SouthWest Water Company (NASDAQ:SWWC), a leading provider of
water, wastewater and public works services, today reported
financial results for the fourth quarter and year ended December
31, 2009.
For 2009, the company reported operating revenue of $211.1
million compared with $210.7 million for 2008. Adjusted income from
continuing operations after taxes (a non-GAAP financial measure),
which excludes write-off of goodwill and other long-lived assets
and certain other items that are not routine to operations,
including costs associated with the restatement of historical
financials, increased to $0.2 million, or $0.01 per share, compared
with adjusted loss from continuing operations after taxes of $1.4
million, or $0.06 per share, for 2008. Including these charges,
loss from continuing operations (GAAP) narrowed to $14.0 million,
or $0.57 per share, from $27.6 million, or $1.13 per share, for
2008. A reconciliation table can be found at the end of this
release. Net income was $4.0 million, or $0.17 per diluted share,
versus a net loss of $31.9 million, or $1.31 per share, for the
year ended December 31, 2008.
“Our operating results for both 2009 and 2008 were significantly
impacted by expenses that are not routine to our operations,
including the write off of certain assets and the professional fees
associated with the company’s comprehensive financial review,” said
Mark Swatek, president and chief executive officer. “Revenue from
our utilities segments grew over the past year, despite customer
conservation efforts in California and a difficult economic
environment. As expected, our services segments reported lower
revenue primarily due to terminated contracts and the sale of our
environmental testing laboratory during the year.”
Fourth Quarter 2009 Results
The company reported revenue of $49.6 million in the fourth
quarter of 2009 compared with $51.6 million in the fourth quarter
of 2008. Adjusted loss from continuing operations after taxes (a
non-GAAP financial measure), which excludes write-off of goodwill
and other long-lived assets and certain other items that are not
routine to operations, including costs associated with the
restatement of historical financials, narrowed to $2.0 million, or
$0.08 per share, compared with adjusted loss from continuing
operations after taxes of $2.4 million, or $0.10 per share, for the
fourth quarter of 2008. Including these charges, loss from
continuing operations after taxes was $2.1 million, or $0.08 per
share, versus $25.7 million, or $1.04 per share, in the fourth
quarter of 2008. A reconciliation table can be found at the end of
this release. Net loss was $1.7 million, or $0.06 per share,
compared with a net loss in fourth quarter of 2008 of $30.0
million, or $1.21 per share.
Segment Full Year Results
Utilities
The principal operating trends driving the results of Utilities
in 2009 were rate increases and increased costs of purchased water.
In addition, general and administrative costs increased in 2009.
The California utility, which is this segment’s largest,
experienced reduced consumption due to customer conservation
efforts without a corresponding reduction in expenses due to
increased unit costs of delivered water driven by lower allowed
pumping amounts from owned wells and higher costs of purchased
water. Operating revenue increased $4.2 million, or 7%, to $65.2
million for the year ended December 31, 2009 compared with $60.9
million for the prior year. The net increase was primarily due to
rate increases, principally at the company’s California utility,
partially offset by reduced consumption in California due to
conservation efforts. Operating income decreased $0.4 million, or
2%, to $19.3 million compared with $19.7 million for the prior
year.
The Utilities segment no longer includes operations in New
Mexico, which were sold in a settlement under threat of
condemnation in May 2009 and are therefore reflected as
discontinued operations. The company received $53.9 million in cash
at closing and used the proceeds to pay down debt.
Texas Utilities
The principal operating trends driving the results of Texas
Utilities in 2009 were rate increases and a multi-year drought that
increased consumption and reduced aquifer levels. Operating revenue
increased $1.7 million, or 5%, to $36.5 million for year ended
December 31, 2009 from $34.8 million for the prior year. The net
increase was primarily due to rate increases at three utilities and
increased consumption due to weather. Operating income increased
$26.5 million to $7.5 million from an operating loss of $19.0
million in the prior year. The most significant impact to operating
income from items that are not routine to operations was a $25.2
million impairment of goodwill and other long-lived assets in
2008.
O&M Services
The principal operating trends driving results of O&M
Services in 2009 were terminated contracts and increased operating
efficiencies. Operating revenue decreased $3.5 million, or 9%, to
$37.0 million for the year ended December 31, 2009 from $40.5
million for the prior year. The decrease was primarily due to
terminated contracts, including some that management terminated due
to underperformance. Operating income was $0.3 million compared
with an operating loss of $2.9 million in the prior year. The
improvement in operating income is primarily due to increased
operating efficiencies and lower non-routine expenses.
Texas MUD Services
The principal operating trends driving results in Texas MUD
Services in 2009 were terminated contracts, increased service order
work and increased efficiencies. Operating revenue decreased $2.0
million, or 3%, to $72.4 million for year ended December 31, 2009
from $74.5 million for the prior year. The net decrease was
primarily due to terminated contracts, as well as the sale of the
company’s environmental laboratory services in April 2009.
Operating loss narrowed to $1.4 million from $3.1 million for the
prior year. The improvement was primarily due to increased
operating efficiencies.
Corporate Expenses
General corporate expenses increased $15.6 million, or 72%, to
$37.5 million for the year ended December 31, 2009, from $21.8
million for the prior year. The increase was primarily due to
expenses incurred that are not routine to operations, which include
$12.6 million of financial restatement related costs and $8.0
million from the write-off of Cornerstone business reengineering
project assets, partially offset by reduced routine and other
non-routine expenses.
Capital Expenditures
Total company funded capital expenditures were $16.5 million
compared with $32.1 million in 2008, including $8.4 million related
to the Cornerstone project which was suspended in late 2008.
Merger Agreement
On March 3, 2010, the company announced that it entered into a
definitive merger agreement to be acquired for approximately $275
million in cash, or $11.00 per share, by institutional investors
advised by J.P. Morgan Asset Management and Water Asset Management
L.L.C. After taking into account the company’s outstanding debt,
the transaction represents a total enterprise value of
approximately $427 million.
Non-GAAP Financial Measures
In an effort to provide investors with additional information
regarding results of operations as determined by accounting
principles generally accepted in the United States of America
(“GAAP”), the company has disclosed certain non-GAAP information,
which it believes provides useful information to investors.
Reconciliation of the non-GAAP financial measures to the comparable
GAAP financial measures; income from continuing operations before
the impairment charge and certain charges that are not routine to
operations including restatement related charges, can be found at
the end of this release. This non-GAAP financial measure
supplements GAAP disclosures and should not be considered an
alternative to the GAAP measure. In addition, this non-GAAP
financial measure may be computed differently than similarly titled
non-GAAP measures used by other companies.
Management believes that the presentation of this adjusted
measure is useful to investors because it provides a means of
evaluating the company’s operating performance without giving
effect to impairment and other non-routine charges, which do not
reflect the day-to-day operations of the company. Moreover,
management believes that this presentation facilitates comparisons
between the company and other companies in its industry. In
preparing operating plans, budgets and forecasts, and in assessing
historical performance, management relies, in part, on trends in
the company’s historical results, exclusive of impairment and
non-routine charges.
Conference Call
The company will hold a conference call with financial analysts
to discuss the full year and fourth quarter 2009 results on March
16, 2010, at 11:00 a.m. Eastern time (8:00 a.m. Pacific). The call
will be web cast live so that interested parties may listen over
the Internet at 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 2:00 p.m.
Eastern (11:00 a.m. Pacific) until midnight March 23, 2010 at
888.286.8010 (international callers 617.801.6888), passcode
53906748.
About SouthWest Water Company
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 a
million people in 9 states depend on SouthWest Water for
high-quality, reliable service. Additional information may be found
on the company’s website: www.swwc.com.
Forward-Looking Statements
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 2009 Annual
Report on Form 10-K. The company assumes no obligation to update
these forward-looking statements to reflect any change in future
events.
-Financial Tables to follow-
RECONCILIATION OF NON-GAAP
INCOME FROM CONTINUING OPERATIONS
Three Months Ended December 31, ($ in thousands except per
share)
2009 2008 Per Share Per
Share
Loss from continuing operations after income taxes
(GAAP) ($2,067 ) ($0.08 )
($25,715 ) ($1.04 )
Adjustments (non routine charges to operations)
pre tax:
Legal fees and various settlements 153 0.01 1,145 0.05 Write-off of
Goodwill and other long-lived assets - - 26,028 1.06 Cornerstone
project costs - - 1,242 0.05 Restatement related - -
351 0.01 153 0.01
28,766 1.17 Tax effect related to Adjustments (53 ) (0.00 )
(5,496 ) (0.22 )
Income from continuing operations after
income taxes (adjusted) ($1,967 )
($0.08 ) ($2,444 ) ($0.10
) Diluted shares outstanding used in calculations
24,606 24,607
Year Ended December 31, ($ in
thousands except per share)
2009 2008 Per
Share
Per Share
Loss from continuing operations after income taxes
(GAAP) ($14,034 ) ($0.57 )
($27,595 ) ($1.13 ) Adjustments
(non routine charges to operations) pre tax: Restatement
related 12,553 0.51 351 0.01 Write-off of Goodwill and other
long-lived assets 8,115 0.33 27,103 1.11 Legal fees and various
settlements 1,315 0.05 777 0.03 Suburban WRAM adjustment (207 )
(0.01 ) - - Cornerstone project costs - - 3,400 0.14 Consulting
expenses - - 817 0.03 Strategic alternative evaluation - - 719 0.03
Refund of sales tax - - (359 ) (0.01 )
21,776 0.89 32,808 1.34 Tax effect related to Adjustments
(7,556 ) (0.31 ) (6,598 ) (0.27 )
Income from continuing
operations after income taxes (adjusted) $186
$0.01 ($1,385 )
($0.06 ) Diluted shares outstanding used in
calculations 24,604 24,446
CONSOLIDATED STATEMENTS OF
OPERATIONS
Years Ended December 31, (In thousands, except per
share data) 2009
2008 2007
Operating revenue
$ 211,093
$ 210,657 $
204,807 Operating expenses: Operations and
maintenance 199,957 196,385 181,252 Depreciation and amortization
14,857 14,299 11,177 Impairment of goodwill and other long-lived
assets
8,115 27,103
4,839 Total expenses
222,929 237,787
197,268 Operating income (loss) (11,836
) (27,130 ) 7,539 Other income (expense): Interest expense (9,856 )
(8,402 ) (7,717 ) Interest income 190 520 629 Other, net
— —
(64 ) Income (loss) from continuing
operations before income taxes (21,502 ) (35,012 ) 387 Provision
for (benefit from) income taxes
(7,468
) (7,417 )
1,836 Income (loss) from continuing operations
(14,034 ) (27,595 ) (1,449 ) Income (loss) from discontinued
operations, net of tax 18,101 (4,322 )
3,038 Net income (loss) 4,067 (31,917 ) 1,589 Preferred
stock dividends
(18 )
(24 ) (24
) Net income (loss) applicable to common stockholders
$ 4,049 $
(31,941 ) $
1,565 Earning (loss) per common share: Basic:
Income (loss) from continuing operations $ (0.57 ) $ (1.13 ) $
(0.06 ) Income (loss) from discontinued operations 0.74
(0.18 ) 0.13 Net income (loss)
applicable to common stockholders
$ 0.17
$ (1.31 )
$ 0.07 Diluted: Income (loss) from
continuing operations $ (0.57 ) $ (1.13 ) $ (0.06 ) Income (loss)
from discontinued operations 0.74 (0.18 )
0.13 Net income (loss) applicable to common
stockholders
$ 0.17 $
(1.31 ) $ 0.07
Weighted average common shares outstanding: Basic 24,604
24,446 24,101 Diluted 24,604 24,446 24,101
CONSOLIDATED BALANCE
SHEETS
December 31,
(In thousands, except per share
data)
2009
2008 ASSETS Current
assets: Cash and cash equivalents $ 2,874 $ 1,112 Accounts
receivable, net 26,968 29,697 Prepaid expenses and other current
assets
12,909 26,902
Total current assets
42,751
57,711 Property, plant and equipment,
net 313,716 427,458 Other assets: Goodwill 16,434 17,652 Intangible
assets 2,966 3,459 Other assets
24,228
20,927 Total assets
$
400,095 $ 527,207
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
Liabilities: Accounts payable $ 14,130 $ 16,139 Current portion of
long-term debt 2,171 2,213 Other current liabilities
21,213 28,370 Total
current liabilities
37,514
46,722 Other Liabilities and Deferred Credits:
Long-term debt, less current portion 152,820 190,578 Deferred
income taxes 13,100 23,750 Advances for construction 8,784 8,910
Contributions in aid of construction 53,841 117,113 Other
liabilities and deferred credits 18,122 26,334 Commitments and
Contingencies Stockholders’ Equity: Preferred stock, $0.01 par
value per share, 250 shares authorized, 9 shares issued and
outstanding 458 458
Common stock, $0.01 par value per
share, 75,000 shares authorized, 24,887and 24,897 shares issued and
outstanding at December 31, 2009 and 2008,respectively
249 249 Additional paid-in capital 148,407 147,775 Accumulated
deficit (33,200 ) (34,794 ) Accumulated other comprehensive income
— 112 Total
stockholders’ equity
115,914
113,800 Total liabilities and stockholders’
equity
$ 400,095 $
527,207
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