WEST COVINA, Calif., Nov. 7, 2002 -- Southwest Water Co. reported an increase in revenues but a decrease in net income for the third quarter of 2002, compared to the third quarter of 2001.
For the three months ended September 30, 2002, revenues increased by $2,539,000 (8%) to $34,574,000, while net income decreased by $394,000 (17%) to $1,880,000, compared to the same quarter last year. Compared to last year, quarterly diluted per share earnings declined by $.05 to $.19.
Anton C. Garnier, Southwest Water President and CEO, said, "We are pleased with our increased revenues. Services Group revenues grew by 13 percent and Utility Group revenues rose by two percent over the prior year quarter."
Garnier continued, "However, we are disappointed with our earnings results for the quarter. Quarterly income was affected by two factors that resulted in a $1 million pretax reduction in earnings at our Southern California water utility. The first factor relates to changes in water quality standards, coupled with the spread of a groundwater contamination plume in the San Gabriel Valley water basin, which required our California utility to shut down several wells that serve as its lowest cost source of supply.
"Customer demand for water typically peaks during the third quarter. While we were able to meet this demand by purchasing more expensive water, the overall increase in water costs reduced our third quarter pretax earnings by approximately $820,000. We are currently drilling and equipping wells that we believe will restore access to our lowest cost water. Completion of these wells is expected in early 2003, in time for our peak usage periods."
Garnier added, "I am proud of our water utility professionals for their tireless efforts and creative solutions to the unique water quality challenges we faced this quarter. Our goal remains to provide high-quality, low cost water to our California utility customers."
Garnier continued, "The second factor contributing to our third quarter earnings reduction relates to the California Public Utilities Commission's decision in 2001 to eliminate the use of balancing accounts, which enabled water utilities to defer recognizing certain costs until a future rate case. This regulatory change reduced pretax earnings by $183,000 for the third quarter. Our California utility has filed a general rate case, which includes a request for higher rates to address these costs formerly charged to a balancing account. We anticipate the rate case will be completed and new rates approved in the first half of 2003."
For the nine months ended September 30, 2002, Southwest Water's revenues rose $12,400,000 (15%) to $95,488,000, and net income increased by $547,000 (12%) to $5,044,000, compared to the same period in 2001. For the nine-month period, diluted earnings per common share increased by $.04 to $.51, compared to the first nine months of 2001.
Commenting on results for the first nine months of 2002, Garnier said, "Both our operating groups delivered increased year-to-date revenues. Favorable rate case decisions in Texas, increased water usage in California, and customer growth in New Mexico and Texas generated an eight percent increase in Utility Group revenues. Services Group revenues increased 20 percent, mainly due to an August 2001 acquisition."
Garnier continued, "In addition to third quarter events, pretax income for the first nine months of 2002 was affected by the dissolution of a company pension plan in the first quarter and the settlement of groundwater remediation claims in the second quarter. Also in the second quarter, we recorded project development expenses related to our proposal to manage a $25 million construction project for a reverse osmosis water treatment plant for the City of San Juan Capistrano, California. We believe this project will receive final approval and construction will begin in the fourth quarter of 2002; however, several uncertainties remain to be resolved prior to project commencement."
Garnier concluded, "We believe that we have laid important groundwork for our goal of delivering revenue and earnings growth. Earlier in the quarter, we announced signing a letter of intent to acquire certain of AquaSource, Inc.'s contract operations, which we expect will generate annual revenues in excess of $16 million and be immediately accretive to earnings. We anticipate that the San Juan Capistrano reverse osmosis project could deliver profitable growth in the upcoming year. We believe that our continuing focus on profitable growth will translate to increased shareholder value."
Southwest Water Company provides a broad range of services, including water production, treatment and distribution, wastewater collection and treatment, public works services and utility submetering. The company owns regulated public utilities and also serves cities, utility districts and private companies under contract. More than 1.5 million people in 31 states from coast to coast depend on Southwest Water for high-quality, reliable service.
