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 PERIOD ENDED MARCH 31, 1995
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 OF SOUTHWEST
WATER COMPANY] SOUTHWEST WATER COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 95-1840947
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
225 North Barranca Avenue, Suite 200
West Covina, California 91791-1605
(Address of principal executive offices) (Zip Code)
(818) 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 April 30, 1995, there were 2,431,213 common shares outstanding.
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information:
- -------
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
March 31, 1995 and December 31, 1994 3 - 4
Consolidated Condensed Statements of Operations -
Three months ended March 31, 1995 and 1994 5
Consolidated Condensed Statements of Cash Flows -
Three months ended March 31, 1995 and 1994 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
Part II. Other Information:
- --------
Item 1. Legal Proceedings 12 - 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
------
March 31, Dec. 31,
1995 1994
----------- --------
(Unaudited)
(In thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 577 $ 828
Customers' accounts receivable 5,736 6,021
Other current assets 1,981 2,011
-------- --------
8,294 8,860
PROPERTY, PLANT AND EQUIPMENT:
Utility property, plant and equipment - at cost 97,143 96,179
Non-utility property, plant and equipment - at cost 6,008 5,923
-------- --------
103,151 102,102
Less accumulated depreciation and amortization 30,141 29,966
-------- --------
73,010 72,136
OTHER ASSETS 5,817 5,838
-------- --------
$ 87,121 $ 86,834
======== ========
See accompanying notes.
3
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------
March 31, Dec. 31,
1995 1994
----------- --------
(Unaudited)
(In thousands)
CURRENT LIABILITIES:
Current portion of long-term debt and bank
notes payable $ 5,159 $ 3,491
Accounts payable 1,026 1,185
Other current liabilities 5,595 6,455
------- -------
11,780 11,131
OTHER LIABILITIES AND DEFERRED CREDITS:
Long-term debt 20,500 20,500
Advances for construction 9,122 9,151
Contributions in aid of construction 10,579 10,683
Deferred income taxes 3,395 3,260
Other liabilities and deferred credits 3,568 3,577
------- -------
TOTAL LIABILITIES AND DEFERRED CREDITS 58,944 58,302
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Cumulative preferred stock 519 530
Common stock 24 24
Paid-in capital 17,310 17,241
Retained earnings 10,400 10,820
Unamortized value of restricted stock issued (76) (83)
------- -------
TOTAL STOCKHOLDERS' EQUITY 28,177 28,532
------- -------
$87,121 $86,834
======= =======
See accompanying notes.
4
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1995 and 1994
(Unaudited)
March 31,
-----------------------
1995 1994
-------- --------
(In thousands except
per share amounts)
OPERATING REVENUES $11,290 $11,102
OPERATING EXPENSES:
Direct operating expenses 9,020 8,712
Selling, general and administrative 2,119 2,128
------- -------
11,139 10,840
------- -------
OPERATING INCOME 151 262
OTHER INCOME (EXPENSE):
Interest expense (560) (524)
Interest income 25 19
Gain on sale of land 84 -
Other 6 27
------- -------
(445) (478)
------- -------
LOSS BEFORE INCOME TAX BENEFIT (294) (216)
Income tax benefit (123) (85)
------- -------
NET LOSS (171) (131)
Dividends on preferred shares (7) (7)
------- -------
NET LOSS APPLICABLE TO COMMON SHARES $ (178) $ (138)
======= =======
LOSS PER COMMON SHARE:
Primary $ (0.07) $ (0.06)
======= =======
Fully diluted $ (0.07) $ (0.06)
======= =======
CASH DIVIDENDS PER COMMON SHARE $ 0.10 $ 0.10
======= =======
WEIGHTED-AVERAGE OUTSTANDING COMMON
AND COMMON EQUIVALENT SHARES:
Primary 2,423 2,390
======= =======
Fully diluted 2,423 2,390
======= =======
See accompanying notes.
5
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1995 and 1994
(Unaudited)
March 31,
------------------------
1995 1994
-------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (171) $ (131)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 934 924
Deferred income taxes 135 996
Changes in assets and liabilities:
Customers' accounts receivable 285 (22)
Other current assets 30 610
Accounts payable (159) (2,274)
Other current liabilities (860) (2,123)
Other, net 80 (156)
------- -------
Total adjustments 445 (2,045)
------- -------
Net cash provided by (used in) in operating
activities 274 (2,176)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,878) (1,191)
Net redemption of U.S. Government securities - 1,503
------- -------
Net cash provided by (used in) investing
activities (1,878) 312
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of short-term debt 1,675 1,850
Net proceeds from dividend reinvestment and
employee stock purchase plans 60 90
Additions to advances for construction 13 -
Dividends paid (249) (245)
Contributions in aid of construction, net (104) 77
Payments on advances for construction (42) (518)
------- -------
Net cash provided by financing activities 1,353 1,254
------- -------
Net decrease in cash and cash equivalents (251) (610)
Cash and cash equivalents at beginning of year 828 2,979
------- -------
Cash and cash equivalents at end of quarter $ 577 $ 2,369
======= =======
See accompanying notes.
6
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements of Southwest Water Company (hereafter
together with its consolidated subsidiaries referred to as "Company" or
"Registrant" unless the context otherwise indicates) reflect all
adjustments (including adjustments which are of a normal recurring nature)
necessary to present fairly the financial position and results of
operations.
2. The results of operations for the periods ended March 31, 1995 and 1994 are
not necessarily indicative of the results to be expected for the full year.
The first quarter is normally the quarter with the lowest average water
usage per customer for the Company's water utilities. The operations of the
Company's service business are also seasonal in nature.
3. Primary earnings per share are calculated using the weighted-average number
of common shares and dilutive common equivalent shares outstanding during
the period, after recognition of dividend requirements on preferred shares.
Common equivalent shares arise from stock options. Fully diluted earnings
per share were computed based upon the weighted-average number of common
shares and dilutive common equivalent shares outstanding, assuming the 9.5%
convertible subordinated debentures were converted at the beginning of the
period and the related interest for the period, net of income taxes, was
eliminated.
7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1995, the Company had cash and cash equivalent balances totaling
approximately $577,000 and unused lines of credit from commercial banks of
$8,375,000. In 1995, the Company borrowed a net $1,675,000 on its lines of
credit to meet construction and operating requirements. Additional borrowing is
anticipated during 1995 to meet construction, operating and debt service
requirements.
The Company has additional borrowing capacity under its First Mortgage Bond
Indentures of approximately $20,730,000. The amount of additional borrowings
available to the Company under the indentures and lines of credit is limited by
certain financial covenants that restrict additional borrowings at March 31,
1995, to a maximum of approximately $11,599,000.
The Company's liquidity and capital resources are influenced primarily by
construction expenditures at Suburban Water Systems (Suburban) for the
replacement and renovation of existing water utility facilities and construction
expenditures for new water and wastewater utility facilities at New Mexico
Utilities, Inc. (New Mexico). Additionally, liquidity is influenced by the
Company's continuing investment in its service business, ECO Resources, Inc.
(ECO).
The Company's additions to property, plant and equipment approximated $1,878,000
for the three months ended March 31, 1995, representing an increase of $687,000
over the same period of 1994. This increase relates primarily to capital
expenditures incurred at New Mexico due to construction in New Mexico's service
area. The Company will continue its construction programs, with 1995 capital
expenditures estimated at $11,600,000, of which approximately $2,700,000 is
estimated to be in the form of developer contributions. Because these estimates
are subject to management's ongoing review, actual expenditures may vary. These
construction expenditures, as well as the Company's ongoing investment in ECO,
affect the Company's liquidity.
The amount and timing of future long-term financings will depend on various
factors discussed earlier, 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 AFFAIRS AND INFLATION:
The rates and operations of the Company's utilities are regulated primarily by
the Public Utilities Commission of the State of California (CPUC) and the New
Mexico Public Utility Commission (NMPUC). The rates are intended to provide a
reasonable return on common equity. The Company's expected future construction
expenditures and increased direct operating expenses will require periodic
requests for rate increases.
Effective January 1, 1995, the CPUC granted Suburban an annual "step"
adjustment for its Whittier/La Mirada District customers, yielding additional
annual revenues of $286,000. Suburban is currently authorized an 11% return on
common equity. This authorized rate of return is moderately favorable in
comparison to rates currently granted to other water utilities by the CPUC.
8
Suburban filed a preliminary general rate increase application with the CPUC in
April 1995. The general rate increase, if approved, would be effective early
in 1996. Suburban's general rate application covers both of its service
districts based upon recent suggestions by the CPUC. This general rate increase
application requests an increase in rates of approximately 11%. New Mexico
anticipates filing a general sewer rate increase application with the NMPUC in
May 1995, requesting a 10% increase in rates, effective early in 1996.
From 1989 through 1995, the Company recorded pretax gains on five land
transactions which aggregated $1,900,000. On January 7, 1994, the CPUC ruled on
the 1989 sale and allowed Suburban to retain $210,000 in income, in accordance
with CPUC accounting regulations, as opposed to distributing it to ratepayers in
the form of water rate reductions. However, a more recent CPUC decision
involving an unrelated water company required that its gain on the sale of land
be split equally between the ratepayers and the stockholders. Suburban's
remaining transactions (with pretax gains of $1,690,000) are subject to CPUC
review; however, management believes these gains belong to the stockholders.
Accordingly, no provision for any liability has been recorded in the
accompanying consolidated condensed financial statements.
The operations of ECO are not regulated. ECO's long-term water and wastewater
service contracts typically include annual inflation adjustments that
approximate inflation rates. Contracts with municipal utility districts, which
are usually shorter term contracts, do not generally include inflation
adjustments.
ENVIRONMENTAL AFFAIRS:
The Company's operations are subject to water and wastewater pollution
prevention standards and water and wastewater quality regulations of the United
States Environmental Protection Agency (EPA) and various state regulatory
agencies. The EPA and state regulatory agencies continue to promulgate new
regulations mandated by the Federal Water Pollution Control Act, the Safe
Drinking Water Act, and the Resource Conservation and Recovery Act. To date,
the Company has not experienced any material adverse effects upon its operations
resulting from compliance with governmental regulations. Costs associated with
the testing of the Company's water supplies have, however, 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, if any,
will be recoverable through increased rates and contract revenues.
9
RESULTS OF OPERATIONS:
Three Months Ended March 31, 1995 Versus Three Months Ended March 31, 1994
- --------------------------------------------------------------------------
Fully diluted loss per common share for the three months ended March 31
increased from a loss per share of $.06 in 1994 to a loss per share of $.07 in
1995. Results for the three months ended March 31, 1995 include a net gain of
$50,000, or $.02 per fully diluted share, resulting from the sale of land by
Suburban.
Operating income decreased $111,000 in the three months ended March 31, 1995,
over the same period in 1994, and, as a percentage of operating revenues,
decreased from 2% in 1994 to 1% in 1995. Utility operating income decreased
during the three months ended March 31, 1995 as Suburban experienced the
negative effects of a decrease in customer water consumption due to heavy rains
and cooler than normal temperatures in Southern California. New Mexico
experienced the positive effects of increases in customer water consumption
resulting from the addition of new customers during 1995 as compared with 1994.
ECO experienced an increased operating loss during this same period, due
primarily to higher selling expenses, as well as a $37,000 settlement of a
lawsuit.
The results of operations for the three-month period may not necessarily be
indicative of the results to be expected for the full year, due to the seasonal
nature of the Company's operations. The first quarter is normally the quarter
with the lowest average water usage per customer for the Company's water
utilities. The operations of ECO are also seasonal in nature. Moderate
rainfall hampers ECO's performance because less billable work can be performed.
Heavy rainfall often has the opposite effect, as it may create opportunities for
additional billable work.
Operating revenues
- ------------------
Operating revenues increased $188,000 or 2% during the three months ended March
31, 1995, over the same period in 1994.
Water utility operating revenues decreased by $124,000. Heavy rainfall and
cooler temperatures in Southern California caused Suburban's customers to
decrease water consumption by approximately 10% during this period as compared
with 1994, resulting in a revenue decrease of approximately $370,000. However,
Suburban received the benefits of a step rate increase which resulted in
additional revenues of $77,000 in 1995. New Mexico's customers' water
consumption increased by 17% during this period over 1994, representing an
increase in water revenues of $46,000. As anticipated, construction has
continued in New Mexico's service area with 130 new water customers added during
the three months ended March 31, 1995. Higher sewer collection revenues by New
Mexico, resulting from higher volume, led to an increase in revenues of
$123,000.
ECO's revenues increased $312,000 during this period as compared to the same
period in 1994 as a result of new contract revenues in Texas.
Direct operating expenses
- -------------------------
Direct operating expenses increased $308,000 or 4% in the three months ended
March 31, 1995, as compared to the same period of 1994. As a percentage of
operating revenues, these expenses increased from 78% in 1994 to 80% in 1995.
10
Water utility direct operating expenses increased $13,000 during the three
months ended March 31, 1995, as compared to the same period of 1994. The
decrease in Suburban's water production resulted in a decrease in water, power
and gas expenses of $277,000. New Mexico experienced higher sewer collection
expenses of $107,000 related directly to the corresponding increase in volume.
Increases in payroll and associated benefits, depreciation, repairs and other
expenses at Suburban and New Mexico also contributed to an increase in direct
operating expenses of $183,000.
ECO's direct operating expenses increased approximately $321,000 during 1995 as
compared with 1994, related to higher expenses associated with the addition of
new contracts in Texas. ECO recorded higher than planned labor and other
expenses related to a new contract in the Rio Grande Valley. ECO anticipates
performing certain repairs and maintenance services for this customer in the Rio
Grande Valley, during the second and third quarters of 1995. Once these repairs
are completed, ECO will reduce current direct operating expenses.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expenses decreased $9,000 during the three
months ended March 31, 1995, as compared to the same period of 1994. As a
percentage of operating revenues, these expenses remained constant at 19% in
1995 and 1994. Suburban's legal expenses decreased $74,000 during this period
compared with the same period of 1994. ECO's selling expenses increased $17,000
during this period related to ECO's expanded sales and marketing activity in
the pursuit of new contracts. Additionally, ECO settled a lawsuit for $37,000,
as noted earlier.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
As described in Registrant's Form 10-K Reports for the years ended December
31, 1992, 1993 and 1994, Suburban was a defendant in three lawsuits arising
from a chlorine gas leak that occurred in October 1990 at a Suburban water
distribution facility. In two of the actions, the plaintiffs were,
respectively, five employees and 22 employees (and some spouses) of a
manufacturing plant located adjacent to a water production facility owned and
operated by Suburban. In the third action, the plaintiff was the workers'
compensation carrier for the operator of the adjacent manufacturing plant. The
plaintiffs in the three actions sought general damages in excess of $3.8
million, and the plaintiffs in the action involving 22 employee plaintiffs
sought unspecified punitive damages.
As earlier reported, in January 1994 Suburban settled with all of the
plaintiffs for aggregate cash payments of approximately $1.5 million. These
settlements included releases of all claims against Suburban and dismissals with
prejudice of the actions and are the last known claims arising out of this
incident.
At the time of the chlorine gas incident, Registrant and Suburban
maintained liability insurance coverage of $20 million. However, the
Registrant's primary and excess liability insurance carrier declined to defend
or indemnify Suburban on the basis of allegedly applicable exclusions in the
policies. Suburban believes it is entitled to defense and indemnity under these
policies and filed a lawsuit against the carrier to obtain reimbursement for the
full settlement amounts and all associated defense costs. On May 3, 1994, in
the U.S. District Court, Central District of California, the insurance carrier
was granted a summary judgment dismissing Suburban's action. On May 31, 1994,
Suburban appealed this judgment, and the appeal is pending. Suburban will seek
recovery of defense expenses through future CPUC rate proceedings. There is no
assurance that recovery of such costs will be allowed. Suburban will not
recognize income on these potential recoveries until amounts, if any, are
received. Additionally, this litigation will have no future material adverse
effect on the Registrant's financial condition or results of operations.
As described in the Registrant's Form 10-K Report for the year ended
December 31, 1994, ECO was named as a defendant in a lawsuit filed on April 15,
1992, in Houston, Texas, by certain homeowners and Pulte Home Corporation of
Texas (Pulte). The plaintiffs allege that in 1989, ECO, as an independent
contractor for Municipal Utility District #81 (MUD #81) in Houston, Texas,
failed to change the treatment of the water supplied to plaintiffs after the
plaintiffs made MUD #81 and ECO aware of highly corrosive elements in the water
supplied. Plaintiffs additionally allege that this resulted in accelerated
corrosion of residential plumbing pipes. The original complaint requested
unspecified special damages and reasonable attorneys' fees.
On April 24, 1994, the plaintiffs filed an amended complaint which alleges
additional causes of action against ECO. The amended complaint alleges that
plaintiffs have sustained more than $838,000 in repair damages and will incur
future expenses for home repairs in the sum of $1,000,000 if the water remains
untreated. Plaintiffs also allege mental pain and anguish as a result of
plumbing failures, loss of home values and that ECO's conduct constitutes gross
negligence. Plaintiffs are seeking at least $1,000,000 in exemplary damages.
Pulte now also claims that defendant MUD #81 failed to require its agent, ECO,
to change the treatment of the water to eliminate accelerated corrosion of pipes
and has included MUD #81 as a direct defendant in the amended complaint.
As of the date when damages are first alleged to have occurred (1989) and
thereafter, the Registrant and ECO maintained liability insurance coverage of
$20 million. ECO's primary liability carrier is providing
12
a defense for the primary cause of action against ECO, but has reserved all
rights as to allegations that ECO knowingly committed intentional acts
constituting "deceptive trade practices" and "negligence." The Registrant
believes the ultimate resolution of this matter will not have a material adverse
effect on its consolidated financial condition or results of operations.
As described in the Registrant's Form 10-K Report for the year ended
December 31, 1994, ECO and Southbend Municipal Utility District (Southbend) were
named as defendants in a lawsuit filed on February 15, 1993, in Harris County,
Texas, by homeowner customers. The plaintiffs alleged that ECO, as an
independent contractor for Southbend in Houston, Texas, failed to adequately
test the water delivered to residents to detect contaminants that would cause
harm to persons in the Southbend subdivision. Plaintiffs also alleged physical
and mental personal injuries resulting from defendants' alleged negligence. ECO
vigorously defended the case, and defense counsel discovered facts indicating
that the action was barred by res judicata resulting from a settlement in an
earlier similar action. Such counsel made an appropriate demand upon plaintiffs
and, on January 13, 1995, the plaintiffs filed a motion requesting dismissal of
this action against ECO. Such motion was granted without prejudice as to all
plaintiffs on January 20, 1995. As a result, the Registrant believes the
ultimate resolution of this matter will not have a material adverse effect on
its consolidated financial condition or its results of operations. A second
independent lawsuit by another Southbend customer was filed in March 1993 with
substantially the same allegations as to ECO's performance. No specific damages
were claimed in that action. The Registrant applied the successful defense
strategy used in the first litigation to this second litigation. In March 1995,
the plaintiffs filed a motion for non-suit of all plaintiffs' claims against ECO
which was granted on March 20, 1995, resulting in a dismissal of this action as
to ECO. ECO does not have any further financial exposure with respect to the
claims made in these actions.
As described in the Registrant's Form 10-K Report for the year ended
December 31, 1994, Suburban is a defendant and cross defendant in two actions
filed in, respectively, March 1994 and June 1994 in the Superior Court of Los
Angeles County and arising out of a slope slide or failure in 1992 in a hilly,
residential development in West Covina, California. One of the plaintiffs, Dr.
Mendoza, is the owner of a residence located below the failed slope. The other
plaintiff, South Hills Home Partnership, is a developer of a tract of lots,
including one lot adjacent to the failed slope. Defendants in the actions
include the owners of the lot above and containing the failed slope, Suburban
and an engineer and contractor who directed and conducted repair work to the
slope after a prior failure in 1978. Claims raised by the plaintiffs and
certain cross defendants are described in Registrant's 1994 Form 10-K Report as
is the consolidation of the two cases.
As of the date of the 1992 slope failure, the Registrant and Suburban
maintained liability insurance coverage of $20 million. Suburban's primary
liability carrier is providing a defense in the consolidated action, and
Suburban is vigorously defending all claims. At the initiation of Suburban's
defense counsel, Dr. Mendoza dismissed his action against Suburban in March 1995
and defense counsel is discussing with South Hills Home Partnership a similar
dismissal as to Suburban. Suburban believes that it has meritorious defenses to
all claims in the consolidated action and that if Suburban were determined to
have any liability in the action such liability would be fully covered by the
liability insurance maintained by Suburban and the Registrant. Accordingly, the
Registrant believes that the ultimate resolution of this matter will not have a
material adverse effect on its consolidated financial condition or results of
operations.
As described in Registrant's Form 10-K Report for the year ended December
31, 1994, a written request for information was received in June 1994 from the
Enforcement Division of the Securities and Exchange Commission (the
"Commission") concerning trading in the common stock of the Registrant from July
1993 to August 1993. The Registrant voluntarily responded to such request in
July 1994. In October 1994, the Registrant was again contacted by the
Commission to arrange for oral depositions of the Registrant's directors, its
three officers and one employee of the Registrant. Concurrently, the Commission
served
13
subpoenas requesting documents and records of the deponents. The individual
deponents responded to such subpoenas, and the depositions were taken in late
1994. Legal counsel for the Registrant was present at all depositions.
The Registrant believes that the Commission's inquiry is focused upon
several small sales of the Registrant's stock. These sales occurred prior to the
public announcement of a dividend reduction on August 13, 1993. The
Registrant's management believes that the Commission's inquiry is directed at
whether such sales were made on the basis of inside information concerning that
dividend reduction.
The Registrant has had a written policy for a number of years prohibiting
its officers, directors and employees both from trading on the basis of inside
information and from providing such information to others. This policy has been
communicated to all officers and directors as well as to key employees. The
Registrant is not aware of any officer, director or employee who provided any
inside information to any person making the sales being examined by the
Commission.
To date, no formal action has been initiated by the SEC. Moreover, the
Registrant is aware of no allegation of any improper conduct by the Registrant,
its officers or directors. Because of the written policy of the Registrant on
insider trading described above, the absence of facts suggesting improper use of
inside information, and the absence of any formal charge to date, the Registrant
believes that should the SEC initiate a formal action, the Registrant would have
meritorious defenses and ultimately prevail.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At the Annual Meeting of Stockholders, held on May 9, 1995, all of the members
of the Board of Directors were re-elected by the following votes:
Name of Director Votes For Votes Withheld
---------------- --------- --------------
Michael J. Fasman 1,940,391 125,212
Anton C. Garnier 1,950,336 115,267
Monroe Harris 1,948,774 116,829
Donovan D. Huennekens 1,948,694 116,909
Richard Kelton 1,949,322 116,281
Richard G. Newman 1,949,805 115,798
In addition, KPMG Peat Marwick LLP was ratified as independent auditors for 1995
by the following vote: votes for - 1,969,849; votes against - 77,128; and votes
abstained - 18,626.
No broker non-votes were recorded.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits furnished pursuant to Item 601 of Regulation S-K
3.1B Certificate of Amendment of Article Fourth of Articles of
Incorporation dated March 30, 1995, filed herewith.
10.11 Form of Severance Compensation Agreement between the Company and
Anton C. Garnier, Diane Castello Pitts, Michael O. Quinn, Robert
L. Swartwout and James E. Furman, dated various dates in 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
March 31, 1995.
14
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 thereunto duly authorized.
SOUTHWEST WATER COMPANY
-----------------------
(Registrant)
Dated: May 10, 1995 /s/ ANTON C. GARNIER
- -------------------- --------------------
Anton C. Garnier,
Director and President
(Principal Executive Officer)
Dated: May 10, 1995 /s/ DIANE CASTELLO PITTS
- -------------------- ------------------------
Diane Castello Pitts,
Corporate Controller and Treasurer
(Principal Accounting Officer)
15