SouthWest Water Company (NASDAQ:SWWC) today reported unaudited and
pro forma financial information reflecting the Riverview wastewater
system purchased earlier this year. As previously reported, on
January 31, 2008 the company completed an acquisition of the assets
of a wastewater collection system and related wastewater treatment
plant that services more than 12,000 residents in Birmingham,
Alabama for $23.3 million (including $0.8 million in related
acquisition costs). The company is required to file an amendment to
its Current Report on Form 8-K, filed on February 6, 2008, to
provide audited historical financial statements for the Riverview
system and unaudited pro forma consolidated financial information
reflecting the acquisition. The requirement is caused by the
material positive impact the acquisition will likely have on the
company�s results of operations. The Riverview system was a small
component of a municipal water and wastewater utility representing
approximately 5.0% of that utility�s consolidated utility plant and
4.5% of its consolidated revenues. The system was built in 1986/87
and underwent significant expansion from 1990 to 1997. The system
has never been operated as a stand-alone business and separate
accounting records have never been maintained. The municipal
utility archives its historical accounting records in accordance
with Alabama state law which permits the destruction of
transactional records after seven years. As a result of the
forgoing circumstances, audited financial statements for the
Riverview system could not be prepared and the company was unable
to timely file the amendment with the Securities and Exchange
Commission (SEC). �The Riverview system was an excellent
acquisition that was immediately accretive to our results,"
commented Mark A. Swatek, chief executive officer and chairman of
SouthWest Water. "The different rules associated with public
utility reporting and SEC reporting can make transferring public
assets into private hands challenging. We are working through these
issues in an expeditious manner and expect to be SEC compliant
shortly.� The company has been in contact with the SEC and plans to
file the required Form 8-K with alternate audited financial
information in the near future. In the interim, the company has
elected to disclose the following unaudited and pro forma financial
information. UNAUDITED FINANCIAL INFORMATION OF BUSINESS ACQUIRED �
Statement of Revenues and Direct Expenses Year Ended (unaudited and
in thousands) December 31, � � � 2007 � � � 2006 � Operating
revenues � $ � 5,174 � $ � 4,477 � � Specifically identifiable
direct operating expenses: Electrical power � 388 � 344 Labor 335
328 Maintenance materials 197 230 Other � � � 1 � � � 2 � 921 904
Allocated direct operating expenses: Labor 806 716 Maintenance
materials 167 152 Other � � � 2 � � � 3 � � � � 975 � � � 871 �
Total Expenses � � � 1,896 � � � 1,775 � � Net revenues and direct
expenses � $ � 3,278 � $ � 2,702 � � � Statement of Assets Acquired
and Liabilities Assumed At Fair Value � � (unaudited and in
thousands) January 31, 2008 Assets Acquired at Fair Value Utility
Plant Land $ 2,557 Structures and improvements 6,016 Collection
sewers - force 393 Collection sewers - gravity 12,198 Pump stations
� 2,166 Assets acquired 23,330 Liabilities assumed � - Net assets
acquired $ 23,330 � � Statement of Assets Acquired and Liabilities
Assumed At Historical Cost � (unaudited and in thousands) December
31, 2007 Assets Acquired at Historical Cost Utility plant $ 38,677
Less accumulated depreciation � (12,740 ) Assets acquired � 25,937
� Liabilities assumed � - � Net assets acquired $ 25,937 � � �
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL DATA Basis of
Presentation The unaudited condensed pro forma consolidated
statement of operations is presented to reflect the acquisition of
the Riverview system as if it had occurred on January 1, 2007. The
unaudited condensed pro forma consolidated balance sheet is
presented to reflect the acquisition of the Riverview system as if
it had occurred on December 31, 2007. The pro forma adjustments are
based upon available information and assumptions management
believes are reasonable under the circumstances. The unaudited
condensed pro forma consolidated financial data and accompanying
notes should be read in conjunction with our historical audited and
unaudited financial statements and related notes and the audited
financial information and related notes of the Riverview System.
The pro forma financial data does not purport to represent what our
actual results of operations or actual financial position would
have been if the transaction described above in fact occurred on
such date or to project our results of operations or financial
position for any future period or date. Unaudited Condensed Pro
Forma Consolidated Balance Sheet December 31, 2007 � � � (in
thousands) SouthWest Riverview Water System Historical(1)
Acquired(2) Adjustments Pro Forma Assets Current Assets: Cash and
cash equivalents $ 2,950 $ -- $ -- $ 2,950 Accounts receivable, net
26,005 -- -- 26,005 Assets held for sale 16,013 -- -- 16,013 Other
current assets � 16,617 � � -- � � -- � 16,617 Total current assets
� 61,585 � � -- � � -- � 61,585 Property, Plant and Equipment, Net:
Regulated utilities 399,146 25,937 (2,607) (3) 422,476
Non-regulated operations � 18,757 � � -- � � -- � 18,757 Total
property, plant and equipment, net � 417,903 � � 25,937 � � (2,607)
� 441,233 Other Assets: Goodwill 17,349 -- -- 17,349 Intangible
assets 2,539 -- -- 2,539 Other assets � 17,033 � � -- � � -- �
17,033 $ 516,409 � $ 25,937 � $ (2,607) $ 539,739 Liabilities and
Stockholders' Equity Current Liabilities: Accounts payable $ 14,930
$ -- $ -- $ 14,930 Liabilities related to assets held for sale
4,297 -- -- 4,297 Current portion of long-term debt 1,937 -- --
1,937 Other current liabilities � 25,020 � � -- � � -- � 25,020
Total current liabilities � 46,184 � � -- � � -- � 46,184 Long-Term
Debt: Revolving credit facility 51,000 -- 23,330 (4) 74,330 Other
long-term debt � 94,353 � � -- � � -- � 94,353 Total long-term debt
� 145,353 � � -- � � 23,330 � 168,683 Other Liabilities and
Deferred Credits: Deferred income taxes 28,102 -- -- 28,102
Advances for construction 9,210 -- -- 9,210 Contributions in aid of
construction 115,442 -- -- 115,442 Other liabilities and deferred
credits 12,924 -- -- 12,924 Stockholders' equity � 159,194 � �
25,937 � � (25,937) (5) � 159,194 $ 516,409 � $ 25,937 � $ (2,607)
$ 539,739 � See accompanying notes to unaudited condensed pro forma
consolidated financial data. � Unaudited Condensed Pro Forma
Consolidated Statement of Operations Year Ended December 31, 2007 �
� (In thousands) � SouthWest � Riverview � � Water System
Historical(1) Acquired(6) Adjustments Pro Forma Revenues: Utility
Group $ � 93,370 $ � 5,174 $ � -- $ � 98,544 Services Group � �
123,977 � � � � -- � � � -- � � � 123,977 � � Total revenues � �
217,347 � � � � 5,174 � � � -- � � � 222,521 � � Expenses: Utility
Group operating expenses 52,765 1,896 587 (7) 55,248 Services Group
operating expenses 107,884 -- -- 107,884 Selling, general and
administrative expenses 36,624 -- 120 (8) 36,744 Impairment of
goodwill � � 17,215 � � � � -- � � � -- � � � 17,215 � � Total
expenses � � 214,488 � � � � 1,896 � � � 707 � � � 217,091 � �
Operating income 2,859 3,278 (707 ) 5,430 Other income (expense):
Interest expense (7,696 ) -- (1,571 )(9) (9,267 ) Interest income
618 -- -- 618 Other, net � � (6 ) � � � -- � � � -- � � � (6 ) �
Income (loss) from continuing operations before income taxes �
(4,225 ) 3,278 (2,278 ) (3,225 ) Provision for income taxes � � 795
� � � � -- � � � 384 (10) � � 1,179 � � Income (loss) from
continuing operations (5,020 ) 3,278 (2,662 ) (4,404 ) Loss from
discontinued operations, net of tax � � (3,026 ) � � � -- � � � --
� � � (3,026 ) � Net income (loss) (8,046 ) 3,278 (2,662 ) (7,430 )
Preferred stock dividends � � (24 ) � � � -- � � � -- � � � (24 ) �
Net income (loss) applicable to common stockholders � $ � (8,070 )
� $ � 3,278 � $ � (2,662 ) $ � (7,454 ) � Loss per common share:
Basic: Loss from continuing operations $ (0.21 ) $ (0.18 ) Loss
from discontinued operations(11) � � � (0.12 ) � � � (0.13 ) � Net
loss applicable to common stockholders $ � (0.33 ) � $ � (0.31 ) �
Diluted: Loss from continuing operations $ (0.21 ) $ (0.18 ) Loss
from discontinued operations(11) � � (0.12 ) � � � (0.13 ) � Net
loss applicable to common stockholders $ � (0.33 ) � $ � (0.31 ) �
Weighted average common shares outstanding: � Basic 24,101 24,101
Diluted 24,101 24,101 � See accompanying notes to unaudited
condensed pro forma consolidated financial data. � Notes To
Unaudited Condensed Pro Forma Consolidated Financial Data 1)
Reflects the historical financial position and results of operation
of SouthWest Water Company derived from its historical audited
financial statements included in its Form 10-K for year ended
December 31, 2007 filed on March 31, 2008. Those audited financial
statements and accompanying notes should be read in conjunction
this pro forma financial data. 2) Reflects the historical cost of
the Riverview System assets acquired. 3) Reflects the adjustment
required to reduce the historical carrying value of the assets
acquired to a $23.3 million fair value based on the total purchase
price. The purchase price allocation is preliminary and may change
upon completion of the final valuations of the assets acquired. 4)
Reflects borrowings under the revolving credit facility to acquire
the Riverview System assets. 5) Reflects elimination of the
Riverview System equity upon acquisition. 6) Reflects the unaudited
historical revenues and direct expenses for the Riverview System.
Excludes costs for administrative functions such as accounting,
billing, credit and collection, customer call centers and
depreciation that were not allocated to the Riverview System by its
previous owner. 7) Reflects depreciation expense based upon the
fair value of the assets acquired and their remaining expected
useful lives as of the acquisition date. 8) Reflects additional
expenses for administrative functions we expect will be incurred
for the functions that were not allocated to the Riverview System
by its previous owner. 9) Reflects additional interest expense, net
of a reduction in unused credit facility fees, resulting from the
$23.3 million of borrowings related to the acquisition at the 6.88%
incremental annual effective interest rate in effect during the
year ended December�31, 2007. 10) Reflects an additional provision
for income taxes resulting from the acquisition of the Riverview
System at our 38.38% incremental effective tax rate for the year
ended December 31. 2007. The Riverview System was not a stand-alone
tax paying entity prior its acquisition therefore the adjustment
reflects the incremental taxes we would have likely incurred on the
pre-tax income of the Riverview System, net of the pro forma
adjustments. 11) The change is attributable to rounding in the loss
per common share computations. SouthWest Water Company provides a
broad range of services, including water production, treatment and
distribution; wastewater collection and treatment; utility billing
and collection; utility infrastructure construction management; and
public works services. The company owns regulated public utilities
and also serves cities, utility districts and private companies
under contract. More than two million people from coast to coast
depend on SouthWest Water for high-quality, reliable service.
Additional information may be found on the company�s website:
www.swwc.com. This document contains �forward-looking statements�
within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements, including expectations relating to
future revenues and income, the company�s ability to gain new
business and control costs, involve risks and uncertainties, as
well as assumptions that, if they prove incorrect or never
materialize, could cause the results of the company to differ
materially from those expressed or implied by such forward-looking
statements. Actual results may differ materially from these
expectations due to changes in regulatory, political, weather,
economic, business, competitive, market, environmental and other
factors. More detailed information about these factors is contained
in the company�s filings with the Securities and Exchange
Commission, including under the caption �Risk Factors� in the
company�s 2007 Annual Report on Form 10-K. The company assumes no
obligation to update these forward-looking statements to reflect
any change in future events.
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