California Water Service Group (CWT) Q2 2010 Earnings Call July 28, 2010 11:00 am ET Executives Martin Kropelnicki - VP, CFO and Treasurer Peter Nelson - President and CEO Analysts Garik Shmois - Longbow Research Tim Winter - Gabelli & Company Jim Lykins - Hilliard Lyons Michael Gaugler - Brean Murray, Carret Heike Doerr - Janney Montgomery Scott Presentation Operator
Having said that, let's jump into the quarter and go to the quarterly results and after I go through the results, I will hand it over to Pete, who will give you an update from an operational perspective.For the quarter, the company had revenue of $118.3 million, up $1.7 million or 1.4% over the same period last year. There are four main components that drove the change in revenue. One, we had a rate relief at $8 million. That rate relief can be broken into two buckets. Approximately $4 million of step increases that would have gross margin associated with the step increase and $4 million of offsets and offsets basically go to cover increase costs, but there is no gross margin that goes to the bottom line on that. New customer revenue added approximately $600,000. Usage by existing customers was down $12.7 million and the net effect of the WRAM, MCBA and the WRAM is the water rate adjusted mechanism and then the modified cost balancing account was a positive $5.8 million. Included in that debt number for the WRAM was the $5.3 million negative adjustments or reduction due to production costs being lower than the adopted numbers. Going down to the production costs and looking at operating expenses. Operating expenses were up 1% or $1.3 million to $102 million for the quarter. Looking at the production costs. There is three components of the production costs, purchase water, purchase power and pump taxes are all covered by the modify costs balancing account or the MCBA. Purchase water was up $753,000 or 2.4% for the quarter. Overall, water production for the company was down 14%, but that was in the purchase water and was offset by higher wholesale water prices. Purchase power for the quarter was down $170,000 or 2.2% compare to last year and pump taxes were down $451,000 or 18.3% compare to Q2 2009.
Admin and general expenses for the quarter were down $904,000 or 5% to $18.5 million. That has to be primarily with our increase capital spending and more expenses being allocated to construction projects. So people who will work on construction we allocate their time to the project and the overhead that follows or benefit costs follow that.Looking at other operations. Other operations for the quarter increased $400,000 or 3% to $14.7 million. That was driven primarily by three categories. One, increased spending on conservation. Two, cost associated with our front office and customer service. Three, increased purchases of chemicals and filters. Maintenance expense for the quarter was up 20%, or $800,000, to $5.2 million. This was driven by more maintenance on water maintenance which is typical this time of the year. Depreciation and amortization increased $400,000, or 4%, to $10.6 million, driven by the capital additions put into plan during 2009. Income taxes were up $200,000 or 5%, to $4.1 million due to a slightly higher tax rate and property and other taxes were up $200,000 as well, primarily due to increased franchise fees and property taxes. Net operating income for the company was $16.3 million, up $329,000 or 2% over the same period last year. Going down to other income and expense, other income and expense was breakeven and that compares to a positive $1.5 million last year. So that's a pretty big swing and that's primarily driven by a mark-to-market adjustment associated with assets that the company has associated with some of its benefit plans. So the swing went from a positive 1.8 to a negative $700,000 and that's primarily reflected just in the volatility associated with the stock market that we saw during the quarter. Read the rest of this transcript for free on seekingalpha.com