<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
_____TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from________________ to________________
Commission file number: 0-8176
[LOGO OF SOUTHWEST
WATER COMPANY APPEARS HERE]
SOUTHWEST WATER COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-1840947
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
225 NORTH BARRANCA AVENUE, SUITE 200
WEST COVINA, CALIFORNIA 91791-1605
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(626) 915-1551
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
-
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. On May 8, 1998, there were
3,345,764 common shares outstanding.
<PAGE>
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information: Page No.
- ------- ---------------------- --------
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Income -
Three months ended March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 9
Part II. Other Information:
- -------- ------------------
Item 1. Legal Proceedings 9 - 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
<PAGE>
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
- ---------------------------------------------------------------------------------------
(unaudited)
(in thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 693 $ 1,237
Customers' accounts receivable, net 7,731 7,286
Other current assets 3,345 2,976
- ---------------------------------------------------------------------------------------
11,769 11,499
Property, Plant and Equipment:
Utility property, plant and equipment -- at cost 136,121 133,936
Contract operations property, plant and equipment -- at cost 4,962 4,854
- ---------------------------------------------------------------------------------------
141,083 138,790
Less accumulated depreciation and amortization 37,885 36,654
- ---------------------------------------------------------------------------------------
103,198 102,136
Other Assets 9,103 9,465
- ---------------------------------------------------------------------------------------
$124,070 $123,100
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt $ 900 $ 900
Accounts payable 1,712 1,214
Other current liabilities 8,573 8,912
- ---------------------------------------------------------------------------------------
11,185 11,026
Other Liabilities and Deferred Credits:
Bank notes payable 6,940 7,131
Long-term debt 29,800 29,800
Advances for construction 7,889 7,931
Contributions in aid of construction 28,707 27,822
Deferred income taxes 4,283 4,130
Other liabilities and deferred credits 2,833 2,833
- ---------------------------------------------------------------------------------------
Total Liabilities and Deferred Credits 91,637 90,673
Stockholders' Equity
Cumulative preferred stock 517 517
Common stock 33 33
Paid-in capital 29,597 29,469
Retained earnings 2,295 2,420
Unamortized value of restricted stock issued (9) (12)
- ---------------------------------------------------------------------------------------
Total Stockholders' Equity 32,433 32,427
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$124,070 $123,100
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C>
Operating Revenues $15,946 $15,432
Operating Expenses:
Direct operating expenses 12,159 11,950
Selling, general and administrative 2,765 2,678
- --------------------------------------------------------------------------------------------------
14,924 14,628
Operating Income 1,022 804
Other Income (Expense):
Interest expense (818) (782)
Interest income 17 33
Other 83 55
- --------------------------------------------------------------------------------------------------
(718) (694)
Income Before Income Taxes 304 110
Provision for income taxes 122 46
- --------------------------------------------------------------------------------------------------
Net Income 182 64
Dividends on preferred shares 7 7
- --------------------------------------------------------------------------------------------------
Net Income Available for Common Shares $ 175 $ 57
- --------------------------------------------------------------------------------------------------
Earnings per Common Share:
Basic $ 0.05 $ 0.02
Diluted $ 0.05 $ 0.01
- --------------------------------------------------------------------------------------------------
Cash Dividends per Common Share $ 0.09 $ 0.086
- --------------------------------------------------------------------------------------------------
Weighted-Average Outstanding Common Shares:
Basic 3,337 3,284
Diluted 3,412 3,327
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Southwest Water Company and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- ------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities, Net $ 1,071 $ 843
Cash Flows from Investing Activities:
Additions to property, plant and equipment (2,340) (2,411)
Other investments, net 120 0
- ------------------------------------------------------------------------------
Net cash used in investing activities (2,220) (2,411)
- ------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Contributions in aid of construction 1,027 822
Net proceeds from dividend reinvestment and
employee stock purchase plans 118 93
Dividends paid (307) (287)
Net borrowings (repayment) of bank notes payable (191) 791
Payments on advances for construction (42) (4)
- ------------------------------------------------------------------------------
Net cash provided by financing activities 605 1,415
- ------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (544) (153)
Cash and cash equivalents at beginning of period 1,237 790
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 693 $ 637
- ------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ 553 $ 538
Income taxes $ 350 $ 263
Depreciation and amortization $ 1,080 $ 1,047
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SOUTHWEST WATER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. Southwest Water Company ("the Company") and its subsidiaries provide water
management services through contract and utility operations. The unaudited
condensed consolidated financial statements reflect all adjustments, which,
in the opinion of management, are necessary to present fairly the financial
position of the Company as of March 31, 1998, and the Company's results of
operations for the three months ended March 31, 1998. All such adjustments
are of a normal recurring nature. Certain reclassifications have been made
to the 1997 financial statements to conform to the 1998 presentation.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and related notes contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
3. There is seasonality to the water management services industry; thus, the
results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year. The
first and fourth quarters of each year are normally the lowest in terms of
average customer water usage for the Company's water utilities. Rainfall
and weather conditions affect utility operations, and utility revenues
usually peak during the second and third quarters of each year. The
Company's contract operations business can also be seasonal in nature.
Heavy rainfall during a quarter hampers the Company's ability to perform
billable work such as pipeline maintenance, manhole rehabilitation and
other outdoor services.
4. The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128 "Earnings Per Share" which is required for interim and annual
financial statements issued after December 15, 1997. Under SFAS No. 128,
basic earnings per share ("EPS") replaced the presentation of primary EPS,
and diluted EPS replaced fully diluted EPS. For the three months ended
March 31, 1998 and 1997, basic EPS was calculated using the weighted-
average number of common shares outstanding during the period. Diluted EPS
was calculated using the weighted-average number of common shares and
dilutive common stock equivalents. Common equivalent shares arise from
stock options, and reflect the potential dilution that could occur if
common stock equivalents were exercised or converted into common stock that
could share in the earnings of the Company.
5. The Company has implemented SFAS No. 130 "Reporting Comprehensive Income"
which is required for interim and annual financial statements issued for
periods beginning after December 15, 1997. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components. The implementation of SFAS No. 130 did not have any effect on
the Company's financial position or results of operations.
7. The Company is subject to SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for annual financial statements issued
for periods beginning after December 15, 1997. The disclosure requirements
of SFAS No. 131 are not required in interim financial statements in the
initial year of application. SFAS No. 131 establishes standards for
reporting financial and descriptive information regarding an enterprise's
operating segments. SFAS No. 131 will require additional financial
disclosure by the Company but will not have any effect on the Company's
financial position or results of operations.
5
<PAGE>
8. The Company is subject to SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits," for annual financial statements
issued for periods beginning after December 15, 1997. SFAS No. 132
requires certain changes in the financial disclosure by the Company but
will not have any effect on the Company's financial position or results of
operations.
9. The 1997 earnings per common share, cash dividends per common share and
weighted average outstanding common shares have been restated to reflect a
5% stock dividend granted to stockholders of record on January 2, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
Liquidity and capital resources of the Company are influenced primarily by
construction expenditures at Suburban Water Systems ("Suburban") for the
replacement and renovation of existing water utility facilities and by
construction expenditures for new water and wastewater utility facilities at New
Mexico Utilities, Inc. ("NMUI"). The operations of ECO Resources, Inc. ("ECO")
are currently generating positive cash flow for the Company; however, cash flow
may be influenced from time to time by ECO's investments in operating and
computer equipment, as well as new business development and acquisition costs.
At March 31, 1998, the Company had cash and cash equivalent balances totaling
$693,000 and unused lines of credit of $9,060,000, with a total line of credit
capacity of $16,000,000. The Company has three lines of credit from three
commercial banks, all of which expire in 1999. The Company expects to renew its
lines of credit in the normal course of business. During the first quarter of
1998, the Company repaid $191,000 on its lines of credit.
The Company has remaining borrowing capacity under its First Mortgage Bond
Indentures of approximately $31,816,000. However, the amount of additional
borrowing available to the Company under its current lines of credit is limited
by financial covenants and available lines of credit that restricted additional
borrowing at March 31, 1998 to the unused credit line amount.
During the first quarter of 1998, the Company's additions to property, plant
and equipment were $2,340,000, representing a decrease of $71,000 over the same
period in 1997. Developers made contributions in aid of construction ("CIAC")
and advances totaling $1,027,000, all of which was received in cash. The
Company-financed capital additions amount was $1,313,000 which was generated
primarily by cash flow from operations. Capital expenditures are expected to
decrease to approximately $13,000,000 in 1998 due to the completion of major
construction projects in 1997. The Company anticipates borrowing approximately
$3,000,000 under its lines of credit to meet construction requirements not
funded by operations or CIAC.
The Company anticipates that its available short-term borrowing capacity and
its cash flow generated from operations will be sufficient to fund its
activities during 1998. If additional cash were needed, the Company would
consider alternative sources including long-term financing. The amount and
timing of any future long-term financing would depend on various factors,
including the timeliness and adequacy of rate increases, the availability of
capital, and the Company's ability to meet interest and fixed charge coverage
requirements. Regulatory approval is required for any long-term financing by
Suburban and NMUI. If the Company were unable to renew its existing lines of
credit or obtain additional long-term financing, capital spending would be
reduced or delayed until new financing arrangements were secured. Such financing
arrangements could include seeking equity financing through a private placement
or a public offering. Similarly, if the Company were to need additional cash to
fund an acquisition, financing arrangements could include long-term borrowing or
equity financing.
6
<PAGE>
REGULATORY AFFAIRS:
Regulation:
The California Public Utilities Commission ("CPUC") and the New Mexico Public
Utility Commission ("NMPUC") regulate the rates and operations of Suburban and
NMUI, respectively. The rates allowed are intended to provide the utilities an
opportunity to recover costs and earn a reasonable return on common equity. The
Company anticipates that future construction expenditures and increased direct
operating expenses will require periodic requests for rate increases.
Suburban received CPUC approval for a 2.62% ($705,000) step rate increase
effective January 1, 1997 and a 2.62% ($740,000) step rate increase effective
January 1, 1998.
Regulatory Developments:
The California legislature has held hearings discussing the CPUC's
organization and operation. Among other options, the CPUC has proposed
consideration of performance-based rate making, which would provide incentives
for utilities to operate more efficiently and improve productivity. If enacted,
these changes are expected to reduce regulatory burden and promote efficiency
among utilities which, if accomplished, would likely benefit both ratepayers and
stockholders. Legislative and CPUC developments are closely monitored by the
Company and by the various water industry associations in which the Company
actively participates. Whether such legislative or CPUC changes will be enacted,
or, if enacted, what the terms of such changes would be, are not known by the
Company. Therefore, management cannot predict the impact of final legislative or
CPUC developments on the Company's financial condition or results of operations.
In 1996, the residents of the state of New Mexico approved a constitutional
amendment to combine the NMPUC and the New Mexico Corporation Commission
("NMCC") and create the New Mexico Public Regulatory Commission ("NMPRC").
Presently, the NMPUC consists of three appointed officials and the NMCC consists
of three elected officials. Under the newly enacted legislation, the NMPRC will
consist of five elected officials who will be elected in November 1998, and take
office on January 1, 1999. A legislative committee is currently reviewing
proposed changes to the Public Utilities Act (the "PUA"). The Company cannot
predict if or when changes to the PUA will ultimately occur; or, if changes are
enacted, the impact on NMUI's financial position or results of operations.
Contract Operations:
ECO's pricing is not subject to regulation by a public utilities commission.
ECO's long-term water and wastewater service contracts typically include annual
inflation adjustments. Most contracts with municipal utility districts are
short-term contracts and do not generally include inflation adjustments. Changes
in prices are negotiated on a contract-by-contract basis.
In the United States, the majority of water and wastewater utility operations
are performed by municipal employees. As a result, a significant portion of
ECO's sales and marketing efforts require convincing elected officials and city
staff persons that outsourcing of the utility operations is of benefit to the
city. Typical sales efforts have an 18 to 36-month lead-time with no assurance
that the city will select outsourcing or select ECO at the end of the sales
effort. While industry renewal rates tend to be high, there have been instances
of cities changing operators at the end of a contract and instances of cities
ending outsourcing at the end of a contract. During 1998, Operations and
Maintenance ("O&M") contracts with annual revenues of approximately $5,000,000
will be expiring. If ECO were not able to renew these contracts, revenues and
profitability could be adversely affected.
7
<PAGE>
ENVIRONMENTAL AFFAIRS:
The Company's operations are subject to water and wastewater pollution
prevention standards and water and wastewater quality regulations of the United
States Environmental Protection Agency (the "EPA") and various state regulatory
agencies. The EPA and state regulatory agencies continue to promulgate new
regulations mandated by the Federal Water Pollution Control Act, the Safe
Drinking Water Act (as reenacted in 1996), and the Resource Conservation and
Recovery Act. Both the EPA and state regulatory agencies require periodic
testing and sampling of water. To date, the Company has not experienced any
material adverse effects upon its operations resulting from compliance with
governmental regulations. The Company believes that future incremental costs of
complying with governmental regulations, including capital expenditures, if any,
will be recoverable through increased rates and contract operations revenues.
However, there is no assurance that recovery of such costs will be allowed.
YEAR 2000 COMPUTER COMPLIANCE:
The Company has completed a review of all computer systems and related
software currently in use to determine whether they are year 2000 compliant.
Most of the Company's computer systems and related software in use are already
year 2000 compliant, and compliance of remaining computer systems and related
software is expected to be completed in the coming months. Costs to be incurred
in order for the Company to be year 2000 compliant are not expected to have a
material effect on the Company's financial position or results of operations.
FORWARD LOOKING STATEMENTS:
Certain statements in this Form 10-Q are forward looking and, as such, involve
risk and uncertainty. Uncertainties arise from weather, environmental issues,
legal contingencies and other matters which management cannot predict.
Information and footnote disclosures included in the Company's consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and should be read in conjunction with the Company's
description of its business and management's discussion and analysis of
financial condition. Actual results may vary from those projected or implied.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Diluted earnings per common share were $.05 in 1998, compared to $.01
(adjusted for a stock dividend of 5% on January 2, 1998) during the same period
in 1997.
Operating income increased $218,000 or 27%, and, as a percentage of operating
revenues, was 6% in 1998 compared with 5% in 1997. Operating income at the
utilities decreased $220,000, due primarily to decreased water sales at Suburban
because of inclement weather in California as a result of "El Nino"-generated
storms. The decrease in operating income as a result of decreased consumption
was partially offset by the positive effects of a step rate increase. ECO's
operating results improved $395,000, due to increased revenue from new contracts
entered into in 1997, additional work performed outside the scope of existing
contracts, aggressive cost containment measures, and restructuring of marketing
responsibilities. Parent company expenses decreased $43,000, due primarily to
decreases in compensation-related expenses and legal reserves.
Operating revenues
Operating revenues increased $514,000 or 3%. Water utility revenues decreased
$418,000 due primarily to a 17% decrease in water consumption by Suburban's
customers, offset by a step rate increase. Revenues increased at NMUI by 6% due
to an increase in the number of NMUI's customers.
8
<PAGE>
ECO's revenues increased $932,000, primarily as a result of new contracts
entered into in 1997 and additional work performed outside the scope of existing
contracts.
Direct operating expenses
Direct operating expenses increased $209,000 or 2%. As a percentage of
operating revenues, these expenses were 76% in 1998 and 77% in 1997. Water
utility direct operating expenses decreased $205,000, primarily reflecting a
decrease in the cost of water produced because of the lower level of water
consumption by customers. ECO's direct operating expenses increased $414,000,
resulting primarily from higher expenses associated with the effects of new
contracts and additional work performed outside the scope of existing contracts.
Selling, general and administrative
Selling, general and administrative expenses increased $87,000 or 3%. As a
percentage of operating revenues, these expenses were 17% in 1998 and 1997.
General and administrative expenses at the utilities increased $7,000. ECO's
selling, general and administrative expenses increased $123,000, primarily due
to additional legal reserves and higher compensation-related costs. As
discussed above, general and administrative expenses of the parent company
decreased $43,000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in the Company's 1997 Annual Report on Form 10-K, Suburban and
the Company were served with a summons and an amended complaint in the Kristin
Santamaria, et al. vs. Suburban Water Systems, et al action. The plaintiffs
contend, in essence, that they or deceased family members are or were long-time
residents of the San Gabriel Valley ("the Valley") and that, by virtue of their
residence in the Valley, they have suffered long-term exposure to various
hazardous substances in their drinking water, and, in some cases, wrongful
deaths.
Suburban annually takes over 4,000 water samples from reservoirs, wells and
residences, which are then tested by independent, state-certified laboratories.
Water tested by these laboratories has continued to comply with all state and
federal drinking water standards. Southwest Water Company is a holding company
and not a water purveyor. The Company and Suburban will vigorously defend
against all claims made by the plaintiffs and believe they are not liable for
any damages to the plaintiffs. In addition, the Company and Suburban have
requested that their liability carriers provide defense and indemnity with
respect to this action. In February 1998, a primary liability insurance carrier
for the Company and Suburban agreed to contribute to the costs of defense of
this action, subject to a reservation of rights and defenses. Based on
information available at this time, management does not expect that this matter
will have a material effect on the Company's financial position or results of
operations.
In February 1998, the Company and Suburban were served with a summons and
complaint in a second action entitled Christine Boswell et al vs. Suburban Water
Systems etc., et al, No. KC027318 in the Los Angeles County Superior Court. In
this action, the 14 plaintiffs contend that they or deceased family members are
or were long-time residents of the San Gabriel Valley. The plaintiffs contend
that there is a long history of chemical contamination of the groundwater in the
San Gabriel Valley, that the Company and Suburban were aware of such
contamination, that the Company and Suburban knowingly provided contaminated
water to the plaintiffs and others and that the Company and Suburban
intentionally withheld from plaintiffs the alleged knowledge that water supplied
to them was contaminated. The plaintiffs allege, on the basis of these factual
allegations, 12 causes of action including negligence, negligence per se,
trespass, nuisance, wrongful death, strict liability, absolute liability and
fraudulent concealment. The plaintiffs seek damages according to proof for
alleged physical injury, damage to property, loss of earnings, loss of
consortium, burial and other wrongful death losses and punitive damages.
9
<PAGE>
The Company and Suburban believe that their defense to this action will be
similar to the defense of the first action and believe that they are not liable
for any damages to the plaintiffs. The Company and Suburban intend to
vigorously defend this action and have requested that their liability insurance
carriers defend and indemnify the Company and Suburban. Based upon information
available at this time, management does not expect that this action will have a
material effect on the Company's financial position or results of operations.
In accordance with a resolution of the CPUC, Suburban has applied for and
received CPUC authority to establish and maintain a memorandum or tracking
account to accumulate all costs and fees incurred by Suburban in defense of the
Santamaria, Boswell and any similar actions which may be filed, costs and fees
incurred in legal actions against industrial potentially responsible parties
("PRPs"), and costs and fees incurred in seeking recovery against Suburban's
insurance carriers of costs, and fees incurred with respect to the underlying
actions and those against PRPs. Under the CPUC resolution, Suburban may, at
some point in the future, seek CPUC authority to recover these costs and fees
from Suburban's customers. The Company and Suburban are unable to estimate or
predict whether the CPUC will ultimately allow Suburban to recover these
accumulated costs and fees from Suburban's customers or, if such recovery is
allowed, how much of such costs and fees will be recoverable.
In response to the Santamaria and Boswell actions, and similar actions against
other water purveyors in California, the CPUC in March 1998 issued an order
instituting investigation ("OII") directed to all Class A and B water utilities
in California, including Suburban. The OII notes the constitutional and
statutory jurisdiction of the CPUC and the California Department of Health
Services (the "DOHS") to establish water quality standards for water delivered
to utility customers, to enforce adherence to such standards and, in the case of
the CPUC, to establish rates which permit water utilities to furnish safe water
which meets the established quality standards at prices which are affordable to
consumers while permitting the water utilities to realize a reasonable profit.
The OII requires that all Class A and B water utilities file compliance reports
with the CPUC in July 1998. The Water Division of the CPUC will then submit a
report of its findings to the CPUC in November 1998. A final determination is
expected from the CPUC in May 1999. The purpose of the OII is to address a
series of questions dealing with the safety of current drinking water standards,
compliance by water utilities with the standards, appropriate remedies for
failure to comply with safe drinking water standards and whether stricter or
additional safe drinking water standards are required. At this time, the Company
and Suburban are unable to predict what actions, if any, will be taken by the
CPUC and/or the DOHS as the result of this investigation, or their impact on the
operations or financial position of the Company and Suburban.
The recent OII does not, at this time, directly impact the Santamaria or
Boswell actions. The CPUC did, however, in the OII set out at considerable
length the jurisdiction of the CPUC and the DOHS on water quality and water
safety issues and noted the "potentially enormous" implications to the water
utilities, their customers and the jurisdiction of the CPUC if the plaintiffs in
the several pending lawsuits prevail. One commissioner, in his published remarks
concerning the OII, expressly noted that these lawsuits "directly affect" the
ability of the CPUC to perform its statutory obligations and noted both
potential water supply problems if the plaintiffs in these actions prevail and
the cost to all water utility customers from mere prosecution of these actions.
At this time, the CPUC has not intervened in these actions nor asserted dispute
resolution authority with respect to them. It is uncertain whether the CPUC
and/or the DOHS will attempt such intervention or assert such jurisdiction or
the likely results of such action.
As discussed in the Company's 1997 Annual Report on Form 10-K, Suburban, the
Company, and several unrelated parties were served with a complaint in September
1995, wherein the plaintiff claimed that, while working in the 1950s and 1960s
for an independent contractor hired by Suburban, he was exposed to asbestos
fibers and contracted mesothelioma. The plaintiff died in 1995, and in 1996 the
plaintiff's widow and children filed a wrongful death action against Suburban
and the Company. Suburban and the Company denied all allegations in their
response to the complaint. To date, there has been no specific claim for damages
by the plaintiffs, and discovery is moving slowly. Suburban and the Company
maintain that they have no responsibility for the death of the original
plaintiff and intend to contest these claims vigorously.
10
<PAGE>
As discussed in the Company's 1997 Annual Report on Form 10-K, the City of
Albuquerque (the "City") initiated an action in eminent domain to acquire the
operations of NMUI. The Company believes that the fair market value of NMUI is
substantially in excess of the amount offered in the City's complaint and that
there is significant doubt whether the City will proceed with the action. Under
New Mexico state law, there are procedures which would allow the City to take
possession prior to a resolution of the fair market value issue; however, the
Company believes that it has adequate defenses should the City choose to pursue
these procedures. If the City pursues a final determination of fair market value
and possession of NMUI through a court trial, the Company does not anticipate
resolution of these matters in the near future.
The Company and its subsidiaries are the subjects of certain litigation
arising from the ordinary course of operations. The Company believes the
ultimate resolution of such matters will not materially affect its consolidated
financial condition, results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits furnished pursuant to Item 601 of Regulation S-K:
10.19 Business Loan Agreement dated December 10, 1997 between New Mexico
Utilities, Inc. and First Security Bank of New Mexico, NA, filed
herewith.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended March
31, 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
SOUTHWEST WATER COMPANY
-----------------------
(Registrant)
Dated: May 8, 1998 /s/ Peter J. Moerbeek
- ------------------ ---------------------
PETER J. MOERBEEK, Vice President Finance and
Chief Financial Officer
12
<PAGE>
EXHIBIT 10.19
BUSINESS LOAN AGREEMENT
================================================================================
BORROWER: NEW MEXICO UTILITIES, INC. LENDER: FIRST SECURITY BANK OF NEW
4700 IRVING BLVD., SUITE #201 MEXICO, NA
ALBUQUERQUE, NEW MEXICO 87114 EAST CENTRAL BFC
5301 CENTRAL NE, SUITE #101
ALBUQUERQUE, NEW MEXICO 87108
THIS BUSINESS LOAN AGREEMENT BETWEEN NEW MEXICO UTILITIES ("BORROWER") AND FIRST
SECURITY BANK OF NEW MEXICO, N.A. ("LENDER") IS MADE AND EXECUTED ON THE
FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS
FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT
OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT;
(B) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES
SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH
LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF
THIS AGREEMENT.
TERM. This Agreement shall be effective as of DECEMBER 10, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means New Mexico Utilities, Inc.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1989, as amended.
COLLATERAL: The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" means and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
GUARANTOR: The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS: The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them; whether now
or hereafter existing, voluntary or involuntary, due or not due, absolute
or contingent, liquidate or unliquidate; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means First Security Bank of New Mexico, N.A.,
its successors and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" means: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender; (b)
liens for taxes, assessments, or similar charges either not yet due or
being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
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CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel, including without limitation
any guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATION AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of New Mexico
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision or its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "disposal," "release,"
and "threatened release," as used in this Agreement, shall have the same
meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that: (a) During the period of
Borrower's ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by an person relating
to such matters. (c) Neither Borrower nor any tenant, contractor, agent
or other authorized user of any of the properties shall sue, generate,
manufacture, store, treat, dispose of , or release any hazardous waste or
substance on, under, about or from any of the properties; and any such
activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are
based on Borrower'' due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a) releases
and waives any future claims against Lender for indemnity or contribution
in the event Borrower becomes liable for cleanup or other costs under any
such laws, and (b) agrees to indemnify and hold harmless Lender against
any and all claims, losses, liabilities, damages, penalties, and expenses
which Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
occurring prior to Borrower's ownership or interest in the properties,
whether or not the same was or should have been known to Borrower. The
provisions of this section of the Agreement, including the obligation to
indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
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BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 4700 Irving Blvd., Suite 201, Albuquerque, NM
87114. Unless Borrower has designated otherwise in writing this location
is also the offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information is dated or certified; and none of such information is or will
be incomplete by omitting to state any material fact necessary to make such
information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORD. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition,
upon request of Lender (however not more often than annually), Borrower
will have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions
spelled out in those guaranties.
Guarantor AMOUNT
--------- ------
SOUTHWEST WATER COMPANY $4,100,000.00
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN FEES AND CHARGES. In addition to all other agreed upon fees and
charges, pay the following: $100.00 MONTHLY SWEEP FEE CHARGED ON DEPOSIT
SYSTEM; $400.00 MONTHLY SWEEP FEE CHARGED ON LOAN SYSTEM.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge, levy, lien or claim so long as (a)
the legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy,
lien, or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of any assessments, taxes, charges, levies, liens
and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience s the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
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INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part or
on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender.
INDEBTEDNESS AND LIEN. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c)
pay any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends on its stock to its shareholders from time to
time in amounts necessary to enable the shareholders to pay income taxes
and make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares of stock
of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
through no Event of Default shall have occurred.
LOAN COVENANTS FOR NEW MEXICO UTILITIES, INC.
Annual CPA audited financial statements for New Mexico Utilities, Inc. shall be
submitted to Lender within 120 days of Borrower's fiscal year end.
Quarterly company prepared financial statements for New Mexico Utilities, Inc.
shall be submitted to Lender within 45 days of company's quarter end.
New Mexico Utilities, Inc. shall maintain a Debt to Tangible Net Worth Ratio of
4.0 to 1.0. The Debt to Net Worth Ratio will be calculated excluding accounts
on the Borrower's Balance Sheet entitled "Contributions in Aid of Construction",
and "Deferred Revenue" regardless of how such amounts may be titled on future
Balance Sheets.
New Mexico Utilities, Inc. shall maintain a minimum EBITDA Coverage Ratio of
1.25 to 1.00 on a fiscal year-end basis, with "EBITDA" defined as net profit
before tax, plus interest expense, depreciation expense, and amortization
expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the
aggregate of total interest expense plus the prior year current maturity of each
long-term debt, subordinated debt, and advances for construction, plus
dividends.
New Mexico Utilities, Inc. will not, unless approved in writing by the Bank, pay
any dividend which would cause the company's EBITDA Coverage Ratio to fall below
1.25 to 1.00 on a fiscal year end basis.
New Mexico Utility Company will not further encumber any of it's property, real
or personal, without prior written approval of the Bank.
LOAN COVENANTS FOR SOUTHWEST WATER COMPANY.
Annual CPA audited, consolidated financial statements and annual internally
prepared consolidating financial statements for Southwest Water Company shall by
submitted to Lender within 120 days of company's fiscal year end.
Quarterly company prepared consolidating financial statements for Southwest
Water Company and subsidiaries shall be submitted to Lender within 45 days of
company's quarter end.
Annual 10K and quarterly 10Q reports for Southwest Water Company shall be
submitted to Lender within 120 days and 60 days of period end, respectively.
Southwest Water Company to maintain a minimum Tangible Net Worth of
$27,000,000.00 on a consolidated basis.
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Southwest Water Company to maintain a maximum Debt to Tangible Net Worth Ratio
of 2.30 to 1.00 on a consolidated basis. Debt is defined as total liabilities,
less deferred taxes, contributions in aid of construction, and unamortized
investment tax credit.
Southwest Water Company to maintain a minimum EBITDA Coverage Ratio of 1.25 to
1.00 on a consolidated fiscal year end basis, with "EBITDA" defined as net
profit before tax, plus interest expense (net of capitalized interest expense),
depreciation expense, and amortization expense, and with "EBITDA Coverage Ratio"
defined as EBITDA divided by the aggregate of total interest expense, plus the
prior period current maturity of each of long-term debt, subordinated debt, and
advances for construction, plus dividends.
Southwest Water Company to remain profitable on a fiscal year end, consolidated
basis.
Southwest Water Company not have any unsecured debt outstanding in excess of
$16,000,000.00 on a consolidated basis.
Southwest Water Company (and any subsidiary) will not further encumber any of
it's property, real or personal, without prior written approval of the Bank.
Maximum aggregate acquisitions by Southwest Water Company of $5,000,000.00, on a
consolidated basis without prior Bank approval.
Cross Default to all other indebtedness of Southwest Water Company.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement.
DEFAULT OF INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceedings, self-help,
repossession or any other method, by an creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on
or of any of Borrower's deposit accounts with Lender. However, this Event
of Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of Indebtedness. Lender, at its option, may,
but shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within twenty (20)
days; or (b) if the cure requires more than twenty (20) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF NEW MEXICO. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
BERNALILLO COUNTY, THE STATE OF NEW MEXICO. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
MEXICO.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
5
<PAGE>
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without limitation whatsoever, to
any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgement collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
All notices required to be given under this Agreement shall be given in
writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may change its
address for notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if there
is more than one Borrower, notice to any Borrower will constitute notice to
all Borrowers. For notice purposes, Borrower will keep Lender informed at
all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interests therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, not
any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
DECEMBER 18, 1997.
BORROWER:
NEW MEXICO UTILITIES, INC. SOUTHWEST WATER COMPANY
BY: /s/ ROBERT L. SWARTWOUT BY: /s/ PETER J. MOERBEEK
------------------------- -----------------------
ROBERT L. SWARTWOUT, PRESIDENT PETER J. MOERBEEK, VICE PRESIDENT
LENDER:
FIRST SECURITY BANK OF NEW MEXICO, N.A.
BY: /s/ MICHAEL R. HARTMAN
------------------------
AUTHORIZED OFFICER
MICHAEL R. HARTMAN, VICE PRESIDENT
6
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 693,000
<SECURITIES> 0
<RECEIVABLES> 8,436,000
<ALLOWANCES> 705,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,769,000
<PP&E> 141,083,000
<DEPRECIATION> 37,885,000
<TOTAL-ASSETS> 124,070,000
<CURRENT-LIABILITIES> 11,185,000
<BONDS> 29,800,000
0
517,000
<COMMON> 33,000
<OTHER-SE> 31,883,000
<TOTAL-LIABILITY-AND-EQUITY> 124,070,000
<SALES> 0
<TOTAL-REVENUES> 15,946,000
<CGS> 0
<TOTAL-COSTS> 14,924,000
<OTHER-EXPENSES> (83,000)
<LOSS-PROVISION> 49,000
<INTEREST-EXPENSE> 818,000
<INCOME-PRETAX> 304,000
<INCOME-TAX> 122,000
<INCOME-CONTINUING> 182,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,000
<EPS-PRIMARY> 0.05
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