Exhibit 99.1
SouthWest Water Company Reports Financials of Recently Purchased Alabama Wastewater System
LOS ANGELES--(BUSINESS WIRE)--SouthWest Water Company (NASDAQ:SWWC) today reported unaudited and pro forma financial information reflecting the Riverview wastewater system purchased earlier this year.
As previously reported, on January 31, 2008 the company completed an acquisition of the assets of a wastewater collection system and related wastewater treatment plant that services more than 12,000 residents in Birmingham, Alabama for $23.3 million (including $0.8 million in related acquisition costs). The company is required to file an amendment to its Current Report on Form 8-K, filed on February 6, 2008, to provide audited historical financial statements for the Riverview system and unaudited pro forma consolidated financial information reflecting the acquisition. The requirement is caused by the material positive impact the acquisition will likely have on the company’s results of operations.
The Riverview system was a small component of a municipal water and wastewater utility representing approximately 5.0% of that utility’s consolidated utility plant and 4.5% of its consolidated revenues. The system was built in 1986/87 and underwent significant expansion from 1990 to 1997. The system has never been operated as a stand-alone business and separate accounting records have never been maintained. The municipal utility archives its historical accounting records in accordance with Alabama state law which permits the destruction of transactional records after seven years.
As a result of the forgoing circumstances, audited financial statements for the Riverview system could not be prepared and the company was unable to timely file the amendment with the Securities and Exchange Commission (SEC).
“The Riverview system was an excellent acquisition that was immediately accretive to our results," commented Mark A. Swatek, chief executive officer and chairman of SouthWest Water. "The different rules associated with public utility reporting and SEC reporting can make transferring public assets into private hands challenging. We are working through these issues in an expeditious manner and expect to be SEC compliant shortly.”
The company has been in contact with the SEC and plans to file the required Form 8-K with alternate audited financial information in the near future. In the interim, the company has elected to disclose the following unaudited and pro forma financial information.
UNAUDITED FINANCIAL INFORMATION OF BUSINESS ACQUIRED | |||||||||
Statement of Revenues and Direct Expenses | Year Ended | ||||||||
(unaudited and in thousands) | December 31, | ||||||||
2007 | 2006 | ||||||||
Operating revenues | $ | 5,174 | $ | 4,477 | |||||
Specifically identifiable direct operating expenses: | |||||||||
Electrical power | 388 | 344 | |||||||
Labor | 335 | 328 | |||||||
Maintenance materials | 197 | 230 | |||||||
Other | 1 | 2 | |||||||
921 | 904 | ||||||||
Allocated direct operating expenses: | |||||||||
Labor | 806 | 716 | |||||||
Maintenance materials | 167 | 152 | |||||||
Other | 2 | 3 | |||||||
975 | 871 | ||||||||
Total Expenses | 1,896 | 1,775 | |||||||
Net revenues and direct expenses | $ | 3,278 | $ | 2,702 | |||||
Statement of Assets Acquired and Liabilities Assumed At Fair Value | ||||
(unaudited and in thousands) | January 31, | |||
2008 | ||||
Assets Acquired at Fair Value | ||||
Utility Plant | ||||
Land | $ | 2,557 | ||
Structures and improvements | 6,016 | |||
Collection sewers - force | 393 | |||
Collection sewers - gravity | 12,198 | |||
Pump stations | 2,166 | |||
Assets acquired | 23,330 | |||
Liabilities assumed | - | |||
Net assets acquired | $ | 23,330 | ||
Statement of Assets Acquired and Liabilities Assumed At Historical Cost | |||
(unaudited and in thousands) | December 31, | ||
2007 | |||
Assets Acquired at Historical Cost | |||
Utility plant | $ | 38,677 | |
Less accumulated depreciation | (12,740 | ) | |
Assets acquired | 25,937 | ||
Liabilities assumed | - | ||
Net assets acquired | $ | 25,937 | |
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL DATA
Basis of Presentation
The unaudited condensed pro forma consolidated statement of operations is presented to reflect the acquisition of the Riverview system as if it had occurred on January 1, 2007. The unaudited condensed pro forma consolidated balance sheet is presented to reflect the acquisition of the Riverview system as if it had occurred on December 31, 2007.
The pro forma adjustments are based upon available information and assumptions management believes are reasonable under the circumstances. The unaudited condensed pro forma consolidated financial data and accompanying notes should be read in conjunction with our historical audited and unaudited financial statements and related notes and the audited financial information and related notes of the Riverview System. The pro forma financial data does not purport to represent what our actual results of operations or actual financial position would have been if the transaction described above in fact occurred on such date or to project our results of operations or financial position for any future period or date.
Unaudited Condensed Pro Forma Consolidated Balance Sheet December 31, 2007 | |||||||||||
(in thousands) | |||||||||||
SouthWest | Riverview | ||||||||||
Water | System | ||||||||||
Historical(1) | Acquired(2) | Adjustments | Pro Forma | ||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 2,950 | $ | -- | $ | -- | $ | 2,950 | |||
Accounts receivable, net | 26,005 | -- | -- | 26,005 | |||||||
Assets held for sale | 16,013 | -- | -- | 16,013 | |||||||
Other current assets | 16,617 | -- | -- | 16,617 | |||||||
Total current assets | 61,585 | -- | -- | 61,585 | |||||||
Property, Plant and Equipment, Net: | |||||||||||
Regulated utilities | 399,146 | 25,937 | (2,607) | (3) | 422,476 | ||||||
Non-regulated operations | 18,757 | -- | -- | 18,757 | |||||||
Total property, plant and equipment, net | |||||||||||
417,903 | 25,937 | (2,607) | 441,233 | ||||||||
Other Assets: | |||||||||||
Goodwill | 17,349 | -- | -- | 17,349 | |||||||
Intangible assets | 2,539 | -- | -- | 2,539 | |||||||
Other assets | 17,033 | -- | -- | 17,033 | |||||||
$ | 516,409 | $ | 25,937 | $ | (2,607) | $ | 539,739 | ||||
Liabilities and Stockholders' Equity | |||||||||||
Current Liabilities: | |||||||||||
Accounts payable | $ | 14,930 | $ | -- | $ | -- | $ | 14,930 | |||
Liabilities related to assets held for sale | |||||||||||
4,297 | -- | -- | 4,297 | ||||||||
Current portion of long-term debt | 1,937 | -- | -- | 1,937 | |||||||
Other current liabilities | 25,020 | -- | -- | 25,020 | |||||||
Total current liabilities | 46,184 | -- | -- | 46,184 | |||||||
Long-Term Debt: | |||||||||||
Revolving credit facility | 51,000 | -- | 23,330 | (4) | 74,330 | ||||||
Other long-term debt | 94,353 | -- | -- | 94,353 | |||||||
Total long-term debt | 145,353 | -- | 23,330 | 168,683 | |||||||
Other Liabilities and Deferred Credits: | |||||||||||
Deferred income taxes | 28,102 | -- | -- | 28,102 | |||||||
Advances for construction | 9,210 | -- | -- | 9,210 | |||||||
Contributions in aid of construction | 115,442 | -- | -- | 115,442 | |||||||
Other liabilities and deferred credits | 12,924 | -- | -- | 12,924 | |||||||
Stockholders' equity | 159,194 | 25,937 | (25,937) | (5) | 159,194 | ||||||
$ | 516,409 | $ | 25,937 | $ | (2,607) | $ | 539,739 | ||||
See accompanying notes to unaudited condensed pro forma consolidated financial data. | |||||||||||
Unaudited Condensed Pro Forma Consolidated Statement of Operations Year Ended December 31, 2007 | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
SouthWest | Riverview | |||||||||||||||||||
Water | System | |||||||||||||||||||
Historical(1) | Acquired(6) | Adjustments | Pro Forma | |||||||||||||||||
Revenues: | ||||||||||||||||||||
Utility Group | $ | 93,370 | $ | 5,174 | $ | -- | $ | 98,544 | ||||||||||||
Services Group | 123,977 | -- | -- | 123,977 | ||||||||||||||||
Total revenues | 217,347 | 5,174 | -- | 222,521 | ||||||||||||||||
Expenses: | ||||||||||||||||||||
Utility Group operating expenses | ||||||||||||||||||||
52,765 | 1,896 | 587 | (7) | 55,248 | ||||||||||||||||
Services Group operating expenses | ||||||||||||||||||||
107,884 | -- | -- | 107,884 | |||||||||||||||||
Selling, general and administrative expenses | ||||||||||||||||||||
36,624 | -- | 120 | (8) | 36,744 | ||||||||||||||||
Impairment of goodwill | 17,215 | -- | -- | 17,215 | ||||||||||||||||
Total expenses | 214,488 | 1,896 | 707 | 217,091 | ||||||||||||||||
Operating income | 2,859 | 3,278 | (707 | ) | 5,430 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense | (7,696 | ) | -- | (1,571 | )(9) | (9,267 | ) | |||||||||||||
Interest income | 618 | -- | -- | 618 | ||||||||||||||||
Other, net | (6 | ) | -- | -- | (6 | ) | ||||||||||||||
Income (loss) from continuing operations before income taxes | ||||||||||||||||||||
(4,225 | ) | 3,278 | (2,278 | ) | (3,225 | ) | ||||||||||||||
Provision for income taxes | 795 | -- | 384 | (10) | 1,179 | |||||||||||||||
Income (loss) from continuing operations | ||||||||||||||||||||
(5,020 | ) | 3,278 | (2,662 | ) | (4,404 | ) | ||||||||||||||
Loss from discontinued operations, net of tax | ||||||||||||||||||||
(3,026 | ) | -- | -- | (3,026 | ) | |||||||||||||||
Net income (loss) | (8,046 | ) | 3,278 | (2,662 | ) | (7,430 | ) | |||||||||||||
Preferred stock dividends | (24 | ) | -- | -- | (24 | ) | ||||||||||||||
Net income (loss) applicable to common stockholders | ||||||||||||||||||||
$ | (8,070 | ) | $ | 3,278 | $ | (2,662 | ) | $ | (7,454 | ) | ||||||||||
Loss per common share: | ||||||||||||||||||||
Basic: | ||||||||||||||||||||
Loss from continuing operations | ||||||||||||||||||||
$ | (0.21 | ) | $ | (0.18 | ) | |||||||||||||||
Loss from discontinued operations(11)
| ||||||||||||||||||||
(0.12 | ) | (0.13 | ) | |||||||||||||||||
Net loss applicable to common stockholders | ||||||||||||||||||||
$ | (0.33 | ) | $ | (0.31 | ) | |||||||||||||||
Diluted: | ||||||||||||||||||||
Loss from continuing operations | ||||||||||||||||||||
$ | (0.21 | ) | $ | (0.18 | ) | |||||||||||||||
Loss from discontinued operations(11) | ||||||||||||||||||||
(0.12 | ) | (0.13 | ) | |||||||||||||||||
Net loss applicable to common stockholders | ||||||||||||||||||||
$ | (0.33 | ) | $ | (0.31 | ) | |||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 24,101 | 24,101 | ||||||||||||||||||
Diluted | 24,101 | 24,101 |
See accompanying notes to unaudited condensed pro forma consolidated financial data.
Notes To Unaudited Condensed Pro Forma Consolidated Financial Data
1) Reflects the historical financial position and results of operation of SouthWest Water Company derived from its historical audited financial statements included in its Form 10-K for year ended December 31, 2007 filed on March 31, 2008. Those audited financial statements and accompanying notes should be read in conjunction this pro forma financial data.
2) Reflects the historical cost of the Riverview System assets acquired.
3) Reflects the adjustment required to reduce the historical carrying value of the assets acquired to a $23.3 million fair value based on the total purchase price. The purchase price allocation is preliminary and may change upon completion of the final valuations of the assets acquired.
4) Reflects borrowings under the revolving credit facility to acquire the Riverview System assets.
5) Reflects elimination of the Riverview System equity upon acquisition.
6) Reflects the unaudited historical revenues and direct expenses for the Riverview System. Excludes costs for administrative functions such as accounting, billing, credit and collection, customer call centers and depreciation that were not allocated to the Riverview System by its previous owner.
7) Reflects depreciation expense based upon the fair value of the assets acquired and their remaining expected useful lives as of the acquisition date.
8) Reflects additional expenses for administrative functions we expect will be incurred for the functions that were not allocated to the Riverview System by its previous owner.
9) Reflects additional interest expense, net of a reduction in unused credit facility fees, resulting from the $23.3 million of borrowings related to the acquisition at the 6.88% incremental annual effective interest rate in effect during the year ended December 31, 2007.
10) Reflects an additional provision for income taxes resulting from the acquisition of the Riverview System at our 38.38% incremental effective tax rate for the year ended December 31. 2007. The Riverview System was not a stand-alone tax paying entity prior its acquisition therefore the adjustment reflects the incremental taxes we would have likely incurred on the pre-tax income of the Riverview System, net of the pro forma adjustments.
11) The change is attributable to rounding in the loss per common share computations.
SouthWest Water Company provides a broad range of services, including water production, treatment and distribution; wastewater collection and treatment; utility billing and collection; utility infrastructure construction management; and public works services. The company owns regulated public utilities and also serves cities, utility districts and private companies under contract. More than two million people from coast to coast depend on SouthWest Water for high-quality, reliable service. Additional information may be found on the company’s website: www.swwc.com.
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, including expectations relating to future revenues and income, the company’s ability to gain new business and control costs, involve risks and uncertainties, as well as assumptions that, if they prove incorrect or never materialize, could cause the results of the company to differ materially from those expressed or implied by such forward-looking statements. Actual results may differ materially from these expectations due to changes in regulatory, political, weather, economic, business, competitive, market, environmental and other factors. More detailed information about these factors is contained in the company’s filings with the Securities and Exchange Commission, including under the caption “Risk Factors” in the company’s 2007 Annual Report on Form 10-K. The company assumes no obligation to update these forward-looking statements to reflect any change in future events.
CONTACT:
SouthWest Water Company
DeLise Keim, (213) 929-1846
www.swwc.com
or
PondelWilkinson Inc.
Robert Jaffe, (310) 279-5969
www.pondel.com