-----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, RYd50l66BNvEsxoPzYQ1MUCkw0mlSEzG2LRewsAUafAGwcMaSQv9Scnyfbj+p9H4 qLu4j9d2FiNLCYvkb9ZemA== 0001047469-99-032358.txt : 19990817 0001047469-99-032358.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032358 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691928 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 ---------------------------------- JUNE 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 Three Months Ending June 30, 1999 and 1998 (b) Consolidated Income Statement for the 4 Six Months Ending June 30, 1999 and 1998 (c) Consolidated Income Statement for the 5 Twelve Months Ending June 30, 1999 and 1998 (d) Consolidated Balance Sheet as of 6 June 30, 1999 and Consolidated Balance Sheet as of December 31, 1998 (e) Consolidated Statements of Cash Flows 7 for the Six Months Ending June 30, 1999 and 1998 (f) Capitalization and Stockholders' Equity 8 as of June 30, 1999 (g) Notes to Consolidated Financial 9 Statements Item 2. Management's Discussion and Analysis of 9-14 Financial Condition and Results of Operation PART II - OTHER INFORMATION Item 1. Legal Proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15 Signature 15
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 June 30, 1999 June 30, 1998 -------------- -------------- Operating revenue $7,121,100 $6,166,222 Costs and expenses Operating expenses 6,333,750 5,432,779 Interest expenses 252,775 224,504 Total costs and expenses 6,586,525 5,657,283 Income from operations 534,575 508,939 Other income and deductions 314,042 143,521 Income before taxes on income 848,617 652,460 Provision for taxes on income 318,375 263,279 Income before extraordinary item 530,242 389,181 Extraordinary item, net of tax 90,708 -- ---------- ---------- Net income $439,534 $389,181 ---------- ---------- ---------- ---------- Net income applicable to common shares $439,534 $389,181 Earnings per common share (basic & diluted) $0.28 $0.26 Dividends per common share $0.24 $0.23 Average common shares outstanding, basic 1,560,979 1,506,512 Average common shares outstanding, diluted 1,563,603 1,506,896
See accompanying notes to financial statements. 3 (b) Consolidated Income Statement (Unaudited) - Six Months Ending:
For the Six For the Six Months Ending Months Ending June 30, 1999 June 30, 1998 ------------- ------------- Operating revenue $12,925,431 $11,603,692 Costs and expenses Operating expenses 11,604,593 10,311,376 Interest expenses 487,473 437,893 Total costs and expenses 12,092,066 10,749,269 Income from operations 833,365 854,423 Other income and deductions 456,686 229,177 Income before taxes on income 1,290,051 1,083,600 Provision for taxes on income 490,050 434,000 Income before extraordinary item 800,001 649,600 Extraordinary item, net of tax 113,603 -- ----------- ----------- Net income $686,398 $649,600 ----------- ----------- ----------- ----------- Net income applicable to common shares $686,398 $649,600 Earnings per common share (basic & diluted) $0.44 $0.43 Dividends per common share $0.48 $0.46 Average common shares outstanding, basic 1,560,979 1,506,512 Average common shares outstanding, diluted 1,566,016 1,507,702
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 June 30, 1999 June 30, 1998 -------------- -------------- Operating revenue $26,588,874 $26,252,935 Costs and expenses Operating expenses 23,987,878 22,933,406 Interest expenses 945,913 796,466 Total costs and expenses 24,933,791 23,729,872 Income from operations 1,655,083 2,523,063 Other income and deductions 905,946 612,911 Income before taxes on income 2,561,029 3,135,974 Provision for taxes on income 988,071 1,275,468 Income before extraordinary item 1,572,958 1,860,506 Extraordinary item, net of tax 612,124 -- ---------- ---------- Net income $960,834 $1,860,506 ---------- ---------- ---------- ---------- Net income applicable to common shares $960,834 $1,860,506 Earnings per common share, basic $0.63 $1.23 Earnings per common share, diluted $0.62 $1.23 Dividends per common share $0.9400 $0.895 Average common shares outstanding, basic 1,533,746 1,506,512 Average common shares outstanding, diluted 1,542,161 1,508,450
See accompanying notes to financial statements. 5 (d) Consolidated Balance Sheet (Unaudited)
As of As of June 30, 1999 December 31, 1998 ------------- ----------------- ASSETS Plant and equipment $70,390,471 $67,894,203 Depreciation allowance (25,445,004) (23,949,485) ----------- ----------- Net utility plant 44,945,467 43,944,718 Construction work in progress 2,186,979 791,623 Non-utility property 148,178 564,489 Current and accrued assets 6,588,998 4,837,702 Deferred debits 2,192,198 2,215,195 ----------- ----------- $56,061,820 $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 12,305,275 12,368,147 ----------- ----------- Total capital 16,740,131 15,880,011 ----------- ----------- Long-term debt: First mortgage bonds 9,000,000 9,000,000 Other notes 3,125,025 2,216,958 ----------- ----------- Total long-term debt 12,125,025 11,216,958 ----------- ----------- Current portion long-term debt 56,000 56,000 Interim debt -- 450,000 Current and accrued liabilities 6,419,493 5,204,133 Deferred taxes 4,403,396 4,319,246 Advances for construction 5,543,581 5,655,529 Contribution in aid of construction 6,185,638 6,219,620 Deferred credits 4,588,556 3,352,230 ----------- ----------- $56,061,820 $52,353,727 ----------- ----------- ----------- -----------
See accompanying notes to financial statements. 6 (e) Consolidated Statements of Cash Flow (Unaudited)
For the Six For the Six Months Ending Months Ending June 30, 1998 June 30, 1999 ------------- ------------- Cash Flow from Operating Activities: Net income $686,398 $649,600 Adjustments to reconcile net income to net cash provided by operation activities: Depreciation and amortization 777,789 761,463 Deferred income tax and ITC 84,150 84,270 Change in assets and liabilities: Customers receivable (854,972) (134,135) Other receivable (509,552) 58,903 Materials and supplies 6,000 3,000 Accounts payable 225,796 (228,260) Income taxes payable 326,626 (23,972) Deferred credits 1,259,323 96,245 Other 1,642,316 (96,402) ---------- ---------- Net Cash Provided by Operating Activities 3,643,874 1,170,712 ---------- ---------- Cash Flows from Investing Activities: Capital expenditures (1,395,556) (2,332,859) ---------- ---------- Net Cash used for Investing Activities (1,395,556) (2,332,859) ---------- ---------- Cash Flows from Financing Activities: Proceeds(repayments) from contributions in aid of construction & advances (145,930) 147,842 Repayment of long-term debt (28,587) (36,182) Dividends paid (749,270) (692,996) Payoff interim debt (450,000) --0-- ---------- ---------- Net Cash used for Financing Activities (1,373,787) (581,336) ---------- ---------- Net Increase (Decrease) in Cash 874,531 ($1,743,483) Cash at Beginning of Year 708,764 2,137,339 ---------- ---------- Cash at End of Year $1,583,295 $393,856 ---------- ---------- ---------- ----------
See accompanying notes to financial statements. 7 (f) Capitalization and Stockholders' Equity (Unaudited)
As of June 30, 1999 ------------- Debt: Long-term debt $12,181,025 Current sinking fund requirements (56,000) ----------- Total debt maturing in more than twelve months $12,125,025 ----------- ----------- Deferred credits $4,588,556 ----------- -----------
Stockholder's 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 686,398 Cash dividends: Common stock @ $0.48 (749,270) ----------- Balance at end of interim period 12,305,275 ----------- Total stockholder's equity $16,740,131 ----------- -----------
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:
Non- Six months ended Regulated regulated Other Total ---------------- --------- --------- ----- ----- June 30, 1999 Operating revenue $12,925,431 -- -- $12,925,431 Extraordinary item, net of tax* -- -- 113,603 113,603 Other income 140,773 497,090 -- 637,863 Segment net income 556,313 243,688 (113,603) 686,398 Segment assets 54,899,973 1,161,847 -- 56,061,820 June 30, 1998 Operating revenue $11,603,892 -- 11,603,692 Other income 144,221 224,818 -- 369,039 Segment net income 553,871 95,729 -- 649,600 Segment assets 51,731,360 117,264 -- 51,848,624
* See Merger Agreement in Item 2 below for explanation of "extraordinary item." 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. 9 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. Merger expenses for the first six months of 1999 recorded as "extraordinary item" totaled $189,000, or $114,000 net of tax effect. Expenses associated with the merger recorded as "extraordinary item" for year ended 1998 totaled $814,000, or $499,000 net of tax effect. RESULTS OF OPERATIONS For the quarter ended June 30, 1999, earnings per share were $0.28, compared to $0.26 in the same period in 1998. Revenues for the quarter ended June 30, 1999, were $7,121,100 and net income was $439,534, compared to revenues of $6,166,222 and net income of $389,181 for the same period last year. 10 Earnings per share for the first half of 1999 were $0.44, which compared with $0.43 last year. Revenues for the six months ended June 30, 1999, were $12,925,431 and net income was $686,398, compared to revenues of $11,603,692 and net income of $649,600 for the same period last year. For the twelve months ended June 30, 1999, basic and diluted earnings per share were $0.63 and $0.62 respectively, compared to $1.23 in the same period in 1998 for both basic and diluted earnings per share. Revenues for the twelve months ended June 30, 1999 were $26,588,874 and net income was $960,834, compared to revenues of $26,252,935 and net income of $1,860,506 for the same period last year. Water sales for the first six months of the year increased by 15% from the same period last year. Revenues increased by 11%, or 1,322,000. The Redwood Valley Water Company joined Dominguez at the beginning of the year and earned $297,000 in revenue for the first six months of the year. Dominguez South Bay purchased 9,950 acre feet of water during the six months ended June 30, 1999, an increase of 31% from the 7,590 acre feet purchased during the same period last year. Water costs for Dominguez South Bay increased 30% during the six months ended June 30, 1999 as compared to the same period last year. Purchased water also increased during this period due to additional water sales and two major wells that were closed for rehabilitation. These two wells were back in 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. 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. 11 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 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 5 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 agreed to sell back to the principals of CSC the Company's 20% equity ownership in CSC. 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. 12 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 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 has completed 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 that 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. Staffing and emergency procedures have been addressed and plans have been put into place. The formal contingency plan was filed with the CPUC on July 1, 1999. 13 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. On August 7, the Company completed the acquisition of Hawkins Water Service, a 50-customer system, which will be integrated into Redwood Valley Water Company's operations. The Company has also received approval from the CPUC to acquire Coast Springs Water Company, with 250 customers, and expects to close the transaction in the third quarter. DIVIDEND INCREASED The Board of Directors has declared the Company's 146th consecutive quarterly dividend at $0.24 per share on common stock to be paid on September 15, 1999, to shareholders of record as of September 1, 1999. 14 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: August 13, 1999 By: /S/ John S. Tootle ---------------------------- ------------------------------ John S. Tootle CFO, Vice-President Finance 15 EX-27.1 2 EXHIBIT 27-1
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1,583,295 0 3,517,782 (305,586) 24,244 6,588,998 70,379,146 25,445,004 56,061,820 6,475,493 12,125,025 0 0 1,560,979 15,179,152 56,061,820 12,275,371 12,925,431 6,989,827 11,604,593 0 0 487,473 1,290,051 490,050 800,001 0 113,603 0 686,398 0.44 0.44
-----END PRIVACY-ENHANCED MESSAGE-----