<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10 - Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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March 31, 1999
For Quarter Ended On file No. 0-18677
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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)
Registrant's telephone number, including area code (310) 834-2625
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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) - 1,560,979
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DOMINGUEZ SERVICES CORPORATION
INDEX
PAGE NO.
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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
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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 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
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
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.
</TABLE>
3
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(b) Consolidated Income Statement (Unaudited) - Twelve Months Ending:
<TABLE>
<CAPTION>
For the Twelve For the Twelve
Months Ending Months Ending
March 31, 1999 March 31, 1998
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<S> <C> <C>
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.
</TABLE>
4
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(c) Consolidated Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
As of As of
March 31, 1999 December 31, 1998
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<S> <C> <C>
ASSETS
Plant and equipment $ 70,380,146 $ 67,894,203
depreciation allowance (25,046,620) (23,949,485)
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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
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$ 54,329,636 $ 52,353,727
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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
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Total capital 16,675,230 15,880,011
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Long-term debt:
First mortgage bonds 9,000,000 9,000,000
Other notes 3,126,989 2,216,958
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Total long-term debt 12,126,989 11,216,958
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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
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$ 54,329,636 $ 52,353,727
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</TABLE>
See accompanying notes to financial statements.
5
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(d) Consolidated Statements of Cash Flow (Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ending Months Ending
March 31, 1999 March 31, 1998
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<S> <C> <C>
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
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Net Cash Provided by Operating Activities 364,627 362,988
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Cash Flows from Investing Activities:
Capital expenditures (808,550) (1,382,513)
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Net Cash used in Investing Activities (808,550) (1,382,513)
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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)
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Net Cash used in Financing Activities (100,870) (277,324)
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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
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See accompanying notes to financial statements.
</TABLE>
6
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(e) Capitalization and Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Shares
Issued or As of
Outstanding Amount March 31, 1999
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<S> <C> <C> <C>
Debt:
Long-term debt $ 12,182,989
Current sinking fund requirements (56,000)
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Total debt maturing in more than twelve months $ 12,126,989
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--------------
Deferred credits $ 3,451,901
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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)
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Balance at end of interim period 12,240,374
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Total stockholders' equity $ 16,675,230
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--------------
</TABLE>
See accompanying notes to financial statements.
7
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(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>
Three months ended Regulated Non-regulated Other Total
------------------ -------- ------------- ----- -----
<S> <C> <C> <C> <C>
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
</TABLE>
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
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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
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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
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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
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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
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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: May 14, 1999 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 SHEETS AND CONSOLIDATED INCOME STATEMENT FOR THE PERIOD
ENDING MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 165,971
<SECURITIES> 0
<RECEIVABLES> 2,993,985
<ALLOWANCES> (340,362)
<INVENTORY> 27,244
<CURRENT-ASSETS> 4,623,342
<PP&E> 70,379,146
<DEPRECIATION> 25,046,620
<TOTAL-ASSETS> 54,329,635
<CURRENT-LIABILITIES> 5,888,658
<BONDS> 12,126,989
0
0
<COMMON> 1,560,979
<OTHER-SE> 15,114,251
<TOTAL-LIABILITY-AND-EQUITY> 54,329,635
<SALES> 5,537,506
<TOTAL-REVENUES> 5,804,331
<CGS> 3,046,437
<TOTAL-COSTS> 22,694,691
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,698
<INCOME-PRETAX> 441,431
<INCOME-TAX> 171,675
<INCOME-CONTINUING> 269,758
<DISCONTINUED> 0
<EXTRAORDINARY> 22,895
<CHANGES> 0
<NET-INCOME> 246,861
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
