Southwest Water (NASDAQ:SWWC)
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SouthWest Water Company (NASDAQ:SWWC), a leading provider of water,
wastewater and public works services,
today reported unaudited financial results for the full year and fourth
quarter ended December 31, 2007.
Full Year 2007 Results
Primarily as a result of two non-recurring, non-cash charges, the
company reported a net loss of $8.0 million, or $0.33 per diluted share
for the year ended December 31, 2007, as compared to net income in 2006
of $9.4 million, or $0.40 per diluted share. Included in the full year
2007 results are two non-cash charges totaling $20.6 million ($15.1
million, net of tax, or $0.63 per diluted share). The charges include
$17.2 million related to goodwill impairments of the company’s
Texas utilities and a $3.4 million write-down of assets to net
realizable value for a business the company has decided to divest.
Income from continuing operations in 2007 before the impairment charges
(a non-GAAP financial measure; see below) was $8.2 million, or $0.34 per
diluted share, as compared to income from continuing operations of $10.0
million, or $0.43 per diluted share, in 2006.
The impairment charge was a result of testing under SFAS No.142. The
company determined that revenue growth for its Texas utilities was
likely to be slower than originally projected due to downturns in
overall economic conditions and new housing construction as well as a
slower rate of regulated rate increase. The company also determined that
higher levels of capital expenditures than previously projected were
necessary to bring the systems into regulatory compliance and to
continue improving the quality of service for its customers.
The business that the company intends to divest, a wholesale water and
wastewater business, is reflected as discontinued operations in the
financial statements. Included in the discontinued operations is the
$3.4 million charge relating to the write-down of assets.
“We are focused on building a platform that
can sustain profitable growth and improve our customer service and
system reliability,” said Mark A. Swatek,
SouthWest Water chief executive officer and chairman. “By
divesting underperforming assets, our company will be stronger and our
future results will better reflect the underlying strength of our core
business.”
For the year, revenues were $217.3 million as compared to $218.8 million
in 2006. Operating income, before the impairment charge (a non-GAAP
measure) was $20.1 million compared with $22.4 million in 2006. SG&A
expenses were $36.6 million, or 17% of revenues, versus $33.0 million,
or 15% of revenues, in 2006. Included in 2007 SG&A are $1.9 million, or
$0.05 per diluted share, in costs associated with 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. Total company funded capital expenditures were $40.0 million,
including $10.1 million related to the Cornerstone project, compared to
$35.4 million in 2006.
“Over the past year, we made major strides in
restructuring the company and improving the efficiency of our operations,”
commented Swatek. “We also addressed some
legacy issues and dealt with two external factors; a nationwide housing
slowdown and unusually heavy rains in Texas, our biggest market. In
addition, we recently completed our new $150 million credit facility,
which provides additional capacity to continue to grow by investing in
sound utility acquisitions, like the Birmingham, Alabama wastewater
system we purchased in January which added 12,000 customers.”
Utility Group 2007 Results
Revenues in the Utility Group were $93.4 million for the year, up from
$86.3 million in 2006. This 8% increase was primarily due to increased
consumption in California during a dry 2007, rate increases in
California, Texas and Alabama, and acquisitions in Mississippi and
Texas. These increases were partially offset by lower consumption in
Texas due to the heavy rainfall. Operating income before the impairment
(a non-GAAP measure) increased 8% to $32.6 million compared with $30.2
million in 2006, primarily due to the increased revenues.
Services Group 2007 Results
Services Group revenues were $150.7 million in 2007, down from $166.0
million in 2006, which include intersegment revenues of $31.5 million
and $40.4 million, respectively. This 9% decrease was primarily due to
reduced construction and maintenance 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
Georgia and Mississippi. Operating income decreased to $3.4 million from
$5.6 million in 2006, primarily due to the reduction in revenues as
described above as well as a non-recurring reserve of $650,000 for our
share of potential fines imposed by a water quality control board and an
$800,000 severance charge associated with the re-alignment of this
division.
Fourth Quarter 2007 Results
The company reported a net loss of $13.0 million, or $0.53 per diluted
share, as compared to net income in fourth quarter of 2006 of $3.1
million, or $0.13 per diluted share. Income from continuing operations
in the quarter before the impairment charge (a non-GAAP measure) was
$2.6 million, or $0.11 per diluted share, as compared to income from
continuing operations of $3.3 million, or $0.14 per diluted share during
the same period in 2006.
Revenues increased to $57.4 million from $56.4 million in the fourth
quarter of 2006. Operating income before the impairment charge (a
non-GAAP measure) was $5.9 million versus $6.5 million in the same
period of 2006.
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. A reconciliation of
the non-GAAP financial measures to the comparable GAAP financial
measure, which include income from continuing operations and operating
income before the impairment charges, can be found at the end of this
release. In addition, management is in the process of completing its
internal review of the financial information presented here; the amounts
are unaudited and subject to change.
Conference Call
The company will provide more detail regarding its fourth quarter and
full year 2007 results in a conference call and web cast to be held
today, March 17, 2008, at 4:30 p.m. Eastern time (1:30 p.m. 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 6:30
p.m. Eastern (3:30 p.m. Pacific) until midnight March 24, 2008 at
888-286-8010 (international callers 617-801-6888), passcode 90008539.
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 from
coast to coast 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 and 2007 Annual Report on Form 10-K, which the company anticipates
filing shortly. The company assumes no obligation to update these
forward-looking statements to reflect any change in future events.
Condensed Consolidated Statements of Income
(unaudited and in thousands, except per share amounts)
Three Months Ended
Year Ended
December 31,
December 31,
2007
2006
2007
2006
Operating Revenues:
Utility Group
$23,741
$21,719
$93,370
$86,321
Services Group
39,767
46,426
150,721
165,982
Less intersegment eliminations
(6,099
)
(11,733
)
(26,744
)
(33,501
)
Total revenues
57,409
56,412
217,347
218,802
Expenses:
Utility Group operating expenses
13,811
13,565
52,765
48,540
Services Group operating expenses
27,323
28,012
107,884
113,916
Selling, general and administrative
10,349
8,328
36,624
32,998
Impairment of goodwill
17,215
--
17,215
929
Total expenses
68,698
49,905
214,488
196,383
Operating income
(11,289
)
6,507
2,859
22,419
Other income (expense)
Interest expense
(1,973
)
(1,830
)
(7,696
)
(7,536
)
Interest income
128
112
618
456
Other, net
96
58
(6
)
58
Income (loss) from continuing operations before taxes
(13,038
)
4,847
(4,225
)
15,397
Provision (benefit) for income taxes
(2,466
)
1,538
795
5,388
Income (loss) from continuing operations
(10,572
)
3,309
(5,020
)
10,009
Loss from discontinued operations, net of tax
(2,386
)
(170
)
(3,026
)
(681
)
Cumulative effect of change in accounting principle, net of tax
--
--
--
71
Net income (loss)
(12,958
)
3,139
(8,046
)
9,399
Preferred stock dividends
(6
)
(6
)
(24
)
(24
)
Net income (loss) applicable to common holders
(12,964
)
3,133
(8,070
)
9,375
Earnings per common share (Diluted):
Income (loss) from continuing operations
$(0.44
)
$0.14
$(0.21
)
$0.43
Loss from discontinued operations
(0.09
)
(0.01
)
(0.12
)
(0.03
)
Cumulative effect of change in accounting principle
--
--
Net income (loss) applicable to common holders
$(0.53
)
$0.13
$(0.33
)
$0.40
Weighted average outstanding common shares (diluted)
24,240
23,985
24,101
23,363
Condensed Balance Sheet Information
(unaudited and in thousands)
December 31,
December 31,
2007
2006
Current assets
$ 45,820
$ 48,257
Property, plant and equipment, net
417,903
389,625
Total assets
$516,409
$491,693
Current liabilities
$ 41,918
$ 35,830
Long-term debt
145,353
128,624
Contributions in aid of construction
115,442
110,024
Stockholders’ equity
159,194
166,527
Total liabilities and stockholders’ equity
$516,409
$491,693
Reconciliation of Non-GAAP Income from Continuing Operations
(unaudited and in thousands except per share)
Three Months Ended
Year Ended
December 31, 2007
December 31, 2007
Pre-tax loss from continuing operations (GAAP)
(13,038
)
(4,225
)
Add Back: Impairment charges
17,215
17,215
Pre-tax income from continuing operations (adjusted)
4,177
12,990
Provision for income taxes (37%)
1,545
4,806
Net income from continuing operations (adjusted)
$
2,632
$
8,184
Earnings per diluted share
$
0.11
$
0.34
Reconciliation of Non-GAAP Operating Income
(unaudited and in thousands)
Three Months Ended
Year Ended
December 31, 2007
December 31, 2007
Utility business operating (loss) income
(7,789
)
15,339
Services business operating income
1,567
3,415
Corporate
(5,067
)
(15,895
)
Operating (loss) income (GAAP)
(11,289
)
2,859
Add Back: Impairment charges
17,215
17,215
Operating income (adjusted)
$
5,926
$
20,074
Reconciliation of Non-GAAP Utility Business Operating Income
(unaudited and in thousands)
Year Ended
December 31, 2007
Operating Income (from above table)
15,339
Add Back: Impairment charges
17,215
Operating income (adjusted)
$
32,554