<PAGE>
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
<PAGE>
DOMINGUEZ SERVICES CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
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
</TABLE>
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 Company and Arden
Water Company), Redwood Valley Water Company and DSC Investments.
(a) Consolidated Income Statement (Unaudited) - Fiscal Quarter ending:
<TABLE>
<CAPTION>
For the For the
Quarter Ending Quarter Ending
June 30, 1999 June 30, 1998
-------------- --------------
<S> <C> <C>
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
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
(b) Consolidated Income Statement (Unaudited) - Six Months Ending:
<TABLE>
<CAPTION>
For the Six For the Six
Months Ending Months Ending
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
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
</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
June 30, 1999 June 30, 1998
-------------- --------------
<S> <C> <C>
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
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
(d) Consolidated Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
As of As of
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
(e) Consolidated Statements of Cash Flow (Unaudited)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ending Months Ending
June 30, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
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
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
(f) Capitalization and Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
As of
June 30, 1999
-------------
<S> <C>
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
-----------
-----------
</TABLE>
Stockholder's equity:
<TABLE>
<CAPTION>
Shares
issued or
outstanding Amount
----------- ------------
<S> <C> <C> <C>
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
-----------
-----------
</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.
2. Business Segments: The following table lists the profit and
assets for each segment of the Company:
<TABLE>
<CAPTION>
Non-
Six months ended Regulated regulated Other Total
---------------- --------- --------- ----- -----
<S> <C> <C> <C> <C>
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
</TABLE>
* 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<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: August 13, 1999 By: /S/ John S. Tootle
---------------------------- ------------------------------
John S. Tootle
CFO, Vice-President Finance
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,583,295
<SECURITIES> 0
<RECEIVABLES> 3,517,782
<ALLOWANCES> (305,586)
<INVENTORY> 24,244
<CURRENT-ASSETS> 6,588,998
<PP&E> 70,379,146
<DEPRECIATION> 25,445,004
<TOTAL-ASSETS> 56,061,820
<CURRENT-LIABILITIES> 6,475,493
<BONDS> 12,125,025
0
0
<COMMON> 1,560,979
<OTHER-SE> 15,179,152
<TOTAL-LIABILITY-AND-EQUITY> 56,061,820
<SALES> 12,275,371
<TOTAL-REVENUES> 12,925,431
<CGS> 6,989,827
<TOTAL-COSTS> 11,604,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 487,473
<INCOME-PRETAX> 1,290,051
<INCOME-TAX> 490,050
<INCOME-CONTINUING> 800,001
<DISCONTINUED> 0
<EXTRAORDINARY> 113,603
<CHANGES> 0
<NET-INCOME> 686,398
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.44
</TABLE>
