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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1994
Commission file number 1-8966
SJW Corp.
(Exact name of registrant as specified in its charter)
California 77-0066628
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
374 West Santa Clara Street, San Jose, CA 95196
(Address of principal executive offices)
(Zip Code)
408-279-7810
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year changed
since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Common shares outstanding as of October 31, 1994: 3,250,746.
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PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
--------------------
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1994 1993 1994 1993
-------------- --------------
Operating revenue $ 31,888 31,469 77,594 72,493
Operating expense:
Operation:
Purchased water 5,897 5,832 14,637 16,036
Power 2,247 1,863 4,399 3,170
Pump taxes 6,004 5,353 13,316 9,715
Other 5,535 5,312 16,414 14,982
Maintenance 1,877 1,402 4,770 3,989
Property and other
nonincome taxes 816 723 2,235 2,056
Depreciation 1,843 1,692 5,423 5,002
Income taxes 2,774 3,620 5,633 6,190
---------------- ----------------
26,993 25,797 66,827 61,140
---------------- ----------------
Operating income 4,895 5,672 10,767 11,353
Other income 136 95 430 379
Dividend income 272 264 817 792
Interest and other charges (1,380) (1,336) (4,129) (4,041)
---------------- ----------------
Net income $ 3,923 4,695 7,885 8,483
================ ================
Earnings per share of
common stock $ 1.21 1.45 2.44 2.62
================ ================
Dividends per share
of common stock $ 0.525 0.51 1.575 1.53
================ ================
Weighted average outstanding
common shares 3,236,992 3,232,377 3,236,992 3,232,377
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<P>
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
SEPTEMBER 30 DECEMBER 31
1994 1993
ASSETS -----------------------
Utility plant $ 304,246 293,683
Less accumulated depreciation 94,213 90,030
-----------------------
Net utility plant 210,033 203,653
Nonutility property 7,260 6,775
Current assets:
Cash and equivalents 2,497 2,363
Temporary investments 0 195
Accounts receivable and accrued revenue 12,594 8,025
Prepaid expenses and other 2,211 3,099
----------------------
17,302 13,682
Other assets:
Investment in California Water Service Co. 18,218 21,999
Debt issuance and reaquisition costs 4,300 4,389
Regulatory asset 4,046 4,060
Goodwill 1,865 1,906
Other 480 387
----------------------
Total other assets 28,909 32,741
----------------------
$ 263,504 256,851
======================
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CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 10,116 10,116
Additional paid-in capital 21,763 21,763
Retained earnings 71,745 68,980
Unrealized gain on investment 40 2,271
----------------------
Total common shareholders' equity 103,664 103,130
Long-term debt, less current maturities 64,000 64,000
----------------------
Total capitalization 167,664 167,130
Current liabilities:
Current maturities of long-term debt 2,000 2,000
Line of credit 0 0
Accounts payable 655 421
Accrued interest 1,504 1,431
Accrued pump taxes and purchased water 3,581 3,264
Income taxes payable 2,347 0
Postretirement benefits 1,462 1,168
Other current liabilities 3,763 1,787
----------------------
Total current liabilities 15,312 10,071
Deferred income taxes and tax credits 15,273 16,937
Other noncurrent liabilities 1,906 1,933
Advances for and contributions in aid
of construction 63,349 60,780
----------------------
$ 263,504 256,851
======================
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<P>
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
1994 1993
Operating activities: -----------------
Net income 7,885 8,483
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,423 5,002
Deferred income taxes and credits (114) 135
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (4,569) (3,331)
Accounts payable and other
current liabilities 2,210 1,528
Accrued pump taxes and purchased water 317 1,237
Conservation fees 0 (249)
Income taxes payable 4,046 2,385
Accrued interest 73 715
Other changes, net (297) 283
----------------
Net cash provided by operating activities 14,974 16,188
----------------
Investing activities:
Additions to utility plant (12,239) (15,754)
Additions to nonutility property (586) (1,139)
Cost to retire utility plant (256) (115)
Temporary investments 195 3,405
----------------
Net cash used in investing activities (12,886) (13,603)
----------------
Financing activities:
Dividends paid (5,120) (4,979)
Line of credit 0 (1,594)
Advances and contributions in aid of
construction 4,237 5,431
Refunds of advances (1,071) (1,127)
Retirement of long-term debt 0 (2,500)
----------------
Net cash used in financing activities (1,954) (4,769)
----------------
Net change in cash and equivalents 134 (2,184)
----------------
Cash and equivalents, beginning of period 2,363 5,616
----------------
Cash and equivalents, end of period $ 2,497 3,432
================
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 3,845 3,248
Income taxes $ 1,824 3,986
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SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1994
NOTE I - General
In the opinion of SJW Corp., the accompanying
unaudited condensed consolidated financial
statements contain all adjustments, consisting only
of normal recurring adjustments, necessary for the
fair presentation of the results for the interim
periods.
The Notes to Consolidated Financial Statements
incorporated by reference in SJW's 1993 Annual Report on
Form 10-K should be read with the accompanying condensed
consolidated financial statements.
PART I. OTHER INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
On November 1, 1994 San Jose Water Company ("SJWC") will
redeem at maturity Series M 4.65% first mortgage bonds in
the amount of $2,000,000 plus accrued interest.
At September 30, 1994 SJWC's weighted average cost of
long-term debt was 8.06% (including amortization of debt
issuance costs) with an average maturity of approximately
27 years. Under the terms and conditions of the senior
note agreements SJWC currently has additional long-term
financing capacity in excess of $80,000,000.
SJWC has an unsecured commercial bank line of credit
which provides for unsecured borrowings of up to
$15,000,000 at rates which approximate the bank's prime
or reference rate. At September 30, 1994 SJWC had no
outstanding borrowings on its line of credit.
SJWC's capital expenditures are incurred in connection
with normal upgrading and expansion of existing
facilities and to comply with environmental regulations.
Capital expenditures for the next five years are likely
to increase from historical levels due to the addition of
new, or expansion of existing, water treatment and source
of supply facilities and to comply with environmental
regulations. Net capital expenditures for 1994 and 1995
are estimated at $11,000,000 and $16,000,000,
respectively. For the five year period from 1994 to
1998, SJWC net capital expenditures are estimated to
aggregate $80,000,000. Net capital expenditures
represent gross capital expenditures less advances and
contributions in aid of construction.
SJWC expects cash flow from operations and its bank line
of credit will provide the funds necessary to pay for
projected capital expenditures through the end of 1995.
General:
SJW Corp. is a holding company created in 1985 through an
agreement of merger with San Jose Water Company. SJW
Corp. has operational and financial flexibility and can
engage in nonutility activities. San Jose Water Company
is a public utility in the business of providing water
service to approximately 913,000 people in the
metropolitan San Jose area. SJW Land Company, a wholly-
owned subsidiary, was formed in 1985 for the purpose of
real estate development. It operates parking facilities
located adjacent to the Company's headquarters and the
San Jose Arena. Western Precision, Inc., a wholly-owned
subsidiary acquired in 1992, manufactures high-precision
mechanical parts and owns 549,976 shares of California
Water Service Company.
Results of Operations:
Overview
SJW Corp.'s consolidated net income for the third quarter
of 1994 was $3,923,000, a decrease of 16.4% from
$4,695,000 in the third quarter of 1993. The decrease in
consolidated net income is due primarily to the increased
variable costs of production resulting from the
substitution of higher cost purchased and pumped water
for the lower cost surface supplies available in 1993.
Operating revenue
The change in consolidated operating revenue from the
same period in 1993 is due to the following factors:
Three months ended September 30,
Operating revenues 1994 vs. 1993
Increase/decrease
Utility:
Rate impact $(5,000) (0.0)%
Consumption (90,000) (0.2)%
New customers 132,000 .4%
Real estate 18,000 0.0%
Other operations 364,000 1.1%
$419,000 1.3%
Other operations revenue, primarily Western Precision,
Inc.'s machine shop operation, increased due to generally
improved economic conditions in the high technology
sector.
Operating expense
The change in consolidated operating expense, excluding
income taxes, from the same period in 1993 is due to the
following:
Three months ended September 30,
Operating Expenses 1994 vs. 1993
Operation and maintenance $1,799,000 8.1%
Depreciation 151,000 0.7%
General Taxes 92,000 0.4%
$2,042,000 9.2%
The increase in operation and maintenance expense is
primarily due to the aforementioned increase in SJWC's
variable costs of production.
Income taxes
The effective combined federal and state tax rate for the
third quarter of 1994 was 41.4% compared to 43.5% for the
same period in 1993. The decrease from the third quarter
of 1993 is due to the retroactive federal income tax
increase which was made law in the third quarter of 1993,
and, consequently, required a "catch up" adjustment in
the third quarter of 1993.
Since the water business is highly seasonal in nature, a
comparison of the revenue and expense of the current
quarter with the immediately preceding quarter would not
be meaningful. The third quarter is normally the quarter
with the highest average usage per metered customer and
is not indicative of the results for the calendar year.
Average usage per metered customer in the third quarter
of 1994 decreased 1.1% from the third quarter of 1993.
Water Supply
On October 1, 1994, Santa Clara Valley Water District's
10 reservoirs were 39% full with 65,795 acre feet of
water in storage -- approximately average for the past 20
years. As of October 17, 1994 the water level in the
Santa Clara ground water basin exceeded the 30-year
average. Northern California receives nearly all its
precipitation in the period from November 1 through April
30. The water supply for the Company is largely
dependent upon seasonal rainfall and, accordingly, 1995
water supplies will not be known until after the 1994-
1995 precipitation season.
Regulatory Affairs
SJWC intends to file a general rate case application in
the second quarter of 1995, for rates to be effective in
the second quarter of 1996. Because SJWC's most recent
general rate case decision covered only the three years
from 1992 through 1994, it is not authorized to increase
rates in 1995.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In October, 1992, a fire service pipeline ruptured
causing water to flood the basement of a local title
company business located in downtown San Jose,
California. The title company has sued SJWC and others
seeking reimbursement for cleanup costs, damages for
lost title records, business damage, and the emotional
distress to its owner. The insurance carrier for the
title company has expended in excess of $5,400,000 and
plaintiff is seeking an additional $21,000,000 for lost
title records. Trial is scheduled in Santa Clara County
Superior Court beginning November 21, 1994.
SJWC has denied liability, claiming it did not own the
portion of the water line that failed. Additionally,
the title company had an unsealed heating oil tank in
its basement which flooded and contributed to much of
the loss. SJWC has taken the position that to the
extent the damage to the building and its contents was
caused or increased by oil mixed with the water, that
increase in damage is solely the responsibility of the
title company. SJWC has also asserted the protection of
a rarely used California statute that suggests that a
water company may not be liable for property damage or
injuries caused by a failure to maintain "fire
protection equipment or service".
SJWC tendered the defense of this lawsuit to its
insurance carrier. The carrier is defending the case
under a reservation of rights, saying that to the extent
the damage was caused or enhanced by the presence of oil
in the basement, it has no duty to indemnify SJWC
because of an absolute pollution exclusion in the
policy. SJWC believes any damages resulting from this
flooding are covered by its casualty insurance policies
and has prepared its own suit for Federal Court seeking
full coverage for any damage payments which may be
assessed.
Item 5. OTHER INFORMATION
On October 20, 1994, the Board of Directors declared the
regular quarterly dividend of $.525 per common share.
The dividend will be paid December 1, 1994 to
shareholders of record as of the close of business on
November 1, 1994. Additionally, the San Jose Water
Company Board of Directors at their meeting elected J. W.
Weinhardt as Chairman of the Board and Chief Executive
Officer and W. Richard Roth, President and Chief
Operating Officer. Angela Yip was appointed Treasurer
and Chief Financial Officer of San Jose Water Company.
Mr. Roth was also appointed as a member of the Board of
Directors of San Jose Water Company, SJW Corp. and SJW
Land Company. Mr. Weinhardt will continue as President
and Chief Executive Officer of SJW Corp., and Mr. Roth
will continue to serve as Vice President, Chief Financial
Officer and Treasurer of SJW Corp.
The labor agreements between San Jose Water Company and
the Utility Workers Union of America, A.F.L.- C.I.O. and
Operating Engineers Union expire January 1, 1995. SJWC
and the unions have begun negotiations and a new
agreement is expected to be reached in advance of the
expiration of the current agreement.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits required to be filed by Item 601 of Regulation S-K.
There were no exhibits required to be filed by Item 601
of Regulation S-K for the quarter ended September 30,
1994.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended September 30, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
SJW Corp.
Date: November 10, 1994 By /s/ W. R. Roth
W. R. ROTH
Chief Financial Officer
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