UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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 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)
(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 October 31, 1996, there
were 2,601,589 common shares outstanding.
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
INDEX
Page No.
-------
Part I. Financial Information:
- ------- ----------------------
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Income -
Three and nine months ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
Part II. Other Information:
- -------- ------------------
Item 1. Legal Proceedings 11-12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,114 $ 784
Customers' accounts receivable, net 9,347 7,785
Other current assets 2,332 2,528
-------- --------
12,793 11,097
Property, Plant and Equipment:
Utility property, plant and equipment - at cost 116,009 106,280
Contract operations property, plant and equipment - at cost 6,330 6,273
-------- --------
122,339 112,553
Less accumulated depreciation and amortization 34,093 32,286
-------- --------
88,246 80,267
Other Assets
Investments (Note 8) 3,695 805
Other 5,228 5,287
-------- --------
8,923 6,092
-------- --------
$109,962 $ 97,456
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and bank notes payable $ 16,386 $ 9,075
Accounts payable 2,327 2,269
Other current liabilities 7,629 7,019
-------- --------
26,342 18,363
Other Liabilities and Deferred Credits:
Long-term debt 19,600 19,600
Advances for construction 8,125 8,200
Contributions in aid of construction 19,547 16,380
Deferred income taxes 3,875 3,238
Other liabilities and deferred credits 2,474 2,429
-------- --------
Total Liabilities and Deferred Credits 79,963 68,210
Stockholders' Equity:
Cumulative preferred stock 517 519
Common stock 26 26
Paid-in capital 18,947 18,715
Retained earnings 10,551 10,045
Unamortized value of restricted stock issued (42) (59)
-------- --------
Total Stockholders' Equity 29,999 29,246
-------- --------
$109,962 $ 97,456
======== ========
See accompanying notes.
3
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands except per share amounts)
Operating Revenues $18,476 $16,848 $49,903 $41,467
Operating Expenses:
Direct operating expenses 13,918 12,584 38,348 31,609
Selling, general and administrative 2,449 2,321 7,430 6,761
------- ------- ------- -------
16,367 14,905 45,778 38,370
------- ------- ------- -------
Operating Income 2,109 1,943 4,125 3,097
Other Income (Expense):
Interest expense (720) (589) (2,074) (1,746)
Interest income 25 12 72 56
Gain on sale of land - - - 84
Other 78 24 125 31
------- ------- ------- -------
(617) (553) (1,877) (1,575)
------- ------- ------- -------
Income Before Income Taxes 1,492 1,390 2,248 1,522
Provision for income taxes 626 584 944 639
------- ------- ------- -------
Net Income 866 806 1,304 883
Dividends on preferred shares (6) (7) (20) (21)
------- ------- ------- -------
Net Income Available For Common Shares $ 860 $ 799 $ 1,284 $ 862
======= ======= ======= =======
Earnings Per Common Share (Note 5) $ 0.33 $ 0.31 $ 0.49 $ 0.34
======= ======= ======= =======
Cash Dividends Per Common Share (Note 5) $ 0.10 $ 0.095 $ 0.30 $ 0.285
======= ======= ======= =======
Weighted-Average Outstanding
Common Shares (Note 5) 2,595 2,566 2,589 2,555
======= ======= ======= =======
See accompanying notes.
4
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------------
1996 1995
------- ------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES, NET $ 4,079 $ 1,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (8,256) (6,237)
Investment in Windermere Utility Company (3,000) -
------- -------
Net cash used in investing activities (11,256) (6,237)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings of short-term debt 7,311 5,439
Contributions in aid of construction 881 546
Net proceeds from dividend reinvestment and
employee stock purchase plans 208 174
Additions to advances for construction 140 339
Dividends paid (783) (750)
Payments on advances for construction (250) (224)
Payments on long-term debt - (900)
------- -------
Net cash provided by financing activities 7,507 4,624
------- -------
Net increase (decrease) in cash and cash equivalents 330 (321)
Cash and cash equivalents at beginning of year 784 828
------- -------
Cash and cash equivalents at end of quarter $ 1,114 $ 507
======= =======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,986 $ 2,110
Income taxes $ 671 $ 189
Non-cash contributions in aid of construction
conveyed to Company by developers $ 2,595 $ 1,004
Depreciation and amortization $ 2,930 $ 2,831
See accompanying notes.
5
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
1. Southwest Water Company (the Company) and its subsidiaries provide water
management services through contract and utility operations. The unaudited
consolidated condensed financial statements reflect all adjustments which,
in the opinion of the Company's management, are necessary to present fairly
the financial position of the Company as of September 30, 1996, and the
Company's results of operations for the three and nine months ended
September 30, 1996. All such adjustments are of a normal recurring nature.
Certain reclassifications have been made to the 1995 financial statements
to conform to the 1996 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 consolidated
condensed 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, 1995.
3. The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results to be expected for the
full year. Utility operations revenues usually peak during the second and
third quarters of each year. The Company's contract operations business can
also be seasonal in nature. Heavy rainfall during a quarter may reduce
contract operations revenue since it hampers the Company's ability to
perform billable work such as pipeline maintenance, manhole rehabilitation
and other outdoor services.
4. For the three and nine months ended September 30, 1996 and 1995, the
computations of earnings per common share, after recognition of dividend
requirements on preferred shares, have been calculated using the weighted-
average number of outstanding common shares since the aggregate dilution
from all common equivalent shares is less than three percent of earnings
per common share outstanding.
5. The 1995 earnings per common share, cash dividends per common share and
weighted-average outstanding common shares have been restated to reflect a
5% stock dividend granted to stockholders of record on January 2, 1996.
6. Effective January 1, 1996, the Company was subject to Statement of
Financial Accounting Standard No. 121 (SFAS No. 121) "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
Under SFAS No. 121, the Company is required to review the impairment of
long-lived assets, including regulatory assets, as well as costs excluded
from rate base by regulators. The Company expects that implementing SFAS
No. 121 will not have a material impact on its results of operations or
financial condition.
7. As of December 31, 1995, the Company adopted Statement of Financial
Accounting Standard No. 123 (SFAS No. 123) "Accounting for Stock-Based
Compensation." The related pro forma disclosures were presented in the
notes to the Company's consolidated financial statements for 1995.
8. In June 1996, the Company acquired an interest in Windermere Utility
Company (Windermere) for an investment of $3,000,000. The investment
agreement provides the majority shareholder the option to acquire the
Company's interest prior to June 1998 at an agreed upon price. If the
majority shareholder does not exercise its option, the Company has the
right to acquire 100% of Windermere for an agreed upon price. It is the
majority shareholder's intent to acquire the Company's interest. The
Company also executed a consulting agreement with Windermere and an
additional agreement by which the Company may receive an annual payment
based on Windermere's financial performance.
6
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
Liquidity and capital resources of the Company are influenced primarily by
construction expenditures at Suburban Water Systems (Suburban) for the
replacement and renovation of existing water utility facilities and by
construction expenditures for new water and wastewater utility facilities at New
Mexico Utilities, Inc. (NMUI). To a lesser extent, liquidity is influenced by
the Company's continuing investment in ECO Resources Inc. (ECO).
At September 30, 1996, the Company had cash and cash equivalent balances
totaling $1,114,000. The Company has four lines of credit from three commercial
banks, including a $6,000,000 one year credit facility obtained in August 1996.
As of September 30, 1996, the Company had a total line of credit capacity of
$16,000,000, and unused lines of credit of $3,514,000. During the first nine
months of 1996, the Company borrowed a net $7,311,000 on its lines of credit in
order to fund construction at its utility operations and to make an investment
in Windermere. Two of the lines of credit were renewed in 1996 and expire in
1997. The two remaining lines of credit expire in 1997 and are expected to be
renewed in the normal course of business. The Company also had a $3,000,000
term loan which was paid in full at maturity on October 30, 1996.
The Company's additions to property, plant and equipment were $10,851,000 for
the nine months ended September 30, 1996, representing an increase of $3,610,000
over the same period in 1995. This increase relates primarily to utility plant
additions both at NMUI in response to increased residential and commercial
construction and at Suburban for new and refurbishing existing utility plant.
To help fund the plant additions, developers made cash contributions in aid of
construction (CIAC) totaling $881,000. In addition, $2,595,000 was received
from developers through non-cash CIAC. The Company anticipates that its funding
of construction projects will decrease during the next three months with short-
term borrowing anticipated to meet construction requirements.
Capital expenditures at NMUI are expected to decrease approximately $3,700,000
in 1997 due to the completion of major projects in 1996. Developer CIAC
received will also decrease accordingly. Suburban's 1997 capital expenditures
are expected to increase approximately $1,100,000 over 1996 levels, due to the
construction of additional new utility plant and the refurbishment of existing
utility plant. Short-term borrowing is anticipated by the Company in 1997 for
capital expenditures not funded by operations or CIAC.
The Company completed long-term First Mortgage Bond financing negotiations and
made private placements during the third quarter of 1996. In October 1996,
Suburban received $8,000,000 of bond proceeds, and NMUI will receive $4,000,000
of bond proceeds in November 1996. Both financing arrangements have a 10-year
maturity period with semi-annual interest only payments required. Proceeds will
be used to repay a portion of short-term debt and fund ongoing construction
requirements at the utilities. Following the bond financings, the Company has
remaining borrowing capacity under its First Mortgage Bond Indentures of
approximately $19,689,000. The amount of additional borrowing available to the
Company under the lines of credit currently in place is limited by financial
covenants that restrict additional borrowing at September 30, 1996 to a maximum
of $7,600,000.
The Company anticipates that its available short term borrowing capacity and its
cash flow generated from operations are sufficient to fund its activities for
the next 12 months. 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 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
7
requirements. Regulatory approval is required for any long-term financing by
Suburban and NMUI. If the Company were unable to renew its existing lines of
credit or obtain additional long-term financing, capital spending 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.
REGULATORY AFFAIRS AND INFLATION:
Regulation:
- -----------
The rates and operations of the Company's utilities are regulated by the
California Public Utilities Commission (CPUC) and the New Mexico Public Utility
Commission (NMPUC). The rates allowed are intended to provide the utilities an
opportunity to earn a reasonable return on common equity. The Company
anticipates that future construction expenditures and increased direct operating
expenses will require periodic requests for rate increases.
In December 1995, Suburban and the CPUC staff negotiated a rate increase of
4.25% ($1.1 million), with two additional increases for inflation in 1997 and
1998. Final CPUC approval was received on April 19, 1996, with the new rates
effective April 24, 1996. The rate increase authorizes Suburban to earn a 10%
return on common equity.
1995 Tax Legislation:
- ---------------------
The Water Utility Infrastructure Improvement Act of 1995 was passed by the
California legislature and signed by the governor on August 10, 1995. This law
provides that water utilities that sold excess real property and invested the
net proceeds of the sale in its utility plant within an eight-year period are
not required to allocate any gains to ratepayers. Any net proceeds not invested
in utility plant during the eight-year period must be allocated to ratepayers.
The legislation applies to land sales occurring after December 31, 1995.
1996 Tax Legislation:
- ---------------------
From 1990 through 1995, Suburban recorded pretax gains on land sales of four
parcels of excess real property totaling $1,690,000. The allocation of the
gains have not been ruled on by the CPUC with regards to allocation between
ratepayers and shareholders. On September 26, 1996, Senate Bill 1099 was passed
by the California legislature and signed by the governor. This law, effective
on January 1, 1997, is identical to the Water Utility Infrastructure Improvement
Act of 1995, and applies to real property sold before January 1, 1996, such as
Suburban's land sales. Since the proceeds of the four land sales were invested
in utility plant, the gains should not be subject to allocation to the
ratepayers.
On August 20, 1996, legislation was enacted that changed the federal tax
treatment of CIAC. Since 1986, water utilities have been required to include
CIAC in taxable income for federal tax purposes at the time of receipt and to
depreciate the related plant. The new law repealed the requirement to include
CIAC as taxable income and pay taxes at the time of receipt and also eliminated
the depreciation deduction. The law is effective for CIAC received after June
12, 1996.
To help fund the repeal of the income tax on CIAC, the legislation also changed
the depreciation method and useful life for most water utility property. The
old rules allowed a 150% declining balance depreciation method over a 20-year
period; the new rules require straight line depreciation over a 25-year period.
The net impact of the repeal of the income tax on CIAC combined with the change
in depreciation calculations should impact NMUI's cash flow favorably, since
high levels of CIAC are expected in its fast growing service area. The effect
on earnings at Suburban is not expected to be significant, however, cash flow
could be negatively affected by the legislation. Until the Internal Revenue
Service completes its final regulations and the states of California and New
Mexico complete changes, if any, to their tax regulations,
8
the full impact of this tax change is not known at this time. The Company does
not believe that these tax law changes will have an adverse impact on its
ability to fund its ongoing operations and capital needs.
Regulatory Developments:
- ------------------------
The California legislature has held hearings discussing the CPUC's organization
and operation. Among other options, the CPUC has proposed consideration of
performance-based rate making, which provides incentives for utilities to
operate more efficiently and improve productivity, and is intended to reduce
regulatory burden and promote efficiency among utilities. Ratepayers and
stockholders would both likely benefit from improved productivity. Legislative
and CPUC developments are closely monitored by the Company and by the various
water industry associations in which the Company actively participates. Whether
such legislative or CPUC developments will be enacted, or, if enacted, what the
terms of such developments would be, are not known by the Company. Therefore,
management cannot predict the impact of final legislative or CPUC developments
on the Company's financial condition or results of operations.
Contract Operations:
- --------------------
The operations of ECO are not regulated. ECO's long-term water and wastewater
service contracts typically include annual inflation adjustments. 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.
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 (as reenacted in 1996), 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 operations revenues. However, there is no assurance that recovery of
such costs will be allowed.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
- --------------------------------------------------------------------
SEPTEMBER 30, 1995
- ------------------
Earnings per common share increased from $.31 in 1995 to $.33 in 1996.
Operating income increased $166,000, or 9%, and, as a percentage of operating
revenues, remained the same in 1996 and 1995. Operating income at the utilities
remained primarily unchanged. ECO's operating loss decreased by $56,000
compared to 1995. Parent company expenses decreased $83,000 primarily due to
the reduction in outside consulting services.
Operating revenues
- ------------------
Operating revenues increased $1,628,000, or 10%. Water utility revenues
increased $750,000 due to warmer weather in comparison to 1995 resulting in a
3.5% increase in water consumption by Suburban's customers and a 2% increase in
water consumption by NMUI's customers. Suburban also benefited from a rate
increase authorized in April 1996. NMUI added 149 new water customers in the
third quarter of 1996,
9
which also contributed to the increase. ECO's revenues increased $878,000
primarily as a result of revenues from additional work outside the scope of its
contracts.
Direct operating expenses
- -------------------------
Direct operating expenses increased $1,334,000 or 11%. As a percentage of
operating revenues, these expenses were 75% in both 1996 and 1995. Water utility
direct operating expenses increased $624,000, which reflects the increase in
water consumption by Suburban and NMUI customers along with increases in
purchased water from outside sources to meet customer demand. ECO's direct
operating expenses increased $710,000, resulting primarily from higher expenses
associated with additional work outside the scope of contracts.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expenses increased $128,000 or 6%. As a
percentage of operating revenues, these expenses decreased from 14% in 1995 to
13% in 1996. Selling, general and administrative expenses at Suburban and NMUI
increased $99,000, due primarily to higher payroll expenses. ECO's selling,
general and administrative expenses increased $112,000 due primarily to
increased marketing and payroll expenses. As discussed above, general and
administrative expenses of the parent company decreased $83,000.
Other income and expense
- ------------------------
Interest expense increased $131,000 primarily due to higher line of credit
balances. Other income increased by $54,000 primarily due to consulting fees
received from Windermere.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
- ------------------------------------------------------------------
SEPTEMBER 30, 1995
- ------------------
Earnings per common share increased from $.34 in 1995 to $.49 in 1996. Results
for the first nine months of 1995 included a net gain of $50,000, or $.02 per
common share, from the sale of surplus land owned by Suburban in the first
quarter of 1995, and a net gain of $105,000 ($175,000 on a pretax basis) from
the recovery of disputed property tax assessments by Suburban in the second
quarter of 1995.
Operating income increased $1,028,000, or $33%, and, as a percentage of
operating revenues, increased from 7% in 1995 to 8% in 1996. Operating income at
the utilities increased $603,000 due primarily to increased water consumption
and the effects of a rate increase in the second quarter of 1996. NMUI's
customer base growth also contributed to the increase. ECO's operating loss
decreased by $798,000 compared to 1995, due primarily to additional work outside
the scope of contracts, new contracts, and cost containment. Parent company
expenses increased $373,000 primarily due to additional corporate reserves
offset partially by a reduction in outside consulting fees.
Operating revenues
- ------------------
Operating revenues increased $8,436,000 or 20%. Water utility revenues
increased $2,532,000 due to warmer weather resulting in an increase in water
consumption by customers at Suburban and NMUI. Suburban also benefited from a
water rate increase. NMUI added 587 new water customers in the first nine
months of 1996. ECO's revenues increased $5,904,000, primarily as a result of
revenues from additional work outside the scope of contracts and the benefit of
new contracts entered into in 1995.
Direct operating expenses
- -------------------------
Direct operating expenses increased $6,739,000 or 21%. As a percentage of
operating revenues, these expenses were 77% in 1996 and 76% in 1995, with the
one percent increase due primarily to purchases of water from outside sources to
meet increased customer demand. Water utility direct operating expenses
10
increased $1,661,000, primarily reflecting the increase in water costs needed to
meet increased consumption by Suburban and NMUI customers. ECO's direct
operating expenses increased $5,078,000, resulting primarily from higher
expenses associated with additional work outside the scope of contracts and new
contracts.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expenses increased $669,000 or 10%. As a
percentage of operating revenues, these expenses decreased from 16% in 1995 to
15% in 1996. Selling, general and administrative expenses at the utilities
increased $268,000 primarily due to the impact of the tax assessment recovery in
1995 noted earlier. ECO's selling, general and administrative expenses
increased $28,000. As discussed above, general and administrative expenses of
the parent company increased $373,000.
Other income and expense
- ------------------------
Interest expense increased $328,000 primarily due to higher line of credit
balances. Other income increased $94,000 primarily due to consulting fees
received from Windermere.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
In September 1995, Suburban, the Company, and several unrelated parties were
served with a complaint by a former employee of Suburban who worked for Suburban
in the 1950's. The plaintiff claimed he was exposed to asbestos fibers during
his employment and, as a result of such exposure, he contracted mesothelioma.
Suburban and the Company denied all allegations in their response to the
complaint. In late 1995, the former employee died and in 1996, the former
employee's widow and children filed a wrongful death action against Suburban and
the Company. This complaint alleges the same facts as the first complaint, plus
the death of the former employee. The two actions have been consolidated.
The plaintiffs claim the defendants are responsible on the basis of negligence,
breach of warranty and strict liability. Both actions seek unspecified general
damages and burial expenses. The Company has made written demands for defense
and indemnity against all general liability and workers' compensation carriers
who provided coverage during the last 30 years. Two workers' compensation
carriers have acknowledged Suburban's written demands for defense and indemnity
against all general liability but have not accepted responsibility for defense
or indemnity. One general liability carrier has agreed, on a very limited
basis, to accept defense and indemnity obligations under the liability policies
it issued. Suburban and the Company are continuing discussions with other
general liability carriers concerning their acceptance of defense and indemnity
obligations.
Certain defendants who were alleged to be suppliers of asbestos cement pipe to
Suburban have been dismissed on the basis that they were not suppliers to
Suburban. The alleged manufacturer defendant may not be reachable in these
actions due to certain rulings made in a bankruptcy proceeding. As a result,
Suburban and the Company may be the only remaining defendants in the actions.
The plaintiffs have initiated discovery with responses due in November 1996.
Suburban and the Company maintain that they have no responsibility for the death
of the former employee and intend to contest these claims vigorously.
As described in the Company's 1995 Form 10-K Report, Suburban was a defendant
and cross-defendant in two actions filed in March 1994 and June 1994 in the
Superior Court of Los Angeles County arising from a slope failure in 1992 in a
hilly residential development in West Covina, California. These actions were
settled during the second quarter of 1996 for $150,000. Suburban's share of the
settlement payment was $32,000, and Suburban's insurance carrier agreed to fund
any payment in excess of Suburban's deductible.
11
There have been no other significant changes in the various litigation matters
described in the Company's 1995 Form 10-K Report.
The Company is the subject 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 condition, 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
4.7 Third Amendment and Supplement to Indenture of Mortgage dated
October 9, 1996, between Suburban Water Systems and First Trust
of California, N.A., filed herewith.
4.8 Second Amendment and Supplement to Indenture of Mortgage dated
October 21, 1996, between New Mexico Utilities, Inc. and Sunwest
Bank of Albuquerque, N.A., filed herewith.
10.13 Credit Agreement dated June 30, 1996 between Suburban Water
Systems and Wells Fargo Bank, N.A., filed herewith.
10.14 Credit Agreement dated August 29, 1996 between Registrant and
Mellon Bank, N.A., filed herewith.
27 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
September 30, 1996.
12
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: November 4, 1996 /s/ PETER J. MOERBEEK
- ----------------------- ---------------------
Peter J. Moerbeek, Vice President Finance and
Chief Financial Officer
13