Southwest Water Co. elects to expense stock options

Southwest Water Co. announced that it has changed its accounting for stock options to expense the cost of option grants.

Mar 31st, 2003


WEST COVINA, Calif., March 31, 2003 -- Southwest Water Co. announced that it has changed its accounting for stock options to expense the cost of option grants.

The company adopted the fair value based method of recording stock options detailed in Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock Based Compensation. The Financial Accounting Standards Board has identified this as the preferable accounting method for stock-based employee compensation. The company adopted this change retroactively by restating results for prior years.

"Stock options are one way of aligning the efforts of our directors and employees with the interests of our shareholders," said Anton C. Garnier, Southwest Water president and CEO. "Our Board of Directors and management believe that stock options are a form of compensation and, as such, should be recognized in our financial results as an expense. We believe that expense recognition provides investors with better visibility regarding our earnings and performance. Our decision to adopt this change retroactively will provide better comparability with the company's future financial results."

This change is being made under the retroactive restatement method defined by SFAS No. 148, Accounting for Stock Based Compensation -- Transition and Disclosure. As required, the company's results for the periods of 2001, 2000, and 1999 have been restated to reflect the fair value based accounting method. This change in accounting method reduced net income and diluted earnings per share by $625,000 and $0.05, $491,000 and $0.04, $375,000 and $0.03, and $227,000 and $0.02, for years 2002, 2001, 2000 and 1999, respectively, from amounts previously announced.

Additionally, the company previously reported the tax benefit from stock options exercised as a credit to the provision for income taxes. This benefit for options exercised should have been reported as an increase to paid-in capital. Accordingly, the amounts previously reported have been adjusted to properly account for this tax benefit. These adjustments have the effect of reducing net income and diluted earnings per share by $191,000 and $0.02, $301,000 and $0.03, $167,000 and $0.02, and $162,000 and $0.02 for 2002, 2001, 2000 and 1999, respectively, compared to the amounts previously reported. These non-cash tax adjustments to net income have no effect upon the company's cash flows, ability to pay dividends, current income tax liability or stockholders' equity.

Additional information is available in Southwest Water Company's 2002 Form 10-K, filed with the Securities and Exchange Commission.

Southwest Water Company provides a broad range of services, including water production, treatment and distribution; wastewater collection and treatment; public works services; utility submetering and construction management. The company owns regulated public utilities and also serves cities, utility districts and private companies under contract. More than 2 million people in 31 states from coast to coast depend on Southwest Water for high-quality, reliable service.


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