SouthWest Water Company Delays Filing 2008 Third Quarter Form 10-Q
November 10 2008 - 5:00AM
Business Wire
SouthWest Water Company (NASDAQ:SWWC), a leading provider of water,
wastewater and public works services, today announced that it will
delay filing its Form 10-Q for the third quarter ended September
30, 2008 and has postponed its conference call scheduled for later
today. The company said it is reviewing prior period financial
statements after management discovered errors while developing a 10
year company-wide rate strategy for its regulated utilities.
SouthWest Water�s audit committee, upon management�s
recommendations, has concluded that the consolidated financial
statements for the years ended December 31, 2005, 2006 and 2007 and
for each of the quarters therein, as well as for the quarters ended
March 31, 2008 and June 30, 2008, should no longer be relied upon
and will be restated to correct the errors. The audit committee
intends to engage PricewaterhouseCoopers (PwC) to re-audit the
company�s financial statements for the two years ended December 31,
2007. PwC was engaged in November 2007 as the company�s independent
accountants beginning January 1, 2008. The company said the errors
which led to the restatement relate to: 1) establishment of the
rate of depreciation of assets acquired by acquisition; and 2)
accounting for revenues and related costs associated with the
installation of water and sewer taps. The company intends to
correct the errors in its consolidated financial statements to
bring them into alignment with its rate filings. �It is important
to note that all of these charges are non-cash and in no way
detract from the progress we are making on our turnaround
strategy,� said Mark Swatek, chief executive officer and chairman.
�In fact, it was the steps we have taken to upgrade management,
replace outdated financial systems, consolidate financial services
independent from local operations and elevate regulatory functions
to the corporate level that contributed to our ability to uncover
these errors and bring them to the attention of our independent
auditors and audit committee.� SouthWest Water said that beginning
with the acquisition of certain Texas assets in 2000, the company
applied a rate of depreciation for financial reporting purposes
that did not consider the length of time the assets were in service
prior to being acquired. As a result, depreciation expense related
to assets acquired by acquisition since 2000 has been understated
on the company�s consolidated financial statements. The company
also said that it has been capitalizing and depreciating costs
associated with installing water and sewer taps in Texas and
Mississippi but recognizing the related tap fee revenue when
received, instead of expensing the costs as incurred and
recognizing the related revenue in the period the tap was actually
installed. As a result, expenses were understated and certain
assets and related depreciation were overstated. The company�s
current rate filing for its California regulated utility, Suburban
Water Systems, is not affected. The cost of service that has been
presented in the current rate filing of Monarch Utilities, which is
the largest of the company�s Texas regulated utilities, is also not
affected. Based on a preliminary assessment, management estimates
the cumulative effect of the non-cash adjustments during 2000 to
2008 for the issues stated above will be to reduce net income by $4
million to $8 million, with most of the income statement impact
occurring from 2005 to present. However, the review process is
ongoing and may result in additional adjustments. The company is in
close contact with its banking syndicate and management�s
assessment at this time is that this restatement will not impact
its available cash or liquidity. �We have been steadfast in our
efforts to identify and correct practices that resulted in issues
for SouthWest Water,� commented Swatek. �We are working closely
with our auditors to resolve these issues as soon as possible and
we are confident that we are taking the necessary steps to ensure
our shareholders will have reliable financial statements going
forward.� As soon as practical, following completion of the audits
for 2006, 2007 and 2008, the company expects to file a Form 10-K
for the year ended December 31, 2008; amended Form 10-Qs for the
quarterly periods ended March 31, 2008 and June 30, 2008, and its
Form 10-Q for the third quarter ended September 30, 2008 with the
U.S. Securities and Exchange Commission. The late filing of the
Form 10-Q for the period ended September 30, 2008 has adversely
affected our eligibility to use Registration Statements on Form S-3
for registration of our securities with the SEC. Use of Form S-3
requires, among other things, that the issuer be current and timely
in its reports under the Exchange Act for at least twelve months.
Because of our inability to use Form S-3, we will have to meet more
demanding requirements to register additional securities, which
will make it more difficult for us to effect public offering
transactions, and our range of available financing alternatives
could also be narrowed. We will regain Form S-3 eligibility twelve
months after the filing of the 2008 Form 10-K. Effective
immediately, the Company is suspending its Direct Stock Purchase
Plan and Dividend Reinvestment Plan. SouthWest Water Company
provides a broad range of operations, maintenance and management
services, including water production, treatment and distribution;
wastewater collection and treatment; customer service; and utility
infrastructure construction management. The company owns regulated
public utilities and also serves cities, utility districts and
private companies under contract. More than two million people in
10 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 2007 Annual Report on Form 10-K. The company assumes no
obligation to update these forward-looking statements to reflect
any change in future events.
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