<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, 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
<PAGE>
DOMINGUEZ SERVICES CORPORATION
INDEX
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PAGE NO.
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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
<PAGE>
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:
<TABLE>
<CAPTION>
For the For the
Quarter Ending Quarter Ending
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
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
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
(b) Consolidated Income Statement (Unaudited) - Nine Months Ending:
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ending Months Ending
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
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
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
(c) Consolidated Income Statement (Unaudited) - Twelve Months Ending:
<TABLE>
<CAPTION>
For the Twelve For the Twelve
Months Ending Months Ending
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
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
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
(d) Consolidated Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
As of As of
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
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
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$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
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Total capital 16,463,700 16,341,991
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Long-term debt:
First mortgage bonds 9,000,000 9,000,000
Other notes 2,155,318 2,194,407
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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
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$53,809,257 $51,660,555
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------------- ------------
</TABLE>
See accompanying notes to financial statements.
6
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(e) Consolidated Statements of Cash Flow (Unaudited)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ending Months Ending
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
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
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Net Cash Provided by Operating Activities 3,326,180 3,672,339
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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)
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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
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
(f) Capitalization and Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
As of
September 30, 1998
------------------
<S> <C> <C> <C>
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
-----------
-----------
</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.
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 725711
<SECURITIES> 0
<RECEIVABLES> 3718824
<ALLOWANCES> (290856)
<INVENTORY> 33244
<CURRENT-ASSETS> 7106838
<PP&E> 62357240
<DEPRECIATION> 23481950
<TOTAL-ASSETS> 53809257
<CURRENT-LIABILITIES> 7149216
<BONDS> 11155318
0
0
<COMMON> 1506512
<OTHER-SE> 14957188
<TOTAL-LIABILITY-AND-EQUITY> 53809257
<SALES> 18083795
<TOTAL-REVENUES> 19285778
<CGS> 10263638
<TOTAL-COSTS> 17112062
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 66293
<INTEREST-EXPENSE> 652775
<INCOME-PRETAX> 1933201
<INCOME-TAX> 772000
<INCOME-CONTINUING> 1161201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1161201
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
</TABLE>
