Non-regulated water management services include contract operations and maintenance, and
water testing and billing services to municipalities and small, privately owned community
water systems. Contract revenues are billed and recognized on a monthly recurring basis in
accordance with agreed-upon contract rates. Revenues from unplanned additional work are
based upon time and materials incurred in connection with activities not specifically identi-
fied in the contract, or for which work levels exceed contracted amounts.
Revenues from real estate operations, other than undistributed earnings or losses from
equity method joint ventures, are recorded upon completion of a sale of real property. The
Company’s real estate holdings outside of our regulated utilities are comprised primarily of
undeveloped land.
Investment in Joint Venture
Southwood uses the equity method of accounting for its investment in a joint venture in
which it does not have a controlling interest. Under this method, Southwood records its
proportionate share of losses under “Other, net” in the accompanying Consolidated State-
ments of Income (Loss) with a corresponding decrease in the carrying value of the
investment.
Income Taxes
Income taxes are recorded using the accrual method and the provision for federal and state
income taxes is based on income reported in the consolidated financial statements, adjusted
for items not recognized for income tax purposes. Provisions for deferred income taxes
are recognized for accelerated depreciation and other temporary differences. A valuation
allowance is provided to offset any net deferred tax assets if, based upon available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized.
Investment tax credits previously realized for income tax purposes are amortized for financial
statement purposes over the life of the property, giving rise to the credit.
Change in Accounting Principle
In 2016, the Company adopted Financial Accounting Standards Board (FASB) Accounting
Standards Update (ASU) 2015-03, Interest — Imputation of Interest (Subtopic 835-30). The
effect of this change in 2016 was to reclassify debt issuance expenses in the amount of $4.5
million from other assets to a reduction in long-term debt. The consolidated financial
statements for 2015 have been retroactively restated for the change, which resulted in a
decrease to deferred charges and other assets and a corresponding decrease to long-term debt
of $4.8 million. There is no effect on net income for either year.
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