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 March 31, 2000
OR
_____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
Southwest Water Company
(Exact name of registrant as specified in its charter)
Delaware 95-1840947
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 North Barranca Avenue, Suite 200
West Covina, California 91791-1605
(Address of principal executive offices) (Zip Code)
(626) 915-1551
(Registrant's telephone number, including area code)
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 __
-
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. On May 8, 2000, there were
6,480,802 common shares outstanding.
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
- ------- ---------------------- --------
Item 1. Financial Statements:
Condensed Consolidated Statements of Income-
Three Months Ended March 31, 2000 and 1999 1
Condensed Consolidated Balance Sheets -
As of March 31, 2000 and December 31, 1999 2
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 9
Part II. Other Information:
- -------- ------------------
Item 1. Legal Proceedings 9-10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
------------------------------------------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
Operating Revenues $20,557 $16,649
Operating Expenses:
Direct operating expenses 16,073 12,536
Selling, general and administrative 3,110 2,934
------------------------------------------------------------------------------------------------------------------------
19,183 15,470
Operating Income 1,374 1,179
Other Income (Expense):
Interest expense (788) (759)
Interest income 82 17
Other 49 152
------------------------------------------------------------------------------------------------------------------------
(657) (590)
Income Before Income Taxes 717 589
Provision for income taxes 287 235
------------------------------------------------------------------------------------------------------------------------
Net Income 430 354
Dividends on preferred shares 7 7
------------------------------------------------------------------------------------------------------------------------
Net Income Available for Common Shares $ 423 $ 347
------------------------------------------------------------------------------------------------------------------------
Earnings per Common Share (Note 4):
Basic $ 0.06 $ 0.05
Diluted $ 0.06 $ 0.05
------------------------------------------------------------------------------------------------------------------------
Cash Dividends per Common Share (Note 4) $ 0.06 $ 0.05
------------------------------------------------------------------------------------------------------------------------
Weighted Average Outstanding Common Shares (Note 4):
Basic 6,463 6,378
Diluted 6,749 6,503
------------------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial
statements.
1
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
- --------------------------------------------------------------------------------------------------------------------------
ASSETS 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
(unaudited)
(in thousands)
Current Assets:
Cash and cash equivalents $ 248 $ 4,146
Customers' accounts receivable, net 11,321 10,465
Other current assets 4,505 3,700
- --------------------------------------------------------------------------------------------------------------------------
16,074 18,311
Property, Plant and Equipment:
Utility property, plant and equipment -- at cost 162,538 152,624
Contract operations property, plant and equipment -- at cost 5,815 5,654
- --------------------------------------------------------------------------------------------------------------------------
168,353 158,278
Less accumulated depreciation and amortization 45,864 44,581
- --------------------------------------------------------------------------------------------------------------------------
122,489 113,697
Other Assets 11,240 10,942
- --------------------------------------------------------------------------------------------------------------------------
$ 149,803 $ 142,950
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt and bank notes payable $ 1,592 $ 2,039
Accounts payable 2,679 2,081
Other current liabilities 13,103 12,486
- --------------------------------------------------------------------------------------------------------------------------
17,374 16,606
Other Liabilities and Deferred Credits:
Long-term debt 28,000 28,000
Bank notes payable 10,975 5,454
Advances for construction 8,004 7,930
Contributions in aid of construction 34,651 34,519
Deferred income taxes 6,329 6,146
Other liabilities and deferred credits 3,754 3,818
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Deferred Credits 109,087 102,473
Stockholders' Equity
Cumulative preferred stock 517 517
Common stock 65 64
Paid-in capital 31,283 31,080
Retained earnings 8,851 8,816
- --------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 40,716 40,477
- --------------------------------------------------------------------------------------------------------------------------
$ 149,803 $ 142,950
==========================================================================================================================
See accompanying notes to condensed consolidated financial statements.
2
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash Flows From Operating Activities:
Net Income $ 430 $ 354
Adjustments to reconcile net income to
net cash provided by operating activities 869 $ 1,438
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,299 1,792
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to property, plant and equipment (9,986) (2,217)
Other investments, net (336) 125
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,322) (2,092)
- -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net proceeds (repayments) on bank notes payable 5,074 (103)
Contributions in aid of construction and advances for construction 316 262
Net proceeds from dividend reinvestment plan,
employee stock purchase plan, and stock option plans 199 397
Dividends paid (394) (348)
Payments on advances for construction (70) (42)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities 5,125 166
- -------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (3,898) (134)
Cash and cash equivalents at beginning of period 4,146 394
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 248 $ 260
===============================================================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 900 $ 557
Income taxes $ - $ 275
Depreciation and amortization $ 1,162 $ 1,123
Non-cash contributions in aid of construction
conveyed to Company by developers $ 161 $ 328
See accompanying notes to condensed consolidated financial statements.
3
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
1. Southwest Water Company ("the Company" or "Registrant") together with its
subsidiaries is in the business of managing all aspects of water and
wastewater systems, and provides its services to more than one million
people in 24 states. Through its wholly owned subsidiary, ECO Resources,
Inc. ("ECO"), the Company operates and manages water and wastewater
treatment facilities owned by cities, municipal utility districts and
private entities. The Company owns and operates water and wastewater
utilities through two wholly owned subsidiaries, Suburban Water Systems
("Suburban") and New Mexico Utilities, Inc. ("NMUI"). The unaudited
condensed consolidated financial statements reflect all adjustments, which,
in the opinion of management, are necessary to present fairly the financial
position of the Company as of March 31, 2000, and the Company's results of
operations for the three months ended March 31, 2000. All such adjustments
are of a normal recurring nature. Certain reclassifications have been made
to the 1999 financial statements to conform to the 2000 presentation.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and related notes contained in the Company's Annual
Report on Form 10-K ("the 1999 Annual Report") for the year ended December
31, 1999.
3. There is seasonality to the water services industry; thus, the results
of operations for the three months ended March 31, 2000 do not necessarily
indicate the results to be expected for the full year. Rainfall and weather
conditions affect utility operations, with most water consumption occurring
during the third quarter of each year when weather tends to be hot and dry.
Drought conditions would have the effect of lowering revenue due to
conservation efforts. The Company's contract operations business can also
be seasonal in nature. Heavy rainfall hampers the Company's ability to
perform billable work such as pipeline maintenance, manhole rehabilitation
and other outdoor services. Moderate rainfall may create additional
opportunities for billable work outside the scope of existing contracts.
Drought conditions would not necessarily affect the Company's opportunities
for additional billable work.
4. The Company records earnings per share ("EPS") by computing basic EPS and
diluted EPS. Basic EPS is used to measure the performance of the Company
over the reporting period by dividing net income available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS is used to measure the performance of the
Company over the reporting period after giving effect to all dilutive
potential common shares that would have been outstanding if the dilutive
common shares had been issued. Stock options give rise to dilutive common
shares.
5. In April 2000, the Company purchased 80 percent of the outstanding shares
of Master Tek International, Inc. ("Master Tek"), a nationwide provider of
utility submetering, billing and collection services for a purchase price
of $4,000,000. The purchase price consisted of a $2,000,000 cash payment
upon closing and a ten-year promissory note. The purchase agreement
provides that the Company has the right to acquire the remaining 20 percent
ownership for a price based on a formula related to the financial
performance of Master Tek over the next ten years. In addition, the Company
entered into an employment agreement, a consulting agreement and a non-
compete agreement with the owner of the remaining 20 percent of Master Tek
as is customary in transactions of this type. Submetering involves the
installation of electronic equipment in apartments, condominiums, mobile
home parks and other multi-family dwellings to allow the measurement of
water, gas and electricity usage for each individual residential unit.
Master Tek serves more than 175,000 dwelling units in 24 states and, in
1999, generated revenues of more than $5,000,000.
4
6. As discussed in the 1999 Annual Report, Suburban purchased the City of West
Covina's ("West Covina") water distribution system and facilities. On
February 25, 2000, Suburban assumed ownership and operation of the water
system. The transaction added approximately 7,000 connections to Suburban's
customer base, an increase of approximately 11 percent. The purchase of the
West Covina system was funded in part by the reinvestment of approximately
$3,900,000 of proceeds from the sale of surplus land, as described fully in
the Company's 1999 Annual Report. The remaining funds for the purchase were
obtained from line of credit borrowing.
7. As discussed in the 1999 Annual Report, the Company owns a 49 percent
interest in Windermere Utility Company ("Windermere"), a small, regulated
water utility located near Austin, Texas. The Company has an agreement with
the majority shareholder under which the majority shareholder may purchase
the Company's interest in Windermere for an agreed-upon price. The
agreement, as amended, extends to May 31, 2000 the majority shareholder's
right to exercise this purchase option. The Company is currently holding
discussions with the majority shareholder of Windermere to purchase its
interest in Windermere along with two other utilities, also located near
Austin, Texas. The Company anticipates that negotiations will be completed
in 2000.
8. As discussed in the 1999 Annual Report, the City of Albuquerque
("Albuquerque") has initiated an action in eminent domain to acquire the
operations of NMUI. In March 2000, certain members of the Albuquerque city
council introduced a bill directing the city attorney to withdraw the
condemnation and cease negotiations to acquire NMUI. However, in April
2000, the bill was defeated, and the condemnation action remains pending.
At present, Albuquerque is not prosecuting this action and there is no
assurance that a settlement of the legal action or other resolution will be
reached quickly.
9. The Company has two reportable segments as defined under the requirements
of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." There was no change in the basis of segmentation or in the
basis of measurement of segment profit or loss from the information
reported in the 1999 Annual Report. The following table sets forth required
disclosure about the Company's reportable segments as required by SFAS No.
131.
Total Total
Non- Segment Consolidated
Regulated Regulated Information Other Information
--------- --------- -------------- -------- ------------
(in thousands)
As of March 31, 2000
- --------------------
Revenues from external customers $12,347 $ 8,210 $ 20,557 $ 0 $ 20,557
Segment operating profit 254 2,155 2,409 (1,035) 1,374
Segment assets 13,595 128,287 141,882 7,921 149,803
As of March 31, 1999
- --------------------
Revenues from external customers $ 8,852 $ 7,797 $ 16,649 $ 0 $ 16,649
Segment operating profit 171 2,021 2,192 (1,013) 1,179
Segment assets 9,506 116,501 126,007 4,320 130,327
5
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and capital resources of the Company are influenced primarily by
construction expenditures at Suburban and NMUI for the addition, replacement and
renovation of water utility facilities. The Company's capital resources may
also be influenced by investments to acquire new business opportunities.
At March 31, 2000, the Company had cash and cash-equivalent balances totaling
$248,000 and three separate unsecured lines of credit from three commercial
banks, with total line of credit capacity of $20,000,000. All of the lines
expire in 2001 and the Company expects to renew expiring lines of credit in the
normal course of business. At March 31, 2000, outstanding borrowing was
$11,667,000, and the unused borrowing capacity was $8,333,000. In the first
quarter of 2000, the Company's outstanding line of credit borrowing increased
$5,074,000 primarily due to additional cash requirements for acquisitions and
investments made by the Company. Under two of the line of credit agreements,
interest is charged at each banks' prime rate less one-quarter percent. The
Company may also borrow at an interest rate that is lower than this rate;
however, the amount borrowed must remain outstanding for a fixed period of time.
Interest charged under the third line of credit is lower than the bank's prime
rate and contains no restrictions as to minimum borrowing or borrowing for a
fixed period of time. Two of the lines of credit require a $6,000 annual fee,
and the remaining line of credit requires no annual fee. Each of the line of
credit agreements, as amended, contains certain financial restrictions. As of
March 31, 2000, the Company was in compliance with all applicable financial
covenants of the line of credit agreements.
In addition to its lines of credit, the Company has existing borrowing capacity
under its First Mortgage Bond Indentures. Under these indentures, the Company
has remaining borrowing capacity of approximately $47,855,000. However, the
amount of additional borrowing available to the Company under its current lines
of credit is limited by financial covenants that restricted additional borrowing
at March 31, 2000 to the unused credit line amount.
During the first quarter of 2000, the Company's additions to property, plant and
equipment were $10,147,000, representing an increase of $3,215,000 from 1999.
The increase was due primarily to the purchase of West Covina's water
distribution system and facilities, which accounted for $9,140,000 of the
additions. Other capital projects accounted for the remaining $1,007,000 of
additions. Developers made contributions in aid of construction ("CIAC"), and
advances totaling $477,000, of which $316,000 was received in cash and $161,000
was received as non-cash contributions of property. Company-financed capital
additions were $9,670,000, funded primarily by borrowing on the lines of credit,
cash flow from operations, and the reinvestment of proceeds from the sale of
surplus land as discussed in Note 6 to the condensed consolidated financial
statements. For the remainder of 2000, the Company estimates that its capital
additions will be approximately $7,200,000, and that cash flow from operations
and CIAC will fund these additions. Line of credit borrowing is also available
to meet construction requirements if needed.
The Company anticipates that its available line of credit borrowing capacity and
the cash flow generated from operations will be sufficient to fund its
activities during the next 12 months, including certain new business
investments. If additional cash were needed, the Company would consider
alternative sources, including long-term financing. The amount and timing of
any future long-term financing would depend on various factors, including the
timeliness and adequacy of rate increases, the availability of capital, and the
Company's ability to meet interest and fixed charge coverage requirements.
Regulatory approval is required for any long-term financing by Suburban or NMUI.
If the Company was unable to renew its existing lines of credit or unable to
obtain additional long-term financing, capital spending or acquisitions would be
reduced or delayed until new financing arrangements were secured. Such
financing arrangements could include seeking equity financing through a private
placement or a public offering. Similarly, if the Company needed additional
cash to fund an acquisition, financing arrangements could include long-term
borrowing or equity financing.
6
Regulatory Affairs:
Regulation and Regulatory Developments
ECO has two distinct types of contractual relationships: time and material
contracts primarily with municipal utility districts ("MUDs"), and fixed fee
operations and maintenance contracts ("O&Ms"). A MUD is a utility district
created under the rules of the Texas Natural Resource Conservation Commission in
order to provide water, wastewater and drainage services to areas where existing
municipal services are not available. O&M contracts are agreements with cities
and private entities that provide for a specified level of services such as
facility operation and maintenance, meter readings and billing, or management of
the entire water or wastewater system. ECO's pricing is not subject to
regulation by a public utilities commission. Most contracts with MUDs are short-
term contracts and do not generally include inflation adjustments. Changes in
prices are negotiated on a contract-by-contract basis. ECO's O&M contracts are
generally longer-term water and wastewater service contracts, primarily with
cities, and typically include inflation adjustments.
The California Public Utilities Commission ("CPUC") and the New Mexico Public
Regulation Commission ("NMPRC") regulate the rates and operations of Suburban
and NMUI, respectively. The rates allowed are intended to provide the utilities
an opportunity to recover costs and earn a reasonable return on common equity.
Although neither utility is currently seeking any rate increase, future
construction expenditures and increased operating expenses may require periodic
requests for rate increases. As discussed in the 1999 Annual Report, the CPUC
has directed Suburban to file a general rate application by July 1, 2001.
Regulatory Developments:
The Company closely monitors legislative, CPUC and NMPRC developments. The
various water industry associations in which the Company actively participates
also monitor these developments. The Company does not know the future possible
legislative, CPUC or NMPRC changes that will be enacted or the terms of such
changes if enacted. Therefore, management cannot predict the impact, if any, of
future legislative changes, CPUC or NMPRC developments or changes on the
Company's financial position or results of operations.
Environmental Affairs:
As a contract operator, ECO does not own any of the water sources, water
production facilities, or water distribution systems that it operates for its
clients, nor does ECO own any of the wastewater collection systems or wastewater
treatment facilities that it operates for its clients. Although not the owner,
ECO is responsible for operating these water and wastewater facilities in
compliance with all federal, state and local health standards and regulations.
Suburban and NMUI operations fall under the regulatory jurisdiction of the CPUC
and the NMPRC, respectively. The responsibilities of both regulatory agencies
are to ensure an adequate supply of affordable, healthful, potable water to
residents of their respective states. The Company's operations are also subject
to water and wastewater pollution prevention standards and water and wastewater
quality regulations of the Environmental Protection Agency ("EPA") and various
state regulatory agencies. Both the EPA and state regulatory agencies require
periodic testing and sampling of water. Costs associated with the testing of
the Company's water supplies have increased and are expected to increase further
as the regulatory agencies adopt additional monitoring requirements. The
Company believes that future incremental costs of complying with governmental
regulations, including capital expenditures, will be recoverable through
increased rates and contract operations revenues. However, there is no
assurance that recovery of such costs will be allowed. To date, the Company has
not experienced any material adverse effects upon its operations resulting from
compliance with governmental regulations.
As discussed in the Company's 1999 Annual Report, the Company has been named in
several complaints alleging water contamination in the Main San Gabriel Basin in
Southern California. In September 1999, the California 2nd District Court of
Appeal ordered that the lawsuits be dismissed. The
7
California Supreme Court has agreed to review this decision. The Company
anticipates that the Supreme Court will hear the case during 2000.
As discussed in the Company's 1999 Annual Report, in March 1998, the CPUC issued
an order instituting investigation ("OII") directed to all Class A and B water
utilities in California, including Suburban. The purpose of the OII is to
address a series of questions dealing with the safety of current drinking water
standards and compliance with those standards. In February 2000, the CPUC issued
a draft opinion finding that the California Department of Health Services
("DOHS") requirements governing drinking water quality adequately protect the
public health and safety, and that the regulated water utilities have complied
with past and present drinking water quality requirements. While the CPUC
continues to investigate the issues concerned with water quality, the Company
and Suburban are unable to predict what final actions, if any, will be taken by
the CPUC and/or the DOHS as the result of this investigation, or their impact on
the operations or financial position of the Company and Suburban.
Risk Factors:
Certain statements contained in this Report on Form 10-Q for the quarter ended
March 31, 2000 ("the March Report") that are not based on historical fact are
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are only projections. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company to be materially different from any performance or achievements planned,
expressed or implied by such forward-looking statements. Although the Company
believes that its expectations are based on reasonable assumptions within the
bounds of its knowledge of its business and operations, there can be no
assurance that actual results will not differ materially from its expectations.
The March Report should be read in conjunction with the Company's 1999 Annual
Report for a more detailed description of the risk factors affecting the Company
which include, but are not limited to, expectations regarding new contracts and
potential acquisitions, weather conditions, water quality issues, regulatory
changes, legal and other contingencies.
Results of Operations:
Three Months Ended March 31, 2000 Compared To Three Months Ended March 31, 1999
Diluted earnings per common share were $.06 in 2000, an increase of 20%,
compared to $.05 during the same period in 1999.
Operating income
Operating income increased $195,000 or 17%, and, as a percentage of operating
revenues, was 7% in both 2000 and 1999. ECO's operating income increased
$83,000, due to the addition of new contracts and an increase in the amount of
project work performed outside the scope of existing contracts primarily in the
central Texas region. Operating income at the utilities increased $134,000, due
primarily to a 5% increase in water consumption by Suburban's customers during a
mild and dry first quarter, which contributed to a 7% increase in utility
operating income. Parent company expenses increased $22,000, due primarily to
an increase in payroll and benefit-related costs.
Operating revenues
Operating revenues increased $3,908,000 in the first quarter of 2000 compared
with the same period in 1999. ECO's revenues increased $3,495,000 or 39%, due
primarily to new contracts and to an increase in the amount of project work
performed outside the scope of existing contracts. Utility revenues increased
$413,000. Suburban's revenues increased 6% due primarily to increased customer
water consumption because of mild first quarter weather. NMUI increased its
number of customers by 311, contributing to a 16% increase in water consumption,
and a 9% increase in water revenue.
8
Direct operating expenses
Direct operating expenses increased $3,537,000 or 28%. As a percentage of
operating revenues, these expenses were 78% in 2000 and 75% in 1999. ECO's
direct operating expenses increased $3,409,000, primarily as a result of new
contracts and the increase in the amount of project work performed outside the
scope of existing contracts. Suburban's direct operating expenses increased
$151,000, primarily due to increased water purchases resulting from higher
customer water consumption. NMUI's direct operating expenses decreased $23,000
due to lower production and distribution expenses.
Selling, general and administrative
Selling, general and administrative expenses for the first quarter of 2000
increased $176,000 as compared with the same period in 1999. As a percentage of
operating revenues, these expenses were 15% in 2000 and 18% in 1999. General
and administrative expenses at the utilities increased $154,000, because of a
decrease in the amount of capitalized administrative overhead at both Suburban
and NMUI. As discussed above, general and administrative expenses of the parent
company increased $22,000.
Other
Interest expense increased $29,000 as a result of the increase in line of credit
borrowing in late February to finance the West Covina acquisition. The increase
also reflects higher interest rates in 2000 compared to 1999.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
As discussed in the Company's 1999 Annual Report, ECO was named as a defendant
in four lawsuits alleging injury and damages as the result of a sewage spill,
which occurred at an Austin, Texas sewage pumping station. The case is presently
in the discovery stage. No oral depositions have been taken and there have been
no court hearings. The Company and ECO intend to vigorously defend against these
claims and have requested defense and indemnification by their insurance
carrier. At this time, the Company does not believe this matter will have a
material adverse effect on the Company's financial position or results of
operations.
As discussed in the Company's 1999 Annual Report, the Company has been named in
several complaints alleging water contamination in the Main San Gabriel Basin in
Southern California (the "Main Basin"). In September 1999, the California 2nd
District Court of Appeal ordered that the lawsuits be dismissed. The California
Supreme Court has agreed to review this decision. The Company anticipates that
the California Supreme Court will hear the oral argument during 2000. The
Company and Suburban have requested defense and indemnification from their
liability insurance carriers for these lawsuits. Several of the liability
insurance carriers are currently contributing to the costs of defense of the
lawsuits. Two additional lawsuits similar to those described in this paragraph
were filed in April 2000 by approximately 240 plaintiffs against Suburban, the
Company, other water producers in the Main Basin and a number of alleged
industrial polluters. The actions have not yet been served on the Company or
Suburban. The Company expects to defend the new actions on the same basis as
the earlier actions. Based upon information available at this time, management
does not expect that these actions will have a material adverse effect on the
Company's financial position or results of operations.
As discussed in the Company's 1999 Annual Report, in October 1998 the Company
and ECO were sued in an action in Texas arising out of a fatal auto accident.
The Company believes that its maximum exposure in this action is limited to the
self-insured retention under its umbrella liability policy. Based on the
information available at this time, management does not expect that this action
will have a material adverse effect on the Company's financial position or
results of operations.
As discussed in Note eight to the condensed consolidated financial statements,
Albuquerque initiated an action in eminent domain to acquire the operations of
NMUI. The Company believes that the fair market value of NMUI is substantially
in excess of the amount offered in Albuquerque's complaint. Under New
9
Mexico state law, there are procedures that would allow Albuquerque to take
possession prior to a resolution of the fair market value issue; however, the
Company believes that it has adequate defenses should Albuquerque choose to
pursue these procedures. Presently, Albuquerque is not prosecuting this action
and there is no assurance that a settlement of the legal action or any other
resolution will be reached quickly.
The Company and its subsidiaries are the subjects of certain litigation arising
from the ordinary course of operations. The Company believes the ultimate
resolution of such matters will not materially affect its consolidated financial
position, results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits furnished pursuant to Item 601 of Regulation S-K:
10.15B Modification Agreement between New Mexico Utilities, Inc. and
First Security Bank of New Mexico, N.A., dated April 10, 2000,
filed herewith.
10.19 Stock Purchase Agreement between Registrant and Milton R.
DiGregorio, Beverly A. DiGregorio, and the Milton R. DiGregorio
and Beverly A. DiGregorio 2000 Irrevocable Family Trust dated
April 3, 2000, filed herewith.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
10
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: May 12, 2000 /s/ PETER J. MOERBEEK
- ------------------- ---------------------
Peter J. Moerbeek
Chief Financial Officer
Dated: May 12, 2000 /s/THOMAS C. TEKULVE
- ------------------- ---------------------
Thomas C. Tekulve
Chief Accounting Officer
11