SouthWest Water Company Reports Third Quarter 2009 Results

http://www.businesswire.com/news/home/20091109005494/en

LOS ANGELES--(Business Wire)--
SouthWest Water Company (NASDAQ:SWWC), a leading provider of water, wastewater
and public works services, today reported financial results for the third
quarter ended September 30, 2009.

Operating revenue increased 3% to $59.0 million for the 2009 third quarter from
$57.5 million in the third quarter of 2008. Adjusted income from continuing
operations, which excludes certain items that are not routine to operations net
of tax (a non-GAAP financial measure), was $1.1 million, or $0.05 per diluted
share, compared with adjusted income from continuing operations of $0.1 million,
or $0.00 per diluted share, for the third quarter of 2008. Loss from continuing
operations (GAAP), which includes the non-routine charges, was $0.5 million, or
$0.02 per share, compared with a loss from continuing operations of $0.2
million, or $0.01 per share, for the same period of 2008. A reconciliation table
of GAAP loss from continuing operations to adjusted income from continuing
operations can be found at the end of this release. Net loss for the 2009 third
quarter was $0.5 million, or $0.02 per share, compared with a net loss of $1.0
million, or $0.04 per share, in the comparable prior year period.

"We are pleased that our revenue continues to grow as a result of the regulatory
relief we have been granted in our owned utilities and the increased project
work our Texas MUD operations have completed this year versus last," said Mark
A. Swatek, SouthWest Water president and chief executive officer. "As we
continue to hone in on areas where we can make a positive impact on costs, we
also expect to see continued improvement in our operating efficiencies."

Utilities

Operating revenue for the Utilities segment increased 7% to $19.3 million from
$18.0 million for the third quarter of 2008. The increase was primarily due to a
rate increase and an adjustment to revenue related to conservation rates at the
company`s California utility, offset by reduced consumption in California due to
customer conservation. Operating expenses increased 8% to $13.2 million from
$12.3 million in the comparable period. Operating income increased 6%, to $6.1
million compared with $5.8 million for the third quarter of 2008. Items that
impacted 2009 third quarter operating income that were not routine to operations
included a $0.5 million pre tax benefit related to prior period conservation
rate adjustments at the company`s California utility, offset by $0.2 million of
increased expenses related to legal costs and dispute settlements.

Texas Utilities

Operating revenue for the Texas Utilities segment rose 2% to $10.2 million from
$10.0 million for the third quarter of 2008. The increase was primarily due to
greater demand as a result of hot and dry weather versus the comparable prior
year period, partially offset by a decrease due to settlement of rates at the
company`s Monarch Utility which were below proposed rates charged in the third
quarter of 2008. Operating expenses increased 22%, to $8.9 million from $7.2
million for the third quarter of 2008, primarily reflecting asset retirements,
an increase in depreciation resulting from recent capital expenditures, repair
and maintenance and purchased water costs. While these types of costs are
routine utility costs, asset retirements were high for the period and additional
purchased water was needed due to well repairs during the quarter. Operating
income was $1.4 million, down from $2.8 million for the third quarter of 2008.

O&M Services

Operating revenue for the O&M Services segment decreased 10%, to $9.5 million
from $10.5 million for the third quarter of 2008. The decrease in revenue was
primarily due to $1.6 million from lost contracts and reduced project work,
which includes $0.9 million relating to two underperforming contracts that were
terminated by management in late 2008, offset by price and scope increases.
Operating expenses decreased 14%, to $9.5 million from $11.1 million for the
third quarter of 2008, primarily due to lower costs associated with lost
contracts and reduced project work. Operating loss narrowed to $70,000 from an
operating loss of $0.6 million for the third quarter of 2008. Items that
impacted 2009 third quarter operating income that were not routine to operations
included $0.2 million of decreased revenue due to the termination of product
sales, a non-core service offering, and $0.2 million of higher expenses due to
the favorable settlement of outstanding litigation in the comparable 2008
period.

Texas MUD Services

Operating revenue for the Texas MUD Services segment increased 5% to $20.0
million from $18.9 million for the third quarter of 2008. The increase was
primarily due to an increase in service order work, generally related to repairs
and maintenance associated with hot and dry weather. Operating expenses
decreased 5% to $20.0 million from $21.0 million for the third quarter of 2008,
primarily due to cost savings across multiple general and administrative areas.
Operating loss narrowed to $38,000 from an operating loss of $2.0 million for
the third quarter of 2008. Items that impacted operating loss for the third
quarter of 2009 that were not routine to operations included $0.3 million of
costs related to the settlement of a historical legal issue.

Corporate Expenses

General corporate expenses increased 30% to $5.8 million from $4.4 million for
the third quarter of 2008. Corporate expenses were impacted by non-routine costs
of $2.2 million, primarily driven by $2.3 million of financial restatement
related costs, including audit fees and accounting resource expenses to support
the restatement of historical financial results and prior period SEC filings,
offset by reduced costs associated with expenditures in the comparable period
related to consulting expenses. Project costs were reduced by $0.6 million due
to the elimination of costs related to the Cornerstone project, which was halted
in October 2008. Routine expenditures decreased $0.3 million from the comparable
period.

Capital Expenditures

Total company funded capital expenditures were $6.0 million, compared with $11.2
million in the third quarter of 2008, which included $3.8 million of
expenditures related to the Cornerstone project. Year-to-date, capital
expenditures amounted to $12.3 million.

Non-GAAP Financial Measures

The company believes that its presentation of non-GAAP financial measures, such
as adjusted income from continuing operations and adjusted income from
continuing operations per diluted share, provides useful supplementary
information to investors in understanding its underlying operating performance
and facilitates additional analysis. The company also uses non-GAAP financial
measures internally for operating, budgeting and financial planning purposes.
The non-GAAP financial measures presented by the company may not be comparable
to similarly titled measures reported by other companies. The non-GAAP financial
measures are in addition to, and not a substitute for or superior to, measures
of financial performance calculated in accordance with GAAP. A reconciliation of
the non-GAAP financial measure, income from continuing operations before certain
charges that are not routine to operations, to the comparable GAAP financial
measure, can be found at the end of this release.

Conference Call

The company will hold a conference call to discuss the 2009 third quarter
results on November 9, 2009, at 2:00 p.m. Eastern time (11:00 a.m. Pacific). The
call and an accompanying slide presentation will be web cast live so that
interested parties may listen over the Internet at the company`s website at
www.swwc.com under the investor relations button at the top of the page. 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, 2009 at 888.286.8010 (international callers 617.801.6888), passcode
89953260.

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,
but not limited to, 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 2008 Annual Report on Form 10-K. The
company assumes no obligation to update these forward-looking statements to
reflect any change in future events.

RECONCILIATION OF NON-GAAP INCOME (LOSS) FROM CONTINUING OPERATIONS

THREE Months Ended September 30,
($$ in thousands except per share) 2009 2008

Per Share Per Share
Loss from continuing operations before income taxes (GAAP) ($736 ) ($0.03 ) ($373 ) ($0.02 )
Adjustments (non routine charges to operations):
Restatement related 2,271 0.09 - -
Legal fees and various settlements 797 0.03 (305 ) (0.01 )
Cornerstone project costs - - 600 0.02
Consulting expenses - - 200 0.01
Out of period reclassifications (539 ) (0.02 ) - -

Benefit from income taxes (GAAP) 237 0.01 130 0.01
Tax effect related to Adjustments (898 ) (0.04 ) (176 ) (0.01 )

Income from continuing operations after income taxes (adjusted) $ 1,132 $ 0.05 $ 76 $ 0.00

Diluted shares outstanding used in calculations 24,608 24,607

NINE Months Ended September 30,
($$ in thousands except per share) 2009 2008

Per Share Per Share
Loss from continuing operations before income taxes (GAAP) ($18,770 ) ($0.76 ) ($2,918 ) ($0.12 )
Adjustments (non routine charges to operations):
Restatement related 12,553 0.51 - -
Write-off of assets 8,115 0.33 1,075 0.04
Legal fees and various settlements 1,162 0.05 (368 ) (0.02 )
Cornerstone project costs - - 2,158 0.09
Refund of sales tax - - (359 ) (0.01 )
Consulting expenses - - 817 0.03
Strategic alternative evaluation - - 719 0.03
Out of period reclassifications (207 ) (0.01 ) - -

Benefit from income taxes (GAAP) 6,803 0.28 1,038 0.04
Tax effect related to Adjustments (7,676 ) (0.31 ) (1,435 ) (0.06 )

Income from continuing operations after income taxes (adjusted) $ 1,980 $ 0.08 $ 728 $ 0.03

Diluted shares outstanding used in calculations 24,605 24,498

Note: The tables above do not include results from the company`s New Mexico
utility which was sold during the second quarter 2009 and is therefore recorded
in Discontinued Operations.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 2009 2008 2009 2008

Operating revenue $ 58,984 $ 57,482 $ 161,492 $ 159,065

Expenses:
Operating expenses 53,521 52,637 153,479 144,577
Depreciation and amortization 3,842 3,416 11,532 10,426
Impairment of long-lived assets - - 8,115 1,075
Total operating expenses 57,363 56,053 173,126 156,078

Operating income (loss) 1,621 1,429 (11,634 ) 2,987

Other income (expense):
Interest expense (2,402 ) (2,151 ) (7,265 ) (6,364 )
Interest income 45 349 129 459
Loss from continuing operations before income taxes (736 ) (373 ) (18,770 ) (2,918 )

Benefit from income taxes (237 ) (130 ) (6,803 ) (1,038 )

Loss from continuing operations (499 ) (243 ) (11,967 ) (1,880 )

Income (loss) from discontinued operations, net of tax - (733 ) 17,731 (89 )

Net income (loss) (499 ) (976 ) 5,764 (1,969 )
Preferred stock dividends (6 ) (6 ) (12 ) (18 )

Net income (loss) applicable to common stockholders $ (505 ) $ (982 ) $ 5,752 $ (1,987 )

Income (loss) per common share:
Basic and diluted:
Loss from continuing operations $ (0.02 ) $ (0.01 ) $ (0.49 ) $ (0.08 )
Income (loss) from discontinued operations - (0.03 ) 0.72 (0.00 )
Net income (loss) applicable to common stockholders $ (0.02 ) $ (0.04 ) $ 0.23 $ (0.08 )

Weighted average common shares outstanding:
Basic 24,608 24,607 24,605 24,498
Diluted 24,608 24,607 24,605 24,498

CONSOLIDATED BALANCE SHEETS

(In thousands) September 30, December 31,

2009
2008

ASSETS

Current Assets:
Cash and cash equivalents $ 1,593 $ 1,112
Accounts receivable, net 33,990 29,697
Prepaid expenses and other current assets 25,387 26,902
Total current assets 60,970 57,711

Property, Plant and Equipment, net 315,440 429,251

Other Assets:
Goodwill 16,475 17,652
Intangible assets 1,260 1,666
Other assets 21,919 20,927
Total assets $ 416,064 $ 527,207

LIABILITIES AND STOCKHOLDERS` EQUITY

Current Liabilities:
Accounts payable $ 15,025 $ 16,139
Current portion of long-term debt 2,176 2,213
Other current liabilities 18,547 28,370
Total current liabilities 35,748 46,722

Other Liabilities and Deferred Credits:
Long-term debt, less current portion 153,472 190,578
Deferred income taxes 27,099 23,750
Advances for construction 8,882 8,910
Contributions in aid of construction 44,741 117,113
Other liabilities and deferred credits 27,552 26,334

Commitments and Contingencies

Stockholders` Equity:
Preferred stock 458 458
Common stock 249 249
Additional paid-in capital 148,053 147,775
Accumulated deficit (30,285 ) (34,794 )
Accumulated other comprehensive income 95 112
Total stockholders` equity 118,570 113,800
Total liabilities and stockholders` equity $ 416,064 $ 527,207

SouthWest Water Company
DeLise Keim, 213-929-1846
www.swwc.com

Copyright Business Wire 2009