-----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, UrgLIJffNpTjtcC/m/06UKUqwsulVbQ/E83MYukXKZ7oZimmXFakPjOXpaRCSvXG PVWBIzS63oiFpyrTJxM5ow== 0000912057-99-005779.txt : 19991117 0000912057-99-005779.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-005779 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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-Q SEC ACT: SEC FILE NUMBER: 333-71957 FILM NUMBER: 99752906 BUSINESS ADDRESS: STREET 1: 21718 S ALAMEDA ST CITY: LONG BEACH STATE: CA ZIP: 90810 BUSINESS PHONE: 3108342625 MAIL ADDRESS: STREET 1: 21718 SOUTH ALAMEDA ST STREET 2: 21718 SOUTH ALAMEDA ST CITY: LONG BEACH STATE: CA ZIP: 90810 10-Q 1 FORM 10-Q 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 September 30, 1999 For Quarter Ended............................................on file No. 0-18677 DOMINGUEZ SERVICES CORPORATION ................................................................................ (Exact name of registrant as specified in its charter) CALIFORNIA 33-0391161 ................................................................................ (State of other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 21718 SOUTH ALAMEDA STREET, LONG BEACH, CALIFORNIA 90810 ................................................................................ (Address of principal executive offices) (Zip Code) (310) 834-2625 Registrant's telephone number, including area code.............................. ................................................................................ Former name, former address and former fiscal year, if changed since last report. 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, and (2) has been subject to such filing requirements for the past 90 days. YES ________X________ NO _________________ (APPLICABLE ONLY TO CORPORATE ISSUERS): Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Common stock (one class) - 1,560,979 DOMINGUEZ SERVICES CORPORATION INDEX
PAGE NO. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (a) Consolidated Income Statement for the 3 Quarter Ended September 30, 1999 and 1998 (b) Consolidated Income Statement for the 4 Nine Months Ending September 30, 1999 and 1998 (c) Consolidated Income Statement for the 5 Twelve Months Ending September 30, 1999 and 1998 (d) Consolidated Balance Sheet as of 6 September 30, 1999 and Consolidated Balance Sheet as of December 31, 1998 (e) Consolidated Statements of Cash Flows 7 for the Nine Months Ending September 30, 1999 and 1998 (f) Capitalization and Stockholders' Equity 8 as of September 30, 1999 (g) Notes to Consolidated Financial 9 Statements Item 2. Management's Discussion and Analysis of 10-15 Financial Condition and Results of Operation PART II - OTHER INFORMATION Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 Signature 16
2 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Company or group of companies for which report is filed: Dominguez Services Corporation, Dominguez Water Company, Antelope Valley Water Company, Kern River Valley Water Company (Consolidating Kernville Domestic Water Company and Arden Water Company), Redwood Valley Water Company and DSC Investments. (a) Consolidated Income Statement (Unaudited) - Fiscal Quarter ending:
For the For the Quarter Ending Quarter Ending September 30, 1999 September 30, 1998 ------------------ ------------------ Operating revenue $8,274,112 $7,682,087 Costs and expenses Operating expenses 6,918,733 6,800,686 Interest expenses 239,273 214,882 Total costs and expenses 7,158,006 7,015,568 Income from operations 1,116,106 666,519 Other income and deductions 53,781 183,081 Income before taxes on income 1,169,887 849,600 Provision for taxes on income 463,175 338,000 Income before extraordinary item 706,712 511,600 Extraordinary item, net of tax 20,896 -- ---------- ---------- Net income applicable to common shares $ 685,816 $ 511,600 ========== ========== Earnings per common share (basic & diluted) $ 0.44 $ 0.34 Dividends per common share $ 0.2400 $ 0.2300 Average common shares outstanding, basic 1,560,979 1,506,512 Average common shares outstanding, diluted 1,563,840 1,507,500
See accompanying notes to financial statements 3 (b) Consolidated Income Statement (Unaudited) - Nine Months Ending:
For the Nine Months For the Nine Ending Months Ending September 30, 1999 September 30, 1998 ------------------ ------------------ Operating revenue $21,199,543 $19,285,778 Costs and expenses Operating expenses 18,523,326 17,112,064 Interest expenses 726,746 652,775 Total costs and expenses 19,250,072 17,764,839 Income from operations 1,949,471 1,520,939 Other income and deductions 510,466 412,260 Income before taxes on income 2,459,937 1,933,199 Provision for taxes on income 953,225 772,000 Income before extraordinary item 1,506,712 1,161,199 Extraordinary item, net of tax 134,499 -- ------------------ ------------------ Net income applicable to common shares $ 1,372,213 $ 1,161,199 ================== ================== Earnings per common share, basic $ 0.88 $ 0.77 Earnings per common share, diluted $ 0.87 $ 0.77 Dividends per common share $ 0.7200 $ 0.6900 Average common shares outstanding, basic 1,560,979 1,506,512 Average common shares outstanding, diluted 1,568,897 1,509,045
See accompanying notes to financial statements 4 (c) Consolidated Income Statement (Unaudited) - Twelve Months Ending:
For the Twelve For the Twelve Months Ending Months Ending September 30, 1999 September 30, 1998 ------------------ ------------------ Operating revenue $27,180,900 $25,764,394 Costs and expenses Operating expenses 24,105,925 22,949,439 Interest expenses 944,162 817,186 Total costs and expenses 25,050,087 23,766,625 Income from operations 2,130,813 1,997,769 Other income and deductions 750,504 637,163 Income before taxes on income 2,881,317 2,634,932 Provision for taxes on income 1,113,246 1,071,363 Income before extraordinary item 1,768,071 1,563,569 Extraordinary item, net of tax 633,020 -- ------------------ ------------------ Net income applicable to common shares $ 1,135,051 $ 1,563,569 ================== ================== Earnings per common share (basic and diluted) $ 0.73 $ 1.04 Dividends per common share $ 0.95 $ 0.9075 Average common shares outstanding, basic 1,547,362 1,506,512 Average common shares outstanding, diluted 1,557,379 1,509,781
See accompanying notes to financial statements 5 (d) Consolidated Balance Sheet (Unaudited)
As of As of September 30, 1999 December 31, 1998 ------------------ ------------------ ASSETS Plant and equipment $ 70,490,696 $67,894,203 Depreciation allowance (26,008,475) (23,949,485) ------------ ----------- Net utility plant 44,482,221 43,944,718 Construction work in progress 3,397,090 791,623 Non-utility property 148,178 564,489 Current and accrued assets 6,220,747 4,837,702 Deferred debits 2,192,633 2,215,195 ------------ ----------- $ 56,440,869 $52,353,727 ============ =========== LIABILITIES Capital stock: Common - par value $1 per share Outstanding 1,560,979 shares $ 1,560,979 Outstanding 1,506,512 shares $ 1,506,512 Surplus: Capital surplus 2,873,877 2,005,352 Earnings retained in business 12,616,455 12,368,147 ------------ ----------- Total capital 17,051,311 15,880,011 ------------ ----------- Long-term debt: First mortgage bonds 9,000,000 9,000,000 Other notes 3,037,622 2,216,958 ------------ ----------- Total long-term debt 12,037,622 11,216,958 ------------ ----------- Current portion long-term 56,000 56,000 debt Interim debt -- 450,000 Current and accrued liabilities 6,373,415 5,204,133 Deferred taxes 4,445,471 4,319,246 Advances for construction 5,543,581 5,655,529 Contributions in aid of construction 6,208,551 6,219,620 Deferred credits 4,724,918 3,352,230 ------------ ----------- $ 56,440,869 $52,353,727 ============ ===========
See accompanying notes to financial statements. 6 (e) Consolidated Statements of Cash Flow (Unaudited)
For the Nine For the Nine Months Ending Months Ending September 30, 1999 September 30, 1998 ------------------ ------------------ Cash Flow from Operating Activities: Net income $ 1,372,213 $ 1,161,199 Adjustments to reconcile net income to net cash provided by operation activities: Depreciation and amortization 1,171,978 1,092,055 Deferred income tax and ITC 126,225 126,345 Change in assets and liabilities: Customers receivable (798,893) (357,993) Other receivable (543,177) 50,511 Materials and supplies 9,000 6,000 Accounts payable 269,652 567,444 Income taxes payable 167,094 94,169 Deferred credits 1,395,250 742,499 Other 1,672,817 (156,049) ----------- ----------- Net Cash Provided by Operating Activities 4,842,159 3,326,180 ----------- ----------- Cash Flows from Investing Activities: Capital expenditures (2,705,892) (3,706,876) ----------- ----------- Net Cash used for Investing Activities (2,705,892) (3,706,876) ----------- ----------- Cash Flows from Financing Activities: Proceeds (repayment) from contributions in aid of construction & advances (123,017) 47,647 Repayment of long-term debt (115,990) (39,089) Dividends paid (1,123,905) (1,039,490) Payoff interim debt (450,000) -- ----------- ----------- Net Cash used by Financing Activities (1,812,912) (1,030,932) ----------- ----------- Net Increase (Decrease) in Cash $ 323,355 ($1,411,628) Cash at Beginning of Year 708,764 2,137,339 ----------- ----------- Cash at End of Year $ 1,032,119 $ 725,711 =========== ===========
See accompanying notes to financial statements 7 (f) Capitalization and Stockholders' Equity (Unaudited)
As of September 30, 1999 ------------------ Debt: Long-term debt $ 12,093,622 Current sinking fund requirements (56,000) ------------ Total debt maturing in more than twelve months $ 12,037,622 ============
Stockholders' equity: Shares issued or outstanding Amount ----------- ---------- Common stock $1 par value 1,560,979 $ 1,560,979 Capital in excess of par value 2,873,877 Retained earnings: Balance at beginning of current fiscal year $12,368,147 Net income 1,372,213 Cash dividends: Common stock @ $0.72 (1,123,905) ----------- Balance at end of interim period 12,616,455 ----------- Total stockholders' equity $17,051,311 ===========
See accompanying notes to financial statements. 8 (g) Notes to Consolidated Financial Statements (Unaudited) 1. In the opinion of management, information furnished herein reflects adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods. 2. Business Segments: The following table lists the profit and assets for each segment of the Company:
Nine months ended Regulated Non-regulated Other Total ----------------- --------- ------------- ----- ----- September 30, 1999 Operating revenue $ 21,119,543 -- -- $ 21,199,543 Extraordinary item, net of tax* -- -- (134,499) (134,499) Other income 232,032 574,746 -- 806,778 Segment net income 1,250,235 256,477 (134,499) 1,372,213 Segment assets 55,413,850 1,027,019 -- 56,440,869 September 30, 1998 Operating revenue $ 19,285,778 -- $ 19,285,778 Other income 191,621 419,408 -- 611,029 Segment net income 967,425 193,774 -- 1,161,199 Segment assets 53,406,198 403,059 -- 53,809,257
* See Merger Agreement in Item 2 below for explanation of "extraordinary item." 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation. Dominguez Services Corporation (the Company) has two wholly-owned subsidiaries: Dominguez Water Company and its operating subsidiaries (Dominguez), which are involved in regulated water supply and distribution, and DSC Investments, which is involved in non-regulated, water-related services and investments. FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage registrants to provide prospective information about their companies without fear of litigation so long as the statements are identified as forward-looking and are accompanied by meaningful, cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Words such as "estimates," "expects," "anticipates," "plans," "believes," "projects," and similar expressions identify forward-looking statements. Certain statements in this Form 10-Q are forward-looking and, as such, involve risk and uncertainty. Uncertainties arise from management estimates about weather, environmental issues, legal contingencies and other matters which management cannot predict or are outside of their control, such as Y2K compliance by the Company's vendors. Actual results may vary from those projected or implied. This Form 10-Q should be read in conjunction with the Company's 1998 Annual Report on Form 10-K which includes: consolidated financial statements and footnote disclosures prepared in accordance with generally accepted accounting principles; management's discussion and analysis of financial condition and results of operations; and a detailed description of the Company's business. MERGER AGREEMENT As previously announced, on November 13, 1998, the Company executed an Agreement and Plan of Reorganization (the Merger Agreement) to merge with California Water Service Group (CWSG). On March 22, 1999, the Company and CWSG executed an amendment to the Merger Agreement, which provides that each share of the Company's common stock will be converted into the right to receive a number of CWSG common shares which is intended to provide $33.75 of value for each of the Company's shares. The amendment to the Merger Agreement also provides that the minimum and maximum conversion ratios will be 1.25 and 1.49 CWSG shares for each Company share. 10 On April 7, 1999, the Company mailed the proxy prospectus to shareholders of record at the close of business on March 16, 1999. At a Special Meeting of Shareholders held on May 12, 1999, the Merger Agreement was approved. On February 5, 1999, the Company's regulated water company (Dominguez) and CWSG's regulated utility (Cal Water) filed a joint application the California Public Utilities Commission (CPUC) requesting its approval for the proposed merger. In May a preliminary hearing was held and a schedule was set calling for the CPUC Staff to issue its report in mid October and for evidentiary hearings to begin November 1, 1999. On October 12, 1999 Staff issued its report ("Staff Report") opposing Dominguez' merger with Cal Water. The Staff Report asserts that Dominguez' ratepayers will bear the risk of higher costs associated with the write up in rate base with no substantial benefits. However, the Staff Report did not take into consideration Cal Water's guarantee that Dominguez customers' rates will never increase as a result of the merger. Under the guarantee, if higher merger costs are not offset by lower operating costs, a permanent adjustment is recorded to reduce operating costs to eliminate any rate impact. The Company and Cal Water continue to believe that the merger is in the best interest of their ratepayers, and the proposed guarantee, if needed, serves to protect the ratepayers. Evidentiary hearings scheduled for November 1, 1999 have been continued and are expected to resume November 15, 1999. At that time, the Company and the CPUC Staff will have the opportunity to present their arguments before the CPUC Administrative Law Judge (ALJ). The ALJ is then scheduled to issue a proposed decision in December. The Commission will then consider the ALJ's proposed decision and issue its final decision, expected in January 2000. Merger expenses for the first nine months of 1999 recorded as "extraordinary item" totaled $224,165, or $134,499 net of tax effect. Expenses associated with the merger recorded as "extraordinary item" for the year ended 1998 totaled $814,000, or $499,000 net of tax effect. RESULTS OF OPERATIONS For the quarter ended September 30, 1999, earnings per share were $0.44, compared to $0.34 in the same period in 1998. Revenues for the quarter ended September 30, 1999, were $8,274,112 and net income was $685,816, compared to revenues of $7,682,087 and net income of $511,600 for the same period last year. 11 Basic and diluted earnings per share for the first nine months of 1999 were $0.88 and $0.87 respectively, which compared with $0.77 for both basic and diluted earnings per share for the same period last year. Revenues for the nine months ended September 30, 1999, were $21,199,543 and net income was $1,372,213, compared to revenues of $19,285,778 and net income of $1,161,199 for the same period last year. For the twelve months ended September 30, 1999, earnings per share were $.73, compared to $1.04 in the same period in 1998. Revenues for the twelve months ended September 30, 1999 were $27,180,900 and net income was $1,135,051, compared to revenues of $25,764,394 and net income of $1,563,569 for the same period last year. Water sales for the first nine months of the year increased by 11.9% from the same period last year. Revenues increased by 9.9%, or $1,914,000. The Redwood Valley Water Company joined Dominguez at the beginning of the year and recorded $506,000 in revenue for the first nine months of the year. Dominguez South Bay purchased 16,829 acre feet of water during the nine months ended September 30, 1999, an increase of 16.4% from the 14,463 acre feet purchased during the same period last year. Water costs for Dominguez South Bay increased 15.2% during the nine months ended September 30, 1999 as compared to the same period last year. Purchased water increased during the beginning part of the year as several wells were not producing at their full capacity. A new well will be placed in production in November, increasing Dominguez South Bay the capacity to pump all of its water rights. REGULATORY AFFAIRS The Company requested authorization from the CPUC to increase rates for its South Bay, Kern River Valley, and Antelope Valley service areas. The Company has reached a settlement with CPUC staff and expects final authorization by mid-December 1999. Rate increases will become effective in January 2000 and are expected to generate additional revenues of approximately $1,420,000 in 2000, $330,000 in 2001, and $110,000 in 2002. WATER QUALITY Dominguez is subject to water quality regulations promulgated 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 occasional minor exceptions, the Company meets all current primary drinking water standards. 12 Dominguez is subject to other applicable environmental regulations related to the handling, storage and disposal of hazardous materials. Dominguez is currently in compliance with all such regulations. WATER SUPPLY As of May 1, 1999, the water supply outlook is excellent. California State Water Project (SWP) reservoirs are at levels that allow the SWP to supply 100% of the contractor requests for 1999. The Metropolitan Water District has not yet indicated if a full complement of Colorado River Water is available. Dominguez expects an ample supply of imported water to be available for reminder of 1999. Dominguez expects recycled water to be available in its South Bay area by the end of 1999. Over the next several years, Dominguez anticipates converting industrial and irrigation users to recycled water. Margins on recycled water sales will be equal to those of replaced potable sales. SALE OF CSC On December 20, 1996, DSC Investments, the non-regulated subsidiary of the Company, invested $350,000 in Chemical Services Company (CSC) to acquire a 20% equity ownership interest with the option to acquire an additional 40% over the next five years. In April 1999, the Company notified CSC that the Company did not intend to exercise its option to acquire an additional equity ownership in CSC. Furthermore, the Company sold back to the principals of CSC the Company's 20% equity ownership in CSC, which resulted in a gain of $120,000. YEAR 2000 UPDATE READINESS: The Company established earlier this year a Year 2000 (Y2K) team to assess Y2K preparedness issues and ensure Y2K business system compliance. Additionally, the Company has developed and is in the process of implementing a long-range technology plan that includes computer system assessments and upgrades. Generally, all major information systems and technology are centralized at the Company's South Bay headquarters. Several years ago, the Company transitioned from a central mini computer with "dumb" terminals to personal computers and function-specific servers integrated via a local area network. To date, this transition has progressed to the current fully integrated system, which includes customer billing, accounting, human resources, well monitoring, and electronic mail throughout all the Company's locations. 13 The Company's Information Systems department has inventoried its various software programs and obtained Y2K compliance letters from all of its software vendors. Lastly, the Company has identified and is in the process of contacting suppliers and vendors with whom it has a material business relationship in order to assess their Y2K preparedness, as well as obtain compliance letters from them. The purpose of these contacts is to determine that suppliers and vendors will not encounter Y2K problems that may disrupt the Company's business processes. To date, the Company is in the process of obtaining Y2K compliance assurances from its two major suppliers, the Metropolitan Water District of Southern California and Southern California Edison, and is working to resolve all other outstanding vendor-supplier issues. The Company has also surveyed all of its operating districts to assess specific needs within each district. COSTS: To date, Y2K preparedness costs have been immaterial. Additionally, neither information systems nor other technology projects have been deferred as a result of Y2K efforts. RISKS: OPERATIONS. The greatest risk posed by Y2K is the interruption of Dominguez' primary water supply source. This may occur as a result of wholesale suppliers (i.e. Metropolitan Water District) being unable to provide water to Dominguez or power sources being unavailable for Dominguez to operate its wells. Another risk Dominguez may encounter is that it may not be able to generate customer bills if the power sources are not available. At this time, the Company is unable to estimate the potential financial impacts of the risk scenarios described, which could be material. LEGAL. The Company is evaluating the increased risk of litigation due to potential Y2K problems and its insurance policies to determine if additional actions and insurance coverage are warranted. CONTINGENCY PLANS: The Company has prepared contingency plans for all of its districts to ensure continued water service to customers in the event primary water sources are interrupted. In all districts Company maintains portable auxiliary power generators, which can supply power to operate wells for a limited time in the event that the primary power source is interrupted. The Company is also in the process of identifying high profile water customers such as hospitals and preparing contingency plans for continued water service for those customers in the event of a Y2K disruption. Staffing and emergency procedures have been addressed and plans have been put into place. The Company's formal contingency plan was filed with the CPUC on July 1, 1999. 14 STRATEGIC GROWTH PLAN At the beginning of the year, the Company completed the purchase of two previously announced northern California acquisitions, the Lucerne Water Company and the Armstrong and Rancho del Paradiso Water Companies. These acquisitions have been folded into the Company's newest operating subsidiary, Redwood Valley Water Company, which will provide the infrastructure needed for the Company's continued growth and expansion in northern California. In August, the Company completed the acquisition of Hawkins Water Service, a 52-customer system, which was integrated into Redwood Valley Water Company's operation. The Company has also received approval from the CPUC to acquire Coast Springs Water Company, with 237 customers, and expects to close the transaction in the fourth quarter. The Company has signed letters of intent to acquire Geyserville Water Works, a 292 customers system in northern California, and Mullen Water Company, with 43 customers in the Kern River Valley service area. DIVIDEND INCREASED The Board of Directors has declared the Company's 147th consecutive quarterly dividend at $0.24 per share on common stock to be paid on December 15, 1999, to shareholders of record as of December 1, 1999. 15 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS - No legal proceedings have been filed against the registrant that have not been previously reported. Item 6. OTHER An 8-K report was not required for either. 1. Material unusual charges or credits to income during the most recently completed fiscal quarter, or 2. A change in independent accountants during the period. The information furnished reflects all adjustments which, in the opinion of management, are necessary to the fair statement of the results of the interim periods. DOMINGUEZ SERVICES CORPORATION Date: November 12, 1999 By: /s/ John S. Tootle ----------------- ---------------------- John S. Tootle CFO, Vice-President Finance 16 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDING SEPTEMBER 30, 1999. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1,032,119 0 3,506,599 (350,482) 21,244 6,220,747 70,479,571 26,008,475 56,440,869 6,429,415 12,037,622 0 0 1,560,979 15,490,332 56,440,869 20,007,623 21,199,543 11,584,939 18,523,326 0 0 726,746 2,459,935 953,225 1,506,710 0 134,499 0 1,372,211 0.88 0.87
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