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, 2001
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
[LOGO] Southwest Water Company
(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 No.)
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 10, 2001, there were
8,607,309 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, 2001 and 2000 1
Condensed Consolidated Balance Sheets -
As of March 31, 2001 and December 31, 2000 2
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2001 and 2000 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Part II. Other Information:
- -------- ------------------
Item 1. Legal Proceedings 9
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 FINANCIAL STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
- ---------------------------------------------------------------------------------------------------
2001 2000
- ---------------------------------------------------------------------------------------------------
(in thousands except per share data)
Operating Revenues $ 23,215 $ 20,557
Operating Expenses:
Direct operating expenses 17,760 16,073
Selling, general and administrative 3,579 3,110
- ---------------------------------------------------------------------------------------------------
21,339 19,183
Operating Income 1,876 1,374
Other Income (Expense):
Interest expense (992) (788)
Interest income 19 82
Other (40) 49
- ---------------------------------------------------------------------------------------------------
(1,013) (657)
Income Before Income Taxes 863 717
Provision for income taxes 328 287
- ---------------------------------------------------------------------------------------------------
Net Income 535 430
Dividends on preferred shares 7 7
- ---------------------------------------------------------------------------------------------------
Net Income Available for Common Shares $ 528 $ 423
===================================================================================================
Earnings per Common Share (Note 3):
Basic $ 0.06 $ 0.05
Diluted $ 0.06 $ 0.05
===================================================================================================
Cash Dividends per Common Share (Note 3) $ 0.06 $ 0.05
===================================================================================================
Weighted Average Outstanding Common Shares (Note 3):
Basic 8,567 8,079
Diluted 8,981 8,436
===================================================================================================
See accompanying notes to condensed consolidated financial statements.
1
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
- ------------------------------------------------------------------------------------------------------------
ASSETS 2001 2000
- ------------------------------------------------------------------------------------------------------------
(unaudited)
(in thousands)
Current Assets:
Cash and cash equivalents $ 1,243 $ 1,379
Customers' accounts receivable, net 19,370 17,830
Other current assets 8,522 7,597
- ------------------------------------------------------------------------------------------------------------
29,135 26,806
Property, Plant and Equipment:
Utility property, plant and equipment -- at cost 208,710 206,100
Contract operations property, plant and equipment -- at cost 9,163 8,394
- ------------------------------------------------------------------------------------------------------------
217,873 214,494
Less accumulated depreciation and amortization 58,237 56,651
- ------------------------------------------------------------------------------------------------------------
159,636 157,843
Other Assets 12,134 12,003
- ------------------------------------------------------------------------------------------------------------
$ 200,905 $ 196,652
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt and bank notes payable $ 4,508 $ 5,166
Accounts payable 5,208 5,983
Other current liabilities 16,575 14,438
- ------------------------------------------------------------------------------------------------------------
26,291 25,587
Other Liabilities and Deferred Credits:
Long-term debt 27,100 27,100
Bank notes payable 21,999 19,251
Advances for construction 7,771 7,891
Contributions in aid of construction 51,231 50,644
Deferred income taxes 7,081 6,988
Other liabilities and deferred credits 10,516 10,580
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Deferred Credits 151,989 148,041
Stockholders' Equity
Cumulative preferred stock 514 514
Common stock 86 86
Paid-in capital 35,825 35,568
Retained earnings 12,491 12,443
- ------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 48,916 48,611
- ------------------------------------------------------------------------------------------------------------
$ 200,905 $ 196,652
============================================================================================================
See accompanying notes to condensed consolidated financial statements.
2
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
- -------------------------------------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------------------------------------
(in thousands)
Cash Flows From Operating Activities:
Net Income $ 535 $ 430
Adjustments to reconcile net income to
net cash provided by operating activities 651 869
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,186 1,299
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to property, plant and equipment (3,432) (1,486)
Acquisition of business 0 (8,500)
Other investments, net 0 (336)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,432) (10,322)
- -------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net borrowing on bank notes payable 1,943 5,074
Contributions in aid of construction and advances for construction 587 316
Net proceeds from dividend reinvestment plan,
employee stock purchase plan, and stock option plans 198 199
Dividends paid (485) (394)
Payments on advances (133) (70)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,110 5,125
- -------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (136) (3,898)
Cash and cash equivalents at beginning of period 1,379 4,146
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,243 $ 248
=============================================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 906 $ 900
Income taxes $ 20 $ -
Depreciation and amortization $ 1,643 $ 1,162
Non-cash contributions in aid of construction
conveyed to Company by developers $ 423 $ 161
See accompanying notes to condensed consolidated financial statements.
3
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(Unaudited)
1. Southwest Water Company (Southwest Water or the Company) provides a broad
range of services including water production and distribution, wastewater
collection and treatment and utility submetering. The Company owns
regulated public utilities and also serves utility districts and private
companies under contract. Southwest Water serves more than one million
people in 30 states from coast to coast.
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. Nationwide, the
Company provides utility submetering and billing and collection services
through its 80%-owned subsidiary, Master Tek International, Inc. (MTI).
Southwest Water owns and operates water and wastewater utilities through
three wholly owned subsidiaries, Suburban Water Systems (Suburban), New
Mexico Utilities, Inc. (NMUI) and Texas Utilities (TU). TU consists of an
80%-owned utility, Windermere Utility Company located near Austin, Texas,
and 100% ownership of Hornsby Bend Utility Company, an adjacent water
utility.
The unaudited condensed consolidated financial statements reflect all
adjustments, which, in the opinion of management, are necessary to present
fairly the financial position of Southwest Water as of March 31, 2001, and
the Company's results of operations for the three months ended March 31,
2001. All such adjustments are of a normal recurring nature.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America (USA) 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 for the year
ended December 31, 2000 (the 2000 Annual Report). Southwest Water is not
aware of any new accounting standards that would have a material impact on
the Company's financial position, results of operations or cash flow.
3. Southwest Water records earnings per share (EPS) by computing basic EPS and
diluted EPS in accordance with accounting principles generally accepted in
the USA. Basic EPS measures 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 measures the performance of the Company over the reporting
period after giving effect to all potentially dilutive common shares that
would have been outstanding if the dilutive common shares had been issued.
Stock options and warrants give rise to potentially dilutive common shares.
4. Southwest Water has two reportable segments as defined under the
requirements of Statement of Financial Accounting Standards (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 2000 Annual
Report.
4
The following table sets forth the disclosures about the Company's reportable
segments required by SFAS No. 131.
Total Total
Non- Segment Consolidated
Regulated Regulated Information Other Information
----------------------------------------------------------------------------
(in thousands)
Three months Ended March 31, 2001
- ---------------------------------
Revenues from external customers $13,826 $ 9,389 $ 23,215 $ 0 $ 23,215
Segment operating profit 698 2,255 2,953 (1,077) 1,876
As of March 31, 2001
- --------------------
Segment assets 33,252 165,496 198,748 2,157 200,905
Three months Ended March 31, 2000
- ---------------------------------
Revenues from external customers $12,347 $ 8,210 $ 20,557 $ 0 $ 20,557
Segment operating profit 259 2,150 2,409 (1,035) 1,374
As of March 31, 2000
- --------------------
Segment assets 13,595 128,287 141,882 7,921 149,803
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company's liquidity, capital resources and cash flows from operations
are influenced primarily by construction expenditures at Suburban, NMUI and TU
for the addition, replacement and renovation of water and wastewater utility
facilities. The Company's capital resources are also influenced by investments
in new business opportunities, including the acquisition of companies, funding
of projects and acquisition of contracts. As fully described in the 2000 Annual
Report, ECO financed and built a reverse-osmosis water treatment plant. In
connection with this project, ECO recorded a receivable for the work done and
expects to receive payment for the full amount from the El Paso County Water
Authority in 2001.
At March 31, 2001, Southwest Water had cash and cash-equivalent balances
totaling $1,243,000 and three separate unsecured lines of credit of $26,000,000
from three commercial banks. During March 2001, the Company secured a $4,000,000
increase in its lines of credit, increasing its borrowing capacity to
$30,000,000. As of March 31, 2001, the Company had no borrowing outstanding on
the $4,000,000 increase. The $4,000,000 increase in the lines expires in August
2001 and the remaining lines expire in 2002. The Company expects to maintain its
lines of credit in the normal course of business. At March 31, 2001, outstanding
line of credit borrowing was $24,663,000. During the first three months of 2001,
the Company's outstanding line of credit borrowing increased $1,943,000
primarily due to additional cash requirements for additions to utility plant.
Each of the line of credit agreements, as amended, contains certain financial
covenants. As of March 31, 2001, Southwest Water was in compliance with all
applicable covenants of the line of credit agreements.
In addition to its lines of credit, Southwest Water has existing borrowing
capacity under its First Mortgage Bond Indentures of approximately $52,000,000.
However, the amount of additional borrowing available to the Company under its
current commercial lines of credit is limited by financial covenants that
restrict additional borrowing at March 31, 2001, to an amount no greater than
the remaining unused credit line amount.
During the first quarter of 2001, the Company's additions to property,
plant and equipment were $3,855,000, representing an increase from the same
period in 2000 of $2,208,000, excluding the purchase of the City of West Covina
water distribution system (West Covina system). The increase was due primarily
to the addition of
5
utility plant at NMUI. Developers made contributions in aid of construction
(CIAC), and advances totaling $1,010,000 during the quarter ended March 31,
2001, of which $587,000 was received in cash and $423,000 was received as non-
cash contributions of property. Company-financed capital additions were
$2,845,000, funded primarily by cash flow from operations and borrowing on the
lines of credit. Southwest Water estimates that its total capital additions in
2001 will be approximately $10,000,000, primarily for utility plant, and that
cash flows from operations and CIAC will fund these additions.
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. Southwest Water is currently reviewing
various capital financing alternatives, and expects to secure new growth and
acquisition funding over the next several quarters. The amount and timing of any
future long-term financing will 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 Southwest Water is unable to renew its existing lines of credit or obtain
additional long-term financing, capital spending or acquisitions will be reduced
or delayed until new financing arrangements are secured. Such financing
arrangements could include seeking equity financing through a private placement
or a public offering. Similarly, if additional cash is needed to fund an
acquisition, financing arrangements could include long-term borrowing or equity
financing.
REGULATORY AFFAIRS:
The California Public Utilities Commission (CPUC), the New Mexico Public
Regulatory Commission (NMPRC) and the Texas Natural Resources Conservation
Commission (TNRCC) regulate the rates and operations of Suburban, NMUI and TU,
respectively. The rates allowed are intended to provide the utilities an
opportunity to recover costs and earn a reasonable return on common equity. As
discussed in the 2000 Annual Report, Suburban has been directed by the CPUC to
file a general rate application by July 1, 2001. The CPUC staff has recommended
deferral of the filing to March 31, 2002. This proposed deferral is subject to
CPUC approval. TU is seeking a general rate increase and expects to file for
such increase during May 2001. NMUI is not currently seeking any rate increase;
however, future construction expenditures and increased operating expenses may
result in periodic requests for rate increases.
Southwest Water closely monitors legislative, CPUC, NMPRC and TNRCC
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, NMPRC or TNRCC 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, NMPRC or TNRCC
developments or changes on the Company's financial position or results of
operations.
ECO's pricing is not subject to regulation by a public regulatory
commission. Most contracts with municipal utility districts are short-term
contracts and do not generally include inflation adjustments. Changes in prices
are negotiated on a contract-by-contract basis. ECO's operations and maintenance
contracts are generally longer-term water and wastewater service contracts,
primarily with cities, and typically include inflation adjustments.
MTI's pricing is not subject to regulation by a regulatory agency. Most
contracts with management companies and owners of apartment or condominium
communities are short-term contracts and do not generally include inflation
adjustments. Changes in prices are negotiated on a contract-by-contract basis.
SEASONALITY:
There is seasonality to the water utility and utility management industry;
thus, the results of operations for the three months ended March 31, 2001, 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 ECO'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
6
contracts. Drought conditions would not necessarily adversely affect ECO's
opportunities for additional billable work.
ENVIRONMENTAL AFFAIRS:
Suburban, NMUI and TU operations fall under the regulatory jurisdiction of
the CPUC, the NMPRC and the TNRCC, respectively. The primary responsibility of
these regulatory agencies is 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 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, Southwest Water has not
experienced any material adverse effects upon its financial position or
operations resulting from compliance with governmental regulations.
As discussed in the 2000 Annual Report, and in Part II, Item 3 of this
report, the Company and Suburban have 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. A three-judge panel ruled that the CPUC has final
regulatory authority in water quality matters. The plaintiffs petitioned the
California Supreme Court for review of this decision and the petition was
granted. The Company anticipates that the California Supreme Court will hear the
case during 2001.
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.
MTI is a utility submetering, billing and collection services company and,
as such does not own or operate any water or other production or treatment
facilities.
RISK FACTORS:
Certain statements contained in this Form 10-Q Report for the period ended
March 31, 2001, (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
Southwest Water 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 2000
Annual Report for a more detailed description of the risk factors affecting
Southwest Water which include, but are not limited to, revenue backlog
information, expectations regarding sales growth and new contracts, potential
acquisitions, weather conditions, changes in business conditions, and legal and
other contingencies.
7
RESULTS OF OPERATIONS:
Three Months Ended March 31, 2001 Compared to the Three Months Ended March 31,
2000
Diluted EPS was $.06 in 2001, an increase of 20% compared to $.05 in 2000
(after adjustment for a 5-for-4 stock split in the form of a stock dividend on
January 1, 2001).
Operating income
First quarter operating income increased $502,000 or 37% and, as a
percentage of operating revenues, was 8% in 2001 and 7% in 2000. Non-regulated
operating income increased $439,000, due primarily to the acquisition of MTI in
April 2000 and to the addition of new contracts at ECO. This increase was
partially offset by higher energy costs in California, which adversely affected
California operations. Operating income at the utilities increased $105,000, due
primarily to the acquisition of TU in October 2000. Also, NMUI experienced an
increase in both the number of customers served and water consumption per
customer, resulting in a 21% increase in operating income. Suburban had an
increase in its operating income because of the acquisition of the West Covina
system in February 2000; however, this increase was offset by an overall
decrease in water consumption due to cool, wet weather in the first quarter of
2001. Parent Company expenses increased to $42,000.
Operating revenues
Operating revenues for the Company increased $2,658,000 or 13% in the first
quarter of 2001 compared to the same period in 2000. Non-regulated revenues
increased $1,479,000 or 12%, due primarily to the acquisition of MTI in April
2000 and to the addition of new contracts at ECO. These increases helped offset
the loss of revenue and income that the Company benefitted from in 2000 with the
sale of a large water treatment project near El Paso, Texas. Utility revenues
increased $1,179,000, or 14%, primarily due to the addition of TU customers
following the acquisition in October 2000. Also, revenue at Suburban was higher
due to the addition of the West Covina system in late February 2000.
Direct operating expenses
During the first three months of 2001, direct operating expenses increased
$1,687,000 or 10%. As a percentage of operating revenues, these expenses were
77% in 2001 and 78% in 2000. Non-regulated direct operating expenses increased
$632,000, due primarily to the acquisition of MTI in April 2000. This increase
was offset by a reduction in expenses at ECO. The utilities' direct operating
expenses increased $1,055,000. The increase was primarily due to the acquisition
of TU in October 2000 and to increases in energy costs and other water volume
related expenses at Suburban.
Selling, general and administrative
Selling, general and administrative expenses increased $469,000 in the
first quarter of 2001 as compared to the same period in 2000. As a percentage of
operating revenues, these expenses were 15% in both 2001 and 2000. General and
administrative expenses of the Company's non-regulated business increased
$408,000 due primarily to the acquisition of MTI in April 2000. General and
administrative expenses at the utilities increased $19,000, and parent company
expenses increased $42,000.
Interest
Total interest expense increased by $204,000 in the first three months of
2001 as compared to the same period in 2000. The increase in interest expense
was primarily associated with increases in line of credit borrowing to finance
the West Covina system acquisition in February 2000 and the MTI acquisition in
April 2000.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company has certain indebtedness that is subject to variable interest
rates. As a result, Southwest Water's interest expense is affected by changes in
the general level of interest rates. Changes in interest rates affect the
interest expense paid on the Company's line of credit borrowing, which is
8
determined based upon an agreed rate with the banks. Contractually, the highest
interest rates charged on the lines of credit cannot exceed the banks' prime
rates less 1/4%.
At the present time, Southwest Water is utilizing the favorable low
interest rates in the current market. To mitigate future market risk, the
Company is considering long-term fixed rate refinancing of a portion of its
indebtedness. Southwest Water may also consider interest rate swaps to
effectively fix interest rates on its line of credit borrowing. The Company's
long-term bonds are maintained at a fixed interest rate, and are not subject to
market fluctuation of interest.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in the Company's 2000 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 operated by ECO. In
2000, a hearing was held and a summary judgment motion is pending in one action.
A trial for a second action is pending and expected to take place in late 2001.
The other two lawsuits remain pending at this date. The Company and ECO intend
to vigorously defend against these claims and have requested defense and
indemnification by their insurance carrier. At this time, Southwest Water does
not believe this matter will have a material adverse effect on its financial
position, results of operations or cash flow.
As discussed in the 2000 Annual Report, the Company and Suburban have been
named as defendants in several lawsuits alleging water contamination in the Main
Basin. In September 1999, the California 2/nd/ 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 oral arguments during 2001. Southwest Water and Suburban have
requested defense and indemnification from their liability insurance carriers
for these lawsuits. Several of the liability insurance carriers are currently
absorbing the costs of defense of the lawsuits. In April 2000, approximately 240
plaintiffs filed two additional lawsuits similar to the actions described above.
Defendants include the Company, Suburban and other water producers in the Main
Basin and a number of alleged industrial polluters. Southwest Water 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.
On June 21, 2000, Suburban entered into a Tolling and Standstill Agreement
(tolling agreement) with Aerojet Corporation, a subsidiary of GenCorp (Aerojet).
During the 1940's and 1950's, Aerojet, located in Azusa, California, was a major
manufacturer of rocket-powered engines. As a result of the manufacturing
process, certain contaminants may have been released into the Main Basin.
Aerojet has been named as a potentially responsible party for the cleanup of the
contamination. In the tolling agreement, Aerojet agreed to toll the running of
any statute of limitations with respect to any rights, claims or causes of
action Suburban may have or wish to assert against Aerojet as a result of
Aerojet's possible release of contaminants into the Main Basin. This agreement
preserves Suburban's and the Company's rights beyond the normal statute of
limitations period.
As discussed in the 2000 Annual Report, in 1998, the City of Albuquerque
(Albuquerque) initiated an action in eminent domain to acquire the operations of
NMUI. At the time of the original complaint, Southwest Water believed that the
fair market value of NMUI was substantially higher than the amount offered in
Albuquerque's complaint. Under New Mexico state law, there are procedures that
would allow Albuquerque to take possession prior to resolution of the fair
market value issue; however, Southwest Water believes that it has adequate
defenses should Albuquerque choose to pursue these procedures. In September
2000, the Albuquerque City Council voted eight to one in favor of withdrawing
the condemnation proceeding. The Company is awaiting a formal withdrawal of the
lawsuit. Until the withdrawal occurs, there is no assurance that any settlement
of the action or any other resolution will be reached.
Southwest Water 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 financial
position, results of operations or cash flow.
9
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits furnished pursuant to Item 601 of Regulation S-K:
10.11C Third Amendment to Credit Agreement dated March 9, 2001 between
the Company and Bank of America, N.A., filed herewith.
10.13E Fifth Amendment to the Amended and Restated Credit Agreement
dated March 9, 2001 between the Company and Mellon Bank, N.A.,
filed herewith.
(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 10, 2001 /s/ PETER J. MOERBEEK
- ------------------- ---------------------
Peter J. Moerbeek
Chief Financial Officer
Dated: May 10, 2001 /s/ THOMAS C. TEKULVE
- ------------------- ---------------------
Thomas C. Tekulve
Chief Accounting Officer
11