-----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, PXFugDYq6rgVVyqzy0whsohVwfTnjFORD/ML+MxiJ/qH7vBEJCHfemqD03arBJeM SA9yZfkW+C4CjEyTe+PiXw== 0001047469-98-040303.txt : 19981113 0001047469-98-040303.hdr.sgml : 19981113 ACCESSION NUMBER: 0001047469-98-040303 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 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: 000-18677 FILM NUMBER: 98745134 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 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ F O R M 1 0 - Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 ------------------------------------ September 30, 1998 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) - 1,506,512 DOMINGUEZ SERVICES CORPORATION INDEX ----- PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (a) Consolidated Income Statement for the 3 Three Months Ending September 30, 1998 and 1997 (b) Consolidated Income Statement for the 4 Nine Months Ending September 30, 1998 and 1997 (c) Consolidated Income Statement for the 5 Twelve Months Ending September 30, 1998 and 1997 (d) Consolidated Balance Sheet as of 6 September 30, 1998 and Consolidated Balance Sheet as of December 31, 1997 (e) Consolidated Statements of Cash Flows 7 for the Nine Months Ending September 30, 1998 and 1997 (f) Capitalization and Stockholders' Equity 8 as of September 30, 1998 (g) Notes to Consolidated Financial 9 Statements Item 2. Management's Discussion and Analysis of 9-10 Financial Condition and Results of Operation PART II - OTHER INFORMATION Item 1. Legal Proceedings 11 Item 6. Exhibits and Reports on Form 8-K 11 Signature 11 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 Co. and Arden Water Co.) and DSC Investments. (a) Consolidated Income Statement (Unaudited) - Fiscal Quarter ending:
For the For the Quarter Ending Quarter Ending September 30, 1998 September 30, 1997 ------------------ ------------------ Operating revenue $7,682,087 $8,170,627 Costs and expenses Operating expenses 6,800,686 6,784,654 Interest expenses 214,882 194,192 Total costs and expenses 7,015,568 6,978,846 Income from operations 666,519 1,191,781 Other income 183,081 158,859 Income before taxes on income 849,600 1,350,640 Provision for taxes on income 338,000 542,105 Net income $511,600 $808,535 Less preferred dividends --0-- --0-- Net income applicable to common shares $511,600 $808,535 Earnings per common share (basic & diluted) $0.34 $0.54 Dividends per common share $0.2300 0.2175 Average common shares outstanding 1,506,512 1,506,512
See accompanying notes to financial statements. 3 (b) Consolidated Income Statement (Unaudited) - Nine Months Ending:
For the Nine For the Nine Months Ending Months Ending September 30, 1998 September 30, 1997 ------------------ ------------------ Operating revenue $19,285,778 $20,339,562 Costs and expenses Operating expenses 17,112,064 17,366,725 Interest expenses 652,775 593,685 Total costs and expenses 17,764,839 17,960,410 Income from operations 1,520,939 2,379,152 Other income 412,260 325,266 Income before taxes on income 1,933,199 2,704,418 Provision for taxes on income 772,000 1,085,605 Net income $1,161,199 $1,618,813 Less preferred dividends --0-- --0-- Net income applicable to common shares $1,161,199 $1,618,813 Earnings per common share (basic & diluted) $0.77 $1.07 Dividends per common share $0.6900 $0.6525 Average common shares outstanding 1,506,512 1,506,512
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, 1998 September 30, 1997 ------------------ ------------------ Operating revenue $25,764,394 $26,058,787 Costs and expenses Operating expenses 22,949,439 22,479,227 Interest expenses 817,186 736,141 Total costs and expenses 23,766,625 23,215,368 Income from operations 1,997,769 2,843,419 Other income 637,163 496,060 Income before taxes on income 2,634,932 3,339,479 Provision for taxes on income 1,071,363 1,331,821 Net income $1,563,569 $2,007,658 Less preferred dividends --0-- --0-- Net income applicable to common shares $1,563,569 $2,007,658 Earnings per common share (basic and diluted) $1.04 $1.33 Dividends per common share $0.9075 $0.8600 Average common shares outstanding 1,506,512 1,506,512
See accompanying notes to financial statements. 5 (d) Consolidated Balance Sheet (Unaudited)
As of As of September 30, 1998 December 31, 1997 ------------------ ----------------- ASSETS Plant and equipment $62,357,240 $62,256,131 Depreciation allowance (23,481,950) (22,256,863) ------------- ------------ Net utility plant 38,875,290 39,999,268 Construction work in progress 4,861,027 1,255,260 Non-utility property 575,157 583,308 Current and accrued assets 7,106,838 7,569,388 Deferred debits 2,390,945 2,253,331 ------------- ------------ $53,809,257 $51,660,555 ------------- ------------ ------------- ------------ LIABILITIES Capital stock: Common - par value $1 per share Outstanding 1,506,512 shares 1,506,512 1,506,512 Surplus: Capital surplus 2,005,352 2,005,352 Earnings retained in business 12,951,836 12,830,127 ------------- ------------ Total capital 16,463,700 16,341,991 ------------- ------------ Long-term debt: First mortgage bonds 9,000,000 9,000,000 Other notes 2,155,318 2,194,407 ------------- ------------ Total long-term debt 11,155,318 11,194,407 ------------- ------------ Current potion long-term debt 64,000 64,000 Current and accrued liabilities 7,085,216 5,439,195 Deferred taxes 4,215,709 4,089,364 Advances for construction 5,413,374 5,515,687 Contribution in aid of construction 6,267,563 6,117,603 Deferred credits 3,144,377 2,898,308 ------------- ------------ $53,809,257 $51,660,555 ------------- ------------ ------------- ------------
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, 1998 September 30, 1997 ------------------ ------------------ Cash Flow from Operating Activities: Net income $1,161,200 $1,618,813 Adjustments to reconcile net income to net cash provided by operation activities: Depreciation and amortization 1,092,055 1,110,000 Deferred income tax and ITC 126,345 7,305 Change in assets and liabilities: Customers receivable (357,993) (493,455) Other receivable 50,511 (816,177) Materials and supplies 6,000 4,323 Accounts payable 567,444 945,957 Income taxes payable 94,169 900,125 Deferred credits 742,498 277,323 Other (156,049) 118,125 ----------- ---------- Net Cash Provided by Operating Activities 3,326,180 3,672,339 ----------- ---------- Cash Flows from Investing Activities: Capital expenditures (3,706,876) (2,289,414) ----------- ---------- Net Cash used for Investing Activities (3,706,876) (2,289,414) ----------- ---------- Cash Flows from Financing Activities: Proceeds from contributions in aid of construction & advances 47,647 245,840 Repayment of long-term debt (39,089) (811,182) Dividends paid (1,039,490) (979,262) Current portion long-term debt (791,000) Proceeds from interim debt --0-- 950,000 ----------- ---------- Net Cash used by Financing Activities (1,030,932) (1,385,604) ----------- ---------- Net Increase (Decrease) in Cash ($1,411,628) ($2,679) Cash at Beginning of Year 2,137,339 708,817 ----------- ---------- Cash at End of Year $725,711 $706,138 ----------- ---------- ----------- ----------
See accompanying notes to financial statements. 7 (f) Capitalization and Stockholders' Equity (Unaudited)
As of September 30, 1998 ------------------ Debt: Long-term debt $11,219,318 Current sinking fund requirements (64,000) ----------- Total debt maturing in more than twelve months $11,155,318 ----------- ----------- Deferred credits $3,144,377 ----------- Stockholder's equity: Shares issued or outstanding Amount ----------- ------ Common stock $1 par value 1,506,512 $1,506,512 Capital in excess of par value 2,005,352 Retained earnings: Balance at beginning of current fiscal year $12,830,127 Net income 1,161,199 Cash dividends: Common stock @ $0.69 (1,039,490) ------------ Balance at end of interim period 12,951,836 ----------- Total stockholder's equity $16,463,700 ----------- -----------
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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation. FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements to encourage 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 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 1997 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. RESULTS OF THIRD QUARTER OPERATIONS For the quarter ended September 30, 1998, earnings per share were $0.34, compared to $0.54 in the same period in 1997. Revenues for the quarter ended September 30, 1998, were $7,682,087 and net income was $511,600, compared to revenues of $8,170,627 and net income of $808,535 for the same period last year. Earnings per share for the first nine months of 1998 were $0.77, which compared with $1.07 last year. Revenues for the nine months ended September 30, 1998, were $19,285,778 and net income was $1,161,199, compared to revenues of $20,339,562 and net income of $1,618,813 for the same period last year. 9 For the twelve months ended September 30, 1998, earnings per share were $1.04, compared to $1.33 in the same period in 1997. Revenues for the twelve months ended September 30, 1998 were $25,764,394 and net income was $1,563,569, compared to revenues of $26,058,787 and net income of $2,007,658 for the same period last year. Operation's performance was impacted by several independent and isolated factors, among them higher water costs experienced during routine system improvements. The Company made significant investment in rehabilitation of its wells to improve ground water pumping capacity. During the rehabilitation projects, water costs increased because the cost of purchased water is greater than that of pumped water. Administrative expenses increased as the Company reorganized into strategic business units, which enhances service and enables the Company to meet growth objectives. Increased water costs and administrative expenses, coupled with lower revenues resulting from a shortfall in sales to business and industrial accounts in the third quarter, principally account for lower profit this quarter. WATER QUALITY The Company 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 water standards. The Company is subject to other applicable environmental regulations related to the handling, storage and disposal of hazardous materials. The Company is currently in compliance with all such regulations. In March 1998, the California Public Utilities Commission (CPUC) ordered all regulated utilities to furnish information related to the CPUC's investigation into the existing standards and policies of the CPUC regarding drinking water quality. The Company complied with the CPUC's order by September 11, 1998. WATER SUPPLY As of June 1998, 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 1998. MWD also indicates that a full compliment of Colorado River 10 Water is available. Dominguez expects an ample supply of imported water to be available for 1998. Dominguez has signed up its first recycled water customer, which will receive water purchased from the West Basin Municipal Water District Recycled Water Project in El Sequndo, Over the next two years, Dominguez anticipates converting several industrial and irrigation users to recycled water. Margins on recycled water sales will be equal to those of replaced potable sales. YEAR 2000 UPDATE READINESS: Dominguez established earlier this year a Year 2000 (Y2K) team to assess Y2K preparedness issues and ensure Y2K business system compliance. Additionally, Dominguez 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 Dominguez' Long Beach headquarters. Several years ago, Dominguez transitioned from a central mini computer with "dumb" terminal units to personal computers and function-specific servers with integration via a local area network. To date, this transition has progressed to the current fully integrated system-from customer billing and accounting to human resources and electronic mail-throughout all Dominguez' locations. Dominguez' Information Systems department has inventoried its various software programs and obtained Y2K compliance letters from all but two of its software vendors. The modifications required to make the two systems compliant have been identified and are in progress. Lastly, Dominguez 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 Dominguez' business processes. To date, Dominguez is in the process of obtaining Y2K compliance assurances from its two major suppliers-Metropolitan Water District of Southern California and Southern California Edison-as well as working to resolve all other outstanding vendor-supplier issues. Dominguez has also surveyed all of its operating districts to assess specific needs with 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. 11 RISKS: OPERATIONS. The greatest risk posed by Y2K is that the primary water supply source of Dominguez' operating units may be interrupted and prevent them from supplying water to their customers. 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 it wells. Another risk Dominguez confronts is that it may not be able to generate customer bills if the billing system fails due to Y2K or power sources are not available. At this time, Dominguez is unable to estimate the potential financial impacts of the risk scenarios described, which could be material. LEGAL. Dominguez 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: Dominguez is in the process of preparing contingency plans for all of its districts to ensure continued water service to customers in the event of primary water sources are interrupted. Dominguez already maintains in all of its service areas portable auxiliary power generators which can be used to supply power to operate wells in the event of the primary power source is interrupted. In its South Bay district, Dominguez maintains emergency water connections with adjacent water purveyors, which could be utilitized as a alternative water source supply in the event of either a primary water supply source or primary power interruption. Dominguez and its subsidiaries are also in the process of identifying high profile water customers such as hospitals and preparing contingency plans for continued water service in the event of a Y2K disruption. STRATEGIC GROWTH PLAN The Company received regulatory approval on November 5, 1998 for its two previously announced northern California acquisitions, and to complete those transactions by year-end. These acquisitions will serve as the backbone of the Company's newest operating subsidiary, Redwood Valley Water Company, which will provide the vehicle for the Company's continued growth and expansion in northern California. DIVIDEND INCREASED The Board of Directors has declared the Company's 143rd consecutive quarterly dividend at $0.23 per share on common stock, to be paid on December 15, 1998, to shareholders of record as of December 1, 1998. 12 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 11, 1998 By: /S/ John S. Tootle -------------------------------- ---------------------------- John S. Tootle CFO, Vice-President Finance 13 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDING SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 725711 0 3718824 (290856) 33244 7106838 62357240 23481950 53809257 7149216 11155318 0 0 1506512 14957188 53809257 18083795 19285778 10263638 17112062 0 66293 652775 1933201 772000 1161201 0 0 0 1161201 0.77 0.77
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