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, 1998
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 APPEARS HERE]
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 8, 1998, there were
3,345,764 common shares outstanding.
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
- ------- ---------------------- --------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Income -
Three months ended March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 9
Part II. Other Information:
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Item 1. Legal Proceedings 9 - 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1998 1997
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(unaudited)
(in thousands)
Current Assets:
Cash and cash equivalents $ 693 $ 1,237
Customers' accounts receivable, net 7,731 7,286
Other current assets 3,345 2,976
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11,769 11,499
Property, Plant and Equipment:
Utility property, plant and equipment -- at cost 136,121 133,936
Contract operations property, plant and equipment -- at cost 4,962 4,854
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141,083 138,790
Less accumulated depreciation and amortization 37,885 36,654
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103,198 102,136
Other Assets 9,103 9,465
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$124,070 $123,100
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt $ 900 $ 900
Accounts payable 1,712 1,214
Other current liabilities 8,573 8,912
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11,185 11,026
Other Liabilities and Deferred Credits:
Bank notes payable 6,940 7,131
Long-term debt 29,800 29,800
Advances for construction 7,889 7,931
Contributions in aid of construction 28,707 27,822
Deferred income taxes 4,283 4,130
Other liabilities and deferred credits 2,833 2,833
- ---------------------------------------------------------------------------------------
Total Liabilities and Deferred Credits 91,637 90,673
Stockholders' Equity
Cumulative preferred stock 517 517
Common stock 33 33
Paid-in capital 29,597 29,469
Retained earnings 2,295 2,420
Unamortized value of restricted stock issued (9) (12)
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Total Stockholders' Equity 32,433 32,427
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$124,070 $123,100
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See accompanying notes to condensed consolidated financial statements.
2
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
- --------------------------------------------------------------------------------------------------
1998 1997
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(in thousands except per share data)
Operating Revenues $15,946 $15,432
Operating Expenses:
Direct operating expenses 12,159 11,950
Selling, general and administrative 2,765 2,678
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14,924 14,628
Operating Income 1,022 804
Other Income (Expense):
Interest expense (818) (782)
Interest income 17 33
Other 83 55
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(718) (694)
Income Before Income Taxes 304 110
Provision for income taxes 122 46
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Net Income 182 64
Dividends on preferred shares 7 7
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Net Income Available for Common Shares $ 175 $ 57
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Earnings per Common Share:
Basic $ 0.05 $ 0.02
Diluted $ 0.05 $ 0.01
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Cash Dividends per Common Share $ 0.09 $ 0.086
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Weighted-Average Outstanding Common Shares:
Basic 3,337 3,284
Diluted 3,412 3,327
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See accompanying notes to condensed consolidated financial statements.
3
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
- ------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------
(in thousands)
Cash Flows from Operating Activities, Net $ 1,071 $ 843
Cash Flows from Investing Activities:
Additions to property, plant and equipment (2,340) (2,411)
Other investments, net 120 0
- ------------------------------------------------------------------------------
Net cash used in investing activities (2,220) (2,411)
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Cash Flows from Financing Activities:
Contributions in aid of construction 1,027 822
Net proceeds from dividend reinvestment and
employee stock purchase plans 118 93
Dividends paid (307) (287)
Net borrowings (repayment) of bank notes payable (191) 791
Payments on advances for construction (42) (4)
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Net cash provided by financing activities 605 1,415
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Net decrease in cash and cash equivalents (544) (153)
Cash and cash equivalents at beginning of period 1,237 790
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Cash and cash equivalents at end of period $ 693 $ 637
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Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 553 $ 538
Income taxes $ 350 $ 263
Depreciation and amortization $ 1,080 $ 1,047
See accompanying notes to condensed consolidated financial statements.
4
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. Southwest Water Company ("the Company") and its subsidiaries provide water
management services through contract and utility operations. The unaudited
condensed consolidated financial statements reflect all adjustments, which,
in the opinion of management, are necessary to present fairly the financial
position of the Company as of March 31, 1998, and the Company's results of
operations for the three months ended March 31, 1998. All such adjustments
are of a normal recurring nature. Certain reclassifications have been made
to the 1997 financial statements to conform to the 1998 presentation.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and related notes contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
3. There is seasonality to the water management services industry; thus, the
results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year. The
first and fourth quarters of each year are normally the lowest in terms of
average customer water usage for the Company's water utilities. Rainfall
and weather conditions affect utility operations, and utility 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 hampers the Company's ability to perform
billable work such as pipeline maintenance, manhole rehabilitation and
other outdoor services.
4. The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128 "Earnings Per Share" which is required for interim and annual
financial statements issued after December 15, 1997. Under SFAS No. 128,
basic earnings per share ("EPS") replaced the presentation of primary EPS,
and diluted EPS replaced fully diluted EPS. For the three months ended
March 31, 1998 and 1997, basic EPS was calculated using the weighted-
average number of common shares outstanding during the period. Diluted EPS
was calculated using the weighted-average number of common shares and
dilutive common stock equivalents. Common equivalent shares arise from
stock options, and reflect the potential dilution that could occur if
common stock equivalents were exercised or converted into common stock that
could share in the earnings of the Company.
5. The Company has implemented SFAS No. 130 "Reporting Comprehensive Income"
which is required for interim and annual financial statements issued for
periods beginning after December 15, 1997. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components. The implementation of SFAS No. 130 did not have any effect on
the Company's financial position or results of operations.
7. The Company is subject to SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for annual financial statements issued
for periods beginning after December 15, 1997. The disclosure requirements
of SFAS No. 131 are not required in interim financial statements in the
initial year of application. SFAS No. 131 establishes standards for
reporting financial and descriptive information regarding an enterprise's
operating segments. SFAS No. 131 will require additional financial
disclosure by the Company but will not have any effect on the Company's
financial position or results of operations.
5
8. The Company is subject to SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits," for annual financial statements
issued for periods beginning after December 15, 1997. SFAS No. 132
requires certain changes in the financial disclosure by the Company but
will not have any effect on the Company's financial position or results of
operations.
9. The 1997 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, 1998.
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"). The operations of ECO Resources, Inc. ("ECO")
are currently generating positive cash flow for the Company; however, cash flow
may be influenced from time to time by ECO's investments in operating and
computer equipment, as well as new business development and acquisition costs.
At March 31, 1998, the Company had cash and cash equivalent balances totaling
$693,000 and unused lines of credit of $9,060,000, with a total line of credit
capacity of $16,000,000. The Company has three lines of credit from three
commercial banks, all of which expire in 1999. The Company expects to renew its
lines of credit in the normal course of business. During the first quarter of
1998, the Company repaid $191,000 on its lines of credit.
The Company has remaining borrowing capacity under its First Mortgage Bond
Indentures of approximately $31,816,000. However, the amount of additional
borrowing available to the Company under its current lines of credit is limited
by financial covenants and available lines of credit that restricted additional
borrowing at March 31, 1998 to the unused credit line amount.
During the first quarter of 1998, the Company's additions to property, plant
and equipment were $2,340,000, representing a decrease of $71,000 over the same
period in 1997. Developers made contributions in aid of construction ("CIAC")
and advances totaling $1,027,000, all of which was received in cash. The
Company-financed capital additions amount was $1,313,000 which was generated
primarily by cash flow from operations. Capital expenditures are expected to
decrease to approximately $13,000,000 in 1998 due to the completion of major
construction projects in 1997. The Company anticipates borrowing approximately
$3,000,000 under its lines of credit to meet construction requirements not
funded by operations or CIAC.
The Company anticipates that its available short-term borrowing capacity and
its cash flow generated from operations will be sufficient to fund its
activities during 1998. If additional cash were needed, the Company would
consider alternative sources including long-term financing. The amount and
timing of any future long-term financing would depend on various factors,
including the timeliness and adequacy of rate increases, the availability of
capital, and the Company's ability to meet interest and fixed charge coverage
requirements. Regulatory approval is required for any long-term financing by
Suburban 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. Similarly, if the Company were to need additional cash to
fund an acquisition, financing arrangements could include long-term borrowing or
equity financing.
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REGULATORY AFFAIRS:
Regulation:
The California Public Utilities Commission ("CPUC") and the New Mexico Public
Utility Commission ("NMPUC") regulate the rates and operations of Suburban and
NMUI, respectively. The rates allowed are intended to provide the utilities an
opportunity to recover costs and earn a reasonable return on common equity. The
Company anticipates that future construction expenditures and increased direct
operating expenses will require periodic requests for rate increases.
Suburban received CPUC approval for a 2.62% ($705,000) step rate increase
effective January 1, 1997 and a 2.62% ($740,000) step rate increase effective
January 1, 1998.
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 would provide incentives
for utilities to operate more efficiently and improve productivity. If enacted,
these changes are expected to reduce regulatory burden and promote efficiency
among utilities which, if accomplished, would likely benefit both ratepayers and
stockholders. 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 changes will be enacted,
or, if enacted, what the terms of such changes 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.
In 1996, the residents of the state of New Mexico approved a constitutional
amendment to combine the NMPUC and the New Mexico Corporation Commission
("NMCC") and create the New Mexico Public Regulatory Commission ("NMPRC").
Presently, the NMPUC consists of three appointed officials and the NMCC consists
of three elected officials. Under the newly enacted legislation, the NMPRC will
consist of five elected officials who will be elected in November 1998, and take
office on January 1, 1999. A legislative committee is currently reviewing
proposed changes to the Public Utilities Act (the "PUA"). The Company cannot
predict if or when changes to the PUA will ultimately occur; or, if changes are
enacted, the impact on NMUI's financial position or results of operations.
Contract Operations:
ECO's pricing is not subject to regulation by a public utilities commission.
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.
In the United States, the majority of water and wastewater utility operations
are performed by municipal employees. As a result, a significant portion of
ECO's sales and marketing efforts require convincing elected officials and city
staff persons that outsourcing of the utility operations is of benefit to the
city. Typical sales efforts have an 18 to 36-month lead-time with no assurance
that the city will select outsourcing or select ECO at the end of the sales
effort. While industry renewal rates tend to be high, there have been instances
of cities changing operators at the end of a contract and instances of cities
ending outsourcing at the end of a contract. During 1998, Operations and
Maintenance ("O&M") contracts with annual revenues of approximately $5,000,000
will be expiring. If ECO were not able to renew these contracts, revenues and
profitability could be adversely affected.
7
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 (the "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. Both the EPA and state regulatory agencies require periodic
testing and sampling of water. To date, the Company has not experienced any
material adverse effects upon its operations resulting from compliance with
governmental regulations. 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.
YEAR 2000 COMPUTER COMPLIANCE:
The Company has completed a review of all computer systems and related
software currently in use to determine whether they are year 2000 compliant.
Most of the Company's computer systems and related software in use are already
year 2000 compliant, and compliance of remaining computer systems and related
software is expected to be completed in the coming months. Costs to be incurred
in order for the Company to be year 2000 compliant are not expected to have a
material effect on the Company's financial position or results of operations.
FORWARD LOOKING STATEMENTS:
Certain statements in this Form 10-Q are forward looking and, as such, involve
risk and uncertainty. Uncertainties arise from weather, environmental issues,
legal contingencies and other matters which management cannot predict.
Information and footnote disclosures included in the Company's consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and should be read in conjunction with the Company's
description of its business and management's discussion and analysis of
financial condition. Actual results may vary from those projected or implied.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Diluted earnings per common share were $.05 in 1998, compared to $.01
(adjusted for a stock dividend of 5% on January 2, 1998) during the same period
in 1997.
Operating income increased $218,000 or 27%, and, as a percentage of operating
revenues, was 6% in 1998 compared with 5% in 1997. Operating income at the
utilities decreased $220,000, due primarily to decreased water sales at Suburban
because of inclement weather in California as a result of "El Nino"-generated
storms. The decrease in operating income as a result of decreased consumption
was partially offset by the positive effects of a step rate increase. ECO's
operating results improved $395,000, due to increased revenue from new contracts
entered into in 1997, additional work performed outside the scope of existing
contracts, aggressive cost containment measures, and restructuring of marketing
responsibilities. Parent company expenses decreased $43,000, due primarily to
decreases in compensation-related expenses and legal reserves.
Operating revenues
Operating revenues increased $514,000 or 3%. Water utility revenues decreased
$418,000 due primarily to a 17% decrease in water consumption by Suburban's
customers, offset by a step rate increase. Revenues increased at NMUI by 6% due
to an increase in the number of NMUI's customers.
8
ECO's revenues increased $932,000, primarily as a result of new contracts
entered into in 1997 and additional work performed outside the scope of existing
contracts.
Direct operating expenses
Direct operating expenses increased $209,000 or 2%. As a percentage of
operating revenues, these expenses were 76% in 1998 and 77% in 1997. Water
utility direct operating expenses decreased $205,000, primarily reflecting a
decrease in the cost of water produced because of the lower level of water
consumption by customers. ECO's direct operating expenses increased $414,000,
resulting primarily from higher expenses associated with the effects of new
contracts and additional work performed outside the scope of existing contracts.
Selling, general and administrative
Selling, general and administrative expenses increased $87,000 or 3%. As a
percentage of operating revenues, these expenses were 17% in 1998 and 1997.
General and administrative expenses at the utilities increased $7,000. ECO's
selling, general and administrative expenses increased $123,000, primarily due
to additional legal reserves and higher compensation-related costs. As
discussed above, general and administrative expenses of the parent company
decreased $43,000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in the Company's 1997 Annual Report on Form 10-K, Suburban and
the Company were served with a summons and an amended complaint in the Kristin
Santamaria, et al. vs. Suburban Water Systems, et al action. The plaintiffs
contend, in essence, that they or deceased family members are or were long-time
residents of the San Gabriel Valley ("the Valley") and that, by virtue of their
residence in the Valley, they have suffered long-term exposure to various
hazardous substances in their drinking water, and, in some cases, wrongful
deaths.
Suburban annually takes over 4,000 water samples from reservoirs, wells and
residences, which are then tested by independent, state-certified laboratories.
Water tested by these laboratories has continued to comply with all state and
federal drinking water standards. Southwest Water Company is a holding company
and not a water purveyor. The Company and Suburban will vigorously defend
against all claims made by the plaintiffs and believe they are not liable for
any damages to the plaintiffs. In addition, the Company and Suburban have
requested that their liability carriers provide defense and indemnity with
respect to this action. In February 1998, a primary liability insurance carrier
for the Company and Suburban agreed to contribute to the costs of defense of
this action, subject to a reservation of rights and defenses. Based on
information available at this time, management does not expect that this matter
will have a material effect on the Company's financial position or results of
operations.
In February 1998, the Company and Suburban were served with a summons and
complaint in a second action entitled Christine Boswell et al vs. Suburban Water
Systems etc., et al, No. KC027318 in the Los Angeles County Superior Court. In
this action, the 14 plaintiffs contend that they or deceased family members are
or were long-time residents of the San Gabriel Valley. The plaintiffs contend
that there is a long history of chemical contamination of the groundwater in the
San Gabriel Valley, that the Company and Suburban were aware of such
contamination, that the Company and Suburban knowingly provided contaminated
water to the plaintiffs and others and that the Company and Suburban
intentionally withheld from plaintiffs the alleged knowledge that water supplied
to them was contaminated. The plaintiffs allege, on the basis of these factual
allegations, 12 causes of action including negligence, negligence per se,
trespass, nuisance, wrongful death, strict liability, absolute liability and
fraudulent concealment. The plaintiffs seek damages according to proof for
alleged physical injury, damage to property, loss of earnings, loss of
consortium, burial and other wrongful death losses and punitive damages.
9
The Company and Suburban believe that their defense to this action will be
similar to the defense of the first action and believe that they are not liable
for any damages to the plaintiffs. The Company and Suburban intend to
vigorously defend this action and have requested that their liability insurance
carriers defend and indemnify the Company and Suburban. Based upon information
available at this time, management does not expect that this action will have a
material effect on the Company's financial position or results of operations.
In accordance with a resolution of the CPUC, Suburban has applied for and
received CPUC authority to establish and maintain a memorandum or tracking
account to accumulate all costs and fees incurred by Suburban in defense of the
Santamaria, Boswell and any similar actions which may be filed, costs and fees
incurred in legal actions against industrial potentially responsible parties
("PRPs"), and costs and fees incurred in seeking recovery against Suburban's
insurance carriers of costs, and fees incurred with respect to the underlying
actions and those against PRPs. Under the CPUC resolution, Suburban may, at
some point in the future, seek CPUC authority to recover these costs and fees
from Suburban's customers. The Company and Suburban are unable to estimate or
predict whether the CPUC will ultimately allow Suburban to recover these
accumulated costs and fees from Suburban's customers or, if such recovery is
allowed, how much of such costs and fees will be recoverable.
In response to the Santamaria and Boswell actions, and similar actions against
other water purveyors in California, the CPUC in March 1998 issued an order
instituting investigation ("OII") directed to all Class A and B water utilities
in California, including Suburban. The OII notes the constitutional and
statutory jurisdiction of the CPUC and the California Department of Health
Services (the "DOHS") to establish water quality standards for water delivered
to utility customers, to enforce adherence to such standards and, in the case of
the CPUC, to establish rates which permit water utilities to furnish safe water
which meets the established quality standards at prices which are affordable to
consumers while permitting the water utilities to realize a reasonable profit.
The OII requires that all Class A and B water utilities file compliance reports
with the CPUC in July 1998. The Water Division of the CPUC will then submit a
report of its findings to the CPUC in November 1998. A final determination is
expected from the CPUC in May 1999. The purpose of the OII is to address a
series of questions dealing with the safety of current drinking water standards,
compliance by water utilities with the standards, appropriate remedies for
failure to comply with safe drinking water standards and whether stricter or
additional safe drinking water standards are required. At this time, the Company
and Suburban are unable to predict what actions, if any, will be taken by the
CPUC and/or the DOHS as the result of this investigation, or their impact on the
operations or financial position of the Company and Suburban.
The recent OII does not, at this time, directly impact the Santamaria or
Boswell actions. The CPUC did, however, in the OII set out at considerable
length the jurisdiction of the CPUC and the DOHS on water quality and water
safety issues and noted the "potentially enormous" implications to the water
utilities, their customers and the jurisdiction of the CPUC if the plaintiffs in
the several pending lawsuits prevail. One commissioner, in his published remarks
concerning the OII, expressly noted that these lawsuits "directly affect" the
ability of the CPUC to perform its statutory obligations and noted both
potential water supply problems if the plaintiffs in these actions prevail and
the cost to all water utility customers from mere prosecution of these actions.
At this time, the CPUC has not intervened in these actions nor asserted dispute
resolution authority with respect to them. It is uncertain whether the CPUC
and/or the DOHS will attempt such intervention or assert such jurisdiction or
the likely results of such action.
As discussed in the Company's 1997 Annual Report on Form 10-K, Suburban, the
Company, and several unrelated parties were served with a complaint in September
1995, wherein the plaintiff claimed that, while working in the 1950s and 1960s
for an independent contractor hired by Suburban, he was exposed to asbestos
fibers and contracted mesothelioma. The plaintiff died in 1995, and in 1996 the
plaintiff's widow and children filed a wrongful death action against Suburban
and the Company. Suburban and the Company denied all allegations in their
response to the complaint. To date, there has been no specific claim for damages
by the plaintiffs, and discovery is moving slowly. Suburban and the Company
maintain that they have no responsibility for the death of the original
plaintiff and intend to contest these claims vigorously.
10
As discussed in the Company's 1997 Annual Report on Form 10-K, the City of
Albuquerque (the "City") initiated an action in eminent domain to acquire the
operations of NMUI. The Company believes that the fair market value of NMUI is
substantially in excess of the amount offered in the City's complaint and that
there is significant doubt whether the City will proceed with the action. Under
New Mexico state law, there are procedures which would allow the City to take
possession prior to a resolution of the fair market value issue; however, the
Company believes that it has adequate defenses should the City choose to pursue
these procedures. If the City pursues a final determination of fair market value
and possession of NMUI through a court trial, the Company does not anticipate
resolution of these matters in the near future.
The Company and its subsidiaries are the subjects of certain litigation
arising from the ordinary course of operations. The Company believes the
ultimate resolution of such matters will not materially affect its consolidated
financial 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:
10.19 Business Loan Agreement dated December 10, 1997 between New Mexico
Utilities, Inc. and First Security Bank of New Mexico, NA, 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 March
31, 1998.
11
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 8, 1998 /s/ Peter J. Moerbeek
- ------------------ ---------------------
PETER J. MOERBEEK, Vice President Finance and
Chief Financial Officer
12