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
September 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
x
No
o
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 October 31, 2009
|
|
|
|
|
|
|
|
Common
Stock, $.01 par value per share
|
|
24,875,369
shares
|
|
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST WATER COMPANY
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
(In
thousands)
|
|
|
September 30,
2009
|
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
$
|
1,593
|
|
|
|
$
|
1,112
|
|
|
|
Accounts
receivable, net
|
|
|
33,990
|
|
|
|
29,697
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
25,387
|
|
|
|
26,902
|
|
|
|
Total
current assets
|
|
|
60,970
|
|
|
|
57,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment, net
|
|
|
315,440
|
|
|
|
429,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
16,475
|
|
|
|
17,652
|
|
|
|
Intangible
assets
|
|
|
1,260
|
|
|
|
1,666
|
|
|
|
Other
assets
|
|
|
21,919
|
|
|
|
20,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$
|
416,064
|
|
|
|
$
|
527,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
$
|
15,025
|
|
|
|
$
|
16,139
|
|
|
|
Current
portion of long-term debt
|
|
|
2,176
|
|
|
|
2,213
|
|
|
|
Other
current liabilities
|
|
|
18,547
|
|
|
|
28,370
|
|
|
|
Total
current liabilities
|
|
|
35,748
|
|
|
|
46,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Liabilities and Deferred Credits:
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
153,472
|
|
|
|
190,578
|
|
|
|
Deferred
income taxes
|
|
|
27,099
|
|
|
|
23,750
|
|
|
|
Advances
for construction
|
|
|
8,882
|
|
|
|
8,910
|
|
|
|
Contributions
in aid of construction
|
|
|
44,741
|
|
|
|
117,113
|
|
|
|
Other
liabilities and deferred credits
|
|
|
27,552
|
|
|
|
26,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
458
|
|
|
|
458
|
|
|
|
Common
stock
|
|
|
249
|
|
|
|
249
|
|
|
|
Additional
paid-in capital
|
|
|
148,053
|
|
|
|
147,775
|
|
|
|
Accumulated
deficit
|
|
|
(30,285
|
)
|
|
|
(34,794
|
)
|
|
|
Accumulated
other comprehensive income
|
|
|
95
|
|
|
|
112
|
|
|
|
Total
stockholders equity
|
|
|
118,570
|
|
|
|
113,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders equity
|
|
|
$
|
416,064
|
|
|
|
$
|
527,207
|
|
|
See accompanying notes to
condensed consolidated financial statements
2
Table of Contents
SOUTHWEST
WATER COMPANY
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
September 30,
|
|
(In thousands, except per share
data)
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
$
|
58,984
|
|
|
|
$
|
57,482
|
|
|
|
$
|
161,492
|
|
|
|
$
|
159,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
53,521
|
|
|
|
52,637
|
|
|
|
153,479
|
|
|
|
144,577
|
|
Depreciation
and amortization
|
|
|
3,842
|
|
|
|
3,416
|
|
|
|
11,532
|
|
|
|
10,426
|
|
Impairment
of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
8,115
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
57,363
|
|
|
|
56,053
|
|
|
|
173,126
|
|
|
|
156,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
1,621
|
|
|
|
1,429
|
|
|
|
(11,634
|
)
|
|
|
2,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2,402
|
)
|
|
|
(2,151
|
)
|
|
|
(7,265
|
)
|
|
|
(6,364
|
)
|
Interest
income
|
|
|
45
|
|
|
|
349
|
|
|
|
129
|
|
|
|
459
|
|
Loss
from continuing operations before income taxes
|
|
|
(736
|
)
|
|
|
(373
|
)
|
|
|
(18,770
|
)
|
|
|
(2,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
from income taxes
|
|
|
(237
|
)
|
|
|
(130
|
)
|
|
|
(6,803
|
)
|
|
|
(1,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(499
|
)
|
|
|
(243
|
)
|
|
|
(11,967
|
)
|
|
|
(1,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
(733
|
)
|
|
|
17,731
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(499
|
)
|
|
|
(976
|
)
|
|
|
5,764
|
|
|
|
(1,969
|
)
|
Preferred
stock dividends
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common stockholders
|
|
|
$
|
(505
|
)
|
|
|
$
|
(982
|
)
|
|
|
$
|
5,752
|
|
|
|
$
|
(1,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
$
|
(0.02
|
)
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
(0.49
|
)
|
|
|
$
|
(0.08
|
)
|
Income
(loss) from discontinued operations
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
0.72
|
|
|
|
(0.00
|
)
|
Net
income (loss) applicable to common stockholders
|
|
|
$
|
(0.02
|
)
|
|
|
$
|
(0.04
|
)
|
|
|
$
|
0.23
|
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
24,608
|
|
|
|
24,607
|
|
|
|
24,605
|
|
|
|
24,498
|
|
Diluted
|
|
|
24,608
|
|
|
|
24,607
|
|
|
|
24,605
|
|
|
|
24,498
|
|
See accompanying notes to
condensed consolidated financial statements.
3
Table of Contents
SOUTHWEST
WATER COMPANY
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,764
|
|
|
|
|
|
|
|
5,764
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of actuarial gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock repurchases and retirement
|
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-vest cancellations of
non-qualified stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(271
|
)
|
|
|
|
|
|
|
|
|
|
|
(271
|
)
|
Share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
567
|
|
|
|
|
|
|
|
|
|
|
|
567
|
|
Cash
dividends declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock$1.3125 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
(12
|
)
|
Common
stock$0.05 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,243
|
)
|
|
|
|
|
|
|
(1,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2009
|
|
|
|
9
|
|
|
|
$
|
458
|
|
|
|
24,876
|
|
|
|
$
|
249
|
|
|
|
$
|
148,053
|
|
|
|
$
|
(30,285
|
)
|
|
|
$
|
95
|
|
|
|
$
|
118,570
|
|
See accompanying notes to
condensed consolidated financial statements.
4
Table of Contents
SOUTHWEST
WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(In thousands)
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
|
$
|
5,764
|
|
|
|
$
|
(1,969
|
)
|
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Loss
(income) from discontinued operations, net of tax
|
|
|
|
(17,731
|
)
|
|
|
89
|
|
|
Depreciation
and amortization
|
|
|
|
11,532
|
|
|
|
10,426
|
|
|
Deferred
income taxes
|
|
|
|
2,592
|
|
|
|
719
|
|
|
Provision
for doubtful accounts
|
|
|
|
1,518
|
|
|
|
1,529
|
|
|
Share-based
compensation expense
|
|
|
|
567
|
|
|
|
762
|
|
|
Post-vest
cancellations of non-qualified stock options
|
|
|
|
(271
|
)
|
|
|
|
|
|
Impairment
of long-lived assets
|
|
|
|
8,115
|
|
|
|
1,075
|
|
|
Gain
on sale of businesses and assets
|
|
|
|
39
|
|
|
|
|
|
|
Amortization
of deferred financing costs
|
|
|
|
654
|
|
|
|
|
|
|
Other,
net
|
|
|
|
(28
|
)
|
|
|
459
|
|
|
Changes
in assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
|
(6,943
|
)
|
|
|
(5,867
|
)
|
|
Other
current assets
|
|
|
|
2,090
|
|
|
|
877
|
|
|
Other
assets
|
|
|
|
(278
|
)
|
|
|
(2,540
|
)
|
|
Accounts
payable
|
|
|
|
(231
|
)
|
|
|
(4,687
|
)
|
|
Other
current liabilities
|
|
|
|
(491
|
)
|
|
|
(361
|
)
|
|
Other
liabilities
|
|
|
|
454
|
|
|
|
(202
|
)
|
|
Other,
net
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
|
7,352
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Additions
to property, plant and equipment
|
|
|
|
(12,343
|
)
|
|
|
(25,140
|
)
|
|
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
|
|
|
|
42,218
|
|
|
|
(48,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities of continuing operations:
|
|
|
|
|
|
|
|
|
|
|
Borrowings
under lines of credit
|
|
|
|
33,000
|
|
|
|
147,000
|
|
|
Repayments
under lines of credit
|
|
|
|
(56,500
|
)
|
|
|
(98,000
|
)
|
|
Capital
improvement reimbursements
|
|
|
|
3,233
|
|
|
|
2,158
|
|
|
Proceeds
from share-based equity incentive plans and stock
|
|
|
|
|
|
|
|
|
|
|
purchase
plans
|
|
|
|
|
|
|
|
2,788
|
|
|
Restricted
stock repurchases
|
|
|
|
(18
|
)
|
|
|
|
|
|
Dividends
paid
|
|
|
|
(1,884
|
)
|
|
|
(4,438
|
)
|
|
Payments
on long-term debt
|
|
|
|
(13,699
|
)
|
|
|
(1,574
|
)
|
|
Repayment
of advances for construction
|
|
|
|
(499
|
)
|
|
|
(599
|
)
|
|
Deferred
financing costs
|
|
|
|
(2,745
|
)
|
|
|
(537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
|
(39,112
|
)
|
|
|
46,798
|
|
|
Cash
flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
(8,710
|
)
|
|
|
2,239
|
|
|
Investing
activities
|
|
|
|
(291
|
)
|
|
|
(746
|
)
|
|
Financing
activities
|
|
|
|
(976
|
)
|
|
|
26
|
|
|
Net
cash provided by (used in) discontinued operations
|
|
|
|
(9,977
|
)
|
|
|
1,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
|
481
|
|
|
|
303
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
|
1,112
|
|
|
|
2,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
|
|
$
|
1,593
|
|
|
|
$
|
3,253
|
|
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
Note 1. Summary
of Significant Accounting Policies
Basis of Presentation
These condensed consolidated interim
financial statements of SouthWest Water Company are unaudited. We believe 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.
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 our 2008 Annual Report on Form 10-K.
Our 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.
Accounting
Adjustments Impacting Other Periods
We recorded a net after tax benefit of $0.3 million in the
three-month period ended September 30, 2009 related to prior periods. These
adjustments relate primarily to a water revenue adjustment mechanism (WRAM)
implemented in October 2008 at our California utility. The WRAM adjusts revenue
generated by conservation oriented rates to equivalent revenue that would have
been generated by non-conservation oriented rates, or uniform rates. Management
has determined that the effect of recording these adjustments are not material
to either the results of operations of the current period or the previously
reported periods.
We recorded a net after tax charge of $0.4
million in the nine-month period ended September 30, 2009 related to prior
periods. Management has determined that the effect of recognizing these
adjustments during 2009 is not material to our results of operations for the
nine-month period ended September 30, 2009 or for any prior period.
Recent
Accounting Pronouncements
We only discuss recent accounting
pronouncements that will or are expected to have a significant effect on our
financial statements or disclosures currently or in the near term.
Subsequent Events
In
May 2009, new authoritative guidance was issued on subsequent events that
establishes general accounting and disclosure standards for events that occur
after the balance sheet date, but before financial statements are issued. This
guidance sets forth the period after the balance sheet date during which
management should evaluate events or transactions that may occur for potential
recognition in the financial statements, identifies the circumstances under
which an entity should recognize these events or transactions in its financial
statements, and the disclosures that should be made about these events or
transactions. We adopted this guidance for the quarter ended June 30,
2009, as required. For this reporting period, we
evaluated the existence of subsequent events through November 9,
2009. Significant subsequent events or transactions requiring disclosure only
in the financial statements are disclosed in Note 10.
Fair
Value Measurements
We apply the current authoritative
guidance for fair value measurement which defines fair value and provides
guidance for measuring fair value and expands disclosures about these
measurements. It does not require any new fair value measurements, but rather
applies to all other accounting pronouncements that require or permit fair
value measurements.
6
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
In accordance with authoritative
guidance issued in February 2008, we apply the fair value provisions to
nonfinancial assets and nonfinancial liabilities that are recognized at fair
value in the financial statement disclosures on a nonrecurring basis in the
current fiscal year beginning January 1, 2009. We had no nonrecurring
measurements recognized at fair value during the quarter ended September 30,
2009. We generally apply fair value techniques on a nonrecurring basis
associated with (1) valuing potential impairment loss related to goodwill
and indefinite-lived intangible assets, and (2) valuing potential
impairment losses related to long-lived assets.
The guidance 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 and 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 our cash
equivalents are based on quoted prices in active markets for identical assets
(Level 1).
Recent guidance adopted beginning in
the quarter ended June 30, 2009, requires additional disclosure of certain
fair value information as follows:
As of September 30, 2009 and December 31,
2008, our revolving credit facility and long-term debt with aggregate book
values of $155.6 million and $192.8 million had fair values of approximately
$145.0 million and $196.4 million, respectively. We believe 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. We 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 we 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 values.
Note 2. Acquisition
On
January 31, 2008, we 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 we borrowed under
our revolving credit facility. 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.
The
accompanying 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
not presented for the nine-month period ended September 30, 2008 as if the
acquisition had occurred as of the beginning of the period presented, as the
results are not significantly different than those presented.
Note 3. Assets
Held for Sale, Dispositions and Impairments
Texas Wholesale Water and
Wastewater
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 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 wholesale water component is
reflected in consolidated continuing operations in all periods presented. The results of operations and cash flows for
the wastewater operations are reflected as discontinued operations for the
three- and nine-month periods ended September 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 5, Legal Proceedings, as part of a settlement of
eminent domain proceedings against our New Mexico utility, New Mexico Utilities
Inc. (NMUI), we completed the sale of NMUI on May 8, 2009. We
7
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
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 previously disputed sewer
treatment fees). The sale reflects a
$107.2 million reduction in assets, offset by a reduction in liabilities of
$79.5 million which include $69.0 million of contributions in aid of
construction. The results of operations and cash flows for NMUI are reflected
as discontinued operations for all periods presented.
Discontinued Operations
The
following table summarizes the results of operations of the Texas wastewater
and NMUI operations included in the condensed consolidated statement of
operations as discontinued operations:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
(In thousands)
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
$
|
|
|
|
$
|
3,094
|
|
|
$
|
4,729
|
|
|
$
|
8,334
|
|
|
Expenses
|
|
|
|
|
|
(4,057
|
)
|
|
(2,895
|
)
|
|
(7,835
|
)
|
|
Impairment
of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
(95
|
)
|
|
Interest
expense
|
|
|
|
|
|
(189
|
)
|
|
(270
|
)
|
|
(569
|
)
|
|
Income
(loss) before taxes
|
|
|
|
|
|
(1,152
|
)
|
|
1,564
|
|
|
(165
|
)
|
|
Income
tax provision (benefit)
|
|
|
|
|
|
(419
|
)
|
|
561
|
|
|
(76
|
)
|
|
Income
(loss) before gain on sale of discontinued operations
|
|
|
|
|
|
(733
|
)
|
|
1,003
|
|
|
(89
|
)
|
|
Gain
on sale of discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of $9,361 of tax
|
|
|
|
|
|
|
|
|
16,728
|
|
|
|
|
|
Income
(loss) from discontinued operations, net of tax
|
|
|
$
|
|
|
|
$
|
(733
|
)
|
|
$
|
17,731
|
|
|
$
|
(89
|
)
|
|
Interest
expense reflects interest on debt relating to these operations, and costs and
expenses exclude the allocation of general corporate overhead.
Southwest Environmental
Laboratories, Inc.
In April 2009, we agreed to
sell certain assets of our Southwest Environmental Laboratories, Inc., a
part of the Texas MUD Services segment, for $0.5 million cash and up to an
additional $0.75 million, consisting of 25% of the buyers quarterly sales
subsequent to the closing. Subsequent to the sale, $0.4 million has been paid,
leaving a remaining balance of $0.35 million. We also sold the remaining real
property for $0.7 million. The sold operations were not considered a
discontinued operation in the accompanying consolidated financial statements
due to the on-going business relationship.
Cornerstone Internal-use Software
Development Project
In May 2009, we terminated our
previously suspended software development project; as a result, an impairment
charge of $8.0 million was recorded, net of recoveries from vendors.
8
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ( UNAUDITED )
Note 4. Long-Term Debt
Long-term debt consists of the
following as of September 30, 2009 and December 31, 2008:
|
|
September 30,
|
|
December 31,
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
$
|
74,500
|
|
$
|
98,000
|
|
|
|
|
|
|
|
6.85% convertible subordinated debentures due 2021
|
|
11,859
|
|
11,962
|
|
|
|
|
|
|
|
Capital leases
|
|
3,423
|
|
4,332
|
|
|
|
|
|
|
|
Term Loans:
|
|
|
|
|
|
Monarch Utilities, Inc.:
|
|
|
|
|
|
7.37% fixed rate term loan due 2022
|
|
9,689
|
|
10,267
|
|
5.77% fixed rate term loan due 2021
|
|
667
|
|
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
|
|
155,026
|
|
192,155
|
|
Unamortized
Monarch term loan fair value adjustments
|
|
622
|
|
636
|
|
Total
long-term debt
|
|
155,648
|
|
192,791
|
|
Less
current portion of long-term debt
|
|
(2,176
|
)
|
(2,213
|
)
|
Long-term debt, less current portion
|
|
$
|
153,472
|
|
$
|
190,578
|
|
Monarch
utilities and Suburban Water Systems utility plants secure the above Term Loans
and First Mortgage Bonds, respectively. Our remaining assets have been pledged
as collateral under our revolving credit facility agreement, as amended.
In
February 2008, we replaced our 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 initially 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.
We
pay commitment fees under the facility and must maintain customary financial
ratios, prescribed cash flow results and meet other restrictive covenants. We
were not in compliance with certain covenants due to our failure to timely file
our September 30, 2008, March 31, 2009 and June 30, 2009
Quarterly Reports on Form 10-Q and 2008 Annual Report on Form 10-K. In addition, we were in violation of our
debt-to-capitalization ratio at December 31, 2008 and at March 31,
2009. However, we received amendments
from the Bank Group which waived existing and anticipated defaults, primarily
granting additional time to complete our financial filings and waiving the
debt-to-capitalization ratio for the periods of non-compliance. The May 28,
2009 amendment also reduced the credit amount available under the line to
$110.0 million, secured the facility with certain assets of the Company, and
significantly increased our borrowing margins. Fees and expenses charged by the
Bank Group for all the amendments were $3.0 million, of which $2.7 million were
charged during the nine months ended September 30, 2009. These fees were
capitalized and are being amortized over the remaining life of the facility
which extends through February 2013.
Borrowings
under the credit facility bear interest, at our option, based on either a
margin over the designated LIBOR rate or the prime rate. If our
debt-to-capitalization ratio is 60% or lower, the applicable margins are 4.00%
over the LIBOR
9
Table
of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ( UNAUDITED )
rate
and 3.00% over the prime rate. As of September 30, 2009 our
debt-to-capitalization ratio is 57%, the applicable margins are 4.00% over the
LIBOR rate and 3.00% over the prime rate. The margins decline on a sliding
scale as our debt-to-capitalization ratio improves. The nominal average
interest rates, excluding bank amendment and waiver fees, on all credit
facility borrowings outstanding were 4.37% at September 30, 2009, and
1.58% at December 31, 2008.
As
of September 30, 2009, we had irrevocable standby letters of credit in the
amount of $3.3 million issued and outstanding under our revolving credit
facility and our available borrowing capacity was $32.2 million.
Note 5. Commitments
and Contingencies
Legal
Proceedings
New Mexico Utilities, Inc.
New
Mexico Utilities, Inc. (NMUI), one of our 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. We
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, we 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. We 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
$0.8 million 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 $0.5 million.
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.
10
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS ( UNAUDITED )
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 $0.1 million, was $26.1 million. Substantially all of the utility plant assets
of NMUI were pledged as collateral for $12.3 million in first mortgage bonds
with an original maturity of 2024 and related accrued interest. We 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 our
revolving credit facility. The sale reflects a $107.2 million reduction in
assets, offset by reduction in liabilities of $79.5 million, which includes a $69.0
million reduction in contributions in aid of construction.
Investigations
On
May 18, 2005, the Environmental Protection Agency (EPA) executed a
search warrant at our Texas-based testing laboratory and on July 20, 2006
the laboratory received a subpoena to provide additional records and
information to a grand jury. We have cooperated fully with the EPAs
investigation and have provided the records requested. We remain in close
cooperation and coordination with both Department of Justice and EPAs counsel
in an attempt to resolve the matter favorably. In April 2009, we submitted
our formal request that the EPA not pursue criminal sanctions. Given the nature and preliminary status of
this matter, we cannot yet determine the amount or even a reasonable range of
potential loss in these matters, if any.
We
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
one of our subsidiaries 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, we have conducted an internal investigation
and worked in cooperation with the Board to resolve the matter favorably. The
Board has made an offer of settlement, requiring that we implement an
acceptable compliance program and pay fines and penalties of $1.5 million,
which we believe we have appropriately accrued. We continue to negotiate 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 our publicly
traded common 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, we made false statements or omitted to state facts necessary to make our
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 on October 15,
2009, filed a consolidated complaint. We have 60 days to answer or move
to dismiss the consolidated complaint. Given the nature and preliminary status
of these cases, we 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 our publicly traded common stock filed a shareholder
derivative case, alleging breach of fiduciary duty arising from the
announcement of our intent to restate financial statements against certain
present and former members of our 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
11
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS ( UNAUDITED )
ordered
an initial status conference for December 3, 2009. The cases were
consolidated on May 19, 2009. The lead plaintiff by stipulation of
the parties, filed a consolidated complaint on October 8, 2009. We
have 60 days to answer or move to dismiss the consolidated complaint. Given the
nature and preliminary status of these cases, we cannot yet determine the
amount or even a reasonable range of potential loss in these matters, if any.
Other Matters
We
are also involved in other routine legal and administrative proceedings arising
during the ordinary course of business. We believe that the ultimate
disposition of such matters will not have a material adverse effect on our
consolidated financial position, results of operations or cash flows. Any related legal costs are expensed when
incurred.
Note
6. Earnings Per Share
The following table is a reconciliation of the numerators
(income or loss) and denominators (shares) used in both the basic and diluted
earnings per share calculations.
|
|
|
Three Months Ended
|
|
|
|
|
September 30,
|
|
(In thousands)
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
NumeratorsNet
loss applicable to common stockholders:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
$
|
(499
|
)
|
|
|
$
|
(243
|
)
|
Less
preferred stock dividends
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Loss
from continuing operations applicable to common stockholders, net of tax
|
|
|
(505
|
)
|
|
|
(249
|
)
|
Loss
from discontinued operations, net of tax
|
|
|
-
|
|
|
|
(733
|
)
|
Loss
applicable to common stockholders
|
|
|
$
|
(505
|
)
|
|
|
$
|
(982
|
)
|
|
|
|
|
|
|
|
|
|
Denominators
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
24,608
|
|
|
|
24,607
|
|
Diluted
weighted average common shares outstanding
|
|
|
24,608
|
|
|
|
24,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
|
|
(In thousands)
|
|
|
2009
|
|
|
2008
|
NumeratorsNet
loss applicable to common stockholders:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
$
|
(11,967
|
)
|
|
|
$
|
(1,880
|
)
|
Less
preferred stock dividends
|
|
|
(12
|
)
|
|
|
(18
|
)
|
Loss
from continuing operations applicable to common stockholders, net of tax
|
|
|
(11,979
|
)
|
|
|
(1,898
|
)
|
Income
(loss) from discontinued operations, net of tax
|
|
|
17,731
|
|
|
|
(89
|
)
|
Net
income (loss) applicable to common stockholders
|
|
|
$
|
5,752
|
|
|
|
$
|
(1,987
|
)
|
|
|
|
|
|
|
|
|
|
Denominators
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
24,605
|
|
|
|
24,498
|
|
Diluted
weighted average common shares outstanding
|
|
|
24,605
|
|
|
|
24,498
|
|
We
have $11.9 million of 6.85% fixed-rate convertible subordinate debentures
outstanding at September 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). The debentures are currently
anti-dilutive; however, they will be included in the calculation of diluted
earnings per share if their conversion would be dilutive.
12
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
Note
7. Consolidated Statements of Cash Flows
The following information supplements our consolidated
statements of cash flows.
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
Interest
|
|
$
|
6,707
|
|
|
$
|
6,261
|
|
Income
taxes paid, net
|
|
448
|
|
|
1,764
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
Non-cash
contributions in aid of construction and advances for construction conveyed
to Company by developers
|
|
$
|
258
|
|
|
$
|
5,953
|
|
Note 8.
Dividend Reinvestment and Direct Stock Purchase Plan (DRIP / DSPP)
We
have a dividend reinvestment and stock purchase plan that gives our 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. We may, at our 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 us. As of September 30,
2009, there are 0.7 million shares that remain available for issuance. However, in November 2008, we determined
that participation in these plans would be suspended due to the Registration
Statement on Form S-3, under which the plans are filed, no longer being
effective as a result of our SEC filings not being filed timely.
Note
9. Segment Information
Our 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. We have four reporting segments, and separate our segments first by
whether we own the utility or provide contract services to others. Our owned
water and wastewater utilities are referred to as our Utilities operations. In
our financial statements we report our Texas utilities operations (Texas
Utilities) as a separate segment because of different economic
characteristics. This is primarily because our Texas Utilities are
under-recovering their current cost of service, including a reasonable rate of
return, as we have made large investments in these operations that are not yet
being recovered through the rates we are allowed to 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 whose cost is
allocated to a number of clients (Texas MUD Services).
The
following tables present information about the operations of each segment for
the three- and nine-month periods ended September 30, 2009 and 2008.
13
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
(In thousands)
|
|
|
|
Texas
|
|
O&M
|
|
Texas MUD
|
|
|
|
Consol-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
Utilities
|
|
Services
|
|
Services
|
|
Corporate
|
|
idated
|
|
Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
19,332
|
|
|
$
|
10,231
|
|
|
$
|
9,471
|
|
|
$
|
19,950
|
|
|
$
|
|
|
|
$
|
58,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
11,207
|
|
|
7,674
|
|
|
9,401
|
|
|
19,801
|
|
|
5,438
|
|
|
53,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
2,007
|
|
|
1,187
|
|
|
140
|
|
|
187
|
|
|
321
|
|
|
3,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
13,214
|
|
|
8,861
|
|
|
9,541
|
|
|
19,988
|
|
|
5,759
|
|
|
57,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
6,118
|
|
|
1,370
|
|
|
(70
|
)
|
|
(38
|
)
|
|
(5,759
|
)
|
|
1,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(564
|
)
|
|
(390
|
)
|
|
(28
|
)
|
|
(24
|
)
|
|
(1,396
|
)
|
|
(2,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
25
|
|
|
17
|
|
|
|
|
|
3
|
|
|
|
|
|
45
|
|
|
Other
income (expense)
|
|
160
|
|
|
(276
|
)
|
|
(69
|
)
|
|
(77
|
)
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
operations
before income taxes
|
|
$
|
5,739
|
|
|
$
|
721
|
|
|
$
|
(167
|
)
|
|
$
|
(136
|
)
|
|
$
|
(6,893
|
)
|
|
$
|
(736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Texas
|
|
O&M
|
|
Texas MUD
|
|
|
|
Consol-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
Utilities
|
|
Services
|
|
Services
|
|
Corporate
|
|
idated
|
|
Three Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
18,045
|
|
|
$
|
10,020
|
|
|
$
|
10,472
|
|
|
$
|
18,945
|
|
|
$
|
|
|
|
$
|
57,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
10,474
|
|
|
6,174
|
|
|
11,249
|
|
|
20,697
|
|
|
4,043
|
|
|
52,637
|
|
|
Depreciation
and Amortization
|
|
1,818
|
|
|
1,071
|
|
|
(131
|
)
|
|
268
|
|
|
390
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
12,292
|
|
|
7,245
|
|
|
11,118
|
|
|
20,965
|
|
|
4,433
|
|
|
56,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
5,753
|
|
|
2,775
|
|
|
(646
|
)
|
|
(2,020
|
)
|
|
(4,433
|
)
|
|
1,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(542
|
)
|
|
(398
|
)
|
|
(1
|
)
|
|
(33
|
)
|
|
(1,177
|
)
|
|
(2,151
|
)
|
|
Interest
income
|
|
4
|
|
|
6
|
|
|
3
|
|
|
326
|
|
|
10
|
|
|
349
|
|
|
Other
income (expense)
|
|
115
|
|
|
(1,253
|
)
|
|
(177
|
)
|
|
280
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
operations
before income taxes
|
|
$
|
5,330
|
|
|
$
|
1,130
|
|
|
$
|
(821
|
)
|
|
$
|
(1,447
|
)
|
|
$
|
(4,565
|
)
|
|
$
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
(In thousands)
|
|
|
|
Texas
|
|
O&M
|
|
Texas MUD
|
|
|
|
Consol-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
Utilities
|
|
Services
|
|
Services
|
|
Corporate
|
|
idated
|
|
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
49,144
|
|
|
$
|
27,827
|
|
|
$
|
27,599
|
|
|
$
|
56,922
|
|
|
$
|
|
|
|
$
|
161,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
27,928
|
|
|
18,511
|
|
|
27,285
|
|
|
55,745
|
|
|
24,010
|
|
|
153,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
5,958
|
|
|
3,527
|
|
|
414
|
|
|
600
|
|
|
1,033
|
|
|
11,532
|
|
|
Impairment
of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
122
|
|
|
7,993
|
|
|
8,115
|
|
|
Total
expenses
|
|
33,886
|
|
|
22,038
|
|
|
27,699
|
|
|
56,467
|
|
|
33,036
|
|
|
173,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
15,258
|
|
|
5,789
|
|
|
(100
|
)
|
|
455
|
|
|
(33,036
|
)
|
|
(11,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(1,754
|
)
|
|
(1,217
|
)
|
|
(84
|
)
|
|
(28
|
)
|
|
(4,182
|
)
|
|
(7,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
78
|
|
|
37
|
|
|
2
|
|
|
8
|
|
|
4
|
|
|
129
|
|
|
Other
income (expense)
|
|
424
|
|
|
(704
|
)
|
|
(216
|
)
|
|
(248
|
)
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
operations
before income taxes
|
|
$
|
14,006
|
|
|
$
|
3,905
|
|
|
$
|
(398
|
)
|
|
$
|
187
|
|
|
$
|
(36,470
|
)
|
|
$
|
(18,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Texas
|
|
O&M
|
|
Texas MUD
|
|
|
|
Consol-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
Utilities
|
|
Services
|
|
Services
|
|
Corporate
|
|
idated
|
|
Nine Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
46,553
|
|
|
$
|
26,751
|
|
|
$
|
30,559
|
|
|
$
|
55,202
|
|
|
$
|
|
|
|
$
|
159,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
25,920
|
|
|
17,061
|
|
|
31,708
|
|
|
56,613
|
|
|
13,275
|
|
|
144,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
5,239
|
|
|
3,038
|
|
|
(9
|
)
|
|
885
|
|
|
1,273
|
|
|
10,426
|
|
|
Impairment
of long-lived assets
|
|
|
|
|
865
|
|
|
|
|
|
210
|
|
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
31,159
|
|
|
20,964
|
|
|
31,699
|
|
|
57,708
|
|
|
14,548
|
|
|
156,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
15,394
|
|
|
5,787
|
|
|
(1,140
|
)
|
|
(2,506
|
)
|
|
(14,548
|
)
|
|
2,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(1,649
|
)
|
|
(1,060
|
)
|
|
(2
|
)
|
|
(103
|
)
|
|
(3,550
|
)
|
|
(6,364
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
28
|
|
|
19
|
|
|
16
|
|
|
375
|
|
|
21
|
|
|
459
|
|
|
Other
income (expense)
|
|
379
|
|
|
(3,006
|
)
|
|
(336
|
)
|
|
435
|
|
|
2,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing
operations
before income taxes
|
|
$
|
14,152
|
|
|
$
|
1,740
|
|
|
$
|
(1,462
|
)
|
|
$
|
(1,799
|
)
|
|
$
|
(15,549
|
)
|
|
$
|
(2,918
|
)
|
|
15
Table of Contents
SOUTHWEST WATER COMPANY
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS ( UNAUDITED )
Note 10. Subsequent Events
Dividend Declared
On October 23, 2009 we declared
quarterly cash dividends of $0.05 per share of common stock, an increase from
the prior quarterly dividend of $0.025 per share, and $0.65625 per share of Series A
preferred stock. The dividends will be
paid on November 20, 2009 to stockholders of record on November 4,
2009.
Dispute Notification
on E
nvironmental Matters
Some
groundwater sources for our California water utility have been affected by
groundwater contaminants consisting mainly of chemicals disposed of by certain
companies in the 1940s and 1950s. In 2001 and 2002, this contamination required
us to shutdown a number of our wells and purchase replacement water at a cost
substantially higher than the cost of water pumped from our own wells.
In
2002, a Settlement Agreement was reached between some of the parties allegedly
responsible for the contamination (Cooperating Respondents) and certain water
entities, including our California water utility. Under this agreement, we have
received payments since 2002, and we expect to continue to receive payments
until completion of remediation. These payments are intended to represent the
additional incremental cost of our purchasing water over the cost that would
have been incurred by us to pump water from our wells had they not been
contaminated. These reimbursements reduce our operating expenses. Total
reimbursements were $23.9 million from 2002 through September 30, 2009.
The
settlement agreement also provides for contributions by the Cooperating
Respondents for construction of new wells and interconnections with nearby
water sources. These contributions totaled $9.9 million through September 30,
2009, and were recorded as contributions in aid of construction.
In
October 2009, we received notice from the Cooperating Respondents that a
submission of a major dispute had been filed under the Settlement Agreement
questioning the scope and method of calculating the Cooperating Respondents
obligation to reimburse us. It is not possible at this time to determine with
any certainty the likely outcome of this matter nor the cost impact that may be
involved.
16
Table of Contents
ITEM 2.
MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 own,
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. Our corporate offices are
located in Los Angeles, California.
In the past ten years, we have completed 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 our
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.
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. In our financial statements we report our Texas utility
operations (Texas Utilities) as a separate segment because of different
economic characteristics. This is principally because the Texas Utilities
predominantly under-recovering 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. The New Mexico utility was part of this segment prior to its sale
in May 2009 (see Note 5 to our Condensed Consolidated Financial
Statements, Legal Proceedings, for detailed information on the New Mexico
utility sale). Residential
17
Table of Contents
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 within 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.
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 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 have much change in connection count. The
majority of our other utilities are in markets that experienced significant new
home construction in the past, however, with the recent decline in the housing
market, this rate of growth significantly declined throughout 2008 and the
first three quarters of 2009. Growth through acquisitions occurred in 2008 with
the acquisition of a 4,000 connection wastewater utility system in Alabama in
late January 2008.
18
Table of Contents
§
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 initiated rate increases in
three smaller Texas utilities and reached all-party settlements with two in
late 2008 and the third in the second quarter of 2009. In Alabama we have
agreement with the local government over our Shelby County wastewater utility
that provides us with the ability to request rate increases annually, and
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 three 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 nine
months of 2009, we saw increased demand in Texas due to drought conditions and
lower demand at our California utility largely due to conservation and
generally slow 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 operating results 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 nine months of 2009, we saw
increased cost of purchased water in Texas due to drought conditions and well
repairs. In California, our unit cost of purchased water has increased;
however, our total purchased costs have decreased due to reduced demand as a
result of customer conservation efforts.
§
Operation & Maintenance
Related
: Our operation and maintenance costs include fuel, power,
labor and benefits, facility costs, and
other ordinary costs of producing, treating and delivering 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, the customer service center, environmental health
and safety and insurance. In 2008, we made large investments in our
consolidated support functions that drove costs higher in the short term, 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 costs of supporting our operations.
§
Other
: Other is
reserved for unusual items that may impact results from time to time. Most
significantly in
19
Table of Contents
the first nine months of 2009, we saw
an increase in revenue in our California utility as a result of a conservation
rate adjustment, 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 three 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 three quarters of 2009 was reduced project work as well as
our cancellation of two 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, environmental
health and safety and insurance. 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 nine 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 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 and contract price increases. In the first three 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 three
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 functions that are then allocated to each segment. These support costs
include IT, shared financial services, customer service center, environmental
health and safety and insurance. 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 nine months of 2009, costs were
primarily impacted by $12.6 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 absorbed by the corporate segment. This project upgraded
our core IT infrastructure such as telecommunication, servers and data links.
In addition, as of January 1,
20
Table of Contents
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 was made
in late January 2008 (Riverview), 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. It serves approximately 4,000 residential and
commercial connections in a service area directly adjacent to our existing
Shelby County collection and treatment system.
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
wholesale water component is reflected in consolidated continuing operations in
all periods presented.
We
entered into an agreement to sell the assets of our Southwest Environmental
Laboratories, Inc. subsidiary in 2009 for $0.5 million in cash paid at
closing, and up to an additional $0.75 million consisting of 25% of the buyers
quarterly aggregate invoice amounts subsequent to the sale. The sale closed on April 1, 2009 and the
remaining amount due is $0.35 million in cash.
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, net cash proceeds from settlement were $53.9 million and the resulting
gain, net of direct transactional costs of $0.1 million, but before taxes was
$26.1 million. Substantially all of the
utility plant assets of NMUI were pledged as collateral for $12.3 million in
first mortgage bonds. We 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 NMUI liabilities, and
to pay down our revolving credit facility. The sale reflects a $107.2 million
reduction in assets, offset by reduction in liabilities of $79.5 million, which
includes a $69.0 million reduction in contributions in aid of construction.
RESULTS OF
OPERATIONS
Three-month
period ended September 30, 2009 Compared to 2008
Consolidated
operating revenue increased $1.5 million, or 2.6%, to $59.0 million for the
three-month period ended September 30, 2009 from $57.5 million for the
same period in the prior year.
Consolidated operating expenses increased $1.3 million, or 2.3%, to
$57.4 million for the three-month period ended September 30, 2009 from
$56.1 million for the 2008 period. Resulting operating income for the three-month
period ended September 30, 2009 was $1.6 million compared to $1.4 million
for the same period in the prior year.
The operating income for the quarter ended September 30, 2009
includes the impact of $2.3 million of costs associated with the restatement of
historical financial results.
21
Table of Contents
|
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
Percent of Revenue
|
|
|
(In thousands)
|
|
|
2009
|
|
2008
|
|
(decrease)
|
|
2009
|
|
2008
|
|
|
Utilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
19,332
|
|
$
|
18,045
|
|
$
|
1,287
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
13,214
|
|
12,292
|
|
922
|
|
68.4
|
%
|
68.1
|
%
|
|
Operating
Income
|
|
|
$
|
6,118
|
|
$
|
5,753
|
|
$
|
365
|
|
31.6
|
%
|
31.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Utilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
10,231
|
|
$
|
10,020
|
|
$
|
211
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
8,861
|
|
7,245
|
|
1,616
|
|
86.6
|
%
|
72.3
|
%
|
|
Operating
Income
|
|
|
$
|
1,370
|
|
$
|
2,775
|
|
$
|
(1,405
|
)
|
13.4
|
%
|
27.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&M Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
9,471
|
|
$
|
10,472
|
|
$
|
(1,001
|
)
|
|
|
|
|
|
Operating
Expenses
|
|
|
9,541
|
|
11,118
|
|
(1,577
|
)
|
100.7
|
%
|
106.2
|
%
|
|
Operating
Loss
|
|
|
$
|
(70
|
)
|
$
|
(646
|
)
|
$
|
576
|
|
(0.7
|
%)
|
(6.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas MUD Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
19,950
|
|
$
|
18,945
|
|
$
|
1,005
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
19,988
|
|
20,965
|
|
(977
|
)
|
100.2
|
%
|
110.7
|
%
|
|
Operating
Loss
|
|
|
$
|
(38
|
)
|
$
|
(2,020
|
)
|
$
|
1,982
|
|
(0.2
|
%)
|
(10.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
5,759
|
|
4,433
|
|
1,326
|
|
|
|
|
|
|
Operating
Loss
|
|
|
$
|
(5,759
|
)
|
$
|
(4,433
|
)
|
$
|
(1,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
58,984
|
|
$
|
57,482
|
|
$
|
1,502
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
57,363
|
|
56,053
|
|
1,310
|
|
97.3
|
%
|
97.5
|
%
|
|
Operating
Income
|
|
|
$
|
1,621
|
|
$
|
1,429
|
|
$
|
192
|
|
2.7
|
%
|
2.5
|
%
|
|
Utilities
(In thousands)
|
|
Operating
Revenue
|
|
|
Operating
Expense
|
|
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
Three-month
period ended September 30, 2008
|
|
$
|
18,045
|
|
|
$
|
12,292
|
|
|
$
|
5,753
|
|
Rate
Related
|
|
1,428
|
|
|
-
|
|
|
|
|
Demand
Related
|
|
(680
|
)
|
|
-
|
|
|
|
|
Supply
Related
|
|
-
|
|
|
232
|
|
|
|
|
G&A
Related
|
|
-
|
|
|
479
|
|
|
|
|
Other
|
|
539
|
|
|
211
|
|
|
|
|
Three-month
period ended September 30, 2009
|
|
$
|
19,332
|
|
|
$
|
13,214
|
|
|
$
|
6,118
|
|
Operating
revenue increased $1.3 million, or 7.1%, to $19.3 million for three-month
period ended September 30, 2009 from $18.0 million for the same period in
prior year. The net increase was
primarily due to the following events:
·
Rate Related:
A $1.4 million increase due to rate increases in California and Alabama, of
which $1.2 million is due to our California utility implementing a general rate
increase in January 2009 and $0.2 million is due to rate increases at two
of our Alabama utilities.
·
Demand
Related: A $0.7 million decrease primarily due to reduced consumption at our
California utility related to customers conservation efforts.
22
Table
of Contents
·
Other: A $0.5
million increase related to a conservation rate adjustment on revenue.
Operating
expenses increased $0.9 million, or 7.5%, to $13.2 million for the three-month
period ended September 30, 2009, from $12.3 million for the same period in
the prior year. The increase was primarily due to the following events:
·
Supply
Related: A $0.2 million increase primarily due to increased unit cost of water
in California offset by reduced costs due to lower demand.
·
G&A
Related: A $0.5 million increase primarily due to increased costs associated
with the upgrade of IT and financial systems and insurance related expenses.
·
Other: A $0.2
million increase primarily related to legal costs and other settlements.
As
a result of the above events, operating income increased $0.4 million to $6.1
million for the three-month period ended September 30, 2009 from $5.8
million for the same period in the prior year.
Operating income includes $0.5 million of Other revenue and $0.2 million
of Other expense for the three-month period ended September 30, 2009.
Texas Utilities
(In thousands)
|
|
Operating
Revenue
|
|
|
Operating
Expense
|
|
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
Three-month
period ended September 30, 2008
|
|
$
|
10,020
|
|
|
$
|
7,245
|
|
|
$
|
2,775
|
|
Rate
Related
|
|
89
|
|
|
-
|
|
|
|
|
Demand
Related
|
|
122
|
|
|
-
|
|
|
|
|
Supply
Related
|
|
-
|
|
|
239
|
|
|
|
|
O&M
Related
|
|
-
|
|
|
969
|
|
|
|
|
G&A
Related
|
|
-
|
|
|
258
|
|
|
|
|
Other
|
|
-
|
|
|
150
|
|
|
|
|
Three-month
period ended September 30, 2009
|
|
$
|
10,231
|
|
|
$
|
8,861
|
|
|
$
|
1,370
|
|
Operating
revenue increased $0.2 million, or 2.1%, to $10.2 million for three-month
period ended September 30, 2009 from $10.0 million for the same period in
prior year. The increase was primarily due to the following events:
·
Rate Related:
A $0.1 million increase due to rate increases at one utility implemented during
the fourth quarter of 2008 and a step-increase in rates at another utility
during the first quarter of 2009. These increases were partially offset by a
decrease due to settlement of rates at our Monarch utility which were below
proposed rates charged in the third quarter of 2008.
·
Demand
Related: A $0.1 million increase due to increased consumption associated with
hot and dry weather patterns.
Operating
expenses increased $1.6 million, or 22.3%, to $8.9 million for the three-month
period ended September 30, 2009, from $7.2 million for the same period in
the prior year. The increase was
primarily due to the following events:
·
Supply
Related: A $0.2 million increase due to higher cost of purchased water as a
result of well repairs requiring a temporary alternate source of supply.
·
O&M
Related: A $1.0 million increase, driven by asset retirements, increased
depreciation expenses and repair and maintenance costs.
·
G&A
Related: A $0.3 million increase primarily due to increased IT, support
functions, and insurance expenses.
·
Other: A $0.2
million increase related to severance expense.
As
a result of the above events, operating income decreased $1.4 million, to $1.4
million for the three-month period ended September 30, 2009, from income
of $2.8 million for the same period in the prior year.
23
Table of Contents
O&M Services
(In thousands)
|
|
Operating
Revenue
|
|
|
Operating
Expense
|
|
|
Operating
loss
|
|
|
|
|
|
|
|
|
|
|
|
Three-month
period ended September 30, 2008
|
|
$
|
10,472
|
|
|
$
|
11,118
|
|
|
$
|
(646)
|
|
Contract
Growth
|
|
729
|
|
|
120
|
|
|
|
|
Lost
Work
|
|
(1,568
|
)
|
|
(1,857
|
)
|
|
|
|
Other
|
|
(162
|
)
|
|
160
|
|
|
|
|
Three-month
period ended September 30, 2009
|
|
$
|
9,471
|
|
|
$
|
9,541
|
|
|
$
|
(70)
|
|
Operating
revenue decreased $1.0 million, or 9.6%, to $9.5 million for the three-month
period ended September 30, 2009 from $10.5 million for the same period in
the prior year. The net decrease in revenue was primarily due to the following
events:
·
Contract
Growth: A $0.7 million increase, primarily due to price and scope increases.
·
Lost Work: A
$1.6 million decrease due to $1.2 million from lost contracts, which includes
$0.9 million related to two underperforming contracts that were terminated by
management in late 2008, and $0.4 million from reduced project work.
·
Other: A $0.2
million decrease as we stopped certain non-core service offerings in Colorado.
Operating
expenses decreased $1.6 million, or 14.2%, to $9.5 million for the three-month
period ended September 30, 2009, from $11.1 million for the same period in
the prior year. The net decrease was
primarily due to the following events:
·
Contract
Growth: A $0.1 million increase due to expanded scope on contracts identified
above.
·
Lost Work: A
$1.9 million decrease due to lost contracts and reduced project work.
·
Other: A $0.2
million increase primarily due to a favorable settlement of outstanding
litigation in the third quarter of 2008, offset by a decrease in expense as we
stopped pursuing certain service offerings in Colorado.
As
a result of the above events, operating loss narrowed to a loss of $0.1 million
for the three-month period ended September 30, 2009, from a loss of $0.6
million for the same period in the prior year.
Texas MUD Services
(In thousands)
|
|
Operating
Revenue
|
|
|
Operating
Expense
|
|
|
Operating
loss
|
|
|
|
|
|
|
|
|
|
|
|
Three-month
period ended September 30, 2008
|
|
$
|
18,945
|
|
|
$
|
20,965
|
|
|
$
|
(2,020
|
)
|
Contract
Growth
|
|
3,065
|
|
|
2,296
|
|
|
|
|
Lost
Work
|
|
(2,060)
|
|
|
(1,718)
|
|
|
|
|
G&A
Related
|
|
-
|
|
|
(1,876)
|
|
|
|
|
Other
|
|
-
|
|
|
321
|
|
|
|
|
Three-month
period ended September 30, 2009
|
|
$
|
19,950
|
|
|
$
|
19,988
|
|
|
$
|
(38
|
)
|
Operating
revenue increased $1.0 million, or 5.3%, to $20.0 million for three-month
period ended September 30, 2009 from $18.9 million for the same period in
the prior year. The net increase was primarily due to the following events:
·
Contract
Growth: A $3.1 million increase due to increased service order work, generally
related to repairs and maintenance work associated with hot and dry weather
patterns.
·
Lost Work: A
$2.1 million decrease primarily due to a $0.6 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 $0.7 million due to
lost contracts.
24
Table of Contents
Operating
expenses decreased $1.0 million, or 4.7%, to $20.0 million for the three-month
period ended September 30, 2009, from $21.0 million for the same period in
the prior year. The net decrease was
primarily due to the following events:
·
Contract
Growth: A $2.3 million increase related to increases in service and maintenance
work orders.
·
Lost Work: A
$1.7 million decrease due to $1.5 million related to lost contracts and $0.2 million
from the sale of our environmental testing laboratory on April 1, 2009.
·
G&A
Related: A $1.9 million decrease, primarily due to cost savings across multiple
general and administrative costs.
·
Other: A $0.3 million increase primarily related to
the settlement of a historical legal issue.
As
a result of the above events, operating income improved $2.0 million to
break-even for the three-month period ended September 30, 2009, compared
to a loss of $2.0 million for the same period in the prior year. Operating income for the three-month period
ended September 30, 2009 includes Other expense of $0.3 million.
Corporate
Operating
expenses increased $1.4 million to $5.8 million for the three-month period
ended September 30, 2009, from $4.4 million for the same period in the
prior year. The net increase was primarily due to the following events:
·
Project
Costs: A $0.6 million decrease as a result of costs incurred in the third
quarter of 2008 related to our Cornerstone internal-use software development
project. In May 2009 the project was terminated.
·
G&A
Related: A $0.3 million decrease primarily due to reductions in general
expenses and a previously accrued performance bonus.
·
Other: A $2.2
million increase, primarily driven by $2.3 million of financial restatement
related costs, including audit fees and accounting resource expenses to support
the restatement of historical financial results and prior period SEC filings
completed in the quarter, offset by a $0.2 million decrease associated with consulting
expenses in the comparable prior period.
Other Income (Expense)
Aggregate
other expenses increased $0.6 million, or 30.8%, to $2.4 million for the
three-month period ended September 30, 2009, compared to $1.8 million for
the same period in the prior year as follows:
|
|
Three-month period ended
|
|
|
|
|
|
September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
Interest
expense
|
|
$
|
(2,402)
|
|
$
|
(2,151)
|
|
$
|
(251)
|
|
Interest
income
|
|
45
|
|
349
|
|
(304)
|
|
Total
|
|
$
|
(2,357)
|
|
$
|
(1,802)
|
|
$
|
(555)
|
|
Interest Expense.
Interest
expense increased by $0.3 million, or 11.7%, to $2.4 million for the
three-month period ended September 30, 2009 from $2.1 million for the same
period during the prior year primarily as a result of an increase in
amortization of debt issuance cost due to recent amendments to our line of
credit arrangements that resulted in an additional deferred debt issuance cost
in 2009.
The
balance of the change in interest expense is due to increased interest rates
and lower average outstanding debt balances.
The weighted average annual interest rate on total borrowings was
approximately 6.3% at September 30, 2009 and 4.4% for the same period in
the prior year. The average balance of
interest-bearing debt outstanding decreased to $153.2 million during the three-month
period ended September 30, 2009 compared to $194.0 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 32.2% for the three-month period ended September 30, 2009 compared to a
benefit of 34.9% for the same period in 2008. The effective rate in
25
Table of Contents
2009
and 2008 was lower than the expected statutory rate due to the effect of the
Texas Franchise Tax which reduced our overall income tax benefit.
Nine-month
period ended September 30, 2009 Compared to 2008
Consolidated
operating revenue increased $2.4 million, or 1.5%, to $161.5 million for the
nine-month period ended September 30, 2009 from $159.1 million for the
same period in the prior year.
Consolidated operating expenses increased $17.0 million, or 10.9%, to $173.1
million for the nine-month period ended September 30, 2009 from $156.1
million for the comparable 2008 period.
Resulting operating income decreased $14.6 million to a loss of $11.6
million for the nine-month period ended September 30, 2009, from operating
income of $3.0 million for the same period in the prior year. The operating loss for the nine-month period
ended September 30, 2009 includes the impact to operating income of $12.6
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 for the periods prior to the sale.
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Increase
|
|
Percent of Revenue
|
|
|
(In thousands)
|
|
|
2009
|
|
As Restated
|
|
(decrease)
|
|
2009
|
|
2008
|
|
|
Utilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
49,144
|
|
$
|
46,553
|
|
$
|
2,591
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
33,886
|
|
31,159
|
|
2,727
|
|
69.0
|
%
|
66.9
|
%
|
|
Operating
Income
|
|
|
$
|
15,258
|
|
$
|
15,394
|
|
$
|
(136
|
)
|
31.0
|
%
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Utilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
27,827
|
|
$
|
26,751
|
|
$
|
1,076
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
22,038
|
|
20,964
|
|
1,074
|
|
79.2
|
%
|
78.4
|
%
|
|
Operating
Income
|
|
|
$
|
5,789
|
|
$
|
5,787
|
|
$
|
2
|
|
20.8
|
%
|
21.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O&M Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
27,599
|
|
$
|
30,559
|
|
$
|
(2,960
|
)
|
|
|
|
|
|
Operating
Expenses
|
|
|
27,699
|
|
31,699
|
|
(4,000
|
)
|
100.4
|
%
|
103.7
|
%
|
|
Operating
Loss
|
|
|
$
|
(100
|
)
|
$
|
(1,140
|
)
|
$
|
1,040
|
|
(0.4
|
%)
|
(3.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas MUD Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
56,922
|
|
$
|
55,202
|
|
$
|
1,720
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
56,467
|
|
57,708
|
|
(1,241
|
)
|
99.2
|
%
|
104.5
|
%
|
|
Operating
Income (Loss)
|
|
|
$
|
455
|
|
$
|
(2,506
|
)
|
$
|
2,961
|
|
0.8
|
%
|
(4.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
33,036
|
|
14,548
|
|
18,488
|
|
|
|
|
|
|
Operating
Loss
|
|
|
$
|
(33,036
|
)
|
$
|
(14,548
|
)
|
$
|
(18,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Revenue
|
|
|
$
|
161,492
|
|
$
|
159,065
|
|
$
|
2,427
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
173,126
|
|
156,078
|
|
17,048
|
|
107.2
|
%
|
98.1
|
%
|
|
Operating
Income (Loss)
|
|
|
$
|
(11,634
|
)
|
$
|
2,987
|
|
$
|
(14,621
|
)
|
(7.2
|
%)
|
1.9
|
%
|
|
26
Table of Contents
Utilities
(In thousands)
|
|
Operating
Revenue
|
|
|
Operating
Expense
|
|
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
Nine-month
period ended September 30, 2008
|
|
$
|
46,553
|
|
|
$
|
31,159
|
|
|
$
|
15,394
|
|
Growth
Related
|
|
490
|
|
|
278
|
|
|
|
|
Rate
Related
|
|
3,988
|
|
|
-
|
|
|
|
|
Demand
Related
|
|
(2,094
|
)
|
|
-
|
|
|
|
|
Supply
Related
|
|
-
|
|
|
(373
|
)
|
|
|
|
O&M
Related
|
|
-
|
|
|
185
|
|
|
|
|
G&A
Related
|
|
-
|
|
|
2,017
|
|
|
|
|
Other
|
|
207
|
|
|
620
|
|
|
|
|
Nine-month
period ended September 30, 2009
|
|
$
|
49,144
|
|
|
$
|
33,886
|
|
|
$
|
15,258
|
|
Operating
revenue increased $2.6 million, or 5.6%, to $49.1 million for nine-month period
ended September 30, 2009 from $46.6 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 $4.0 million increase due to rate increases in California and Alabama, of
which $3.4 million is due to our California utility implementing a step-rate
increase in July 2008 and general rate increase in January 2009, and
$0.5 million is due to rate increases at two of our Alabama utilities.
·
Demand
Related: A $2.1 million decrease primarily due to reduced consumption at our
California utility related to customers conservation efforts.
·
Other: A $0.2
million increase related to a conservation rate adjustment on revenue.
Operating
expenses increased $2.7 million, or 8.8%, to $33.9 million for the nine-month
period ended September 30, 2009, from $31.2 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 $0.4 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
expense.
·
G&A
Related: A $2.0 million increase primarily due to increased costs associated
with the upgrade of IT and financial systems, lower overhead recovery due to
fewer capital projects than in the comparable prior period, and insurance
related expenses.
·
Other: A $0.6
million increase, primarily due to a refund of sales tax at our Mississippi
utility that was received in the second quarter of 2008 and an increase in
legal expenses.
As
a result of the above events, operating income decreased $0.1 million, to $15.3
million for the nine-month period ended September 30, 2009, from $15.4
million for the same period in the prior year.
27
Table of Contents
Texas Utilities
(In thousands)
|
|
Operating
Revenue
|
|
|
Operating
Expense
|
|
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
Nine-month
period ended September 30, 2008
|
|
$ 26,751
|
|
|
$ 20,964
|
|
|
$ 5,787
|
|
Growth
Related
|
|
(58
|
)
|
|
-
|
|
|
|
|
Rate
Related
|
|
543
|
|
|
-
|
|
|
|
|
Demand
Related
|
|
591
|
|
|
-
|
|
|
|
|
Supply
Related
|
|
-
|
|
|
381
|
|
|
|
|
O&M
Related
|
|
-
|
|
|
1,063
|
|
|
|
|
G&A
Related
|
|
-
|
|
|
345
|
|
|
|
|
Other
|
|
-
|
|
|
(715
|
)
|
|
|
|
Nine-month
period ended September 30, 2009
|
|
$ 27,827
|
|
|
$ 22,038
|
|
|
$ 5,789
|
|
Operating
revenue increased $1.1 million, or 4.0%, to $27.8 million for nine-month period
ended September 30, 2009 from $26.8 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 two 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 and third quarter of 2008.
·
Demand Related: A $0.6 million increase due to
increased consumption associated with hot and dry weather patterns.
Operating
expenses increased $1.1 million, or 5.1%, to $22.0 million for the nine-month
period ended September 30, 2009, from $21.0 million for the same period in
the prior year. The net increase was
primarily due to the following events:
·
Supply Related: A $0.4 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 and well
repairs requiring a temporary alternate source of supply.
·
O&M Related: A $1.1 million increase, primarily
driven by an increase in asset retirements, depreciation costs, and repairs and
maintenance costs.
·
G&A Related: A $0.3 million increase primarily due
to increased costs associated with the implementation of our strategy to
consolidate support functions and insurance related expenses.
·
Other: A $0.7 million decrease due to the write-off of
assets in the second quarter of 2008 related to a wholesale water operation,
offset by severance expenses.
As
a result of the above events, operating income was $5.8 million for the
nine-month period ended September 30, 2009 compared to $5.8 million for
the same period in 2008.
28
Table of Contents
O&M Services
(In
thousands)
|
|
Operating
Revenue
|
|
|
Operating
Expense
|
|
|
Operating
loss
|
|
|
|
|
|
|
|
|
|
|
|
Nine-month period ended
September 30, 2008
|
|
$ 30,559
|
|
|
$ 31,699
|
|
|
$ (1,140)
|
|
Contract
Growth
|
|
2,251
|
|
|
897
|
|
|
|
|
Lost
Work
|
|
(4,622
|
)
|
|
(4,919
|
)
|
|
|
|
G&A
Related
|
|
-
|
|
|
60
|
|
|
|
|
Other
|
|
(589
|
)
|
|
(38
|
)
|
|
|
|
Nine-month period ended
September 30, 2009
|
|
$ 27,599
|
|
|
$ 27,699
|
|
|
$ (100)
|
|
Operating
revenue decreased $3.0 million, or 9.7%, to $27.6 million for the nine-month
period ended September 30, 2009 from $30.6 million for the same period in
the prior year. The net decrease in revenue was primarily due to the following
events:
·
Contract Growth: A $2.3 million increase, primarily
due to increased project work and price and scope increases.
·
Lost Work: A $4.6 million decrease due to $3.2 million
from lost contracts, including $1.8 million related to two underperforming
contracts that were terminated by management in late 2008 as well as $1.4
million from reduced project work.
·
Other: A $0.6 million decrease as we stopped certain
non-core service offerings in Colorado.
Operating
expenses decreased $4.0 million, or 12.6%, to $27.7 million for the nine-month
period ended September 30, 2009, from $31.7 million for the same period in
the prior year. The net decrease was primarily
due to the following events:
·
Contract Growth: A $0.9 million increase due to new
and expanded scope on contracts identified above.
·
Lost Work: A $4.9 million decrease due to lost
contracts and reduced project work.
·
G&A related: A $0.1 million increase due to costs
related to implementation of our strategy to consolidate support functions.
As
a result of the above events, operating loss narrowed to $0.1 million for the
nine-month period ended September 30, 2009, from a loss of $1.1 million for
the same period in the prior year.
Texas MUD Services
(In thousands)
|
|
Operating
Revenue
|
|
|
Operating
Expense
|
|
|
Operating
Income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Nine-month
period ended September 30, 2008
|
|
$ 55,202
|
|
|
$ 57,708
|
|
|
$ (2,506)
|
|
Contract
Growth
|
|
7,384
|
|
|
5,311
|
|
|
|
|
Lost
Work
|
|
(5,664
|
)
|
|
(4,182
|
)
|
|
|
|
G&A
Related
|
|
-
|
|
|
(2,476
|
)
|
|
|
|
Other
|
|
-
|
|
|
106
|
|
|
|
|
Nine-month
period ended September 30, 2009
|
|
$ 56,922
|
|
|
$ 56,467
|
|
|
$ 455
|
|
Operating
revenue increased $1.7 million, or 3.1%, to $56.9 million for nine-month period
ended September 30, 2009 from $55.2 million for the same period in the
prior year. The net increase was primarily due to the following events:
·
Contract Growth: A $7.4 million increase due to
increases in service order work.
·
Lost Work: A $5.7 million decrease due to a $1.8
million decrease in new housing related services, a $2.5 million decrease due
to lost contracts, and a $1.4 million decrease related to the sale of our
environmental testing laboratory on April 1, 2009.
29
Table of Contents
Operating
expenses decreased $1.2 million, or 2.2%, to $56.5 million for the nine-month
period ended September 30, 2009, from $57.7 million for the same period in
the prior year. The net decrease was
primarily due to the following events:
·
Contract Growth: A $5.3 million increase primarily
related to increases in service and maintenance work orders.
·
Lost Work: A $4.2 million decrease related to lost
work, including $1.6 million due to the sale of our environmental testing
laboratory.
·
G&A Related: A $2.5 million decrease, primarily
due to various savings and efficiency gains in multiple general and
administrative costs.
·
Other: A $0.1
million increase related to the settlement of a legal issue, offset by
impairment of long-lived assets in the comparable period of 2008.
As
a result of the above events, operating income increased $3.0 million to $0.5
million for the nine-month period ended September 30, 2009, compared to an
operating loss of $2.5 million for the same period in the prior year.
Corporate
Operating
expenses increased $18.5 million, to $33.0 million for the nine-month period
ended September 30, 2009, from $14.5 million for the same period in the
prior year.
The
net increase was primarily due to the following events:
·
Project Costs: A $2.2 million decrease as a result of
costs incurred in the first nine months 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 $0.3 million increase primarily due
to increases in multiple general and administrative costs.
·
Other: A $20.3 million increase, primarily driven by
$12.6 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, offset by reduced costs associated with consulting
expenses in the comparable prior period.
Other Income (Expense)
Aggregate
other expenses increased $1.2 million, or 20.8%, to $7.1 million for the
nine-month period ended September 30, 2009, compared to $5.9 million for
the same period in the prior year as follows:
|
|
Nine-month period ended
|
|
|
|
|
|
September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
Interest
expense
|
|
$
|
(7,265
|
)
|
$
|
(6,364
|
)
|
$
|
(901
|
)
|
Interest
income
|
|
129
|
|
459
|
|
(330
|
)
|
Total
|
|
$
|
(7,136
|
)
|
$
|
(5,905
|
)
|
$
|
(1,231
|
)
|
Interest Expense.
Interest
expense increased by $0.9 million, or 14.2%, to $7.3 million for the nine-month
period ended September 30, 2009 from $6.4 million for the same period
during the prior year.
The
change in total interest incurred is partially the result of a $0.4 million
acceleration of deferred financing costs due to an amendment to the credit
facility in May 2009. The balance
of the change is due to increased interest rates. The weighted average annual interest rate on
total borrowings was approximately 5.6% for the nine-month period ended September 30,
2009 and 4.7% for the same period in the prior year. The increased rates of
interest were caused in part by the increases of 3% and 2.75% in our margins
over the LIBOR and prime rate indexes under our amended credit facility
agreement. These increases were offset by a decrease in borrowing levels. The
average balance of interest-bearing debt outstanding decreased to $173.9
million during the nine-month period ended September 30, 2009 compared to
$179.7 million for the same period in the prior year.
30
Table of Contents
Provision for Income Taxes
Our
effective consolidated income tax rate on continuing operations was a benefit
of 36.2% for the nine-month period ended September 30, 2009 compared to a
benefit of 35.6% for the same period in 2008.
The effective rate in 2009 and 2008 was lower than the expected
statutory rate due to the effect of the Texas Franchise Tax which reduced our
overall income tax benefit.
Income (loss) from Discontinued Operations
Income from discontinued operations of $17.7 million during
the nine-month period ended September 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 of $79.5 million which include a $69.0 million of contributions in
aid of construction. Prior year loss
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 discussion 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.
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 minor capital
improvements and to manage seasonal cash needs;
·
Obtain external financing for significant
acquisitions; and
·
Achieve approximately equal levels of debt and equity
consistent with the investor-owned water utility industry.
Our statements of cash flows are summarized as follows:
|
|
Nine Months Ended
|
|
|
|
|
|
September 30,
|
|
|
|
(In thousands)
|
|
2009
|
|
2008
|
|
Change
|
|
Net
Cash provided by (used in):
|
|
|
|
|
|
|
|
Continuing
operations:
|
|
|
|
|
|
|
|
Operating
activities
|
|
$
|
7,352
|
|
$
|
277
|
|
$
|
7,075
|
|
Investing
activities
|
|
42,218
|
|
(48,291
|
)
|
90,509
|
|
Financing
activities
|
|
(39,112
|
)
|
46,798
|
|
(85,910
|
)
|
Total
continuing operations
|
|
10,458
|
|
(1,216
|
)
|
11,674
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
Total
discontinued operations
|
|
(9,977
|
)
|
1,519
|
|
(11,496
|
)
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
$
|
481
|
|
$
|
303
|
|
$
|
178
|
|
Cash Flows from Operating Activities of Continuing Operations.
Net cash
provided by operating activities was $7.4 million for the nine-months ended September 30,
2009 versus $0.3 million for the same period last year. Operational aspects of our businesses that
affected working capital in the nine months ended September 2009 versus
the comparable period in 2008, are highlighted below:
·
Net income of $5.8 million, as compared to a net loss
of $2.0 million in 2008;
·
Non-cash operating expense items of $24.7 million, as
compared to $15.0 million in 2008;
·
Income from discontinued operations of $17.7 million,
as compared to a loss of $0.1 million in 2008; and,
31
Table
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·
Changes in operating assets and liabilities decreasing
cash by $5.4 million, as compared to $12.8 million in 2008.
Cash Flows from Investing Activities of Continuing Operations.
Cash provided
by investing activities totaled $42.2 million, representing proceeds from the
sale of businesses and related property, plant and equipment of $54.4 million
(primarily New Mexico Utility Inc. NMUI).
This was offset by capital investments in property, plant and equipment
of $12.3 million.
Cash Flows from Financing Activities of Continuing Operations.
Cash used in
financing activities totaled $39.1 million, primarily related to net repayments
of our long-term debt of $13.7 million, our credit facility of $23.5 million
and the payment of $2.7 million of deferred financing costs related to amending
our credit facility, offset by capital improvement reimbursements of $3.2
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 $32.2 million as of September 30, 2009.
During
the nine-month period ended September 30, 2009, we declared two quarterly
cash dividends of $0.025 per share on common stock and $0.65625 per share of Series A
preferred stock on both April 9, 2009 and July 12, 2009. The
dividends were paid on May 5, 2009 and July 27, 2009,
respectively. Quarterly cash dividends
in the same amounts were paid on January 22, 2009 for dividends declared
in December 2008.
FINANCIAL
CONDITION
We
believe our existing sources of liquidity are adequate to meet our anticipated
needs in the coming year. 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
generated by operations, borrowings under our revolving credit facility or
funds from the capital markets as conditions allow. We expect that borrowing
capacity under our revolving credit facility will continue to be available to
manage working capital during those periods.
As
of September 30, 2009, we had working capital of $25.2 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 reduced other liabilities in connection with the NMUI
disposition.
We
have access to $110 million in financing under our credit facility that expires
February 15, 2013. A total of nine banks participate in the facility. As
of September 30, 2009, we had $32.2 million of borrowing capacity
available under our credit facility. The impact of the prior period restatement
on our retained earnings, combined with the additional borrowings on the
facility during 2008, and the lack of timeliness of Securities and Exchange
Commission (SEC) financial filings created a number of defaults under our
credit facility agreement at the quarter ended March 31, 2009 and December 31,
2008. The defaults were cured with several amendments to the credit facility
agreement dated from November 28, 2008 through July 31, 2009. Under
the amendments, our credit facility was reduced from $150 million to its current
availability of $110 million. The facility was also secured with certain assets
of the Company and our borrowing margins were significantly increased. If our
debt-to-capitalization ratio is 60% or lower, the applicable margins are 4.00%
over the LIBOR rate and 3.00% over the prime rate. As of September 30,
2009 our debt-to-capitalization ratio is 57%, the applicable margins are 4.00%
over the LIBOR rate and 3.00% over the prime rate. Fees charged in connection
with securing these amendments were $2.7 million in the nine months ended September 30,
2009. These fees were capitalized and are being amortized over the remaining
term of the agreement as interest expense. 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. The continued
opportunity for operating improvements, enhanced cash management and suspension
of elective capital expenditures should improve our ability to comply with the
revised covenants in the revolving credit facility.
As
part of the amended credit agreement for our credit facility, we have agreed to
utilize only $12.5 million under our capital lease facility. Our California mortgage bond indentures
permit the issuance of an additional $91.2 million of first mortgage bonds as
of September 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 company pays 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
by $23.1 million as of September 30, 2009. We were in compliance with or
had obtained waivers for all loan agreement covenants during the three-month
and nine-month period, ended September 30, 2009.
32
Table of Contents
We
have previously filed a shelf registration statement with the SEC, 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 Form 10-K,
we cannot use Form S-3 Registration Statements for 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 more costly.
CONTRACTUAL
OBLIGATIONS
The
following table summarizes our known contractual obligations to make future
cash payments as of September 30, 2009, as well as an estimate of the
periods during which these payments are expected to be made.
|
|
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)
|
|
$ 74,500
|
|
$
|
|
$
|
|
$ 74,500
|
|
$
|
|
Mortgage bonds
|
|
33,000
|
|
|
|
|
|
|
|
33,000
|
|
Bank term loans (3)
|
|
30,356
|
|
206
|
|
1,646
|
|
1,646
|
|
26,858
|
|
Convertible subordinated debentures (4)
|
|
11,859
|
|
|
|
|
|
|
|
11,859
|
|
Capital lease obligations (5)
|
|
3,423
|
|
293
|
|
2,195
|
|
935
|
|
|
|
Economic development revenue bonds (6)
|
|
1,810
|
|
120
|
|
260
|
|
295
|
|
1,135
|
|
Note Payable
|
|
78
|
|
78
|
|
|
|
|
|
|
|
Total
long-term debt
|
|
155,026
|
|
697
|
|
4,101
|
|
77,376
|
|
72,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of advances for construction (7)
|
|
9,250
|
|
223
|
|
711
|
|
697
|
|
7,619
|
|
Water
purchase commitment (8)
|
|
6,837
|
|
115
|
|
920
|
|
920
|
|
4,882
|
|
Operating
lease obligations
|
|
19,948
|
|
1,284
|
|
6,985
|
|
3,703
|
|
7,976
|
|
Total
obligations as of September 30, 2009 (9)
|
|
$ 191,061
|
|
$ 2,319
|
|
$ 12,717
|
|
$ 82,696
|
|
$ 93,329
|
|
(1)
Excludes interest payments, which are described in
the following notes. The terms of the long-term debt are also 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 on a sliding scale based on
our consolidated debt-to-capitalization ratio. The weighted-average annual
interest rate on our bank line of credit borrowings was 4.37% as of September 30,
2009, excluding amendment and waiver fees.
(3)
Interest on the bank term loans is fixed at a
weighted-average annual interest rate of 6.50% and is payable monthly.
(4)
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 in 2021.
(5)
Interest on the capital lease obligations is imputed
at a weighted-average annual interest rate of 5.29% and is payable monthly.
(6)
Interest on the economic development bonds is fixed
at a weighted-average annual interest rate of 6.00% and is payable
semiannually.
(7)
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 as shown and corresponding amounts may become
contributed capital.
(8)
Reflects the minimum annual contractual commitment to
purchase water through 2024. The price per unit is subject to increases in
future periods for production cost increases and may also increase, but not
decrease, if our average actual purchase volumes exceed specified amounts.
(9)
The totals exclude 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 September 30, 2009, we had irrevocable standby letters of credit in the
amount of $3.3 million issued and outstanding under our credit facility.
33
Table
of Contents
During
our normal course of business, we have entered into agreements containing
indemnities which may require us 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 may be indefinite. Substantially all of these
indemnities provide no limitation on the maximum potential future payments we
could be obligated to make and are not quantifiable. We have not recorded any
liability for these indemnities.
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.
34
Table of Contents
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As
of September 30, 2009, we had $155.0 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 $74.5
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 4.37% as of September 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 $80.5 million, has a fair value
of $71.2 million as of September 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 6.6% as of September 30, 2009. A
hypothetical ten percent decrease in annual interest rates, from 6.6% 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.
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 December 31, 2008. 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, our
disclosure controls and procedures were not effective. Plans for remediation of
the disclosed weaknesses are in process as described in this section. As of September 30,
2009, sufficient progress has not been made to change our previously disclosed
conclusions. No new material weaknesses were identified in this period.
In
connection with our assessment of our disclosure controls and procedures as of December 31,
2008, we have identified the following deficiencies that constituted
individually, or in the aggregate, material weaknesses in our internal control
over financial reporting. As of September 30,
2009, although remediation is in progress, until remediation testing to verify
effectiveness is complete for each point, we must assume these weaknesses
remain material, and will continue to be disclosed:
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.
35
Table
of Contents
·
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.
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.
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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-month period ended September 30,
2009 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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.
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
ensures 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 plan of 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 requires an
assessment of all failures; many of these improvements are well underway.
c)
Implement specific
remediation actions: train process owners, allow time for process adoption and
adequate transaction volume for next steps.
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d)
Test and measure the
design and effectiveness of the remediation plan, and test and provide feedback
on the design and operating effectiveness of the updated controls.
e)
Management review
and acceptance of completion of the remediation effort.
The
Plan is administered by a Controls Committee comprised of key leaders from
cross functional portions of the organization, including the CFO. The Committee
reports quarterly and as needed to the Audit Committee of our Board of
Directors on progress.
We
believe the steps taken to date have substantially 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 to ensure
that our financial statements continue to be fairly stated in all material
respects.
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 a 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.
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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 5 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 (incorporated by reference to Exhibit 3.2
included in the Companys Form 10-Q filed with the Commission on
September 18, 2009)
|
|
|
|
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
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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: November 9, 2009
|
/s/ DAVID STANTON
|
|
David Stanton
|
|
Chief Financial Officer
|
40
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