Exhibit 99.1
Southwest Water Company Reports Third Quarter 2007 Results
LOS ANGELES--(BUSINESS WIRE)--Nov. 9, 2007--Southwest Water
Company (NASDAQ:SWWC), a leading provider of water, wastewater and
public works services, today reported financial results for the third
quarter and nine months ended September 30, 2007.
For the quarter, revenues decreased $1.6 million to $57.4 million
from $58.9 million in the third quarter of 2006. Operating income
declined $2.5 million to $5.3 million compared with $7.8 million in
prior year third quarter. Net income was down $1.6 million to $2.1
million, or $0.08 per diluted share, compared to $3.7 million, or
$0.16 per diluted share, in the same quarter of 2006. Weighted average
diluted shares outstanding increased 4% to 24.5 million.
For the nine months ended September 30, 2007 compared with
September 30, 2006, revenues decreased $2.4 million to $160.4 million
from $162.8 million, operating income declined $2.0 million to $13.8
million from $15.7 million and net income was down $1.3 million to
$4.9 million, or $0.20 per diluted share, compared to $6.3 million, or
$0.27 per diluted share.
"Our third quarter's results were impacted by $1.1 million of
non-recurring charges in our Services Group, record rainfall in Texas,
the national housing market slowdown and our investments in building a
solid foundation for the future of Southwest Water," said Mark A.
Swatek, Southwest Water chief executive officer and chairman. "We are
re-shaping this organization around the goals of improved bottom line
performance and an integrated infrastructure that positions us for
growth. We see opportunities for improvement across the enterprise -
in our Utility Group, Services Group and Corporate Overhead."
Utility Group Q3 Results
In the Utility Group, revenues were up 1% to $26.5 million from
$26.3 million in the third quarter of 2006, which include intersegment
revenues of $0.4 million in both periods. This increase was primarily
due to utility acquisitions and rate increases implemented since the
third quarter of last year, partially offset by lower consumption in
Texas utilities due to the record rainfall. Operating income decreased
4% to $9.2 million compared with $9.5 million in the third quarter
2006, primarily due to increased depreciation expense and operating
expense increases in Texas and New Mexico.
"We are focused on enhancing our Utility Group income through
pursuing utility acquisitions and general rate case filings,"
commented Swatek. "We currently have four rate cases filed; the
largest being our Monarch Utility filing in Texas where we look to
have the regulators consider in rates our substantial efforts and
investments to bring quality of service up to Southwest's high
standards. Interim rates for Monarch went into effect in October. Our
Alabama wastewater utility receives a contracted annual rate increase
each January and we plan to file a case for our largest utility
located in Southern California in the first part of 2008."
Services Group Q3 Results
Services Group revenues were down 8% to $37.7 million from $40.9
million in the 2006 third quarter, which include intersegment revenues
of $7.2 million and $9.2 million, respectively. This decrease was
primarily due to reduced field work in Texas as a result of wet
weather, a slow down in housing construction in Texas and New Mexico
and a reduction in the company's contract base in its southeast
division. The Services Group recorded an operating loss for the
quarter of $255,000 compared to operating income of $922,000 in the
third quarter of 2006, primarily due to the reduction in revenues as
described above as well as a one time reserve of $650,000 and a spike
in health insurance costs of $450,000.
"The Services Group supports three distinctly different customer
sets: the Texas Municipal Utility Districts or MUD's, municipal
clients through operations and maintenance contracts, and Southwest
Water's own Utility Group," commented Swatek. "We need to accelerate
our performance improvements and therefore we plan to refocus this
Group, including its business development efforts, in early 2008 along
these business lines to better serve the unique demands of each
customer base and eliminate any structural redundancies that may exist
today."
Q3 SG&A and Capital Expenditures
Consolidated selling, general and administrative (SG&A) expenses
for the quarter were $8.4 million versus $7.1 million in the third
quarter of 2006. Included in SG&A is approximately $700,000 of
increased costs associated with upgrades in management and staffing
put in place since the third quarter of 2006, which include salary,
wages and related benefits. Additionally, SG&A includes $500,000 of
costs related to Cornerstone, the company's continuing initiative to
consolidate, update and upgrade all underlying communications and
information technology systems, scheduled to be completed by the end
of 2009.
"We have invested in improving our staff capabilities since this
time last year, resulting in significant upgrades to our internal
information technology resources and operational management," said
Swatek. "We have also invested in Cornerstone. This project is
imperative as our current systems can not sustain our operations and
they restrict the amount of growth we can effectively handle. These
incompatible systems negatively impact customer service, make our
accounting processes time consuming and costly, and prevent our
Services Group from realizing any efficiencies of scale. We anticipate
we will need to make capital expenditures of between $27 million and
$30 million to complete the implementation, which includes the $6
million we have capitalized for this project year to date. We expect a
10% internal rate of return over the life of this project."
Total company funded capital expenditures were $9.9 million in the
quarter, including $3.9 million related to the Cornerstone project,
compared to $8.5 million in the third quarter of 2006.
Conference Call
The company will provide more detail regarding its third quarter
operating results in a conference call and web cast to be held today,
November 9, 2007, at 3:00 p.m. Eastern time (12 noon Pacific). The
conference call can be accessed on the company's website at
www.swwc.com. For those unable to participate in the live web cast, a
replay will be available shortly after the call on the company's
website. A telephonic replay will also be available beginning at 5:00
p.m. Eastern (2:00 p.m. Pacific) until midnight November 16, 2007 at
888-286-8010 (international callers 617-801-6888), passcode 62844079.
Southwest Water Company provides a broad range of services,
including water production, treatment and distribution; wastewater
collection and treatment; utility billing and collection; utility
infrastructure construction management; and public works services. The
company owns regulated public utilities and also serves cities,
utility districts and private companies under contract. More than two
million people in ten states depend on Southwest Water for
high-quality, reliable service. Additional information may be found on
the company's website: www.swwc.com.
This document contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements, including expectations relating to future revenues and
income, the company's ability to gain new business and control costs,
involve risks and uncertainties, as well as assumptions that, if they
prove incorrect or never materialize, could cause the results of the
company to differ materially from those expressed or implied by such
forward-looking statements. Actual results may differ materially from
these expectations due to changes in regulatory, political, weather,
economic, business, competitive, market, environmental and other
factors. More detailed information about these factors is contained in
the company's filings with the Securities and Exchange Commission,
including under the caption "Risk Factors" in the company's 2006
Annual Report on Form 10-K. The company assumes no obligation to
update these forward-looking statements to reflect any change in
future events.
CONDENSED BALANCE SHEET INFORMATION
(unaudited and in thousands)
September 30, December 31,
2007 2006
--------------------------
Current assets $ 41,664 $ 48,257
Property, plant and equipment, net 421,850 389,625
Total assets $519,737 $491,693
Current liabilities $ 33,827 $ 35,830
Long-term debt 143,090 128,624
Contributions in aid of construction 116,128 110,024
Stockholders' equity 172,341 166,527
Total liabilities and stockholders' equity $519,737 $491,693
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited and in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Operating Revenues:
Utility Group $26,456 $26,267 $ 70,934 $ 65,780
Services Group 37,723 40,869 108,439 120,000
Less intersegment
eliminations (6,821) (8,192) (18,966) (22,946)
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Total revenues 57,358 58,944 160,407 162,834
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Expenses:
Utility Group operating
expenses 15,030 14,539 39,619 35,442
Services Group operating
expenses 28,608 29,272 80,733 86,021
Selling, general and
administrative 8,437 7,115 26,282 24,708
Impairment of goodwill -- 261 -- 929
------------------ -------------------
Total expenses 52,075 51,187 146,634 147,100
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Operating income 5,283 7,757 13,773 15,734
Other income (expense)
Interest expense (2,182) (2,081) (6,376) (6,333)
Interest income 291 108 507 363
Other, net (41) 11 (102) --
------------------ -------------------
Income before income taxes and
change in accounting principle 3,351 5,795 7,802 9,764
Provision for income taxes (1,276) (2,123) (2,890) (3,575)
------------------ -------------------
Income before change in
accounting principle 2,075 3,672 4,912 6,189
Cumulative effect of change in
accounting principle, net of
tax -- -- -- 71
------------------ -------------------
Net income 2,075 3,672 4,912 6,260
Preferred stock dividends (6) (6) (18) (18)
------------------ -------------------
Net income applicable to common
holders 2,069 3,666 4,894 6,242
------------------ -------------------
Earnings per common share:
Basic $ 0.09 $ 0.16 $ 0.20 $ 0.28
Diluted $ 0.08 $ 0.16 $ 0.20 $ 0.27
Weighted average outstanding
common shares (diluted) 24,472 23,422 24,357 23,184
CONTACT: Southwest Water Company
DeLise Keim, VP Corporate Communications, (213) 929-1846
www.swwc.com
or
PondelWilkinson Inc.
Robert Jaffe, (310) 279-5969
www.pondel.com