WEST COVINA, Calif., July 25, 2002 — Southwest Water Co. recorded increased revenues and net income for the second quarter of 2002 as compared to the same period in 2001.
Operating revenues for the three months ended June 30, 2002 increased 18% to $32,746,000, compared to $27,838,000 a year ago. Net income in the second quarter of 2002 was $1,870,000, or $.19 per diluted common share, compared to $1,688,000, or $.18 per diluted common share, in the second quarter of 2001.
For the six months ended June 30, 2002, revenues rose 19% to $60,914,000 from $51,053,000 a year ago. Year-to-date net income in 2002 was $3,164,000, or $.32 per diluted common share, as compared to $2,223,000, or $.23 per diluted common share, for the same six-month period in 2001. Year-to-date net income for 2002 includes a first-quarter after-tax gain of $637,000, or $.06 per diluted common share, resulting from dissolution of a company pension plan.
Anton C. Garnier, Southwest Water President and CEO said, "Of our overall 19% increase in revenues during the first half of 2002, our Utility Group accounted for $2,702,000, or 5%, while our Services Group was responsible for the remaining $7,159,000, or 14%. The increase in our Utility Group revenue was attributable primarily to warmer, drier weather in California, coupled with a rate increase in one of our Texas utilities. The revenue increase in our Services Group reflects the impact of our acquisition of Operations Technologies, Inc. at the end of August 2001."
Garnier added, "Included in pre-tax income from operations during the second quarter of 2002 is a payment of approximately $1,600,000 received by our California utility, Suburban Water Systems (Suburban). This payment represents reimbursement to Suburban of added costs of purchasing more expensive water during 2001 and 2000 from the Metropolitan Water District to replace groundwater contaminated by various industrial companies in the San Gabriel Valley."
Garnier continued, "Suburban is one of the beneficiaries of a $250 million settlement for clean-up of this contaminated groundwater. During the next few years, Suburban will continue to receive payments from this settlement for the higher cost of purchased water. In addition, over the course of the next two years, additional funds from the settlement will be used to drill new wells and to construct water treatment facilities that should enable Suburban to once again access local, less costly groundwater supplies."
Garnier added, "Although revenue increased in our Utility Group, pre-tax income at Suburban was negatively impacted by approximately $320,000 in the second quarter of 2002 and $591,000 during the first six months of 2002, compared to the same periods in 2001. This is the result of a California Public Utilities Commission (CPUC) decision, effective December 1, 2001, which eliminated the use of balancing accounts for public water utilities. Balancing accounts have historically been used to reduce the financial fluctuations of certain uncontrollable expenses such as electric power costs and the costs of purchased water. This decision by the CPUC will likely continue to result in greater fluctuations in Suburban's revenues, earnings and cash flows. We remain hopeful that Suburban will be able to recover these costs, which have been included in our recently filed rate case."
Garnier continued, "Revenues at one of our Services Group subsidiaries, Master Tek International, Inc. (Master Tek), declined by $997,000 during the second quarter compared to the same period in 2001, primarily due to the revenue impact of one large construction project, which was completed in late 2001. Master Tek had no comparable construction project in the first half of 2002. Master Tek's revenues were also affected by a general slowdown in apartment construction during the first half of 2002. However, our core billing and collections business continues to be strong, and we anticipate growth in this industry."
Garnier continued, "Pre-tax income for the second quarter and first six months of 2002 was reduced by approximately $830,000 of marketing and new business expenses incurred primarily in the second quarter. These expenses related to a potential construction project for a reverse osmosis plant in California, to a potential major new contract in Florida, and to a possible acquisition. While we continue to pursue these opportunities, and remain hopeful as to their ultimate outcome, some notable uncertainties arose during the second quarter as to the successful conclusion of these development efforts."
Garnier concluded, "We believe that the long-term stability of our base business, providing water and wastewater services, gives us an excellent platform for continuing strong financial performance. We are excited about our growth opportunities as we continue to pursue our strategy of developing opportunities in our existing business lines and seeking potential acquisitions that meet our strategic goals. Our recent inclusion in the Russell 2000 Index reflects the results of our earlier growth initiatives. The prospects for our continued growth should lead to long-term success for Southwest Water in both our Utility and Services Groups."
Southwest Water Company provides a broad range of services, including water production 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 29 states from coast to coast depend on Southwest Water for high-quality, reliable service.
