proper ways to segregate and identify spent ent, assist in manifest preparation, and supply clean.
soiuent and remoue spent soiuent for reclamation.
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People create the need for companies to <<se cleaning soluents. The dry cleaning process generates II) materia( that mill, i/ not disposed ofprout harardo<<s','uaste r')s-I sibly contaminate the enuironment. Safety-Klees cleaner program tuas started to help thesesmall S..titt<
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Dry Cleaner Service. Safetv-Kleen's newest sea'ice began in 1984 with a dry cleaner test market as a result j.-
oi'he reauthorization oi'the Resource Conservation and i Recovery Act. IA I I This legislaUon directed the U.S. EPA to increase the regulaUon of "Small QuanUty Generators." and defined
'these generators as those who generate over 220 pounds.
but less than 2200 pounds. oi'hazardous waste in any
/ I l II single calendar month. @A/ p,, fg iw For those businesses identified as SQG's. the manifesting requirements for proper disposal of'their hazardous waste.
I plus the knowledge that they are responsible for the waste
- at all times-even after disposal-'posed not only the time problem of paperwork. but also the fear 'onsuming IC something wrong and suffering the penalties im-of'oing
~ lr posed by the law.
Dry cleaners were one of the major SQG groups identified by the.EPA. and Safety-Kleen's new dry cleaner service V' was ready to help them with their disposal problems.
The Company's unique disposal service for dry cleaners
" nsiderably less expensive than other alternatives ~ /
ble to them. On a regularly scheduled basis. the
-Kleen rep picks up the dry cleaner's spent filter cartridges and still bottoms, and the Company recycles the solvent for use as Safety-Kleen feedstock.
Safety:Kleen's dry cleaner service has many benefits. The customer realizes a significant cost savings that could add up to thousands of dollars a year when compared to land-fillor incineraUon disposal methods; and at the same time. he knows that his hazardous waste is being han-dled responsibly by the naUon's largest solvent recycling
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specialist.
In 1985. over 7,700 dry cleaners were added to this ser- r vice that now totals over 9,400 customers in the U.S. In ' Ch 1986, a newly designed filter cartridge along with the sale of reclaimed dry cleaning solvent, willenable dry cleaners to benefit from a single-source solvent. supply/solvent recovery program-again taking advantage of the inherent savings the Company's "closed-loop" solvent system
. provides.
Safety-Kleen reps providesecure drums to the dry clean- .
erfor storage of spent filter cartridges and still bottoms.
At predetermined intervals. the Safety-Kleen rep drops mpty drums. and picks up drums containing the
'dges and still bottoms. These drums are taken to f the Company's recycle centers ivhere the contents are processed, and all remaining solvent is recycled to be used again.
23
1' II Federal environmental regulations are making it virtu-,
ally impossiblefor any generator of hazardous u aste to dispose of it-knotvingly or unknotvingly-in a ma ner I that could cause environmental contamination.
24
The Process Reclaiming the Waste The process of reclamation begins at th>> custo'nit'r's place ofbusiness. It is here that Safety-Kleen performs the ser-vices that have been at the heart of the Company 's growth over the past seventeen years.
Dirty restaurant grease filters and used auto refinishing buffing pads are replaced with clean. Periodically. one of Safety-Kleen's over-the-road trucks picks up the collected material at the branch-transporting filters to one of the distribution centers for sale to aluminum smelters. and pads to one of the Company's five pad processing plants.
In the three other services. mineral-spirits solvent and dry cleaner filter cartridges and still bottoms are collected at the branch. and then transported to a nearby recycle center. Industrial solvent waste streams are taken directly from customers'lants to the recycle center.
Safety-Kleen did not choose the process of recycling by accident. It was the result of the same careful thought, processes and planning that went into the marketing pro- g@ .Qgggg gram for the parts cleaner concept. When the Company opened.its first recycle center at Elgin. Illinois in 1970.
recvcling of all the spent mineral-spirits solvent was the swer to Safety-Kleen's own disposal problem.
onomics of recycling were not advantageous. but, ompany elected to recover the solvent.
l Since the mid-1970's with the first enactment of RCRA.
increasingly tougher standards and regulations have been placedton generators of hazardous waste material. In some states, even more stringent regulations are in force-all brought on by the public's understandable concern for environmental safeguards to ensure a quality of life every-one now. and in the future, has a right to expect. All of these public and private pressures for a clean environ-ment are quickly narro~6ng the choice of hazardous waste ~ W disposal alternatives available to generators. The eco-nomic and environmental benefits. of recycling hazardous waste is now becoming too attractive to ignore.
There are disposal alternatives other than recycling. but when compared to the benefits of recycling; these methods are considerably less desirable:,Disposal oi'waste fn a l
In 1965, Safety-Kleen acquired Custom Organics, Inc.,
a Chicago recycler. This acquisition gaue the Company the capability to recycle larger quantities of chlorinated soluents. as well asfluorinated and other exotic cleaning soluents.
To meet the requirements for continuing growth,
-Kleen has undertaken expansion programs at ycle centers in Lexington, South Carolina and on. Texas. The Company's other recycle centers are scheduled for expansion in the near future.
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landfill is expensive. and of course. the "cradle to grave" In 1985. Safety-Kleen reclainied about 27 million gallons liabilityfor this waste continues to be with the generator. of usable mineral-spirits solvent from some 29 million There is always the possibility the waste will seep onto gallons oi spent solvent it processed. Th<<Company's the soil and into the groundwater. and sometime in the remarkable recovery rat( of 93 percent is the highest in future. the generators using the site may be held respon- the solvent recycling industry.
sible for the cost of the landfiill's cleanup. Disposal through To better illustrate the eIIIciency of the Company's recycling incineration of the waste is also a very expensive solution process. the following example is appropriate. Of every to the problem. It does get rid of the waste at an extremely 100 gallons of mineral-spirits solvent delivered to parts high cost both monetarily and environmentally. It destroys cleaner customers. the Safety-Kleen rep retrieves about precious. reusable resources, and should be considered 70 gallons after customer use. The balance is either carried as a method of "last resort." off on cleaned parts. or through normal evaporation loss.
Safety-Kleen operates seven company-owned recycle Of the 70 gallons returned to the recycle center for process-centers in the U.S. These are located in Elgin. Illinois: ing. Safety-Kleen recovers 65 gallons for reuse. Four more Hebron. Ohio: Clayton, NeN> Jersey; k.exington, South gallons are recovered as reusable petroleum oils. and only Carolina: Denton, Texas: Reedley. California; and with the one gallon is transferred to licensed disposal firms for 1985 acquisition of Custom Organics. Inc., Chicago, Illinois. final handling.
It is here. at these recycle centers. that the spent solvent collec>ted from customers throughout the nation is pro- The large quantities of chlorinated solvents used by cessed to produce an end product that is virtually equal industrial plants are recycled using a specially designed to virgin solvent in both its chemical properties and fractionating tower. This technology can separate a mixture working performance. or blend of chlorinated solvents into their discrete com-ponents. %'ith the addition of the capabilities the acquisi-so at the recycle centers that spent filter cartridges tion of Custom Organics. Inc. brought to Safety-Kleen in ll bottoms from the dry cleaner service are processed 1985, not only can larger quantiUes oi chlorinated solvents ugh a complex, multi-stage procedure. To make sure be handled. but also more exotic waste streams can be that virtually all of the dry cleaning solvent is recovered processed to extremely high levels of purity for reuse from the material, the Company's internally developed by industry.
Safety< Therm process is used a process that reduces the volume of waste that must be disposed of to a powdery, Safety-Kleen considers spent solvents to be valuable virtually inert material. This residue is then handled by resources that should never be destroyed or disposed oi'n licensed disposal firma. a manner that could cause possible environmental damage. As long as there are ways to reclaim this material for use again and again. it must be done. That is why the Company has invested so heavily to perfect the various reclamaUon processes it uses. and is continuing to invest in reclamation technology-not only for present services.
but also for future opportunities.
As 1985 ended, the recycle centers in Lexington. South Carolina and Denton. Texas were in the process oi major expansions that will be completed in early 1986. Plans for expansion at three other centers have been approved and work is expected io begin during the present year. Ai the Hebron. Ohio recycle center. a new tank storag<<area is
- under construction to replace the tanks lost in a fire in late November. 1985. It is expected that this project will be completed in the first half of 1986.
As a result of the Company's physical improvements in 1985 and 1986. Safety-Kleen will be in an even stronger posiUon to meet the challenges presented noi only bi existing services. but by those of newer opportunities as ritical supply and retrieval link betu een branch. ~ well. The Company is investing in net concepts thai ivill recycle center, and back to branch. is the Safety-Kleen
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1985 was a year in which Safety-Kleen again achieved in conserving resources and protecting the environment.',
record sales for the seventeenth straight year. and net Landfill disposal of'spent resources arms a time bomb I'o earnings growth fn excess of 20 percent for the fifteenth I'uture environmental damage. Destruction of'spent re-consecutive year. It was also a year fn which many small sources wastes material that LL ill possibly cause shortages o businesses found out they were "Small Quantity Generators a needed commodity in the future. Safety-Kleen's ansi'r- I oi'hazardous waste. The Company,.with its extensive reclamation-is the best aliernariue.
branch network and highly specialized services supported by fts extensive reclamation technology. continued,to assist j4 them within the area of Safety-Kleen's expertise-and I continued to explore new ways to help these many busi-nesses with their newly discovered obligations. t As a result of Safety-Kleen's reclamation commitment,. On September 30. 1985. Safety-ILleen 's neu'orporate millions of gallons of spent solvent have not been allowed headquarters was officially corrtplered. A sculpture b(I' to contaminate the environment.-but to be purified ior internationaily recognized sculptor, J. Sewarcf Jo)benson, use again and again. It is mathematically possible that a Jr.. was unveiled. In his dedic:arinr7 rerrrarks. Do>>aici small amourit of spent solvent colle'c'ted in 1968 when the stared: "Today u:e observe our. CnmpanrI's tV.'rinckman gQ seventeenth anniuersartJ.'tvhar could be more appropri.
Company began its core service is still being reclaimed ate on this date than to dedicate this sculpture and fire and used again. This possibility fs intriguing because it I
shows the vast potential that reclamation efforts can play Corporate Headquarters thar houses I r ro the spirit thar val has been the heart of the Company's success-our
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a s eciai reiaiionshi between com anu and L,r united b the serUice evcefience ol our Safenr-ILi 'c r.,
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Management's Discussion and Analysis of Financial Condition and Results of Operations Summary Tli<< follo<ving table sets forth for the p<<rinds indi<<ai<<d (i) p<<r<<nia<<<>> ivhi< h <<rt;iin ii<<m>>
reflected in the financial data bear to consolidated r<<venu<<s <<nd s;ii<<s of th< ('<impany an<i (ii) the percentage increase of such items as compared to th<< indicated prior period.
Period to Period Relationship to Consolidated Revenues and Sal<<s incr<;is< (D<<cr< as<<."
Fiscal Years Fiscal Years 1985 1984 1983 1984-85 L983-R4 p Revenues and Sales Service revenues . 84.2o/o 83.5"'n 84.9<i'n 20 Ooo 12 04 i Sales (primarily allied products) 15.8 16.5 15. 1 14 5 24.4 lgr'osts 100.0 100.0 100.0 19.1 14.0 and Expenses Branch operaUng costs and expenses and cost of sales 66.6 66.9 67.9 18.6 12.4 Selling and administrative expenses 15.5 15.9 15 8 16.1 l 4.7 Interest. net (.8) (1.7) (1.3) (41.1) 42.9 81.3 81.1 82A 19.4 12.3 Earnings Before Taxes
'I and Cumulative Effect of Change in Accounting Principle 18.7 18.9 17.6 17.9 22.0 Income Taxes 8.1 8.4 7.9 14.2 20.4 Earnings Before CumulaUve Efi'ect of Change in Accounting Principle 10.6 10.5 9.7 20.9 23.3 CumulaUve Effect of Change in Accounting for Investment Tax Credits 1.7 N/A Y/A NetEarnin s 12.3% 10.5o/n 9.7n/o 39.9 23.3 g I Trends During the flve flscal years ended December 28. 1985. the Company's revenues and earn-ings before cumulaUve effect of change in accounUng princip)e grew at. compounded rates of13.8 percent and 24.3 percent. respectively. This was largely attributable to groNW in
'ig service revenue in the Company's parts cleaner, restaurant. paint reflnishing. dry cleaner and industrial solvents services; as well as allied product sales growth in the parts cleaner 4~~
and paint refinishing markets.
1 Inflation and Changes in Prices I %.g
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The Company uses a substanUal volume of petroleum-based solvents fn its parts cleaner service. The cost of solvents rose significantly from 1974 through 1980. During 1981, these costs rose at a lesser rate than the overall rate of inflation. During 1982. 1983 and 1984.
the average cost of virgin solvents purchased for use in the United States operaUons declined approximately 9'/o, 9% and 2%, respectively. During1985, the average cost of virgin solvent remained virtually unchanged from the 1984 average cost, however the 1985 year end cost was approximately 5% below the 1984 year end cost. Approximately two-thirds oi'the Company's solvent requirements are met by recycling. leaving one-third to be purchased.
The Company has been able to raise its prices in the past to compensate for cost increases.
Management expects to be able to raise prices in the future to compensate for cost increases.
30
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Liquidity and Capital Resources The Company's working capital increased froin S36.92).000 ai D<<ceniber 29. 1984 to S46.182,000 at December 28. 1985.
Capital additions in 1985 totaled S32.900.000. Commitments for capital expenditures as of December 28, 1985 were approximately SI6 million.
In connection with the expansion of the Company's L<<xinpon. South Carolina and Denton.
Texas solvent recycling plants. S5.700.000 oi Industrial Development Revenue Bonds were issued during1985. Unexpended funds. in the amount of S3.623.000 are included in Other Assets in the December 28. 1985 Consolidated Balance Sheet. These funds are expected to be expended as the projects are completed during the Arst half of 1986.
In December. 1985. the Company contributed S4.800.000 to a Voluntary Employee Bene-ficiary Association (VEBA) trust fund as discussed in Note 8 io the Consolidated Financial Statements appearing on page 41 . The VEBA trust fund balance oi'$5.484,000 at the end of1985 is included in Prepaid expenses in the December 28. 1985 Consolidated Balance Sheet. These funds are expected to be paid out during 1986 for covered employee beneAts.
In November, 1985, a fire occurred at the Company's Hebron. Ohio solvent recycling center.
Certain portions of that facility's tank farm as well as other propem . assets and equip-ment were destroyed in the Are. The Company is insured for the replacement cost of all assets lost In the Are as well as extra expense incurred in restoring the facility to its pre-fire operating condition. As of December 28, 1985. the Company was in the process of'restor-ing this facility. RestoraUon is currently expected to be completed in the first half of 1986.
Insurance refunds receivable fn connection with this Are. in the amount of S3,344.000, are included in Prepaid expenses in the December 28, 1985 balance sheet.
The Company expects to be able to finance groaW in its existing service areas through internally generated funds for the foreseeable future.
Results-of Operations Reuenues and Sales. Total service revenues and sales derived from the Company's parts cleaner service amounted to S169,782.000 in 1985. S155.127.000 in 1984 and S142,076,000 in 1983. Total service revenues and sales derived from the newer service areas. primarily restaurant services. automoUve paint refinishing services. dry cleaner services and the exchange and recycling of industrial solvents amounted io S51.298,000 in 1985 (including revenues of Custom Organics. Inc.. acquired on August 6. 1985).
S30,503,000'in 1984 and S20.695,000 in 1983.
Service revenues and sales from the Company's parts cleaner service increased Si 4.655.000.
or nine percent in 1985 over 1984. Of this increase. ninety-three percent was derived from service revenues while seven percent was due to grooW in allied product sales. Parts cleaners in service at the end of 1985 were 4.4 percent'above the end of 1984. In addition.
the average time interval between services shortened slightly from the end of 1984 to the end of1985. The combinaUon of more machines in service and the shorter average service interval resulted in 5.9 percent additional services performed in 1985 over 1984. The average price per service, in 1985 was four percent higher than in 1984.
Service revenues and sales from the Company's parts cleaner senesce increased S13.051.000, or nine percent, in 1984 over 1983. Of this increase. elghh-two percent was derived from service revenues, while eighteen percent was due to growth in allied product sales. Parts cleaners in service at the end of1984 were 4.2 percent above the end oi 1983. In addition.
the average time interval between services shortened slightly from the end of 1983 to the end of 1984. The combination of more machiries in service and the shorter average service Interval resulted in 6.5 percent additional services performed in 1984 over 1983. The average price per service in 1984 was two percent higher than in 1983.
Service revenues and sales from the Company's parts cleaner ser~ace increased S6.082.000 or five percent in 1983 over 1982. Of this increase. eighty-four percent was derived I'rom service revenues, while sixteen percent was due to growth in allied product sales. Parts cleaners in service at the end of 1983 were 2.1 percent above the end of 1982. however 31
Management's Discussion and Analysis of Financial Condition and Results of Operations (continu>>d) the average time interval between services lengthened slightly duri>>t! 1983. T}ie l>>nph>>ning of the sen'ice interval during 1983 more than offset the effect of tli>> increase in machine~
and 1.3 percent fewer servfces were performed in 1983 as compared to 1982. The averag<
price per service in 1983 was six percent higher than in 1982.
The combined revenues of the Company's newer service areas increased sixty-eight per-cent in 1985 over 1984. forty-seven percent in 1984 over 1983. and fifty-six percent in 1983 over 1982.
Branch Operating Costs and Expenses and Cost ofSales. Branch operating rosts and expenses and cost of sales improved slightly to 66.6 percent, of sales in 1985 as compared to 66.9 percent of sales in 1984.
Branch operating costs and expenses and cost of sales represented 66.9 percent of sales in 1984 as compared to 67.9 percent of sales in 1983. This improvement in overall margins is due to higher gross margins in the parts cleaner service and an improvement in the newer service areas from a combined loss at the gross profit level in 1983 to a combined profit in 1984. The improvement in gross margins in the parts cleaner service is primarily due to the higher unit volume of services, price increases and lower cost of virgin solvents.
The improvement in the combined gross profit in the newer service areas is primarily due to additional revenues derived from higher unitvolume sales and the favorable effects of spreading the Axed and semi-variable cost components over a larger revenue base.
Branch operating costs and expenses and cost of sales represented 67.9 percent of sales in 1983 as compared to 70.7 percent of sales in 1982. This improvement in overall margins is due to higher gross margins in the parts cleaner service and a reduction in combined losses in the newer service areas. The improvement in gross margins in the parts cle"",cr service is primarily due to higher prices charged for longer-interval services. price increases and lower cost of virgin solvents. The reduction fn combined losses in the newer service areas is primarily due to additional revenues derived from higher unit volume sales and the favorable effects of spreading the Axed and semi-variable cost components over a larger revenue base.
Selling and Admfnfstratfue Expenses. Selling and administrative expenses rose at a lesser rate than revenues in 1985 and at a greater rate than revenues in 1984. Included in this category is an expense of S81,000 in 1985, an expense of S38,000 in 1984 and an expense of S483,000 in 1983 for stock appreciaUon rights as more fully described in Note 7 to the Consolidated Financial Statements appearing on page 40. Exclusive of stock appreciation rights, selling and administrative expenses rose sixteen percent from 1984 to 1985 and se~venteen percent from 1983 to 1984. The increases in both years were primarily due to additional employees and employee expenses, increases in salaries and benefits. and increases in other compensation based upon sales and consolidated earnings. The acqui-sition of Custom Organics. Inc., also contributed to the 1985 increase.
Interest, net. In 1985, 1984 and 1983, respecUvely, $ 380,000. S1.437,000 and Sl.194.000 of income is included in Interest, net in connection with the purchase of Federal income tax benefits as discussed in Note 9 to the Consolidated Financial Statements appearing on page 42. These amounts are included in Interest, net with no corresponding income tax effect. Exclusive of amounts recorded in connecUon with tax benefits. Interest. net declined by S247.000 from 1984 to 1985 primarily due to lower interest rates. Exclusive of amounts recorded in connecUon with tax benefits. Interest, net increased by S710,000 from 1983 to 1984 primarily due to higher investment balances and higher interest rates.
Income Taxes. The effecUve income tax rate was forty-three percent in 1985. forty-four percent in 1984 and forty-five percent in 1983. The effective 1985 rate is lower than 1984 primarily due to the favorable effects-of the change to the flow-through accounting method for investment tax credits (as more fully described in Note 1 to the Consolidated Financial Statements appearing on page 37) and a lower statutory tax rate in the United Kingdom.
partly offset by lower Interest. net recorded in connection with the purchase of tax benefits.
The effective 1984 rate is lower than 1983 primarily due to a lower statutory tax rate in the United Kingdom.
32
Report of independent Public Accountants To the Board of Directors and Shareholders oi'Saiety-Kleen Corp.:
We have examined the consolidated balance sheets of Safety-Klee>> Corp. (a Wisconsin corporation) and Subsidiaries as of December 28. 1985. and December 29. 1984. and the related consolidated statements of earnings. shareholders'quity and changes in financial position I'or each of the three Ascal years in the period ended December 28. 1985. Our examinations were made in accordance with generally accepted auditing standards and. acrordingly. included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion. the consolidated financial statements referred to above present fairly the Anancial position ol'Safety-Kleen Corp. and Subsidiaries as of December 28. 1985. and December 29. 1984, and the results of their operations and the changes in their financial position for each of'the three fiscal years in the period ended December 28. 1985. in conformity with generally accepted accounting prin-ciples which. except for the change (with which we concur) in accounting for investment tax credits as discussed in Note I, were applied on a consistent basis.
Arthur Andersen 8 Co.
Chicago, Illinois.
Februaiy 4, 1986.
Consolidated Statements of Earnings Safety-Kleen Corp. and Subsidiaries (Expressed ln thousands. except per share amounts)
Fiscal Year Ended Dec. 28. 1985 Dec. 29. 1984 Dec. 31. 1983 Revenues and Sales Service revenues 8186.081 S155.065 'S138.205 Sales (primarily allied products) 34.999 30.565 24.566 221,080 185,630 162.771 Costs and Expenses Branch operating costs and expenses and cost of sales 147,322 124.228 1 10.515 Selling and administrative expenses 34.356 29,579 25.790 Interest, net (1,869) (3.173) (2.220) 179.809 150.634 134.085 Earnings Before Taxes and Cumulative Effect of Change in Accounting Principle 41.271 34,996 28.686 Income Taxes (Notes 1 and 9) 17,792 15.568 12.927 Earnings Before Cumulative Effect of Change in Accounting Princlple 23,479 19A28 15.759 Cumulative Effect of Change in Accounting for Investment Tax Credits (Note 1) 3,706 Net Earnings S 27.185 S 19.428 S 15.759 Per Share (Note 1)
Before cumulative eAect of change ln accounting principle S 1.09 S .93 ,76 Cumulative effect of change in accounting for investment tax credits (Note I) .17 NetEarnin s S 1.26 S .93 S .76 The accompanying notes are an integral part of these Anancial statements.
33
Consolidated Statements of Shareholders'quity Safety-Kleen Corp. and Subsidiaries (All'loulltscx f)l'cs4('d lll t)toustlllds)
Common Totai Cuntufath c Shares Sharehofdt r Contm>>n f';>>d-ltt Rt tatncd Translatton Outstanding E ttttv Stock Sunlus Earnlna~ Adtustmcnts 9.005,385 Balance at January 1, 1983 S 55,946 S 901 S 6.051 S 49.900 S (906)
Net earnings 15.759 15. ~59 Cash dividends-S.30 per sharc (2.722) {2.722!
79.124 Stock options exercised 1.152 8 1.144 Tax benefits arising from stock opUon transacUons 234 234 27.420 Stock issued for businesses acquired 315 313 Change in cumulatfve translation ad ustments (Note 4) (382) (382) 9,111.929 Balance at Net earnings December 31, 1983 '0.302 9ll /.742 62.937 (1.288) 19.428 19.428 Stock issued as a result of a split-up effected in the form of a 50% stock 4,601,670 dividend (Note 7) 46l (461)
Cash dividends-S.30 per share {4, 136) (4.136) 102.184 Stock opUons exercised 1.611 10 1.601 Tax benefits arising from stock option transacUons 172 172 Change in cumulative translaUon ad ustments (Note 4) (970) (970) 13.815,783 Balance at December 29. 1984 86.407 1.382 9,054 78.229 (2.258) ij., 298,228 Adjustment for the pooling of interests of Custom 0 anics, Inc. {Note 2) 2,823 30 39 2.754 14,114.011 Restated balance at Dec. 29. 1984 89,230 1,412 9.093 80.983 (2.258)
Net earnings (Note 1) 27,185 27. 185 Stock issued as a result of a split-up effected in the form of a 500io 7.140,316 stock dividend (Note 7) 714 (714)
Cash dividends-S.28 per share (5,937) (5.937) 187.201 Stock opUons exercised 1.841 18 1.823 Tax benefits arising from stock opUon transactions 174 174 Change in cumulative translation ad'ustments (Note 4) 1,150 1.150 21.441.528 Balance at December 28, 1985 S113.643 S2.144 S10.376 S102.231 S(1.1 08)
>>4/
/ah The accompanying notes are an integral part of these financial statements.
4t
Consolidated Balance Sheets Safety-Kleen Corp. and Subsidiaries (Expressed in thousands)
Dercmbcr 28. 1985 D( comber 29. 1984 Assets (i tote >)
Current Assets Cash S 3.645 1.032 Short-term investments. at cost (approximates market) 17.947 16,484 Trade accounts receivable. less allowances of S1.996.000 in 1985 and SI.724.000 in 1984 25.298 21.548 Refundable taxes 3 3,405 Inventories (Note 5) 16.617 13.168 Prepaid expenses (Note 8) 8.831 5.886 Other (Note 9) 3.956 1.970 77.047 63.493 Equipment at. Customers and Components. at Cost. Less Accumulated DepreciaUon of S18.512.000 in 1985 and S16.210,000 in 1984 19.654 16.595 Property, at Cost Land 3.396 3. 184 Buildings and improvements 19.695 17.085 Leasehold improvements 14.525 11.312 Machinery and equipment 30,404 Autos and trucks 27.723 17,581 103.110 79,566 Less accumulated depreciaUon and amortization 29.173 22.068 Property, net 73.937 57.498 Other Assets 6,247 2.951 S 176.885 S140.537 Liabilities and Shareholders'quity Current Liabilities Dividends payable S 1,715 1.381 Notes payable 135 1,396 Current porUon of long-term debt 1.000 1.065 Trade accounts payable 9.974 8.624 Accrued salaries. wages and employee benefits 6,461 5,804 Other accrued expenses 5. 172 4.689 Income taxes payable 6,408 3.613 30.865 26.572 Lon -Term Debt. Less Current PorUon (Note 6) 11.700 7.103 Other Liabilities and Deferrals Deferred income taxes 20,569 12.823 Def'erred investment tax credits (Note I) 4.260 Other- 108 549 20.677 )7.632 Commitments and Contingent Liabilities (Note 10)
Shareholders'quity Common stock (S.10 par value: authorized 25,000.000 shares: issued and outstanding 21.441.528 in 1985, and 14,114;011 in 1984) (Note 7) 2. 144 1.412 Paid-in surplus 10.376 9 093 Retained earnings (Note 6) 102.231 80.983 CumulaUve translaUon ad ustmenis (Note 4) (1,1 08) (2.258) 113.643 89.230 S176.885 S140.537 The accompanying notes are an integral part of these balance sheets.
35
Consolidated Statements of Changes in Rnanoial Position Saf<<ty-Kl( en Corp. and Subsidiaries
{Fxpr<<ss<<d m U:<>>is.>>id~i Fiscal Year Ended D< c. 29.1984 D(c. 31.1983 Sources of Funds Operations Net earnings (Note I) S27.185 S19.428 S15.759 Items not requiring funds Depreciation of equipment at customers 3.170 2.7r I 2.644 Other depreciation and amorUzaUon 8.61 1 5.835 4.550 Deferred investment tax credits {Notes I and 9) (4.260) 753 36 Dei'erred income taxes (Note 9) 7.517 6.458 2.701 Other I (282) {213)
Total funds from operations 42.224 34.963 25.477 Other Sources Issuance of Industrial Development Revenue Bonds 5,700 Recovery oi'investment in tax benefits (Note 9) 528 1.970 Net book value of equipment at customers.
plant and equipment retired 2,447 193 261 Stock opUons exercised and related tax beneAts (Note 7) ~
2.015 1.783 1.386 Total other sources 10.690 3.946 1.647 Total sources 52.914 38.909 27,124 Application of Funds Equipment at customers and component additions 6,329 3,487 1.974 Property, plant and equipment addiUons 26,571 29.405 9.776 Cash dividends declared 5,937 4,136 2.722 Increase in Industrial Development Revenue Bond Trust Funds 3.623 ReducUon of long-tenn debt 1.103 964 977 Non-current portion of investment in tax beneAts (Note 9) 881 Cumulative translaUon adjustments (Note 4) (979) 743 282 Other. net 1,069 360 1.358 Total application 43.653 39.095 17.970 Increase (Decrease) in Working Capital S 9,261 S (186) S 9.154 Details of Increase (Decrease) in Working Capital Increase (Decrease) in current assets Cash S 2.613 S (1.093) S (32)
Short-term investments 1,463 (363) 3 737 Trade accounts receivable 3,750 2.810 1,678 Refundable taxes (2,652) (1,602) 4,657 Inventories 3,449 1.112 700 Prepaid expenses 2.945 4.224 (294)
Other 1,986 (1.266) 1.073 Total increase in current assets 13,554 3.822 11,519 Decrease (Increase) in current liabilities Dividends payable (334) -(1,381)
Notes payable 1,261 142 104 Current portion of long-term debt 65 230 (393)
Trade accounts payable (1,350) (1,229) 471 Accrued expenses (1,140) (1.313) (1.659)
Income taxes payable (2.795) (457) (888)
Total (increase) in current liabiliUes (4,293) (4,008) (2.365)
Increase (Decrease) in Working Capital S 9,261 S (186) S 9.154 The accompanying notes are an! ntegral part of these Anancial statements.
'36
Notes to Consolidated Financial Statements
- 1. Summary of Significant Accounting Policies Principles of ConsolidaUon The Consolidated Financial St'atements include the accounts of the Company and its subsidiaries. after elimination of all significant intercompany balances and transactions.
The Company's fiscal year ends on the Saturday closest to December 31.
Inventories Substantially all domestic allied product and solvent inventories are stated at last-in. first-out cost (LIFO). All other inventories are priced at th<< louver oi iirst-in. firsi-out cost (FIFO) or market. Inventory costs Include material. labor and manufacturing overhead.
Equipment at Customers and Related Depreciation Equipment at customers is capitalized at factory or purcliased cost. Depreciation is com-puted using the straight-line method commencing when the units arc placed in service.
Property, Plant and Equipment and Related Depreciation Land. buildings and improvements, leasehold improvements. machinery and equipment.
and autos and trucks are capitalized at cost. Depreciation and amortization are computed principally using the straight-line method. except for autos and trucks wliich are depreci-
~ ated using the straight-line and sum-of'-the-years-digits methods.
International License and Joint Venture Agreements Safety-Kleen licensees operate parts cleaner service businesses in Australia. New Zealand, West Germany and Puerto Rico. License fees received by the Company are included in service revenues in the Consolidated Statements of Earnings. The Conipany has options to purchase the Australia and New Zealand operations on or after December 31. 1989 and the West German operation between May 1. 1988 and August 30. 1988.
During1985, the Company entered into Joint venture agreements to engage in the parts cleaner service business in France and Spain. The Company is a fiftypercent equity partner in these joint venture companies with domestic corporaUons in each of these countries.
These investments are accounted for by the equity method. The French joint venture began start-up operations in the fourth quarter of 1985, and the Spanish joint venture is expected to begin operations during the first quarter of1986. The joint venture companies are licensees of the Company.
Income Taxes The Company provides I'or income taxes on items included in the Consolidated Statements of Earnings regardless of the period when such taxes are payable. Deferred income taxes result from Uming differences between reported and taxable income. Deferred income taxes arise primarily from the excess of accelerated depreciation used for tax purposes over straight-line depreciaUon recorded for financial statement purposes and tax lease agreements as more fully'described in Note 9.
In 1985, the Company changed its method of accounting for investment tax credits from the deferral to the flow-through method. The effect of the change was to increase earnings before cumulative effect of change in accounUng principle by S673.000 or S.03 per share for the fiscal year ended December 28. 1985. The cumulative prior years effect of the.
change increased net earnings S3.706.000 or S.17 per share. Ifthe flow-through method of accounting for investment tax credits had been used in prior years. 1984 and 1983 net earnings would have been S440.000 or $ .02 per share. and S203,000 or S.OI per share.
respectively, higher than as reported.'arnings Per Share Earnings per share amounts are based on the average shares of common stock outstand-ing during each year and common stock equivalents of dilutive stock opiions. Earnings per share amounts have been restated to give effect to the three-for-two stock spliis in December, 1985. and December, 1984, both effected In the iorm of 50 percent stork dividends.
37
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Notes to Consolidated Financial Statements j (continued) hh
- 2. Acquisition of Custom Organics. Inc.
Effective August 6. 1985. the Company acquired all of the outsianding shar<<s of( ustnm Organics. Inc. in exchang<< ior 457.500 shares oi th<<Company's common sio<<k (adjust<<d for the three-for-two stock split on December 9. 1985). The acquisition has been accounted for as a pooling of'interests. and accordingly. the Consolidated Financial Stai<<ments hav<<
been restated to include the accounts of Custom Organics. Inc. for the twenty-lour weeks
,,4 ended June 15. 1985 (the interim period prior to the~acquisition). The effect of the restate-ment was to increase sales and net earnings by S2.953.000 and 8259.000. resp<<c tively.
;hh j.' for the twenty-lour weeks ended June 15. 1985. Earnings per share I'or that period remain unchanged. The Consolidated Balance Sheet as of December 29. 1984. has also been restated to include the accounts of Custom Organics. Inc. The Consolidated Statements of Earnings. Changes in Financial Position and Shareholders'quity for periods prior to December 29. 1984. have not been restated because the effect Is not material.
- 3. Segment Information The Company operates in three countries: the United States. Canada and the United jhow Kingdom. Principally, the same services and products are provided in each country.
h <<j) A summary of certain data with respect to these operations for the fiscal years ended December 28. 1985. December 29. 1984 and December 31. 1983 ls as follows:
@] (Expressed in thousands) h" h 1985 1984 1983 Service Revenues and Sales III United States 8206.400 S I 72.161 8149.463 I 'I Canada and United Kin dom 14.680 13.469 13.3OR
~ hl Consolidated 8221,080 S I 85.630 S1 62.771 Total Assets United States 8164,288 8131,566 S100.671 Canada and United Kin dom 12,597 8.971 8,877 Consolidated 8176,885 S I 40.537 S109.548 Net Earnings (Note 1)
United States S 25.609 S 18.074 8 14.848 Canada and United Kingdom 1.576 1.354 91 I Consolidated S 27.185 8 19.428 S 15.759 h.'h:
The Company operates primarily in one business segment-providing services and products for degreasing and metal preparation. Total revenues. assets and earnings/losses of other segments are less than ten percent of the respective consolidated totals.
- 4. Foreign Currency Translation The Company applies the provisions of Statement of Financial Accounting Standards No. 52 in translating the financial statements of its consolidated foreign subsidiaries.
Exchange losses were 887,000 in 1985. SI28,000 in 1984 and 8110.000 in 1983. These losses are included in selling and administrative expenses.
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- 5. Inventories LIFO inventories at December 28. 1985. and December 29. 1984. were $ 7.206.000 and S7.138.000. respectively. Under the FIFO method oi accounting (which approximates current or replacement cost). inventories would have been $ 2.983.000 and $ 2. r 39.000 higher. respectively.
Major classes of inventory are: in thousands)
December 28. 1985 December 29. 1984 Allied products and related items S 8.071 S 5.582'.909 Solvent 3.856 Other 4.690 3.677 Total inventories S16.617 $ 13.168
- 6. Financial Arrangements and Long-Term Debt Long-term debt at December 28. 1985. and December 29. 1984 consisted of the following:
(Expressed in thousands)
December 28. 1985 December 29. 1984 9'/4% Senior Notes payable to an insurance company, due in annual installments of S800,000 from 1986 to 1992 S 5,600 $ 6.400 Obligations under Licking County, Ohio 8%
Industrial Development Revenue Bonds. Series 1980.
due S200,000 annually from 1986 to 1992 1,400 1,600 Obligations under Lexington County. South Carolina Industrial Development Revenue Bonds, Series 1985.
interestof 63% of floating prime rate. due S300.000 annually from 1991 to 2000 3,000 Obligations under City of Denton, Texas Industrial Development Authority. Industrial Development Revenue Bonds. Series 1985, interest of 61.5% of floatin prime rate. due S270.000 annually from 1991 to 2000 2.700 Other 168 12.700 8.168 Less current portion 1.000 1.065 Total long-term debt $ 1 1.700 S7.103 Maturities oflbng;term debt are,$ 1,000,000 in each of the five fisca years succeeding December 28, 1985.
interest rates on the, Lexington, SC, and City oi Denton, TX Industrial Development
'he Revenue Bonds are subject to change ifchanges in the Federal income tax laws affect the taxability of the interest income to the holder of these bonds.
The 9'/~ percent Senior Notes and the Industrial Development, Revenue Bonds include pro-visions, among others. relative to additional borrowings. maintenance of worl'ing capital,
~ . and restrictions on the amount of retained earnings ai ailable I'or dividends. Under the most restrictive of these covenants. the Company musi maintain a current ratio. as defined.
of 1.5 to 1.0. At December 28, 1985. the current ratio. as define. was 2A io 1.0. At that date, S72,896,000 of retained earnings were restricted as to payment of cash dividends.
The Company has established with a U.S. bank an unsecured line of credit totaling S2,500.000 at the prime interest rate with compensating balances equal to 15 percent of the line of credit. The Company intends to continue this line of credit during flscai 1966.
39
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Notes to Consolidated Financial Statements (continued)
- 7. Capital Stock Stock Splits In December. 1985. and December, 1984, three-for-two stock splits werc ei'fected in th<<
form of stock dividends by issuance of an additional share of S.10 par value common stoclt I'or each tivo shares then outstanding. The par value of the shares issut d was trans-ferred from paid-in surplus to common stock. The number of shares and per share amounts below have been restated to refiect such distributions.
1985 Stock Option Plan On May 10. 1985. stockholders approved the 1985 Stock Option Plan. Under the Plan.
options to purchase up to r 50,000 shares of the Company's common stock may be granted to officers and other key employees at a price of 100. percent of the quoted market price at date of grant. OpUons granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Stock appreciation rights (SAR'sl may be granted in <<on-juncUon with Non-Qualified Stock Options whereby the grantee max surrender exercisable Non+ualified OpUons and receive a cash payment equal to the difference between the opUon price and the market value oi the common stock on the exercise date. Incentive Options. Non-Qualified Options and SAR's become exercisable at such Ume or times. and are subject to such conditions, as determined at the time of grant by the Compensation Committee of the Board of Directors. At December 28. 1985. 158.762 IncenUv<<Stock OpUons were outstanding at an average price of S24.41. As of December 28. 1985. there have been no grants of Non-Qualified Stock Options with or without SAR's. As of'December 28. 1985.
there were no options exercisable and 591.238 opUons were available for grant. During fiscal year 1985, there were no Incentive OpUons, Non-Qualified Options or SAR's exercised.
1980 Stock Option Plan Under the Company's 1980 Stock Option Plan, as amended. options for1.350,000 com-mon shares were available for grant to officers and other key employees at a price of100 percent of the quoted market price at date of grant. Options are exercisable 25 percent annually. on a cumulative basis, starting one year from date of grant and terminating five years after the grant date.
In addition to stock options. SAR's were available for grant. Compensation expense was charged or credited for outstanding SAR's as the market value of the Company's common stock changed. SAR charges to compensaUon expense amounted to S81.000 in 1985, S38.000 in 1984 and 8483,000 in 1983. At December 28, 1985. there were no outstanding opUons with SAR's. Other option plan data for the three fiscal years ended December 28.
1985 are presented below.
1980 Stock Option Plan Data 1985 1984 1983 Options outstanding at end of year Number of opUons 401.715 690.490 741.375 Average price per share S11.24 S10.82 S7.09 OpUons exercised during the year Number of options 252.748 204.600 138.825 Average price per share S5.81 S5.12 S4.88 Number of options exercisable at end of year 86.860 222.900 174.600 OpUons available for grant at end of year 314.550 No additional options may be granted under the plan after December 31. 1984.
Stock Purchase Plans Under the Employee Stock Purchase Plan. approved by the shareholders on May 10, 1985.
a total of 375,000 shares of the Company's common stock may be purchased by employ-ees of the Company and designated subsidiaries. through payroll deductions. at 90 percent of the quoted market. price for the date preceding the date of grant. Employees with less than one year of service or who hold options under either the 1980 or 1985 Stock Option Plans are not eligible to participate in this Plan. Under the predecessor plan. approved by shareholders in 1980, 675,000 shares of the Company's common stock were available for 40
purchase. The provisions of th<<pr<<d<<<<cssor plan were substantially identical to the 1985 plan. Data for the Sto<<lt Purchas<< I'la>> and pr<<de<<<<ssor plan for th<< thr<<<<year; ended D<<c<<mb<<r 28. 1985 ar< pr<<s<<ni<<d b<<low.
Stock Purchase Plan Data 1985 1984 1983 Options outstanding at end of year Number of options D 0 . I VV 58.050 59.625 Average price per share S19.50 S12.90 S13.86 Options exercised during th<< fiscal year Number oi'options 54.467 37.350 92.700 Average price per share S12.95 S13.08 S7.02 Number of options exercisable at end of'year 7.650 Options available for rant at end of year 323.763 330.300
- 8. Pension and Employee Benefit Plans The Company has pension plans covering substantially all employees including rertain emplovees in foreign countries. The annual cost of the Company's domestic pension plans is determined using an actuarial cost method which relates pension cost to direct compen-sation. The prior service portion of plan changes and revisions to actuarial assumptions is amortized in equal annual amounts over thirty years. Aggregate provisions under these plans were S784,000 in 1985. $ 718.000 in 1984 and S683.000 in 1983. Pension costs are funded as employees become eligible to participate. generally after completing one year of service.
A summary of accumulated plan beneAts and plan net assets for the Company's domestic pension plans, computed as of the actuarial valuation dates. is presented below.
January l. 1985 January 1, 1984 Actuarial present value of accumulated plan benefits Vested S2.980.000 S2.319.000 Non vested 1.203.000 1.042.000 S4.183.000 S3.361.000 Net assets available for beneAts S7,245,000 S6.523,000 The weighted average assumed rate of return used in determining the actuarIal present value oi'plan beneAts was 9.2 and 9.3 percent for the 1985 and 1984 valuations. respec-tively.
Under the provisions of Statements of Financial Accounting Standards Nos. 35 and 36, the actuarial present, value of accumulated plan beneAts reflects employees'alaries earned to date and does not consider the impact oi'future salary increases from inflation or other-wise. Plan assets exceed the above-described calculation of the actuarial present value of accumulated plan beneAts primarily because ihe Company's funding policy. in accordance with the recommendations of the Company's actuary and commonly recognized funding techniques. considers future salary increases.
The Company's foreign pension plans do not report pursuant to ERISA and do not other--
wise determine the actuarial value of accumulated benefits or net assets available for beneAts as calculated and disclosed above. Those plans are funded by purchase of insur-ance contracts and vested benefits are fully funded.
During 1984', the Company established a Voluntary Employee BeneAciary AssociaUon (VEBA). The VEBA is an irrevocable trust created to fund employee medical and life insurance benefits. VEBA trust. balances of S5,484.000 and S4.100.000. respectively.
are included in Prepaid expenses in the December 28. 1985'and December 29. 1984.
Consolidated Balance Sheets.
In 1985, the Company oflered a postreUrement medical insurance plan to its domcsti<<em-ployees retiring prior to the normal retirement age of 65. Reurees are eligible to <<ont! nu<<
this medical coverage until age 65. Retirees electing this coverage are required to pay premiums for the insurance. Claims paid under the provisions of this plan are paid by the Company's employee medical plan which is funded by the VEBA trust. During 1985.
there were two parUcipants in the plan and the costs incurred were not material.
Notes to Consolidated Financial Statements (continued)
- 9. Income Taxes The components of earnings bef'ore taxes. and cumulative effect of change in ac countingi principle. consisted of the following:
(Expressed in thousands>
1985 1984 198'3 Domestic S38.644 S32.581 S26.713 Forei n 2.627 2.415 1.973 S41.271 $ 34.996 S28.686 The provisions for income taxes are comprised of the following:
(Expressed in thousands) 1985 1984 1983 U.S. Federal Current S 6,919 S 5,324 S 7,410 Deferred Related to tax depreciation in excess of book depreciation 2.659 2.329 1,621 Investment tax credits (Note I) 753 36 Related to tax lease agreements 4,173 2,081 1.031 Related to contributions to VEBA Trust (Note 8) 413 1.886 Decrease in prepaid taxes 93 108 104 Foreign Current 1,051 1,097 1,123 Deferred, primarily related to book depreciation in excess of tax depreciation (36) (57)
State 2,484 2.026 1,659 S17,792 S15.568 S12.927 The following table reconciles the statutory U.S. Federal income tax rate to the Company's effective tax rate:
1985 1984 1983 Statutory U.S. Federal income tax rate 46.0% 46 0% 46 0%
Increase (Decrease) resulting from-Provision for state income taxes, net of Federal income tax benefit 3.3 3.1 3.1 Amortization of deferred investment tax credits (Note 1) (2.5) (2.6)
Flow through of investment tax credits (Note 1) (4.4)
Other (1.8) (2.2) (1.4)
Effective tax rate 43.1% 44.4 /o 45.1%
In 1983, 1982 and 1981, the Company entered into several "tax lease" agreements to purchase tax benefits. The total cash price paid by the Company was approximately S21.1 million.
Under these agreements, which vary in length from nine to twenty-two and one-half years, the Company purchased the tax benefits, including investment tax credits. related to equip-ment with a cost of approximately S74.5 million. This equipment was simultaneously leased back to the original owners, who continue to have legal title to the assets and bear all risks of ownership. At the end of the lease agreements. "tax ownership" reverts to the original owners for a nominal p'rice.
For fInancial statement purposes. the cash payment of S21.1 million was treated as an investment. The investment has been reduced as a result of a reduction in taxes which otherwise would have been payable, net. of income recognized on the investment. Invest-ment tax credits were utilized to reduce Federal income taxes payable in the year of equip-ment purchase. Depreciation and other items related to the agreements were used to
'42
reduce taxes under the Con>pany's normal tax ac<<ountin~<> methods.
The investment tax credits and.depreciation deductions th<<Company is entitled to take on its tax return as a result of these transactions will generate a tax deferral in excess of the cash price paid. This deferral will ultimately be paid by the Company as n<<t lease income is reported I'r tax purposes. The Company will be in a iavorablt cash flow posiuon for most of the life of'each lease.
The transactions also include notes to the sellers for the difl'erence betwe<<n thc cash price oi S21.1 million and the asset cost of S74.5 million. Payments on these notes. including interest. are due in amounts and at times exactly equal to the sellers'bligaUons to make lease payments to the Company. Since these amounts completely offset one another.
there wiII be no actual payment or receipt. of cash and Uierefore. the notes and lease obligations are not reported in the Company's Consolidated Financial Statements.
Interest income is recorded at a constant rate durin<< the (jm<<period when the investment exceeds the tax savings. Interest expense is record>.d at a constant rate on the dei'erred, income taxes in the Ume period after the investment is fully recovered. Income and ex-pense recorded I'r these agreements is included in Interest. net ivith no corresponding income tax ei'feet. In 1985. 1984 and 1983. the Company recorded S380.000. S1.437.000 and S1.194.000, respecUvely, oi'interest income. net in connection with these agreements.
At December 28, 1985. the Company's Consolidated Balance Sheet reflects a remaining investment of S532.000 in Current Assets-Other.
- 10. Commitments and ConUngent Liabilities Leases The Company leases substantially all of its branches over initial periods of five to ten years.
with opUons for renewal for one similar period. These leases generally provid<< that the Company pay operating maintenance expenses and tax increases and do not contain provisions I'or the Company to purchase the leased properties. The Company leases sub-stanUally all pre-1982 additions to its domestic service truck fleet under terms that are noncancelable during the first year and are on a year-to-year rental basis thereafter. These leases provide that the Company pay all operating expenses and taxes and also that the Company be responsible for most of the gain or loss on disposiUon of the trucks upon terminaUon or cancellation of the leases. Since1982. the Company has purchased sub-stantially all additions and replacements to the service truck fleet.
Lease rental expenses for all operaUng leases were S5.713.000 in 1985. $ 6.235.000 in 1984 and S6,201.000 in 1983.
Aggregate minimum future rentals are payable as follows:
Periods (Expressed in thousands) 1986 S 5.034 1987 232 1988 3.524 1989 2.795 1990 2.274 Future Years 9.058 Total S26.917 Employment Contract Donald W. Brinckman, President and Chief Executive Officer. has an employment contract which includes a provision that the Company will ofier to repurchase any shares oi'the Company's common stock owned by Mr. Brinckman at his death at the then fair market value in an amount not to exceed S2.500.000.
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Directors Russell A. Gwfllfm. Chairman of the Board. Safety-Kleen Corp.
Kenneth L. Block. Chairman. A.T. Kearney & Co.. Inc.
Donald W. Brinckman. Presfdent and Chief Executive Office. Safety-Kleen Corp.
Robert M. Burns, retired Chairman of the Automotive Group. Colt industries Edgar D. Jannotfa, Managing Partner, William Blair & Company Karl G. Otzen. President. Gerhard & Company Paul D. Schrage, Senior Executive Vice President. McDonald's Corporation W. Gordon Wood, Marketing Consultant Clinton Youle, Financial Consultant Officers and Divisional Vice Presidents Donald W Brinckman. President. Chief Executive Officer and Director David A. Dattflo. Vice President Corporate Branch Sales and Service Burton E. Ericson, Vice President General Counsel Kenneth R. Gordon, Vice President Technical Services Joseph F. Hamlet. Vice President International William P. Kasko. Vice President Operations Wallace K. Louder, Vice President information Systems Robert W. Willmschen, Jr.. Vice President Finance/Administration and Secretary Leonard F. Martinez, Jr., Controller and Assistant Secretary Laurence M. Rudnick. Treasurer Dale T. Vranik, Vice President Branch Sales and Service, Western Division Hany A. Logue, Vice Pres! dent Branch Sales and Service, Eastern Division Roy D. Bullinger, Vice President Branch Sales and Service. Central Division Clyde R. Phillips. Vice Presfdent Restaurant Services 44
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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D AC. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF, THE SECURITIES EXCHANGE ACT, OF 1934 For the twelve weeks ended March 22, 1986 Commission File //1-8513 SAFETY-KLEEN name of registrant as specified in its charter)
CORP'Exact Wiscons'in 39-6090019 State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No.)
777 Bi Timber Road, El in, Illinois 60120 (Address of principal executive offices and zip code)
Registrant's telephone number, including area code ( 312) 697-8460 Indicate. by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or- 15(d) of the Securities Exchange Act of 1934 during the preceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been sub)ect to such filing. requirements for ihe pas.t 90 days'es X No Shares of'ommon stock, outstanding at March 22, 1986 were 21,483,043-
e Page 2 of 8 SAFETY-KLEEN CORP. AND SUBS IDIARIES PART I'INANCIALSTATEMENTS The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, these statements contain all adjustments, consisting of only noimal recurring adjustments, necessary to present fairly the financial position as of March 22, 1986 and December 28, 1985, changes in financial position for the twelve-week periods ended March 22, 1986 and March 23, 1985, and the results of operations for the twelve-week periods ended March 22, 1986 and March 23, 1985. The 1986 interim results reported herein may not necessarily be indicative of the results of operations for the full year 1986.
Page 3 of 8 SAFETY-KLEEN CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollar amounts are in thousands)
ASSETS Narch 22, 1986 Dec. 28, 1985 Current assets:
Cash 5,487 3,645 Short-term investments, at cost (approximates market) 19,052 17,947 Trade accounts receivable, less allowances of $ 2,016 and $ 1,996,. respectively 26,801 25,298 Refundable taxes 473 753 Inventories (Note 1) 16,866 16,617 Prepaid expenses 8,705 8,831 Other 2,359 3,956 Total current assets 79,743 77,047 Equipment at customers and components, at cost, less accumulated depreciation of
$ 19,294 and $ 18,512, respectively 20,443 19,654 Property, plant and equipment, at cost 110,674 103,110 Less accumulated depreciation and amortization ~
30,923 29,173 79,751 73 937 Other assets 4,930 6,247
$ 184,867 $ 176,885 LIABILITIES AND SHAREHOLDERS'QUITY Current liabilities:
Dividends payable 1, 718 $ 1, 715 Notes payable 135 Current portion of long-term debt 1,,934 1 >000 Trade accounts payable 12,037 9,974 Accrued expenses 9,569 11,633 Income taxes payable 6,048 6,408 Total current liabilities 31,306 30,865 Long-term debt, less current portion 10,850 11,700 Other liabilities and deferrals:,
Deferred. income taxes 2'4, 407 20,569 Other 108 108 24,515 20,677 Shareholders'quity (Notes 2'nd 3):
Common stock (F 10 par value; authorized 25,000,000 shares; issued and outstanding 21,483,043 shares and 21,441,528 shares, respectively) 2,148 2,144 Paid-in surplus 10,655 10,376 Retained earnings 106,1.53 102,231 Cumulative translation adjustments (760) (1, 108) 118,196 113,643
$ 184,867 $ 176,885 I
The accompanying notes are an integral part of these balance sheets.
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Page 4 of 8 SAFETY-KLEEN CORP'ND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollar amounts are in thousands except per share data)
Twelve Weeks Ended Mar. 22, 1986 Mar. 23, 1985 (Note 5)
Revenues and sales:
Service revenues $ 46,701 0 39,705 Sales (primarily allied products) 7,656 7,905 Total service revenues and sales 54,357 47,610 Costs- and expenses:
Branch operating costs and expenses and cost of sales 35,819 31,995 Selling and administrative expenses 8,907 7,306 Interest, net (390) (467) 44,336 38,834 Earnings before taxes and cumulative effect of change in accounting principle 10,021 8,776 Income taxes- 4,381 3,857 Earnings before cumulative effect of change in accounting principle 5,640 4,919 Cumulative effect of change in accounting for investment tax credits (Note 4) 3,706 Net earnings S 5,640 S 8,625 Earnings per common and common equivalent share (Notes 2 and 3):
Before cumulative effect. of change in accounting principle .26 .23 Cumulative effect of change in accounting for investment tax credits, ~ 17
.26 $ .40 Average number of common and common. equivalent shares outstanding, (Notes. 2 and 3)- 21,737,800 21,543,300 Cash dividends per common share .080 $ .066 The accompanying notes are an integral part of these financial statements.
Page 5 of 8 SAFETY-KLEEN CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (dollar amounts are in thousands)
Twelve Weeks Ended Mar. 22, 1986 Mar. 23', 1985 (Note 5)
Sources of funds:
Funds from operations $ 12, 545 9,226 Recovery of investment in tax benefits 522 Net book value of equipment at customers, plant and equip-retiied 'ent 228 89 Other sources 1,204 475 Total sources 13,977 10,312 Application of funds:
Cash dividends declared 1,718 1,387 Equipment at customers and component additions 1,479 1,451 Property, plant and equipment additions 8,127 5,882 Other 398 235 Total application 11, 722 8,955 Increase in working capital 2,255 $ 1,357 Details of increase in working capital:
Increase (Decreas'e) in current assets:
Cash $ 1 >842 368 Short-term investments 1,105 3,304 Trade accounts receivable 1,503 (150)
Refundable taxes (280) (1,616)
Inventories 249 5 Prepaid expenses (126) (507)
Other (1,597) 134 Total increase in current assets 2,696 1,538 Decrease (Increase) in current Liabilities:
Dividends payable (3) (7)
Notes payable 135 339 Current portion of'ong-term -debt (934) 1'5 Trade accounts payable (2',063) (792)
Accrued expenses 2,064 1,505 Income taxes payable 360 (1,241)
Total (increase) in current liabilities (441) (181)
$ 2,255 $ 1,357 The accompanying notes are an integral part of these financial statements.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES Page 6 of 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1~ INVENTORIES LIFO inventories at March 22, 1986 and December 28; 1985 were $ 7,078,000 and
$ 7,206,000, respectively. Under the FIFO method of accounting (which approxi-mates current or replacement cost), inventories would have been $ 2,861,000 and
$ 2,983,000 higher, respectively, than those reported at March 22, 1986 and December 28, 1985. Major classes of inventories at March 22, 1986 and December 28, 1985 were as follows:
Mar. 22, 1986 Dec. 28, 1985 (Expressed in thousands)
Allied products and related items $ 7,615 $ 8,071 Solvent ',364 3,856 Other 4,887 4,690 Total inventories $ 16,866 $ 16,617
- 2. STOCK SPLIT The 1985 per share amounts have been restated to reflect a three-for-two stock split on, December 9, 1985, effected in the form of a 50X stock dividend.
- 3. EARNINGS PER SHARE Earnings per common. and common equivalent share have been calculated based on the average number of shares of common stock outstanding plus. additional shares for dilative stock options and the Employee Stock Purchase Plan.
4, ACCOUNTING CHANGE In 1985, the Company changed. its method of accounting for investment tax credits from the deferral to the flow-through method. The cumulative prior years'ffect of the change increased net earnings $ 3,706,000 or $ .17 per share.
5~ ACQUISITION OF CUSTOM ORGANICS, INC.
Effective August 6, 1985, the Company acquired Custom Organics, Inc. The acquisition was accounted for as a pooling of interests. Accordingly, the Consolidated Financial Statements. for the twelve weeks ended March 23, 1985 were restated to include the accounts of Custom Organics, Inc. The effect of the restatemen't was to i'ncrease sales and net earni'ngs by $ 1,467,000 and
$ 127,000,, respectively,, for, the twelve, weeks ended, March 23, 1985. Earnings per. share remained unchanged.
- 6. INTERIM- REPORTING PERIODS
'he Company's interim reporting periods are twelve weeks each for the first three reporting periods of the year, seventeen weeks for the fourth reporting period of 1986, and sixteen weeks for the fourth reporting period of 1985.
~ i Page 7 of 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition The Company's working capital increased from $ 46,182,000 at December 28, 1985 to $ 48,437,000 at March 22, 1986. This growth is reflected primarily in cash, short-term investments and trade accounts receivables which increased $ 4,450,000 during the twelve weeks ended March 22, 1986, offset by a reduction in current assets~ther of $ 1,597,000.
Results of 0 erations Com arison of the Twelve-Week Periods Ended March 22, 1986 and March, 23, 1985 Revenues and Sales Service revenues for the twelve weeks ended March 22, 1986 increased $ 6,996,000 or 17 'X over the comparable period in 1985. The Company's parts cleaner service contributed approximately 56X of the increase. During the twelve weeks ended March 22, 1986, the parts cleaner service volume and average service .charge were 3.6X and
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8.0X higher, respectively, than the comparable 1985 period. The remaining, increase in service revenues was derived primarily from higher unit volume in restaurant services, automotive- paint refinishing services, dry cleaner services and the exchange and recycling of industrial solvents. Sales, primarily allied products, declined,$ 249,000 or 3.1X from. the comparable period of 1985, due primarily to the
.absence of sales during the fir'st twelve weeks of 1986 from the Company's formerly-owned map distribution operations, which were sold during the fourth interim period of 1985.
Branch Operating Costs and Expenses and Cost of Sales Branch operating costs and. expenses and cost of sales in the twelve weeks ended March 22, 1986 were up 12X over the comparable period of 1985, primarily due to the increased level of business activity. This increase is less than, the 14/ increase in revenues and sales. The resulting. improvement in the'ross profit margin is due to higher unit, volume, higher average service. charges- and a. decline in the cost of virgin solvent used'n the Company's domestic parts cleaner service.
Selling and Administrative: Expenses Selling and administrative expenses increased. by $ 1,601,000 or 22X, primarily due to additional- emplo'ye'es;.- increases in salaries, benefits, and. other compensation based upon sales and consolidated earnings; increases in insurance costs; and increases in other general corporate expenses related to the increased level of business activity.
Income Taxes The effective income tax rate was 43.7X for the twelve weeks ended March 22, 1986 and 43 'X for the comparable 1985 period.
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Page 8 of 8 SAFETY-KLEEN CORP. AND SUBSIDIARIES PART II
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- 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (3)b. By-laws of the Registrant, amended on February "10, 1986.
(b) Reports on Form-8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 2, l986 By: (si ned) Donald W. Brinckman Donald W. Brinckman President and Chief Executive Officer Date: May By: (si ned) Robert W. Willmschen, Jr.
Robert W. Willms chen, Jr .
Vice President Finance/Administration and Secretary Date.'May 2, 1986 By: (si ned) Leonard F. Martinez, Jr.
Leonard F. Martinez, Jr.
Controller and Assistant Secretary
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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE. ACT OF 1934 For the twelve weeks ended June 14, 1986 Commission File 81-8513 SAFETY-KLEEN CORP.
(Exact name of registrant as specified in its charter)
Wisconsin 39-6090019 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
777 Bi Timber Road El in Illinois 60123 (Address of principal executive offices and zip code)
Registrant's telephone number, including area code (312) 697-8460 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934. during the preceding 12 months (or for such shorter period that the registrant was required to file such. reports), and (2) has been subject to such filing requirements for the. past 90 days. Yes X No Shares, of common stock, outstanding at June 14,, 1986 were 21,525,900.
Page 2 of 11 SAFETY-KLEEN CORP. AND SUBSIDIARIES PART I. FINANCIAL STATEMENTS The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, these statements contain all adjustments, consisting of only normal.
recurring adjustments, necessary to present fairly the financial position as of June 14, 1986 and December 28, 1985, changes in financial position for the twenty-four-week periods ended June 14, 1986 and June 15, 1985, and the results of operations for the twelve-week and twenty-four-week periods ended June 14, 1986 and June 15, 1985. The 1986 interim results reported herein may not necessarily be indicative of the results of operations for the full year 1986.
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SAFETY-KLEEN CORP. AND SUBSIDIARIES Page 3 of CONSOLIDATED BALANCE SHEETS (dollar amounts are in thousands)
ASSETS June 14 1986 Dec. 28, 1985 Current assets:
Cash 4,933 $ 3,645 Short-term investments, at cost (approximates market) 21,217 17,947 Trade accounts receivable, less allowances of $ 1,849 and $ 1,996, respectively 27,214 25,298 Refundable taxes 473 753 Inventories (Note 1) 17,235 167617 Prepaid expenses 7,594 8,831 Other 2 395 3 956 Total current assets 81 061 77 047 Equipment at customers and components, at cost, less accumulated depreciation of
$ 20,078 and $ 18,512, respectively 20 960 19 654 Property, plant and equipment, at cost 117,788 103,110 Less accumulated depreciation and amortization 33 001 29 173 84 787 73 937 Other assets 3 955 6 247 8190 763 $ 176,885 LIABILITIES AND SHAREHOLDERS'QUITY Current liabilities:
Dividends payable- $ 1,722 $ 1,715 Notes payable 135 Current portion of long-term debt 1,134 1,000 Trade accounts payable 11,185 9,974 Accrued expenses 9,946 11,633 Income taxes payable 7 101 6 408 Total current liabilities 31 088 30 865 Long-term debt, less current portion 10 000 11 700 Other liabilities and deferrals:
Deferred income taxes 26,249 20,569 Other 109 108 26 358 20 677 Shareholders'quity (Notes 2 and 3):
Common stock ($ .10 par value; authorized 75,000,000 shares and 25,000,000 shares, respectively; issued and outstanding 21,525,900 shares and 21,441,528 shares, respectively) 2,152 2, 144 Paid-in surplus 10,956 10,376 Retained earnings 110,910 102,231 Cumulative translation adjustments (701) (1,108) 123 317 113,643 8190 763 $ 176,885 The accompanying notes are an integral part of these balance sheets.
Page 4 of ll SAFETY-KLEEN CORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollar amounts are in thousands except per share data)
Twelve Weeks Ended Twent -Four Weeks Ended June 14 1986 June 15 1985 June 14 1986 June 15 1985 (Note 5) (Note 5)
Revenues and sales:
Service revenues 491671 $ 42 343 $ 96 372 $ 821048 Sales (primarily allied products) 8 665 8,555 16 321 16 460 Total service revenues and sales 58 336 50 898 112 693 98 508 Costs and expenses:
Branch operating costs and expenses and cost of sales 37,606 33,904 73,425 65,899 Selling and administrative expenses 9,600 7,584 181507 14,890 Interest, net (299) (439) (689) (906) 46 907 41 049 91 243 79 883 Earnings before taxes and cumulative effect of change in accounting principle 11,429 9,849 21,450 18,625 come taxes 4 950 4 375 9 331 8 232 arnings before cumulative effect of change in accounting principle 6,479 5,474 12,119 10,393 Cumulative effect of change in accounting for investment tax credits (Note 4) 3 706 Net earnings $ 6 479 $ 5 474 $ 12 119 $ 14,099 Earnings per common and common equivalent share (Notes 2 6 3):
Before cumulative effect of change in accounting principle .30 $ .25 $ .56 $ .48 Cumulative effect of change in accounting for investment credits 'ax
.17 Net earnings .30 $ .25 $ .56 $ .65 Average number of common and common equivalent shares outstanding (Notes 2 and 3) 21,806,600 21,592,100 21,773,400 21,570,200 sh dividends per common share .080 $ .067 $ .160 $ .l33 The accompanying notes are an integral part of these financial statements.
Page 5 of 11 SAFETY-KLEEN CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (dollar amounts are in thousands)
Twent -Four Weeks Ended June 14 1986 June 15 1985 (Note 5)
Sources of funds:
Funds from operations $ 23,994 $ 19,371 Recovery of investment in tax benefits . 528 Net book value of equipment at customers, plant and equip-ment retired 368 )73 Decrease in Industrial Revenue Bond Trust Fund 2,176 Other sources 588 1 018 Total sources 27 126 21 090 Application of funds:
Cash dividends declared 3,440 2>781 Equipment at customers and component additions 2,836 2,96?
Property, plant and equipment additions 15,459 11,805 Other 1 600 1 627 Total application 23 335 19 180 Increase in working capital $ 3 791 $ 1 910 Details of increase in working capital:
Increase (Decrease) in current assets:
Cash $ 1,288 $ 2,956 Short-term investments 3,270 1 9833 Trade accounts receivable 1,916 1,670 Refundable taxes (280) (1,646)
Inventories 618 1,823 Prepaid expenses (1,237) (1,247)
Other (1 561) (289)
Total increase in current assets 4 014 5 100 Decrease (Increase) in current Liabilities:
Dividends payable (7) (12)
Notes payable 135 622 Current portion of long-term debt (134) 21 Trade accounts payable (1,211) (2,629)
Accrued expenses 1,687 1,353 Income taxes payable (693) (2 545)
Total (increase) in current liabilities (223) (3 190)
Increase in working capital $ 3 791 $ 1 910 The accompanying notes are an integral part of these financial statements.
Page 6 of ll SAFETY-KLEEN CORP4 AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 ~ INVENTORIES LIFO inventories at June 14, 1986 and December 28, 1985 were $ 7,420,000 and
$ 7,206,000, respectively. Under the FIFO method of accounting (which approxi-mates current or replacement cost), inventories would have been $ 2,106,000 and
$ 2,983,000 higher, respectively, than those reported at June 14, 1986 and December 28, 1985. Major classes of inventories at June 14, 1986 and December 28, 1985 were as follows:
June 14 1986 Dec. 28 1985 (Expressed in thousands)
Allied products and related items $ 7,316 $ 8,071 Solvent 4,731 3,856 Other 5 188 4 690 Total inventories 617 235 816 617
- 2. STOCK SPLIT The 1985 per share amounts have been restated to reflect a three-for-two stock split on December 9, 1985, effected in the form of a 50X stock dividend.
3~ EARNINGS PER SHARE Earnings per common and common equivalent share have been calculated based on the average number of shares of common stock outstanding plus additional shares
. for dilutive stock options and the Employee Stock Purchase Plan.
4~ ACCOUNTING CHANGE In 1985, the Company changed its method of accounting for investment tax credits from the deferral to the flow-through method. The cumulative prl.or years'ffect of the change increased net earnings $ 3,706,000 or $ .17 per share.
5~ ACQUISITION OF CUSTOM ORGANICS, INC, Effective August 6, 1985, the Company acquired Custom Organics, Tnc. The acquisition was accounted for as a pooling of interests. Accordingly, the Consolidated Financial Statements for the twelve weeks and twenty-four weeks ended June 15, 1985 were restated to include the accounts of Custom Organics, Inc The effect of the restatement was to increase sales and net earnings by
$ 1,486,000 and $ 132,000, respectively, for the twelve weeks ended June 15, 1985, and by $ 2,953,000 and $ 259,000, respectively, for the twenty-four weeks ended June 15, 1985. Earnings per share remained unchanged.
- 6. INTERIM REPORTING PERIODS The Company's interim reporting periods are twelve weeks each for the first three reporting periods of the year, seventeen weeks for the fourth reporting period of 1986, and sixteen weeks for the fourth reporting period of 1985.
Oj Page 7 of 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition The Company's working capital increased from $ 46,182,000 at December 28, 1985 to $ 49,973,000 at June 14, 1986. This growth is reflected primarily in cash, short-term investments and trade accounts receivables which increased $ 6,474,000 during the twenty-four weeks ended June 14, 1986, offset by a reduction in current assets-other and prepaid expenses of $ 2,798,000.
Results of 0 erations Com arison of the Twelve-Meek Periods Ended June 14 1986 and June 15 1985 Revenues and Sales Service revenues for the twelve weeks ended June 14, 1986 increased $ 7,328,000 or 17.3X over the comparable period in 1985. The Company's parts cleaner service contributed approximately 58X of the increase. During the twelve weeks ended June 14, 1986, the parts cleaner service volume and average service charge were 3.9% and 8.0X higher, respectively, than the comparable 1985 period. The remaining increase in service revenues was derived primarily from combined higher unit volume and prices in restaurant services, automotive paint refinishing services and dry, cleaner services. Sales, primarily allied products,.increased $ 110,000 or 1.3% from the comparable period of 1985. This sales increase was diminished by the absence of sales during the second-twelve weeks of 1986 from the Company's formerly-owned map distribution operations, which were sold during the fourth interim period of 1985.
Excluding revenues of the map distribution operations, sales increased 8% over the comparable twelve-week period of 1985, primarily due to increased sales in the Company's parts cleaner, automotive paint refinishing, restaurant and dry cleaner service areas.
Branch 0 eratin Costs and Ex enses and Cost of Sales Branch operating costs and expenses and cost of sales in the twelve weeks ended June 14, 1986 were up 11X over the comparable period of 1985, primarily due to the increased level of business activity. This increase is less than the 15% increase in revenues and sales. The resulting improvement in the gross profit margin is largely due to higher unit volume, higher average service charges and a decline in the cost of virgin solvent used in the Company's domestic parts cleaner service.
Sellin and Administrative Ex enses Selling and administrative expenses increased by $ 2,016,000 or 27%, primaril.y t
due to additional employees including the addition of fourteen Sales Managers in 1986 for the Company's dry cleaner services program; increases in salaries, benefits, and other compensation based upon sales and consolidated earnings; increases in insurance costs; and increases in other general corporate expenses related to the increased level of business activity.
Page 8 of 11 Income Taxes The effective income tax rate was 43.3% for the twelve weeks ended June 14, 1986 and'4.4% for the comparable 1985 period. The decline in the effective tax rate is due to a lower statuary tax rate in the United Kingdom combined with a higher proportionate share of earnings realized from the Company's United Kingdom operations during the twelve weeks ended June 14, 1986 than the comparable 1985 period.
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Page 9 of 11 Com arison of the Twent -Pour-Week Periods Ended June 14 1986 and June 15 1985 Revenues and Sales Service revenues for the twenty-four weeks ended June 14, 1986 increased
$ 14,324,000 or 17.5% over the comparable period in 1985. The Company's parts cleaner service contributed approximately 57% of the increase. During the twenty-four weeks ended June 14, 1986, the parts cleaner service volume and average service charge were 3.7% and 8.0% higher, respectively, than the comparable 1985 period.
The remaining increase in service revenues was derived primarily from combined higher unit volume and prices in restaurant services, automotive paint refinishing services and dry cleaner services. Sales, primarily allied products, declined
$ 139,000 or 0.8% from,.the comparable period of 1985, due primarily to the absence of sales during the twenty-four weeks of 1986 from the Company's formerly-owned map distribution operations, which were sold during the fourth interim period of 1985.
Excluding revenues of the map distribution operations, sales increased 5% over the comparable twenty-four-week period of 1985, primarily due to increased sales in the Company's automotive paint refinishing, restaurant and dry cleaner service areas.
Branch 0 eratin Costs and Ex enses and Cost of Sales Branch operating costs and expenses and cost of sales in the twenty-four weeks ended June 14, 1986 were up 11% over the comparable period of 1985, primarily due to the increased level of business activity. This increase is less than the 14%
increase in revenues and sales. The resulting improvement in the gross profit margin is largely due to higher unit volume, higher average service charges and a decline in the cost of virgin solvent used in the Company's domestic parts cleaner service.
Sellin and Administrative Ex enses Selling and administrative expenses increased by $ 3,617,000 or 24%, primarily due to additional employees including the addition of fourteen Sales iMnagers in 1986 for the Company's dry cleaner services program; increases in salaries, benefits, and other compensation based upon sales and consolidated earnings; increases in insurance costs; and increases in other general corporate expenses related to the increased level of business activity.
Income Taxes The effective income tax rate was 43.5% for the twenty-four weeks ended June 14, 1986 and 44.2% for the comparable 1985 period. The decline in the effective tax rate" is due to a lower., statuatory tax rate in the United Kingdom combined with a higher proportionate share of consolidated earnings realized from the Company's United Kingdom operations during the twenty-four weeks ended June 14, 1986 than the. comparable 1985 period.. P
e Page 10 of ll SAFETY-KLEEN CORP. AND SUBSIDIARIES PART II
- 2. IN SECURITIES
'tem CHANGES During the Annual Meeting of Shareholders, held May 9, 1986, certain amendments to the Company's Articles of Incorporation were approved by shareholders which have the effect of modifying the rights of common shareholders. The information required by this Item 2 is i.ncorporated herein by reference to "Proposal 3" and "Proposal 4", appearing on pages 10 to 16, of the Company's definitive proxy statement dated April 2, 1986.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held on May 9, 1986. Matters submitted to and approved by the shareholders included the following four proposals:
Number of Votes Brief Descri tion Attiteative ~Ne ative
- a. Amend the Company's Articles of Incorporation to increase the number of its authorised shares of common stock from 25,000,000 to 75,000,000. 17,685,366 982,988
- b. Amend the Company's Articles of Incorporation to provide for a classified Board of Directors and related changes. 14,605,553 2,370,544
- c. Amend the Company's Articles of Incorporati'on to change the shareholder vote required for certain corporate actions. 15,110,568 1,746,501
- d. Adopt restated Articles of Incor'poration
-consisting of the Articles of Incorporation as amended to date. 16,884,365 1,428,223
Page 11 of 11 Item 6.~ ~
EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (3)a. Articles of Incorporation of the Registrant.
(28). Proxy Statement, dated April 2, 1986 (incorporated herein by reference to the Company's definitive proxy statement previously filed with the Securities and Exchange Commission).
(b) Reports on Form 8-K None; SIGNATURES Pursuant to the requirements of the Securities Exchange. Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: B :(si ned) Donald W. Brinckman Donald W. Brinckman President and Chief Executive Officer Date: B:(si ned) Robert W. Willmschen Jr.
Robert W. Willmschen, Jr.
Vice President Finance/Admlnf.stration and Secretary J'
Date: ul 24 1986 :(si ned) Leonard F. Martinez Jr.
Leonard F. Martinez, Jr.
Controller and Assistant Secretary
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J r Jw!oa Notice of meeting Notice is hereby given that the eighty third annual general Noser ~ fl
'\ 'meeting of British American Tobacco Company Limited . Only the holders of ordinary shares are emirled ro srrend or
<<ill bc held ar srestminsrer I louse,7alillbank. London S%'I p , be represenrrd at rhe meeting. A member entitled to attend 3lli. on Tuesday 27 sdsy 1986 ar 11.30 am for the transsaion 'nd sore is rmirlrd ro appoint a proxy ro auend and vore
~ > s of the foltouing basinessr instead of him. Such proxy nerd nor be a member of the comps nl.
I To receive and consider she accounts for the year ended 31 13rccmber 198$ snd rhe repons of the directors snd auditors thereon.'
2 To elect direaors.
3 To>re elea she auditors.
.W,~wr) 4 To authorise rhe direaors to lix the '3;~>r' auditors'emuneration.
By order of the board
' B Cannar,.Crcrrrurs 24 %ta rch 1986 V'>
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5 I
- ..Report of the Directors of BAT Co Ltd 4
Board of Directors Directors'nterests Chairman According to the Company's register the interests at 31 P~~~, 4~5PI Eric Alfred Albert Brucll December 1985. of the persons who at that date were 5
I " ~ directors, in the share and loan capital and share option p P')Cwz.-.
5 5 schemes of B.A.T Indusnies p.l.e. and its subsidiaries.
Other Directors all of which are beneficial, are shown below. The h Lionel C)ril Francis Blackman holdings at I January 1985 or date of appointment are shown in brackets where these differ.
'c
~ (resigned 18 January 1985) Qv)C Barry David Bramley 'v
~ (resigned 29 July 1985) B.A.T Industries p.l.c.
', Ronald Alexander Charles Crichton 5
Ordinary . Sharc Options VC 5
25p Shares John Rutherford Crosby 5 Vg4 55 5 5 Yorman Davis EA,A Bruen 19,524 (15,640) 133.151 (137.961)
'(appointed I 3lay 1985) - ~ ~, R A C Crichton Yil "
79,090 (75.620)
J R Crosby 21 004 (9 124) 52 181 (67.631) CjC445 William John Dickson Y Davis Yii 26,270 (12,110)
. Alfred gdichael I(eath W J Dickson Yil 97,943 (94,013)
A Al 1lcath Yii 89,801 (86.261)
David George llepvood D G I leywood 17,300 (23,420) 52,713 (50,053) 3
, hlichacl Warren Marioram 0 W Wiarioiam 33,360 (38,900) 73,131 (69,371)
P J Rickens 41.269 (46.269) 129,431 (126,661)
I lector Alexander 3Iorini .'.,W'P~~
(resigned 18 January 1985)
. The directors'oldings were unchanged at 24.%larch Raymond John Pritchard 1986, except as shown below:
't>i&>> (resigned 15 May 1985)
J R Cro.by 17.844, 48.341
, Pascal John Ricketts A 31'I leath, Yil 66,721 67.691 Edward John Worlidge 31 W Marjoram 36.284 "i:i.'f.a.
(resigned I April 1985) \ I'55'IVM C
()etails of the share option schemes are included in the Report and Accounts of lhA:I'ndunries p.l.c.
In'pursuance.of the articles of association.3(essrs=
, .", f) G I fenvood,.~i W ) Iarioram and P J Rickens retire Yo direaor had any material interest in a contrac't of
~
' from thc board at the annual general meeting and will "'significance (other than service contracts)'with thc
~
be proposed for re eleaion. Company or, with any subsidiary during the ) ear.
5 I
55 / I I fa Secretary and registered oflice Auditors Y,B Cannar, Westminster I louse, . Dclnine I larkins ik Sells, 7 %(ilibank, lvondon SWIP 3J Ii 128 Queen Viaoria St. I.ondon EC41'JX 5
'l)cloitte Ilaskins & Sells have indic'ated their Reginrar willingness to continue in office.
Bank Pic, Registrar's Department,
'Lloyds
.Goring. by.Sea. Worthing, Resolutions proposing their re.appointment as auditors
- West Sussex BY)2 6DA of the Company and authorising thc directors to fix
'heir remuneration will be submincd to ihe annual general meeting.
'~4 -.O'0'4 -"
2
0
~ -w
)folding Company Review of the Year
~ ILA:I'ndustries p.l.c incorporate'd in thr I:R, own s 'I'he Group traded satisfacionly during the year and the whole of the equity share capital of B:YI'o I.td the direaors do not envisage any major changes in thr and is its ultimate'holding company. Group's anivitirs in the foreseeablr (uture. A drtsiled Principal Aaivities review of performance is contsinrd in thr Rr poa and The Group manufactures tobacco products, snd ha Accounts of It.c't.l'ndustries p.l.c.
substantial investments in overseas companies engaged Reserves ~
in tobacco, food, paper. printing and packaging. hoirl Group reserves drcreased by 5303 million as a res ilt snd other indutsrial anivities." "
arcs of dividends o( 2,'85 million in respect of current year 300 ciga'srnr brand names src in use throughout
'ver profits, sprcial dividends of <255 million arising froin the world and in addition an extensive (ange of the transfer of subsidiaries and sssociatrd companies to smoking " ~ tobacco; cigars snd cigarenes is. the ultimate holding company, the cf(ect of exchange
'anufanurcd. ~
movements on thd opening net assets and premiums r~ The cosnpanies of the Group, as tveli ss being large on thc scquiYition o( new subsidiaries during the year.
Company rrserves'increased by 51 million.,
buyers of tobacco from the traditional markets such as USA, Canada, Brazil and thr Year liast. have also 'he Research and development aaivities pioneesrd tobacco growing by indeprndcnt farmers in kcscarch snd development is undntaken to support S~c cci other parts of the world. Many companies continue to ~ the main oprrating components o( the business - the give technic'al assistance.to farmers growing tobacco growing and blrnding of tobacco leaf, snd the design.
b Pi. crops.. production and marketing of cigsrate produas.-
i ~
'hanges in the Group '
kesrarch is sho undntsken intn various aspects of the ASStated in thr 1984 Rr pOa Snd chCCOuntS. the imereStS currrnt medical comroversy on sinnking, including of BAT Co Ltd in its Brazilian subsidiaries and continued significant funding of independent mrdicsl associated companies were transferred at net asset value studies.
+to the, uhimate holding company with cffrn from I January 1985. I hr comparative figures include 5209 Company status million profit be(ore tsxatinn and 458 inillion taxation II Yl'o I.td is not s close company for the purpose of in rrspect of the coinpanirs Iransfcrred. company taxation.
rp There have been significant develnprnems in Ihr Employee involvement
+1I Group's Chilean nperations. In 51ay, the Group 1'he Company continua. Io support the concept nf acquired I00">> ol Consorcio Agro. industrial de gdalloa voluntary systems of employee invnltirmem and SA, a company engaged in the fruit iuicr business and. actively follows an employee relations pnlicy which 1
thr'follnving month. pvrchased the remaining 50"ii- includes giving information about the business and share in,L'vercrisp Snack I'rodunos de Chile SA, consulting employees about maners directly relating previously held by ASIATII. I.imited, sn associated , to their own jobs.
company of B.A:I: Industries p.l.c. 1'he Company continues to consolidate and develop
- This diversification was folic 'ced, st the end of June, mechanisms fnr employee invnlvrment such as by an incrrsse in Ihe Group s interest in its psincipal participation m ILA:I'ndustrirs'mployee share .
Chilean subsidiary from 50 I~ to 62 8"o. 'I'he option schemes, employee representation nn pensions.
corporate structurr wss subsequently amended tu .
health and safety and iob evaluation cornmittcrs and seArct the above changes through thr creation of a the publication nf in house jousnsls arid neNslaters.
'A holding coin pany, limprrsas CCI'A. snd the name Icolloiving the extensive econnmic education of'he tob ceo subsidiary was changed to Chile tabacos SA. ,
programme which was carried out in 1984. pilot w"Ir'vlcc
- l. briefing sessions ivere attended during 1985 hy many I)ue to political evrnts in Uganda, it was not possible employees immediately a(trr interim snd linsl resuhs to cnmplrtcj the arrangements, mentioned hst year. for 'had l>een announced, 'I'hese sesci<ms were aimed at BcYI'ganda 1984 Limited to become a subsidiary and cbnsnlidatingemp!"; rcs'understanding of the realities no figures s're included in'these accnunts in respea of of the business ~ cevQ$ >'I
;cc>> that company. '
l)uring 1985 r i i .".ne was intrnduced to provide
/, ~
p} 1)uring lcebsuary 1986, Ihe Group sold its 29 9'I eligiblrrsnp yir. reich prrsonalisr'd statemrntc giving investment in Molins I'I.C. In these ac<oums the dnails ot is-.'s . ii:d pensinn bcncfits snd life
~
"~>Y Group's sIIarr of associated companies'rofits, insursnc~ c. i r. Idi Icd statements will be issued in
~
4 f< taxation and e'xtraordinary items include the resuhs of future nf:i "I'. s ~ 'lsia.
cry, A1olins VI.C for the 12 months to 30 Junr 1985. 'I'he I'rogrn'. hc . r'-dr durir 8 1985 ni impnive the Group's inirtsment is included in the balance shcct as quality n, ci tn i .in.,stion from Ihc point of view o(
s current invessment at thc subsequent disposal value. both cc:est~ ini n~rsemation.
I 1
i 0
V
~ 'I 2
) ~
) ~
~ l
~ . ~
)
Holding Review of the Year Company'kA:I'ndustries p.l.c.'. incorporatrd in the UK. owns 'I'he Group traded satisfactorily during the yrar and thc svhole of, the equiiy share capital of IIAT Co l.td the directors dn not envisage any maior changes in the and is its uhimate holding company. Group's activities in the fnresceablr future. detailed
. Principal Activities". review ol'erformance is contained in the Report and Group manufactures tobacco products. and has
'he Accou'nts of B.A.T Indusiries p.l.c.
. 'ubstantial investments ih'overseas companies engaged
' in tobacco, food. pape'rr Reserves printing and packaging. hotrl Group reserves decreased by /303 million as a result and other.indurarial activities..
~ of dividends of L85 million in.respect of currem year Over 300 cigarene'brand names are in use throughout prof! ts. special dividrnds of $ 255 million arising from the world and'in.addition an extensive range of thc transfrr of subsidiaries and associated companies to smoking tobacco, .'igars and cigarrttes is the ultimate holding company, the r Jfrct of exchangr
~ manufactured. movements on the oprninp'nrt asseis and premiums The companies ol'the Group, on the acquisition of new subsidiaries during the>>ear.
as well as being brgc buyers of tobacco from the tiaditional markets such as Compiny resc rves increased by g I million.
the USA, Canada. Ilraail'and thr Year liast, hase abn 'cscaich and drvclopinrnt activities pi red tobacco growing by independent farmers in ~
kesearch and dcvrlopmrnt is underbken to support ts ol'he iiorld. 3Iany companies c'ontinue to r the main operating components of thr business the nical assistanci"to farmers growing tobacco groiving and blinding of tobacco leaf, and thc design,
) productinn and marketing of cigareuc products.
Changes in the Gioup 's Research ifalso undrrtaken imo various aspects of the stated in the l984 keport and Accounts. the in!crests current medical comroversy'on smoking, including of IIAT Co I'.td.iri'its,llraailian subsidiaries "and continued significant funding of independent mrdical associated companicsu etc transferred at net asset value 'tudies.
to the ultiinate holdihg company with effect from I January 1985. The comparative figures include l209 Company status million pro!it before faxation and 558 inillion taxation IIATCn l.td is not a close conipany for the purpose of in respect of thr'ompanies transferred. company taxation.
There have-bern, significant developmrms in thr Bnployee involvement Group's Chilean operations. In A1ay, ihe Group Thc Company continues to support the concept acquired l00') of ConsorcinANn industrial de Malloa systems of employee involvement and of'oluntary.
SA;- a company rngagrd In the fruit iuicr business and, actively follnuw an employee rebtions pohcy which the following month. purchased thc remaining 50" includes giving information about thc business and
'share in Evercrisp Snack I)roductns de Chile SA, consulting employees about matters dirrctly trbling .
previously Iield by rKA1:ITII. I.imited., an associated to their own iobs.
company nf II.A.T Industries p.l.c. 'lite Company continues to consolidate and develop
)
This diversification ivas foll. wed, at the md,of June. j mechanisms for "employee'nvolvement such as by an increase in thr'.Group's interest in it princ'ipal 'articipation in II.A:I'ndustries'mployee share.
Chilean subsidiar>>'.from 50 I4 to 62 8'. The option schemrs. rmployee represeiitation on pensions health and safety and iob evaluation comminees and corporate" structure was,subsequently arne:tded to reflect the aboie changes througli thr crea'ion of a the publication of in.hnuse iournals and newsletters.
'oldirig coin pany, liinpresas CCI'A, and the name of I'ollniving thc. extensive economic education the tobacco subsidbry was changed to Chilrbbacos SA. ,
programme which was carried nut in l984. pilot briefing sessions uerr attended during 1985 by many Due to political rbr'nts in Uganda, ii was not possible employees immediately after interim and final results to complete thearia'npemrms, mentioned last year. for ,had bern announced 'I'hrsr sessions uere aimrd at llcVI'ganda l984 l.imitrd tnbecome a subsidiaryand no figures are inciudCd in these accnums in respect of consnlidiuing rm; I ofWtc businrs..
.. s'understanding of the realities that company.
l>>uring'l98' ~ 'ere uas intrnducrd to prnvide
~
During lirbrua'ry 1986..ihc Group sold its 29 9" cligiblc rm,)t v'. ) u':h prrsonalised statements giving
~
investmem in 'Moilns I'I,C. In these accounts the details nf'iI'v:..'.cr ed pension,benefits and life Gro'up's sharc 'f,'associated companies'rofits, insuranc ')i)xi. ':, .ted stciements will bc issued in
~
t and extranrdinary iiems include the rrsuhs of future o). u >ii ))::)) 'sis.)
V
.C for the l2 rhonths to 30 June'1985. 'I'he I'rngress ~,!>> ii:;.<r durinp l985 tn irstmrnt is included in the babncr sheet as ' quality .:t cr:~i!,un.ration froin thr poiniimprove the nt view,nf a c t investment at the subsrquentid!1pnsal value. boih cn. tr:)'.:i)'irsrntalinn.
= . MAY I 3 1986 4F a+'"- (pig-.)~44+fear"]~A ++i( QQ)jp-Atxa+QRR)W~) Wx>> "'p4 'f(p~ P ~~4%4f~'xa!44~8'
0 u',
9 -".-, <<,, <<<<5 "c ',. ", <.'i,, c ",cr'":,c" I'v' .<> <<'- "5 ' <<c" i>v', r'<v "<<yr<<ytcia ~j]~~~ yr(r t) ~a'K<<'r<<Ac)~>>catv>>)rc(6a an>> tac<<ac4'Av igz
++ v'v vvr C,S<<ici cvC" ere<<
v Holding Company Review of lhe Year v II.A.T Industries p.l.c.. incorporated in the tc K. owns 'I'he Group traded satisfactorily during the yrar and the whnle of the equit> share capit~l of II:Yl Co I.td the directors do nol envisage any major chanttrs in thr and ji its uhimate hoMing company. Group's activities in the (oresecablr future. A detailed "
Principal A<<ivi ties review of performance is coniained in the keport and
'he Group manufactures tobacco products. and has Accoums of It.cV(I'ndustries p.l.c.
~ ~
. substantial investmentsinoverseascompanirsengaged Reserves
. ~ ~
in tobacco. food, pa'prr. printing and packaging. hotel and other. industrial activities. Group reserves drcrea>>rd by ct'303 million as a res lit.
~
of dividends of f85 million in respect nf current year q cr'Sja Over'300 cigarene brand names are in use throughout profits, special dividend>> of $ 255 million arising rrom z~>.",'tv'<<x world and in addition an, extensivr range of 'he the transfer of subsidiaries and associated companies to smoking tobacco, cigars and cigairttrs is the uhimate holding compa)ty. the effect of exchange .ccvve4r manu(actured. movements on the opening nrt assets and premiums $ p
<<'he on the acquisitinn of new subsidiaries during lhe >ear.
companies of the Group, as well as being o(tobacco from thr tradilional mark<>t, have ahn Research and development activities pioneered tobacco growing by indrpendent farmers in ', Research and development is undertaken to support other pans of lhe>>vorld. botany companies cnntinue to the main operating coinponents of the business lhe giye technical assistance to farmers groiving tobacco growing and blending of tobacco leaf. and the design, production and marketing of cigarette produ<<s.
'rops.
. Changes in the Group . Research is also undertaken intu various a>>pc c'ts of thr '4i<<IJj'~:Mr::-
As stated in tbr 1984 Rcport and Accounts, lhc intciests currrnt medical controversy on smnking: including
~ of llcYI" Co I.td in its llrazilian subsidiaries and continued significani funding of independeni mr'dical associated companies werr transferred at net asset value studies.
thc'ultimate holding company ivith c(fret from
' toJanuar>'985. The comparative figures include ct'209 Company status million profit before taxation and $ 58 million taxation II;YI Co l.tdis not a close company for ihe purpose of in respect of lhe companies transfrncd. r company taxation.
e'rx cl'here have'een significantdevelopments in the Employee involvement '.<<XQ Group's Chilean operations. In Alay, the Group I'he Company continu's to support ihe concept of ~
acquirecs 100" of Comorcio Agro-industrial dr Xtallna voluntary sy>>aem>> of employee imolvement and
~
SA, a company engagrd in thc fruit juice business and, actively (ollows an rmployre relations policy which r x,e <cc thr follov ing month, purchased lhe remaining 50" includes giving information about the busjnc>>s and share in livercrisp Snack irroductos'de Chile SAl considting ernplovees about maners directly relaiing
'.. previously held by ASIA'I'll. I.imited, an associated company of H.A<<T industries p.l.c.
v to their own jobs.
Thr Company cominurs mechanisms to con>>olidatc and develop '
(or employee involvemem such as cqycrer This diversilication was (olla ved, at the end of June.
by an increase in the Group s interest in its principal participation in II,A;T Industries'. employre share
,* Chilean subsidiary from 50 I'e to 62 84e. The option schc mcs, employee rrpresentation on pensioiis,
~ >>A corporate structure was subsequentlv amended i>>r hrallh and safety and job evaluation committees and. 'v,tu'v .'tv>>r3 reflect the abnve. changes through-ihe creation of a the publicaiion of'in.house journals and newsleners.,
holding company. Iimpre>>as CCI SA, and the name Icollowing thr extrnsive economic educ>>'linn tobacco'subsidiary was changed to Chiletabacos SA.
o('he programmr which was carried out in 1984. pilot briefing sessions wrrc attended during 1985 by 'many l)ub to political cvcnts in t:ganda; it uas not possible tocoinplrte the arrangements, mcmionrd last yrar.'or-HAT t:ganda 1984 I.imited ln become a sub>>idiary and employees immediately after interim and final rrsuhs had been announced. 1hrse sessions uere aimed at consolidaiing emn!" .cs'undennanding of the realities
~ ~ no figures are included in these accounts in respect of ~
. of thc bu>>inrss
- that company.
l)uring'1985 r <<c 2:..e was introducrd lo prnvide
~
.>>,'r.;p~-'r During lccbruary 1986, the Grnup sold- il>> 29 9"e eligible <<ntu<<vcr edi.".'personalised statemrms giving r,V "<<'lr
~
investment in Alnlins I'I.C. In thesr accounts the d<<oils ol' civ r .:ii:d pension benefits and life c
'Group's sharc of associated companiei'profits. insuranr" r'. r. l.c. tcd statements will be i>>>>urd in Or <<<< taxation and extranrdinary items include thr.results of . futufC Of: > Vr<<" 'l>>ltv c ~ ~
glolins I'I.C for ihe 12 months to 30 June 1985,1'he I'rngre>>s la hv.. >. Ic durir 8 1985 iu improve the
* ' Group'sin>>vstment is included in the ba!ance sheet as current investment at thc subsequent di>>pn>>al value.
quality cr: .'v",n .tct.-ation from the point of view
<<~
<<v c'o ".Cn ~ ..5>>': C~rntation. ol'tenth
<gAY I 3 l986
'":g&rr,'~~cC<<.'v 4,.)a<<'g~'ev<<1<<cg c ccvf~ gQ Nr wf r>>rear ..~c+~apr ge>>+cc~+
pape
~ ~
tvC<<v),
~<<<.,
+wccdac<<rc P~<<<<ct<<r<<'.L-ev-.n<<cc>>t+gjpccea
'. r<<4'>> gr>> v<<r c,u %g g~rr e v p+t~<<r.4r@+c<<r Qp~<<(~vl <<,<<ct~+
r /J>vive ~~~~")c'red+ .v+vcfg 5<<<<vc'<<ccrc'<<.'v~r. gpss,
~.ra>>~e&alaer+~gcvc.~ggb@e+CL~v',)WNQQ+~ vv-v zrta(pl+4 ."+ 5 <<>>)ver<<>>
8 .
'Q.'g+
p,.
~ i Report of the Directors of BAT C~ Ltd continved Employees Employment of the disabled in the United Kinrdom
'I he geographical spread of the average number of The Group's policy on recruitment is based on the
'ersons employed by the Group is as follows: ability of a candidate to perform the iob. Full and fair consideration is given to applications for employment
\ 1985 .1984 from the disabled where. they have the appropriate United Kingdom
',830 '
'.634 skills and abililies to perform thc job. If a disabled applicant proves a suitable candidate for employment, L'urope -
2.619 2,684 modiCication of facilities and the provision of special Caribbean/Central Atnerica "
2,242',298 equipment and aids is considered favourably.
Africa ', ~,
Litin Arneriea Asia/Australasia
- =
. 7,779 15,218 9;206 39.894
~
26,977 16,726
'9,499
" 61.818 If employees become disabled during the course of their employment with the Group and as a resuh are unable td perform their normal iobs, every effort is made to offer suitable ahernati ve employment to them.
to provide assistance with re training and to deal <<ith their cases as compassionately as possible.
his Grouppolicytoencourage thetraining at tner 4
The industrial spread is: development of all employees where this is of benefit Tobacco . 37,365 ~
56,488 to the individual and to thc company concerned. This of course includes ihe provision of training to meet the Other activities 2,529 5,330 special needs of disabled employees.
39.894 ,61,818
, Report of the Auditors V
To the mcmbcrs of British-American Tobacco Company Limited
e have audited the financial statements r on pages 5 to 20 in accordance tvith approved Auditing Standards.
In our opinion the financial statements give a true and fair view of the ate of affairs o(the Company and the
- i. Group at 31 I'....nbcr'1985 and of the proCn and .
funds provided and applied of thc Group for the year then ended and comply with the Companies Act 1985.
I7eloitte Ibskins dl Sells, Chanered Accountants, I.ondon. 24 hlarch 1986
0 0
WK
~ . 7x@i.'A;
~" jkt-
." .'.'.Accounting Policies >> S+~g +i7>>
71>>'( 3
~* 1 7S ~
' 1. Group accounts (a) The accounts are prepared by consolidiuing the The rates of drpreciation used are generally within the (ollowing ranges:
iccounts of II;Vl'o I.td and its subsidiaries at I'reehold buildings 5>> 4>>
r~j>>jv 31 I)rcember. 'fhe directors endeavour. where I.easehold buildings - long leases 2' >> - 4 >>
~
practicable.7to secure that thc )ear ends of subsidiary - short leases overthe period
- compania coincide with that of IIAT Co I.td. In the ofthe lease
.."" " opinion of Ihc directors, il is impracticable to alter the I'lant and machinrry 1>>i - 10'>>
- .: daies of certain subsidiar) companies ivhose accounts are Other equipment and fiuings 10>>>> -
- made up to 30 September as this would involve undur !tlntor vehicles 25>>>>
20'0II>>
, 'xpense. g>~7'" Rg>>i
>> t...'(b).ITlie results of stibsidiarirs acquired during ihe year
,:. are included from the date of acquisition of a controlling y. Turnover comprises net sales to external cunomrrs imerest at <<hich date. for ihr purposrs of consolidation. and includes value added, sales and excise taxes.
'; " the purchase consideration is allocaied betivccn thr I:I'cA'nd other duty and excise tares are shown separately in
~ .." suiderlying net asscis acquired, oiher than goodwill, on note I on page 10.
.hebasisof their I'air value.
(c):The rrsul's of subsidiaries which ate sold outside the 7'Q"4
-..II~K.T Induuries'group are included up to the date of 8. ReMarch and development revenue expenditure is 7
disposal. 'I'he profit or loss on sale is calculated by charged against prnfiis as incurred.
",' 'eferenceto the net asset value at thr date of disposal. "pj's:/~i.
II
'p 7 ~ 7
~ 'd);associated companies comprise invcsiments in
~ ", ".. companies.uhich are nnt subsidiaries, whrre the Group's 9., Taxation provided is that which became chargeablc on the profits of ihe period together wiih deferred taxatinn
", interest in thc.equity capital is long trim and excerds calculated as indicatrd below:
20" . The Grnup's shire of thr profits of these companies (a) ',fo the extent'that jMvance Corporation 'I'ax (ACT) is included in the profit and loss account and the on dividends paid and prnposed cannot be offset against 7; investments are shown in the Group's balance shen at the Corporation I'ax or deferred taxation provided, it is
- , . '- " Group's sharc of ihe net tan'gible assets of the companies wtitten off. hmounts so ivrinrn o(f are carrird forivard
. less proiisions consistent with thc cnnccpt of prudence.
(or tax purposes and ma) be offset againn taxatron of
'I'he Group's'share of the profits and assets is based on subsrquem periods.
' '.'he latest information published by thr companies. 'I hc Company's balance sheet includes the investment in (b) Yo account is taken of tax which may be payablc 4~>>jt j associated companies at cost.
on the realisatinn of investments or in ihe evem of the distribution of prnfns retained.by subsidiaries, associated
- "= '. 2, Other invesiments are stated at cost of acquisition or .- companiesoroiherinvestments.
~
" ~ 0+jVtiv 73
, director's valuation." (e) .1)cl'erred taxation is provided for on timing differences using thr liabilitymethod except <<here it can
~, '.
- 3. Stocks are valued on consistent bases. in the main at average cost including overheads (wherr appropriate). or nrt realitable value. whichever is thr lourr.
be demonsiratrd with teasonable probabitity ihat the tax deferral will cortinue for the foresreablr future. I'iming di(ferences arise on items of income and expenditure 7
7 "which are recognised for iax purposes in different periods
- 4. Intangibleassets- Trademarks,patrntsand goodwill, from those in which they arc rrcocnised in the prnfit and including that arising in connection uith ihc acquisition loss account.
of subsidiaries. associated companies and other i
investmems, are set ol'fduring the earn(purchase against 7
..,',reserves and shown in the reserve movemems in note 21 107 7Foreign currencies - All asseis. liabilities, turnover on page 16.
'nd profiis expressed in currencies other than sterling are
. translated to sterling at rates of exchange rulitI ai ihe end g
",; .. 1,S. Tangible lixed asseis include assets held under " o( ihe financial year.
ncr leases ivhich are ca pit alised m their fair value <<it h 'ina
' corresponding amount treated as a liability. 7 ilvH@~~. I I. Differences oh exchange are deah with as (oltotvs:
6: Depreciation on tangible fixed assets is calculated to (a)- Those arising on the'retranslation to sterling (using amonise thrir cost over their useful lives by equal annual rates n(exchange ruling at the rnd of the year) of overseas
".instalments, having regard to their location and ihe net assets at the beginning of the year. afirr taking into v~~j>>j'QQ
~ '. '. -. industry in uhich they are employed. Yn depreciaiion is account related fnreign currency burro<<ings. ate taken
';provided on freehold land excepi tvherr its cost cannnt br direct to reserves as shown in note 21 on page 16.
.separately identified in ivhich case ihe agttregatr cnsi of Other exchange diffrrences are reflected in trading (b)
,. thr land and buildings Isdepreciaicd at the rate applicable , profit.,
to ihe buildings,
0 I
<<~r
~ /
>>n Group Profit and Loss Account ZE~E'"///t>>>>E For the year ended 31 December l millions ,(Qk~+
1985 Turnover including duty and excise taxes (note I) 2,513. 3,775 E
. Operating income (note I) '1,191 1,569
, Operating citarges (note 2) 945 1,272 ir~~J~ ., E Trading profit ,
246 291
~ 'et interest(note 5) ~
153
'31 r E 277 450 Share of associated companies'rolit before taxation (page 19) 35 59
/
... Profit on ordinary activities before taxation 312 509 z7Q;g~~
,p..
.%fg~~
/
E Taxation on ordinary activities (note 6)
Profit on ordinary activities alter taxation Anributable to minority shareholders Anributabte to BAT Co Ltd shareholders Extraord; .aty. ten.s less taxatton (note 10)
~
~ .
E I lo 202 30.
112 (11)
'2 166 343 271 Profit lor t..'e .. w (note '7) 161 "271 EDividbnds in respect of current year prolits (note 8) ,.85 90 Special dividends {note 8), 255 340 50 140
/
I ~
/ 13r (179)
E Reduction in rcscrvcs (note 21)
I)i'o Ltd and subsidiaries,,
'ssociated companies
.(176) 114 (3) 11 (119) 131 E
'arningspershare(note9) ~ 34 6p 54. 5p Thc comparatiyct include the results of the Ilrariiian subsidiaries
'and associated companies (see page 3, Changes in the Group>.
~ 'E
/
E k 4! E Notes are'shozvn on pages 5. 7 and 10 to 18.'
P~~'j,.r,- >>
~V.'
,. ',~ia.s E j /Ezra)
E>>>>t'g<rq+izv>> n'4 " ~/'"'4 ': .cE< << . 'pcvvrE 'EE>> E/z/zr/4+', ~~ "tz' E'<E~s 'i t E .+jfy ~ Elle. -. +P>>z>>1a-. 'EtEv
0
. Group Turnover and Profit-Analyses 4 millions 1985 '/e 1984 . Oo Turnover including duty and excise taxes '2,513 3t775 Geographical analysis
'29 United Kingdom 254 10- 6 Europe 448 18 450
- Caribbean/Central America 125 5 165 4
'Latin'America 595 24 1,559 Asia/Australasia 800 32 999 27 Africa" ~ 291 11 373 10 2,513 100 3,775 100 The above analysis is based on the arbor manufacture. ~
Industrial analysb Tobacco Other activities.
2,487 26
'9 I 3,713 62 98 2
. 2,513 100 3,775 100 Trading Profit 46 297 Geographical analysis United Kingdom 37 15 26 ,9 Europe 16 6 13 4 Caribbean/Central America 24 10 27 9
. latin Arn<<rica " 62 25 103 35 Asia/Australasia Africa ~ '9 68 28 16 82 46 28 15 246 100 297 '00 Royalty income less related expenditure is included in the geographical area in which the licensor is located.
l Int/ustrial analysis acco'f 245. 100 289 97 acllvllles I 8 3 246 100 297 100
0 v
Sheets alance
'75 44
' <<. 31.December
~ ~
4 rml<<ons Croup ' Company 1985 1984 1985 1984
~ 'Assets *
,'.,'Rxcd assets Tangible ftxed assets (note 13) 551 13 13 lnrestmentsin Groupcompanies(note 15) I II5
'35 180 Inycstments in associated companies (note 16) 103 '226 4
therincestments and long term loans (note 17) ~
32 38
~
4>~jar '
~
513 820 174 239
~
'Stocks(note
'Debtois(note 131
- 19) .
Cu'rrcnt inrestments (note 20)
~ ',
~
~
~ >>
48C 196 234 649 288 150 55 222 2
85 116 6
". >'Short term deposits '
. 111
'60 237
~
I, I
.Cash at tunk and in hand c: 98 4 5
]
r 1,081 1,422 284 113
~ ~ k w
~r 458 '52 R
liabilities ~
I XP~<>>i 5aM~>9
~
Cap(tat and reserves
.'harc capital
'ther reserees Protn and loss account
' -; " , . ~ 135 253 "4 IO
'09 135
~
135 28 135 17
+r.uz..r1, >
~ ~ ~ ~ 415 94 104 i'Issociatcd companies '
79 '131
,,'InterestInterest of II;>>f Co Ltd shareholders of minority shareholders in (note 21) subsidiaries
' '882 115 I.I85 220 257 156 257 256
<~'+
<<tl@,
~>
~
1 Creditors (note 14)
. Itorrowings r Provisions for liabilities and charges (tiote 22)...
" ~~
~
~
~
8
~
~,
~,
59 99 538
=
/
72 111 2
~ 16
'9,,
176 15 Il 170" .~"P-.'Pw
; >>t~! ~~~
. i
. > . 765 185 181 v ~
,. 'Total funds employed '>594 2.242 458 . 452 ",4<
; -.'Onbchalfoftheboaid L' 6 I\ruell. I) G I leywood, l)ir>xrurr
,, "".",24 5(i:ch 1986 I
vr
- It~s P~~~. ~v, '...,iot'es are shown on ptges 5,7 and 10 to 18. /'*
&f. '
as~i. Ir
->"-ss.'Pgt:
rr 'v ra>v!u
~ ~ -
I fr> tl>>a - '4vv.g.
PJ'SC I
vf
~ .
'r~e4 .t ~~~Wp~~g ~~~+) e c
(
~~" -fg ~ .
ce e v. AQ
'roup Funds Statement i unds provided and applied for the ) car ended 31 December e'. millie ns,
'I'ransfer of eubsidiaries and ~
associated rtcquisitiors
~ companies to thc and disposals ultimate holding included in
'rotai company included total movements in total movements movements C
'984 198S (1984 ntl) 1985 1985 1 &84 Funds provided Yct profit attritmtable rn II;VI'oI.td
~ before extraordinary items 172 271
.,Extraord:nary itrmc (I lv Iygge ~Is C>>
DiiidcnJs inrespect of ctnrent ) ear prolits (8S) (90) ..
- 76. 181 (7)
' , Special dit rdends (255) (50) (255) kescrve movements (124) (7) 2 (18) e ~
;= Yet (decrease)/increase in IIA'I'oI.td
'-.'sharehotdert'interest for the scar !303) '24 (255) (S) (18)
~ (l)ecrease)/increase in ~there ~~'
htterest uf minority sharc holders (1nS) 34 (75) (3) (2)
~ I'rovisions lor unfunded pensions (13) 7 (I) l)eferred tax'atinn I 3
' Itorrovvings - due beyond one ) ear (5) (2) (2)
're+..
(425) 166 (333) (7) (20) e+ a+/1 P Funds applied ne I c t~~ +pret e
'I'angiblc fixed assets r Expenditure . 64 109 8=,37
'l)isposats and exchange differences (203) 44 (122) .
l)epreciruion of thc year (37) (52) 'P 9 ~ v7 Yet tangible lixed assets (176) 'Ol (122) 8 37 Other fixed assets 54 '131)
(78) (25) . 2
.* (307) 155 (200) r I >) 39 C
XVorkingcapital
'Stocks (169) 9 (85) 5 7
~1~
'<<$ ~P~
'Debtors (92) ~
28 (123) ' 2 15
. Current investments. deposits and cash (80) 21 (153) , (63)
(341)'8 (361) 14 (41)
Itorrowings ~ duc within one year (18) 7- '10) 5
'iher proiisions and creditnrs (2itS) 40 (118) 2 13
. (1)evrease)/increase in working capital (118) ~ II '133)-
10 '59) in net as~its'425) 166
~
(333) '11ecrease)/increase (7) (20)
'I he direciors consider it inappropriate to prepare 'his statement on a cash liow basis because nf the res:rictions in many parts nf the world on the transfer 4~'r,'r~ sct( t , of assets', induding cash, between individual ~ e con:panies in thc Group.
e~+P gnat~
vrt
~ r I
<F~~
'C
~
/ 'E I
1 tEP', 'tE' r 1 Ett ~.44 N I
} 4 4 1
t4 ~ 4 144 I
EP 1 t! ll PE 1 Jg t H
~ 1 ~ ~ ~ 4 ~
PP 4 t t 1
>>k P ~ ';"
I 4 14 I P ~
~ I rI
*4 P
,P 4" l I I g 1 Il, P 4
I 'C (4 ~
I M} "P
~ P 1
I I I'I} 'I
~ ~ 1
}.
4 iI vE P)',4-4 e'\
- 14 rIE 1 )
4 I
}Ep
~
P:-"
4' P
r f
5.'44 I
~ '
7 5 a f s 4a ~ Q%.s ~~ 'gh I
/
V Notes to the Financial Statements 5 millions 1985 1984 I Turnover and operating income Turnover including duty and excise taxes . 2,513 3,775 Duty and excise taxes 1,357 2,258 1,156 1,517 Other operating income 35 52
* ,I ~ i>191 1,569 I
Duty and excise taxes include UK VAT of 55 million (1984 55 million).
t r r P p 2 Operating charges.'.
"Raw materials and consumables 462 640 Change in stock of lini:hed goods and work in progress (25) (9)
Staff costs 203 283 31 52 Depreciation Oiher operating charges 268 306 945 1,272 Staff costs composer Wages and salaries 151 219 Social security costs 24 41
.Other pension costs 22 23
'03 283 Inl'ormation in respect of the number of persons employed by the Group is given on page 4.
Depreciation inCludes g2 million (1984 5 I mil/ion) in respect of assets held under Cinance leases. ". ~
Other operating charges in'cludel Rent of machinery and equipinent (operating leases)- I 2 Rent of land and buildings (opemting le'ases) 5 6 Research and development expenses, * - ~ 11 12 Provisions for unfunded pensions ~
8 10 Finance charges iri respect of Cinance leases I I
- Auditors'ees (I)ATCo Ltd L 140,000 1984 f136.000) 091 098 3 Directors'emuneration res rnanagersi Emoluments(including pension contributions) 0 80 0 94 Pensia'ns .. '0:06 0 07
'ompensation for loss of.ofCic'e 0 34 10 . ~ ~
I'
5 millions 4 Emoluments of directors "1'he table shows the numbers of directors of IWI'o I.td whose emoluments, excluding pension contributions, "are within thc following ranges
',, '98S Emolutnents 1985 1984 ~
- Emoluments 1984 95.00 t 100,000 ' ' 65,001 70,000 . I 90.001 - 95,000 I ~
55,001 - 60,000 - 2
- 45,001 - 50,000
~,
85,001 90.000 . 3. I 2
~
80,001- 85,000
' I '" 2 ...35,001-40,000 I
.',001-10,000;
~
75,001- 80,000 ' . 2 ~, - . I
,70,001- 75,000 I . I 0- 5.000
~ The Chairman and two other directors, being directois of the ultimate holding company and receiving emoluments in that capacity, are excluded from this table.
Thc emoluments of the highest paid director are $ 98.698 for ihe year to 31 December 1985 (1984 f93,759).
~ ~ ~
5 Nct Interest 1985 1984 45,
~
Interest received Less interest paid r ~ 14 '21 174 Net interest 31 153 Interest received comprises income from:
~ Fellow subsidiaries 23 20 Current investments I 1
(unlisted) 24 20 term deposits
'hon
~ 21 154 45 . 174 Interest paid:
Short term - bank loans a'nd overdrafts
- other loans ~ .' 10
. 14 5
of which 55 million (1984 57 million) on loans repayable by jnstalrnents
- bank loans 13 '9 Long term 2
. -,other loans
'3)
~
14 21
~ ~
e I
'3
~ ~
6 Taxation on ordinary activities UR.Corporation Tax on profits lvhich became chargeable r duringthepcriodat41 25 a(198446 25 t) S7 double taxation relief 54 80 Less
~
l)K taxation 3 3 Overseas taxation 94 34) r t
-'urreni taxation 97 144
~ 'efcrfeil taxatioil 2 I readjustments in respect of prior years (I)
.'I'axation charge IIATCo Ltd and subsidiaries 96 144
- Share of associated companies'axation i4 22
'. *' Total taxatlon 110 166 ~ ~ t
'The charge fc r UK taxation has been reduced by $ 10 million (1984 f7 million) in respect of ACI'nd 49 million t~ . ~~ '1984 g7 mi!lion) in respect of group loss relief, both as a result of surrender by the ultimate holding cnmpatty.
>>F I
.A
v J
f te!
~ >>
Notes to the Financial Statements 5 inillions 7 Profit for the year chs permined by section 228(7) of the Companies Act 1985, the profit and loss account of DAT Co Ltd has not been separately presented in these financial itatements. c The profit for the year dealt wiih in the'accounts of DAT Co Ltd was if341 million (1984 5140 million) <<hich includes the receipt of a special dividend of /220 million (1984 nil).
8 Dividends of BAT Co Ltd 1985, Swo Preference stock (3 5'a net) ~ 16 ~ 16 6'.o I'reference stock (4 2~o net)
Ordinary shares .
25 '984 ~
25'0 lnterims paid in respect of current year profits 85 00 00 85 41 90 41 pecial dividends arising from the transfer of subsidiaries and associated companies to the uhimate holding company 255 08 Special dividend paid out of profits of prior >cars 50 00 340 49 140 41
~ 9 Earnings p<<r share
' Earnings per ordinary share are based on equity earnings of L172 million
. (1984 4271 million) and the 497 million issued ordinary shares of 25p each. ,34 6p 54.5p 10 Extraordinary items less taxation (1984 nil)
I'roviYion for loss on disposal of an associated compan> (6) "
Taxation (I)
Extraordinary iiems DAT Co Ltd and subsidiaries (7)
Share of associated company's extraordinary items (4) c Total extraordinary items (II)
, I I Restrictions on transfer of assets
'There are restrictions in many pans of the world on the transfer of assets, including cash, between individual cs companies ie the roup.
12 Operaiing leases Land and; buildings Other 1985 1984 1985 1984 Annual commitments under non.cancellable operating leases comprise:
I.cases which ex pire r
Within I year ( I I I 2 Deyond I year hnd within 5 years 2 I I 4 Deyond 5,>ears 2 2 2 6 The inaiority of eases of land and buildings are subiect to rent reviews.
iv 12 ~ g.
Sc
e 0'
t
/
I P
~, I, re LV
'otes lo lhe Financial Statements 5 millions 7'rolit for the year As permined by seaion 228(7) of the Companies Act 1985, the prolit and loss account of BAT Co Ltd has not been separately 'presented in these financial statemems.
4 The pro!it for. the year dealt with in the accoums of BA1 Co l.td was $ 341 million (1984 f140 million) which includes ihe receipt of a special dividend of $ 220 million (1984 nil).
L
, 1 ' L 4 ~
'I I4&~ & Di'vidends ol BAT Co Lid 1985 1984
-5 4 preference stock (3 5;4 net) i 16 16 646 l'reference stock (4 246 net) 25 F 25 Ordinary shares' ! I "...
Interims paid in respea of current year pro!its I
Special dividends arising from the transfer of subsidiaries and 85 00 85 41 '0 90 00 41 associated companies to the ultimate holding company 255 0&
Special dividend paid out of profits of prior years so oo
'- j-)/%%L 340 49 140 41
'I
~ 4'
~ ' 9 Earnings per share Earnings per ordinary share are based on equity earnihgs of 5172 miHion (1984 5271 million) and the 497 million issued ordinary shares of 25p each. 34 6p 54 5p I I
\
~ \ ~ ~
g< 10 Extraordinary items less taxation (1984 nil) 4
~
., 1'rovision for loss on disposal of an associated company, (6)
Taxation (1)
I I Eiitraordinary items BAT Co Ltd and subsidiaries ' .(7)
>%)a~+gp
~ Share of associated company's extraordinary items (4)
'I 'l
'I I Total extraordinary ite'ms IC" I
, (11)
Ct.
LI 11 Restriaions on transfer of assets There are restriaions in many parts of the world on the transfer of assets, including cash, between individual companies ir. the Group.
ta I, I'
- I - I'II ~ I I I I
~
I 12 Operating leases Land and buildings Other 1985 1984 1985 1984 (CK 4
Annual commitments under non.cancellable operating leases comprise:
Leases which expire Withinlyear '
years... -.. -.
'.. I
' ' I years... ~.... . 2 Beyond lleyond 1
5 year and within 5 ... 2 2
1 2
1 2' 4 The'maiority of leases of land and buildings are subieci to rent re vie<<i.
12 \
~ 'I I
1, t.t Z. t-
~t t
/T millions
- 3 Tangible fixed assets Freehold. Leasehold I'lant, Assets in land tie land gs machinery "'ourse of buildings buildings 8: equipment 'onstruction Total Group Coat:
I Jinuary 1985 186 52 620 20 878 Differences on exchange (26) (8) (78) ,(4) . (116)
Subsidiaries acquired 2 8 10 Transfer of subsidiaries (57) (111) (6) (234) .'6, Expendhure 1 37, 11 Reallocations I '10 ~ (11)
Disposais (17) , (19)
'2)'11 31 December 1985 45 409 10 515 Depreciation: t I January 1985 42 10 275 327 Dirr.rences on exchange (7) (I) (33) (41)
Subsidiaries acquired " 2 2 Transfer of subsidiaries -. (13) (99) (112)
Charged to I'rolit and lass Account 2 34 37 Adjustments on disposals (13) (13) 31 December 1985 = 24 lO 166 ,200 t
¹t
¹t ra/urs at 3/ Drrrmlvr l 985 81 35 243. ,IO 375
, s alurs at 3/ Drrrsn/Ni /984. 144 42 345 20 551
'ompany '
Costs Jariuary 1985 4. 19 23 Fxpenditure I I 31 December 1985 20 '4
. Depreciation: . "
I January 1985 I 9 10 Charged to Profit and Loss Account I I 31 December 1985 I 10 ll
¹t'r;alurs,at 3/ Drrrsnbrr /98$ 3 10 13
. T¹t oalurs at 3/ Drcrmbrr /984 3 t 10 13 Group Company t 1985 1984 1985 1984 Cost of land on which no depreciation is piovided 16 '7 2 Leasehold land and buildings comptise:
.. >Vrt s stlur of long /rasr/so/d ,26 32 sVrt ualue of slsort /rasr/sold 9 10 35 42 Net values of assets held under linance leases 19 13
0 e
0'
'.x 889
~8 9
c~jk.
. "rgoyG'v I
Notes to the Financial'Statements " 8(; millions ~ ac 14 Future capital expenditure pp~
9 pkfa Group Company 198$ 1984 198$ 1984 aGS c
~ Pg~4 Authorised by the directors of BAT Co Ltd or its subsidiaries but not '8
' ~
, provided for in these accoums is. estimated at 30 44 3 of which contracts have been placed for 19 25 I 1 8, s
15 Investments in Group comjkanles
.z p -
. Company Shareholdings Loans Total 8 (at cost}
I January 1985 ~ 21 153 180 Acquisitions and advances 11 ll asap'.
Disposals and repayments (66) (66) 31 December 1985 38 . 81 125 g~
tao
\ x
,16 Investments in associated companiei Group Sharehotdings Loans Total (at net asset value)
IJinuary 1985 218 8 . 226 Differences on exchange (24) (24) 8'l Transfer of associated companies to the uhimate holding company (69) (1) (16)
Reduction in res rves (see page 19) '(3) 'c (3) r$ l Acquisitions and advances 3 3 Distposals and repayments (22) (I) (23)
'31 December 1985 103 103 v ~) e'f x
vi~t; 9 ,u (T
'c, Company g..~i:
'. ~, Sharghotdings Total
- (at cost)
' January 1985 .,8 8 Disposals and repayments (4)
(4) x 31 December 1985 4 x
~
Group , Company (at net asset valve) (at con) 1985 1984 1985'984 Shareholdings: ' ~ 3 I.istedin the Uik. 23 61 90 1 9".'+PCPVrp~cp cc . {peach xch 8 lacG 9 9889988i alpca898 llUa 61 113 5 1 ~20 million 1984 8(49 million Unlisted at directors'aluation ~ 42 105 3 3 103 218 4 8 i~cia
-<<4 x s 6 8 ~,. ~cccpps pkx p,.atxx~+..gg 8 ~pc z8, Af '~gati~,< 9 rppcpg 99
e
>>t ' '4 J ~ s 't'4. ' 0 ~ + I>>. 4 ' . l h. ~ >>0>>,-,, . 'Irv. '.
~ ~ 4 ll, ' -,>> E ~ 0 ~ v, v>> '- evrt w ",r>>t% >aware '4A>> Ãtp'>>'swlrw<4>>'
millions f
17 Other investments and long term loans
,Group 'Company Long "Other term Holding ' Other term 1 lolding
~ investments ~ loans company investments loans company I January f985 14 - 4 25 12 1 25 Transfer of subsidiaries, ' (2)
Acquisitions and adi.ances 4
'6) "
'5 Disposals and repaym'ents "
(4) - . (6) (4) 2.5 '., .
~
~
31December 1985 8 . 6 1
~ t t
'98S 1984 " '98S . 1984
'Other investments and long term loans colllpfl'set Unlisted - other.
Unlisted'- eouityat directors'aluations
', ~
7 3 ll 7; .-,'
. ~
6 1
'6 7-r investmenti include an investment in Tabacanaria SA, a company incorporated'and registered in Spain, perating in the Canary Islands. BAT Co Ltd's interest in the 2,543,514 regist:red shares of l,000 pesetas
, which are not listed, is 41 .o but the existence of a majority shareholder precludes its treatment as an associated pany. Thc'latesr available audited information is for the year to 31 December 1984 and shows a deficiency in
,reserves of $ 2 million and a profit for the year offal million.
r I
18 Stocks
,Group Company
'" h 1985 .,'1984 1985 '984
, 'awmaterialsindcomponents 350'- 486 '1'
~ Consumable stoies.-. 32 ~'43 1 ~
~ 1 Finished goods, 79' 103
~
Goods purchased, for resale 19 : 17
;-"Total 480 649 2 6 19 Debtors Group Company 1985, 1984 1985 1984 Trade 121 . 189 2 3 debtors'.; "."
debtors'ther 55.', 70 9, 8 Prepayments and'accrued income 14 28 Receivable from subiidiaries I 41 70 R:ceivable from fellow'subsidiafies Total 196 6
288 I
., SS 3
'5 4
~ ~
~...tws'a~." '*', '.
~
" s>>. 'c ': ' i.,'", '"w';;>uk'v ~ >ii* '..'- sxittw",;Llvicosa ores<'o'c'0 g+i&v;'l@xa4vttv v" a'I 4v>>'~4 '.
r ~
~ t~
~ 3 Vh%
I.p
&~M~
g I
I g millions 17 Other Invcstmenti and long term loans Group Company Long I.ong
~ Other term llolding Other term llolding
. investments loans company investments loans company I January 1983 14 4 25 12 I 25 Transfer of subsidjartcs . (2)
Acquisitions and advances "
Disposals and repayments 31 December 1985 t ~
. - (6) 8 4
(4) 2 25
- (6) 6 4
'(4)
I '5 1985 1984 198S 1984
~
Other, investments and,"long term loans comprise:
Unttoed -'quity at Unlisted - other directors'aluations,
,3 7
'l 7 Other investments include an investment in Tabacanaria SA, a company incorporated and registered in Spain, and operating in the Canary islands. I)AT Co Ltd's interest in the 2,543,514 registered shares of 1,000 pesetas 6
1 6
7
".r.~
each, which are not lisied, is 41 .i but the existence of a majority sit arch older preclu des its treatment as an associated cotnpany. The latest available audited information is for the year to 31 December 1984 and shows a deliciency in reserves of g2 million and a profit for the yeai of 51 million.
Group Company 198$
- 1984 1985 1984 Raw mbterjals and components 350 ,486 I 5 Consumable stores 32 43 I I Finished goods 79 103 Goods purchased for resale 19 17 Total 4 480 649 2 6 'sK tWM~
-q~n t '~t "age
- 19 Debtors .
"r '< 1985 Group 1984 Company 1985 '1984
'Trade debtors 121 189 2 . 3 Other deb:ors 55 70 9 8 ; ~" t>>".
Prepayments and accrued income 14 28 Receivable from subsidiaries 41 . 70
'- Receivable from fellow subsidiaries 6 ~ ~
I 3 4
. Total 196 288 55 85 ~i-
~
'n.
I aa ~
Ia4, l4 Q ~~
dF'ggi~<a~ -'Ptg~~q+Pa&~7+~<r~7r'>>~ ~
2 4 i~Qp~~ '
w w~
ip ~+Q+diQ~+y v~ IXW 0 F~g-4 ~~ppL) 'g~s>>
~~ggql(gegfgJgktgfyvg4o v'p~~
t
'h
. Notes to the Financial Statemenis g mitlions
~pic 20 Current investments Lined iri the UK (Stock exchange value $ 15 million)
Unlisted - equity at directors'aluations Unlined - other
'5 1985 Group 2
12 1984
',22 9
Company 1985 15 1984
'I Loan to holding cotnpany due wi'hin one year ~
'Loans to fellow subsidiaries due within one year 29
*205 234 31,
.3 116
'150 205 222
'li'116 The investment in the ordinary and preference share capital of!Ltolins I'LC is included above at its February 1986 disposal value (see page 3, Changes in the Group).
21 Interest of BAT Co Ltd sharehntdvri I'rofit I'7 Share Other and loss Associated capital 'eserves accoulll companies Total
'roup 1,185 IJanuary 1985 135 410 509 131 Differences on (58) (46) (22) (126) in reserves (see page 6) exchange'eduction (176) (3) (179)
- Premium on acquisition of new subsidiaries 2 2 Transfers (101) 128 (27)
~ ~
31 December 1985 135 253 415 79 882 Company I January 1985 135 104 256 Retained profit I I Transfers 11 (11) 31 December 1985 135 28 94 257 k
Authorised, Issued and fully paid 1985 1984 I'he sharp capital comprises:
Ordinary shares of 25p each 548 (now 3 5oa i tax credit) Cumulative preference stock 6 v (nOW 4 2'.a+ taX Credit) SeCOnd CumulatiVe preferenCe StOCk 124 5
6 135 I'4a';q~>>"
22 Provisions for liabilities and charges Group 'Company~
Unfunded Deferred Unfunded Deferred pensions taxation Other Total pensions laxallorl Other Total
'0 72 II 3 15-I January 1985 Differences on exchange 52 (9) (I) '2) '
10 (12);
Transfer of subsidiaries (I) (I) (2)
I'rovided in respect'f
'2 2 4
-. '~
the year Utilised during year, .
Other rnovemems 8
(8)
(3)
,(I)'9) 3 13 (3)
. 0)
(3) I (I)
(2) 31 December 1985 39 )I ~ 9 59 4 3 .16 16
~~ h
0 e
&R&4r 'Ack v
'Y.p4-C g millions i;++a ~ p
/
23 Pensions I s ' Group companies provide for pension commitments in accordance <<ith the best accepted local practice in each territor>l For the maiority of companies the pension liabilityis funded externally, and the appropriate comribu lions
~4t C. " are paid over to trustees.
The provisions for unfunded pensions of f39 million (1984 $ 52 million) in note 22 arise in territories where. the 4 'pension liability is recognised and is covered by assets retained within the company. The provisions also coniain
- ". ': " amounts recognised bycontpInies to meet future pension liabilities in excess of those which have been funded externally. In certain teriito'ries no separate provision is made for unfunded pensions and all pension payments
>,>ft'A444
,",. -, ' are charged against the prolit for the year. The li uility as at.31 December 1985 for such unfunded pensions has been estimated to be gl million (1984 $ 22 million - mainly rehting to the Braailian subsidiaries transferred to p>> s the uhimate holding compraty on I January 1985).
2 4 Creditors I Payable within Payable beyond Total one year otic )'car Group ;.;1985 1984 1985 1984 1985 1984
'" Trade creditors Salestaxes,dutyand excise 151 S3
'4
'50 84 53 151 84 250
'2
. Obligations under finance leases .16 4 12 12 Bills payable , 23,'.re 21 22 21 I
~... ~ -'ccrued charges and deferred income 25,, 30 23 29 2 I f
v'YCfSCaS Taxation on profits - UK Other taxation and social security
~
~
~
I 13,'6 68
.4 98 I
57 13
'5 26 4
13 Amounts due to holding company and fellow subsidiaries - 64
'5 64 64 25"
'4 I
~ Sundry creditors 52 51
~ ..."
... Total (all unsecured)
" Borlowings(page 18 note 25) 439 99 ~
'43 122 413 63 612 81 26 36 31 41 l
"538 765 ; 476, 693 62 72 1
1 ~"
N~>ig~.g~...~ Obligations under finance teases payabl e beyond one year comprise:
Duc beyond 5 years ~ I 2' sue
',', 'ue . Due between 2 and 5 years-between I and 2 years 7
3 6
3 12: 12 gdi? .
Company Trade creditors 1. I I I Sales taxes, duty and excise I Accrued charges and deferred incom. ". ~ I
', ~ Taxation on profits - UK 4
- overseas ~ 2 I Other taxation and social security *I "
I I I
'Amounts due to holding company and fellow subsidiaries 61 '62 61 62
"',c ' 'b Amounts due to subsidiaries 110 100 110 76 24
~
Total (all unsecured) : 176 170 176 142 28
-":.","'orrowings(page 18 note 25) ~
9 11. 5 7 4 4 185 '81 181 149 4 32 t~
~ i e
."." Notes to the Financial Statements 5 millions 2S Borrowiugs Group Company
". Total rotat borruwings horrowings 1985 1984 1985 1984 Miscellaneous long term 4
~
Atiscellaneous - short term 14 24 I Bank loans and overdrafts ~
79 90 I 6 Loan fromi felliiwsubsidiary 4 4 4' 4
'. ~ . Loans from subsidiaries 4 r 99 122 9, II Secured borrowings ' l7 18 Bank loans Total ~
- Bank loans ~ Total and overdrafts ~
borro wings overdiafis borrowings'nd 1985 1984, .1985. 1984 1985 1984 198S 1984 ~
Repayable as follows:
Duebeyond 5 years (all repayable by instalments) 6 '2 7. 4 Due between 2 and 5 years 10 ~
21 ', 14 '26 Due betiveen I and 2 ) ears ~
10 6 15 II 2 26 29 36, 41 6"
4
~
. Due within I year 53 61 63 81 I 5 Total 79 90 99 122 ~
I 6 9 Total amount due on long term
.loans which are repayable,">by instalments 9 6 11,'10 26 Contingent liabilities There ire uncalled liabilities on investments and contingent. liabilities in respect of litigation, overseas taxes.
guarantees and social benefits in various countries.
BAT Co Ltd has guaranteed borrowings by subsidiaries and fello'w subsidiaries of L'43'million (1984 >t 52 million).
,, ln addition, iointly with a fellow subsidiary, Ural; Co Ltd has guaranteed $488 million (1984 f424 million) of
'borrowings by, BAiT Industries p.l.c.
r 27 Deferred taxation Group Company
~ lhd piovision been made for deferred taxation in respect of all 198S !984 1985" 1984 timing differences, the liability would have been as follows:
Stock reliel'in respect of overseas stocks 10 12 Excess of capital allowances over dcprcciation after the sening off of ACT of 514 million (1984 nil) 40 52 Losses available for set off against future taxable prolits (I) (7)
Other timing differences (5) (3) I (I)
L i 44 54 4
, -' ACT.available for set offagainst the above liability (9)
, 44 ~ 45 There is a provision for deferred taxation, of gl I million (1984 QIO million) in note 22 as it is considered that a
'liability may arise in the foreseeable future as a resuh of the reversal of timing differences in respect of accelerated depreciation.
- As indicated in note 9(b) on page 5 the above ligures do not take into account tax which may be payable on the realisation of investments or in the eveni of ihe distribuiion of profits retained by subsidiaries or associated
, companies:
VQ g5%
W'~>>'h1 4 g'f Companies 'a>>>u !
j~s;".'-')Xi~ ',
rincipal lnvcstmcnts g millions 10'sociated
' Latest Total I)AT Co Ltd's >i"~~~vvs available issued go beneficial information, capital interest tg, >>p$-
enmark .Qt kandinavisk I lolding AS sobacro, ¹'A'rdinary 30/6/85 22 33 P.~<, .P~
s".OkSaling,,furnirurr manufacturing, ¹'ll'rdinary 3 33 o//irr supplirs, agricultural rnarhinrry ¹'C'rdinary 10 ~ 33 ndia ITC Ltd tobacco, harris, board, , +Ordinary - 30/6/85 17 31 (34) par r ~" and printing
~
Hex'> ..; w t'"derna SA de CV robarro +Ordinary "30/9/85 45 rinidad grTobago ,
e Vest Indian.Tobacco Co Ltd tobacco ¹+Ordinary 31/12/85 "
7 46
¹Held by OAT Co Ltd +Listed abroad !
IIATCo Ltd's percent>>ge beneficial interest in share capital is stated as at.31 December 1985. The interest at 31 Dece 984 is'shown in brackets where this differs.
Pro oss Account Year to 31 December Year to 31 December 1985 1984
. Group's Group's Total share Total share Urnover 1,844 628 1,978 696 rading prolit 86 166 Interest received less paid 6 (7)
Prolit before taxation 92 3S 159 59 axallon 37 14 54 22 Yet prolit after taxation before extraordinary items SS 21 105 37 Extraordinary items =
(4)
Aet profit after extraordinar> items 17 37 Dividends (see below) 20 .18 Group's share of associated companies'etentions(note 16 page 14) (3) 19 Attributable to midority shareholders in subsidiaries 2 Anributable to BAT Co Ltd shareholders (note 21 page 16), (3) 17 Dividends comprise distrib tions by:
associated compan/es
"'isted 11 9 Unlisted associated <<omp nies 3 ~
9 20 18
)$~g~
19
0, N
~ Ik r
- Associated Companies s
~ ~
."-: Principal Investments 5 millions
.r Latest DcYf Co Ltd's rotaf'ssued, available oo beneficial inlormation capital interest Denmark
". s Skandinavisk Ilolding AS tobacco, ¹'A'rdinary 30/6/85 22 33 rrhofctaling,/urniturc tnanu/acturing, ¹'ll'rdinary 3 33
'o//fcc supplier, ugriculturol tnachincry ¹'O'rdinary 10 33 'Hc~Q4
'~india
'0/6/85
'...,'TC Ltd tobacco, hotcft, board, +Ordinary 17 31 (34)
".'ai t '"."and prinn'ng 'I
~ ""'".Mexi..v I
~,M ~ :-. Empr "- d Moderna SA de CY tobacco F
+Ordinary '0/9/85 10 45
.:, Trinidad gt Tobago
~ ~
The '%'est Indian 'fobacco Co Ltd tobacco ~ ¹+Ordinary C
31/12/85 7, 46
¹ Held by BAT Co Ltd +ldsted abroad i BAT Co Ltd's percentoge beneficial interest in share capital is stated as at 31 December 1985. The interest at 31
.". ~ December 1984 is shown in brackets where this differs.
t
- ':.:;, Profit and Loss Account Year to 31 December Year to 31 December
,.vct ~i"c; 198S 1984 aw. '4 ~tq~yo, (
fg&pnW Group's Group's Total share share Tots',978
urnover Is844 628 696
,'.Trading profit 86 166
' Interest received less paid 6 (7) l Profit before taxation 92 3S 159 59
'," Taxation -, 37 14 54 22 r 'Net profit after taxation before extraordinary items h'N...s SS 21 . '105 37
-'. 'xtraordinary items (4)
"= .
'et profit'after
~ Dividends (see below) extraordinary items ~ 17 20.
~
37 18 Group's sharc of associated companies'etentions(not e 16 page 14); (3) 19
'Attributable to minorny shareholders in subsidiaries 2
'tuibutable to BAT Co Ltd shareholders (note 21 pag e16), . (3) 17 P
gta
.. -"::.. f'ividends comprise distributions by:
Listed associated companies 17 9
'p Unlisted associated companies 3 9 20 18 CQ<
g~~~= Priicipal SubsidiariesLtd
+4." ' The principal subsidiaries in the BAT Co Group are listed below. The geograp.".ical ann in"ustti>>l as the m.in are based on the main area of operation. The country of incorporation is the same
'>pe+,
'nalyses s
courttry of operation except where identified.
ea shares
.o shares held, aurib-, ~
. held anrib.
by'uble by ltAT toLAT utabir DAT toBAT ,
'nited KIngdom .. '. Asia/Australasia Ardath Tobacco Co Ltd 100100 Bangladesh
'angladesh Tobacco Co Ltd 63 BAT(UKand Expon) Ltd ' - 100 BATServices Ltd '
- 100 ~ Hong Kong
~, ~
", ' British.American Tobacco Co (Ifong Kong) Ltd Indonesia 85 100 rr ~rgr Europe .
Belgium ' " ' ~, PT BAT 'Indonesia ~ ', vo 70 3c-N-y>>'
'alaysia.,
BAT Beneiux'- EtsOdon%'artind SA ' 2$ 100 6c Velasques Sigaienfabrieken NV . 100, Malarian Tobacco Co Derhad
'4,.
~ 'I'4l. '"'yprus 'he Jersey Tobacco Distributors Ltd'.,
IN IN
$9 Pakistan Tobacco Co Ltd British Ataerican Tobacco Co, 63 63
.'>>~~~mQra s~~+~. f.
BAT(C)7trus) Ltd VAi rt
'..., Suomen
~ ~ ~ Malta Tupakka.OV' -
'eylon 100 .
'D Srl Lanka Tobacco Co Ltd
- 77 ~ . 84
'~+~'<~,ga Company Ltd IN . 100 Ncw Zealand -
86
'tTCTobacco gr IIO Wilh(Yew Zealand) Ltd gs- . ~, Netherlands BAT Nederland BV
- llcnn'Wintermans'Sigarenfabrieken DV
'00100 '
'wiuerland BAT (Suisse) SA Kenya DAT Kr../a Ltd
'; 'he.'tonrovia Tobacco Corporation 95 95, Co, Caribbean/Central America Malawi
'0>>
tIAT (Malawi) Ltd 75 1~1~<Sts1k<s'1@
>4(v't . 'igarrctia htoraagn SA dc CV Tabacalera Ifondureha SA '5 75 80 Nigeria', (incorpo'edinthe UK), Driush.AmcricanTotucco(htauritius)p.l.c. IN <c~~..wv t>>'r'=-p~~'+ ',. "'3 'Nigerian Tobacco Co I.td 59 59 60 . 60 Srerra Leone 86 86 g>i+pu'>>>>~s ', Tabacaiera htrneha SA 100, ' 100 Soutn Africa ' I Utico ltotdings Ltd 63 Surinam +~~4 i Tobacco Company of Suriname Ys 1 100 '00 Zaire ~ Barbados ( . BAT 7>ire SARL " Zambia British American Tobacco Co (Barbad'm) Ltd 100 1'00 BAT Zambia Ltd * " - IN '7 ,, Zimbabwe Demerara Tobacco Co Ltd .. ' 6$ , 70: BAT 7dmbabwe Ltd Erport Leaf Tebacco Coo( Africa (Pvt) I.td 100 100 ~ >>111 Latin America ~ accounts made up to 30 September (note l(a) page 5) 'Nobleza Piccardo SAICyF 70 ~ 70 . 70'OODS ~ . SA Aleiandro Bianchi*Cia I.tda g+r saks .~~~. ' ~4'e>>,->>>>p1 - . Chile ChilctabacosSA Litografia 'Modernat SA, CA C garrets IBgolt Sucs ~ ~ ~, . '5 '" - 62 62,, IN Chile Consorcio Agro.mdu:trul de htalloa SA Evercritp Snack Productos de Chile SA Willards Foods (Pt)') Ltd 62 62 63
- pic +/Pc .
'0 ~ r>>>>r vrl4r1>>vstat>>>>>>a cv,t1r~at>>I44jve
\l fP. >@+4 wq 49Pn
%p
" <Fr~"'~
. Av~
1 d isoz~
IA 'I
$ f98'A r5
'fg~V@g ~gp . W-,ei t g@ ~ a1 Qfg Q Q p)@ ,
C
~PS>'~
~ 5,
'7~4+jt'~
v>pg s
1w 1$
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4 a+
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+~i. AM ~~ S~W h~ <<<<<<f C~AKW~VJ
~eaP~
<<girh g$ f, CCHPORNED
..<<:.,z'v.',"L "',; -
':, .v: SECURITIES RQ EXCHk%E KKCSSIC8 QSBXKNi D.C 20549 +%@~V f.'(~L
<< ~
j~"~~-'.",',,'.,. 'L. ",".,",,')".; "r'"ANNUM,REKST PURSUES TO SEOTXCN 13 or 15(d)
I I
'e
~v e-'.~ ~,' -" -:" ""'-"~'. -' OF %E SEXXBITIES EXQQKE ACT OF 1934 file nmber ~~l P-"'
(Exact name of registrant as specified in its charter) v:,>v',-,-,~.,'"
- >>,-~-';P~-;":.,~
(State or other jurisdiction incorporation or organisation) of,. . ~ .
' ..-=-,
".-. ~
(I.R.S. Employer Identification No.)
f't
.r V<<"
~;;-;:;..~'%)dress of principal executive .. "
- (Rip Code)
Registrant's telephone nuaher+ including area oode Securities 'registered pursuant to Section 12(b) of the Actr
~
I~
<<j~5~ml+>>
Ajt Securities registered pursuant to Section 12(g) of the Acta L eLL<<.'<<'~
- Ocaraon Stock Series Q par value $ .50 per share (Title of class)
Indicate by check mark vhether tbe registrant (1) has filed all reports L ~Pg~7~
required to he filed by Section 13 or l5(d) of the Securities Exchange
,Act of 1934 during the precedi~ ~ve months (or for such shorter period g'~,- f+
that the registrant was required to file such reports), and (2) has been
*'.'ubject to such fDing requireaents for the past 90 days.
f PI e '<<I4J
'I r. V>>~>>
~ ' 'tate the aggregate market value of tbe voting stock beld by nonaffQxates
'I
>~g~~Vg~P~'jfh of the registrant as of Pebruary 21> l986! 6796g846g074 4 Indicate the nuxber of shares outstanding of each of, tbe issuer's t~~+
clas~ of caanon stock, as of Pebruary 21~ 1986.
I
<<~4'%PgP Cxmon Stock ~mries A 17,277,594 V.,fI,..., h,,
Oxnon Stock Series B . 3,253~355
'OQfNENIS INCORBXQXKD BY REPEREBCEt Il, Proxy Statement for Registrant's 1986 Annual Heeting of Stockholders,
~~ incorporated by reference into Part III of this Report.
tt(~~@
IV Vf f I 1- h V<< <<L .f h<<
Wkh h
e
~4
<<I<<
gP'hKLZ tw+CCI' g)
,11I r'c " ""'tss Ie Lbe CxnpaIU'as incorporated in Delaware in 1935 to acquire the assets and business.of a predecessor public utQLties corpora-
.,tion 'ince thol the Can@any has grown.substantially as a result
"'" of internal expansion and acquisitions, so that it, currently pro-
, 'vides telephone< electric~ gas< water and wastewater public utLI-i ,>
- ities sezvices in the States of Arizona, CalifornLa, Oalorado~
; ."'awaii< Idaho, Illinois< Indiana> Ohio, Pennsylvania and Vermont at the locations listed in Item 2 hereof. Except where the context indicates otherwise< as used herein tbe term '~eqy'ncludes
~~...";->> .:-'.,'-.;-'..;,';:?-;"; Cithens Utilities Capany (the 'parent ccapany') and its subsid<<
;-i"i '--,';,'.-:;-" .,"..."-'aries~ all of which are wboll~ed. Sore have not been any
.'-"..".-:;=',::":: = ;."".-.; '. -:material-.changes in the badness oi the cxpmq during the past -
'4-"""g~"..'>:~"'>;-:".,>:-,.'"'A~ <<"'fiscal year'or axe Alp such changes presently Lllb8At3ed by tbe
~xnnv S Notes 2 aai Sof the Notes to Consolidated FLnancial State-
;,. ments included herein set forth information about industxy segments
- "';: of the Ocapaqy for the 'ast three fiscal years.
. Ihe Ca@any provides ms or more of five basic public utility
' ".'ervices-telephone< electric, gas< watei and wastewate~ nore
=, ~ .
. than 500 ccnxMnities in ten states. Operating divisions of the .. "
parent ca~ay provide all electric and gas services< purdmaLrg
.. part of needed electric suppILes and aII needed gas ax@lies All
," other'ervices are provided either tjj divisions of tbo parent am-
- =.:". -;, pany oi by Lts whoIIy-oeed subsidiaries. W Oxpaqy's geographic
',:-~ '=diversification protects against singl~ea downturns> while per-
;" ..';,.; mitting participation in regional grmCht its service c'dversiiica-tice protects agaLnst adversities affecting any'ingle category of service. '%%hi multiple diversification of services and service areas also makes the Cx~p less dependent on the
'. uIation Ln any one state ox type of servicey no single regulatory
~ty of reg-
~ body regulates a utility service of the cue@any accounting for
"-, ',: any other 200 nero than of its 1985 revenues.. 'Ibe Ompany is not aware of utility Ls as diversified in both geographic areas-
'; "" ~; .:;'sezved and varietywhich of utility sexvices provided.
E
'Ihe Caapany's operations are conducted primarily in smallex
." cxnnunities'and suburban and x mal areas. No arterial part of the
" Ca~ay's business is d~nd.~ upon a sLngle custcaer or upon a
'. ~ .','- .. small group of custcmers.
k
~I~~Y~B~ Q rk %C I N~<< . tl p ~ ., ~h ~
eaas~~bA~'cubi
r
~ = -- ' 'ta.F8
~
I
%he Comp~, through Citizens UtilitLes Ocepm of California, fs a
',. 4e ..; -'- .. '. 'fmfted Partner Ln the sacracento - Valley LLmited Partnership vhfch pro-vides cellular mobile telepbcm service. AAlert Pagi~ Coops, a subsfd-
-=... fary of ~de Ox~my, through its subsidiaries provides radio paging sar-
".-; --, vices in Calffornia, Utah and Arizona.
. ~ Ccupany holds franchfses and certificates of convenience and necessity fran numerous governmental bodies, scca perpetual and others of varyLng durations. Hater and vastevater public utility property of tta Ccayany fraa time to time has.been tba sub]ect of coasemnatfon proceedings initiated by munfcfpalftfes or utility districts meking to acquire and
"'".:~by/ '; .';-'.f -.; .'- '= '
take over the operatfon of such property At December 31, 1985, tvo pro-pertfes vith a ccahfned book value of approximately $1.4 mQlfon for rate-
; making purposes. vere subject to eM procxwdings. Usual ccrpetf tive cern
-siderations and cm"ftive are'not applfcable to thtt public utility business.
<<;,,>> -;....;.t"... ",. '".>> '.
".:.-'.SCte Coagency's busi~ taken as a vhole aV ty ma)or segments is not signif-fc!UltiY seasonal ncr docs auf sefueat of it defend cn a sing)e custccnr or
- ! '"..t . cn a feu custcunrsth,e loss of una or sore of uhich uould inca a naterial t~b:.'i!;
udrerse affect. Snier bactlof is not a siunifican- consideration in the ><<YW@$-
ggf c:;;-..",."; .":;:.!q'",.,",'rufuup's
~..'"
business, and the crrnnnf bas no cuntradrs or subcontracts uhich mrp be subject to renegotiation of profits or termination at tbe election of,p~@pp p
- ".-".". '.'.".:"";;.,=";;;u
~,. the Federal government. abc Ca~aqg has no special. vorking capital practices. '.y~ ~">P>,
., pj..>,'.'.-,8 ".-'; '-
, ... '.:,~-'
="- ' ~ Cougar's There are no patents,
~ '
research and development actfvities are not material.
tradeaarks, licenses or concessions held by the Cockney
',;-$-:~>iz.
that are materfal. 'Ihe Caxeqy does not engage fn material operatfcns in
.';,' foreign countries nor is a materLal portion of is revenues derived from custccors in foreign countrLes
~ OxptQp emplcfyed If508 full time and 51 part time cmpl~~fees at
%~~a~ .".', .- 'ursuant to the Federal Mater pollutfon Control Act A~amts of 1972'ational Pollutant Discharge lQ,iminatfon System permits are required for,vastebrater treatment facflftiea vhich discharge to surface vaters.
Certain proposed permft condftfons for one of rhe Coapany's facilities in ':@7~,~~<-.
~
Ohio and final penLit conditions for be facilities fn Illinois have been 'd',",IgÃ,tj~
,":"" contested before the Ohfo Envircxmantal protection Agency and the Xlifnois
,, pollutfon Control ~d, respectfvely.
, decision on tbe caftested permit condf tfcas.
agencies have yet to reach a Canpl Lance vft'ai the propoe& ~~~rj-;~~or.
'., .-': permit conditfcns for- the Chio facility vould result in a capital expendi- [['4 .;M ture estimated at $ 655,000 Qxapliance vith the contested permit conditions
'.;,- "; -, for the- be facilities Ln IL'.Lnofs vould result in a total capital expedt-ture estfmatcd at. $ 7el mQlion. shee expenditures< if have any material effect on.tbe Cacpaqyg additfonaQy thee expendf tures made> vould not 4'-'m.
vould becccbe part of hrrestment for ra~mkLng purposes on vhich the -
.f~7<@>>".
"p.". '-.-,. 'csgaqy'ould be entitled to earn a fair rate of return.
.r'cuff 4..<<<<. a '... 'L Wr tt .. tnt~~,~b~a
i
) P' Sa
&3M
- r... 'acy, ghe Caapany's water operations are subject to t.'wr Federal ~~e Drinking Water hat and National Primary Drinking Water Regulations
";..;.i enacted thereunder by the Urd,ted States Environmental Protection been subsequently amended. ~
Said'regulations becmne effective tune 24@ 1977 a& have Ccapnqy's water operations are in-
' substantial- canpliance with the Rational PriraryareDrinking Water Regulations. No material capital expenditures anticipated to maintain compliance with these regulations.
htl
'" ,. Tbe administrative offices of. the Carpaqy are located at High Ridge Park~ Stamford< Connecticut 06905, and are leased.
'Ihe ~mph owns property including telephone central office,
~ '-: 'outside plant and custaner premises equipnentr electric
"~.= generation, transmission and distribution facilitiesg gas
'- transrnfssion and distribution facQitiesr water prodrnM~
'.. '; treatment, storagei tranrrnission and distribution facilitiesr
'::" ",",*"nd wastewater treatment> transmission, collection and discharge c'.
,;...,".;;; facilities as necessary to provide the following services at the locations liste'd belch.
abc Ca~p's 5ortgage Zh8entures ~cot public utility,
." 'roperty to the provisions of the Zndentures axVor the lien of the Hortgage'and securities of certain subsidiaries to the lien of the Hortgage Arizona Mohave Electric< Telephone, Rater, Wastewater Santa Cruz II
. EIectric, Gas, Water~
Ra&cwater Mar'icopa ~ .'ater, Wastewater California
~ Humboldt, Teleptxee< Water N
Sacramento Lassen Telephone Hodoc Plumas Shastr.
Siskil
'olano Tehama Amn8or Water Placer e San Mateo 0 Santa Cruz Sonana h I pp g~
g ~t~t>i a
~'j~r"M ik ' *., )',.>> ~)) ~., <<( "), ~~@%!)(f+~c fr <<t<<~%a)>>')
='-'.P@@<%~"-
t 1',<<4~'Jc iyikfiI+)NfgJg P>>-'
~ <<
I
~ 1 1 !
~ ~
4<<>>
L
.. Colorado Archuleta Gas CrcMlcp La Plata .,
lAl C ~
WQl t Water
'el~
Ohio portage. ' '
Water
~ Pranklin " " . *"-.';; 'heater, Waste)rater
~ " 'rmstrong '
Adams .
Berks
.- = 'ater p+
Montgca>>ry Northa!~on
... Caledonia Essec
'. -'. ', 'lectric r Pranklln Grand Isle Orleans
<< t
~ ~ <<%
1 V ='>>
<<1~<< ~ '>>>> r ~<-'~t) >
'"~- ... ~g'~. ~g-~qQ~~~+ ~PP ~
g~8i.,~m ~~M;.~. ~P . ~~4~x "-'W~, gw". ~..'",~.""'~
;P~ g'r e-
~
+
r<<~~ '" ";,
~
',.,' ( KaB On BepteuteIr 9t 198ly Raufman 4 Broad of f
), a land suMfvider, cadenced an action in the CArcuit Court of Coot County,. I.'lihois ('b Court', against Citizens noist Inc Utilities Culpably's (the 'Catpmy's') subsidiaryg Citizens UtDities Cccpany of Illinois ('Citizens')w essentially for re-formation of an agreement dated Match 12, 1971t supplemented August 25t 1978t under Which there had been contin~~ full per-formance by both parties for ten years, ad asserting pmitive Cg - ', * '
datnnges of g0,000,'000. &s actica was subsequently ccn.o]i-dated with an action Citizens caanmced against K&8 and iss surety for amounts end under the agreement. Pr~rial pro-
', ceedings are continuing. In Septerberi 1983< KaB minced
- . -- .*+++8 proceedings before the Illinois Oamarce CccuLission (tbe
'Caanission') raising essentially the same is~a that vere disnissed by the Court in 1982. On October 30, 1984, the
. ~
=';,
.,; ; Ccumission dismissed these proceedings, giving KaB leave to
'. amend its axplaint. KSB has a~ed this dismissal Circuit Courts tbe Illinois Attorney General, on behalf of in,,."~~.gp~~
'P a~. ~
.:,": 'he Cccxaissicn, has aanred to dismiss the Caqpaqy
.-~p. ~,';:::~-'
"~
.. 'elieves all of Kae~s anions are vithout substance.
'zhere are no material pending regulatory proceedings other
;-.than rate matters. I%ere are no other m. erial perx)ing legal
;~. proceedings other tlat ordinary routine litigation incident to
~.:,ice business vithin the general meaning of this term.
r " ~
v tv
. Item 4i r
I r
i>j"I, ~
r r ~ r.
~ I
~ ~
rNIIr '
r
~~ << I ~ L ~ n P
Trdoxmation as to Executive and Other Officers of tbe Qaa jeqy folicvsx
- Current Position Served in Illll Richard L. Rosenthal 70
~ ..
Chairman
'nd of the Board Director June May ll, 1970 15'946 r
..--:;., "-. Chairman, Executive Ccamittee January 16, 1981 L
'" Ishier Jacobson. "
63 President and Director 'ure Il> 1970
,, ', Chief Executive Officer>
"'- ..".-'x Officio Neaber Executive
,:.. -,z ., "-;", '.'-..~-.: I
., Barton D Gr~ Jr, .40 .
Treasurer and Pinancial hh6nistrative Officer,,June 17, 1983 .
Richard B". Hieber .,
*'7 ~ .S Vice President -'lectric May I, 1984 ~
Robert L - O'Brien 43 Vice President Revenue Requirements . P June I< 1981 I L d T 'Vcaea1ey 55, Vice President, Kauai Electric Division, .'une 9g 1978 David "E. Chardavoyne 37 Assistant Vice President-Hater and Hastewater .'
June 15~ 1984 John H. Engel 59 Assistant Vice President and Senior Attorney tune 15, 1984 L
r r ~
Richard. K. Robinson 53 Assistant Vice Pres'dent and Controller -,. =
'une 9, 1978 June 17~ 1983 George 0 Rivard 54 Assistant Treasurer - Te'ePbcne .
Revenue Requirements . Jum 6t 1980 P
Budd S, Sch~ 58 Assistant Treasurer '
Ny 1~ 1975 Gary T. Snyder, 36 Assists& Treasurer June 14 I9.85'ovember Brigid M. Snfth 33 Assistant Secretary 7< 1983 and Attorney ;- Hovesbet.27'978-L Theresa M. HrJ.sh 56 Assistant Secretary -..-; January 22< 1979 r
L' r ~ r~
L, ~
P L
I:
'HQLPK:,: L""'L 2; PLY<<:,:,"'+ ~boih, ~~ "<<.g.l$ I<< ', r'r,.:, 'm6",z, h
(a.+Pg~
49'j 1
1 ~ '-
P
-"-; '. -..'Tnfoanation as to Executive and Other Officers of the Capaqy'. foliose I
w~'j.
Current Position Served in r
" Richard I Rosenthal 70 Chai+en of the Board tune Ill 1970 Nay I5g 1946 January 16'981
~ '
F
~,:"; ",.'"".- Ishier Jacoban
~
'.,63 President and Director tune Il~ 1970
/ a ~
, January 16< 1981 P1 June 17'983.
-;."-:-';; ;:~I."-~ Richard B~ Hieber .. "
47.. Vice Prer,ident - BIectric., Nay Ig 1984 I O'rien - Revenue 1 =(
;-';. <<...",":::,, Robert 43 . Vice President
. June l~ 1981 Bc'. ~ey
*'a'r,:~4"-+j, i i( ~ ~ - '; .55,".Vice PresMent,
~
~
Kauai Electric Division, tune 9~ 1978 David B. Cardavoyne '7 'ssistant . Water and Vice President>>
Wastewater,: ...June 15< 1984 John H.
I-thgel ' '9 I
. Assistant Vice President and Senior Attorney JUne 15'984
. -'ichm; K Robinson ~
53 'ssistant Vice President June 9g 1978 June 17'983
*.";. ':;.." .George H; Rivard ' 54 a
Assistant Treasurer - TelePbona a Jum 6g 1980
~ J(
Ql(~r Qa<<
Budd S. Schartx', ', 58. Assistant Treasurer a
May Ig I975 I
Gary T. Snider .-" 36. 'Assista& Treasurer tune 14, 1985
~,*,.
Saith,33.. ','orther a (
Brigid M. Assistant Secretary 7< 1983 and Attorney .;
', ',- Novecber 27~ 1978
'~rasa M walsh ':,. '56 Assistant Secretary . January 22'979
~ 'ta I
I r
'a
1
%7&
". There is no family relationship betveen any of the officers vf tbe Registrant. 1be term of office or each of the foregoing officers of the
.. - ..'egistrant vill continue until the next annual meeting of the Board of Directors and until a successor'~l lave been elected and qual.ifiwi.
~ r RIEZARD I 1CGEPmAL has been associated vith tbe Registrant since May 15t 1946. Beginning vith January 16.. l981, be has been Chairman of the Board and Chairman of the Executive Ccnnittee as veil as a Director. por
~'7j 4-qqq:i
'",;-': .-',:,.;,'the period Ya 15; 1946 through January 15, 1981, he was Chief Executive Officer and a Director. Fran May 15'946 through tune 10, 1970, he was also President< and since tune
@airman of tbe Board.
lit 1970, be has been and continues to be ISHIER JAKBRN hai been associated vith the Registrant since Decenber 20< 1954. He vas an Assistant Vice President fran Pay 1, 1957.
. He'vas a Vice President during the period turn l~ 1960 through tune <<~4+4>>
1970 axl vas President, Chief Cperating Officer and D.'rmWor during the 10'-:
'~ ~r,
" period June 11 f 1970 through'anuary 15'981 ~ On tawdry 16g 1981 g be
..;~ '; -:, -became Presidentr Chief Executive Qzficerg Ex Of.icio Executive C~
;. ~',i.;, .;.;" . Cxsnitteeg and Director. On'July 18, 1983,"
. a director o.
",~:.Vermont Electric Paver Cay~,, Inc
<<,VN HAÃPIW'D. GRAHAM+ JR. has been asscciateK vith the Registrant since
..;," - -'-'-'.;. July 16, 1979. He vas Nagger, ecial Prcrfects through AprL'4, 1980
, ";;->,=- ', = -'nd Mar@ger< Management Mormation Systeas Deve.'optant and Operations
~r AA - 'ran April 25+ 1980 through Hay 31 '981. He ms Controller fran June lg 1981 though June 16, 1983 and hns been Treasurer and Pinancial Mministra-Officer since June 17, 1983," 'ive, RICHARO B. HIEBER has bean associated vith the Registrant since May 1, 1984 and served as Vice President - Electric since that date. During th period 1970 to April 1984 he was enployed by Stone and Webster Mnnageaant
~pj's~,.
~~~;~~We....
~
Cesultants, Inc., as Senior Vice Presidet fran July 1978 to April 1984~
Vice President fran Jluly 1975 to tune 1978, Manager Technical Services
~~f~zgi"'"+ - ...,Division fran Decatur 1974 to June 1975, Senior Consultant fran 1972 to Nceenber 1974 and Consultant fran 1970 to 1972.
>>1 KBERE' O'BRIER has been assMated vith the Pegistrant since March 10, 1975 " He vas Manager of Special Studies through June 8, 1978,,
Assistant Treasurer Revenue Requirements fran tune 9, 1978 through
~
May 31< 1979< Assistant Vice president and Ru6stant Treasurer - Revenue Requirements frcm tune 1, 1979 through May>>31 1981 and has been Vice gp~+~.,:, . President - Revenue Requirements since tune 1< 1981.
'>gg~ ','.---; T. K$&SLRf>>has been associated vith tbe Registrant since Nay 16,
'.'. 1972hasNKD of the Kauai Electric. Division s~ that date.
~ ~
and served as Manage He been Vice presi dent> Kauai Electric Division. since June 9i 1978.
DRUID E CQBQAVOZNE has been associated vith the Pegistrant since
'April 17~ 1978. He-vas a Cia/)~rnanental Engineer through March 31, 1982, Manger Engineering Studies fran ApriI I> 1982 and Manager Nidvest
.,p~~ ~ =', .~Operations fran April 1,. 1983, through June=14, 1984 and has been Assistant Vice President hater and Rastevator since tune 15, 1984.
<<p
<<~<<~<<
f " '1". ~C'.~~gS;i<<
'v
~
JCBN B., B4EX, has been associated Be was Attorney through June 14> 1984 and Senior Attorney since tune I5< 1984.
with tbe Registrant sL~ March 9, 1970.
axl has been Assfsmt Vice president RICHARD K. KBINKB has been associated with the Registrant since
. April 3< 1972. ge was Controller th ough April 30, 1975@
fran Hay lg 1975 through June 8g 1978'ssistant Vice president Assfstan'Treasurer and Assistant Treasurer fran tune'9< 1978 through June 16, '1983 and has been Assistant Vice President arA ContraQer since Jum 17< 1983.
GBOlag H. RIVARD has her.'r associated with the Registrant since March 18< 1970. He.was a Pfrmncial Accam~~t through Hay 31, 1971, .
f Senior Rate Accountant ran tune 1 < 1971 thrcr~h Hay 3 1 + 1976, AssL 3-tant /wager of Tel~ne Rrrvenue Requirements fran tune'1, 1976 thaxxQ Hay 31, 1973~ Manager of Telephone Revenue Repdreaents frun tune 1 f 1978 through Dune 5g 1980 ard has been Assistant Treaurrer i3alephrne Revenue Requirerner.~ sham tune 6~ I980.
~ t
'.'. -', BtEO 8 SQRARE has been assx"Lated with the RegLstrant since tune 23,,1969. Be was Internal Aurhmr thrvogh June 9, 1971< Assistrrnt ControUer fran June )Or 1971 through py 31, 1972, Mar+ger of Irrsura~
and Cash Control fran June I< 1972 +"-~~ April 30< 1975 and has been Assistant Treasurer sLnce Hay 1< 1975.
l' ~
CARy T SNTDER has been asaociated with the Registrant since tune I5~
1977 W was Manager of Auditing through August 31~ 1982< l'neer of General Acxentfng fran &.ptesber 1, 1982 through June 13~ 1985 and has been A-"Lstsnt Treasurer sirce June 14, ~r 85.
BMQID M SHZIB has tea amedated with tie Regir .rant since Ncrverber 27+ 1978 as an Attorney and also as AssLstant ~retary of the Registrant sfnce Ncvenber 7~ 1983.
'IBERESA H. MAIhH has been assocfated with the Registrant since ~
July 19~ 1971 She was secretary to the Treasurer through January 21< 1979 end Assistant Secretary of the Registrant since January 22< 1979.
1
)Ckq
'jt( i . g . '" 6 "i>+~i pz,~k~~
~
- 5. t Kadh@da&uttma,
.--.~'~c@igc 4i .ga
,I P
Ihe Ocapany's Cccaon Stock is trarhd ca the aver-the- .4 counter market under NASD% syrbols CrKA for Series A and
.~ CrZU3 for Series B ~JJres. Beginning on August 23'983@ the market prices of the-Company's sto Jc vere quoted on the >Rsvp g4 National Market Sys~~ vhich reports tM 'High'nd 'Lcm'
'ransactions for the day. ~ follcvtng table indicates the
- h.'gh and Iov prices per -share as taken fraa daiIy quotations
';: puhlished in the pg~~~~g
"'ndicated. Series A prices are ~usted also for stock 'tea during the periods
'::.'1';-',' ~ ..~.;.'.'.',;:.'ividends through 1985 to the nearest 1/8th. (See Note 6 of +pi
'-'~~-.;-.. -':-',. '; Notes to Consolidated Pinac&al Statements )
High Lac tat Lcv tat l985: Series A," 32>>7/8 2&3/4 38-1/4 High 31-l/2 High 39 l/2 3W/8 High ,'
46 1/8 38-V~ i.~r~p itic
.Series B, 'C 31- 27-l/4 35-1/2 30-3/4 38-1/8 33-3/8 42-I/2 35-1/4 1984 Series A, 26-1/2 23-l/8 26-1/4 24"3/4 2&-l/8 22 29-3/4 24"7/8 B, 2'0 Series 26-1/2 21 -
25-l/2 21 25-1/4 24-3/4 ["~
, %he ~er Series B 40-l/2 high, 40 lov..,-
34 1985 prices'verein Series A 40-1/2 Mgh 40 lawt
', * ' ~C.
I
~
' '--. As of Pebruary 21< 1986, the approximate ncuber of record temrity holders of the Caqmny's Ccanan Stock Series A and
, Series B vas 18<676 'his information vas obtained fraa the OÃpcup s transfer agent+
Ag J
I
~
., ' Quarterly.cash div'dends declared and paid an Series B ++I Crmxn Stock vere '$.49 and $ .45 per share~ respectively, during
- 1985 and 1984'. Semiannual stock dividends of equivalent fair
" ~f4+pg+
I
~
~
3.6% and 3.45% i.'c':
(See Note 6 of Notes and ~
value declared and issued on the Series A Oxmn Stock were 3.1\ .
'and 2.5% for the first and second half of 1985< respectively< and
~tofirst balf of Consolidated Pinancial Statements.)
1984, respectively.
"-i<<rh~
9 ai K
o l
e g,.r~s "I r
1i
>pr~r~
t~
I T~
~ v
$ 31 s~~
4' 4
1 E
g.a%
7 wr IP
;~,'. Cperating revenues. $ 266,902 $ 251g153 $ 22lg457 $ 202g067
- i '.;.4";,, ";;: ""~':, Net Incane . $ 50g888 $ 44g023 $ 38g394 $ 33g497
$180g360
$ 29g216 'rgb
~
' Series
'jg'.,'"i'~",'--'",~".i,'.~.'-.s': Wtal Assets Series B A(l)
'-,';'2.48
~
':., $ 2.48
$ 765g822
.$ 2+12
$ 2;24
$ 663g923
$ 1.83
$ 2.07
. $ 1.58
$ 1.89 .
$ 1.36
$L.Ti
$ 592g390 $ 538g997 Sgi89g475
~
";",. '.-, - 'q:,I:.'... '";",,'."',s Xo~rrn debt "
$ 150 599 $10,818 $103 632 $100 233
$ 95 070
;:;.';.":=:':.'-'-<g';,i-".~+~;'-;",forSeries B aarrno,. share g..96 $ 1.80 '1.64 . -'. $ 1.54, $ 1.46
~r. gyqj<',,. ".j~~~:"'-". ";";:-.} j+).'"(1) Prior years Series A pe~a earnings @usted for intervening gnw .
~ e~~~~~Pw~
~"
,, Primary sources af furdh vere opetationsr 88% of net Lnccme was retained'Ln the businessg in large part attributnblo to
='."..'>'-; i'<", - stock dividends an SerLes A shares. During 1985, tho Ccuparty ,gft'w~ '
issued Cannercial Paper Notes Payablo for the folleging purgceesr i>+
to fund $17g500,000 of matured pirst Wztgago ard Collateral Trust Badsr to fund $ 22g340g000 of tapered 9.755 Xndmtrial Developnant
,: - Revenue Bards'rd to provide eqylecmtal fmds as t quired or construction. Camercial paper Notes payablo are expec~ to be
', refinanoed ultirmtely through the Lssrranae
'~;,
of senior cLbt seartities.
. '..';". Also during 1985g Industrial Development Revenue Bonds aggregating
$ 79g015g000 were issued to provide furds
- - plant and to refund $37g715g000 af 9.751g for coruitruction of utility
'Pg~(-%rgb.
ment Revenue Bonds 1982 Industrial Develop-pads fran the 'Crxhstrial Develcpnent Revenue Bards proceedsg from Rural Telephone Bar Jc borrcvingeg and fran advances for specific capital Rgnditureo
- , ':.;,"':-.-:;, , desiring utility service vore also employed to pay for construction t Rived fran patties
.-',,;,',;; "'.;;" of utility plant. %be Con@arty in 1985 mgistered $ 50g000g000 4
. '"'., - 'cchange Pirst hnrtgage ard aollateral Trust Bonds vith the Securities Ccurnissian vldch it plans to issue in 1986. Unused bank
~
credit lines totaling $ 60g000g000 at year-erd 1985 at all tinea
- . exceed% camercial paper orrtstarding.
j
~ .
~
Cnpit-'xpenditures foi th pears 1985, 1984 ard 1983g rerr-pectively, were-$ 43.3g $ 46;2 ard $ 45;9 rnilliang and for 1986 are
~, expected to be a~roxirnately $ 71 million.
and in 1986 vill be for public utility facilities and related pro-expenditures pro
~ ~ -,. '-'..' .': ' ~ perty.
. %he ~nany anticipates that the furds necessary 'or Lm 1986 capital experdi utes vQ1 be provided fran operatiorgsg fran 1985 Industrial ~elognent Revenue Barxt prompts, fran Cmetal Paper Notes payable Lssues, fran parties desitg~ utility service, fran senior debt and other firMrncing at rrppropriato times and, deemed advantageous, fran other borrovings including nhort~rrn if
. borrovings under bank credit 1'irons nov totaling $60 rnL11ion.
'\wg g +Q~~9 ri g~( <<PAc lq/~ Q(ga~+rt~43aE~+4+g)yt~ AQUA,c i4$ g~Y+v+0+~~ jl ~ "s Qfi)L~ g Q, P f4/~ r,)pg) pic g r~~
0 4I
'p c
4 v
~.
..." ~~4
"$ '"~=' %+dr "4' 9 ~~~~~~-54$ VQ~
4+
~' ~ ". ~ ! ~
"-+4~~3 r
t~
a 4.."i ~
Total operating revenues increased 6% 13% and 10% for tbe years
-,:.'V.:,,.-,'3"1985> 1984 nnd 1983, respectively. TeleEhcee zevenues increased Sid
~4';<.: '-".'.'.".,.:~',;".",-;" '., 28% and 13%< respectfvelyf principally due to increased toll revenues ~g~aJ43
,i>',-~,.'<~..".:.,',....."-",.',,=."'.: ..<.and aHed custca3ers in 1985d 1984 and 19839 arhd rate increases 4.ff~'ve v 449~~Pj ;j<~ . -;..-;<-'.'.'.4.!',.i".;-", fn tbe last qesxter of 1983. 81ectrfc rerenues fncz4M4sed 5%9 6l and Str
- ~rj.;5'+-..8;-"<~~;".-";:.':4;4reSpeotfVelyd prfnofpnlly due tO rate inCreaSeS fn 1985, and 1983, nnd
";".'q.;a,;,:y;,'. 9~4.,-."n!~-,','i"lcost paaeensf added customers and fncrensed consumption in 19859 1984
'~4$ -"';h,.-;".~-...".'.".',"". t,". and 1983 Rater and wastewater revenues increased 7\ fn 1985 and 1984 and 5% in 19839 principally due to rate inc"eases nnd added custaners.
.'Gas revenues decreased 4% and 2\ in 1985 nnd 1984 primarily due to a
.';<<~~1;<<'~94>>l '$-<" . reductfcn in tbe wholesale cost of gas which was passed cn to custaaers
- ~9~<'~'",~f". ',";,". '-:-:;., and decreased consumption due to warmer weather. Gns revenues increased
'f"."-~~7, -:~-'- .".",,; ."~t-~,l2% fn 1983 principally due to a.rate increase.
fr:."""~"'r.'-3 4 "-.':"'. ",1>>. '44'"Tutnl operating revenue deductions fncze&ed Qd 14'0 and 9% for
-":.' ",'".',th'a years 1985, 1984 ani 1983, resyectively. 8narvy ynrchacad for
..",'~o,".i',:4-","."g A4!l:."4":.:"! ~.':.'"':i:"'resale andfoel ,nnrchased for cnaeratlcn increased 48, sa and 84, reo-4'd"'n;";gj'>>'," 4:;',I;,;':,39",8..5."acd 1983r and increased feel relnirenests in 1984
'. and.1984..'<4".Cj;
- .'-,",",",g";
- ,r:;,i,"-":;l",..'!:.;atin8 nnd cedntanance eryanses increased ly 48 ~ 134 ani 48, 'aly<
":<'.,.a:'" 9cinciyally as a rasclt of i.ncreasad e99resata <s4dcyee oncceneatina
- 3;-':! ."j
.;"';"of Plant in service nnd increased eraezgy costs for water and wastewater
'j=-'@~~4~
>;:3':">"'-'~'-:"-.",~;4~"";
g~W d,><~~';.'->>.':-~.<.: -".-,"'.".'-.'".~&g-in 1985 and 1984 ~ DepreCfaticn ezpanae fnCZOmd 58< 300 nnl
~.<<.~~'( ,~; -'f..=;,-=;": ':.".'>~":<. 13\< z~iectfvely> principally due to increased fmrestment in plant in f service and'incr~ telephone depreciation ran. Provision for
~g,'f".5"4;c,, ~",=-";,=,~"~':
",4",.3-
.-': ""=,;-.'-~ Pederal and state fzxxae taxes fnczeamd 134 375 nnd 233%, respectfvelyd taxable income. Other fncaue nnd dWc-principally due to increased 1
'. -",.';.. '.i ';- 8".," tions increased 6A, 83% and 5A, respectfvelyr prfmarfly due to
<9~<a p,g '~,<:nt r 'n< '3ncrease 'fn'nterest fncaa3eo Zntezest ox~nse increased 11% in 1985
>>4C;,~;" "; "!.",",:",::,'=.,",,,,'""and 1983 and 19% in 1984, primarily duo to interest on Cazmezcfal paper an'~~
'eda
'~-~Z;>>~$
",. Nohe payable issued fn 1985, on borrowfngs from the Rural Telegbm 9@~>y. 9, .."':;,'n'>>:-" n; "- q -: ,Bank and on Industrial'evelcgnmt. Revenue Bond proceeds used in 1985', -
'~$f% ~
Decfsicns of the Federal Coal=='.cnt'ons Omission (POC,'n rexet
':-'--:-,.--- .-- '*." ~
-.'."'- ',;., telecaxamfcntfons industry. Tbe current ecorefLfc effects on the Czupsqy's
=
""eh~~8:. -:;'":. -..'-", -:=-"..';;,.'op ratf~ & tb de~8 nze f mo~ in t iff rnt aa amgo
~~~,'":., - .4. ---..'-..--,.','"..'-; '- increases-al~ in effect. Other changes pzcaulgated by the Po. in-4.".,", .;,'"; Zf'.",.'- j" eluding revisions fn long distance cost aQocntfon polfcfes may rexufre
'-"'.:.-';.;=-.":.,; -,. ';::. additional increases in the Ccupnrp s charges to its custaners. Tbe ef-
<<ggg 5;:."." .;...',:-" ';- "
fects of. these revisions are not yet fully deffnedd and are contingent in pnzt on future actions by the Cr>>~ress and by pederal and state regulatory
'-'R=;=""-- '-: -
a
/ I" RJI h ~ ~
;.;" ';..'.;", Item 8o
/
following documents are filed as part of this Report:
= "~" r .;",',.'- ) -,',: .'.--','See Index on page P Io
" -. 2 Supplementary Data)
. {}uarteriy Financial Bats and FinnnciaI Reporting Changing Prices, prepared in accordance with
. ': -'-". and Financial Accounting Standards Board Statement
- '-No. 33~ are included in the Financial Statements I
k
~ I J
<<><<"..';!'", '.;Jh. '; ." j'.Part XXI 's aaitted from this report because the Ccapany intends to file with the Cmnission a definit've proxy state-
~ ~."i<. '...;".".;;:"- . ment for the 1986 Annual Riveting of Stockholders pursuant to later than 120 days after Deceaber 31< 1985..
'. ", 'y
~
Regulation 14A not information cnlled for reference to that by this Part XXX is incorporated proxy statement.
~
I h
~
re 14. t
. 'a) ~ follawing documents are filed as part of this
/
Reports I ... %be
=
financial statements indexed on page P-I of.
this Report. t 2 ~ .
=
~ finnncial statement schedules required tr he filed by Item 8 wQl be filed as a Form 8 nmeahent to this Report on or'before April 30, 1986.
I
- 3.
Jta Exhibits listed belongs
,JI
'a
. Exhibit
-;. MrriRUSu>,'.',,
Certificate of Xn'corporation
~ *.* '
/
/ ~ *
\ ~
I 3+3 Certificate of Ameixhnent of Restated Certificate of Xncorporation
6':~r h" r ' 1* a at 7 c
csf a
a 4M~4jda .
~ treAW
," ..Rmdatim, 4
".;,....4.1 ".'= Copy of Indenture of Hortgage and Deed of Trust dated as of 'Natch 1,
'; .-',:~" 9--":...Nnr York and 8&8@in-Maull as 1947 to ahe Nscine hid!and Trustees facet co~ of "
Age cmental Indenture dated April 22 1947
'... 4.3 Secor@ Sqplemental Indenture, dated Septeaber 1< 1948 1
i ', 4.4., .Third Supplemental Indenture dated Septeaber 1 1948
'y~,1,."'
'4.5 .":Fourth Sgplemental Indenture< dated April I< 1949
':,': ., '4.6 .=. ~
Fifth SuppIemental. Indenture dated April. 30, 1950 P
.'",: 4.7:-." Sixth Supplemental
. ~ Indentured dated.Yap 1< 1950 ';, " .. ~
~~,';"4.8.:",Seventh 4.9,;
4.10, 4.11=
~ 12 a
SuppIemental Indenturet dated Octoter
'E'ghth Supplemental Zndentuie, Bated Deceaber
'Ninth Supplemental Indenture, P ~
dated Deceaher.
Tenth Supplemental Indenture, dated Sjy ld
.,'leventh Supplcassltal Zndell'tured dated Noveatier
~ 4 lt 1952 1, 1954, lt 1955 1960... 27d 1961:
1
~
'" 'ras"
":, -;-'='."-"..:,'[~~4';.
~g~~~";7~
9~rat<<aa
>-'egj
'.W-:~f p.~~P~~
4e13 Twelfth Suppleaental Indentured dated Septeaher Ild 1962 '; '
~ '>'i<~~-p~ji 4.14~ Thirteenth Supplemental Indenture< dated October 1t 1962
' 4.15 'ourteenth Supplemental Indenture< dated Noveaber 1, 1970 ~ - - - "~g~g'-'-
4 16 Fifteenth Supp1emental Indenture> dated Noveaber I<, 1974 4.17 "Sixteenth SuppIemental Indenture< dated March 19 197S 4e18 Seventeenth Supple'lmltal Indentured dated April 19 1978 h..f."i-'
4.19 Instrument in yffriting, dated January 14+ 3952 anointing
~pl'.
4.20 Instrument Successor in Writingf dated June Individual Trustee 119 1969 amointing a, ... -- ~, '*y~i~Q c."d~~~ 'a rs,aacd~r 4.21 Instrument in Nritingd Bated Noveaber I< 1972 appointing ;;.pr.a.rw
'a Successor Individual Trustee 4 ~ 11 Znstrlnent in iccitinffg data! didy 6, 1977 amointinf-'a '. ': " .... 9as~~gj Inst ~t i Writj~ d tedM~ 14 1983'appi tea.a
'" 6~~0"-"'"'.(.;
'23
'CÃd a
6"',... -', .:
- V
i
'7
<<C<< ~~~~~~~~R. '.UN~ .. ~ "<<<<7~~ Y~". - <<7 '+7<<<<~
r
'-"-"--: ~a' 'mizgm
'.~-'.l 7
'Oop} of Indenture of Mortgage and Deed of Trust dated as F<< ::.'~'..;.
;"-i.:~-::.7-.; ",:: -...': of March
" "-'-" ""." ..; *"', - ".Net York and.Baldwin Maull as Trustees
~
I, 1947 to ~ Marine Midland Trust Gxpany of ah7.Vi i'$
'aC4;
'Qdg.
'~;;P"-;.'...-'.::;*'",.'4.2* . SuPplanmtal Indenture< dated April 22, 1947 4.3 Second Supplemental Indenture< dated September 4 1948
. 4.4 - Third Supplemental Indenture, dated Septerber I> 1948
-;<-',."-."-.."<<-',--"" 4.5 ~
Pourth Sopplemental Indenture< dated April I< 1949 7M
";-<<>r'~, ".->,'.",,;.-'.6 ~, Pifth Supplemental Indenture> dated April 30; 1950 7~+~<<7'Pci:.
,;.,'<<'f;-,.~.,'.4 7">>"; Sixth Suppleneatal Indenture> dated Fey I, 1950
;,";.",;:.'-.",,'~'j",.4.8-;.".:-.Seventh Supplemental Indenture< dated Octotar I< 1952 r " '. .'" ' " .*i.'
'-,'r
~
,~,~-.~ging~;:~4.9 E'ghth Supplemental Indentured dated Deceaher I> 1954
'.:::--"'--..-'."'4.10. ~
Ninth Supplemental Indenture, dated Decatur 4
I, 1955
Ã~.:: $
C i<<g ';--""-,
H~ 4.11 ~
Tenth Supplementa<<I Indenture< dated May l~ 1960
"','..-'a,,.".* 4.12 -
Eleventh Supplemental Indenture, dated Norerber 27, 1961
-7 Il, 1962 7
'4.13 Ted.fth'Supplemental Zndentu're, dated Septeaher
" r'2
",'.'.-'-'-.-*, 4.14 -
Thirteenth Supplemental Indenture> dated October I< 1962 ~
Q<<p
'~ <<C P.' ;,:: ':...: 4.I5 Pourteenth Supplemental Indenture< dated Naverber 1, I970 wxk~
.,4.16 Pifteenth Supplemental Indenture, dated Nov~r I, 1974 4.17 'Sixteenth Supplemental Indenture~ dated March 1i 1975 'U.+gg@77<<
7
. 7'-- ~,:., 4.18 Seventeenth Supplemental Indenturer dated April I> 1978 U
in Writing, dated January 4.19
,,'Instrument 14, 1952 aaointing
<<+<<U Successor Individual Trustee U
'U
&f UU<<
~ '..', ~ . 4.20 Instrument in Writing, dated tune II< 1969 appointing a
,~Ps'- Successor. ZncKviduai Trustee 7
4.21 Instrument in Writing< dated Noveaber Ir 1972 ancinting Y a Successor Individual Trustee wJ gt r 'w'Zg" p<<
z 4.22 Instrument'n Writing< dated July 6,'977 appointing a Successor ZncKvidual Trustee '
4.23 Znstrmmt'Tn Writing, dated Pebruary 14, Successor ZrxKviduaI Zrustee' 1983 a~in~ a 7,
7
~
7'7,
- ~..., " P<<7~4 ',<<, ~
~<<g4$<<.@i ."':.. '7 SKW'>>, ~,;.,7~<<7""Q.,
N 0
~a~,45/a~~k wWa~Wm'-ii&~ Q~$ ~~og g
':Mid"'>a~'Uiln~ C~pyrmma~4:~~g
~y' ~ -'h;a'.'<
, t "Exhibit
~~
.- ~ ~a DCKjjQtj59 The Ccayany agrees to furni ". to tbe eazaission upon request copies of gag the Realty and datteI Mortgage dated as of March I< 1965 made by Utilities Rural Oaq~, Inc. to the United States of America (tbe Rural Citi~
",,.",~;;.",:;--",.".:,
Electrification Rtninistration and Rural Tel~ne Bank), the Mortgage Note vhich that mortgage secures~ and three subrent supplemental Mort"
"'age and Notes, copies of the instrucents governing the long-term debt of
. Ohio Utilities Cap;xuly, Blue Mountain Oonsolidated Hater 0am",>my and Kauai
,-"..'-!,: ,-,',."';.'.: '." Electric Oxaganyl and the Zndustrial Develop Revenue Bards.
.:- 10.1. Managerial Incentive Deferred Crxrpensation Plan dated Augusta 1977l Amend-ment dated April 7< 1978 to Managerial Incentive Deferred Ccr~tion
. Plan< August, 1977'meahaent dated June 8, 1979 to Managerial Incentive
'".-":<~'-: >-:,.=.~- Deferred Ocuperuration PIon, AprQ 7, 1978> AmenMnt dated tune 6, 1980
~.;-'-.";','- to Managerial Incentive Deferred Compensation Planr June 8, 1979 CM
/
-"':".,:-:,-.~';-";. ":-10.2,.8enior Managerial incentive Deferred axrpensation Plan dated August St
': ". ,)977'S Amended APril 7< 1978'une 8, 1979> June 6t 1980', and aS Of JanuaLy, 16< 1981
~ <<'-,:..-;, 10.3 Supailenental Benefits Agreement between Citixens Utilities Occpany and
, Zshier Jacobson dated August St 1977 ... ~
,'I
~
A C
~ "", =: ".; 10.5 Employment Agreement
~ y a p effete January l~ 1981
; '-" 10.6 Deferred Qxcpensatiori Plans for Directors dated Nover~r 26> 1984 and Deceuber IO< 1984
~ 4
'~~~~>)A,a
'menchent 10.7
', dated June IS, 1984< to.the Managerial Incentive.Deferred Ccm-pensation Plang June 8g.1979 4 ~qadi.r
,, '., 10.8 ~ Ame~ent,dated June IS, 1984t to.the Senior Managerial Incentive Deferred Ccepensation Plan~ January 16~ 1981, l
'2;": Coaptation of ratio of earnings tm fixed charges (this item is included herein for the sole purpose of incorporation by reference in the Ocupany's Pozm S-3, No 2-96890,) ~
\ ~
,*, -.'- . 22 ~ Subsidiaries of the ~istrant
~v.s.~M<<~~~
'Aecamtants'onsent dated
'4.
March 27< 1986
- i- 25'Peers of Attorney All items other than Exhibit numbers 3.3t 4" 23'0
* ';. 24 and 25 are incorporated by reference to the Registrant's Annual on Perm 10-K'for the year ended Decker 31, 1980. Exhibit n.aber 4.23
~rt 6r 10a7t 10 8t I2g 22t
. is incorporated by 'reference to tbe Registrant's Annual Report on Porm l(H( for the year ended December 31< 1983. Exhibit numbers 3-3t 10.6t Sx
. '..- ': ;., 10o7 'and 10.8 are incorporated. by reference to the Registrant's Annual
- i ~vF 'eport on porm 10-K for tbe year erx5ed lXxeaher 31, 1984.
(b) No Porm ~ vas'required'during the three xonths ended Decker 31< 1985. r Q4:.'~$~
~; ~N ~
f(F~
f
r.
I e
A 4
C Pc 'Mr,
~p~, >
Pi'~4 ~ y~
~ Tgt 4-.'1'~
BIGBhXUBK
~~ca.~".~>
Pursuant to the regd,reeks of Section 13 or 15 (d) of the Securities
..'~";,--. Exchange Act of 1934> the Registrant hm duly caused this report to be pignea on its behalf by the undersigned, thereunto duly avthorixed.
(Registrant)
~@M+~
+t
+hc Eshier Jacobson Presidents 5ief Executive O fice Ex Officio Member, Executive r~
March 27, 1986
.~Y Pursuant to the requirements of the Securities Exchange Act af 1934> this report has been signed helm by the fall~ persons on behalf. of the rag~<ant and in the f9~ l capacities indicated an the 27th day of Arch 1986.
Sfanature . .
"'- ' -.'., ', "',". %tlat
~ e
* .'",. dmfrman'of the Boards Chairs n,
"'".".:>> ',, (Richard L. RosentkuLl) .: Executive Ccaraitteeg and Director I ~
- 4
~
~ *
~4
~, Treasurer and Pinancial Administrative (Hanpton D. Grahmn, Jr.) . ~ Officer p~
V
<< "~Sod C=.. Assistant Vice Presichnt (Richard K. Rcbinson) and Controller Nxbor< Exeeztive Cccmittee and
~MT~
(Norman I. Bobrinik) '
Director Saber< ExecutLve Ccaraittee and
~ 'Andrew H. Seine) Director Director
* , . ~
(Irving Kristol)
(Richard IRosentluQ,< Jr,) I'ire'ctor ~ 0 Direc'cor (John L Schroeder),
~
(Richard K. Robinson)
Attorney-in-Pact P ~+QJl
t
~
gyr4: ~ ~~-'~~ '- ~ ' ~ ~i%
'*' ~
' ~
." ~ 'CITIZENS DTIIITXES COHPAVC A% SSSIDIARIES
'I BHex to Pinancial ~tements
~
W
/
~
~ w~eQ ~
;; .-.,"": Consolidated balance sheets as of Decedoir 31, 1985~ and 1984 p-3
. Consolidated statements of inccme for tbe three years ended
, .~'-.:,".; ~ Consolidated statements of retained earnings for tbe three ~ -,
~p +~-~
years ended Deceker 31, 1985.
c'..-..', " Consolidated statements of changes in financial position for
- tbe three years ended Deceker 31 19&5 ~>gW~++~
-'onsolidated schedule of long-term debt as of Deceke" 31+
p~ "". " Notes to consolidated financial statemer ts -
M - P"16
~ ~
.J
'b W)) r~ra 4>>
*A(p.g~s ~
P-1 Wvw, I
J
~J,
~z
), ~ - ~ "~;w)
i
peg, 14rsirL, ~nl(hell a co.
PEAT Cele(icd PisMK'cc<%Ãlh5 94$ pzrL Avenue MARWlCK. Ii * ~ytL. 'NV lOI$4 t'
. soard of Directors and Shareholders
.'ixens Utilities Ca~nyg I'
nave examined the consolidated financial ctatements of Citixens Utilities and subsidiaries as listed in the acccrpaqying index. Our examinations
.e made in accord~ Q 3 generally ace pted auditing stindards and, accord-
"'y, included such tests of tte accounting records and such other auditing
.~~res as ve considered necessary in the circumstances. 0 ~
, .'our, opinion, the aforemencioned consolidated financial statements pr sent
..rly tbe financial position of Citixens UtDities Canyany and subsidiaries at 31, 1985 and 1984, and the results of their operations and the changes '.e~r
- their financial position for each of the years in the thr~ear period ended
.ember 31, 1985< in conformity vith generally accepted accounting principles
'ied on a consistent basis.
Rgb,. K Ji, ~~4.
I C
P~ 4 g I
'-& 27'= 1986
\
I' I
~c ~ I I
8 r
I W
I'A I
\
~
' II '
- -','ai~.
. a T I v~(
~ M ~
~
s
~ ~
-" g ."';-," -
'"-,s'
. Qfggg+Q
~sPPf86
'SXILKP6%D BAIA~a DECEtSER 31
~AM PQ) 1985 AhD 1984
~51DQJQES
~
4 w " s ~
r 12K 15K PropertYg plant and
~:; less accumulated depreciatim equiprent, .:, . 6704,724,515
~2RQCR
%2h1'~Q.
$ 674,911,254 U5Ic55h331 MZr2KOM l
~:..',.=;>:... Cash and cash eydvalents, .:,." ..', " .;".. ~clGa221 ~b26hEik
'i:""'8 ~'tilitII'ervice ., ', '"'~ "<r-"' "'-'e<s' ~'".20g054g982 -)7g033g296
..,!',:;:"..'sss.allosanrs for Soonrrol aoooonts,
;.-;"-"', '"- -" Naterials and
~iesg at average cost or less
.'s+
".'4gl24g069
. ~59 ~.
4g921,927 18g076gl)2
~sroJL ML9lRdilR, 4,815,979
~r322~ ~25.-
W prepapnents and miscella~ ..- .
-'hl92d>M - ~Ms'
~ = ~,. Deferr& debits> irnrestnent in ~idiaries 64,414,755
~ ~
-', and other assets
~ 199,521,539 .
=
s I ra 4
s
~ a L
wg p
*W s
'~4.ss S
r oc.
t s
r o r
~r.
',g gt gore
- - .;~7 We acccc~eqying.botes are an integral part of these ConsolMated Financial or,j a r~ 'w+~<~ro4 +~4+>> 'r yo'~ri4 gPi~~~Q w,g0"rk ~ "oa ~ Qgg ~ax+>> <<~~Q,~>> rg
0 6 6r +3<< ' " <<0 i'69<<<<36 '<<" "pv'I+ijj'~ 06 '~g q 'kr I '~~'r<< "<<I6, i'll&Vjf ~3 6
<<I 44a1 u'
A
<<6
~ ~ ~-
2 T
'I' ARK I
~
I
;.; ': Qerebolders'quitys
'-; i;,:".-'.::"'-:- Capital stock!
Authorized: 20<000<000 shares of Ocnn3on Stock Series A6, and 23~500>000 shares of
;2,';;, ",,"-., Ccmon Stock Series B, both of par value '
~ r I<<
~ ~
...'."'~),":";-': . '.;::;-,;.-Series A, 1985 - 17,320,082 sharesg
~".'., ~':.'~.'"'-"."'~- - 1984 16,514,947 shares ,- ~ ,, 6 8<660J041 6 &g2579474
"," ','-, '.""~" :,.;;,',Series B, 1985I- 3,210,867 '" ",'96059433 19581912&
j shares'984 Wgg'9
'9162g257 shares "
.,.. 'Additional paid-in capital . -":-.?30',052,464 200gl98:936
",".=, . ';-. Retained earnings -: ." ~229cHZ M/49242K.
Total shareholders'Zoity
~
DKZMZL M
., ", ~
S~e~e'Ct r
IJ Long-term deb"
~ 3
= .." " "'., -
,=~251K M 5;4
'r+ -'., Current Iiabilitiess
%ments payable .. ',c . 41,147,140 33)9376092 Taxes other than inccme taxes .'
'~ 4<052<779 465049676 3,
~
Pederal and state incaue taxes " 29607t213 6g2529956 QOC '.": '-'::;. Sinking fund and other instMlments d 3e vithin
' 5289739 one year -
. 814,809 Custaoers9 d.posits .;'. "... ',194,485 29506,513 Xnterest accrued -,, '".", '-. ' ',.
'~gc2K 3>289<136, 2s3389936
....Other current liai~ilitim. %822
'..';. ~2'%"~ 'KcZ~
9 Custmr advances fo~ co.etruction ' -,.. &1r964r359 .-.76. 011 9966
"*',"<<: Contributions 6
~
' ~: "',
in aid of constructien '18<503>914 I17 383 260 Deferred credits I
"*": "'";, .;"'=-; "- . 3 98<250<297, 88,387,075 C,
' ' Ocamitments 3 r
. ~O
$ 765g&2lg&ll 6663,922,669 I
I X26
,<<--..d;<;: >-
~2 9 6 9 I ~~ ' ~ ~ <<f
l~~~'~~@rrri;"~ "939933~~&~S!i'~~W~~~r'~, ~~ '>,,, -, ".-"
r- ~
.rrarC~
a\ 1 r
gl:
CITIZEN VrZI,ITIES (ZNPAW MD SSSZDZAGPS (KHR)LIDAXKDSEGMENTS OP DAXPK as'a
<<q
'J.ss
!sar .
'-SEE 'LKKE YEQR ENDS) DELE%ER 319 1985
** r
.ass~ca
%~3a 72K 15K, ',
5293.
Operating revenues:
. 'iileptxee 00593169524 $ 9795939 051 $ "ra.",2" '.963 Eiectrir. 10294919492 9792779086 N.'9364t749 r.
';.'.', Water and Wastewater- Gas of
.. '2,797<926 409017t834 , 3795729918
~h Otber. (including @4<585,8511
;. '$15il73t4591 and $H9451..606t
'., -'".,'respec ively )
~ ~ ~KcE" M'uli2c29'. DR:~E MisZQc2H "
I
; KCMs OPERATIC REVENUES
~rating res enue deductions c, ' -- ' *
~'
;:-'.) Electrical 3.a.zgy> natural gas
~
- .ard fuel "M purchased,..'j.;:.- ~ -67>0919974 64g3I99627 619445t719
'~" '7
"~ .=.. ...'~3
~
'* t6 69276 Operate .exposes, 47g764t196 50t211~014 4 3 A V~ga&r
'Mainten- m expenses 304 375 1696699654 1498909914
', "; - ..Depreciation Ibexes other than inccce taxes
,- Provision for Federal and state
'= .;,
~
34190+799 18,066t432 29t5769071 1795~~ s 068
,2'c9750t866 r
) 69694r 139
~ .': =
inccae taxes 'Bc292c2Q.
~9~~@.
~6L332 ~Qr2ik
'ther KRAAL OPERHXtQ OPERmam mme REVISE DHXCZIQ3S hxxce and deductionsc
...' ~~KG&
~
~Gi9LdR6. 3Rd'dHk f~r~>.;~~>Jg~
A11aemce for equity funds used:
during construction 1 g?489467 lt1749590 lgll49609 Other (including bxxxne of!
subsidiaries) net .
CABER ZRKta! AND D~CNS ~2882lfi
~khBR ~~52 2di7ZaRK,
~cZKh 4H.
+l " mvz
+me SZZCm nnmmT maes ~tD9XQlk ~ZEBRA.
05K
<<4" Interest expels Interest on long-teaa debt .. ~
9t 967>292 8,881,475 798149655 1trrortization of debt discount and r%)fj cllg&nse 165i959 .
- 2089596 2689404 Allcrrrance for borrowed funds used
~r.~on asr<
during Other'nterest charges
, mVZ, nmmST aaZME
~
( -
" ., ~hgKMi ~32~ ~8~5.
~K 284,634) ( 207,545) (
~2X 5489986)
BRcKK NET MOB - . ,'. '.'
a 5098889255 $ 44t022r786 9 39 393a 8/9 r a
. 'arnings per share of cccxen stocks ' '* $ 2912+
Series P
$ 2,48 vls83~
Va a
a Series,B, * ".,'. ', $ 2.48' $ 2.24 a
$ 2,07
.pp~,>
a
' ~M]usted for intervening stock divi~~
s
~ 'Ibe acoccqarging Notes are an integral part of these Cesolidated Financial . ~~~~':,~<34>'~@~
; Stat+ants.
a
~ \
49F JP J'<<<< I '545 >PP '4 9 r E '@<9->>r, 4
>>EI '
I P
>>r FP I tt~' :>>! """.,:.':- - " '
~
" (2TLKEZS QIXLITIES CQPAHF AND SHSIDIARZES 595,.9
'5KNSQLIDAS'HD S5QBQKS OP EEIMNED Eh5MS
, POR THE THREE YEARS EM)ED DK22SER 319 1985 4~
hIP 4>>
4 -,k 5F " 19K 1K% Qp" Balance at beginning of year Q0199509247 $ 9l98509947 S 82:837,182 Add net inccne &8~8 ~h9ZZc2K
-'~~~n i,'4*:
- .'494> E ~
M~&29 8hZ. M5cKXc23X Deduct dividends paid t
- ..." -. Zn cash on Series B Qcaaen Stock, per share< 1985 61.96'984- - :giggj,'I
-""., '; -;,* Q,80) 1983 - $1964 '
6g273g820 5 g 677>>486 591519251
.;- 'In Series A Comx5n Stocks
-" * '"'-'- '-::- "- '1REi '. '
lid.
Rate ';, " s
. 391% -" '961" 3904 508~453 .
SS5,11 .436~761 PP.EP'-'54
~~>>
p@,
Rite .
- 4 295% ' 3945% '99% P ~
jan+>.9
- 4. <<F99C 5 EP. :9shares 4229292 550~7l0 434 g660 f/~, "Total sharesc 9>>94<<
r , 930g745
.", ~
lg105 829 87lg421
~
'gg524H2
~~OP g ~g~~
~Rx29ic9R 4~-:-.'-."-"
g~,
=~
~
>$ ~
Balance at, end of year -
$113i9359640 $ 1019950i247 9 954559 947 gt
" "-' acc5mganying Notes are an 9
integral part of these OansoIMated Final StatlhlD8Qts 9 P
I
,P 0
- I 4 4 I
<<4! 4" P
5 I
~.
4
'V /I' I
P 5'i5>E
'5 ip~~< ~i IP 0
-~9!>>< 4
":, '"='. ~
~ 9 ~ ~ " '4 I
h ~
4 '~Et '." *
~~we+)9 Fg@4$ <<
'I 9 ~
) ~
.1
'I
'I
'4
~
IF
~4 4' 4' 4 f 4-"
~,F 4
r.
PE
.+:<<~ '~~w .~'w'.~~V&~~;-<n.:-4 ~~gf~~W~>>~p: :~ m..'4>> '-m i>>Et grFP: ~SiP '<<4~~59~~ ~
'~~g+q~f.,g'P&@~~WP~~E. ~.'.4 ~,' 5
>>4+~~%4,~~+."4 >~~ ~
~ ~
~<<.HE...:
F8;~~ ' . "~ '~r '
(..ZWQy'>>; 9. -:
5~> <<e ..~X ., t.".C. "EPP', 4 4 >-P.'>>4<<h
'+ii~~~~W
I t,
p e'P ~ Q <~ ~~ ~gg~Q~Q ~ '~F ~V g '>>>w>J%$
i+i!
~ -, p:r" " -'. 'ITIZENS QZXLITlES CGNPANY AR) RBSZOIARKS
; "~', . ". CSSOI~ SWK%PZS CP CERES IN P2QXXAL KSITKH POR THE TGBrZ YEQS EB)ED DECKER 3lg 1985 159. 9: >>
-'Binds pwlded fraac rpCBP Qerationss
'.," Net incane Depreciation
-: ~'-.
"', '$50g888g255 31,190,799
$ 44,022g786 29,575g071
$ 38g393g879 22,750,866
;",F:pg~'p
",.~,",,;Deferred inccuo taxes
.;, ~. QIaence for equity funds
";, =,. ~ '.'., 8 696 469 ~ 8 473 105 9 650 864
'-'sed during constnvtion .'- =-..-
( .1,748,467) ( 1,174,590) ( 1,114,609)
':;,'.'.'"~ '),'-"~ ~Rh2K
~
. g> ""
-i;=q~ j -"' -90g739gl74
~KGRH.
" 82g618g328 71g323g164
',~,~:,..~ '"Borrogkngs .-',- .',, '- "< "'-;-;- 59,141,099 10,707,850 12,024,171
. -:,::,x',",,~ '. "- construction '"
;<;~'",",~;.6g682g459, 6g817g637 ' '93g238 ..: g>> a~g liabQitiesg ': '='".
~
g = -".~ + Increase in current inclUBiAg taxes : 5g912g734 '0g7o5g277 ~
Increase (Decrease) in deferred 6g532g142-,;
=-,, ".-;$164 367 475 $ 108 073 386, $ 90 904 848
\
AddLtions to plant
-....,allogance for equity funds (excl~
. '. used during construction) ".. $ 4lg569g220 $ 45g042g 649
. ','Omh dividends paid 6g273g820 'g677g486 $ 44 g804g381 5gl51g251 Reduction Gf long tens debt '"= ", '2g359g653 "
'21g679 'g625g196' Increase in other current assets -: -
7,057,918,--- ',029g342 2g043g915
, Ihcreas in deferred Bebitsg hwestment in subsidiaries and other amtsg net of change in cash.and cash equivalents y
i, -'"
84g079g490
$ 164g367g475 57g313g894
'108g073g386,,
35g056g319
$ 90g90>>g848"
~,. 'IheStatacccegaqying,Notes
"> ~n g~a are an integral part of these Consolidated Pinancial
~
g I
+m age~
CITIZENS VI'ILITXES CGHPAK A'6 KBSZDIARKS
- "~ ---~. -.-~: "., .' ~ 'NRI Man Sm~me OF SHIES XN PINRXZM, I.
.-',s;~,,"..>'=.~ '."-'i ...", ~,;, POR THE TBRZ SPARS ES)ED DECBSFR 3)~ 1985 POSIT':
I ncaa
/A
~~~~AP Net inocae' ',, ",
'., .$ 50g888g255 $ 44g022g786
" $ 38g393g879 Depreciation " '
~
4 ,'...; .". "":.;-..:..'.".;.:,." . ~; 31,190r799 29i575i071 22i750<866 erred inccuxt taxes:, ,
- 8~696~469 8~473~105
.-,~~ ~. ..',"g
~"-' used during construction
',"-';,~-;":,.; '-., Miscellaneous
,:.;,,;-":-.;;;.,~,;i Borratings
~
~,';
~
' i lt748g467)
','.'-.~~),
'-"-"'-. -","; --~ -., -. ".:~,. . ""::,-,",.90q739ql74 59g14lg099
(
~2Rh9M lr174g590) 82'18g328 10g707g850
(= lrll4g609) 7lg323gl64-12g024g171
~j,'~'~.'ii~s.:~,".k"-;", construction " '. "'"~6g682)459 -, 6g817p637
. , 893g238
;-'z+j j+~"'.".. f> Increase in current ff~PQ~Cy g$
';:-,',"; >~~j<<;.~'j-"'ncluding taxes liabilities<
~ -..-
":.:-,",i';5<912<734 .; 10I765/277 6~532~142 8164 i367i475 ',08) 073'06 $ 90i 904) 848 jig
'~@~
.I' ~~i M
i -* 4'
~ aIIcvance.for equity funds used during construction) . $ 4lg569g220,, 8 45g042g649 '44g804g381
@<i Cfish dividends paid ." 6t273r820 Sr677t486 5t15ls251 Reduction Gf long-term debt ' '21g679 22g359g653 ~
8g625g196
-'hcrease in other current assets . '.. 7,057,918 =
2<029>342 ~
2>043,915 Increase in deferred debits, investmant in subsidiaries and
',- other assets< net of change in A
'ash
;,.'.,:,;. ~~k,(
.,','4g079g490 Other< net and cash equivalents
..*,:,, @64~367~475 '
57g313g894 2c5~H)
$l08g073g386 35p056g319 LJLa22fc21$
$ 90i904 p848
,. ~Stateaants.
acca~qying Notes are an integral part of these CcescZidated Pinanciai Lt I
h I
n
- m4<~m'(
lg
0 0
0
~'-,'.~;;':"'.::~-.,-;,"-.-;;=;=-:: ..:;. ';; '-; Crra&NS VrrrZTIZS meANy mO SCOSmlARna 1RRi 1RH.
~:.'>-":-'='~," First Mortgage and Pirst Nrtgage and
.c~.".,~:;.".. ". Collateral
>', -'. '&>>30'I Sexiest due MRIchp
~
-'-""-'.," 5-5/8%- Seriost due October, 1986 Bonds<
1985, ' ' ' 17>500)000 275t000
- s"" ',, "
~
5% Serlesg due Pebxuaryg 1990
"';"z- ";,".."..".~"'! 5-I/2% Series'ue
"' 870g000 900g000 Decemberg 1990 "
2g251,000 2,251,000
'-;-.--;>'f,: .':,"'4.I% Series, dos Deceuber, 1991 4g000g000 4t000t000 4-5/8% Seriest due October, 1992 4$ 000g000 4g000r000
- ",,*.",.'~=.."-.,;.'-I/4e Series, due cry, 1994 280g000 316g000 8-7/84 Sexiest'ue Nxcht 2005 " ' 16t362t000 '6g362g000
." '37g000
.~=.'.;":.,'.S-I/4% Second Noxtgago Bondst due July'- 1987
',%%i've Year lQxtgage Notes - Rural , 237g000
$ ':,pj";~-';:, . 'EIectrificaticn Adaclnistration and -..-'- '- . >
;;.m,$ >-.)<i~,~'c.
a" +".,'% ckAk 6% due
~gy'<'jj'~pj!><':>~"-r thxough 2011 '
in Quarterly installseJIhs in cluaxtoxly installments through 2006 thxough 200&
- ~ ='>-. '",,"" "q"4545e699
" '" I'g&29t&08
'g360g&17, ..
lt919p769 2,413t374
't567tII9
..-:". ":.'-;;";." .through 2012 ' "' ..". ."' "". '.:, Ilg040t240 'lgI94g812
;~.".'j'-,'-~,.:z., '-1/20 due in quarterly irstaIInents
!'~~~~hgl thxough 2013 ",
.'"-".-,"j.':; ".'".';" 9i due in quarterly instaIhumts through 201S
,.',":"." Bxiostrial Develcgaeh Revenue sonds.
. ~ " '=""
'.." " .'. 3e685i013 l3t031<826.,
-" 3i734i&97 l2< &57<700
~
j
~"..'," '. -.9.75% 1982 Series, due Nry, 2012 (Outstanding'98S h
$33t665t0007 1984 $ 37g715g000 less
, proceeds held in trusti 19&5 - 0'984- $
"'iC+
$ 3t43~rg307) (See Rote 4 for rodmpttcn dates) 33,665,000 34,276,693
'..-,-.:.,; .,6-7/84 1985 Series, due baleen 2035 and 2025
. ($30,350,000 Lss ed less proceeds held in
'2t&09t969 '...
~,
$ 27i540t031)
I sp$
- Wlg 7 3/8% 198S Seriesg due 2015 ($ 9t400g 000 DNced CPg~+g less proceeds hold in trusts $ 9t005gl48) 394g&52
>i
~ Variable rate 19&5 Series, due fran 2015 to 2020 C4 (interest rates ranged frere 5% to 5.70% at 4%~
.., r Dec.aber 31> 19&S) ($39,265,000 issued less
'ZP 1
';=:; ...
."'proceeds held Ln txusti $34g&29g029)
~';,Occtaarcial Paper Nates Payable
~
~
'.ri: .. ":"-4e435r971
-.'- <-.::".- ~
47,800,000 r~~6.>>
'.~:,;.'~,! Other Notes Payablet due through 1986 F >>
',">>,:",i',.',>>;h",=;;,<<' "," I "..:
~
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i.',,:,', ',..-'~~,",.',. $ 150t599g195 -
AUi&Ds749
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";p 4; ' ~Statements...,,',
accccqeping Notes are an integral part of thee eesoIidated pinancial C~
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~l' CnnmS mO.rrrES meAIIr ~ SCesmXAarES Notes to Consolidated Pinancial Statements (gl00 Cmitted Except for Per Share Amounts)
>>" (1) &cL)!5kiaLeat
".';; ..';;- (a) Principles of Ccnsolidntionc
~ The consolidated financial statenents include the accounts of Citizens Utilities Ccapaqy and all subsidiaries after elimination of interccx~
balances and trnnsactices other than the investments in wholly~ed "subsidiaries reported using tbe equity method of accounting.
4
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.i ~ '4 ;;;; ~,;-", ': (b) '-'roperty, Plant and spipmentg .
Prcpertyr plant and equipment are stated at original contr including general, overhead and an alliance for furds used during constructionr net of unamortized plant acquisition adjustmentsr where applicable. An
'~~,'~'-'l"..;;;.';.:,',, '~,; nllarance for funds used duLing construction which takes account of bor raring costs asd a reasonable return on ccumon equity is included in tbe
',r 'r" -', .r".:.-.' ",'-"'. cost of ae3rittions to propertyr plant and equipment. The allarance is not a"andcashth"item. Tbe amount relating to equity is included in Other Dacme amount relating to borrarings is netted against Interest Ex~non.
,"; '.';:- ',; .'. Waintenanco and repairs are charged to operating expense as incurred.
Gho costr rret of salvager of routine property dispositions is charged against accumulated depreciation.
,,C IT % c'tg~+ -" (c) Accumulated Depreciationa Depreciation expenser calculated 'on the straight-line metbodr is based
~.' -'.
. "-",.-,,*".'pon estimated service lives of various classifications of propertiesr
~ ', '.. nnd amounted to approximately St of the gross amounts of the property for
- ..r the years 1985 and 1984 and 4'b for 1983 k (d) Taxes, Deferred Incamo Taxes and.Investment Tax Creditst, ~
Deferred inane tax'charges result frcxa the use for income tax purposes of accelerated depreciation methods and cert'ther tax deductions in excess-of charges to inccme. 'Ihe investment tnx credits relating to utility pro-perties, as defined by a~icnble regulatory authorities, have been deferrod
. and are being nxortized to inccmo over the life of the related property.
The preceding procedures are consistent with accepted rate-making procedures
- ..... in may states where operations are conducted.
pr 4 c ....-:-'(2) g~.,((r 'Ihe ceaponents of property> plant ana equipment at Deamber 31, 1585 ard 1984,
'.= 're'-rpectivelyr .are ns follars! transmission and distribution facilities $501r629
*- and $ 476r886r'Production facilities $111,598 and $ 109r355r Purging, storage and Pur-
~ 'ification fncQities $49,164 and $ 47r017r intangibles $1r035 nnd $1r018r other $ 32,570 and $ 30r134g construction work in progress $ 8r729 and $10r501. Asootsr chpriMation and capital expenditures identified with business secpents for 1885r 1984 end 1983r rospectivolyr" are as follarsa Telephone $ 226r687r $ 2lr213r $19r292r $ 222r999r $ 20r188,
$ 21r090 and $ 221r326r $14r545r $ 24r432r Electric $ D6r126r $ 5r604r $ 9r967r g48r909r
-'$5r253r $12r003 and $U3r797r $4r786r $ 13 070r 'Rater and hastewater $197r637r $3r072r
~
$ 12r021r Q96r&53r $3r652r $12r264 nnd $186r06lr $ 2r956r" $7r679r Other $ 205r372r $ 502t
"'$2r038r'95r162r $483r $ 860 and $ 51r206r $ 464r $ 738+
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1 to Consolidated pinancial Statements - (Continued)
WCc n e ~ ~ r Kj~PP~ (3)
%be ca~cnents of deferred debits, investment in L'ridiaries and other assets at Decenber 31t 1985 and 1984; respectively< arer Deferred debitsr $ 7t518 and
$ 4,775r Irrvestnent in subsidiariesr $ 184,450 and $ 49,68lr Other assetsr $ 7,554 ard $ 9,959.
A sugary of the carbined Balance sheets for the unconsolidated subsidiaries
~ .
- at Decor 31 1985 and Decor 31 1984 respectively, is as followsr Cash equivalentsr $105r476 and $ 30t018j Other investxantsr $ 83i405 and $19~709r Cuc "rent and accrued liabilitiesr $ 4,431 and $ 46r Areunt due to parent! $162,237 and
$ 32t929 and Total sharehalder's equityr $ 22~213 and $ 16t752. Ibe exbined state-
~pk~+~. 'ents of Incane consist.primarily of net interest income.'et incane for the three
' 1985 for tbe unconsolidated subsidiaries vas $ 5r459, $1t049 years erded Decekec 31<
. and $ 0< respectively.
; Principal installments and maturities of presently cutsta~ long-term debt due through 1990t except as noted belowt approximate Qg420t $ 1~405'1g200g $ lt234
." ~, and $ 4-,146< respectively, (instaUments $ 1,145t $ 1tl68< $ 1<200t $ 1<234 and 1<115<
'espectively, and maturities $ 275< $ 237t $ 0t $ 0 and $3<031~ respectively). $Approx-imately $ 606 of tbe above irrstallramts for each of the years 1986 through 1989 and
- , '$490 in 1990 may be deferred by certification of property additions or. other credits.
; Acxerdingly< such aneunt is not currently payable and has been excluded fran current liabQi ties.
%he Carparly has sent an irrevocable notice to the trustee that the 9.75% Indus-
, trial Develop Revenue Bonds issued in 1982 vill be redeemed in Pebruacy ($ 30~365) and May, 1986 ($ 3,300). Variable rate Industrial Develop@et Revenue Bonds were said in August and Novenber< 1985 to fund the redemption of tbe 9.75% Seriesr the.proexds are being held in trust for that purpose. Holders may tender at par the 6-7/8% 1985 Series on August 1, 1988 and the 7-3/Si 1&85 Series on Noverber l~ 1990.
1 Cmercial Paper Notes Payable have been classified as long-term debt because these obligaticns are expected to be refinanced ultimately through tbe issuance of senior securities and the Ccaparry has lines of credit which ezpi:e Jarruary 23, 1987 urxhr which the Cxgany. may borrow fran its banks up to $ 60<000 at the prime rate.
She indentures securing la~em debt of tbe Cay>any provide~'aneng other things that the Canpany vill not declare or pay any. dividend (other than a stock dividend) on the caxxn stock if tbe aggregate aneunt declared or paid after Dea~r 31< 1946 shall axceed $ 613 plus the aggregate consolidated net earnings of tbe Cccpany and its subsidiaries subsequent to Dece:ber 31, 1946. At Decerber 31< 1985$ the entire re
.tained earnings were free of such restrictions.
'rhe cccponents of'deferred credits at Decerber 31; 1985 and 1984 respectively, are as fallowsr -deferred inccce taxes, net $ 62,916 and $ 53t297r deferred investr~t tax credits $31,464 and $30,122r advaM~ and contributions related ta plant under construction and properties no longer owned $ 2<128 and $ 2,774r otbec $ 1,742 and $2t194.
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~ '..'. '. ':, P CITIZENS VZXLITIES COHPA!C AND RESIDIARIES JPC Y>$
~ptoiVg 'yw>P Jl
, '- '-Notes to <~Ldated FLnancial Sta~~~ts - (Continued) 7+4~~<~~
(8-j'-
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"The ccame stock of tbe Qxpany is in hro Series, Series A ard Series B. To the extent that. cash dividends are paid on the Series B, stock div'.dends vith an
'equivalent, fair value rest be paid durirx3 the sme cale~r year on t)e Series A, Q+Pj unless.cash'dividends are declared on Series A shares at'the same tire and in an J<<Q+~
24+rg~~g equal amount as on Series B shares. Since tbe reclassification of the outstanding ccaxnon stock Ln 1956< only stock dividends have been paid on Series A and only cash dividends have been paid an Series B. series A Ls convertible into Series B'at all tines except be@am the dates of declaration and record of dividends. Series B is not ccrrvertib),e into series A rights and.participate ratably in liquidation.
~ slares of both series have identical votin3 Eirnings per share is presented for each Series separately, vith historical ad-
',", justment for,stock dividends for Series A only. The percentage of Series A and of
.'..'",,Series B shares has been established for each year by relating t!a year-erd I.;;,"of Series.A,shires and the xenthly average number of Series B shares to the total of n~r
'oth. The peicentages have then been applied to the net Lnccce for the year to cal-culate, tbe'net Lnccue pools-applicable to the Series A and the Series B, respectively.
.:~ ." %be net'Lncine poal applicable to the Series B has been divided by the average number of shares .of'Series B stock outstanding each year.to obtain the SerLes B
. earnings.
J'ibe net Lnccce pool applicable to Series A has been divided. by the year-pe~e
'nd nmber.,of shares of Series A stockr and the resultant earnings per share of jap;mr~~
'Series A'have for earlier years also been adjusted for stock dividends paid in arry subsequent'ear OIJyeafse J
P C
'.JJi
'C Durinq".19&St 4&r610 shares of Series A vere.converted into the sme rumber of res of'Series B.
,(7)- Im~hxear *
'C1Wp-Lbe provision for Federal anQ state inccre taxes for the years 1985 t rough ,
1983t respectively, excluding Lnccme taxes applicable to'roperty d(spositions Ln 1984 and .1983. (see Note 14) <
- - is $ 34t016 (Federal - $28,603r'tate - $ 5>413) $ 31/555 P+~IC ( CClC.
(Federal $ 26>749r state $ 4,806) and $ 23,047 (Federal - $19,130r state>>
g
$ 3,917).
Of the provisions for taxes of $ 4,016t $ 31,555 aM $ 23<047, the erxents relating to PtS'$$
, operating Lnccae are $ 33,382, $ 29,498 and $ 21,562 and tbe,axents relating to otber CCC Lnccae are,.$ 634, $ 2,057 and $ 1,485, for tbe years 1985 through 1983$ respectively (y Ag)
%be deferred tax portion of Lnccce taxes totals $ 8t696 (Federal - $ 6,832r state-4$
$ $ 23 and Investment %hx Credits -- g,,341), $ 8 115 (Federal $ 5t636r sta'te and Investment Tax C:edits - $ 1,378) and. $ 8,532 (Federal -. $ 6,lllr state $ 1<205 and In-
$ 1@101 vestrmt Tux Credits $1,216) for tbe years 1985 through 1983< respectively. At
'Deaxher 34 1985 the cumulative exent of timing differences for which deferred
." Lnccre taxes have not been provided is $ 73t436.
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gt CITIZEN U1'XZ ZTZES CGMPAVC AND REST)ZARZES RY'~++~e Notes to <~idated Pimeial Stataneats - (Continued)
I (6) NpjfgLR~r The eamon stock of tbe Crxrrparry is in twc Series, Series A and Series B. To tbe extent that cash dividends are paid on the Series B, stock div'.dends with an equivalent fair value rrarst be paid.dur' "~ sme calm8ar year on the Series A>
'\
g unless cash'dividexLs are declared on Series A shares at the sam equal amount as on Series B shares. Since tbe reclassification of the outstanding ti~ and in an ccman stock in 1956, only stock dividends have been paid on Series A and only cash dividends have been paid on Series B. Series A is convertible into Series B at all ~~~Qerg tires except between the dates of declaration and record of dividends. Series B is not corrvertible into Series A. Tbe stares of both Series have identical voting "rights 'and participate ratably'n liquidation.
~~$vg Earnings per share is presented for each Series separately, with historical ad-
+~ c,t r ~.s,k r 'justment for stock dividends for Series A only. The percentage of Series A and of
- jifjj+ ~ Series B shares has been established for each year by relating tte yearmnd naker of Series A shares and the monthly average nurser of Series B shares to the total of
., both. %he percentages have then been applied to the net in+re for the year to cal-culate the net incare pools applicable to the Series A and the Series B< respectively.
',',.--':*' ' The net income pool applicable to tbe series B has been divided by the average nurrber of shares of Series B stock outstanding each year to obtain the Series B 'per-share <i;
~ earnings. %be net inccce pool apRicable to Series A has been divided by tbe year end nrxrber of shares of Series A stocky and the resultant earnings per share of C
Cl
~~4~<j;$
Series A have for earlier years also been adjusted for stock dividends paid in any
'subsequent year or years.,
'I
~~.i wtf c,'i: During 1985< 4&<610 shares of Series A were convert&
shares of Series'B..
into the same number of
~g, ,hi~ (7) IDEAL 'ZCXCRt The provision for Federal and state inccrre taxes foi tbe years 1985 t",rough
... 1983> respectively, excluding inccrre taxes applicable to property dispositions in
- i. )&1~~~'> 1984 and 1983 {see Note 14) ~ is 834i016 (Federal $ 2&g603) state - %,413)~ $ 31g555 (Pederal - $ 26,749> state - Q,&06) and $ 23<047 (Pederal - $19,130< state - $ 3,917).
the provisions for taxes of g,4,016, $ 31,555 a% $ 23,047> the arrounts relating to
'f operating inccrre are $ 33,382, $29,498 and $21,562 and tbe arreunts relating to other income are $ 634; $ 2,057 and 81<4&5, for the years 1985 through 1983, respectively..
The deferred tax portion of inccce taxes totals $ &>696 (Federal - $ 6,832t state-
$ 523 and Investment Rhx Credits $ 1/341 ) g @if 1 15 (Federal - $ 5g 636fstate $ Ii101 and Investrrent Tax Credits - Q,378) 'and $ 8>532 (Federal - $ 6,lllr swte 81,205 and Zn-v~t Tax Credits - $ 1<216) for tbe years 1985 through 1983,. respectively. At
~
Decerker 31, 1985 the crxrulative amount of timing differences for which deferred inccce taxes have not been provided is $ 73~436.
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CITZRBLg UTZZITIES CCHPAVI AW RBSIDIARZE8 Notes to Consolidated Pirancial Statements>> (Continued) h 1
- rt Inocne taxes'xcluding inccme tams applicable to property dispositions in 1984 and 1983 (see Note 14), heed on the Pederal statutory rate (46') are calculated to be $ 39:056g= $34i766 and $ 28<263 for 1985, 1984 and 1983> rwgactively> vhich amounts
. are reconciled to the total provisions for inocae taxes, excluding taxes applicable to property di~itions (see Note 14), for the re~ive periods as follarsc Allcv-ance for funds wed during construction, $ 913, $ 605 and $ 765< cverhead italizedf $ 2fll7+ $2<352 and $ 3,134>'epreciation based on tax service li~'e's, ($ 2,853) f
~~s cap-($ 2g665) and ($ 162)g amortization of investment tax credits< $ 2<643< $ 1<927 and $
V inde tax provision@ net of Pedefal inccme fAx be~it/ ($3g815) g ($2/558) and 1,545'tate
"($2g190) g nontaxable interest and dividendincome< $ 4,158> $ Ii361 and $ 450'tMr, net Qe877t $ 2il89 and $le674 ~
(8) QQm Zm~~fuamMas Cperating inccue for 1985, 1984 and 1983, respectively, (before provision for
,'"..inccme taxes of $ 33<382, $ 29,498 and $21,562 applicable t:o operations) by segment are! Tel~ $ 47g894p $ 43g098 and $ 31~308) Electric $19<145'17g225 and $ 17g014g hater and Rastevrater $14<969, '$14,207 and $14,068't&r $ 1,029< $1,370 and $ 1,589.
1
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%f4~'4ti g
e =,
~
Operat(ng Revenues
~
'65g561 '67g969 Wx2R Dmus@
$65g665 $ 67g707 Operating Incus $ 9 868 $ 11 814
$ 13,696 $ 14 277
'i tW Net Znccae $ 9g865 $ 1lg717 '13g924 $ 15g382 per share of
'arnings ccmxn stock (See Note)
Series A>>
Series B
.*,'.50.47,$
$ .57
$ .58 M+69
$ .68 $ .75
$ +75 Operating Revenues $64gll2 $ 6lg 770 $ 63g350 $ 6lg921 Operating Zncane $ 9i777 $ 1lg 544 $12g635 $ 12p446 Net Znccce $ 8g690 $10g300 -"$12gl83 $ 12g850 .
,. qifS Earnings per'hare of caaxn stock (See Note)
Series A>> $ .41 $ o49 $ o58 $ .62 Series B $'.47 $ +54 ~ '$,64 $ o 65 Fg I'
BEE!
tC~~P~
Per~e earnings vere calculated in a manner consistent vith tM procedures aa forth in No e 6 of the Notes to Con~idated Pinancial Statements.
>>Tbe quarters enM Parch 31; June 30 and Septc~r 30, 1985 and N1rch 31'u~
. t ~)'>W
< 'i)N~,~
30 and Decmbsr 31< 1984 have hem ~usted for intervening stock dividends. 30'eptester
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. 'Notes to.Consolidated Pinandal Statermts - (Continued) gates, a r
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. Re Darpany and its subsidiaries,.mre noncontributory pension plans covering
, all employees wbo have met certain service and age zequirmwts. Enduding mvmps capitalized, tax. cost of these plans (1985 $ 3f896r 1984 $ 3,660 and 1983 $3 f665) -
includes amortization of past service liability and is funded as accrued.
At January Ip 1985 and I984>
of accumulated plan benefits r~ivelyf the aggregate -actuarial present value were $ 18,386 and 18,661 (vested $ 17f163 and $ 17p286r;~~~~4<
~ested $1,223 and $ 1>375) and the aggregate$ net assets available for benefits were '.yN~~y'.-
~0,534 ard $ 44 393. 'Ihe weighted, average assumed discount rates used in determining the actuarial. present value of accumulated plan benefits were 8% for 1985 and 7% for
'g~
~
~ .:-",'."'.- '.. ~s (ll)
." She following supplementary information 1;ns been cations to inffcate certain effects of ctangfng prices attritutanle hypothetical information is presented on the basis of 'current
~ e hl~
prepared in accordance with to inflation.
cost.'urrent o-i'-a
, cost values represent the estfnatof ccet of replacing edstfng propertypla, nt anf too'+~p~
equipaent and were determined by appiying- industry construction cost index factors to historical plant balances by year of addition fhta in accordance with
'"'+;.-'N-pAs No. 33 procedures.
Under PAS No. 33, the only Lnccxne statement item to be calculated that differs
-. frccn the Ocnpaqy ps financial statements is depreciation expense, caqputed by applying tbe Ccrrpaup's current depreciation rates, to current costs determined for the 0 pany's property p plant and equi~t in accordance with PAS No. 33 procedures. PAS No. 33 p ~f- g
.f ~ . does not incorporate a rexx~tation of the provision for L;.come taxes to reflect this increase Ln depreciation expenser: such reccaputation would decree tbe provi-
~g-;+~a'~ .r 'ion for Lnccrne taxes, offsetting approximately half of the increase in and wouId Lncrease net Lnccme jn like anount.
~ ><4,"
depredation:-'~"~+~gpp expensep 1ff>re generally, tbe signifi- ~t+'~W canes of conputing depreciation expense per PAS No. 33 should be weighed in the light ger~ ",.:=..; ','- of established regulatory prindples which generally apply to public utility rate-making. At present< recovery of tbe historical costs of property, plant and equip-ment only is generally considered for determining allowable depredation expense Ln <@~~X rat~ngr Lf and when elements of such propertyp plant m9 equipuent have to be replaced at higher costs> ra~ing has traditionally incorporated Lncreased de-preciation expense levels sufficient to offset those higher costs. Por this reason alsop infezences as to the adecpmcy of future cash flows in relation to future pro-Pertyp Plant and equLPnert rePlacement requirements that might be drawn fran PAS No. 33 ccrrputations for, Lndusr:ries other than public utilities may be expected to be less valid for public utilities whichp under established regulatory prindplesp should be able to ~ust rates to provide for recovery of adequate returns on higbar g,"-'~4t"-'.
cost replaoement property p plant and'quipment.
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CITXRBfS UPIIZTIES CCNPAK A',Q RBSIDiARI& y.~.~~6 H >H Notes to Oonsolidated PirancLal Statements - (Cbntinued)
Vh
'I
. '-(ll) i+5 'Nevertheless< because such differexes betweenproperty, plant and equipmen 4<~/ S .. adjusted for inflation to a current cost basis and the historical record& costs of these are not recoverable under settled regulato.g principles in current utility
'.W::&~+~<':
,fA
$/3 >If ~
rate-making, this difference is described by PAS No. 33 as a 'reduction to net re- '~
.p'--.~~
=
coverable cost.'nother effect of inflation considered by PAS No. 33 is tlat 4g~P "ronetary assets lose purchasing power and monetary liabilities are repaid with
- dollars having a lesser purchasing powers the net cha~e in these ccaputed on a erg. ~
current cost basis is a 'gain frm tbe decline in pufchasing owed.'owever< ~s ~r
'gain's not taken into account in the PAS No.. of net amounts r calculation g~>p'~~4~4' of, net'inccae adjusted for changing prices.
g4
'PAS No. 33 information must be understood to be an experiw ',
pfices due to inflation. ~s information is not an actual mea- re in any sei~.
hypothetical effort to present in numerical fashion scne approximation of the.,effect of c?anging jp>k".~~
Yureover< basic regulation of utilities associates revenues with costs.. Ntmn costs - ~;-,,~j'P including depreciation - increase, in due course they are offset by increases in
~ .- revenues cbtained under established regulatory procedures.
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~",'=,- CITIZEN 9 VHLIlVAS CCNPANY Ã4) SRSZDIARIES
-~s ~'-i,.='5'".-z'~: .'. "-: -"-.';.* Nc4es to Consolidated Pinancial Statements - (Continued)
.t>les lr z~
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z
- ,',. ~ '"z.-z '"... POR 'IEE YEAR Et') D Q2$ ER 3l 1 +t'
~ - '", - " ', i~' ' '.J
-;:,;-8-.".-'-.',-.".,',; Statement of Incan, .
'. -'$50 888 sA
.!,.,'-. >:;..'":,',,;prices (current cost) of property, =. ": '-; .. ',...,'-"';-- i'.:. %~tv~~
'"~t'. ": ~thetical
, cost Per
~~t PAS No. ",
to net recoverable 33, ..
"-'-'za': .
"- -' -'48 sl8 .4. l
'I
','.:-:;,. -'ypothetical Erces of increase in
. ~.. specific prices urer increase in
".'-'- general price level after ~ust-r '. '; ment to net recoverable cost , ', ':... I~174 tl Gain fraa.decline in purchasing
~ i.;;-.""Hypothetical powor of net Kxlunts owed . 'g p, ~,-,
8 ',, ' ", "" ~ZR P te t
por abbatical StocJc'n tbe 'pive pe~e, Year Oacpar son resultingq see ~Earnings per share of Cxxxc of Supplementary PinancLQ. Data ~usted t"
zt ~/ f~L Hypothetically per PAS No. 33.,
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<<" ~. '<"-"-. Notes
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to Consolidated pinancial Setements - (Continued) j
..~'" ~w-"".':.-.'. "-'IVE YEAR CGNPARIKH OP, SPELEHBKARy FINA'.CIAO DAIL
~
g)!I z-"~~'~ '---'-"gypotbetical Cperating Rnvenues,
p'.g'~":.:~:":"- except for 1985
~(,-.-
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.'ypothetical Net Income I(ypotbetical Earnings per, share
', =*~,.'"'-'
$ 266t902
..-'=,.'. 30 338
$ 260gll4
$ 24,402
~8
$ 739@120
$ 19 777
~8
$ " 25@202
$ 17 966
$ 213)
$ 16 893 334
~g"-;.'.:;:.':.Qs"--meat to net recoverable cost . ';-($ 1,174)($ " 641) ($ 't688) $ 602 $ 26 690",
Y~nd.--:,
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-'-.-,";..,;;;~; l<'-'. ",,~p<$ 348g630- $ 318t613 $ 290g502 $ 264g900 $ 242y314 I
;g>> i>:"..'.;.',jin purchasing pwer of net
- -';;'~; ='"-'$. 5t679 $ 7t169 '8tl93 $ 9gl29 $ 2IC124
')",~g'.-.i ~j ~..: -', ~ CPI
,-',:,' ', GNPD'
'~:rj,'.,".."
., "-,:-;~,;"
"..T "y'.g'.-.-""=..~r",-,$1c96
' '",',~j~"-."',',>'1.96 "
$ 1+86
$ 1.86,,
" $1+77
'$1.76
. 'lc72
. li72
$ '2+73 $Xe73 Qjj .-'.;c::.';.".:;,-;'.-".
-:;,-. ~,".:*'., Average
~,. Series A
'Series 8 '-'i'.'"':<"'"~".~..'-':T."'40-,1/4,'":.
" '.~"."' y;"-.".,-40-1/4 29-1/4, 32"1/8 ~/8
'29-1/2: 27 .'.. 24-3/0 20 19-1/2 Cmumer Price. Index (CPI),'..322.2 . 311;1 .-,: 298.4;,-. 289.1 2".2A
.,'":;;~,": Average Gross Fational Product Pr4 j In@licit Price Deflator(GNPD); ~',111.7 108.1 103.9 -100.0 -
k
-94.0
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~E4C I'q CVZIZEÃS VZILITIES CGHPAhY Notes to Coroolidated M) RSSIDMGES Financial Stater.s '- (Co@tinued)
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(12) QZmifxmho Cappy has budgeted expenditures for facilities in 1986 of approximtoZy y'"~ . j~
$ 70,975 and certain caaaitnants have. been entered into in connectica there" th.
, ~
(D) Q3M~aLAZa&ahnli 2h'e increase in additional paid-in capital durirxI years 1985, 1984 and 1983 arounting to $ 29r854r $27r693 and $ 23r793r respectively, represents the excess of
., ~
faLr value over par value of shares of Ccarcn Sto> Series A issued as stock divL~.
,-" ~ -
(14)
Anounts received in condemnation pr~HLnqs and settlement", incluoed Ln 1984 and 1983 Cther Lncane, net< less the carrying value of the property and the costs including Lncxee tax effect of $ 377 and Q>271 in 1984 and 1983, respective'yr (pri-
.',."'.:-'arily deferred taxes) related to the proem~a and settlemen~w, resulted in no hfdf
;.," ';;". sLgnificant net gain or loss.
~
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~ tax effect of duse transactions reflects. the excess of. the carrying value of the property per books ero.r the tax basis of the property resulting free capital-ixation of overbw8s for book purposes and differences in tax service ILves, the tax + tJ
-'ffect
" provisionsr of such items having been reflected as re'uctions in prior together with deferred taxes provided in prior years on the use "
years'~ a~-
C tax "crated depreciation rethods for tax pux~s.
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SECURITIES AND EXCKQGE COMNISSICN HASHQGKNg D.C 20549
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. QOARFERLY REPORT PiQER SECTION 13 OR 15(d).
~
OP SECURITIES EyCHLmE ACP OP 1934 Y
- Por the quarter ended r Ccmnission Pile Nmber z
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No. )
High Ridge Park P 0 Box 3801 (Address of principal executive (Zip Code) offices)
Registrant's tel'ephone number, including area code Pormer name, former address and former last report.
fiscal year, if changed since Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been.
subject to such filing requirements for the past 90 days.
Indicate the classes of Yes ~
number, of shares outstanding of each conmon stock, as of May 8,'1986.
No of the issuer's Conmon Stock Series A 17,259,471 Conan Stock Series B 3<271q478
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@i~i part I. Pinancial Information
r' Consolidated Condensed Balance Sheets March 31, 1986 and Decerber 3lt 1985 gr E
Consolidated Condensed Statements of Incane for the Three Months Ended March 31, 1986 and 1985 Qya" ~'fg QJI
~
Consolidated Condensed Staterrents of Changes in, "~( 0 Pinancial position for the Three Months Ended March 31, 1986 and 1985
~~'C+~~~ Notes to Conmlidated Condensed Pinancial Statanents
..Management'.s Discussion and Analysis of Pinancial-Condition and Results of Operations 6' Part II..Other Information
, Signatures 8 i~re
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'KXR Property, plant and equipnent $ 71193539216 $ 704g7249515 Less accumulated depreciation M~~~iK
~2clKc6K ~9r122c8>2.
Current assetsc Cash and cash equivalents 8g3539544 ~
89167,721 Accounts receivable 2392828024 2398408469
'ZRd22' ~24~~
Other'eferred debits, investment in subsidiaries and other assets DRh.'i21cXB.
8778i740,739 8765,821,811 Shareholders8 equityt t Gomon stock issued, $ .50 par value:
~ it Series A $ 8g6349425 8 8,660,041 Series B I8 6319049 196059433 Additional paid-in capital 23090528 464 23090529464" Retained earnings Total shareholders'quity
~~92.
~2c22ZcRZZ
~XLJiK Long-term debt &51c2&c9K 4+~,~~j 't44i Current liabilities!
Long&erm debt due within one year =
8149809 8149809 Other Custaner advances for construction and
~BaHX
~lcZ!LL22K '~4~8
~ld32di!i2 contributions in aid of construction 1009823gl03 10094689273 Deferred credits,. including reserve for
', deferred incane taxes and deferred investment tax credits ~L?'U422Z 8178 740 739 6765, 8 21, 811 4
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r(r66'5 Operating $ 6990429883 $ 65g5609875 7 5'76~>>
revenue deductionsg revenues'perating other than provision for C>>6>>I>> inccme taxes- 5197929055 4999079316
. Provision for income taxes ~52cl9Z ~KQ9Z nk 97~
Operating income 10g6979721 99867g852 Other income and deductions (Note 3) 396789185 2,4949756 Interest mrpense (Note 3) '4KLQK ~~7'52.
.Net income . 6D,297,511 5 9,965,055 Earnings per share of oxrmon Stcck lNote'2) r g@+5:.Y K~ Series A $ 955 $ 947<<
TY Series B- $ 55 $ .50 g ~/A 5A eA>>('QV~Tr'(g
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Dividends per sharer
. Nurrber of ccrrmon shares
,5 outstanding at March 31r ."QK~'6 Series A Corrmon Stock 1792689850 1694859409 Series B Cormen Stock 392629099 3tl919795 YQ
'>>5(y Y . Distrihutionr '+7 In cash on Series B Coarren',Stock paid quarterly $ 54 $ .49 In'eries A shares on Series A
'V Cormen Stock paid semi~ually>>
'rate (
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'unds provided fromm, Operations. $ 22,4428361 '20,7358044 Borrcsrings 31,600,818 2089678397 Decrease (Increase) in other current assets Other ltl828590
~hh21i
(
~MK 2798185) 855,865 683 8438048,051 r
r Funds. used fors Additions to plant (excluding allowance .
.for equit)t'unds used" during '
construction) $ 7,454<613 . 8 7t141,412
- Cash dividends lt7568812 185618232
~uction in long-term debt ~
. 30,474,008 17,633,414 Decrease (Increase) in, other current '
liabilities8 including taxes 180028516 - ~ 5648684)
Increase in deferred debits, invest-ment in subsidiaries, other assets,
- cash and cash equivalents ". 15gl148089
~X 1782338514,
$ 5588658683 643,048',051
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(1) The consolidated financial statements include the accounts of Citizens
'tilities Company and all subsidiaries after elimination of interca~ bal-.
ances and transactions other tlmn the investments in wholly-owned subsidiaries reported using the equity method of accounting. All adjustments necessary to a fair statement of the results for the interim periods have been made.
(2) 'Iba Corrmon Stock of the Canpany is in two series, Series A and Series B; To the extent that cash dividends are. paid on. the Series B, stock dividends with
'n equivalent fair value must be paid during the same calendar year on the Series A, unless cash dividends are declared on Series A shares at the same time and in an equal amount as on Series B shares. Since the reclassification of the outstanding .
carmon stock in 1956, only stock dividends have been paid on Series A and only cash dividends have been paid on Series B. Series A is convertible into Series B at all times except between'he dates of declaration and record of dividends. Series B is not convertible into'eries A. 'Jhe shares of both Series have identical voting rights 'and participate ratably in liquidation'.
Earnings per share's presented for each Series separately, with historical adjustment for stock dividends for Series A only. 'Ihe percentage of Series A and
. of Series B, shares has been established for each period by relating the perio&end nurrber of Series A shares and the monthly average nmrber of Series B shares to total of both. The percentages have then been applied to the net inccme for the period to calculate the,net income pools applicable to the Series A and Series B,
'espectively. 'Ihe net incane pool aHrlicable*to the Series B has been divided by the average number of shares of Series B stock outstanding each period to obtain the Series B per~re earnings. The net incane pool applicable to Series A has been divided by the period-end nurrber of shares of Series A stocky and the resultant earnings per share of Series A have for earlier periods also been adjusted for stock dividends paid in any subsequent period or periods.
(3)'n accordance with applicable regulatory systems of account, an allowance for funds used during construction is included in the cost of additions to property, plant and equipment and is allowed in rate base for rate making purposes.
allowance is not a cash item. ~ amount relating to equity is-included in Other inccme arid the ament relating to borrowings is netted against, Interest expense.
0 0
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Q<ry $
m asap Item 2. yK jwA P
(a)-
Por the three months ended March 31, 1986, the primary 'rP')l sour'f additional funds vas cperationsr 84%,of net inccre vns retained in the business. Funds fran 1985 Industrial Developuent ~mue
=- Bond proceeds were 'also used to pay for construction of utility plant; Additional funds vere received as advances for specific capital expenditures frau parties desiring utility service. We Goupany has lines of credit with banks'under vhich it may borrow ptfw+>>
up to $ 60i000,000 at the prime rate. In Pebrunryr 1986, $ 30,365r000
-. of 9i75% Industrial. Developuent Revenue Bonds vere redeemed usirg 'CA
'"<l4" part of the proceeds of the 1985 Industrial Deveiopuent avenue Bond issues vhich carry materially lower interest rates. On
..ril 15, 1986, $ 50,000,000 of 7-7/8% Pirst Mortgage and Collateral Trust Bonds due 1996'were issued primarily to provide funds to re-pay. $ 47,800,000 of 'Oommercial Paper Notes Payable.
, (b)
Operating revenues for the three months ended March 31, 1986 increased over first quarter 1985 revenues by $3,482,008, primarily due tot an increase of $1,728t945 in electric operating revenues,
'~y resulting principally fran rate increases and increased number of
'customerst an increase of $ 1,626,332 in telephone, operating revenues,
;-: resulting principally fran increased n~r of custaners and in-
'creased toll revenuesg an increase of $ 731,874 in vater and vaste-Y>'~~
id~'(.
vater operating revenuest resulting principally from rate increases, increased water usage and an increased number of customersr and a decrease of $ 977,713 in gas operating revenues, resulting principally fran pass-ons of decreases in sumption due to warmer veather.
pur~ gas costs and decreased con-Operating revenue deductions, other than provision for incane taxes, increased aver. first quarter 19('"i by Q,884,739 due primarily tot increased maintenance expense< increased aggregate mplayee ccm- u pensation, increased depreciation on increased plant in service nnd increased salaries and vages. ~
incremed taxes other than inccme taxes due to increased revenues and provision for inccae taxes increased over the first quarter 1985 by. $ 767,400 primarily due to increased tax-able income. Othei inclxue and deductions increased over.the first
~
quarter 1985 by Q,183,429 primarily due to an increase in interest inccme. Interest- expense increased aver. the first quarter 1985 by
~
*.$580<842 primarily due to increased Connercial Paper Notes Payable and additionaL drawdovns of 1985 Industrial Development Revenue Bonds, offset in part by the reduction of interest expense on 1975 8.30%
Pirst Mortgage and Collateral Trust Bonds vhich matured March Ii 1985.
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g'f Item 1.
On Septeaber 9, 1981, Raufman a Broad of. Illinois, Inc, ( K&B ) f a land subdivider, ccxax~ed an action in the Circuit Court of Cook .pwi>A County< Illinois (the 'Court', against Citizens Utilities Ccapeny's (the "Carpanjjs') subsidiary, Citizens atilities Ca~ of Illinois
~
. ("Citizens', essentiiliy for reformation of an agreement dated March 12, 1971, supplemented August 25, 1978, under which there had been continuous full performance by both parties for te.~ years, and rting pmitive damages of $10,000,000. 'Its action <<as subsequent-ly consolidated with an action Citizens ccaaanced against KGB and its
- surety for amounts owed under the agreement. Pre-trial proceedings are continuing. Trial has been set to begin on August 19, 1986. In September, 1983< KsB conmenced proceedings before the Illinois Cxrnerce sv~e+~pi')
pent Coaraission (the 'C.mnission') raising essentially the same. issues that
. were dismissed by the Court in 1982. On october 30'984'he Gxanission dismissed these proceedings, giving RaB leave to amend its ccaplaint.
KQ3 has ~ed this dismissal in Circuit Ceurtg the Illinois Attorney General, on behalf of the Conmission, has naved to dismiss the appeal
'Ihe Gxcgeny believes all of KLB's actions are vithout substance.
i ~'A
, There are no material pending regulatory proceedings other than ~ P'gr/
rate matters. There are no other material pending legal proceedings other than ordinary routine litigation incidmt to the business within the general mear~ of this term.
Item 6. > >~i, (b) .No 6-K was required during the three months ended March 31, 1986.
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ZG5hKBER Pursuant to the reauirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ZZIR~RJKQ
. (Registrant)
Date Ishier Jacobson President> Chief Executive Officerg Officio Herb r, Executive Caunittee~ and Director Hampton D. Graham, Jr.
Treasurer and Pinancial Administrative Officer KJh Richard E. Robinson Assistant Vice President and
. Oontroller
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