California Water Service Group (CWT)
Q2 2012 Earnings Call
July 26, 2012, 11:00 a.m. ET
Martin Kropelnicki - VP & CFO
Pete Nelson - President & CEO
Michael Roomberg – Ladenburg Thalmann & Co.
Jonathan Reeder - Wells Fargo
Tim Winter – Gabelli & Co.
Good morning Ladies and Gentlemen. Welcome to the California Water Service Group second quarter 2012 earnings results conference call. Today's call is being recorded. I would now like to turn the meeting over to Mr. Martin Kropelnicki, Vice President and CFO. Please go ahead, Sir.
Thank you, Brian. Good morning everybody, and welcome to the second quarter of 2012 earnings conference call for California Water Service Group.
With me today is Pete Nelson, Chairman of the Board and Chief Executive Officer.
I would like to remind everyone that a replay of today's proceedings will be available from July 26th, 2012 through September 23rd, 2012 at 888-203-1112. The replay code is 4684903. If you need a copy of the press release, you can find it on the company's website that we announced at close of market yesterday.
Before going through the results for the quarter and the corresponding commentary, I would like to remind everyone about forward-looking statements. In particular, during the course of this conference call, the company may make certain forward-looking statements. Because these statements do future events, they're subject to various risks and uncertainties. And actually results could differ materially from the company's current expectations. Because of this, the company strongly advises all current stockholders as well as all interested parties to carefully read and understand the company's disclosures on risks and uncertainties and other important information found in our form 10K, form 10Q, and other reports filed from time to time with the Securities and Exchange Commission.
Now let's take a brief look at the quarterly financial results and I'll turn it over to Pete for some commentary. And then I'll wrap up with the balance sheet discussion.
During the quarter, the company recorded $143.6 million of revenue. That was 9.3% or $12.2 million. Of that amount, new sales, our sales to new customers, added $200,000. Rate increased added $3 million. Production offsets, these are costs associated with purchase power, purchase water. Our pump taxes, there's no margin, but we're allowed to true it up or down added $5.9 million. And usage added $3.1 million.
Looking at production costs for the quarter, production costs for the quarter, again this is purchase power, purchase water; pump taxes, which is covered by the modified cost balance and account, increased 14% or $11.5 million and $92.6 million.
Let me briefly give you the breakout of those three components. Purchase water increased 20% or $7 million to $41.9 million. Purchase power increased $500,000 or 6.9% to $8 million. And pump taxes increased $400,000 or 18.2% to $2.7 million. Again, all three of those components are covered by a two-way balancing account that will fluctuate up or down and not have an effect on the bottom line.
Mix for the quarter, there was an interesting trend going on in the mix in consumption. The company produced 95,000 acre feet in the second quarter of 2011. Second quarter 2012, it was 100,000 acre feet, so we have been above our historical trend on consumption, at least what we've seen for the last two years and of that amount, last year well production was approximately 46% of the mix. This year, it's 47%. So we've pushing on the well production. Again, if we can get our wells to produce more, it's lower cost for our customers. And we're starting to see a little of the shift where our well water has been producing more.
Going down the line looking at A&G expense for the quarter, A&G was $22.2 million, up $1.6 million or 7.9%. That was driven primarily by increases in wages and benefits.
Other operations was $2 million or 12.6% to $17.7 million driven by water conservation and water treatment costs.
Maintenance for the quarter was down $700,000 or 12.9% to $4.6 million. Not that we're doing any less maintenance, it's that we were able to capitalize some of that maintenance. So when we're adding a unit of property, say we have a call on a main leak, we go out there, and we physically have to replace part of that unit, replace pipe, or we enhance the value of the use for life, we can capitalize that.
Depreciation amortization for the quarter increased $1.3 million or 10.8% to $13.7 million. And that was driven by the 2011 capital program that the company had in place and completed during 2011.
Income taxes for the quarter increased $424,000 or 5% to $9.1 million, while property taxes and other decreased $500,000 or 11.7% to $4 million. A couple things happening there. One, property taxes typically go up and add more on taxes. And that was partially offset by an $800,000 refund that the company secured by challenging some property tax assessments in a couple of the counties that we operate in. We challenged them and we won.
Other income expense net was up 20% or $38,000 to $218,000, while interest expense was down $700,000 or 8.9% to $6.9 million. The decrease in interest expense is attributable to two things. One, increased capital spending, so we were able to capitalize more of that interest. And two, cost associated from the line of credit that we amended and restated in the second quarter of 2011. And I think as everybody knows, interest rates have been lower, so we've been able to effectively use LIBOR locks to help finance the company's short term credit needs, and that's showing up into the bottom line.
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