-----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, T/HVXeEW3CDz2Dz1ZK0Pl52mkFYQSahxNWnADLvQolgM/eQzYkNz/AxKXkDIdyT9 2TVgM3OdSrGtcRI1Tm0rNw== 0001047469-99-020958.txt : 19990518 0001047469-99-020958.hdr.sgml : 19990518 ACCESSION NUMBER: 0001047469-99-020958 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99625964 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 ------------------------------------------- FORM 10 - Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 ------------------------------------------- March 31, 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) Registrant's telephone number, including area code (310) 834-2625 ----------------------------- - ------------------------------------------------------------------------------- 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 Three Months Ending March 31, 1999 and 1998 (b) Consolidated Income Statement for the 4 Twelve Months Ending March 31, 1999 and 1998 (C) Consolidated Balance Sheet as of 5 March 31, 1999 and Consolidated Balance Sheet as of December 31, 1998 (D) Consolidated Statements of Cash Flows 6 for the Three Months Ending March 31, 1999 and 1998 (E) Capitalization and Stockholders' Equity 7 as of March 31, 1999 (F) Notes to Consolidated Financial 8 Statements Item 2. Management's Discussion and Analysis of 8-12 Financial Condition and Results of Operation PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 Signature 13 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 March 31, 1999 March 31, 1998 -------------- -------------- Operating revenue $ 5,804,331 $ 5,437,470 Costs and expenses Operating expenses 5,270,843 4,878,597 Interest expenses 234,698 213,389 Total costs and expenses 5,505,541 5,091,986 Income from operations 298,790 345,484 Other income and deductions 142,641 85,658 Income before taxes on income 441,431 431,142 Provision for taxes on income 171,675 170,721 Income before extraordinary item 269,756 260,421 Extraordinary item, net of tax 22,895 -- -------------- -- Net income $ 246,861 $ 260,421 -------------- -------------- -------------- -------------- Net income applicable to common shares $ 246,861 $ 260,421 Earnings per common share (basic & diluted) $ 0.16 $ 0.17 Dividends per common share $ 0.24 0.23 Average common shares outstanding, basic 1,560,979 1,506,512 Average common shares outstanding, diluted 1,570,869 1,508,181 See accompanying notes to financial statements.
3 (b) Consolidated Income Statement (Unaudited) - Twelve Months Ending:
For the Twelve For the Twelve Months Ending Months Ending March 31, 1999 March 31, 1998 -------------- -------------- Operating revenue $ 25,633,996 $ 27,087,621 Costs and expenses Operating expenses 23,086,907 23,502,626 Interest expenses 891,500 786,348 Total costs and expenses 23,978,407 24,288,974 Income from operations 1,655,589 2,798,647 Other income and deductions 709,283 565,911 Income before taxes on income 2,364,872 3,364,558 Provision for taxes on income 932,975 1,365,919 Income before extraordinary item 1,431,897 1,998,639 Extraordinary item, net of tax 521,416 -- -------------- -- Net income applicable to common shares $ 910,481 $ 1,998,639 -------------- -------------- -------------- -------------- Earnings per common share (basic and diluted) $0.60 $1.32 Dividends per common share $0.93 $0.8825 Average common shares outstanding, basic 1,520,129 1,506,512 Average common shares outstanding, diluted 1,567,407 1,507,379 See accompanying notes to financial statements.
4 (c) Consolidated Balance Sheet (Unaudited)
As of As of March 31, 1999 December 31, 1998 -------------- ----------------- ASSETS Plant and equipment $ 70,380,146 $ 67,894,203 depreciation allowance (25,046,620) (23,949,485) -------------- ----------------- net utility plant 45,333,526 43,944,718 construction work in progress 1,610,298 791,623 non-utility property 562,389 564,489 current and accrued assets 4,623,342 4,837,702 deferred debits 2,200,081 2,215,195 -------------- ----------------- $ 54,329,636 $ 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 12,240,374 12,368,147 -------------- ----------------- Total capital 16,675,230 15,880,011 -------------- ----------------- Long-term debt: First mortgage bonds 9,000,000 9,000,000 Other notes 3,126,989 2,216,958 -------------- ----------------- Total long-term debt 12,126,989 11,216,958 -------------- ----------------- Current portion long-term debt 56,000 56,000 Interim debt 800,000 450,000 Current and accrued liabilities 5,032,659 5,204,133 Deferred taxes 4,361,321 4,319,246 Advances for construction 5,656,087 5,655,529 Contribution in aid of construction 6,169,449 6,219,620 Deferred credits 3,451,901 3,352,230 -------------- ----------------- $ 54,329,636 $ 52,353,727 -------------- ----------------- -------------- -----------------
See accompanying notes to financial statements. 5 (d) Consolidated Statements of Cash Flow (Unaudited)
For the Three For the Three Months Ending Months Ending March 31, 1999 March 31, 1998 -------------- -------------- Cash Flow from Operating Activities: Net income $ 246,861 $ 260,421 Adjustments to reconcile net income to net cash provided by operation activities: Depreciation and amortization 423,238 383,451 Deferred income tax and ITC 42,075 42,195 Change in assets and liabilities: Customers receivable (296,398) 408,739 Other receivable (182,383) (178,703) Materials and supplies 3,000 --0-- Accounts payable (491,544) (835,432) Income Taxes Payable 108,975 142,006 Deferred credits 114,785 31,244 Other 396,018 109,067 -------------- -------------- Net Cash Provided by Operating Activities 364,627 362,988 -------------- -------------- Cash Flows from Investing Activities: Capital expenditures (808,550) (1,382,513) -------------- -------------- Net Cash used in Investing Activities (808,550) (1,382,513) -------------- -------------- Cash Flows from Financing Activities: Proceeds from contributions in aid of construction & advances (49,613) 76,083 Repayment of long-term debt (26,623) (6,910) Interim debt 350,000 --0-- Dividends paid (374,634) (346,497) -------------- -------------- Net Cash used in Financing Activities (100,870) (277,324) -------------- -------------- Net Decrease in Cash ($544,793) ($1,296,849) Cash at Beginning of Year 708,764 2,137,339 Cash at End of Year $ 163,971 $ 840,490 -------------- -------------- -------------- -------------- See accompanying notes to financial statements.
6 (e) Capitalization and Stockholders' Equity (Unaudited)
Shares Issued or As of Outstanding Amount March 31, 1999 ----------- ------ -------------- Debt: Long-term debt $ 12,182,989 Current sinking fund requirements (56,000) -------------- Total debt maturing in more than twelve months $ 12,126,989 -------------- -------------- Deferred credits $ 3,451,901 -------------- Stockholder's equity: 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 246,861 Cash dividends: Common stock @ $0.24 (374,634) ----------- Balance at end of interim period 12,240,374 -------------- Total stockholders' equity $ 16,675,230 -------------- --------------
See accompanying notes to financial statements. 7 (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:
Three months ended Regulated Non-regulated Other Total ------------------ -------- ------------- ----- ----- March 31, 1999 Operating revenue $5,804,331 -- -- $5,804,331 Extraordinary item, net of tax -- -- 22,895 22,895 Other income 57,888 160,459 -- 218,347 Segment net income 198,405 71,351 (22,895) 246,861 Segment assets 53,102,612 1,227,023 -- 54,329,635 March 31, 1998 Operating revenue $5,437,470 -- -- $5,437,470 Other income 93,857 73,410 -- 167,267 Segment net income 234,407 26,014 -- 260,421 Segment assets 50,547,754 546,352 -- 51,094,106
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. 8 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 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. 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. According to a preliminary schedule released May 10, 1999, by the California Public Utilities Commission (CPUC), the CPUC intends to issue a decision on the merger in January of 2000. The Company expects to complete the merger shortly after. RESULTS OF FIRST QUARTER OPERATIONS For the quarter ended March 31, 1999, earnings per share were $0.16, compared to $0.17 in the same period in 1998. Revenues for the quarter ended March 31, 1999, were $5,804,331 and net income was $246,861, compared to revenues of $5,437,470 and net income of $260,421 for the same period last year. For the twelve months ended March 31, 1999, earnings per share were $0.60, compared to $1.32 in the same period in 1998. Revenues for the twelve months ended March 31, 1999 were $25,633,996 and net income was $910,481, compared to revenues of $27,087,621 and net income of $1,998,639 for the same period last year. Water sales for the first quarter of the year increased by 13% from the same period last year. Revenues increased by 2%, or 41,000. Redwood Valley Water Company joined Dominguez at the beginning of the year and earned $132,000 in revenue. Dominguez South Bay purchased 1,462 acre feet, an increase of 39%, from the 1,055 acre feet purchased during the same period year. Water Costs for Dominguez South Bay increased 35% compared to the same period last year. Purchased water increased as two major wells were closed for rehabilitation. The company anticipates these two wells will be ready for production in April. 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. 9 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 april 1, 1999, the water supply outlook is good. California State Water Project (SWP) reservoirs are at levels that allow the SWP to supply 100% of the contractor requests for 1999. MWD has not yet indicated if a full compliment of Colorado River Water is available. Dominguez expects an ample supply of imported water to be available for 1999. Dominguez expects recycled water to be available in its area by the end of 1999. Over the next several years, Dominguez anticipates converting additional 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: 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 Long Beach headquarters. Several years ago, the Company transitioned from a central mini computer with "dumb" terminals 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 which includes customer billing, accounting, human resources, well monitoring, and electronic mail throughout all the Company locations. The Company's Information Systems department has inventoried its various software programs and obtained Y2K compliance letters from all of its software vendors. 10 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, as well as working to resolve all other outstanding vendor-supplier issues. The Company 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. RISKS: OPERATIONS. The greatest risk posed by Y2K is that the primary water supply source of Dominguez may be interrupted. 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 is in the process of preparing contingency plans for all of its districts to ensure continued water service to customers in the event primary water sources are interrupted. The Company 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. The portable generators will provide water service for a limited time. The Company is 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. 11 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. Additionally, the Company reached a settlement agreement with CPUC staff in April on the acquisition of Coast Springs Water Company and Hawkins Water Service, and expects to receive final approval on the acquisitions in the second quarter. Both Coast Springs Water Company and Hawkins Water Service are located in northern California and will be operated by Redwood Valley Water Company. DIVIDEND INCREASED The Board of Directors has declared the Company's 145th consecutive quarterly dividend at $0.24 per share on common stock, to be paid on June 15, 1999, to shareholders of record as of June 1, 1999. 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: May 14, 1999 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 SHEETS AND CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDING MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 165,971 0 2,993,985 (340,362) 27,244 4,623,342 70,379,146 25,046,620 54,329,635 5,888,658 12,126,989 0 0 1,560,979 15,114,251 54,329,635 5,537,506 5,804,331 3,046,437 22,694,691 0 0 234,698 441,431 171,675 269,758 0 22,895 0 246,861 0.16 0.16
-----END PRIVACY-ENHANCED MESSAGE-----