Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
|
x
|
Quarterly Report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
|
|
|
For the quarterly period ended June
30, 2009
|
|
|
Or
|
|
|
o
|
Transition report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
|
|
|
For the transition period from to
|
Commission File Number 0-8176
(Exact name
of registrant as specified in its charter)
Delaware
|
|
95-1840947
|
(State or
other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
Number)
|
One Wilshire Building
624 South Grand Avenue, Suite 2900
Los Angeles, California 90017-3782
(Address of
principal executive offices, including zip code)
(213) 929-1800
(Registrants
telephone, including area code)
None
(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 (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
o
No
x
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate website, if
any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (
§
232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. (Check one):
|
Large accelerated filer
|
o
|
|
|
Accelerated filer
|
x
|
|
Non-Accelerated filer
|
o
|
|
|
Smaller reporting company
|
o
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
o
No
x
Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest
practicable date.
|
Class
|
|
Outstanding
as of August 31, 2009
|
|
|
|
|
|
|
|
Common
Stock, $.01 par value per share
|
|
24,888,745
shares
|
|
Table of Contents
EXPLANATORY NOTE REGARDING RESTATEMENTS
SouthWest
Water Company and its subsidiaries (SouthWest Water or the Company)
condensed consolidated financial statements as of and for the three- and
six-month periods ended June 30, 2008 and related financial information have
been restated to correct certain accounting errors. For further details on the
nature of the corrections and the related effects on the Companys previously
issued consolidated financial statements, see Note 2, Restatement of Condensed
Consolidated Financial Statements. Restated balances have been identified with
the notation As Restated where appropriate. Throughout the financial
statements, the term as previously reported will be used to refer to balances
from the 2008 condensed consolidated financial statements as reported prior to
restatement for the correction of errors.
We
have not filed amendments to any previously filed Quarterly Reports on Form 10-Q
for the periods affected by the restatement. The financial information that has
been previously filed or otherwise reported for these periods is superseded by
the information in this Quarterly Report on Form 10-Q, and the financial
statements and related financial information contained in previously filed
reports should no longer be relied upon.
1
Table
of Contents
PART I FINANCIAL
INFORMATION
ITEM 1.
FINANCIAL
STATEMENTS
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
|
|
|
June 30,
2009
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
$
|
1,580
|
|
|
$
|
1,112
|
|
Accounts
receivable, net
|
|
|
31,688
|
|
|
29,697
|
|
Prepaid
expenses and other current assets
|
|
|
24,541
|
|
|
26,902
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
57,809
|
|
|
57,711
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
315,360
|
|
|
429,251
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
Goodwill
|
|
|
16,475
|
|
|
17,652
|
|
Intangible
assets
|
|
|
1,349
|
|
|
1,666
|
|
Other
assets
|
|
|
20,600
|
|
|
20,927
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$
|
411,593
|
|
|
$
|
527,207
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
$
|
13,745
|
|
|
$
|
16,139
|
|
Current
portion of long-term debt
|
|
|
2,162
|
|
|
2,213
|
|
Other
current liabilities
|
|
|
18,554
|
|
|
28,370
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
34,461
|
|
|
46,722
|
|
|
|
|
|
|
|
|
|
Other
Liabilities and Deferred Credits:
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
149,847
|
|
|
190,578
|
|
Deferred
income taxes
|
|
|
27,310
|
|
|
23,750
|
|
Advances
for construction
|
|
|
8,928
|
|
|
8,910
|
|
Contributions
in aid of construction
|
|
|
44,967
|
|
|
117,113
|
|
Other
liabilities and deferred credits
|
|
|
26,502
|
|
|
26,334
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity:
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
458
|
|
|
458
|
|
Common
stock
|
|
|
249
|
|
|
249
|
|
Additional
paid-in capital
|
|
|
147,928
|
|
|
147,775
|
|
Accumulated
deficit
|
|
|
(29,158
|
)
|
|
(34,794
|
)
|
Accumulated
other comprehensive income
|
|
|
101
|
|
|
112
|
|
|
|
|
|
|
|
|
|
Total
stockholders equity
|
|
|
119,578
|
|
|
113,800
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders equity
|
|
|
$
|
411,593
|
|
|
$
|
527,207
|
|
See accompanying notes to condensed
consolidated financial statements.
2
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In thousands, except per share
data)
|
|
|
2009
|
|
|
2008
As Restated
|
|
|
2009
|
|
|
2008
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
$
|
52,416
|
|
|
$
|
54,170
|
|
|
$
|
102,508
|
|
|
$
|
101,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
50,052
|
|
|
48,205
|
|
|
99,959
|
|
|
91,938
|
|
Depreciation
and amortization
|
|
|
3,857
|
|
|
3,526
|
|
|
7,690
|
|
|
7,009
|
|
Impairment
of long-lived assets
|
|
|
8,115
|
|
|
1,075
|
|
|
8,115
|
|
|
1,075
|
|
Total
operating expenses
|
|
|
62,024
|
|
|
52,806
|
|
|
115,764
|
|
|
100,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
(9,608
|
)
|
|
1,364
|
|
|
(13,256
|
)
|
|
1,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2,975
|
)
|
|
(2,092
|
)
|
|
(4,862
|
)
|
|
(4,212
|
)
|
Interest
income
|
|
|
48
|
|
|
60
|
|
|
84
|
|
|
108
|
|
Loss
from continuing operations before income taxes
|
|
|
(12,535
|
)
|
|
(668
|
)
|
|
(18,034
|
)
|
|
(2,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
from income taxes
|
|
|
(4,472
|
)
|
|
(233
|
)
|
|
(6,566
|
)
|
|
(890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(8,063
|
)
|
|
(435
|
)
|
|
(11,468
|
)
|
|
(1,653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, net of tax
|
|
|
17,559
|
|
|
415
|
|
|
17,731
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
9,496
|
|
|
(20
|
)
|
|
6,263
|
|
|
(993
|
)
|
Preferred
stock dividends
|
|
|
(6
|
)
|
|
(6
|
)
|
|
(6
|
)
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common stockholders
|
|
|
$
|
9,490
|
|
|
$
|
(26
|
)
|
|
$
|
6,257
|
|
|
$
|
(1,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
$
|
(0.33
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.07
|
)
|
Income
from discontinued operations
|
|
|
0.71
|
|
|
0.02
|
|
|
0.72
|
|
|
0.03
|
|
Net
income (loss) applicable to common stockholders
|
|
|
$
|
0.38
|
|
|
$
|
|
|
|
$
|
0.25
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,608
|
|
|
24,507
|
|
|
24,604
|
|
|
24,444
|
|
Diluted
|
|
|
24,608
|
|
|
24,507
|
|
|
24,604
|
|
|
24,444
|
|
See accompanying notes to condensed
consolidated financial statements.
3
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
CON
DENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY AND COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Number of
|
|
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Total
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2008
|
|
|
9
|
|
$
|
458
|
|
|
24,897
|
|
$
|
249
|
|
|
$
|
147,775
|
|
|
$
|
(34,794
|
)
|
|
$
|
112
|
|
|
$
|
113,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,263
|
|
|
|
|
|
6,263
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of actuarial gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
(11
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,252
|
|
Cancelled
restricted stock awards
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-vest
cancellations of non-qualified stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
(178
|
)
|
|
|
|
|
|
|
|
(178
|
)
|
Share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
331
|
|
|
|
|
|
|
|
|
331
|
|
Cash
dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock$0.65625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
(6
|
)
|
Common
stock$0.025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(621
|
)
|
|
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2009
|
|
|
9
|
|
$
|
458
|
|
|
24,892
|
|
$
|
249
|
|
|
$
|
147,928
|
|
|
$
|
(29,158
|
)
|
|
$
|
101
|
|
|
$
|
119,578
|
|
See accompanying notes to condensed
consolidated financial statements.
4
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
|
|
|
|
2008
|
|
(In thousands)
|
|
|
2009
|
|
As Restated
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
6,263
|
|
$
|
(993
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
Income
from discontinued operations, net of tax
|
|
(17,731
|
)
|
(660
|
)
|
Depreciation
and amortization
|
|
7,690
|
|
7,009
|
|
Deferred
income taxes
|
|
2,963
|
|
1,519
|
|
Provision
for doubtful accounts
|
|
984
|
|
1,020
|
|
Share-based
compensation expense
|
|
331
|
|
490
|
|
Post-vest
cancellations of non-qualified stock options
|
|
(178
|
)
|
|
|
Impairment
of long-lived assets
|
|
8,115
|
|
1,075
|
|
Gain
on sale of businesses and assets
|
|
(598
|
)
|
|
|
Amortization
of deferred financing costs
|
|
341
|
|
134
|
|
Other,
net
|
|
202
|
|
(75
|
)
|
Changes
in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
Accounts
receivable
|
|
(4,052
|
)
|
(5,120
|
)
|
Other
current assets
|
|
2,829
|
|
3,189
|
|
Other
assets
|
|
1,043
|
|
(2,511
|
)
|
Accounts
payable
|
|
(2,872
|
)
|
(7,965
|
)
|
Other
current liabilities
|
|
(484
|
)
|
(4,318
|
)
|
Other
liabilities
|
|
(1,437
|
)
|
174
|
|
Other,
net
|
|
|
|
(53
|
)
|
Net
cash provided by (used in) operating activities
|
|
3,423
|
|
(7,085
|
)
|
|
|
|
|
|
|
Cash
flows from investing activities of continuing operations:
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
(6,306
|
)
|
(13,971
|
)
|
Acquisition
of businesses, net of cash acquired
|
|
|
|
(23,330
|
)
|
Proceeds
from sale of minority interest
|
|
|
|
170
|
|
Proceeds
from sale of businesses
|
|
54,436
|
|
|
|
Proceeds
from sale of equipment
|
|
125
|
|
9
|
|
Net
cash provided by (used in) investing activities
|
|
48,255
|
|
(37,122
|
)
|
|
|
|
|
|
|
Cash
flows from financing activities of continuing operations:
|
|
|
|
|
|
Borrowings
under lines of credit
|
|
28,000
|
|
137,500
|
|
Repayments
under lines of credit
|
|
(55,600
|
)
|
(90,500
|
)
|
Capital
improvement reimbursements
|
|
3,389
|
|
1,367
|
|
Proceeds
from share-based equity incentive plans and stock purchase plans
|
|
|
|
1,763
|
|
Contributions
in aid of construction
|
|
|
|
11
|
|
Dividends
paid
|
|
(1,256
|
)
|
(2,953
|
)
|
Payments
on long-term debt
|
|
(13,131
|
)
|
(1,046
|
)
|
Repayment
of advances for construction
|
|
|
|
(432
|
)
|
Deferred
financing costs
|
|
(2,579
|
)
|
(532
|
)
|
Net
cash provided by (used in) financing activities
|
|
(41,177
|
)
|
45,178
|
|
|
|
|
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
Operating
activities
|
|
(8,095
|
)
|
1,010
|
|
Investing
activities
|
|
(291
|
)
|
(954
|
)
|
Financing
activities
|
|
(1,647
|
)
|
(94
|
)
|
Net
cash provided by (used in) discontinued operations
|
|
(10,033
|
)
|
(38
|
)
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
468
|
|
933
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
1,112
|
|
2,950
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,580
|
|
$
|
3,883
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes to condensed consolidated financial statements.
5
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Summary
of Significant Accounting Policies
Basis of Presentation
These condensed consolidated interim
financial statements are unaudited. SouthWest Water Company (the Company)
believes the interim financial statements are presented on a basis consistent
with the audited consolidated financial statements for the year ended December 31,
2008 and include all adjustments necessary for a fair presentation of the
financial condition, results of operations and cash flows for such interim
periods. These adjustments include all normal recurring adjustments.
The December 31, 2008 condensed
consolidated balance sheet data were derived from the audited financial
statements, but do not include all disclosures required by accounting
principles generally accepted in the United States of America (GAAP), and, as
a result, are labeled unaudited.
Certain information and disclosures
normally included in financial statements prepared in accordance with GAAP have
been omitted in accordance with Securities and Exchange Commissions rules and
regulations for interim financial reporting. These condensed consolidated
interim financial statements should be read in conjunction with the audited
financial statements and related notes included in the Companys 2008 Annual
Report on Form 10-K. The Companys businesses are seasonal because they
are affected by weather. As a result, operating results for interim periods are
not necessarily predictive of the operating results for any other interim
period or for the full year.
Fair Value
Measurements
The Company applies the provisions of
Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements
(SFAS 157). SFAS
157 defines fair value and provides guidance for measuring fair value and
expands disclosures about fair value measurements. SFAS 157 does not require
any new fair value measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements.
In February 2008, the Financial
Accounting Standards Board (FASB) issued a final Staff Position to allow a
one-year deferral of adoption of SFAS 157 for nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The Company elected this one-year deferral
and began applying the provisions of SFAS 157 to nonfinancial assets and
nonfinancial liabilities that are recognized at fair value in the financial
statements on a nonrecurring basis in the current fiscal year beginning January 1,
2009. The Company had no nonrecurring measurements recognized at fair value
during the quarter ended June 30, 2009. The Company generally applies fair
value techniques on a nonrecurring basis associated with (1) valuing
potential impairment loss related to goodwill and indefinite-lived intangible
assets accounted for pursuant to SFAS 142, and (2) valuing potential
impairment losses related to long-lived assets accounted for pursuant to SFAS
144. The FASB also amended SFAS 157 to exclude FASB Statement No. 13 and
its related interpretive accounting pronouncements that address leasing
transactions.
SFAS 157 enables the reader of the
financial statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. SFAS 157 requires that assets and
liabilities carried at fair value be classified and disclosed in one of the
following three categories:
·
Level 1: Quoted
market prices in active markets for identical assets or liabilities.
·
Level 2: Observable
market based inputs or unobservable inputs that are corroborated by market
data.
·
Level 3:
Unobservable inputs that are not corroborated by market data.
The fair values of the Companys cash
equivalents are based on quoted prices in active markets for identical assets
(Level 1).
6
Table of Contents
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Companys revolving credit facility
and long-term debt with aggregate book values of $152.0 million and $192.8
million had fair values of approximately $142.7 million and $196.4 million as
of June 30, 2009 and December 31, 2008, respectively. The Company
believes that these changes in fair value from their carrying amounts are
primarily due to current unstable economic conditions and the current state of
the credit markets for similar debt instruments. The Company determined the
estimated fair value amounts by using recent trade activity, available market
information and commonly accepted valuation methodologies (Level 2). However,
considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the fair value estimates presented herein
are not necessarily indicative of the amount that the Company could realize in
a current market exchange. The use of different assumptions and/or estimation
methodologies may have a material effect on the estimated fair value.
Recent
Accounting Pronouncements
In March 2008, the FASB issued
SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133
(SFAS 161). This statement amends SFAS 133 by requiring enhanced disclosures
about a Companys derivative instruments and hedging activities, but does not
change the scope of, or accounting under, SFAS 133. SFAS 161 requires increased qualitative,
quantitative and credit-risk disclosures about the entitys derivative
instruments and hedging activities. The Company adopted SFAS 161 effective January 1,
2009. The Company does not currently hold derivative instruments and was not
impacted by the adoption of SFAS 161.
In April 2008, the FASB issued
FSP FAS No. 142-3,
Determination of the
Useful Life of Intangible Assets
(FSP 142-3). FSP 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS 142. The Company adopted FSP
142-3 effective January 1, 2009 and the adoption did not have a not have
an impact on its results of operations, financial position or cash flows.
In December 2008, the FASB
issued FSP FAS 132(R)-1,
Employers Disclosures
about Postretirement Benefit Plan Assets
(FAS 132(R)-1), which
requires additional disclosures for employers pension and other postretirement
benefit plan assets. As pension and other postretirement benefit plan assets
were not included within the scope of SFAS 157, FSP FAS 132(R)-1 requires
employers to disclose information about fair value measurements of plan assets
similar to the disclosures required under SFAS 157, the investment policies and
strategies for the major categories of plan assets, and significant
concentrations of risk within plan assets. FSP FAS 132(R)-1 will be effective
for the Company at December 31, 2009. As FSP FAS 132(R)-1 provides only
disclosure requirements, the adoption of this standard will not have an impact
on the Companys results of operations, financial position or cash flows.
In April 2009, the FASB issued
FSP FAS 157-4,
Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
(FSP 157-4), and FSP
FAS 107-1 and Accounting Principles Board (APB) 28-1,
Interim
Disclosures about Fair Value of Financial Instruments
(FSP 107-1).
These two staff positions relate to fair value measurements and related
disclosures. The FASB also issued a third FSP relating to the accounting for
impaired debt securities titled FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments
(FSP 115-2). These standards are effective for interim and annual periods
ending after June 15, 2009. The Company has determined that FSP 157-4 and
FSP 115-2 do not currently apply to its activities. The Company has adopted the disclosure
requirements of FSP 107-1 for the quarter ended June 30, 2009.
In
May 2009, the FASB issued SFAS No. 165,
Subsequent Events
(SFAS
165)
.
SFAS No. 165 establishes general
standards for accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. SFAS No. 165 sets forth the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
in the financial statements, identifies the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date
in its financial statements, and the disclosures that should be made about
events or transactions that occur after the balance sheet date. In preparing
these financial statements, SFAS 165 is effective for financial statements
issued after June 15, 2009. The
Company has adapted SFAS 165 for the quarter ended June 30, 2009.
The Company has evaluated the
existence of subsequent events through September 17,2009 and has not
indentified any significant subsequent events or transactions which would
require recognition or disclosure in the financial statements other than that
disclosed in Note 11.
In June 2009, the FASB issued
SFAS No. 166,
Accounting for Transfers
of Financial Assets
,
an amendment
to SFAS No. 140
(SFAS 166). SFAS 166 eliminates the concept
of a qualifying special-purpose entity, changes the requirements for
derecognizing financial assets, and requires additional disclosures in order to
enhance information reported to users of financial statements by providing
greater transparency about transfers of financial assets, including
securitization transactions, and an entitys continuing involvement in and
exposure to the risks related to
7
Table of Contents
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
transferred financial assets. SFAS
166 is effective for fiscal years beginning after November 15,
2009. The Company will adopt SFAS 166 in fiscal 2010 and is
evaluating the impact it will have on the consolidated results of the Company.
In June 2009, the FASB issued
SFAS No. 167,
Amendments to FASB
Interpretation No. 46(R)
(SFAS 167). The amendments
include: (1) the elimination of the exemption for qualifying special
purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest entity. SFAS
167 is effective for the first annual reporting period beginning after November 15,
2009 and for interim periods within that first annual reporting period. The
Company will adopt SFAS 167 in fiscal 2010 and is evaluating the impact it will
have on the consolidated results of the Company.
In June 2009, the FASB issued
SFAS No. 168,
The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles
(SFAS 168). SFAS 168 replaces FASB Statement No. 162,
The Hierarchy of Generally Accepted Accounting
Principles
, and establishes the FASB Accounting Standards
Codification (the Codification) as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with generally accepted
accounting principles (GAAP). SFAS 168 is effective for interim and annual
periods ending after September 15, 2009. The Company will begin to use the
new Codification when referring to GAAP in its quarterly report on Form 10-Q
for the quarter ending September 30, 2009. This will not have an impact on
the consolidated results of the Company.
Reclassifications
Certain reclassifications have been
made to the prior years financial statements to conform to the current year
presentation. In June 2009, the Company identified adjustments related to prior
periods not previously recognized and recorded an after-tax charge of $0.2
million and $0.5 million for the three- and six-month periods ended June 30,
2009, respectively. Management has
determined that the effect of recognizing these adjustments during 2009 is not
considered material to the Companys results of operations for the three- and
six-month periods ended June 30, 2009 or for any prior period.
Note 2. Restatement
of Condensed Consolidated Financial Statements
The Company has restated its
condensed consolidated statement of operations for the three- and six-month
periods ended June 30, 2008 and its condensed consolidated statement of
cash flows for the six-month period ended June 30, 2008.
Descriptions of the significant
restatement adjustments recorded are as follows:
Application of SFAS 71
Management determined that three of
the Companys utilities previously applying SFAS 71 in the Texas Utilities
segment and one utility in the Utilities segment did not meet the criteria for
application of SFAS 71 because their cost structures have not allowed for full
recovery of their cost of service. The Company will continue to report these
entities as utilities within the Texas Utilities and Utilities operating
segments, respectively. The error impacts the related capitalization of
inter-company profit margin, retired assets and certain costs associated with
rate filings.
Management determined that the
remaining utilities in the Texas Utilities segment met the criteria for
application of SFAS 71; however, management also determined that inter-company
profit was not eliminated, in error, as it is not probable that the Company
would recover this cost in future rates, as required by SFAS 71.
Management also determined that two
of the Companys Alabama wastewater utilities in the Utilities segment and a
wholesale water and wastewater business within the Texas Utilities segment did
not meet the criteria for application of SFAS 71 because the rates charged by
these entities are not established, or subject to approval, by an independent
third-party regulator. Accordingly, capitalized inter-company profit margin
included in certain fixed assets has been expensed.
Aggregate net charges to income from
continuing operations before income taxes related to SFAS 71 issues, included
the correction of the inappropriate capitalization of inter-company profit, of
$0.5 million, and $1.1 million for the three- and six-month periods ended June 30,
2008, respectively.
Accounting
for Acquisitions
The Company determined that
principles related to the accounting for certain business combinations were
misapplied and errors were made in establishing the rate of depreciation of
assets acquired, and in performing the initial allocation of the purchase price
to assets and liabilities acquired. The Company applied a rate of
depreciation that did not consider the length of time the assets were in
service prior to being acquired, and depreciation expense was
8
Table of Contents
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
understated. The correction of these
errors increased depreciation and amortization expense by $0.2 million in both
the three- and six-month periods ended June 30, 2008.
Valuation and Accounting
Estimates
As a part of its restatement, the
Company identified errors in the following valuation and accounting estimates:
·
Stock-based
compensation
Management identified errors in its accounting for
stock-based compensation primarily related to the acceleration of vesting upon
termination and in the valuation of options granted related to appropriate
assumptions used in the Black-Scholes option pricing model.
·
Unrecorded
liabilities
Management identified certain liabilities for
services and capital equipment that were not properly accrued at the end of
reported financial periods.
In the aggregate, the adjustments
described above resulted in increased income before taxes of $0.7 million for
both the three- and six-month periods ended June 30, 2008.
Capitalization
of Operating Expenses
The Company determined that its
capitalization accounting treatment for certain water and sewer taps was not
appropriate, and accordingly recorded additional expense of $0.1 million and
$27,000 for the three- and six-month periods ended June 30, 2008,
respectively.
Other
Adjustments
In the restatement the Company also
adjusted for the impact of other errors that were identified in prior periods
but were determined to be immaterial to that periods financial statements and
therefore corrected in the subsequent period. As part of the restatement of the
consolidated financial statements, the Company reversed these related entries
and reflected the correction of the error in the appropriate period. These
errors primarily relate to period end revenue and expense accruals, billing
adjustments, the calculation of asset impairment charges and income taxes.
For the three- and six-month periods
ended June 30, 2008 presented in the Restatement Adjustments- Other
columns in the tables below, the $0.2 million and $0.3 million increase in
operating losses were offset by a $0.2 million and $0.6 million net tax
benefit, respectively.
9
Table of Contents
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The nature of the restatement
adjustments and the impact on the Companys previously reported condensed
consolidated statement of operations for the three-month period ended June 30,
2008 are shown in the following table (in thousands, except per share data):
|
|
|
|
|
|
Restatement Adjustment
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
As
Previously
Reported
|
|
Reclass-
ifications (1)
|
|
Application
of
SFAS 71
|
|
Accounting
for
Acquisitions
|
|
Goodwill,
Valuation
and
Accounting
Estimates
|
|
Capitalization
of Operating
Costs
|
|
Other
|
|
As Restated
|
|
Discontinued
Operations
(3)
|
|
As Restated
and Adjusted
for
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
57,066
|
|
$
|
|
|
$
|
83
|
|
$
|
|
|
$
|
296
|
|
$
|
69
|
|
$
|
(586
|
)
|
$
|
56,928
|
|
$
|
(2,758
|
)
|
$
|
54,170
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
and maintenance
|
|
53,692
|
|
(3,362
|
)
|
316
|
|
(65
|
)
|
(427
|
)
|
131
|
|
(535
|
)
|
49,750
|
|
(1,545
|
)
|
48,205
|
|
Depreciation
and amortization
|
|
|
|
3,362
|
|
311
|
|
230
|
|
(208
|
)
|
(25
|
)
|
121
|
|
3,791
|
|
(265
|
)
|
3,526
|
|
Impairment
of long-lived assets
|
|
|
|
|
|
|
|
|
|
210
|
|
|
|
|
|
210
|
|
865
|
|
1,075
|
|
Total
expenses
|
|
53,692
|
|
|
|
627
|
|
165
|
|
(425
|
)
|
106
|
|
(414
|
)
|
53,751
|
|
(945
|
)
|
52,806
|
|
Operating
income
|
|
3,374
|
|
|
|
(544
|
)
|
(165
|
)
|
721
|
|
(37
|
)
|
(172
|
)
|
3,177
|
|
(1,813
|
)
|
1,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(2,042
|
)
|
(303
|
)
|
41
|
|
(18
|
)
|
|
|
|
|
41
|
|
(2,281
|
)
|
189
|
|
(2,092
|
)
|
Interest
income
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
(78
|
)
|
54
|
|
6
|
|
60
|
|
Income
(loss) from continuing operations before income taxes
|
|
1,464
|
|
(303
|
)
|
(503
|
)
|
(183
|
)
|
721
|
|
(37
|
)
|
(209
|
)
|
950
|
|
(1,618
|
)
|
(668
|
)
|
Provision
for (benefit from) income taxes
(2)
|
|
573
|
|
|
|
|
|
|
|
|
|
|
|
(242
|
)
|
331
|
|
(564
|
)
|
(233
|
)
|
Income
(loss) from continuing operations
|
|
891
|
|
(303
|
)
|
(503
|
)
|
(183
|
)
|
721
|
|
(37
|
)
|
33
|
|
619
|
|
(1,054
|
)
|
(435
|
)
|
Income
(loss) from discontinued operations, net of tax
|
|
(1,678
|
)
|
303
|
|
|
|
|
|
1,352
|
|
|
|
|
|
(23
|
)
|
438
|
|
415
|
|
Net
loss
|
|
(787
|
)
|
|
|
(503
|
)
|
(183
|
)
|
2,073
|
|
(37
|
)
|
33
|
|
596
|
|
(616
|
)
|
(20
|
)
|
Preferred
stock dividends
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Net
loss applicable to common stockholders
|
|
$
|
(793
|
)
|
$
|
|
|
$
|
(503
|
)
|
$
|
(183
|
)
|
$
|
2,073
|
|
$
|
(37
|
)
|
$
|
33
|
|
$
|
590
|
|
$
|
(616
|
)
|
$
|
(26
|
)
|
Earning
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
Income
(loss) from discontinued operations
|
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
Net
loss applicable to common stockholders
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
Income
(loss) from discontinued operations
|
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
Net
loss applicable to common stockholders
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
(1)
|
Certain reclassifications have been
made to the previously reported amounts to conform to the current
presentation.
|
(2)
|
The tax provisions related to the
restatement adjustments were based on the effective rates of the
jurisdictions affected.
|
(3)
|
This column is used to reclassify
the Companys operating statement classification for amounts previously
classified as Loss from discontinued operations, net of tax to their
related individual operating statement captions to conform to the current
presentation. See Note 4, Assets Held for Sale and Dispositions.
|
10
Table
of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The nature of the restatement adjustments and the impact on
the Companys previously reported condensed consolidated statement of
operations for the six-month period ended June 30, 2008 are shown in the
following table (in thousands, except per share data):
|
|
|
|
|
|
Restatement Adjustment
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
As
Previously
Reported
|
|
Reclass-
ifications (1)
|
|
Application
of
SFAS 71
|
|
Accounting
for Acquisitions
|
|
Goodwill,
Valuation
and
Accounting
Estimates
|
|
Capitalization
of Operating
Costs
|
|
Other
|
|
As Restated
|
|
Discontinued
Operations
(3)
|
|
As Restated
and Adjusted
for
Discontinued
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
107,829
|
|
$
|
|
|
$
|
(270
|
)
|
$
|
|
|
$
|
276
|
|
$
|
(97
|
)
|
$
|
(1,197
|
)
|
$
|
106,541
|
|
$
|
(4,958
|
)
|
$
|
101,583
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and maintenance
|
|
102,648
|
|
(8,315
|
)
|
371
|
|
(120
|
)
|
(388
|
)
|
23
|
|
(925
|
)
|
93,294
|
|
(1,356
|
)
|
91,938
|
|
Depreciation and amortization
|
|
|
|
8,315
|
|
525
|
|
244
|
|
(207
|
)
|
(50
|
)
|
248
|
|
9,075
|
|
(2,066
|
)
|
7,009
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
210
|
|
|
|
|
|
210
|
|
865
|
|
1,075
|
|
Total expenses
|
|
102,648
|
|
|
|
896
|
|
124
|
|
(385
|
)
|
(27
|
)
|
(677
|
)
|
102,579
|
|
(2,557
|
)
|
100,022
|
|
Operating income
|
|
5,181
|
|
|
|
(1,166
|
)
|
(124
|
)
|
661
|
|
(70
|
)
|
(520
|
)
|
3,962
|
|
(2,401
|
)
|
1,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(4,403
|
)
|
|
|
96
|
|
(37
|
)
|
|
|
|
|
355
|
|
(3,989
|
)
|
(223
|
)
|
(4,212
|
)
|
Interest income
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
(157
|
)
|
97
|
|
11
|
|
108
|
|
Income (loss) from continuing operations before income
taxes
|
|
1,032
|
|
|
|
(1,070
|
)
|
(161
|
)
|
661
|
|
(70
|
)
|
(322
|
)
|
70
|
|
(2,613
|
)
|
(2,543
|
)
|
Provision for (benefit from) income taxes
(2)
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
(643
|
)
|
(188
|
)
|
(702
|
)
|
(890
|
)
|
Income (loss) from continuing operations
|
|
577
|
|
|
|
(1,070
|
)
|
(161
|
)
|
661
|
|
(70
|
)
|
321
|
|
258
|
|
(1,911
|
)
|
(1,653
|
)
|
Income (loss) from discontinued operations, net of tax
|
|
(1,965
|
)
|
|
|
|
|
|
|
1,437
|
|
|
|
(117
|
)
|
(645
|
)
|
1,305
|
|
660
|
|
Net loss
|
|
(1,388
|
)
|
|
|
(1,070
|
)
|
(161
|
)
|
2,098
|
|
(70
|
)
|
204
|
|
(387
|
)
|
(606
|
)
|
(993
|
)
|
Preferred stock dividends
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
Net loss applicable to common stockholders
|
|
$
|
(1,400
|
)
|
$
|
|
|
$
|
(1,070
|
)
|
$
|
(161
|
)
|
$
|
2,098
|
|
$
|
(70
|
)
|
$
|
204
|
|
$
|
(399
|
)
|
$
|
(606
|
)
|
$
|
(1,005
|
)
|
Earning (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.07
|
)
|
Income (loss) from discontinued operations
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
Net loss applicable to common stockholders
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.04
|
)
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.07
|
)
|
Income (loss) from discontinued operations
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
Net loss applicable to common stockholders
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.04
|
)
|
(1)
|
Certain reclassifications have been made to the previously
reported amounts to conform to the current presentation.
|
(2)
|
The tax provisions related to the restatement adjustments
were based on the effective rates of the jurisdictions affected.
|
(3)
|
This column is used to reclassify the Companys operating
statement classification for amounts previously classified as Loss from
discontinued operations, net of tax to their related individual operating
statement captions to conform to the current presentation. See Note 4,
Assets Held for Sale and Dispositions.
|
11
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table
presents the impact of the restatement adjustments on the Companys previously
reported condensed consolidated statement of cash flows for the six months
ended June 30, 2008 (in thousands):
|
|
Six months ended June 30, 2008
|
|
|
|
As Previously
Reported
|
|
Restatement Adjustment
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities of continuing operations:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,388
|
)
|
$
|
395
|
|
$
|
(993
|
)
|
Adjustments to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss from discontinued operations, net of tax
|
|
1,965
|
|
(2,625
|
)
|
(660
|
)
|
Depreciation and amortization
|
|
7,201
|
|
(192
|
)
|
7,009
|
|
Deferred income taxes
|
|
234
|
|
1,285
|
|
1,519
|
|
Provision for doubtful accounts
|
|
|
|
1,020
|
|
1,020
|
|
Share-based compensation expense
|
|
613
|
|
(123
|
)
|
490
|
|
Impairment of long-lived assets
|
|
|
|
1,075
|
|
1,075
|
|
Amortization of deferred financing costs
|
|
|
|
134
|
|
134
|
|
Other, net
|
|
|
|
(75
|
)
|
(75
|
)
|
Changes in assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(4,176
|
)
|
(944
|
)
|
(5,120
|
)
|
Other current assets
|
|
782
|
|
2,407
|
|
3,189
|
|
Other assets
|
|
(2,443
|
)
|
(68
|
)
|
(2,511
|
)
|
Accounts payable
|
|
(7,055
|
)
|
(910
|
)
|
(7,965
|
)
|
Other current liabilities
|
|
(1,276
|
)
|
(3,042
|
)
|
(4,318
|
)
|
Other liabilities
|
|
46
|
|
128
|
|
174
|
|
Other, net
|
|
(278
|
)
|
225
|
|
(53
|
)
|
Net cash used in operating activities
|
|
(5,775
|
)
|
(1,310
|
)
|
(7,085
|
)
|
|
|
|
|
|
|
|
|
Cash flows from investing activities of continuing
operations:
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
(16,129
|
)
|
2,158
|
|
(13,971
|
)
|
Acquisition of businesses, net of cash acquired
|
|
(23,330
|
)
|
|
|
(23,330
|
)
|
Proceeds from sale of minority interest
|
|
|
|
170
|
|
170
|
|
Proceeds from sale of land and equipment
|
|
179
|
|
(170
|
)
|
9
|
|
Net cash used in investing activities
|
|
(39,280
|
)
|
2,158
|
|
(37,122
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities of continuing operations:
|
|
|
|
|
|
|
|
Borrowings under lines of credit
|
|
131,500
|
|
6,000
|
|
137,500
|
|
Repayments under lines of credit
|
|
(84,500
|
)
|
(6,000
|
)
|
(90,500
|
)
|
Capital improvement reimbursements
|
|
1,854
|
|
(487
|
)
|
1,367
|
|
Proceeds from share-based equity incentive plans and stock
purchase plans
|
|
1,762
|
|
1
|
|
1,763
|
|
Contributions in aid of construction
|
|
363
|
|
(352
|
)
|
11
|
|
Dividends paid
|
|
(2,953
|
)
|
|
|
(2,953
|
)
|
Payments on long-term debt
|
|
(873
|
)
|
(173
|
)
|
(1,046
|
)
|
Deferred financing costs
|
|
(532
|
)
|
100
|
|
(432
|
)
|
Repayment of advances for construction
|
|
(1,140
|
)
|
608
|
|
(532
|
)
|
Stock option benefit adjustment
|
|
(40
|
)
|
40
|
|
|
|
Net cash provided by financing activities
|
|
45,441
|
|
(263
|
)
|
45,178
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) discontinued operations
|
|
547
|
|
(585
|
)
|
(38
|
)
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
933
|
|
|
|
933
|
|
Cash and cash equivalents at beginning of the period
|
|
2,950
|
|
|
|
2,950
|
|
Cash and cash equivalents at end of the period
|
|
$
|
3,883
|
|
$
|
|
|
$
|
3,883
|
|
Note
3. Acquisition
On January 31,
2008, the Company acquired substantially all of the assets of a wastewater
collection system and related treatment plant in Birmingham, Alabama. The
purchase price was $23.3 million in cash which the Company borrowed under its
revolving line of credit. The acquisition was accounted for as an asset
purchase and the assets acquired have been recorded at their estimated fair
values, consisting of $20.8 million of utility plant and $2.5 million of land.
12
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The condensed consolidated
financial statements reflect the financial position and results of operations
of the acquired utility subsequent to its acquisition date. Unaudited pro forma
consolidated results of operations are presented in the table below for the six
months ended June 30, 2008 as if the acquisition had occurred as of the
beginning of the period presented:
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2008
|
|
(In
thousands, except per share data)
|
|
As Restated
|
|
|
|
|
|
Operating
revenue
|
|
$
|
101,990
|
|
Loss
from continuing operations
|
|
(1,602
|
)
|
Loss
from continuing operations applicable to common stockholders
|
|
(1,614
|
)
|
Net
loss applicable to common stockholders
|
|
(954
|
)
|
|
|
|
|
Loss
per common share, basic and diluted:
|
|
|
|
From
continuing operations applicable to common stockholders
|
|
$
|
(0.07
|
)
|
Net
loss applicable to common stockholders
|
|
(0.04
|
)
|
|
|
|
|
|
|
The pro forma results
of operations are not necessarily indicative of the results that would have
been achieved had the acquisition occurred as of the date indicated or to
project the results of operations for any future periods. The above information
reflects adjustments for historical revenue and expenses prior to the
acquisition, as well as incremental operating, general and administrative,
depreciation, interest and income tax expense based on the estimated fair value
of assets acquired and additional indebtedness in connection with the
acquisition.
Note
4. Assets Held for Sale, Dispositions and Impairments
Texas Wholesale
Water and Wastewater
During 2007, the
Company committed to a plan to sell its wholesale water and wastewater
operations in Texas. In December 2008,
the Company completed the sale of its wholesale wastewater business for net
cash proceeds of $2.2 million and established a receivable of $0.6 million. The
wastewater treatment plant sold represented a portion of the asset group held
for sale. The Company is uncertain whether it can consummate the sale of the
remaining water business during 2009.
Accordingly, the business activity of the water component is reflected
in consolidated continuing operations in 2009.
The results of operations and cash flows for the wastewater operations
are reflected as discontinued operations for the three- and six-month periods
ended June 30, 2008. Net assets
held for sale at December 31, 2008 consisted of property, plant and
equipment aggregating $6.3 million and deferred revenue liabilities of $3.5
million.
New Mexico Utilities, Inc.
As more fully
described in Note 6, as part of a settlement of eminent domain proceedings
against the Companys New Mexico utility, New Mexico Utilities Inc., the
Company completed the sale of the New Mexico utility on May 8, 2009. The Company received $53.9 million in cash at
closing ($60.0 million settlement and $0.9 million net cash settlement primarily
related to accounts receivable, less $7.0 million retained by the condemning
entity in settlement of sewer treatment fees).
The sale reflects a $107.2 million reduction in assets, offset by
reduction in liabilities which include $69.0 million of contributions in aid of
construction. The results of operations and cash flows for the New Mexico
utility are reflected as discontinued operations for all periods presented.
Discontinued Operations
The following table
summarizes the results of operations of the Texas wastewater and New Mexico
utility operations included in the condensed consolidated statement of
operations as discontinued operations:
13
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
|
|
|
2008
|
|
|
|
2008
|
|
(In thousands)
|
|
|
2009
|
|
As Restated
|
|
2009
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
|
2,425
|
|
$
|
2,891
|
|
$
|
4,729
|
|
$
|
5,240
|
|
Expenses
|
|
|
(1,034
|
)
|
(1,999
|
)
|
(2,895
|
)
|
(3,780
|
)
|
Impairment of long-lived assets
|
|
|
|
|
(95
|
)
|
|
|
(95
|
)
|
Interest expense
|
|
|
(91
|
)
|
(190
|
)
|
(270
|
)
|
(379
|
)
|
Income before taxes
|
|
|
1,300
|
|
607
|
|
1,564
|
|
986
|
|
Income tax expense
|
|
|
(469
|
)
|
(192
|
)
|
(561
|
)
|
(326
|
)
|
Income before gain on sale of discontinued operations
|
|
|
831
|
|
415
|
|
1,003
|
|
660
|
|
Gain
on sale of discountinued operations, net of $9,361 of tax
|
|
|
16,728
|
|
|
|
16,728
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
$
|
17,559
|
|
$
|
415
|
|
$
|
17,731
|
|
$
|
660
|
|
In accordance with
EITF 87-24,
Allocation of Interest to Discontinued
Operation
(EITF 87-24), as amended, interest expense reflects
interest on debt that the Company is required to repay as a result of the sale.
In addition, and also in accordance with EITF 87-24, costs and expenses
exclude the allocation of general corporate overhead.
In accordance with
SFAS 144,
intangible and other long-lived
assets are assessed for recoverability
whenever
events or changes in circumstances indicate that their carrying value may not
be recoverable through the estimated undiscounted future cash flows resulting
from the use of the assets. The Company had determined that the carrying value
of the Texas wastewater assets may not be recoverable through the sales
process. As a result, impairment charges aggregating $0.1 million (all related
to property, plant and equipment) were recorded during the second quarter of
2008, to reduce the carrying value of the long-lived assets to expected
realizable value.
Southwest Environmental
Laboratories, Inc.
The Company
entered into an agreement to sell certain assets of its Southwest Environmental
Laboratories, Inc. subsidiary, part of the Texas MUD Services segment, for
$0.5 million paid at closing and up to an additional $0.75 million of
consideration, consisting of 25% of the buyers quarterly aggregate sales
subsequent to the sale. The Company also
entered into a separate agreement to sell the remaining asset representing real
property for total consideration of $0.7 million. These agreements closed on April 1, 2009
and April 23, 2009, respectively.
The Southwest Environmental Laboratories, Inc. subsidiary was not
considered a discontinued operation in the accompanying consolidated financial
statements due to on-going business relationship.
Cornerstone Internal-use Software
Development Project
In May 2009, the Company terminated its previously
suspended software development project; as a result, an impairment charge of
$8.0 million was recorded, net of recoveries from vendors.
14
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note
5. Long-Term Debt
Long-term debt
consists of the following as of June 30, 2009 and December 31, 2008:
|
|
June 30,
|
|
December 31,
|
|
(In
thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Revolving credit
facility
|
|
$
|
70,400
|
|
$
|
98,000
|
|
|
|
|
|
|
|
6.85% convertible
subordinated debentures due 2021
|
|
11,869
|
|
11,962
|
|
|
|
|
|
|
|
$30 million capital
lease facility and other capital leases
|
|
3,645
|
|
4,332
|
|
|
|
|
|
|
|
Term Loans:
|
|
|
|
|
|
Monarch Utilities, Inc.:
|
|
|
|
|
|
7.37% fixed rate
term loan due 2022
|
|
9,882
|
|
10,267
|
|
5.77% fixed rate
term loan due 2021
|
|
680
|
|
706
|
|
6.10% fixed rate
term loan due 2031
|
|
20,000
|
|
20,000
|
|
|
|
|
|
|
|
First Mortgage
Bonds:
|
|
|
|
|
|
Suburban Water
Systems:
|
|
|
|
|
|
9.09% series B
first mortgage bond due 2022
|
|
8,000
|
|
8,000
|
|
5.64% series D
first mortgage bond due 2024
|
|
15,000
|
|
15,000
|
|
6.30% series E
first mortgage bond due 2026
|
|
10,000
|
|
10,000
|
|
New Mexico
Utilities, Inc.:
|
|
|
|
|
|
6.10% series C
first mortgage bond due 2024
|
|
|
|
12,000
|
|
|
|
|
|
|
|
Economic
Development Revenue Bonds:
|
|
|
|
|
|
6.0% series 1998A
due 2018
|
|
1,810
|
|
1,810
|
|
|
|
|
|
|
|
Acquisition-related
indebtedness and other
|
|
78
|
|
78
|
|
Total long-term
debt payment obligations
|
|
151,364
|
|
192,155
|
|
Unamortized Monarch
term loan fair value adjustments
|
|
645
|
|
636
|
|
Total long-term
debt
|
|
152,009
|
|
192,791
|
|
Less current
portion of long-term debt
|
|
(2,162
|
)
|
(2,213
|
)
|
Long-term debt, less current portion
|
|
$
|
149,847
|
|
$
|
190,578
|
|
On February 15,
2008, the Company replaced its previous revolving line of credit by entering
into a credit agreement with several lenders including Bank of America, as
lender and Administrative Agent, KeyBank, CoBank, U.S. Bank, JPMorgan Chase
Bank, Comerica Bank, Bank of the West, Citibank and Union Bank of California
(the Bank Group). The credit agreement provided for a $150.0 million
revolving credit facility. Proceeds from the initial borrowing under the credit
agreement were used to repay borrowings under the Companys prior $100.0
million revolving line of credit.
The Company is
subject to commitment fees under the facility as well as the maintenance of
customary financial ratios, cash flow results and other restrictive covenants.
The Company was not in compliance with certain restrictive covenants due to the
failure to deliver timely its September 30, 2008, March 31, 2009 and June 30,
2009 Quarterly Reports on Form 10-Q and its 2008 Annual Report on Form 10-K. In addition, the Company was in violation of
one of its financial covenants, specifically the debt-to-capitalization ratio,
at December 31, 2008 and at March 31, 2009. However, the Company received five
amendments to the credit agreement from the Bank Group dated November 19,
2008, May 28, 2009, June 17, 2009, July 8, 2009 and July 31,
2009 which waived existing and anticipated defaults, specifically related to
additional time with regards to financial filings and with regards to the
debt-to-capitalization ratio.
The May 28, 2009
amendment to the agreement reduced the total credit amount available under the
line from $150.0 million to $110.0 million.
The revolving line of
credit commitment ends on February 15, 2013 (if not renewed or extended),
at which time all borrowings must be repaid. However, there are certain
provisions within the revolving credit facility agreement that could
potentially be interpreted as a subjective acceleration clause. Though the
Company does not anticipate any changes in its business practices that would
result in any material adjustments to the revolving credit facility, management
cannot be certain how the lender will interpret the subjective acceleration
clause.
15
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Borrowings under the
credit facility bear interest, at the Companys option, based on a margin
either over the LIBOR rate or the prime rate. The margins vary depending upon
the Companys consolidated debt to equity ratio. As of June 30, 2009, the
applicable margins are 3.50% over the LIBOR rate or 2.50% over the prime rate.
The nominal weighted-average annual interest rates on all credit facility
borrowings outstanding were 4.41% as of June 30, 2009 and 1.58% as of December 31,
2008.
The Company had
irrevocable standby letters of credit in the amount of $3.3 million issued and
outstanding under its revolving credit facility as of June 30, 2009. As of
June 30, 2009 available borrowing was $36.3 million.
Note
6. Commitments and Contingencies
Legal
Proceedings
New Mexico Utilities, Inc.
New Mexico Utilities, Inc.
(NMUI), one of the Companys wholly-owned regulated utilities, had an
agreement with the Albuquerque Bernalillo County Water Utility Authority, a
political subdivision of the State of New Mexico (the ABCWUA), whereby the
ABCWUA treated the effluent from NMUIs wastewater collection system for a fee.
The treated effluent is returned to the Rio Grande Underground Basin, creating
return flow credits. Return flow credits supplemented NMUIs existing water
rights, enabling it to pump additional water from the basin.
In August 2004,
the ABCWUA increased the fee charged to NMUI, using a different formula than
had been used to calculate fee increases since 1973. The Company believed the
increase violated the terms of a 1973 written agreement between the parties.
Subsequently, the ABCWUA also claimed ownership of the return flow credits. On September 13,
2004, the Company filed a Complaint for Declaratory Judgment in the Second
Judicial District Court, County of Bernalillo, State of New Mexico (the Court),
requesting that the Court settle these disputes. In a letter ruling dated May 2,
2007, the Court ruled that the ABCWUA could use a new formula to set fees for
NMUI. The Company filed a motion for reconsideration and that motion was denied
on October 2, 2007. The Court did not rule on whether the new rate
was appropriate, made no determination as to any amount NMUI may owe to the ABCWUA,
and did not rule on the ownership of the return flow credits.
Additionally, the
ABCWUA had asserted that NMUI owed to the ABCWUA an amount of approximately
$800,000 related to back payments, penalties and interest arising from an
alleged underpayment by NMUI for three years for its discharge of effluent
through an unmetered second connection between NMUI and the ABCWUA. The claim
was contested by NMUI. On October 29, 2008, the matter was settled by a
one-time payment by NMUI to the ABCWUA of $500,000.
The New Mexico Public
Regulation Commission (the NMPRC) ruled that NMUI may commence billing its
customers for a portion of the sewer fee increase and hold the collected
amounts in escrow (Rate Rider Escrow), pending a final court decision.
In addition, on January 19,
2007, the ABCWUA and the City of Rio Rancho, a home-rule municipal
corporation, as Petitioners, filed a Petition for Condemnation against NMUI and
others, as defendants, in the Court (the Petition). The Petition sought to
acquire, by condemnation, all of the assets of NMUI, including all real
property, through the stated power of eminent domain. The Petition also alleged
that the Petitioners need to acquire the NMUI assets for the public purposes of
providing water and wastewater services to NMUI customers and that the
acquisition of NMUI is necessary, appropriate and in the public interest. The
Company contested the Petition. In the
fourth quarter of 2008, the Company attempted to globally settle the
condemnation and the sewer rate and return flow credit issues, including an
$8.0 million cash offer. The settlement offer was not accepted by ABCWUA.
On January 29,
2009, NMUI and the ABCWUA entered into a Settlement, Arbitration Award, and
Acquisition Agreement (the Agreement) to resolve all outstanding claims,
demands and existing lawsuits between them. The Agreement closed on May 8,
2009 (the Closing) after the financing was completed. Under the Agreement, the ABCWUA acquired
certain of the assets of NMUI necessary for the ABCWUA to own, operate and
maintain the water and wastewater system of NMUI in settlement of condemnation.
In consideration of the assets acquired, the ABCWUA agreed to pay to NMUI at
the Closing as full, final and complete consideration the sum of $60.0 million
plus a net cash settlement of an amount equal to the NMUI accounts receivable
at the date of Closing and an amount equal to the unbilled services at the
date of Closing.
16
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NMUI also received
the right to receive Rate Rider Escrow Funds deposited from the period from November 27,
2007 through January 12, 2009. The
total amount received by the Company on May 12, 2009 from the Rate Rider
Escrow Funds was $1.4 million.
In addition, the
settlement resolves all other legal issues between NMUI and ABCWUA including
the dispute over the sewer fee the ABCWUA charged NMUI for the treatment of
effluent from NMUIs wastewater collection system and the ownership of the
return flow credits from that treated wastewater, as well as all other disputed
amounts of the ABCWUA. As part of the settlement, NMUI agreed to pay $7.0
million to the ABCWUA at the time of closing to resolve the sewer fee
issue. This amount was accrued at December 31,
2008, and paid in full at closing of settlement.
Net cash proceeds
from settlement were $53.9 million and the resulting gain, net of direct
transactional costs of $0.2 million, was $26.1 million. Substantially all of the utility plant
assets of NMUI were pledged as collateral for $12.0 million in first mortgage
bonds with an original maturity of 2024.
The Company repaid these bonds in full, including accrued interest of
$0.3 million. The remaining cash proceeds of $41.6 million were used to pay the
balance of liabilities of NMUI, and to pay down the Companys revolving credit
facility. The sale reflects a $107.2 million reduction in assets, offset by
reduction in liabilities which includes a $69.0 million reduction in of
contributions in aid of construction.
Investigations
On May 18, 2005,
the Environmental Protection Agency (EPA) executed a search warrant at the
Companys Texas-based testing laboratory and on July 20, 2006 the
laboratory received a subpoena to provide additional records and information to
a grand jury. The Company has cooperated fully with the EPAs investigation and
has provided the records requested. The Company remains in close cooperation
and coordination with EPAs counsel in an attempt to resolve the matter
favorably. In April 2009, the Company submitted its formal request that
the EPA not pursue criminal sanctions against the Company. Given the nature and preliminary status of this
matter, the Company cannot yet determine the amount or even a reasonable range
of potential loss in these matters, if any.
The Company received
a letter dated January 28, 2008 from the California State Water Resources
Control Board Office of Enforcement (the Board). The letter indicates that
the Board has conducted an investigation of the operations of a subsidiary of
the Company with respect to various California wastewater treatment facilities
which are operated, but not owned, by the subsidiary. The Board alleges that
the subsidiary has violated certain provisions of the California Water Code and
may be subject to civil administrative liability in excess of $15.0 million,
and possible administrative action against the subsidiarys status as a
contract operator in California. Since
receipt of the letter, the Company has conducted an internal investigation and
worked in cooperation with the Board to resolve the matter favorably. The Board
has made an offer of settlement, assuming that the Company implements an
acceptable compliance program that would among other things require the Company
to pay fines and penalties of $1.25 million, which is fully accrued at December 31,
2008. The Company is currently in discussion with the Board with respect to
this matter.
Class Action Litigation
Perrin v.
SouthWest Water Company, et al.
,
Case No. CV 08-07844 (Central District of California) and related,
consolidated cases: On November 26, 2008, an alleged purchaser of
the Companys stock filed a securities class action lawsuit in the United
States District Court for the Central District of California. The
complaint generally alleges that from May 10, 2005 through November 9,
2008, the Company made false statements or omitted to state facts necessary to
make the Companys disclosures not misleading. Five additional and
substantially similar cases were filed in the same court. On January 26,
2009, motions for consolidation and for the appointment of lead plaintiff and
lead counsel were filed by the plaintiffs. On February 12, 2009, the
court granted the motion for consolidation and for the appointment of lead
plaintiff and lead counsel. Pursuant to stipulation of the parties, the
lead plaintiff has until October 15, 2009, to file a consolidated
complaint. The Company will have 60 days to answer or move to dismiss the
consolidated complaint. Given the nature and preliminary status of these cases,
the Company cannot yet determine the amount or even a reasonable range of
potential loss in these matters, if any.
Derivative Litigation
Sherman v.
Christie, et al.
,
Case No. BC404946 (Los Angeles County Superior Court) and related
cases: On January 2, 2009, an alleged shareholder of the Company
filed a shareholder derivative case on behalf of the Company, alleging breach
of fiduciary duty arising from the Companys announcement of its intent to
restate its financial statements against certain of its present and former
members of the Companys Board of Directors. Two additional,
substantially similar cases were filed. Stipulations were entered
extending the time to respond to the complaints. On April 23, 2009,
the court found that the three derivative suits were complex and related and
transferred the cases to a single judge for all purposes and ordered an initial
status conference for December 3, 2009. The cases were
17
Table of Contents
SOUTHWEST
WATER COMPANY AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
consolidated on May 19,
2009. The lead plaintiff has, by stipulation of the parties, until October 8,
2009 to file a consolidated complaint. The Company will then have 60 days
to answer or move to dismiss the consolidated complaint. Given the nature and
preliminary status of these cases, the Company cannot yet determine the amount
or even a reasonable range of potential loss in these matters, if any.
Other Matters
The Company and its
subsidiaries are also involved in other routine legal and administrative
proceedings arising during the ordinary course of business. The Company
believes that the ultimate disposition of such matters will not have a material
adverse effect on the Companys consolidated financial position, results of
operations or cash flows. Any related
legal costs are expensed when incurred.
Note
7. Earnings Per Share
The following table
is a reconciliation of the numerators (income) and denominators (shares) used
in both the basic and diluted earnings per share calculations.
|
|
Three Months
Ended
|
|
|
|
June 30,
|
|
|
|
|
|
2008
|
|
(In thousands)
|
|
2009
|
|
As Restated
|
|
|
|
|
|
|
|
NumeratorsNet loss
applicable to common stockholders:
|
|
|
|
|
|
Loss from
continuing operations
|
|
$
|
(8,063
|
)
|
$
|
(435
|
)
|
Less preferred
stock dividends
|
|
(6
|
)
|
(6
|
)
|
Loss from
continuing operations applicable to common stockholders, net of tax
|
|
(8,069
|
)
|
(441
|
)
|
Income from
discontinued operations, net of tax
|
|
17,559
|
|
415
|
|
Net income (loss)
applicable to common stockholders
|
|
$
|
9,490
|
|
$
|
(26
|
)
|
|
|
|
|
|
|
DenominatorsWeighted
average shares outstanding:
|
|
|
|
|
|
Basic and diluted
weighted average common shares outstanding, excluding unearned restricted
shares
|
|
24,608
|
|
24,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
|
June 30,
|
|
|
|
|
|
2008
|
|
(In thousands)
|
|
2009
|
|
As Restated
|
|
|
|
|
|
|
|
NumeratorsNet loss
applicable to common stockholders:
|
|
|
|
|
|
Loss from
continuing operations
|
|
$
|
(11,468
|
)
|
$
|
(1,653
|
)
|
Less preferred
stock dividends
|
|
(6
|
)
|
(12
|
)
|
Loss from
continuing operations applicable to common stockholders, net of tax
|
|
(11,474
|
)
|
(1,665
|
)
|
Income from
discontinued operations, net of tax
|
|
17,731
|
|
660
|
|
Net income (loss)
applicable to common stockholders
|
|
$
|
6,257
|
|
$
|
(1,005
|
)
|
|
|
|
|
|
|
DenominatorsWeighted
average shares outstanding:
|
|
|
|
|
|
Basic and diluted
weighted average common shares outstanding, excluding unearned restricted
shares
|
|
24,604
|
|
24,444
|
|
The Company has $11.9
million of 6.85% fixed-rate convertible subordinate debentures outstanding as June 30,
2009. The debentures, due in 2021, are
convertible into common stock at any time prior to maturity at a conversion
price of $11.018 per share (1.1 million shares). At such time as the assumed conversion of the
debentures has a dilutive effect on earnings per share, the debentures will be
included in the calculation of diluted earnings per share.
18
Table of Contents
SOUTHWEST WATER COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
Note 8. Consolidated Statements of Cash
Flows
The
following information supplements the Companys consolidated statements of cash
flows.
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2008
|
|
(In thousands)
|
|
|
2009
|
|
|
As Restated
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
|
$
|
4,641
|
|
|
$
|
4,387
|
|
Income
taxes paid, net
|
|
|
422
|
|
|
1,937
|
|
|
|
|
|
|
|
|
|
Components
of cash paid for acquisitions:
|
|
|
|
|
|
|
|
Fair
value of assets acquired
|
|
|
$
|
|
|
|
$
|
23,330
|
|
Liabilities
assumed
|
|
|
|
|
|
|
|
Cash
paid for acquisitions
|
|
|
$
|
|
|
|
$
|
23,330
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Equipment
acquired through capital lease
|
|
|
$
|
|
|
|
$
|
132
|
|
Debentures
converted into common stock
|
|
|
|
|
|
14
|
|
Note 9. Dividend Reinvestment and
Direct Stock Purchase Plan (DRIP / DSPP)
The
Company has a dividend reinvestment and stock purchase plan that gives common
stockholders the option of receiving their dividends in cash or in common stock
at a discount from prevailing market prices (DRIP). The plan also permits
existing stockholders to purchase additional common stock, up to a maximum of
$10,000 per month, at a discount (DSPP); new investors may participate in the
plan, subject to a $250 minimum initial investment. The Company may, at its
sole discretion, permit purchases above the $10,000 stated maximum. The
discounts may range from 0% to 5%, as determined from time to time by the
Company. The DRIP and DSPP discounts offered by the Company were 5% for the
DRIP and 0% for the DSPP as of June 30, 2009. As of June 30, 2009,
there are 3.7 million shares authorized for issuance under the plan of which
0.7 million shares remain available for issuance. However, in November 2008, the Company
determined that participation in these plans should be suspended due to the
Companys ineligibility to use its Registration Statement on Form S-3 until
after the Company is current in all SEC filings and has timely filed all
reports due in the preceding 12 months.
Note 10. Segment Information
The Companys principal business activity is to operate and
maintain water and wastewater infrastructure.
Through its operating subsidiaries, the Company owns 131 systems and
operates hundreds more under contract to cities, utility districts and private
companies. The Company has four reporting segments. The Company separates its
segments first by whether it owns the utility or provides contract services to
others. Its owned water and wastewater utilities are referred to as its
Utilities operations. In its financial statements the Company reports its Texas
Utilities operations as a separate segment because of different economic
characteristics. This is principally due to the fact that Texas Utilities are
under-recovering their current cost of service as the Company has made large
investments in these operations that are not yet being recovered through rates
it charges. The Companys contract operations are segmented by contract type
into those that are generally larger, stand-alone operations (O&M Services)
and those that are small, full service contracts operated by a common team of
personnel resulting in a model that proportions a fractional cost to each
client (Texas MUD Services).
19
Table
of Contents
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
The
following tables present information about the operations of each segment for
the three- and six-month periods ended June 30, 2009 and 2008. The 2008 amounts have been adjusted to
correct the errors discussed in Note 2.
(In thousands)
|
|
|
Utilities
|
|
|
Texas
Utilities
|
|
|
O&M
Services
|
|
|
Texas MUD
Services
|
|
|
Corp.
|
|
|
Consol-
idated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
$
|
16,433
|
|
|
$
|
9,005
|
|
|
$
|
8,981
|
|
|
$
|
17,997
|
|
|
$
|
|
|
|
$
|
52,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
8,333
|
|
|
5,785
|
|
|
9,007
|
|
|
17,617
|
|
|
9,310
|
|
|
50,052
|
|
Depreciation
and Amortization
|
|
|
1,998
|
|
|
1,180
|
|
|
140
|
|
|
199
|
|
|
340
|
|
|
3,857
|
|
Impairment
of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
7,993
|
|
|
8,115
|
|
Total
expenses
|
|
|
10,331
|
|
|
6,965
|
|
|
9,147
|
|
|
17,938
|
|
|
17,643
|
|
|
62,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
6,102
|
|
|
2,040
|
|
|
(166
|
)
|
|
59
|
|
|
(17,643
|
)
|
|
(9,608
|
)
|
Interest
expense
|
|
|
(622
|
)
|
|
(384
|
)
|
|
(28
|
)
|
|
(2
|
)
|
|
(1,939
|
)
|
|
(2,975
|
)
|
Interest
income
|
|
|
26
|
|
|
16
|
|
|
1
|
|
|
2
|
|
|
3
|
|
|
48
|
|
Other
income (expense)
|
|
|
156
|
|
|
(284
|
)
|
|
(85
|
)
|
|
(96
|
)
|
|
309
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
$
|
5,662
|
|
|
$
|
1,388
|
|
|
$
|
(278
|
)
|
|
$
|
(37
|
)
|
|
$
|
(19,270
|
)
|
|
$
|
(12,535
|
)
|
(In thousands)
|
|
|
Utilities
|
|
|
Texas
Utilities
|
|
|
O&M
Services
|
|
|
Texas MUD
Services
|
|
|
Corp.
|
|
|
Consol-
idated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2008
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
$
|
16,208
|
|
|
$
|
8,723
|
|
|
$
|
10,449
|
|
|
$
|
18,790
|
|
|
$
|
|
|
|
$
|
54,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
8,467
|
|
|
6,018
|
|
|
10,672
|
|
|
18,787
|
|
|
4,261
|
|
|
48,205
|
|
Depreciation
and Amortization
|
|
|
1,810
|
|
|
859
|
|
|
64
|
|
|
309
|
|
|
484
|
|
|
3,526
|
|
Impairment
of long-lived assets
|
|
|
|
|
|
865
|
|
|
|
|
|
210
|
|
|
|
|
|
1,075
|
|
Total
expenses
|
|
|
10,277
|
|
|
7,742
|
|
|
10,736
|
|
|
19,306
|
|
|
4,745
|
|
|
52,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
5,931
|
|
|
981
|
|
|
(287
|
)
|
|
(516
|
)
|
|
(4,745
|
)
|
|
1,364
|
|
Interest
expense
|
|
|
(546
|
)
|
|
(334
|
)
|
|
(1
|
)
|
|
(33
|
)
|
|
(1,178
|
)
|
|
(2,092
|
)
|
Interest
income
|
|
|
9
|
|
|
2
|
|
|
13
|
|
|
26
|
|
|
10
|
|
|
60
|
|
Other
income (expense)
|
|
|
111
|
|
|
(821
|
)
|
|
(176
|
)
|
|
121
|
|
|
765
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
$
|
5,505
|
|
|
$
|
(172
|
)
|
|
$
|
(451
|
)
|
|
$
|
(402
|
)
|
|
$
|
(5,148
|
)
|
|
$
|
(668
|
)
|
20
Table
of Contents
SOUTHWEST WATER COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(In thousands)
|
|
|
Utilities
|
|
|
Texas
Utilities
|
|
|
O&M
Services
|
|
|
Texas MUD
Services
|
|
|
Corp.
|
|
|
Consol-
idated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
$
|
29,812
|
|
|
$
|
17,596
|
|
|
$
|
18,128
|
|
|
$
|
36,972
|
|
|
$
|
|
|
|
$
|
102,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
16,721
|
|
|
10,837
|
|
|
17,884
|
|
|
35,944
|
|
|
18,573
|
|
|
99,959
|
|
Depreciation
and Amortization
|
|
|
3,951
|
|
|
2,340
|
|
|
273
|
|
|
413
|
|
|
713
|
|
|
7,690
|
|
Impairment
of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
7,993
|
|
|
8,115
|
|
Total
expenses
|
|
|
20,672
|
|
|
13,177
|
|
|
18,157
|
|
|
36,479
|
|
|
27,279
|
|
|
115,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
9,140
|
|
|
4,419
|
|
|
(29
|
)
|
|
493
|
|
|
(27,279
|
)
|
|
(13,256
|
)
|
Interest
expense
|
|
|
(1,190
|
)
|
|
(827
|
)
|
|
(56
|
)
|
|
(4
|
)
|
|
(2,785
|
)
|
|
(4,862
|
)
|
Interest
income
|
|
|
53
|
|
|
20
|
|
|
2
|
|
|
5
|
|
|
4
|
|
|
84
|
|
Other
income (expense)
|
|
|
264
|
|
|
(428
|
)
|
|
(147
|
)
|
|
(171
|
)
|
|
482
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
$
|
8,267
|
|
|
$
|
3,184
|
|
|
$
|
(230
|
)
|
|
$
|
323
|
|
|
$
|
(29,578
|
)
|
|
$
|
(18,034
|
)
|
(In thousands)
|
|
|
Utilities
|
|
|
Texas
Utilities
|
|
|
O&M
Services
|
|
|
Texas MUD
Services
|
|
|
Corp.
|
|
|
Consol-
idated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2008
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
$
|
28,508
|
|
|
$
|
16,731
|
|
|
$
|
20,087
|
|
|
$
|
36,257
|
|
|
$
|
|
|
|
$
|
101,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
15,445
|
|
|
10,887
|
|
|
20,459
|
|
|
35,916
|
|
|
9,231
|
|
|
91,938
|
|
Depreciation
and Amortization
|
|
|
3,421
|
|
|
1,967
|
|
|
122
|
|
|
617
|
|
|
882
|
|
|
7,009
|
|
Impairment
of long-lived assets
|
|
|
|
|
|
865
|
|
|
|
|
|
210
|
|
|
|
|
|
1,075
|
|
Total
expenses
|
|
|
18,866
|
|
|
13,719
|
|
|
20,581
|
|
|
36,743
|
|
|
10,113
|
|
|
100,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
9,642
|
|
|
3,012
|
|
|
(494
|
)
|
|
(486
|
)
|
|
(10,113
|
)
|
|
1,561
|
|
Interest
expense
|
|
|
(1,107
|
)
|
|
(662
|
)
|
|
(1
|
)
|
|
(70
|
)
|
|
(2,372
|
)
|
|
(4,212
|
)
|
Interest
income
|
|
|
24
|
|
|
12
|
|
|
13
|
|
|
49
|
|
|
10
|
|
|
108
|
|
Other
income (expense)
|
|
|
264
|
|
|
(1,753
|
)
|
|
(159
|
)
|
|
155
|
|
|
1,493
|
|
|
|
|
Income (loss) from continuing
operations before income taxes
|
|
|
$
|
8,823
|
|
|
$
|
609
|
|
|
$
|
(641
|
)
|
|
$
|
(352
|
)
|
|
$
|
(10,982
|
)
|
|
$
|
(2,543
|
)
|
21
Table
of Contents
SOUTHWEST WATER COMPANY AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
Note 11. Subsequent Events
On July 16, 2009 the Company
declared quarterly cash dividends of $0.025 per share of common stock and
$0.65625 per share of Series A preferred stock. The dividends were paid on August 12,
2009 to stockholders of record as of July 27, 2009.
22
ITEM 2.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESTATEMENT
SouthWest
Water Company and its subsidiaries (SouthWest Water or the Company)
condensed consolidated statements of operations for the three- and six-month
periods ended June 30, 2008 and condensed consolidated statement of cash
flows for the six-month period ended June 30, 2008 and related financial
information have been restated to correct for certain accounting errors. For
further details on the nature of the corrections and the related effects on the
Companys previously issued consolidated financial statements, see Note 2
to our Condensed Consolidated Financial Statements, Restatement of Condensed
Consolidated Financial Statements. Restated balances have been identified with
the notation As Restated where appropriate. Throughout this Quarterly Report,
the term as previously reported will be used to refer to balances from the
2008 condensed consolidated financial statements as reported prior to
restatement for the errors.
The
corrections to the reports for the affected prior period are contained in this
report on Form 10-Q, and we are not filing a separate amended report for
such period.
SPECIAL
NOTE ABOUT FORWARD-LOOKING STATEMENTS
Managements
Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
is intended to help the reader understand the results of operations and
financial condition of SouthWest Water Company. This MD&A also contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements contained
herein that are not clearly historical in nature are forward-looking, and the
words anticipate, believe, belief, expect, estimate, project, plan,
intend, continue, predict, may, will, should, strategy, will
likely result, will likely continue, and similar expressions are generally intended
to identify forward-looking statements. Forward-looking statements are subject
to risks and uncertainties that could cause actual results to differ materially
from our historical experience and our present expectations or projections. A
detailed discussion of these and other risks and uncertainties that could cause
actual results and events to differ materially from such forward-looking
statements is included in the section entitled Item 1A. Risk Factors in our
2008 Annual Report on Form 10-K. Caution should be taken not to place
undue reliance on any such forward-looking statements since such statements
speak only as of the date when made. Other than as required by applicable law,
we undertake no obligation to publicly update or revise forward-looking
statements whether as a result of new information, future events, or otherwise.
The
MD&A is intended to help the reader understand the results of operations,
financial condition and cash flows of SouthWest Water Company and is provided
as a supplement to, and should be read in conjunction with, our condensed
consolidated financial statements and the accompanying notes to the financial
statements included in this report.
OVERVIEW
SouthWest Waters principal business activity is to operate
and maintain water and wastewater infrastructure. Through our operating subsidiaries, we own
131 systems and operate hundreds more under contract to cities, utility
districts and private companies. SouthWest Water was incorporated in California
in 1954 and reincorporated in Delaware in 1988. We maintain our corporate
offices in Los Angeles, California.
In the past ten years, we have completed over 19
acquisitions of both utility and contract service businesses. These
acquisitions previously operated largely independent of each other, resulting
in a complex business structure with varying business practices. In 2006, our
Board of Directors appointed a new Chief Executive Officer to, among other
things, review Company operations and plan for future growth. Beginning in
2007, we implemented changes to better integrate the various segments of the
business. In 2007 and 2008, we made a
major change to how we operate; we consolidated many of the departments that
provide common support functions such as environmental health and safety, our
financial and accounting services, information technology and our customer call
center. These consolidated departments allocate their costs to each operating
segment where appropriate. In 2008, our operations were divided into four operating
segments to better focus the distinct strategies of each of our operating
businesses. Each segment has imbedded in it the direct operating cost and
infrastructure to deliver on its business plan, relying upon the allocated
common support functions discussed above. Each operating segment is led by a
Managing Director and a Financial Director.
We believe this management structure brings both direct operational and
financial accountability to each of the operations.
23
Table
of Contents
As a result of this reorganization, we now have four
reporting segments. We separate our
segments first by whether we own the utility or we provide contract services to
others. Our owned water and wastewater utilities are referred to as our
Utilities operations (Utilities). In our financial statements we report our
Texas Utilities operations (Texas Utilities) as a separate segment because of
different economic characteristics. This is principally because the Texas
Utilities predominantly under-recovered their current cost of service, which
includes a reasonable return on equity, as we have made large investments in
these operations since acquisition that are not yet being recovered through the
rates we charge. Our contract operations are segmented by contract type into
those that are generally larger, stand-alone operations (O&M Services)
and those that are small, full service contracts operated by a common team of
personnel resulting in a model that proportions a fractional cost to each
client (Texas MUD Services).
Utilities
consist of our
owned water and wastewater utilities located in California, Alabama and
Mississippi. Our New Mexico utility was part of this segment prior to its sale
in May 2009 (see Note 6 to our Condensed Consolidated Financial
Statements, Legal Proceedings, for detailed information on the New Mexico
utility sale). Residential customers make up the largest component of our
Utilities customer base, with these customers representing approximately 91% of
our water and wastewater connections. Substantially all of our Utilities
customers are metered which allows us to measure and bill for each customers
water consumption. Each of the operations in this segment has a unique service
territory that is subject to state and federal regulations regarding standards
of water quality, safety, environmental and other matters. The rates that we
can charge for water and wastewater service include the opportunity to earn a
reasonable rate of return on investments in these utilities as approved by
state regulatory agencies; except for some of our Alabama wastewater rates
which are governed by our service agreements. Some of these governmental
agencies approve a forward looking recovery of costs and some approve recovery
of costs based on a historical test year (backward looking). Our Utilities
operations are characterized by ongoing capital investments to maintain and
enhance the reliability and quality of the service we provide, as well as
routine growth from rate increases and new connections.
Texas Utilities
consists of 120
small, mostly rural systems that are grouped into nine jurisdictional utilities
across Texas. Residential customers make up the largest component of our Texas
Utilities customer base, with these customers representing approximately 98% of
our water and wastewater connections. Substantially all of our Texas Utilities
customers are metered which allows us to measure and bill for our customers
water consumption. These systems are broadly dispersed geographically. The
majority of the systems are organized as one utility with a single tariff,
known as Monarch Utilities. The Monarch
utilities, as well as two smaller systems acquired in 2007, were in various
stages of disrepair at the time of acquisition and we continue to spend
significant amounts of capital to maintain regulatory compliance and to improve
the quality of service. We are not yet recovering all of these costs in our
rates and as a result, we have a lower rate of return than typically expected
from a utility. We intend to actively pursue recovery of these costs in the
rate setting process. All other aspects of operations for these utilities are
the same as our Utilities operations; therefore, as soon as we are recovering
our costs, including a reasonable return on equity, we expect to aggregate this
segment with our Utilities segment.
O&M Services
generally consists
of operations that are project-specific contracts with cities, public agencies
and private owners. Most contracts are stand-alone operations staffed with
project-specific personnel, with an average contract life of two to three
years. Under a typical O&M contract, we charge a fee that covers a
specified level of service that includes facility operations and maintenance
and may include other water or wastewater related services. Services are
typically provided evenly throughout the contract period and are billed on a
monthly basis. If we provide services beyond the scope of a contract, we bill
for the additional services on a time-and-materials basis or negotiate a unique
price. These contracts are largely located in California, Colorado, Alabama,
Mississippi, and Georgia.
Texas MUD Services
is a full service
provider of utility services to a large number of small utilities in Texas that
are mostly owned by municipal utility districts (MUD). A MUD is created to
provide water supply, wastewater treatment and drainage service to areas where
municipal services are not available. We service over 270 MUD clients with a
common team of client managers, operators, customer service and billing
personnel. Therefore, these contracts are allocated a proportional amount of
each cost center creating a business model that is significantly different from
that of O&M Services. Under a typical MUD contract, we bill a monthly base
fee to provide a specified level of service; usually water and/or wastewater
facility inspections, routine operations, equipment maintenance, and utility
customer service including meter reading, call center, dispatch, and billing
and collection services. We bill for any additional services provided beyond
the basic contract on a time-and-materials basis as such services are rendered.
Most contracts provide for an increase in the monthly base fee as the number of
customer connections increases and generally include inflation adjustments. The
majority of our MUD contracts are cancelable with 30 to 60 days prior notice by
either party, but tend to last for long periods due to the close working
relationships between the operators and the clients. No one district represents
more than 5% of the overall revenue of this segment.
24
Table
of Contents
Impacts to Results of Operations
2009 and 2008
Utilities & Texas Utilities:
Our utilities
segments results of operations are generally influenced by a variety of
factors that are similar between the two segments and the industry in general.
A more complete understanding of these factors can be gained by reviewing this
section along with the Risk Factors section in our Form 10-K. As we review
and discuss performance, the general areas of impact we evaluate are as
follows:
·
Growth Related
: Growth in our
utilities segments is generally characterized by the following drivers; 1)
growth in the number of connections served within existing utility certified
service areas, or 2) acquisition of new service areas. In our Utilities
segment, our largest utility is our California utility which is a substantially
built out system that does not generally see much change in connection count.
The majority of our other utilities are in markets that experienced significant
new home construction in the past, but, as experienced by the market generally,
saw this rate of growth significantly decline throughout 2008 and the first two
quarters of 2009. Growth through acquisitions was most significant in 2008 with
the acquisition of a 4,000 connection wastewater utility system in Alabama in
late January 2008.
·
Rate Related
: Each of our
utilities will increase rates from time to time as allowed by the regulator or
governing contract, to recover expenses and realize a return on invested
capital. Rate cases can take months or years to impact results due to the time
needed to prepare, present and ultimately receive approval from the regulator.
In each of our utilities, we have a long-term rate strategy that matches our
expectation for growth, regulatory change and demand. In 2008, we were actively
pursuing rate increases in our California, Texas and Alabama utilities. Our
Texas Utilities benefited in 2008 from a full year impact of a proposed rate
increase from our 2007 Monarch rate filing, which was resolved through an
all-party settlement in December 2008. The settlement resulted in an 8%
reduction from proposed rates collected in 2008 and required us to refund an
estimated $0.5 million which was recorded in the fourth quarter of 2008. We will implement a step-rate increase of 8%
in March 2010 per the settlement. We also implemented rate increases in
three smaller Texas utilities and reached all-party settlements with two of
them in late 2008 and the third in the second quarter of 2009. In Alabama we
have a contractual agreement with the local government over our Shelby County
wastewater utility that provides us with the ability to request rate increases
annually, pursuant to the terms of the contract. Accordingly, we requested and
received an 8% increase in January 2008.
Additionally, we were actively working with our regulators
in 2009 on additional rate cases that will impact 2009 and future periods.
Increases that impacted the first two quarters include rate increases in
California and Alabama. In California we
worked with the California Public Utilities Commission (CPUC) on our 2009
general rate case which was settled in the first quarter of 2009 for an 11%
increase over our rates at the beginning of 2008. In Alabama, we applied for a rate increase
under our Shelby County and Riverview wastewater utility contracts and received
permission to raise rates approximately 14% and 4.5% respectively, in January 2009.
·
Demand Related
: Our utility results are largely
dependent upon the sale and distribution of water, the amount of which is
dependent on seasonal weather fluctuations, particularly during the summer
months when water demand will vary greatly with rainfall and temperature
levels. Not only does rainfall vary from season to season, but from
year to year. The uniform rate design that regulators require for our utilities
can result in unrecovered fixed costs and lower earnings during periods of
lower than expected water use. This can occur during abnormal weather
conditions, such as when summer temperatures are cooler than normal or during
mandatory restrictions on water use because of drought. Also, demand related
changes can occur as a result of conservation and socio-economic impacts. In 2008 and the first six months of 2009, we
saw increased demand in Texas due to drought conditions. We saw lower demand at
our California utility in 2008 and in the first two quarters of 2009, largely
due to conservation and general economic conditions.
·
Supply Related
: The cost of water
and related commodities is a major driver of our results. Utilities that
purchase water are subject to changes in operations due to the amount and cost
of that water. Purchased water supply changes are typically driven by
longer-term climate issues such as extended drought but can also be driven by
short-term maintenance needs. In the first quarter of 2009, we saw increased
cost of purchased water in Texas and California but these dynamics were
somewhat mitigated in the second quarter. In Texas, we purchased more water in
the first quarter than the comparable period of 2008 due to more severe drought
conditions in 2009 than in 2008. In the
second quarter of 2009 our purchased water costs were similar to those of the
second quarter of 2008. In California, our average unit cost of water increased
in the first quarter of 2009 due to lower water levels in our main aquifers,
resulting in a need to purchase more water, as well as the higher costs of
imported water. In the second quarter of 2009 the amount of purchased water in
California was less than that purchased in the comparable prior year period due
to our customers conservation efforts.
25
Table of Contents
·
Operation & Maintenance Related
: Our
operation and maintenance costs include fuel, power, labor, labor benefits,
facility costs, and other ordinary costs of producing or treating water. These costs are impacted by compliance with
environmental and health safety standards. They are also typically subject to
inflation effects and while we can file for recovery after inflation effects
are incurred in backward looking rate making jurisdictions, we often experience
a lag between the time we incur these costs and when we receive the rate
increase to cover these costs. In California, which is a forward looking rate
making environment, we estimate the impact of inflation in our rate filings and
must absorb any costs that are higher than our estimates.
·
General & Administrative Related
: Our general
and administrative costs include expenses directly incurred by the segment such
as management expense as well as costs for services performed by consolidated
support functions that are then allocated to each segment. These support costs
include information technology (IT), shared financial services, customer
service center and environmental health and safety. In 2008, we made large
investments in our consolidated support functions that have driven costs
higher, but we now have a foundation upon which to drive sustainable continuous
improvement into the organization. As the efficiencies of these investments
take hold, we have targeted objectives to reduce the fixed costs of supporting
our operations.
·
Other
: Other is reserved
for unusual items that may impact results from time to time. Most significantly
in the first six months of 2009, we saw an increase in costs in our Mississippi
utility due to a refund of sales tax in the comparable prior period and a
reduction in costs in Texas due to a write-off of assets in the comparable
prior period.
O&M Services Segment
: Our O&M
Services segment results of operations are generally influenced by a variety of
events. As we review and discuss performance, the general areas of impact we
evaluate are as follows:
·
Contract Growth:
Growth is generally due to new
contracts, additional project work under existing contracts and contract price
increases. Our primary driver of contract growth in the first two quarters of
2009 was from expanding the scope of work provided to existing customers.
·
Lost Work:
Lost work is
generally driven by lost contracts or a reduction in project work for existing
contracts. The primary driver in the first two quarters of 2009 was reduced
project work as well as the cancellation of two of our contracts in California
in 2008 due in part to the financial under performance of the contracts.
·
General & Administrative
Related:
Our general and
administrative costs include expenses directly incurred by the segment such as
management expense as well as costs for services performed by consolidated
support functions that are then allocated to each segment. These support costs
include IT, shared financial services, customer service center and
environmental health and safety. In
2008, we made large investments in our consolidated support functions that have
driven costs higher but we now have a foundation upon which to drive
sustainable continuous improvement into the organization. As the efficiencies
of these investments take hold, we have targeted objectives to reduce the fixed
costs of supporting our operations.
·
Other:
Other is reserved for unusual items that may impact results
from time to time, such as legal fees, fines or the elimination of certain
non-core service offerings. Most significantly in the first six months of 2009,
we eliminated certain non-core service offerings in Colorado and reduced legal
costs versus the comparable prior period.
Texas MUD Services Segment
: Our Texas
MUD Services segments results of operations are generally influenced by a
variety of events. As we review and discuss performance, the general areas of
impact we evaluate are as follows:
·
Contract Growth:
Growth is generally due to new
contracts, additional project work and contract price increases. In the first two quarters of 2009, our growth
was primarily driven by increases in service order work.
·
Lost Work:
Lost work is
generally driven by lost contracts, reduction in project work or a reduction in
ancillary services, such as new taps and inspection services for new home
construction. In the first two quarters
of 2009, lost work was primarily driven by lost contracts and the sale of our
environmental testing laboratory.
·
General & Administrative
Related:
Our general and
administrative costs include expenses directly incurred by the segment such as
management expense as well as costs for services performed by consolidated
support
26
Table of Contents
functions that are then allocated to
each segment. These support costs include IT, shared financial services,
customer service center and environmental health and safety. In 2008, we made
large investments in our consolidated support functions that have driven costs
higher, but we now have a foundation upon which to drive sustainable continuous
improvement into the organization. As the efficiencies of these investments
take hold, we have targeted objectives to reduce the fixed costs of supporting
our operations.
·
Other:
Other is reserved for unusual items that may impact results
from time to time.
Corporate Segment
: Our corporate
segment represents costs related to executive management, investor relations,
human resources, general legal and insurance, certain IT functions that support
all operations and public company needs, audit costs, and other expenses
generally related to the parent organization. Most of the costs are general and
administrative in nature and not subject to much variation. A portion of these costs are allocated to
utilities in rate filings as allowed costs in rates. In the first two quarters of 2009, costs were
primarily impacted by $10.6 million of expenses associated with our restatement
of historical financial results and a charge of $8.0 million related to the
write-off of Cornerstone assets, net of recoveries from vendors.
On
occasion, we do have other costs that flow through the segment. In 2008, the
expenses associated with the Cornerstone internal-use software development
project were largely supported by the corporate segment. This project upgraded
our core IT infrastructure such as phones, servers and communications links. In
addition, as of January 1, 2008 we are operating on a single company-wide
financial ledger system. In the fourth quarter of 2008, the remaining portions
of the project were put on hold and certain portions of the project were eliminated
and in May 2009, based on additional information, we determined that it
was not probable that the implementation of the remaining uncompleted software
modules would be completed which generated the write-off discussed above.
Acquisitions
Our
financial position, results of operations and cash flows have been affected by
our history of acquisitions. Our most recent significant acquisition, which
affects the comparability of the historical financial condition and results of
operations described in the MD&A, is the acquisition of a Birmingham,
Alabama-based wastewater collection and treatment system that serves
approximately 4,000 residential and commercial connections in a service area
directly adjacent to our existing Shelby County collection and treatment
system, acquired in late January 2008 (Riverview).
Assets Held for Sale and Dispositions
During
2007, we committed to a plan to sell our wholesale water and wastewater
operations in Texas. In December 2008,
we completed the sale of our wholesale wastewater business for net cash
proceeds of $2.2 million and a receivable of $0.6 million. The wastewater treatment plant sold
represents a portion of the combined water and wastewater operations assets
and liabilities. We are uncertain whether we can consummate the sale of the
remaining business during 2009; accordingly, the business activity of the water
component is reflected in consolidated continuing operations in 2009.
We
entered into an agreement to sell the assets of our Southwest Environmental
Laboratories, Inc. subsidiary in 2009 for cash consideration of $0.5
million paid at close and up to an additional $0.75 million of consideration
consisting of 25% of the buyers quarterly aggregate invoice amounts subsequent
to the sale. The sale closed on April 1,
2009.
In
January 2009 we reached a settlement in eminent domain proceedings against
our New Mexico utility, New Mexico Utilities Inc. (NMUI). On May 8, 2009
we received $53.9 million in cash at
closing ($60.0 million settlement and $0.9 million net cash settlement
primarily related to accounts receivable, less $7.0 million retained by the
condemning entity in settlement of sewer treatment fees). We used $12.3 million of the net proceeds to
pay down NMUI bonds and related accrued interest, and the remaining cash
proceeds of $41.6 million were used to pay the unassumed liabilities of NMUI
and to pay down our revolving credit facility.
RESULTS OF
OPERATIONS
Three months
ended June 30, 2009 Compared to 2008 (as restated)
Consolidated
operating revenue from continuing operations decreased $1.8 million, or 3.2%,
to $52.4 million for the three-month period ended June 30, 2009 from $54.2
million for the same period in the prior year.
Consolidated operating expenses increased $9.2 million, or 17.5%, to
$62.0 million for the three-month period ended June 30, 2009 from $52.8
million for the 2008 period. Resulting operating income decreased $11.0 million
to a loss of $9.6 million for the three-month period ended June 30, 2009,
from operating income of $1.4 million for the same period in the prior
year. The operating loss for the quarter
ended June 30, 2009 includes the impact to operating income of
27
Table
of Contents
$5.2
million of costs associated with the restatement of historical financial
results, and $8.0 million of impairment of assets related to the Cornerstone
project, as well as other items as described below. The operations of our New Mexico utility are
not reflected in the following results of operations as it was sold in May 2009
and is, therefore, part of discontinued operations.
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
Increase
|
|
Percent of Revenue
|
|
(In thousands,
except percentages)
|
|
2009
|
|
As Restated
|
|
(decrease)
|
|
2009
|
|
2008
|
|
Utilities
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
16,433
|
|
$
|
16,208
|
|
$
|
225
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
10,331
|
|
10,277
|
|
54
|
|
62.9
|
%
|
|
63.4
|
%
|
|
Operating
Income
|
|
$
|
6,102
|
|
$
|
5,931
|
|
$
|
171
|
|
37.1
|
%
|
|
36.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Utilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
9,005
|
|
$
|
8,723
|
|
$
|
282
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
6,965
|
|
7,742
|
|
(777
|
)
|
77.3
|
%
|
|
88.8
|
%
|
|
Operating
Income
|
|
$
|
2,040
|
|
$
|
981
|
|
$
|
1,059
|
|
22.7
|
%
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&M Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
8,981
|
|
$
|
10,449
|
|
$
|
(1,468
|
)
|
|
|
|
|
|
|
Operating
Expenses
|
|
9,147
|
|
10,736
|
|
(1,589
|
)
|
101.8
|
%
|
|
102.7
|
%
|
|
Operating
Loss
|
|
$
|
(166
|
)
|
$
|
(287
|
)
|
$
|
121
|
|
(1.8
|
%)
|
|
(2.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas MUD Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
17,997
|
|
$
|
18,790
|
|
$
|
(793
|
)
|
|
|
|
|
|
|
Operating
Expenses
|
|
17,938
|
|
19,306
|
|
(1,368
|
)
|
99.7
|
%
|
|
102.7
|
%
|
|
Operating
Income (Loss)
|
|
$
|
59
|
|
$
|
(516
|
)
|
$
|
575
|
|
0.3
|
%
|
|
(2.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
17,643
|
|
4,745
|
|
12,898
|
|
|
|
|
|
|
|
Operating
Loss
|
|
$
|
(17,643
|
)
|
$
|
(4,745
|
)
|
$
|
(12,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
52,416
|
|
$
|
54,170
|
|
$
|
(1,754
|
)
|
|
|
|
|
|
|
Operating
Expenses
|
|
62,024
|
|
52,806
|
|
9,218
|
|
118.3
|
%
|
|
97.5
|
%
|
|
Operating
Income (Loss)
|
|
$
|
(9,608
|
)
|
$
|
1,364
|
|
$
|
(10,972
|
)
|
(18.3
|
%)
|
|
2.5
|
%
|
|
Utilities
(In thousands)
|
|
Operating
Revenue
|
|
Operating
Expense
|
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2008 (As Restated)
|
|
$
|
16,208
|
|
$
|
10,277
|
|
$
|
5,931
|
|
Rate
Related
|
|
1,496
|
|
|
|
|
|
Demand
Related
|
|
(1,271
|
)
|
|
|
|
|
Supply
Related
|
|
|
|
(1,324
|
)
|
|
|
O&M
Related
|
|
|
|
185
|
|
|
|
G&A
Related
|
|
|
|
784
|
|
|
|
Other
|
|
|
|
409
|
|
|
|
Three
months ended June 30, 2009
|
|
$
|
16,433
|
|
$
|
10,331
|
|
$
|
6,102
|
|
Operating
revenue increased $0.2 million, or 1.4 %, to $16.4 million for three months
ended June 30, 2009 from $16.2 million for the same period in prior
year. The net increase was primarily due
to the following events:
·
Rate Related:
A $1.5 million increase due to rate increases in California and Alabama, of
which $1.3 million is due to our California utility implementing a step rate
increase in July 2008 and general rate increase in January 2009, and
$0.2 million is due to rate increases at two of our Alabama utilities.
28
Table
of Contents
·
Demand
Related: A $1.3 million decrease primarily due to reduced consumption at our
California utility related to customers conservation efforts.
Operating
expenses remained consistent at $10.3 million for the three months ended June 30,
2009 and 2008 primarily due to the following events:
·
Supply
Related: A $1.3 million decrease primarily due to lower purchased water in
California driven by lower demand.
·
O&M
Related: A $0.2 million increase primarily due to increased depreciation.
·
G&A
Related: A $0.8 million increase due to general and administrative costs,
primarily due to increased costs associated with the upgrade of IT and
financial systems as well as lower overhead recovery due to fewer capital
projects than in the comparable prior period.
·
Other: A $0.4
million increase, primarily due to a refund of sales tax at our Mississippi
utility that was received in the second quarter of 2008.
As
a result of the above events, operating income increased $0.2 million to $6.1
million for the three months ended June 30, 2009 from $5.9 million for the
same period in the prior year.
Texas Utilities
(In thousands)
|
|
Operating
Revenue
|
|
Operating
Expense
|
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2008 (As Restated)
|
|
$
|
8,723
|
|
$
|
7,742
|
|
$
|
981
|
|
Growth
Related
|
|
(58
|
)
|
|
|
|
|
Rate
Related
|
|
(129
|
)
|
|
|
|
|
Demand
Related
|
|
469
|
|
|
|
|
|
O&M
Related
|
|
|
|
378
|
|
|
|
G&A
Related
|
|
|
|
(290
|
)
|
|
|
Other
|
|
|
|
(865
|
)
|
|
|
Three
months ended June 30, 2009
|
|
$
|
9,005
|
|
$
|
6,965
|
|
$
|
2,040
|
|
Operating
revenue increased $0.3 million, or 3.2%, to $9.0 million for three months ended
June 30, 2009 from $8.7 million for the same period in prior year. The net
increase was primarily due to the following events:
·
Growth
Related: A $0.1 million decrease due to the slowdown in housing growth reducing
taps and inspection revenue.
·
Rate Related:
A $0.1 million decrease comprised of a $0.4 million decrease due to settlement
of rates at our Monarch utility which were below proposed rates charged in the
second quarter of 2008, offset by increases at one utility implemented in the
latter half of 2008 and a step-increase in rates at another utility during the
first quarter of 2009.
·
Demand
Related: A $0.5 million increase due to increased consumption associated with
hot and dry weather patterns.
Operating
expenses decreased $0.8 million, or 10.0%, to $7.0 million for the three months
ended June 30, 2009, from $7.7 million for the same period in the prior
year. The decrease was primarily due to
the following events:
·
O&M
Related: A $0.4 million increase, primarily driven by an increase in
depreciation costs offset by reduced auto, labor, supply expenses and water
treatment costs.
·
G&A
Related: A $0.3 million decrease primarily due to lower IT, rate case and bank
charges.
·
Other: A $0.9
million decrease due to the write-off of assets in the second quarter of 2008
related to a wholesale water operation.
As
a result of the above events, operating income increased $1.0 million, to $2.0
million for the three months ended June 30, 2009, from income of $1.0
million for the same period in the prior year.
29
Table
of Contents
O&M Services
(In thousands)
|
|
Operating
Revenue
|
|
Operating
Expense
|
|
Operating
Loss
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2008 (As Restated)
|
|
$
|
10,449
|
|
$
|
10,736
|
|
$
|
(287
|
)
|
Contract Growth
|
|
567
|
|
380
|
|
|
|
Lost Work
|
|
(1,909
|
)
|
(2,026
|
)
|
|
|
G&A
Related
|
|
|
|
(60
|
)
|
|
|
Other
|
|
(126
|
)
|
117
|
|
|
|
Three
months ended June 30, 2009
|
|
$
|
8,981
|
|
$
|
9,147
|
|
$
|
(166
|
)
|
Operating
revenue decreased $1.5 million, or 14.0%, to $9.0 million for the three months
ended June 30, 2009 from $10.4 million for the same period in the prior
year. The decrease in revenue was primarily due to the following events:
·
Contract
Growth: A $0.6 million increase, primarily due to price and scope increases.
·
Lost Work: A
$1.9 million decrease, primarily due to $1.1 million from lost contracts, which
includes $0.5 million relating to two underperforming contracts that were
terminated by management in late 2008 and $0.9 million from reduced project
work.
·
Other: A $0.1
million decrease as we stopped certain non-core service offerings in Colorado.
Operating
expenses decreased $1.6 million, or 14.8% to $9.1 million for the three months
ended June 30, 2009, from $10.7 million for the same period in the prior
year. The net decrease was primarily due
to the following events:
·
Contract
Growth: A $0.4 million increase due to new and expanded scope on contracts
identified above.
·
Lost Work: A
$2.0 million decrease due to lost contracts and reduced project work.
·
Other: A $0.1
million increase primarily due to a reduction of a legal accrual in the second
quarter of 2008.
As
a result of the above events, operating income improved $0.1 million to a loss
of $0.2 million, from a loss of $0.3 million in the prior year period.
Texas MUD Services
(In thousands)
|
|
Operating
Revenue
|
|
Operating
Expense
|
|
Operating
Income (Loss)
|
|
|
|
|
|
|
|
|
|
Three
months ended June 30, 2008 (As Restated)
|
|
$
|
18,790
|
|
$
|
19,306
|
|
$
|
(516
|
)
|
Contract
Growth
|
|
1,601
|
|
1,362
|
|
|
|
Lost
Work
|
|
(2,394
|
)
|
(1,985
|
)
|
|
|
G&A
Related
|
|
|
|
(531
|
)
|
|
|
Other
|
|
|
|
(214
|
)
|
|
|
Three
months ended June 30, 2009
|
|
$
|
17,997
|
|
$
|
17,938
|
|
$
|
59
|
|
Operating
revenue decreased $0.8 million, or 4.2%, to $18.0 million for three months
ended June 30, 2009 from $18.8 million for the same period in the prior
year. The decrease was primarily due to the following events:
·
Contract
Growth: A $1.6 million increase due to contract pricing increases and increases
in service order work, generally related to repairs and maintenance work
associated with hot and dry weather patterns.
·
Lost Work: A
$2.4 million decrease primarily due to a $1.1 million decrease in new housing
related services, a $0.7 million decrease related to the sale of our
environmental testing laboratory on April 1, 2009, and $0.5 million due to
lost contracts.
Operating
expenses decreased $1.4 million, or 7.1%, to $17.9 million for the three months
ended June 30, 2009, from $19.3 million for the same period in the prior
year. The decrease was primarily due to
the following events:
30
Table
of Contents
·
Contract
Growth: A $1.4 million increase in general operating costs related to increases
in service and maintenance work orders.
·
Lost Work: A
$2.0 million decrease primarily due to $1.4 million decrease from the sale of
our environmental testing laboratory on April 1, 2009, $0.4 million
related to lost contracts and $0.2 million from lower new housing related
services.
·
G&A
Related: A $0.5 million decrease, primarily due to various savings in general
and administrative costs.
·
Other: A $0.2 million decrease primarily related to
an impairment of long-lived assets in the 2008 period.
As
a result of the above events, operating income improved $0.6 million to $59,000
for the three months ended June 30, 2009, compared to a loss of $0.5
million for the same period in the prior year.
Corporate
Operating
expenses increased $12.9 million to $17.6 million for the three months ended June 30,
2009, from $4.7 million for the same period in the prior year.
The
net increase was primarily due to the following events:
·
Project
Costs: A $0.9 million decrease as result of costs incurred in the second
quarter of 2008 related to our Cornerstone internal-use software development
project. In May 2009 the project was terminated.
·
G&A
Related: A $0.9 million increase primarily due to increases in medical claims,
third-party legal and tax consultation expenses and an accrual for bonuses
offset by reductions in other corporate overhead departments.
·
Other: A
$12.9 million increase, primarily driven by $5.2 million of financial
restatement related costs, including audit fees and accounting resource
expenses to support the restatement of historical financial results, and $8.0
million related to a write-off of Cornerstone assets net of recoveries from
vendors, offset by reduced costs associated with expenditures in the comparable
prior period related to consulting expenses.
Other Income (Expense)
Aggregate
other expenses increased $0.9 million, or 44.0% to $2.9 million for the three
months ended June 30, 2009, compared to $2.0 million for the same period
in the prior year as follows:
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
2009
|
|
As Restated
|
|
Change
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
(2,975
|
)
|
$
|
(2,092
|
)
|
$
|
(883
|
)
|
Interest
income
|
|
48
|
|
60
|
|
(12
|
)
|
Total
|
|
$
|
(2,927
|
)
|
$
|
(2,032
|
)
|
$
|
(895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense.
Interest
expense increased by $0.9 million, or 42.2%, to $3.0 million for the three
months ended June 30, 2009 from $2.1 million for the same period during
the prior year primarily as a result of a $0.5 million accelerated amortization
of deferred financing costs as a result of amendments to the credit facility.
The
balance of the change in interest expense is due to increased interest rates
and lower average outstanding debt balances.
The effective annual interest rate on total borrowings was approximately
6.7% at June 30, 2009 and 4.4% for the same period in the prior year. The average balance of interest bearing debt
outstanding decreased to $176.8 million during the three months ended June 30,
2009 compared to $191.4 million for the same period in the prior year.
Provision for Income Taxes
Our
effective consolidated income tax rate on continuing operations was a benefit
of 35.7% for the three months ended June 30, 2009 compared to a benefit of
34.9% for the same period in 2008. The lower effective rate in 2008 is the
result of the Texas Franchise Tax reducing the expected overall income tax
benefit.
Income from Discontinued Operations
31
Table
of Contents
Income from discontinued operations, net of tax, of $17.6
million during the three month period ended June 30, 2009 reflects
primarily the $16.7 million gain on sale of our New Mexico utility, net of
taxes. The sale reflects a $107.2
million reduction in assets, offset by reduction in liabilities which include
$69.0 million of contributions in aid of construction. Prior year income from
discontinued operations includes results of our New Mexico utility, offset by
losses associated with a wholesale wastewater business sold late in that year.
Six months
ended June 30, 2009 Compared to 2008 (as restated)
Consolidated
operating revenue increased from $0.9 million, or 1.0%, to $102.5 million for
the six-month period ended June 30, 2009 from $101.6 million for the same
period in the prior year. Consolidated
operating expenses increased $15.7 million, or 15.7%, to $115.8 million for the
six-month period ended June 30, 2009 from $100.0 million for the
comparable 2008 period. Resulting
operating income decreased $14.8 million to a loss of $13.3 million for the
six-month period ended June 30, 2009, from operating income of $1.6
million for the same period in the prior year.
The operating loss for the six-month period ended June 30, 2009
includes the impact to operating income of $10.6 million of costs associated
with the restatement of historical financial results, and $8.0 million of
impairment of assets related to the Cornerstone project, as well as other items
as described below. The operations of
our New Mexico utility are not reflected in the results below, as it was sold
in May 2009 and is, therefore, part of discontinued operations.
|
|
Six Months
Ended June 30
|
|
|
|
|
|
|
|
|
|
2008
|
|
Increase
|
|
Percent of
Revenue
|
|
(In thousands,
except percentages)
|
|
|
2009
|
|
As Restated
|
|
(decrease)
|
|
2009
|
|
2008
|
|
Utilities
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
29,812
|
|
$
|
28,508
|
|
$
|
1,304
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
20,672
|
|
18,866
|
|
1,806
|
|
69.3
|
%
|
|
66.2
|
%
|
|
Operating
Income
|
|
$
|
9,140
|
|
$
|
9,642
|
|
$
|
(502
|
)
|
30.7
|
%
|
|
33.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Utilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
17,596
|
|
$
|
16,731
|
|
$
|
865
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
13,177
|
|
13,719
|
|
(542
|
)
|
74.9
|
%
|
|
82.0
|
%
|
|
Operating
Income
|
|
$
|
4,419
|
|
$
|
3,012
|
|
$
|
1,407
|
|
25.1
|
%
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&M Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
18,128
|
|
$
|
20,087
|
|
$
|
(1,959
|
)
|
|
|
|
|
|
|
Operating
Expenses
|
|
18,157
|
|
20,581
|
|
(2,424
|
)
|
100.2
|
%
|
|
102.5
|
%
|
|
Operating
Loss
|
|
$
|
(29
|
)
|
$
|
(494
|
)
|
$
|
465
|
|
(0.2
|
%)
|
|
(2.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas MUD Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
36,972
|
|
$
|
36,257
|
|
$
|
715
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
36,479
|
|
36,743
|
|
(264
|
)
|
98.7
|
%
|
|
101.3
|
%
|
|
Operating
Income (Loss)
|
|
$
|
493
|
|
$
|
(486
|
)
|
$
|
979
|
|
1.3
|
%
|
|
(1.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
27,279
|
|
10,113
|
|
17,166
|
|
|
|
|
|
|
|
Operating
Loss
|
|
$
|
(27,279
|
)
|
$
|
(10,113
|
)
|
$
|
(17,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
$
|
102,508
|
|
$
|
101,583
|
|
$
|
925
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
115,764
|
|
100,022
|
|
15,742
|
|
112.9
|
%
|
|
98.5
|
%
|
|
Operating
Income (Loss)
|
|
$
|
(13,256
|
)
|
$
|
1,561
|
|
$
|
(14,817
|
)
|
(12.9
|
%)
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Table of Contents
Utilities
|
|
Operating
|
|
Operating
|
|
Operating
|
|
(In thousands)
|
|
Revenue
|
|
Expense
|
|
Income
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 (As Restated)
|
|
$
|
28,508
|
|
$
|
18,866
|
|
$
|
9,642
|
|
Growth Related
|
|
490
|
|
278
|
|
|
|
Rate Related
|
|
2,560
|
|
|
|
|
|
Demand Related
|
|
(1,746
|
)
|
|
|
|
|
Supply Related
|
|
|
|
(605
|
)
|
|
|
O&M Related
|
|
|
|
185
|
|
|
|
G&A Related
|
|
|
|
1,539
|
|
|
|
Other
|
|
|
|
409
|
|
|
|
Six
months ended June 30, 2009
|
|
$
|
29,812
|
|
$
|
20,672
|
|
$
|
9,140
|
|
Operating
revenue increased $1.3 million, or 4.6 %, to $29.8 million for six months ended
June 30, 2009 from $28.5 million for the same period in the prior
year. The net increase was primarily due
to the following events:
·
Growth
Related: A $0.5 million increase primarily due to the acquisition of the
Riverview wastewater treatment plant in Alabama at the end of January 2008.
·
Rate Related:
A $2.6 million increase due to rate increases in California and Alabama, of
which $2.2 million is due to our California utility implementing a step rate
increase in July 2008 and general rate increase in January 2009, and
$0.3 million is due to rate increases at two of our Alabama utilities.
·
Demand
Related: A $1.8 million decrease primarily due to reduced consumption at our
California utility related to customers conservation efforts.
Operating
expenses increased $1.8 million, or 9.6%, to $20.7 million for the six months
ended June 30, 2009, from $18.9 million for same period in the prior
year. The net increase was primarily due
to the following events:
·
Growth
Related: A $0.3 million increase due to the acquisition of the Riverview
wastewater treatment plant in Alabama at the end of January 2008.
·
Supply
Related: A $0.6 million decrease primarily due to lower purchased water in
California driven by lower demand.
·
O&M
Related: A $0.2 million increase primarily due to increased depreciation.
·
G&A
Related: A $1.5 million increase due to general and administrative costs,
primarily due to increased costs associated with the upgrade of IT and
financial systems as well as lower overhead recovery due to fewer capital
projects than in the comparable prior period.
·
Other: A
$0.4 million increase, primarily due to a refund of sales tax at our
Mississippi utility that was received in the second quarter of 2008.
As
a result of the above events, operating income decreased $0.5 million, to $9.1
million for the six months ended June 30, 2009, from $9.6 million for the
same period in the prior year.
33
Table
of Contents
Texas Utilities
|
|
Operating
|
|
Operating
|
|
Operating
|
|
(In thousands)
|
|
Revenue
|
|
Expense
|
|
Income
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2008 (As Restated)
|
|
$
|
16,731
|
|
$
|
13,719
|
|
$
|
3,012
|
|
Growth Related
|
|
(58
|
)
|
|
|
|
|
Rate Related
|
|
454
|
|
|
|
|
|
Demand Related
|
|
469
|
|
|
|
|
|
Supply Related
|
|
|
|
142
|
|
|
|
O&M Related
|
|
|
|
94
|
|
|
|
G&A Related
|
|
|
|
87
|
|
|
|
Other
|
|
|
|
(865
|
)
|
|
|
Six
months ended June 30, 2009
|
|
$
|
17,596
|
|
$
|
13,177
|
|
$
|
4,419
|
|
Operating
revenue increased $0.9 million, or 5.2%, to $17.6 million for six months ended June 30,
2009 from $16.7 million for the same period in prior year. The net increase was
primarily due to the following events:
·
Growth
Related: A $0.1 million decrease due to the slowdown in housing growth reducing
taps and inspection revenue.
·
Rate
Related: A $0.5 million increase comprised of increases at three small
utilities implemented in the latter half of 2008 and a step-increase in rates
at one utility during the first quarter of 2009, offset by a decrease due to
settlement of rates at our Monarch utility which were below proposed rates
charged in the second quarter of 2008.
·
Demand
Related: A $0.5 million increase due to increased consumption associated with
hot and dry weather patterns.
Operating
expenses decreased $0.5 million, or 3.9%, to $13.2 million for the six months
ended June 30, 2009, from $13.7 million for the same period in the prior
year. The net decrease was primarily due
to the following events:
·
Supply
Related: A $0.1 million increase due to increased purchased water as a result
of the inability of our owned sources of ground water to produce enough water
due to ongoing drought conditions.
·
O&M Related:
A $0.1 million increase, primarily driven by increased depreciation, offset by
reduced auto, labor and supply expenses.
·
G&A
Related: A $0.1 million increase primarily due to increased costs associated
with the implementation of our strategy to consolidate support functions.
·
Other: A
$0.9 million decrease due to the write-off of assets in the second quarter of
2008 related to a wholesale water operation.
As
a result of the above events, operating income increased $1.4 million, to $4.4
million for the six months ended June 30, 2009, from income of $3.0
million for the same period in the prior year.
O&M Services
|
|
Operating
|
|
Operating
|
|
Operating
|
|
(In thousands)
|
|
Revenue
|
|
Expense
|
|
Loss
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2008 (As Restated)
|
|
$
|
20,087
|
|
$
|
20,581
|
|
$
|
(494
|
)
|
Contract
Growth
|
|
1,522
|
|
777
|
|
|
|
Lost
Work
|
|
(3,054
|
)
|
(3,061
|
)
|
|
|
G&A
Related
|
|
|
|
59
|
|
|
|
Other
|
|
(427
|
)
|
(199
|
)
|
|
|
Six
months ended June 30, 2009
|
|
$
|
18,128
|
|
$
|
18,157
|
|
$
|
(29
|
)
|
Operating
revenue decreased $2.0 million, or 9.8%, to $18.1 million for the six months
ended June 30, 2009 from $20.1 million for the same period in the prior
year. The decrease in revenue was primarily due to the following events:
34
Table of Contents
·
Contract
Growth: A $1.5 million increase, primarily due to increased project work and
price and scope increases.
·
Lost Work:
A $3.1 million decrease due to $2.0 million from lost contracts, including $0.9
million relating to two underperforming contracts that were terminated by
management in late 2008, as well as $1.1 million from reduced project work.
·
Other: A
$0.4 million decrease as we stopped certain non-core service offerings in Colorado.
Operating
expenses decreased $2.4 million, or 11.8% to $18.2 million for the six months
ended June 30, 2009, from $20.6 million for the same period in the prior
year. The net decrease was primarily due
to the following events:
·
Contract
Growth: A $0.8 million increase due to new and expanded scope on contracts
identified above.
·
Lost Work:
A $3.1 million decrease due to lost contracts and reduced project work.
·
G&A
related: A $0.1 million increase due to costs related to our strategy to consolidate
support facilities.
·
Other: A
$0.2 million decrease due primarily to a $0.4 million decrease as we stopped
pursuing certain service offerings in Colorado, offset by net changes in legal
impacts.
As
a result of the above events, operating loss decreased $0.5 million to $28,000
for the six months ended June 30, 2009, from a loss of $0.5 million for
the same period in the prior year.
Texas MUD Services
|
|
Operating
|
|
Operating
|
|
Operating
|
|
(In thousands)
|
|
Revenue
|
|
Expense
|
|
Income (Loss)
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30, 2008 (As Restated)
|
|
$
|
36,257
|
|
$
|
36,743
|
|
$
|
(486
|
)
|
Contract
Growth
|
|
4,319
|
|
3,015
|
|
|
|
Lost
Work
|
|
(3,604
|
)
|
(2,465
|
)
|
|
|
G&A
Related
|
|
|
|
(600
|
)
|
|
|
Other
|
|
|
|
(214
|
)
|
|
|
Six
months ended June 30, 2009
|
|
$
|
36,972
|
|
$
|
36,479
|
|
$
|
493
|
|
Operating
revenue increased $0.7 million, or 2.0%, to $37.0 million for six months ended June 30,
2009 from $36.3 million for the same period in the prior year. The increase was
primarily due to the following events:
·
Contract
Growth: A $4.3 million increase due to contract pricing increases and increases
in service order work.
·
Lost Work:
A $3.6 million decrease due to lost contracts, a decrease in new housing
related services and a $0.7 million decrease related to the sale of our
environmental testing laboratory on April 1, 2009.
Operating
expenses decreased $0.3 million, or 0.7%, to $36.5 million for the six months
ended June 30, 2009, from $36.7 million for the same period in the prior
year. The net decrease was primarily due
to the following events:
·
Contract
Growth: A $3.0 million increase in general operating costs primarily related to
increases in service and maintenance work orders.
·
Lost Work:
A $2.5 million decrease related to lost work, including $1.4 million due to the
sale of our environmental testing laboratory.
·
G&A
Related: A $0.6 million decrease, primarily due to various savings and
efficiency gains in general and administrative costs.
·
Other: A $0.2 million decrease primarily related to
impairment of long-lived assets in the comparable period of 2008.
As
a result of the above events, operating income increased $1.0 million to $0.5
million for the six months ended June 30, 2009, compared to an operating
loss of $0.5 million for the same period in the prior year.
35
Table of Contents
Corporate
Operating
expenses increased $17.2 million, to $27.3 million for the six months ended June 30,
2009, from $10.1 million for the same period in the prior year.
The
net increase was primarily due to the following events:
·
Project
Costs: A $1.6 million decrease as result of costs incurred in the first half of
2008 related to our Cornerstone internal-use software development project. In October 2008,
we announced the suspension of the project due to the uncertain financial
markets that led to the decision to minimize all cash expenditures.
·
G&A
Related: A $0.6 million increase primarily due to increases in medical claims,
third-party legal and tax consultation expenses and accrued bonuses, offset by
reductions in corporate overhead departments.
·
Other: A
$18.1 million increase, primarily driven by $10.6 million of financial
restatement related costs, including audit fees and accounting resource
expenses to support the restatement of historical financial results, and $8.0
million related to a write-off of Cornerstone assets net of recoveries from
vendors, off-set by reduced costs associated with expenditures in the comparable
prior period related to consulting expenses.
Other Income (Expense)
Aggregate
other expenses increased $0.7 million, or 16.4% to $4.8 million for the six
months ended June 30, 2009, compared to $4.1 million for the same period
in the prior year as follows:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
2009
|
|
As Restated
|
|
Change
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
(4,862
|
)
|
$
|
(4,212
|
)
|
$
|
(650
|
)
|
Interest
income
|
|
84
|
|
108
|
|
(24
|
)
|
Total
|
|
$
|
(4,778
|
)
|
$
|
(4,104
|
)
|
$
|
(674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense.
Interest
expense increased by $0.6 million, or 15.4%, to $4.9 million for the six months
ended June 30, 2009 from $4.2 million for the same period during the prior
year.
The
change in total interest incurred is primarily the result of a $0.5 million
acceleration of deferred financing costs as a result of an amendment to the
credit line in May 2009. The
balance of the change is due to increased interest rates. The weighted average effective annual
interest rate on total borrowings was approximately 5.2% for the six months
ended June 30, 2009 and 4.6% for the same period in the prior year. The
increased rates of interest were offset by a decrease in borrowing levels. The
average balance of interest bearing debt outstanding decreased to $186.2
million during the six months ended June 30, 2009 compared to $182.5
million for the same period in the prior year.
Provision for Income Taxes
Our
effective consolidated income tax rate on continuing operations was a benefit
of 36.4% for the six months ended June 30, 2009 compared to a benefit of
35.0% for the same period in 2008. The
lower effective rate in 2008 is the result of the Texas Franchise Tax reducing
the expected overall income tax benefit.
Income from Discontinued Operations
Income from discontinued operations of $17.7 million during
the six month period ended June 30, 2009 reflects primarily the $16.7
million gain on sale of our New Mexico utility, net of tax. The sale reflects a
$107.2 million reduction in assets, offset by a reduction in liabilities
including a $69.0 million reduction in contributions in aid of
construction. Prior year income from
discontinued operations includes results of our New Mexico utility, offset by
losses associated with a wholesale wastewater business sold late in 2008.
RECENT ACCOUNTING
PRONOUNCEMENTS
See
the discussions under the caption Recent Accounting Pronouncements contained
in Note 1 to the Condensed Consolidated Financial Statements included in Part I,
Item 1 of this report.
36
Table of Contents
LIQUIDITY AND
CAPITAL RESOURCES
Our
overall objectives with respect to liquidity and capital resources are to:
·
Generate
sufficient operating cash flows to service our debt and tax obligations, fund
capital improvements and organic growth, and pay dividends to our stockholders;
·
Utilize our
credit facility for major capital improvements and to manage seasonal cash
needs;
·
Obtain
external financing for major acquisitions; and
·
Maintain
approximately equal levels of debt and equity consistent with the
investor-owned water utility industry.
Our statements of cash flows are summarized as follows:
|
|
Six Months Ended
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
2008
|
|
|
|
(In thousands)
|
|
2009
|
|
As Restated
|
|
Change
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
3,423
|
|
$
|
(7,085
|
)
|
$
|
10,508
|
|
Investing
activities
|
|
48,255
|
|
(37,122
|
)
|
85,377
|
|
Financing
activities
|
|
(41,177
|
)
|
45,178
|
|
(86,355
|
)
|
Total
continuing operations
|
|
10,501
|
|
971
|
|
9,530
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
Total
discontinued operations
|
|
(10,033
|
)
|
(38
|
)
|
(9,995
|
)
|
Increase
(decrease) in cash and cash equivalents
|
|
$
|
468
|
|
$
|
933
|
|
$
|
(465
|
)
|
Cash Flows from Operating Activities of Continuing Operations.
Net cash
provided by operating activities was $3.4 million for the six-months ended June 30,
2009 versus cash used in operating activities of $7.1 million for the same
period last year. Operational aspects of
our businesses that affected working capital in 2009 versus 2008 are
highlighted below:
·
Net income of
$6.3 million, as compared to a net loss of $1.0 million in 2008, as restated;
·
Non-cash
operating expenses of $19.9 million, as compared to $11.2 million in 2008, as restated;
·
Income from
discontinued operations of $17.7 million, as compared to $0.7 million in 2008;
and,
·
Changes in
operating assets and liabilities decreasing cash by $5.0 million, versus $16.6
million in 2008, as restated.
Cash Flows from Investing Activities of Continuing Operations.
Cash provided
by investing activities totaled $48.3 million, representing proceeds from the
sale of businesses and related property, plant and equipment of $54.6
million. This was offset by capital
investments into property, plant and equipment of $6.3 million.
Cash Flows from Financing Activities of Continuing Operations.
Cash used in
financing activities totaled $41.2 million, primarily related to net repayments
of our long-term debt and credit facility of $40.7 million, offset by capital
improvement reimbursements of $3.4 million.
Our
credit facility was primarily used to fund our investing activities and, to a
lesser extent, to manage seasonal cash needs.
Additional borrowing availability under our revolving credit facility
was $36.3 million as of June 30, 2009.
During
the six months ended June 30, 2009, we declared quarterly cash dividends
of $0.025 per share of common stock and $0.65625 per share of Series A
preferred stock on April 9, 2009. The dividends were paid on May 5,
2009. Quarterly cash dividends in the
same amounts were paid on January 22, 2009 for dividends declared in December 2008.
37
Table of Contents
FINANCIAL
CONDITION
We
expect our existing sources of liquidity to remain sufficient to meet our
anticipated obligations. Our business is capital intensive, requiring
significant resources to fund operating expenses, construction expenditures,
and interest and dividend payments. During 2009 and in subsequent years, we may
from time to time satisfy these requirements with a combination of cash from
operations and funds from the capital markets as conditions warrant. We expect that
borrowing capacity under our revolving credit facility will continue to be
available to manage working capital during those periods.
As
of June 30, 2009, we had working capital of $29.9 million compared to
working capital of $11.0 million at December 31, 2008. The increase was
primarily due to increases in accounts receivable related to seasonably higher
revenue, along with timing of payments of vendor invoices.
We
have access to $110 million in financing under a revolving credit facility that
expires February 15, 2013. A total of nine banks participate in the
facility. As of June 30, 2009, we had $36.3 million of borrowings
available under our revolving credit facility. The impact of the prior period
restatement on our retained earnings, combined with the additional borrowings
on the facility during 2008, created a default under the debt-to-capitalization
covenant at the quarter ended March 31, 2009 and December 31, 2008.
The default was cured due to an amendment to the credit agreement dated May 28,
2009. Our credit facility was reduced
from $150 million to its current availability of $110 million as part of the
amendment. Fees charged in connection
with securing this amendment were $1.8 million, which were capitalized and will
be amortized over the remaining term of the agreement. Subsequent to the end of
the quarter, we entered into an additional amendment to our credit agreement
which waived existing and anticipated defaults, specifically related to
additional time with regards to financial filings. Our ability to comply with
financial covenants, pay principal or interest and refinance our debt
obligations will depend on our future operating performance as well as other
factors that may be beyond our control. Continued
opportunity for operating improvements, cash management and suspension of
elective capital expenditures should improve our ability to comply with the
covenants in the revolving credit facility. As of June 30, 2009, our
debt-to-capitalization ratio was 56%, the agreement requires less than 60%
debt-to-capitalization ratio.
As
part of the amended credit agreement with our primary working capital line, we
have agreed to only utilize up to an additional $12.5 million under our capital
lease facility. Our California and New
Mexico mortgage bond indentures permit the issuance of an additional $91.2
million of first mortgage bonds as of June 30, 2009. However, the terms of
our revolving credit facility do not permit additional first mortgage bond
indebtedness without prior consent from the credit facility lenders. The
mortgage bond indentures also limit the amount of cash and property dividends
our California utility paid to the parent company. Dividends have averaged $5.0
million to $5.6 million per year and are less than the aggregate cumulative
dividend restriction threshold of $21.7 million as of June 30, 2009. We
were in compliance with or obtained waivers for all loan agreement covenants
during the three-month period ended June 30, 2009.
We
have previously filed a registration statement with the Securities and Exchange
Commission, for the issuance of up to $50.0 million aggregate principal amount
of common stock, debt securities and warrants. We issued approximately $43.6
million of common stock under the shelf registration. As we were unable to
timely file our required SEC filings for the September 30, 2008, March 31,
2009 and June 30, 2009 Quarterly Reports on Form 10-Q and our 2008
Annual Report on this Form 10-K, we cannot use Registration Statements on Form S-3
for registration of our securities with the SEC at this time. Use of Form S-3
requires, among other things, that the issuer be current and timely in its
reports under the Exchange Act for at least twelve months. Accordingly, we will
have to meet more demanding requirements to register additional securities,
which may make it more difficult for us to effect public offering transactions,
and our range of available financing alternatives could be limited and will be
more costly.
In
January 2009 we reached a settlement of eminent domain proceedings against
our New Mexico utility. On May 8, 2009 we received $53.9 million in cash
at closing ($60 million settlement and $0.9 million net cash settlement of
accounts receivable, less $7.0 million retained by ABCWA in settlement of sewer
treatment fees) and incurred $0.2 million of transactional costs. We used $12.3 million of the net proceeds to
pay down NMUI bonds and related accrued interest, and we used the remaining
cash proceeds of $41.6 million to pay any unassumed liabilities of NMUI and to
pay down our revolving credit facility.
CONTRACTUAL
OBLIGATIONS
The
following table summarizes our known contractual obligations to make future
cash payments as of June 30, 2009, as well as an estimate of the periods
during which these payments are expected to be made.
38
Table of Contents
|
|
Years
Ended December 31,
|
|
|
|
|
|
Remainder
|
|
2010
|
|
2012
|
|
2014
|
|
|
|
|
|
of
|
|
and
|
|
and
|
|
and
|
|
(In thousands)
|
|
Total
|
|
2009
|
|
2011
|
|
2013
|
|
Beyond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1):
|
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit (2)
|
|
$
|
70,400
|
|
$
|
|
|
$
|
|
|
$
|
70,400
|
|
$
|
|
|
Mortgage bonds (3)
|
|
33,000
|
|
|
|
|
|
|
|
33,000
|
|
Bank term loans (4)
|
|
30,562
|
|
411
|
|
1,646
|
|
1,646
|
|
26,859
|
|
Convertible subordinated debentures (5)
|
|
11,869
|
|
|
|
|
|
|
|
11,869
|
|
Capital lease obligations (6)
|
|
3,645
|
|
580
|
|
2,147
|
|
918
|
|
|
|
Economic development revenue bonds (7)
|
|
1,810
|
|
120
|
|
260
|
|
295
|
|
1,135
|
|
Note Payable
|
|
78
|
|
78
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
151,364
|
|
1,189
|
|
4,053
|
|
73,259
|
|
72,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of advances for construction (8)
|
|
8,928
|
|
568
|
|
1,366
|
|
827
|
|
6,167
|
|
Water
purchase commitment (9)
|
|
6,953
|
|
230
|
|
920
|
|
920
|
|
4,883
|
|
Operating
lease obligations
|
|
21,232
|
|
2,568
|
|
6,985
|
|
3,703
|
|
7,976
|
|
Total
obligations as of June 30, 2009 (10)
|
|
$
|
188,477
|
|
$
|
4,555
|
|
$
|
13,324
|
|
$
|
78,709
|
|
$
|
91,889
|
|
(1)
Excludes interest payments, which
are described in the following notes. The terms of the long-term debt are more
fully described in the notes to the condensed consolidated financial statements
included in this report and in our 2008 Annual Report on Form 10-K.
(2)
The bank lines of credit bear
interest at variable rates and therefore the amount of future interest payments
are uncertain. Borrowings bear interest, at our option, based on a margin over
either: a) the LIBOR rate; or b) the prime rate. The margins vary based on our
consolidated debt to equity ratio. The weighted-average annual interest rate on
our bank line of credit borrowings was 4.41% as of June 30, 2009,
excluding amendment and waiver fees.
(3)
$12.0 million has been included as a
payment in 2009 related to the 2009 NMUI settlement and the resulting repayment
of the NMUI mortgage bonds.
(4)
Interest on the bank term loans is fixed at a weighted-average
annual interest rate of 6.52% and is payable semiannually.
(5)
Interest on the convertible
debentures is fixed at a 6.85% annual rate and is payable quarterly. The
debentures are convertible, at the option of the holder, into shares of our
common stock at any time prior to their maturity.
(6)
Interest on the capital lease
obligations is imputed at a weighted-average annual interest rate of 5.31% and
is payable monthly.
(7)
Interest on the economic development
bonds is fixed at a weighted-average annual interest rate of 6.00% and is
payable semiannually.
(8)
Advances for construction are
non-interest bearing. Our repayment
assumptions on certain obligations are based upon forecasted connection
growth. If forecasted connections do not
materialize, the related payments are not due and corresponding amounts become
contributed capital.
(9)
Reflects the minimum annual
contractual commitment to purchase water through 2024. The amount is subject to
increases in future periods for production costs increases and may also
increase, but not decrease, if average actual usage exceeds a specified amount.
(10)
Excludes preferred stock dividend
obligations. Preferred stockholders are entitled to receive annual dividends of
$2.625 per share and there are 9,156 shares of preferred stock currently
outstanding. The preferred stock is redeemable by the Company at any time for
$52.00 per share and, from time to time, we have elected to repurchase shares
offered to us by preferred stockholders at prices less than $52.00 per share.
CERTAIN
CONTRACTUAL COMMITMENTS AND INDEMNITIES
As
of June 30, 2009, we had irrevocable standby letters of credit in the
amount of $3.3 million issued and outstanding under our credit facility.
During
our normal course of business, we have entered into agreements containing
indemnities pursuant to which we may be required to make payments in the
future. These indemnities are in connection with facility leases and
liabilities and operations and maintenance contracts entered into by our contract
services businesses. The duration of these indemnities, commitments and
guarantees varies, and in certain cases, is indefinite. Substantially all of
these indemnities provide no limitation on the maximum potential future
payments we could be obligated to make and is not quantifiable. We have not
recorded any liability for these indemnities.
39
Table of Contents
OFF-BALANCE
SHEET ARRANGEMENTS
Through
the date of this report, we did not have any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes. In addition, we do not engage
in trading activities involving non-exchange traded contracts. We are not
materially exposed to any financing, liquidity, market or credit risk that
could arise if we had engaged in these relationships. We do not have
relationships or transactions with persons or entities that derive benefits
from their non-independent relationship with our subsidiaries or us.
We
lease some of our equipment and office facilities under operating leases which
are deemed to be off-balance sheet arrangements. Our future operating lease
payment obligations are more fully described under the caption Contractual
Obligations above.
40
Table of Contents
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As
of June 30, 2009, we had $152.0 million of long-term variable and
fixed-rate debt. We are exposed to
market risk based on changes in prevailing interest rates.
Market
risk related to our variable-rate debt is estimated as the potential decrease
in pre-tax earnings resulting from an increase in interest rates. We have $70.4
million of long-term debt that bears interest at variable rates based on either
the prime rate or LIBOR rate. Our variable-rate debt had a weighted average
annual interest rate of 4.41% as of June 30, 2009. A hypothetical one percent
(100 basis points) increase in the average annual interest rates charged on our
variable-rate debt would reduce our pre-tax earnings by approximately $0.7
million per year.
Our
fixed-rate debt, which has a carrying value of $81.6 million, has a fair value
of $73.0 million as of June 30, 2009. Market risk related to our
fixed-rate debt is deemed to be the potential increase in fair value resulting
from a decrease in prevailing interest rates. Our fixed-rate debt had a
weighted average annual interest rate of 6.5% as of June 30, 2009. A
hypothetical ten percent decrease in annual interest rates, from 6.5% to 5.9%,
would increase the fair value of our fixed-rate debt by approximately $4.9
million.
We
do not use derivative financial instruments to manage or reduce these risks
although we may do so in the future. We do not enter into derivatives or other
financial instruments for trading or speculative purposes.
ITEM 4.
CONTROLS
AND PROCEDURES
This
Report includes the certifications attached as Exhibits 31.1 and 31.2 of
our Chief Executive Officer (CEO) and Chief Financial Officer (CFO)
required by Rule 13a-14 of the Exchange Act. This Item 4 includes
information concerning the controls and control evaluations referred to in
those certifications.
As
discussed in the Explanatory Note at the beginning of this report, we have
restated our previously filed financial statements. In this Form 10-Q, we are restating our
condensed consolidated statement of operations and statement of cash flows for
the three- and six-month periods ended June 30, 2008.
Details
of the restatement and its underlying circumstances are discussed in the
Explanatory Note at the beginning of this report and in Note 2 of Notes to
the Condensed Consolidated Financial Statements in Part I, Item 1 of
this report.
41
Table of Contents
DISCLOSURE
CONTROLS AND PROCEDURES
Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) are designed to provide reasonable assurance that information
required to be disclosed in reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC and that such information is accumulated
and communicated to our management, including the CEO and CFO, as appropriate
to allow timely decisions regarding required disclosures.
Our
management, under the supervision and with the participation of our CEO and
CFO, evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2009. Based on our evaluation and
the identification of the material weaknesses in internal control over
financial reporting described below, our CEO and CFO concluded that, as of June 30,
2009, our disclosure controls and procedures were not effective.
In
connection with our assessment of our disclosure controls and procedures, we
have identified the following deficiencies that constituted individually, or in
the aggregate, material weaknesses in our internal control over financial
reporting as of June 30, 2009:
1.
We did not maintain an effective
control environment because of the following material weaknesses:
·
We did not maintain
an environment that consistently emphasized strict adherence to generally
accepted accounting principles. This control deficiency, in certain instances,
led to inappropriate accounting decisions and entries. This control deficiency
was magnified by the decentralized nature of the accounting function that
existed at our various operating locations.
·
We did not maintain
in certain areas of our internal audit, finance and accounting departments, a
sufficient complement of resources with an appropriate level of accounting
knowledge, experience and training commensurate with our financial reporting
requirements. These areas include
period-end financial reporting process, acquisition accounting, goodwill,
regulatory accounting, stock-based compensation, property, plant and equipment,
estimates and accruals.
·
We did not maintain
complete and accurate business documentation to support certain transactions
and accounting records. The controls in these areas with respect to the
creation, maintenance and retention of complete and accurate business records
were not effective. This control
deficiency was magnified by the number of legacy financial systems and the
decentralized nature of the accounting function that existed at our various
operating locations.
2.
We did not maintain effective
monitoring of controls over areas including period end financial reporting
process, acquisition accounting, goodwill, regulatory accounting, stock-based
compensation, property, plant and equipment, estimates and accruals. This deficiency resulted in either not having
adequate controls designed and in place or not achieving the intended operating
effectiveness of controls.
3.
We did not maintain effective
controls over risk assessments.
Specifically, we did not maintain processes to perform and evaluate the
annual business and fraud risks affecting financial reporting processes. This deficiency resulted in either not having
adequate controls designed and in place or not achieving the intended operating
effectiveness of controls.
The
material weaknesses in control environment, monitoring of controls and risk
assessment described above contributed to the material weaknesses set forth
below.
4.
We did not maintain and communicate
sufficient and consistent accounting policies with respect to generally accepted
accounting principles. This control deficiency, among other things, limited our
ability to detect and correct accounting errors in previously issued financial
statements.
5.
We did not maintain effective
controls over the recording of journal entries, both recurring and
non-recurring. Specifically, effective
controls were not designed and in place to ensure that journal entries were
properly prepared with sufficient supporting documentation or were reviewed and
approved to ensure the accuracy and completeness of the journal entries.
6.
We did not maintain effective
controls over the completeness and accuracy of key spreadsheets and
system-generated reports. Specifically,
effective controls were not designed and in place to ensure that key spreadsheets
and system-generated reports were properly reviewed for accuracy and
completeness.
42
Table of Contents
7.
We did not maintain effective
controls over the application of generally accepted accounting principles
commensurate with financial reporting requirements. This deficiency led to, in certain instances,
inappropriate accounting decisions and entries related to the income tax
provision, termination benefits, recognition of revenue, bonus accrual, asset
retirement obligations, and various cost and expense accounts.
8.
We did not
maintain effective controls over the completeness and accuracy of our
accounting for acquisitions.
Specifically, we did not design and maintain effective controls with
respect to the application of relevant GAAP and the deficiency resulted in
errors in the allocation of the purchase price to the underlying assets
acquired, including goodwill and the liabilities assumed. This deficiency affected property, plant and
equipment, deferred income tax and liabilities, goodwill and long-term
liability accounts.
9.
We did not
maintain effective controls over the completeness, accuracy and valuation of
our accounting estimates related to our claims process associated with medical,
automobile and workers compensation self-insurance. Specifically, we did not design and maintain
effective controls with respect to the maintenance and reconciliation of claims
and the review of actuarial valuations.
This deficiency affected accrued liabilities and expense accounts.
10.
We did not maintain effective controls over the
completeness and accuracy of our accounting for the impairment of
goodwill. Specifically, we did not
design and maintain effective controls to ensure proper identification of
reporting units, triggering events and proper cash flow projections to
determine fair value. This deficiency
affected goodwill related accounts.
11.
We did not maintain effective controls over the
completeness and accuracy of our accounting for regulated entities. Specifically, we did not design and maintain
effective controls with respect to the application of relevant GAAP and the
deficiency resulted in errors in the accounting for intercompany profit,
regulatory assets and liabilities. This
deficiency affected revenue, property, plant and equipment, and regulatory
asset and regulatory liability accounts.
12.
We did not maintain effective controls over the
accuracy and valuation of stock-based compensation. Specifically, we did not maintain effective
controls over the assumptions used in the calculation of stock-based
compensation. This deficiency affected
stock-based compensation related accounts.
13.
We did not maintain effective controls over the
completeness and accuracy of property, plant and equipment and related
depreciation expense. Specifically, we
did not design and maintain effective controls to ensure that there was timely
transfer of property, plant and equipment additions from construction work in
progress; that retirements were properly recorded; that depreciation expense
was accurately recorded based on appropriate useful lives assigned to the
related property, plant and equipment; that assets are capitalized properly;
and that impairment losses were timely identified and determined. This deficiency affected property, plant and
equipment, depreciation expense and operating expense accounts.
14.
We did not
maintain effective controls over the completeness and accuracy of unbilled
utilities revenue. Specifically, we did
not maintain effective controls to standardize a process and methodology of
calculating and recording unbilled revenue in the proper period. This deficiency affected utility revenue and
unbilled receivable accounts.
15.
We did not
maintain effective controls to ensure the completeness of the recording of
accounts payable and accrued liabilities, operating expenses and property,
plant and equipment additions on a timely basis. Specifically, we did not review and approve
invoices and their supporting documentation on a timely basis. Material outstanding liabilities were not
recorded for which goods were received or services were rendered by vendors
prior to the balance sheet date.
Consequently, our accounts payable and accrued liability balances were
understated at the period end by the aggregate value of these unpaid invoices
which relate to construction work in progress and other selling and
administrative expenses.
We
believe that because of the substantial work performed restating our historical
accounting records, the performance of additional procedures by management
designed to ensure the reliability of our financial reporting and the ongoing
efforts to remediate the material weaknesses in internal control over financial
reporting described below, the condensed consolidated financial statements for
the periods covered by and included in this report are fairly stated in all
material respects.
CHANGES IN
INTERNAL CONTROL OVER FINANCIAL REPORTING
There
was no change in our controls during the three months ended June 30, 2009
that has materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
43
Table of Contents
PLANS FOR
REMEDIATION OF MATERIAL WEAKNESSES
We
have engaged in and are continuing to engage in substantial efforts to improve
our internal control over financial reporting and disclosure controls and
procedures related to the preparation of our financial statements and
disclosures. We have begun the implementation of some of the measures described
below and concentrated our efforts on (i) communicating, both internally
and externally, our commitment to a strong effective control environment, high
ethical standards and financial reporting integrity, (ii) certain
personnel actions, (iii) comprehensive training for Finance and Accounting
Department personnel, (iv) the implementation of policies and procedures
to ensure that we retain important business and accounting records and (v) more
rigorous period end reporting policies and processes involving journal entry
approval, account reconciliations and supporting documentation including
manually prepared spreadsheets.
Subsequent
to June 30, 2009, we have implemented a remediation plan (the Plan) to
address the material weaknesses for each of the affected areas presented above.
The Plan builds upon many of the initiatives we started over the past two
years, such as development of a centralized financial services platform and
consolidation of financial accounts onto a common system. The Plan will ensure that each area affected
by a material control weakness is put through a comprehensive remediation
process. The remediation process entails
a thorough analysis which includes the following phases:
a)
Define and assess the deficiency:
ensure a thorough understanding of the as is state, process owners, and gaps in
the deficiency. This work is underway for all identified areas.
b)
Design and evaluate a remediation
action for each weakness for each affected area: validate or improve the
related policy and procedures, evaluate skills of the process owners with regards
to the policy and adjust as required. The Plan will require an assessment of
all failures; we expect that many of the recent improvements will provide an
excellent starting point for the specific action plans.
c)
Implement specific remediation
actions: train process owners, allow time for process adoption and adequate
transaction volume for next steps.
d)
Test and measure the design and
effectiveness of the remediation plan: internal audit to test and provide
feedback on the design and operating effectiveness of the control.
e)
Management review and acceptance of
completion of the remediation effort.
The
Plan will be administered by a Controls Committee comprised of key leaders from
cross functional portions of the organization, including the CFO. The Director
of Internal Control will chair the Committee. Each specific area of action
within the Plan will be assigned a project leader to coordinate the resources
required for timely completion of the remediation process. The Committee will
report quarterly and as needed to the Audit Committee of our Board of Directors
on progress made.
We
believe the steps taken to date have improved the effectiveness of our internal
control over financial reporting, however we have not completed the corrective
processes and procedures identified herein, that we believe necessary.
Accordingly, as we continue to monitor the effectiveness of our internal
control over financial reporting in the areas affected by the material
weaknesses described above, we will perform additional procedures prescribed by
management including the use of manual mitigating control procedures and the
utilization of external technical advisors to ensure that our financial
statements continue to be fairly stated in all material respects.
Subsequent
to June 30, 2009, we have engaged in and are continuing to engage in
substantial efforts to improve our internal control over financial reporting
and disclosure controls and procedures related to the preparation of our
financial statements and disclosures. We have begun the implementation of some
of the measures described above including the establishment of the Controls
Committee. The Controls Committee has concentrated their efforts on (i) communicating,
both internally and externally, our commitment to a strong effective control
environment, emphasizing accountability and a strict adherence to generally
accepted accounting principles and financial reporting integrity, (ii) taking
certain personnel actions, (iii) clarification and documentation of key
accounting policies and processes, (iv) comprehensive training for Finance
and Accounting Department personnel, (v) the implementation of policies
and procedures to ensure that we retain important business and accounting
records, and (vi) more rigorous period end reporting policies and
processes involving journal entry approval, account reconciliations and
supporting documentation including manually prepared spreadsheets. This work will continue during the remainder
of 2009 and thereafter.
44
Table of Contents
INHERENT
LIMITATIONS OF DISCLOSURE CONTROLS AND PROCEDURES
We
do not expect that our disclosure controls and procedures will prevent or
detect all errors. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control systems
objectives will be met. Further, the design of a control system must
acknowledge the fact that there are resource constraints and the benefits of
controls must be considered relative to their costs. These inherent limitations
include the realities that judgments in decision making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the deliberate acts of one or more persons. The design of any
system of controls is based, in part, upon certain assumptions about the
likelihood of future events and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with associated policies or
procedures. Because of the inherent limitations in a cost-effective control
system, misstatements due to error may occur and not be detected.
45
Table of Contents
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There
have been no new, material developments to or terminations of legal
proceedings, other than ordinary routine litigation incidental to the business,
to which the Company or any of its subsidiaries is a party or of which any of
their property is the subject during the period covered by this Quarterly
Report, except for the settlement of eminent domain proceedings against our New
Mexico utility, more fully described in Note 6 to our Condensed Consolidated
Financial Statements, Legal Proceedings.
ITEM 1A. RISK FACTORS
There
have been no material changes in our risk factors since we last reported under Part I,
Item 1A, in our Annual Report on Form 10-K for the year ended December 31,
2008.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN
OMITTED.
ITEM 6. EXHIBITS
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
|
3.1
|
|
Restated Certificate of
Incorporation of SouthWest Water Company dated May 24, 2005
(incorporated by reference to Exhibit 3.1 included in the Companys
Form 10-Q for the quarterly period ended June 30, 2005)
|
|
|
|
3.1.1
|
|
Certificate of Amendment to
Restated Certificate of Incorporation of SouthWest Water Company
(incorporated by reference to Exhibit 3.1 included in the Companys
Form 8 K filed with the Commission on May 22, 2008)
|
|
|
|
3.2
|
*
|
Amended and Restated Bylaws of
SouthWest Water Company
|
|
|
|
10.17.2
|
|
Amendment No. 2 to Amended and
Restated Credit Agreement dated as of May 28, 2009 (incorporated by
reference to Exhibit 10.17.2 included in the Companys Form 10-K
filed with the Commission on July 9, 2009)
|
|
|
|
10.17.3
|
|
Amendment No. 3 to Amended and
Restated Credit Agreement dated as of June 17, 2009 (incorporated by
reference to Exhibit 10.17.3 included in the Companys Form 10-K
filed with the Commission on July 9, 2009)
|
|
|
|
10.17.4
|
|
Amendment No. 4 to Amended and
Restated Credit Agreement dated as of July 9, 2009 (incorporated by
reference to Exhibit 10.17.4 included in the Companys Form 10-K
filed with the Commission on July 9, 2009)
|
|
|
|
10.17.5
|
|
Amendment No. 5 to Amended and
Restated Credit Agreement dated as of July 31, 2009 (incorporated by
reference to Exhibit 10.17.5 included in the Companys Form 10-Q
filed with the Commission on August 3, 2009)
|
|
|
|
31.1
|
*
|
Certification of Principal
Executive Officer Pursuant to Section 302 of the Sarbanes Oxley Act of
2002
|
|
|
|
31.2
|
*
|
Certification of Principal
Financial Officer Pursuant to Section 302 of the Sarbanes Oxley Act of
2002
|
|
|
|
32.1
|
*
|
Certification of Chief Executive
Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
|
|
|
|
32.2
|
*
|
Certification of Chief Financial
Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
|
* Filed
herewith
46
Table of Contents
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.
|
SOUTHWEST WATER COMPANY (REGISTRANT
)
|
|
|
|
|
|
|
Dated: September 18, 2009
|
/s/ DAVID STANTON
|
|
|
David Stanton
|
|
|
Chief Financial Officer
|
|
47
Southwest Water (NASDAQ:SWWC)
과거 데이터 주식 차트
부터 6월(6) 2024 으로 7월(7) 2024
Southwest Water (NASDAQ:SWWC)
과거 데이터 주식 차트
부터 7월(7) 2023 으로 7월(7) 2024