<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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F O R M 1 0 - Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
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SEPTEMBER 30, 1997
For Quarter Ended ----------------------------------------- on file No. 0-18677
DOMINGUEZ SERVICES CORPORATION
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(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0391161
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(State of other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
21718 SOUTH ALAMEDA STREET, LONG BEACH, CALIFORNIA 90810
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(Address of principal executive offices) (Zip Code)
(310) 834-2625
Registrant's telephone number, including area code ----------------------------
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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 .
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(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) - 1,004,370
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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, 1997
and 1996
(b) Consolidated Income Statement for the 4
Nine Months Ending September 30, 1997
and 1996
(c) Consolidated Income Statement for the 5
Twelve Months Ending September 30, 1997
and 1996
(d) Consolidated Balance Sheet as of 6
September 30, 1997 and Consolidated
Balance Sheet as of December 31, 1996
(e) Consolidated Statements of Cash Flows 7
for the Nine Months Ending
September 30, 1997 and 1996
(f) Capitalization and Stockholders' Equity 8
as of September 30, 1997
(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
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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 Co., Kern River
Valley Water Company (Consolidating Kernville Domestic Water Company and
Arden Water Company) and DSC Investments.
(a) Consolidated Income Statement (Unaudited) - Fiscal Quarter ending:
<TABLE>
<CAPTION>
FOR THE FOR THE
QUARTER ENDING QUARTER ENDING
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Operating revenue $8,170,627 $7,404,372
Costs and expenses
Operating expenses 6,784,654 6,026,528
Interest expenses 194,162 172,005
Other expenses, net 10,004 22,696
Total costs and expenses 6,988,820 6,221,229
Income from operations 1,181,807 1,183,143
Other income 168,833 131,464
Income before taxes on income 1,350,640 1,314,607
Provision for taxes on income 542,105 527,656
Net income 808,535 $786,951
Less preferred dividends --0-- --0--
Net income applicable to common shares 808,535 $786,951
Earnings per common share $0.80 $0.78
Dividends per common share $0.325 $0.31
Average common shares outstanding 1,004,370 1,004,370
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
(b) Consolidated Income Statement (Unaudited) - Nine Months Ending:
FOR THE NINE FOR THE NINE
MONTHS ENDING MONTHS ENDING
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
Operating revenue $20,339,562 $18,985,561
Costs and expenses
Operating expenses 17,366,725 16,080,505
Interest expenses 593,685 516,808
Other expenses, net 31,474 31,945
Total costs and expenses 17,991,884 16,629,258
Income from operations 2,347,678 2,356,303
Other income 356,740 303,903
Income before taxes on income 2,704,418 2,660,206
Provision for taxes on income 1,085,605 1,067,753
Net income 1,618,813 $1,592,453
Less preferred dividends --0-- 1,219
Net income applicable to common shares 1,618,813 $1,591,234
Earnings per common share $1.61 $1.58
Dividends per common share $0.975 $0.93
Average common shares outstanding 1,004,370 1,004,370
See accompanying notes to financial statements.
4
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(c) Consolidated Income Statement (Unaudited) - Twelve Months Ending:
FOR THE TWELVE FOR THE TWELVE
MONTHS ENDING MONTHS ENDING
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
Operating revenue 26,058,787 $25,228,605
Costs and expenses
Operating expenses 22,479,227 21,860,906
Interest expenses 736,141 685,196
Other expenses, net 33,889 33,090
Total costs and expenses 23,249,257 22,579,192
Income from operations 2,809,530 2,649,413
Other income 529,949 491,775
Income before taxes on income 3,339,479 3,141,188
Provision for taxes on income 1,331,821 1,181,946
Net income 2,007,658 $1,959,242
Less preferred dividends --0-- 2,438
Net income applicable to common shares $2,007,658 $1,956,804
Earnings per common share $2.00 $1.95
Dividends per common share $1.285 $1.22
Average common shares outstanding 1,004,370 1,004,370
See accompanying notes to financial statements.
5
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(d) Consolidated Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1997 DECEMBER 31, 1996
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<S> <C> <C>
ASSETS
Plant and equipment $59,707,787 $59,652,271
Depreciation allowance (22,321,061) (21,079,569)
Construction work in progress 2,620,329 427,280
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Net utility plant 40,007,055 38,999,982
Non-utility property 554,436 530,461
Current and accrued assets 6,921,231 5,004,365
Deferred debits 2,338,002 2,339,991
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$49,820,724 $46,874,799
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LIABILITIES
Capital stock:
Class A preferred - par value $25 per share
No outstanding shares in 1997 & 1996 $--0-- $--0--
Common - par value $1 per share
Outstanding 1,004,370 shares 1,004,370 1,004,370
Surplus:
Capital surplus 2,507,502 2,507,502
Earnings retained in business 12,754,179 12,114,573
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Total capital 16,266,051 15,626,445
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Long-term debt:
First mortgage bonds 4,000,000 5,212,000
Other notes 2,239,455 1,838,637
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Total long-term debt 6,239,455 7,050,637
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Interim debt 1,750,000 800,000
Current portion long-term debt 43,000 834,000
Current and accrued liabilities 6,864,879 4,303,365
Deferred taxes 3,911,004 3,903,699
Advances for construction 5,213,823 5,405,329
Contribution in aid of construction 6,372,089 6,075,881
Deferred credits 3,160,423 2,875,443
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$49,820,724 $46,874,799
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</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
(e) Consolidated Statements of Cash Flow (Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE NINE
MONTHS ENDING MONTHS ENDING
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Cash Flow from Operating Activities:
Net income $1,618,813 $1,592,453
Adjustments to reconcile net income to net
cash provided by operation activities:
Depreciation and amortization 1,110,000 953,422
Deferred income tax and ITC 7,305 107,305
Change in assets and liabilities:
Customers receivable (493,455) (688,971)
Other receivable (816,177) 584,678
Materials and supplies 4,323 23,277
Accounts payable 945,957 243,865
Income taxes payable 900,125 632,013
Deferred credits 277,323 271,058
All others 118,125 191,225
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Net Cash Provided by Operating Activities 3,672,339 3,140,625
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Cash Flows from Investing Activities:
Capital expenditures (2,289,414) (2,758,917)
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Net Cash used for Investing Activities (2,289,414) (2,758,917)
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Cash Flows from Financing Activities:
Proceeds from contributions in aid of
construction & advances 245,840 189,452
Repayment of long-term debt (811,182) 766,171
Dividends paid (979,262) (935,283)
Stock redemption --0-- (97,525)
Current portion long-term debt (791,000) (23,000)
Proceeds from interim debt 950,000 --0--
Net Cash Used by Financing Activities (1,385,604) (100,185)
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Net (Decrease) Increase in Cash ($2,679) $1,051,223
Cash at Beginning of Year 708,817 751,606
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Cash at End of Year $706,138 $1,802,829
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</TABLE>
See accompanying notes to financial statements.
7
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(f) Capitalization and Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
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<S> <C> <C> <C>
Debt:
Long-term debt $6,282,455
Current sinking fund requirements (43,000)
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Total debt maturing in more than twelve months $6,239,455
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Deferred credits
$3,160,423
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Stockholder's equity: SHARES
ISSUED OR
OUTSTANDING AMOUNT
----------- ------
Common stock $1 par value 1,004,370 $1,004,370
Capital in excess of par value 2,507,502
Retained earnings:
Balance at beginning of current fiscal year $12,114,628
Net income 1,618,813
Cash dividends:
Common stock @ $0.325 (979,262)
-----------
Balance at end of interim period
12,754,179
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Total stockholder's equity $16,266,051
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
(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.
For the quarter ended September 30, 1997, earnings per share were
$.80, compared to $0.78 in the third quarter of 1996. Revenues for
the quarter ended September 30, 1997, were $8,170,627 and net income
was $808,535, compared to revenues of $7,404,372 and net income of
$786,951 for the same period last year.
For the nine months ended September 30, 1997, earnings per share were
$1.61, compared to $1.58 for the same period in 1996. Revenues were
$20,339,562 and net income was $1,618,813, compared to revenues of
$18,985,561 and net income of $1,591,234 for the same period last
year.
For the twelve months ended September 30, 1997, earnings per share
were $2.00, up from $1.95 for the same period in 1996. Revenues for
the twelve months ended September 30, 1997, were $26,058,787 and net
income was $2,007,658, compared to revenues of $25,228,605 and net
income of $1,956,804 for the same period last year.
The 7% increase in gross revenues for the first nine months is a
result of higher rates in the South Bay and increased water sales.
However, this increase was offset by higher water costs and related
operating expenses. Net income remained essentially unchanged.
Dominguez increased rates by approximately 1.6% to recover higher
costs charged by our wholesale supplier. However, according to
industry data, water bills of South Bay residential customers are
still lower than those charged by other leading Southern California
water utilities, which is an indication of our efficient operations
and rigorous cost discipline.
For the first nine months of the year, residential sales increased by
2.6%, business sales increased by 10%, and industrial sales increased
by 2%, all compared to the same period last year. Overall, sales
increased 4% over last year.
The Company completed the integration of the Countrywood Water Company
into Kern River Valley operations in the third quarter. In addition,
Dominguez received the approval of the California Public Utilities
Commission (CPUC) to purchase Southlake Water Company, also located in
the Kern River Valley area. The Southlake purchase was completed in
October.
9
<PAGE>
The Company also looks forward to developing a presence in northern
California. In early August, Dominguez signed a letter of intent to
purchase Lucerne Water Company, which serves nearly 1,300 customers in
Sonoma County, for approximately 28,061 shares of stock. The Company
is now in the due diligence process.
The Company has received the approval from the CPUC to increase
borrowings by $5,000,000. The bond issue will be used to retire our
higher cost debt.
LEGISLATION AND REGULATORY AFFAIRS
New legislation was signed into California law during the third
quarter which will have a positive impact on the Company's acquisition
of small water systems. Under the new law, SB 1268, purchasers of
water utilities can use fair-market value of acquired assets, as
opposed to the often dated and far-lower values on the books, for
rate-making purposes. The CPUC has initiated a proceeding to develop
guidelines necessary to implement the law and to investigate other
regulatory issues unique to the water industry.
WATER QUALITY
As previously reported, the federal Safe Drinking Water Act (SDWA) was
re-authorized in 1996. Under the SDWA, the Company is subject to
regulation by the United States Environmental Protection Agency (EPA)
and the California Department of Health Services. The Company is
participating in a monthly water sampling data acquisition program
known as the Information Collection Rule (ICR) along with many other
large water utilities.
WATER SUPPLY
As of September 1997, the water supply outlook is still favorable.
California State Water Project (SWP) reservoirs remain at adequate
levels for projected demands for the remainder of the year. MWD also
indicates that a full compliment of Colorado River Water is available.
Dominguez expects an ample supply of imported water to be available
for the remainder of 1997.
Dominguez anticipates that the West Basin Municipal Water District
Recycled Water Project will be delivering recycled water to a limited
number of South Bay customers in 1998. Dominguez' margins will remain
equal to those of replaced potable sales.
DIVIDEND DECLARED
The Board of Directors declared the Company's 139th consecutive
quarterly dividend in the amount of $0.325 per share on common stock,
to be paid on December 15, 1997.
10
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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: By:
------------------------ ----------------------------
John S. Tootle
CFO, Vice-President Finance
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED INCOME STATEMENT FOR THE PERIOD
ENDING SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 706,138
<SECURITIES> 0
<RECEIVABLES> 3,375,097
<ALLOWANCES> (343,457)
<INVENTORY> 42,062
<CURRENT-ASSETS> 6,921,231
<PP&E> 62,328,116
<DEPRECIATION> 22,321,061
<TOTAL-ASSETS> 49,820,824
<CURRENT-LIABILITIES> 8,657,885
<BONDS> 6,239,455
0
0
<COMMON> 1,004,370
<OTHER-SE> 15,261,675
<TOTAL-LIABILITY-AND-EQUITY> 49,820,824
<SALES> 18,830,951
<TOTAL-REVENUES> 20,339,562
<CGS> 7,582,691
<TOTAL-COSTS> 15,920,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 100,420
<INTEREST-EXPENSE> 593,685
<INCOME-PRETAX> 2,704,418
<INCOME-TAX> 1,085,605
<INCOME-CONTINUING> 1,618,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,618,813
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.61
</TABLE>
