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Pure Cycle Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: July 13, 2012 05:40PM
Pure Cycle Corp. (PCYO) filed Quarterly Report for the period ended 2012-05-31.
Highlight of Business Operations:We generate revenues predominately from three sources: (i) one time water and wastewater tap fees, (ii) construction fees, and (iii) monthly service fees. Our revenue sources and how we account for them are described in greater detail in the 2011 Annual Report. We typically negotiate the payment terms for tap fees, construction fees, and other water and wastewater service fees with our wholesale customers as a component of our service agreements prior to construction of the project.
Water deliveries decreased 2% and 3% during the three and nine months ended May 31, 2012, compared to the three and nine months ended May 31, 2011. The declines in the water usage were due to our largest customer closing dormitories as a result of budget cutbacks resulting in less water required for students living at the facility. Water revenues increased 1% and 5% during the three and nine months ended May 31, 2012, compared to the three and nine months ended May 31, 2011, respectively. The increase in the three and nine months ended May 31, 2012 is due to increased water usage fees effective July 1, 2011 and large industrial customers buying bulk water deliveries in fiscal 2012 resulting in charges at the higher end of our tiered pricing structure. The gross margins on delivering water decreased during the three and nine months ended May 31, 2012, compared to the three and nine months ended May 31, 2011, due mainly to increased energy costs related to higher pumping demands to produce water for oil and gas well drilling and fracking activities and the increased costs to produce additional water to meet the higher short term demands of such drilling and fracking activities.
In August 2005, we entered into the Water Service Agreement (the County Agreement) with Arapahoe County (the County). In fiscal 2006, we began recognizing water tap fees as revenue ratably over the estimated service period upon completion of the Wholesale Facilities (defined in the 2011 Annual Report) constructed to provide service to the County. We recognized $3,600 and $10,700 of water tap fee revenues during each of the three and nine months ended May 31, 2012 and 2011, respectively. The water tap fees to be recognized over this period are net of the royalty payments to the State of Colorado Board of Land Commissioners (the Land Board) and amounts paid to third parties pursuant to the CAA which is described in Note 4 to the accompanying financial statements.
We recognized $10,400 and $31,100 of Special Facilities (defined in the 2011 Annual Report) funding as revenue during each of the three and nine months ended May 31, 2012 and 2011, respectively. This is the ratable portion of the Special Facilities funding proceeds received from the County pursuant to the County Agreement as more fully described in Note 4 to the 2011 Annual Report.
Our revenues consist mainly of tap fees, monthly service fees and construction revenues. As further described in Note 2 to the accompanying financial statements, proceeds from tap sales are deferred upon receipt and recognized in income based on whether we own or do not own the facilities constructed with the proceeds. When we construct the infrastructure to be owned by the customer, we recognize tap fees pursuant to the percentage-of-completion method. The percentage-of-completion method requires management to estimate the percent of work that is completed on a particular project, which could change materially throughout the duration of the construction period and result in significant fluctuations in revenue recognized during the reporting periods throughout the construction process. We did not recognize any revenues pursuant to the percentage-of-completion method during the three and nine months ended May 31, 2012 or May 31, 2011.
Stocks Discussed: PCYO,