-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A4grbtBLISFKUZQv/0LvzYT4BLJClvklEyqWTbvsQRIAzTgGvQPr4F/AeyPwO7eg yqilh5Ay6Z/jeKreXq9Fuw== 0000912057-96-005344.txt : 19960329 0000912057-96-005344.hdr.sgml : 19960329 ACCESSION NUMBER: 0000912057-96-005344 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOMINGUEZ SERVICES CORP CENTRAL INDEX KEY: 0000860673 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 330391161 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18677 FILM NUMBER: 96539468 BUSINESS ADDRESS: STREET 1: 21718 S ALAMEDA STREET CITY: LONG BEACH STATE: CA ZIP: 90810 BUSINESS PHONE: 3108342625 MAIL ADDRESS: STREET 2: 21718 SOUTH ALAMEDA ST CITY: LONG BEACH STATE: CA ZIP: 90810 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended DECEMBER 31, 1995 Commission file number 0-18677 ------------------- --------- DOMINGUEZ SERVICES CORPORATION ------------------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 33-0391161 ------------------------------------------------------------ (State of other jurisdiction of (I.R.S. Employer incorporation or organization) identification no.) 21718 SOUTH ALAMEDA STREET, LONG BEACH, CALIFORNIA 90810 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (310)834-2625 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------ --------------------- NONE NASDAQ Securities registered pursuant to Section 12(g) of the Act: COMMON SHARES, $1 PAR VALUE --------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- State the aggregate market value of the voting stock held by non-affiliates of the registrant: Common Shares average bid price of $18 on March 14, 1996. AGGREGATE MARKET VALUE $18,078,660 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: DECEMBER 31, 1995 - 1,004,370 SHARES Documents incorporated by reference: (1) Annual report to shareholders for the year ended December 31, 1995, as to Part II, Items 5, 6, 7 and 8. (2) Proxy statement dated April 1, 1996, as to Item 10 (part), Item 11, Item 12, and Item 13. (There are fifteen pages in this 10-K) PART I ITEM 1. BUSINESS. GENERAL Dominguez Services Corporation (Company) is a holding company created in 1990 through an Agreement of Merger with Dominguez Water Corporation. Dominguez Services Corporation's principal business is the ownership of all the common stock of Dominguez Water Corporation. The holding company structure provides operational and financial flexibility and allows the Company to engage in non- utility activities. Currently, Hydro-Metric Service Corporation is the Company's only non-utility subsidiary. Substantially all of the Company's revenue and profits in 1995 were from Dominguez Water Corporation. Dominguez Water Corporation (Dominguez), a public utility, produces and supplies water for residential, commercial, public authority, business and industrial customers. It is comprised of a South Bay division and the utility subsidiaries Antelope Valley Water Company (Antelope Valley), Arden Water Company, Kernville Domestic Water Company, Lakeland Water Company and Split Mountain Water Company. The last four companies noted above, and their subsidiaries, collectively make up the Kern River Valley Water Companies (Kern River Valley). Dominguez was organized in 1937 as successor to Dominguez Water Company. Its South Bay division is the largest service area with 32,092 customers encompassing most of the City of Carson, one-third of Torrance, and portions of the cities of Compton, Long Beach and Harbor City. Antelope Valley , with 1,228 customers, has four distinct service areas in northern Los Angeles County whereas Kern River Valley, located in Kern County around Isabella Lake, has nine distinct service areas and 3,419 customers. OPERATIONS In 1995, Dominguez supplied 12,371 million gallons of water to 36,739 customers, compared to 12,071 million gallons of water to 36,371 customers in 1994. The South Bay division produced 11,890 million gallons of water in 1995. Although Dominguez has a diversified customer base, 53% of 1995 water sales were derived from business and industrial. Furthermore, a single customer, a refinery, accounted for 37% of these business and industrial sales. Hydro-Metric Service Cooperation operates a large meter test and repair business in Southern California. 2 WATER SUPPLY The water supplies for Dominguez are from its own groundwater wells plus two water wholesalers of imported water. All service areas obtain either a portion of or all of their supply from groundwater wells. The quantity that the South Bay division is allowed to pump over a year's time is fixed by court adjudication. The adjudication established distinct groundwater basins which are managed by a court appointed watermaster. The groundwater management fixes the safe yield of the basins and ensures the replenishment of the basins by utilizing impounded storm water and purchased water when necessary. Groundwater basins have not been adjudicated in the subsidiary areas of Kern River Valley and the Antelope Valley. Overall groundwater conditions continue to remain at adequate levels. Dominguez continues to drill new wells, so that it can maximize pumping its total adjudicated rights when called upon. The South Bay division and Leona Valley service area of Antelope Valley also purchase water from wholesalers to supplement groundwater. The South Bay division purchase imported water from the Metropolitan Water District (MWD) of Southern California. The Leona Valley service area purchases its imported water from Antelope Valley - East Kern Water Agency (AVEK). Both of these wholesale suppliers obtain water from the California State Water Project (SWP), and MWD also obtains water from the Colorado River. As of March 1996, the water supply outlook is very favorable. Winter rains have filled SWP reservoirs to above average levels. MWD also indicates that a full compliment of Colorado River water is available. Dominguez expects an ample supply of import water to be at hand for the next several years. Long-term imported water supplies are dependent upon the outcome of several factors. Dominguez's future dependency on imported water will be subject to the availability of reclaimed water in the region as well as customers' long-term water conservation efforts. Dominguez has been and will continue to promote long-term water conservation efforts. Dominguez will continue to be an industry leader in the promotion of wise water use. Dominguez anticipates that the West Basin Municipal Water District Reclamation Project will be delivering reclaimed water into the South Bay division by 1997. Dominguez will make the reclaimed water (which is priced lower and more economically) available to its customers. Dominguez's margins will remain equal to that of replaced potable sales. This project is expected to be a major step in drought-proofing the South Bay division. 3 Legislative actions continue to alter the amount of SWP water available from Northern California, and MWD anticipates losing two-thirds of the water normally imported from the Colorado River around the beginning of the next century. The reduced availability of imported water supplies and an annual population growth of 400,000 in Southern California could create future drought conditions which may require water rationing by all water agencies, including Dominguez. WATER QUALITY Water quality is a primary concern for Dominguez. Groundwater requires only minimal treatment with chlorine for disinfecting, with the exception of minor water supplies in Kern River Valley that are filtered for iron and manganese. Purchased water has already gone through an extensive treatment process before receives it. Both groundwater and purchased water are subjected to extensive quality analysis. With the occasional bacteriological minor exception, Dominguez meets all current primary water standards. Dominguez has an ongoing groundwater monitoring program and South Bay division participates in an area-wide water quality program administered by the association representing the groundwater basins. Under the federal Safe Drinking Water Act (SDWA), Dominguez is subject to regulation by the United States Environmental Protection Agency (EPA) and the California Department of Health Services for the quality of water it supplies. The EPA is required by SDWA to continue establishing new maximum contaminant levels for additional chemicals. The costs of future compliance are currently unknown and Dominguez's water sources may require additional treatment. Management believes that Dominguez's resources are sufficient to meet these anticipated challenges. REGULATORY AFFAIRS In August 1995, Dominguez increased revenues by $1,400,000 annually, or 6.2%, to recover the increased cost of water production in our South Bay division. This rate increase substantially recovered the total cost increase of $1,500,000 for higher purchased water costs and an increased pump tax. However, due to Dominguez's high earnings at this time, the total cost increase was not recoverable in rates. Dominguez expects to recover the difference, $100,000, in the balancing account in the future. This rate increase does not increase the earnings to Dominguez but rather offsets the effects of higher water production costs to Dominguez. In 1995, the California Public Utilities Commission (CPUC) undertook a strategic planning process referred to as Vision 2000. This planning process was done in response to hearings held by the California Legislature concerning the organization 4 of the CPUC and the effects that deregulation in other utility industries will have on the CPUC. The CPUC held workshops throughout the state. Dominguez participated in these workshops and submitted comments. The CPUC's Vision 2000 has been presented to the California Legislature. In 1996, the California Legislature will assess Vision 2000 plan and decide if further legislative action is needed. Discussions regarding Vision 2000 indicate that Dominguez will continue to be subject to traditional regulatory policies and practices. The regulation may be modified to include performance standards. Using performance-based rate making, the utility and the CPUC would agree to a set of operating efficiency ratios. If the efficiency ratios are exceeded, the shareholders would get to keep a portion of the cost savings as increased profits. NON-UTILITY SUBSIDIARY Hydro-Metric Service Corporation is a service company specializing in field testing and repair of large water meters. EMPLOYEE RELATIONS As of December 31, 1995 there were a total of 82 employees in utility and non-utility operations. None of the employees is represented by a labor organization, and there has never been a work stoppage or interruption due to a labor dispute. In general, wages, hours, and conditions of employment are equivalent to those found in the industry. Dominguez considers its relations with its employees as excellent. All employees receive paid annual vacations and sick leave. Dominguez provides and pays the cost of group life, disability, medical and dental insurance, as well as pensions for its employees. ENVIRONMENTAL MATTERS Dominguez's operations are subject to pollution control and water quality control as discussed in the "Water Quality" section. Other state and local environmental regulations apply to Dominguez operations and facilities. These regulations are primarily related to the handling, storage and disposal of hazardous materials. Dominguez is currently in compliance with all other state and local regulations. 5 ITEM 2. PROPERTIES. Dominguez general administrative and executive offices are located on 5 1/2 acres of company-owned property at 21718 South Alameda Street, Long Beach, California. The offices and shops were completed in April 1972. The South Bay division has 14 wells, some of which are located on its own land and some on leased sites. Well sites under lease expire between 1996 and 2010 and require aggregate annual payments of approximately $100,000. South Bay division water storage, all on owned property, consists of a 5 million gallon steel tank, four 3-1/2 million gallon steel tanks, one 750,000 gallon elevated steel storage tank and other smaller storage tanks. Kern River Valley and Antelope Valley operate approximately 45 wells and utilize approximately 20 storage tanks ranging in size from 40,000 to 300,000 gallons. The South Bay division has prior rights to lay distribution mains and for other uses on much of the public and private lands in its service area. Dominguez' claim of prior rights is derived from the original Spanish land grant covering the Dominguez service area. For this reason, Dominguez, unlike most other public utilities, generally receives compensation from the appropriate public authority when the relocation of its facilities is necessitated by the construction of roads or other projects. It is common for public utilities to bear the entire cost of such relocation. Substantially all of the property of Dominguez is subject to the lien of the Trust Indenture dated August 1, 1954, as supplemented and amended, to Chemical Trust Company of California, as Trustee, securing the three outstanding series of Dominguez' First Mortgage Bonds. 6 ITEM 3. LEGAL PROCEEDINGS. On or about November 20, 1995, Dominguez's insurance carrier settled the claims of a former employee who filed a complaint in Los Angeles Superior Court alleging, among other things, that he had been wrongfully terminated by Dominguez. The terms of the settlement will have no adverse financial impact on Dominguez. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) MARKET PRICE FOR COMMON SHARES Reference is made to Page 27 of the Annual Report to Shareholders. (b) APPROXIMATE NUMBER OF HOLDERS OF COMMON SHARES The NASDAQ Stock Market maintenance standards require that NASDAQ National Market companies have at least 400 shareholders or at least 300 shareholders of round lots. As of December 31, 1995, the company complies with the standard with 336 common shareholders of record and more than 300 beneficial shareholders, who have chosen to hold their shares in street name. (c) FREQUENCY AND AMOUNT OF ANY DIVIDENDS DECLARED Reference is made to Page 27 of the Annual Report to Shareholders. (d) DIVIDEND RESTRICTION Reference is made to page 23, Note 5 of Notes to Consolidated Financial Statements of the Annual Report to Shareholders. ITEM 6. SELECTED FINANCIAL DATA. Reference is made to Page 14 and 15 of the Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. Reference is made to Page 16 of the Annual Report to Shareholders. 8 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Financial statements incorporated by reference from the Annual Report to Shareholders: - Consolidated Balance Sheets - December 31, 1995 and 1994; - Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993; - Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993; - Notes to Consolidated Financial Statements; - Report of Independent Public Accountants. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth the names and ages of all directors and executive officers, indicating the positions and offices presently held by each.
NAME AGE POSITION AND OFFICE ---- --- ------------------- Dwight C. Baum 83 Director Richard M. Cannon 54 Director Terrill M. Gloege 60 Director Thomas W. Huston 34 Director C. Bradley Olson 55 Director Langdon Owen 65 Director Charles W. Porter 65 Director Debra L. Reed 39 Director Brian J. Brady 47 Chief Executive Officer, President and Director C. W. Rose 53 Vice President of Marketing and Corporate Secretary John S. Tootle 41 Chief Financial Officer, Vice President of Finance and Treasurer
There is no "family relationship" between any of the executive officers. Information responding to Item 10 is included in a proxy statement pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(3). ITEM 11. EXECUTIVE COMPENSATION. Information responding to Item 11 was included in a proxy statement (page 7) pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(3). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information responding to Item 12 was included in a proxy statement (page 3) pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(3). 10 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information responding to Item 13 was included in a proxy statement (page 8) pursuant to Regulation 14A and is incorporated by reference herein pursuant to General Instruction G(3). Other information is included in Note 12 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders. 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 9-K. (a) Exhibits: The following exhibits are incorporated as part of this report by reference to Registration Statement No. 33-33401, Form S-4 dated February 13, 1990. 3. by-laws of Dominguez Services Corporation Articles of Incorporation and Amendment of Dominguez Services Corporation. 22. Subsidiaries of the registrant. (b) Schedule II not included in the Annual Report to Shareholders, and related report of independent public accountants are included after Item 14 in Part IV. (c) Schedules Omitted: All other schedules have been omitted as they are not applicable, not material, or the required information is given in the Financial Statements or Notes. (d) Reference is made to the Financial Statements incorporated herein in Item 8. 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE Board of Directors Dominguez Services Corporation Long Beach, California We have audited in accordance with generally accepted auditing standards the consolidated financial statements included in the 1995 Annual Report to Shareholders of Dominguez Services Corporation, incorporated by reference in this Form 10-K, and have issued our report thereon dated March 6, 1996. Our audits of the consolidated financial statements were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplemental schedule listed in Part IV of this Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and regulations, and is not part of the basic consolidated financial statements. This supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Los Angeles, California March 6, 1996 13 DOMINGUEZ SERVICES CORPORATION And Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E Col. F ------ ------ ------ ------ ------ ------ ADDITION (1) Charged to Balance at Charged to Other (2) Balance at Beginning Costs and Accounts - Deductions End of Description of Period Expenses Describe - Describe Period ----------- --------- -------- -------- ---------- ------ Allowance for doubtful accounts: Year Ended $196,361 $120,000 $5,490 $71,711 $250,140 -------- -------- ------ ------- -------- -------- -------- ------ ------- -------- December 31,1995 Year Ended $122,235 $120,000 $3,309 $49,183 $196,361 -------- -------- ------ ------- -------- -------- -------- ------ ------- -------- December 31, 1994 Year Ended $137,773 $95,000 $6,018 $116,556 $122,235 December 31, 1993 -------- -------- ------ ------- -------- -------- -------- ------ ------- --------
Notes: (1) Receipts on accounts previously written off. (2) Accounts receivable write off. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DOMINGUEZ SERVICES CORPORATION: By -------------------------------------- Brian J. Brady, Chief Executive Officer By -------------------------------------- John S. Tootle, Chief Financial Officer By -------------------------------------- C.W. Rose, Corporate Secretary By -------------------------------------- Martin Booth, Chief Accountant Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. DIRECTORS: ---------------------------------------- D. C. BAUM Date ---------------------------------------- R. M. Cannon Date ---------------------------------------- T. M. Gloege Date ---------------------------------------- T. W. Houston Date ---------------------------------------- C. B. Olson Date ---------------------------------------- L. Owen Date ---------------------------------------- C. W. Porter ---------------------------------------- D. L. Reed Date 15 EX-13 2 EXHIBIT 13 ANNUAL REPORT FINANCIAL STATEMENTS DOMINGUEZ SERVICES CORPORATION AND SUBSIDIARIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors Dominguez Services Corporation Long Beach, California We have audited the accompanying consolidated balance sheets of Dominguez Services Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dominguez Services Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in notes 8 and 9 to the financial statements, and as required by generally accepted accounting principles, Dominguez Services Corporation changed its methods of accounting for income taxes and postretirement benefits other than pensions in 1993. ARTHUR ANDERSEN LLP Los Angeles, California March 6, 1996 - -------------------------------------------------------------------------------- MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the preparation of the Company's consolidated financial statements and related information appearing in this annual report. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements reasonably present the Company's financial position and results of operations in conformity with generally accepted accounting principles. Management also has included in the Company's financial statements amounts that are based on estimates and judgements which it believes are reasonable under the circumstances. The independent public accountants audit the Company's consolidated financial statements in accordance with generally accepted auditing standards and provide an objective, independent review of the fairness of reported operating results and financial position. The Board of Directors of the Company has an Audit Committee composed of three non-management Directors. The Committee meets periodically with financial management and the independent public accountants to review accounting, control, auditing and financial reporting matters. DOMINGUEZ SERVICES CORPORATION John Tootle Vice President-Finance TEN YEAR STATISTICAL REVIEW DOMINGUEZ SERVICES CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Summary of Operations: ($ in Thousands) Operating revenue $25,486 $23,569 $22,193 $21,813 $18,706 $19,139 $20,359 $19,409 $17,423 $16,186 Operating expenses (before taxes) 21,376 19,419 18,139 18,327 15,677 15,869 16,855 16,054 14,117 12,736 Income taxes 1,177 1,340 1,243 1,031 807 1,087 1,110 1,050 1,042 1,290 Other taxes 455 432 406 397 323 321 330 320 302 280 Other expense 7 29 20 17 32 41 18 51 65 41 Other income (165) (297) (353) (85) (73) (186) (38) (64) (275) (140) Interest cost 683 714 732 586 606 633 577 569 649 748 Net income 1,953 1,932 2,006 1,540 1,334 1,374 1,507 1,429 1,523 1,231 Dividends paid 1,170 1,110 1,070 1,009 989 965 940 884 827 765 Reinvested in the business 783 822 936 531 345 409 567 545 696 466 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Per Common Share Data:* Earnings $1.94 $1.92 $1.99 $1.53 $1.32 $1.37 $1.47 $1.42 $1.51 $1.21 Dividends $1.16 $1.10 $1.06 $1.00 $0.98 $0.96 $ .92 $ .86 $ .80 $ .73 Payout percentage 60.0% 57.5% 53.5% 65.4% 74.2% 70.1% 62.6% 60.6% 53.0% 60.6% Book value $14.83 $14.03 $13.23 $12.29 $11.77 $11.40 $10.98 $10.08 $9.53 $8.81 Return on common equity (average) 13.4% 14.1% 15.6% 12.8% 11.4% 12.2% 14.0% 14.5% 16.5% 14.1% Number shares outstanding 1,004,370 1,004,370 1,004,370 1,004,370 1,004,370 998,370 998,370 979,620 979,620 979,620 Year end market price 18.50 16.75 21.00 16.25 15.00 14.25 14.75 15.00 15.50 13.34 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Balance Sheet Data: ($ in Thousands) Gross utility plant $57,271 $55,406 $52,260 $51,037 $50,161 $46,710 $45,205 $41,536 $39,475 $37,937 Net utility plant 41,358 40,022 37,977 37,511 33,793 31,713 31,233 28,714 27,170 26,111 Non utility plant 67 67 51 105 105 104 101 93 87 55 Total assets 45,295 44,652 42,662 40,275 39,596 37,477 36,513 33,516 31,242 30,647 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Capitalization: ($ in Thousands) Long-term debt $7,273 $7,326 $7,493 $7,657 $3,829 $3,766 $4,059 $4,583 $5,062 $5,543 Preferred stock 98 98 98 98 98 126 142 784 810 830 Common equity 14,896 14,092 13,284 12,348 11,817 11,383 10,968 9,877 9,329 8,633 Total capitalization 22,267 21,516 20,875 20,103 15,744 15,275 15,169 15,244 15,201 15,006 Interim debt - - - - 3,375 2,725 950 - 1,150 900 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Capitalization Ratios: Long-term debt 32.7% 34.0% 35.9% 38.1% 24.3% 24.7% 26.8% 30.1% 33.3% 37.0% Preferred stock .4% .5% .5% .5% .6% .8% .9% 5.1% 5.3% 5.5% Common equity 66.9% 65.5% 63.6% 61.4% 75.1% 74.5% 72.3% 64.8% 61.4% 57.5% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Other Utility Statistics: Customers at year end 36,739 36,371 36,107 36,043 35,949 34,444 34,189 32,765 32,403 32,348 Average revenue per customer $665.70 $619.90 $561.27 $481.35 $423.35 $490.32 $501.95 $520.58 $488.80 $451.15 Water sales (millions of gallons) 12,371 12,071 11,359 11,731 10,906 12,957 13,339 13,237 11,794 11,529 Utility employees 78 76 75 69 71 64 56 51 51 50
* Adjusted to reflect 3-for-2 stock split effective September,1987 MANAGEMENT DISCUSSION & ANALYSIS DOMINGUIEZ SERVICES CORPORATION AND SUBSIDARIES Dominguez Services Corporation is a holding company with two wholly owned subsidiaries: Dominguez Water Corporation and Hydro-Metric Service Corporation. Dominguez Water Corporation is a public utility providing water service for more than 85 years. The South Bay division serves 32,092 customers in a 35 square mile area including most of Carson, one third of Torrance, and parts of Compton, Long Beach and Harbor City. The subsidiaries Antelope Valley Water Company and Kern River Valley Water Company serve 1,228 and 3,419 customers respectively. Hydro-Metric Service Corporation is a non-utility subsidiary which repairs and maintains large water meters in Southern California. The utility operations are under the purview of the California Public Utilities Commission (CPUC). Thus, the Company has no unilateral flexibility on rates charged for its product or service. Most variations are due to weather conditions and the usage of industrial customers. LIQUIDITY AND CAPITAL RESOURCES The Company's continuing operations provided sufficient cash to cover operating expenses and interest and dividends. In 1995, the Company funded capital improvements with operating earnings for reinvestment and cash remaining from its Series J bond issuance in 1992. The Company invested $2,622,000 in 1995, $465,000 of which was funded by developers. The Company's 1996 capital budget is $4,213,000. Budgeted improvements include $1,886,500 on supply and storage and $1,065,000 on pipeline replacements. The Company will fund budgeted improvements from earnings available for reinvestments, funds remaining from Series J bond issuance and short term borrowings. Once short term borrowing reaches a level where long term refinancing is cost effective, the Company plans another issuance of long term first mortgage bonds. The Company maintains a line of credit with Bank of America in the amount of $2,000,000 with interest at the bank's preference rate. In 1995, there was no borrowing under this line of credit. REGULATORY AFFAIRS In August 1995, the Company increased revenues by $1,400,000 annually, or 6.2%, to recover the increased cost of water production in our South Bay division. This rate increase substantially recovered the total cost increase of $1,500,000 for higher purchased water costs and pump tax. However, due to the Company's higher earnings at this time, the total cost increase was not recoverable in rates. The Company expects to recover the difference, $100,000, in the balancing account in the future. This rate increase does not increase the earnings to the Company, but rather offsets the effects of higher water production costs to the Company. In 1995, the CPUC undertook a strategic planning process referred to as "Vision 2000." The process was undertaken in response to hearings in the California Legislature concerning the organization of the CPUC and the effects that deregulation in other utility industries will have on the CPUC. The CPUC held workshops throughout the state. The Company participated in these workshops and submitted comments. The CPUC's Vision 2000 has been presented to the California Legislature. In 1996, the Legislature will assess the plan and decide if further legislative action is needed. Discussions regarding Vision 2000 indicate that the Company will continue to be subject to traditional regulatory policies and practices. The regulation may be modified to include performance standards. Using performance-based rate making, the utility and the CPUC would agree to set operating efficiency ratios. If the efficiency ratios are exceeded, the shareholders would get to keep a portion of the cost savings as increased profits. ENVIRONMENTAL MATTERS The Company is subject to water quality regulations set by the United States Environmental Protection Agency (EPA) and the California Department of Health Services (DHS). Both groundwater and purchased water are subject to extensive analysis. With the occasional minor exception, the Company met all current primary water standards. Under the Federal Safe Drinking Water Act, the EPA is required to continue to establish new maximum levels for additional chemicals. The costs of future compliance are unknown, but the Company could be required to perform more quality testing. Management believes that the Company resources are sufficient to meet these anticipated requirements. Other applicable environmental regulations relate to the handling, storage and disposal of hazardous materials. The Company is currently in compliance with all regulations. ACCOUNTING STANDARDS In 1993, the Company adopted a new income tax accounting standard which uses the balance sheet method to account for income taxes, whereby deferred taxes are recognized for all temporary differences between book and tax income. Upon adoption, the Company recorded $1,000,000 for previously unrecorded deferred taxes on temporary differences. Most of these deferred taxes were offset by deferred charges representing amounts expected to be recovered in future rates. The cumulative effect of adoption was not material to the Company's 1993 earnings. Also in 1993, the Company adopted a new accounting standard for post retirement benefits other than pen- 16 sions. It requires the expected cost of these benefits to be expensed during one's employment. Previously, these benefits were expensed when paid. The Company is amortizing its $588,000 obligation for prior service over 20 years. The CPUC allows the Company to recover tax-deductible funding for these benefits in rates. Any difference between expenses determined under the new standard and amounts authorized for rate recovery is not expected to be material and will be charged to earnings. RESULTS OF OPERATIONS 1995 COMPARED TO 1994 Operating revenues totaled $25,486,000 for 1995, an increase of $1,917,000 or 8.1% over the $23,569,000 recorded for 1994. The increased revenues are due to higher water rates and increased water sales. The higher water rates resulted from the pass-through of increases in water production costs to our South Bay customers. Higher water sales in all divisions resulted in an increase of 300 million gallons or 2.4% over the prior year. Higher water sales were due primarily to increased usage by industrial customers. Operating expenses before taxes increased by $1,957,000, or 10.1%, largely due to a $2,031,000, or 18.3%, increase in the costs of water. Higher water costs are due primarily to increased costs of purchased water and higher water sales. Operations and maintenance costs decreased by $103,000 or 1.4% due mostly to the reversal of accrued litigation costs. Other income decreased by $109,000 or 40.7% due to less income from brokering water rights. Interest costs decreased by $31,000 or 4.3% due to lower borrowing costs as Series G bonds were paid off. Net income increased $21,000 or 1.0% due to higher water sales and lower expenses as previously stated. Earnings per share on common equity increased from $1.92 to $1.94 for reasons stated above. The Company raised its annual dividend to common shareholders from $1.10 in 1994 to $1.16 in 1995, an increase of 5.4%. RESULTS OF OPERATIONS 1994 COMPARED TO 1993 Operating revenues for 1994 increased $1,376,000 or 6.2% over 1993. The increased revenues are attributed to higher water rates and increased water sales. The water rates were increased for a "step" offset of $281,000, or 1.3%, and $750,000, or 3.6%, for higher costs of water in the South Bay. General rate increases raised Antelope Valley Water Company and Kern River Valley Water Companies revenues by $110,000 and $185,000 respectively. Higher water sales in all divisions resulted in an increase of 721 million gallons or 6.2% over the prior year. Operating expenses before taxes increased $1,280,000, or 7.1%, from 1993 due primarily to increased costs of water in the amount of $834,000 or 8.1%. Higher water costs are due to increased costs of purchased water and higher water sales. Operations and maintenance costs increased $388,000 or 5.7%. Increases occurred in costs of labor and outside services. Other income decreased by $65,000 or 19.5% due to the one-time gain on sale of land which occurred in 1993 but was offset by income from brokering water rights. Net income decreased in 1994 by approximately $77,000 or 4.0% primarily due to gain on sale of land recorded in 1993 which increased non-operating income. Earnings per share on common equity decreased from $1.99 to $1.92 due to lower other income as discussed above. RESULTS OF OPERATIONS 1993 Compared to 1992 Operating revenues for 1993 increased $380,000 over 1992. The increased revenues are attributable to a general rate increase of $1,500,000 for the South Bay customers, associated with higher water costs of $1,470,000 and a 1993 annual surcharge of $517,000. These revenue increases did not include prior year non-recurring recovery of lost revenues associated with the 1991/1992 drought in the amount of $470,000; recovery of prior year production costs in the amount of $418,000; and higher distribution sales in 1993 for Hydro-Metric Service Corporation of $1,700,000. Operating expenses before taxes decreased $188,000. Water and other production costs increased approximately $830,000 due to higher costs of purchased water offset by smaller purchases in 1993. Other operations and maintenance costs dropped $1,128,000 due to reduced costs of sales for Hydro-Metric Service Corporation of $1,700,000, which was offset by higher payroll and benefit costs of approximately $400,000, including adoption costs of $114,000 for FASB 106. Other income increased by approximately $268,000 due to gain on sale of land in 1993. Under the threat of condemnation, the Company sold approximately 20,000 square feet of non-utility property for $434,000. A provision has been recorded for $169,000 to relocate its main entrance so the property will be of the same benefit to customer and utility personnel. The net gain has been allocated to ratepayers of $45,000 and shareholders of $220,000 to reflect expected regulatory treatment. Net income increased in 1993 by $466,000 or 30% due to higher water rates, the 1993 annual surcharge and the sale of land. 17 CONSOLIDATED BALANCE SHEETS DOMINGUEZ SERVICES CORPORATION AND SUBSIDIARIES
December 31, ----------------------- ($ in Thousands) 1995 1994 - -------------------------------------------------------------------------------- Assets: Property, plant and equipment (Notes 1 & 4): Utility plant $56,363 $54,069 - -------------------------------------------------------------------------------- Non-utility plant 67 67 - -------------------------------------------------------------------------------- 56,430 54,136 - -------------------------------------------------------------------------------- Less: Accumulated depreciation 20,312 19,586 - -------------------------------------------------------------------------------- 36,118 34,550 - -------------------------------------------------------------------------------- Land and land rights 459 432 - -------------------------------------------------------------------------------- Water rights and other intangible assets 167 167 - -------------------------------------------------------------------------------- Construction work in progress 292 748 - -------------------------------------------------------------------------------- Total property, plant and equipment 37,036 35,897 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Cash, including restricted cash of $434 in 1995 and $344 in 1994 (Notes 1 & 5) 764 1,502 - -------------------------------------------------------------------------------- Accounts receivable: Customers, less an allowance for doubtful accounts of $250 in 1995 and $196 in 1994 1,523 1,625 - -------------------------------------------------------------------------------- Unbilled revenues 949 756 - -------------------------------------------------------------------------------- Other 546 887 - -------------------------------------------------------------------------------- Materials and supplies at average cost (Note 4) 94 101 - -------------------------------------------------------------------------------- Prepayments and other 440 427 - -------------------------------------------------------------------------------- Production cost balancing account (Note 1) 620 377 - -------------------------------------------------------------------------------- Deferred tax asset (Note 1 & 9) 340 240 - -------------------------------------------------------------------------------- Total current assets 5,276 5,915 - -------------------------------------------------------------------------------- Notes receivable 137 143 - -------------------------------------------------------------------------------- Prepaid taxes and others (Note 1) 1,494 1,367 - -------------------------------------------------------------------------------- Deferred charges, less accumulated amortization of $83 in 1995 and $68 in 1994 (Note 1) 206 235 - -------------------------------------------------------------------------------- Income tax related deferred charges (Note 1 & 9) 1,146 1,095 - -------------------------------------------------------------------------------- Total Assets $45,295 $44,652 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
18 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
December 31, ----------------------- ($ in Thousands) 1995 1994 - -------------------------------------------------------------------------------- Capitalization and Liabilities: Common shareholders' equity: - -------------------------------------------------------------------------------- Common shares: Par value $1 Authorized: 2,000,000 shares Issued: 1,004,370 $1,004 $1,004 - -------------------------------------------------------------------------------- Paid-in capital 2,512 2,491 - -------------------------------------------------------------------------------- Retained earnings (Note 3) 11,380 10,597 - -------------------------------------------------------------------------------- Total common shareholders' equity 14,896 14,092 - -------------------------------------------------------------------------------- Preferred shares (Note 2) - -------------------------------------------------------------------------------- Class A, $25 par value per share 98 98 - -------------------------------------------------------------------------------- Long-term debt (Note 4) 7,273 7,326 - -------------------------------------------------------------------------------- Total capitalization 22,267 21,516 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Current maturities of long-term debt (Note 4) 81 319 - -------------------------------------------------------------------------------- Accounts payable 3,027 2,783 - -------------------------------------------------------------------------------- Current portion of advances for construction (Note 6) 200 195 - -------------------------------------------------------------------------------- Accrued interest 240 68 - -------------------------------------------------------------------------------- Other accrued expenses 1,179 1,277 - -------------------------------------------------------------------------------- Income taxes (Note 1 & 9) 134 248 - -------------------------------------------------------------------------------- Total current liabilities 4,861 4,890 - -------------------------------------------------------------------------------- Advances for construction (Note 6) 5,240 5,139 - -------------------------------------------------------------------------------- Contributions in aid of construction (Note 7) 6,056 6,264 - -------------------------------------------------------------------------------- Deferred income taxes (Note 1 & 9) 3,399 3,253 - -------------------------------------------------------------------------------- Unamortized investment tax credit (Note 1) 298 310 - -------------------------------------------------------------------------------- Accrued pension cost (Note 8) 1,114 1,323 - -------------------------------------------------------------------------------- Deferred credits 2,060 1,957 - -------------------------------------------------------------------------------- Total Capitalization and Liabilities $45,295 $44,652 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
19 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS CONSOLIDATED STATEMENT OF INCOME & RETAINED EARNINGS DOMINGUEZ SERVICES CORPORATION AND SUBSIDIARIES
For the years ended December 31, ------------------------------------- ($ in Thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Consolidated Statements of Income Operating revenue $25,486 $23,569 $22,193 - ----------------------------------------------------------------------------------------------- Operating expenses: - ----------------------------------------------------------------------------------------------- Purchased water 11,204 11,437 10,872 - ----------------------------------------------------------------------------------------------- Other production costs 1,913 (351) (620) - ----------------------------------------------------------------------------------------------- Operations 6,006 6,095 5,765 - ----------------------------------------------------------------------------------------------- Maintenance 978 992 938 - ----------------------------------------------------------------------------------------------- Depreciation 1,275 1,246 1,184 - ----------------------------------------------------------------------------------------------- Taxes: - ----------------------------------------------------------------------------------------------- Property 277 274 258 - ----------------------------------------------------------------------------------------------- Other 179 158 148 - ----------------------------------------------------------------------------------------------- Income taxes (Notes 1 & 9) 1,177 1,340 1,243 - ----------------------------------------------------------------------------------------------- Total operating expenses 23,009 21,191 19,788 - ----------------------------------------------------------------------------------------------- Operating income 2,477 2,378 2,405 - ----------------------------------------------------------------------------------------------- Other income (expenses): - ----------------------------------------------------------------------------------------------- Interest and amortization of debt (683) (714) (732) - ----------------------------------------------------------------------------------------------- Gain on sale of property (Note 1) - - 220 - ----------------------------------------------------------------------------------------------- Water brokering 95 198 - - ----------------------------------------------------------------------------------------------- Other 64 70 113 - ----------------------------------------------------------------------------------------------- Net income $1,953 $1,932 $2,006 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Earnings per common share $1.94 $1.92 $1.99 - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
------------------------------------- For the years ended December 31, ($ in Thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Consolidated Statements of Retained Earnings Balance at beginning of year $10,597 $9,775 $8,839 - ----------------------------------------------------------------------------------------------- Net income 1,953 1,932 2,006 - ----------------------------------------------------------------------------------------------- Cash dividends: - ----------------------------------------------------------------------------------------------- Preferred stock, Class A $1.25 per share 5 5 5 - ----------------------------------------------------------------------------------------------- Common stock:1995 - $1.16 per share 1,165 - - - ----------------------------------------------------------------------------------------------- 1994 - $1.10 per share - 1,105 - - ----------------------------------------------------------------------------------------------- 1993 - $1.06 per share - - 1,065 - ----------------------------------------------------------------------------------------------- Balance at end of year $11,380 $10,597 $9,775 - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
20 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. CONSOLIDATED STATEMENT OF CASH FLOW DOMINGUEZ SERVICES CORPORATION AND SUBSIDIARIES
For the years ended December 31, ------------------------------------- ($ in Thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Increase (Decrease) in Cash: Cash flows from operating activities: - ----------------------------------------------------------------------------------------------- Net income $1,953 $1,932 $2,006 - ----------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: - ----------------------------------------------------------------------------------------------- Depreciation and amortization 1,291 1,262 1,201 - ----------------------------------------------------------------------------------------------- Deferred income taxes and investment tax credits 134 36 1,602 - ----------------------------------------------------------------------------------------------- Gain on sale of property - - (220) - ----------------------------------------------------------------------------------------------- Change in assets and liabilities: - ----------------------------------------------------------------------------------------------- Customer receivables - net 102 (65) 241 - ----------------------------------------------------------------------------------------------- Notes receivable 6 6 6 - ----------------------------------------------------------------------------------------------- Other receivables 341 (85) (224) - ----------------------------------------------------------------------------------------------- Materials and supplies 7 (1) 162 - ----------------------------------------------------------------------------------------------- Accounts payable 244 762 (275) Income taxes (receivable) payable (114) (23) 83 - ----------------------------------------------------------------------------------------------- Accrued pension cost (209) 162 - - ----------------------------------------------------------------------------------------------- Income tax related deferred charges (51) 6 (1,101) - ----------------------------------------------------------------------------------------------- Other, net (627) (527) 343 - ----------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,077 3,465 3,824 - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Cash flows from investing activities: - ----------------------------------------------------------------------------------------------- Capital expenditures (2,622) (3,318) (1,652) - ----------------------------------------------------------------------------------------------- Proceeds from the sale of property, plant and equipment - - 434 - ----------------------------------------------------------------------------------------------- Net cash used for investing activities (2,622) (3,318) (1,218) - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Cash flows from financing activities: - ----------------------------------------------------------------------------------------------- Proceeds from advances for construction 287 164 3 - ----------------------------------------------------------------------------------------------- Proceeds from contributions in aid of construction 178 111 115 - ----------------------------------------------------------------------------------------------- Repayment of advances for construction (197) (204) (227) - ----------------------------------------------------------------------------------------------- Repayment of long-term debt (291) (19) (162) - ----------------------------------------------------------------------------------------------- Dividends paid (1,170) (1,110) (1,070) - ----------------------------------------------------------------------------------------------- Net cash used for financing activities (1,193) (1,058) (1,341) - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Net increase (decrease) in cash (738) (911) 1,265 - ----------------------------------------------------------------------------------------------- Cash at beginning of year 1,502 2,413 1,148 - ----------------------------------------------------------------------------------------------- Cash at end of year $764 $1,502 $2,413 - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
21 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. Note 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Dominguez Services Corporation and its subsidiaries. The preparation of financial statements are in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities. These principles also require disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company and its subsidiaries operate in the water services industry. All significant inter-company transactions have been eliminated. The Company maintains its accounts in accordance with the uniform system of accounts prescribed by the California Public Utilities Commission (CPUC). REVENUES: Water service revenues are recognized on an accrual basis. The unbilled revenue accrual is based on estimated usage from the latest meter reading to the end of the accounting period. PROPERTY, PLANT AND EQUIPMENT: Utility plant is carried at the value established in 1939 by the CPUC with subsequent additions at cost or donor's basis, which approximates cost, less cost of retirements, sales and abandonments. Water rights are stated at the nominal amount of $1 plus purchased water rights at cost and past expenditures in connection with litigation in defense thereof. Depreciation of utility plant for financial statement purposes is computed using the CPUC remaining life accrual method. Under this method, composite straight-line depreciation rates are determined by periodic estimates of average remaining life of all utility plant assets. Costs of abandonments and salvages are charged or credited to accumulated depreciation. The effective composite depreciation rate was 3.0% and 3.1% in 1995 and 1994, respectively. Costs of maintenance and repairs are charged to operations; renewals and betterments are generally capitalized in the property accounts. PREPAID TAXES AND OTHERS: Beginning in 1987, contributions in aid of construction and advances for construction became taxable for Federal income tax purposes. The Company is paying these taxes and deferring them. These taxes will be recovered over the tax life of the assets for contributions and the life of the contracts for advances. DEFERRED CHARGES: Debt expense on bonds is being amortized based on the percentage of the principal amount outstanding over the term of the debt. PRODUCTION COST BALANCING ACCOUNT: During 1993, the Company collected $517,000 from its customers related to under- collected cost as of October 1992. These amounts were recorded as revenue during 1993. Based on the order authorizing this collection, the Company adopted a policy, effective October 1, 1992, to record over or under-collections of production costs when incurred in its books of accounts and financial statements. As of December 31,1995 and 1994, the balancing account reflected an under-collection of $620,000 and $377,000 respectively. SALE OF PROPERTY: Under the threat of condemnation, in 1993 the Company sold approximately 20,000 square feet of its property, principally non utility land, to the City of Carson for the construction of an overhead vehicular viaduct structure to span Alameda Street and the adjacent railroad tracks for $434,000. A provision for $169,000 has been established to relocate the Company's main entrance so its customers and utility personnel will retain similar access to and utilization of its main office property. The net gain has been allocated to ratepayers of $45,000 and shareholders of $220,000 to reflect expected regulatory treatment. 22 INCOME TAXES: The Company provides deferred income taxes for certain transactions which are recognized for income tax purposes in a period different from that in which they are reported in the financial statements. Investment Tax Credits (ITC) have been deferred and are being amortized as reductions to income tax expense proportionately over the lives of the property giving rise to the credits. The Company adopted FASB statement 109 in January 1993. Adoption of the new standard did not have a material effect on results of operations. EARNINGS PER SHARE: Per share data is based upon net income after recognition of dividend requirements for preferred stock and the weighted average number of common shares outstanding during the year. RESTRICTED CASH: Restricted cash represents surcharge proceeds plus interest earned which is restricted to the payment of principal and interest on the California Safe Drinking Water Bond. RECLASSIFICATIONS: The 1995 and 1994 consolidated financial statements include certain reclassifications necessary to conform to current year presentation. Note 2 - SHAREHOLDERS' EQUITY The Class A Preferred Shares are 5% cumulative, with 30,000 shares authorized, and 3,901 shares in 1995 and 1994 issued and outstanding. As of March 15, 1996, the Company has elected to redeem all the outstanding Class A Preferred Shares. Note 3- RESTRICTIONS ON DIVIDENDS Under the terms of its long-term debt agreements, Dominguez Water Corporation is limited in its payment of dividends (other than stock dividends) on all classes of stock to the net income accrued subsequent to December 31, 1992 plus the sum of $3,000,000. The approximate unrestricted earnings available for dividend payments amounted to $5,541,000 as of December 31, 1995. The Company's available dividends to its shareholders is substantially dependent on the availability of dividends from Dominguez Water Corporation to the Company. Note 4- LONG TERM DEBT (a) FIRST MORTGAGE BONDS: Under a trust indenture dated August 1, 1954 and twelve supplemental indentures, the Company pledged substantially all its property, water rights, and materials and supplies as collateral under the bonds. At December 31, 1995 and 1994 first mortgage bonds outstanding were: Carrying Amount $ in Thousands 1995 1994 - -------------------------------------------------------------------------------- Series F,8% due 1997 $774 $792 - -------------------------------------------------------------------------------- Series G, 10% due 1995 - 240 - -------------------------------------------------------------------------------- Series H, 9-3/8% due 1998 1,330 1,370 - -------------------------------------------------------------------------------- Series J, 8.86% due 2022 4,000 4,000 - -------------------------------------------------------------------------------- Total First Mortgage Bonds $6,104 $6,402 - -------------------------------------------------------------------------------- (b) SMALL BUSINESS ADMINISTRATION LOAN: - -------------------------------------------------------------------------------- 4%-due 2000 $53 $61 - -------------------------------------------------------------------------------- (c) DEPARTMENT OF WATER RESOURCES LOAN: Under the California Safe Drinking Water Bond Act of 1976 - -------------------------------------------------------------------------------- 8.1%-due 2020 $503 $486 - -------------------------------------------------------------------------------- 8.1%-due 2032 447 447 - -------------------------------------------------------------------------------- 8.1%-due 2034 247 249 - -------------------------------------------------------------------------------- Total Bonds & Notes $7,354 $7,645 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Less: Current Maturities 81 319 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total Long Term Debt $7,273 $7,326 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Aggregate maturities for the five years commencing with 1995 are approximately $81,000 (1996), $819,000 (1997), $1,273,000 (1998), $23,000 (1999), $20,000 (2000). Note 5 - INTERIM DEBT The Company maintains an available line of credit of $2,000,000 with Bank of America. During the year there were no borrowings outstanding under the line of credit. The Company intends to renew the line of credit which expires in June 1996. In connection with the line of credit, the Company maintains on deposit with the bank an average compensating balance equal to 5% of the line of credit. Borrowing bears interest at the preference lending rate. 23 Note 6 - ADVANCES FOR CONSTRUCTION Advances for construction of main extensions are primarily refundable to depositors over a 20 year or 40 year period. Refund amounts under the 20 year contracts are based on annual revenues from the extension. Balances at the end of the contract period are refunded in five equal yearly installments. Beginning in June 1982 contracts provide for full refund at a 2-1/2% rate per year for 40 years. Estimated refunds for 1996 for all main extension contracts are $200,000. Note 7- CONTRIBUTIONS IN AID OF CONSTRUCTION Contributions in aid of construction are donations or contributions in cash, services or property from governmental agencies, or individuals for the purpose of constructing utility facilities. Depreciation applicable to such plants is charged to the contributions in aid account rather than to depreciation expense. The charges continue until the cost applicable to such properties has been fully depreciated or the asset has been retired. $ in Thousands 1995 1994 - -------------------------------------------------------------------------------- Beginning balance $6,264 $6,471 - -------------------------------------------------------------------------------- Add net contributions during the year 18 31 - -------------------------------------------------------------------------------- Deduct depreciation for the year charged on plant acquired through donations (226) (238) - -------------------------------------------------------------------------------- Ending Balance $6,056 $6,264 - -------------------------------------------------------------------------------- Note 8- EMPLOYEE BENEFITS The Company provides a qualified defined benefit plan for all its full-time employees. Benefits under this plan reflect the employee's compensation, years of service and age at retirement. Funding is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974, as amended. Pension costs were $401,000 in 1995, $505,000 in 1994 and $448,000 in 1993. Beginning January 1, 1987, costs for pensions are determined under the rules prescribed by Statement of Financial Accounting Standards (SFAS) No. 87, including the use of the projected unit credit actuarial cost method. For rate making purposes, the Company recovers pension expense based on the method in place prior to SFAS No. 87. The effects of this change in accounting were not material to the financial statements. The components of the 1995, 1994 and 1993 provisions are summarized as follows: $ in Thousands - -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Service cost (including expense) $498 $549 $516 - -------------------------------------------------------------------------------- Interest cost 574 545 518 - -------------------------------------------------------------------------------- Actual return on assets (1111) (55) (656) - -------------------------------------------------------------------------------- Amortization of: Unrecognized - -------------------------------------------------------------------------------- Net asset (58) (58) (58) - -------------------------------------------------------------------------------- Unrecognized net gain (loss) 498 (476) 128 - -------------------------------------------------------------------------------- Net Pension Cost $401 $505 $448 - -------------------------------------------------------------------------------- The obligations for pension benefits and the amount recognized in the Consolidated Balance Sheets are re-conciled as follows: $ in Thousands 1995 1994 - -------------------------------------------------------------------------------- Plan assets, at fair value, invested in stocks and bonds $9,127 $7,597 - -------------------------------------------------------------------------------- Actuarial present value of projected benefit obligation (8,511) (7,409) - -------------------------------------------------------------------------------- Plan assets in excess (deficit) of projected benefit obligation $616 $188 - -------------------------------------------------------------------------------- Unrecognized prior service cost 201 - - -------------------------------------------------------------------------------- Unrecognized net asset (350) (408) - -------------------------------------------------------------------------------- Unrecognized net gain (1581) (1,103) - -------------------------------------------------------------------------------- Accrued pension cost $(1114) $(1,323) - -------------------------------------------------------------------------------- Discount rate 7.50% 7.75% - -------------------------------------------------------------------------------- Rate of compensation increase 4.50% 5.0% - -------------------------------------------------------------------------------- Expected return on assets 7.50% 7.75% - -------------------------------------------------------------------------------- The accumulated benefit obligation of $7,037,000 at December 31, 1995 including vested benefits of $6,904,000 represents the present value of future pension benefit payments and is based on the Plan's benefit formulas without considering expected future salary increases. The projected benefit obligation considers future salary increases. Postretirement Benefits Other Than Pensions In January 1993, the Company adopted a new accounting standard for postretirement benefits other than pensions, which requires the expected cost of these benefits to be charged to expense during employees' years of service. The Company will amortize its $588,000 obligation related to prior service over 20 years. The Company provides health care benefits for retired employees until both the employee and their 24 spouse have reached 65 years of age. Health care benefits are subject to deductibles, co-payment provisions and other limitations. The Company funds the plan up to tax-deductible limits, in accordance with rate-making practices. Total expense was $90,000 in 1995. Any difference between expense determined under the new standard and amounts authorized for rate recovery is not expected to be material and will be charged to earnings. The components of postretirement benefits other than pensions expense were:
$ in Thousands 1995 1994 - ----------------------------------------------------------- Service cost for benefits earned $39 $ 46 - ----------------------------------------------------------- Interest cost 45 47 - ----------------------------------------------------------- Actual return on assets (1) - - ----------------------------------------------------------- Amortization of losses from prior periods (6) - - ----------------------------------------------------------- Amortization of transition obligation 28 28 - ----------------------------------------------------------- Assets gain (loss) deferred (15) (8) - ----------------------------------------------------------- Total $90 $113 - -----------------------------------------------------------
The assumed rate of future increases in the per-capita cost of health care benefits is 6.5%. Increasing the health care cost trend rate by one percentage point would increase the accumulated obligation as of December 31,1995 from $647,000 to $725,000,a $78,000 increase, and annual aggregate service and interest costs from $84,000 to $98,000, a $14,000 increase. The actuarial assumptions used were discount rates of 7.5% at December 31, 1995 and 7.75% at January 1, 1995 and an expected long-term rate of return on plan assets of 7.5% and 7.75% respectively. The Company offers its employees a 401(K) plan. Employees make all contributions under the plan. Note 9- INCOME TAXES In January 1993, the Company adopted a new income tax accounting standard. This standard requires the balance sheet method to account for income taxes, where deferred taxes are recognized for all temporary differences between book and tax income. Upon adoption of the standard, the Company recorded balance sheet adjustments of $1,000,000 for previously unrecorded deferred taxes on temporary differences. Substantially all of these deferred taxes were offset by deferred charges representing amounts expected to be recovered in future rates. CURRENT AND DEFERRED TAXES Income tax expenses include the current tax liability from operations and the change in deferred income taxes during the year. Investment tax credits are amortized over the life of related properties. The components of the net accumulated deferred income tax liabilities were:
$ in Thousands 1995 1994 - --------------------------------------------------------------------- Deferred tax assets: - --------------------------------------------------------------------- Pension plan $495 $495 - --------------------------------------------------------------------- Other 531 461 - --------------------------------------------------------------------- Total deferred tax assets $1,026 $956 - --------------------------------------------------------------------- Deferred tax liabilities: - --------------------------------------------------------------------- Depreciation $2,749 $2,482 - --------------------------------------------------------------------- Property-related 1,300 1,336 - --------------------------------------------------------------------- Other 36 151 - --------------------------------------------------------------------- Total deferred tax liabilities $4,085 $3,969 - --------------------------------------------------------------------- Net accumulated deferred income taxes $3,059 $3,013 - --------------------------------------------------------------------- Classification of accumulated deferred income taxes: - --------------------------------------------------------------------- Included in current assets 340 240 - --------------------------------------------------------------------- Included in deferred taxes $3,399 $3,253 - ---------------------------------------------------------------------
The current and deferred components of income tax expenses were:
$ in Thousands 1995 1994 1993 - -------------------------------------------------------------------------------- Current income taxes: - -------------------------------------------------------------------------------- Current federal $842 $955 $825 - -------------------------------------------------------------------------------- Current state 271 310 274 - -------------------------------------------------------------------------------- Investment tax credit (12) (12) (13) - -------------------------------------------------------------------------------- Total current taxes $1,101 $1,253 $1,086 - -------------------------------------------------------------------------------- Deferred income taxes: - -------------------------------------------------------------------------------- Depreciation $267 $188 $188 - -------------------------------------------------------------------------------- Contributions and advances (158) (78) (14) - -------------------------------------------------------------------------------- Pension plan - (47) n - - -------------------------------------------------------------------------------- Other (33) 27 (17) - -------------------------------------------------------------------------------- Total deferred taxes $76 $90 $157 - --------------------------------------------------------------------------------
A reconciliation of the federal statutory income tax rate to the effective rate is presented below:
Percent 1995 1994 1993 - -------------------------------------------------------------------------------- Expected income tax expense 34% 34% 34% - -------------------------------------------------------------------------------- Increase (decrease) in expected income tax resulting from: Effect of state income tax 6% 6% 6% - -------------------------------------------------------------------------------- Gain on sale of property - - (3%) - -------------------------------------------------------------------------------- Abandonments (2%) - 1% - -------------------------------------------------------------------------------- Other - 1% - - -------------------------------------------------------------------------------- Total 38% 41% 38% - --------------------------------------------------------------------------------
25 NOTES TO THE FINANCIAL STATEMENTS DOMINGUEZ SERVICES CORPORATION AND SUBSIDIARIES Note 10- BUSINESS RISKS AND CONCENTRATION OF SALES Fifty percent of the Company's water supplies comes from its own groundwater wells, and 50% comes from wholesalers of imported water. The long term availability of imported water supplies are dependent upon several factors. Drought conditions throughout the state, increases in population, tightening of water quality standards and legislation may reduce water supplies. At this time, the Company does not anticipate any constraints on its imported water supplies due primarily to above average precipitation in prior years. The Company is taking steps to reduce its dependence on imported water supplies. The Company is working with the West Basin Municipal Water District to bring reclaimed water into its South Bay service area. The Company continues to drill new wells, so that it can utilize its total adjudicated groundwater rights. The Company's utility operations are engaged in supplying water to the public. The Company is required to provide service and grant credit to customers within its defined service territories. Although the Company has a diversified base of residential, business/industrial and public authority customers, a substantial portion, 53% in 1995 and 50% in 1994, of business and industrial sales are dependent upon the refineries. One single refinery was responsible for 37% of this business/industrial consumption in 1995, and for 38% in 1994. Sales for 1995 and 1994 are as follows:
$ in Thousands 1995 1994 - ------------------------------------------------------------------------ Residential/ Multi Family $10,584 $10,196 - ----------------------------------------------------------------------- Business/ Industrial 11,759 10,291 - ----------------------------------------------------------------------- Public Authority 1,436 1,402 - ----------------------------------------------------------------------- All Other 1,488 1,465 - ----------------------------------------------------------------------- Total $25,267 $23,354 - -----------------------------------------------------------------------
Note 11 - SUPPLEMENTAL CASH FLOW INFORMATION
$ in Thousands 1995 1994 1993 - --------------------------------------------------------------------- Cash paid for: - --------------------------------------------------------------------- Interest, net $501 $523 $678 - --------------------------------------------------------------------- Income taxes $1,270 $1,075 $643 - ---------------------------------------------------------------------
Note 12 - RELATED PARTY TRANSACTIONS The Company annually refunds a portion of revenue received from several water mains for which Watson Land Company, Carson Estate Company and Dominguez Properties advanced the construction funds to the Company. The refunds to Watson Land Company were $16,516 in 1995 and $15,307 for 1994. The refunds to Carson Estate Company were $1,110 for 1995 and $1,110 for 1994. The refunds to Dominguez Properties were $6,176 for 1995 and $6,176 for 1994. The Company also leases sites used for wells from Watson Land Company and Dominguez Properties. The rental costs for 1995 were $38,652 and $2,678 respectively. The Company provides water service to these entities to the extent that they have property within the division. Note 13 - LITIGATION The Company's insurance carrier has settled the two lawsuits filed in the California Superior Court that arose from the shooting death of an employee by another employee in January 1994. Legal costs accrued in anticipation of litigation have been reversed. The terms of the settlements had no material adverse financial impact on the Company. 26 QUARTERLY FINANCIAL DATA (Unaudited)
Operating Revenue Net Income Earnings ($ in thousands) ($ in thousands) Per Share 1995 1994 1995 1994 1995 1994 - -------------------------------------------------------------------------------- First Quarter $5,094 $4,840 $233 $223 $.23 $.22 - -------------------------------------------------------------------------------- Second Quarter 6,868 5,867 605 653 .60 .65 - -------------------------------------------------------------------------------- Third Quarter 7,552 7,736 749 693 .75 .69 - -------------------------------------------------------------------------------- Fourth Quarter 5,972 5,126 366 363 .36 .36 - -------------------------------------------------------------------------------- Year $25,486 $23,569 $1,953 $1,932 $1.94 $1.92
MARKET INFORMATION (Unaudited) MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS Common stock trades on NASDAQ under the symbol DOMZ. NASDAQ is an automated quotations system developed by the National Association of Security Dealers for the over-the-counter market. There were 336 common shareholders of record as of December 31, 1995, as well as 314 common shareholders held in street name. Quarterly dividends have been paid since 1964. We cannot predict future actions of the Board of Directors, but at the present time, there is no change contemplated in the Company's dividend policy. The following record of common stock prices for 1995 and 1994 was obtained from the National Association of Securities Dealers, Inc., 1735 K Street Northwest, Washington, D.C. 20006:
1995 High Low Div. - ----------------------------------------------------------- 1st Quarter 17-3/4 16-3/4 .29 - ----------------------------------------------------------- 2nd Quarter 17-3/4 16-1/2 .29 - ----------------------------------------------------------- 3rd Quarter 17-1/2 16 .29 - ----------------------------------------------------------- 4th Quarter 19 16 .29 - ----------------------------------------------------------- 1994 High Low Div. - ----------------------------------------------------------- 1st Quarter 20-1/2 19-1/4 .275 - ----------------------------------------------------------- 2nd Quarter 19-1/2 17 .275 - ----------------------------------------------------------- 3rd Quarter 18-1/4 17 .275 - ----------------------------------------------------------- 4th Quarter 17-1/4 16-1/2 .275 - -----------------------------------------------------------
27 EX-27 3 EXHIBIT 27
5 This schedule contains summary financial information extracted from the consolidated balance sheets and consolidated income statement for the period ending December 31, 1995 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 751,606 0 2,721,698 (250,140) 94,171 5,272,443 57,385,861 20,312,058 45,294,758 4,900,070 6,023,000 0 97,525 1,004,370 13,794,767 45,294,758 23,779,740 25,488,322 11,204,027 20,101,015 0 20,737 683,133 3,129,940 1,177,432 1,952,508 0 0 0 1,952,508 1.94 1.94
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