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, 1997
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 November 12, 1997 and as of the date
of this report are 3,170,347.
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
1997 1996 1997 1996
Operating revenue $ 34,037 33,387 86,378 79,837
Operating expense:
Operation:
Purchased water 7,240 7,081 20,415 15,848
Power 1,657 1,695 3,140 3,573
Pump taxes 6,002 5,470 11,097 12,336
Other 4,601 4,470 13,287 12,914
Maintenance 1,745 1,658 5,319 5,036
Property and other
nonincome taxes 810 800 2,475 2,358
Depreciation 2,195 2,133 6,584 6,399
Income taxes 3,588 3,654 8,551 7,345
Total operating expenses 27,838 26,961 70,868 65,809
Operating income 6,199 6,426 15,510 14,028
Gain on sale of non-utility
property, net of tax - 5,269 - 5,269
Other income 225 212 624 654
Dividend income 290 286 870 858
Interest and other charges (1,560) (1,614) (4,720) (4,821)
Net income $ 5,154 10,579 12,284 15,988
Earnings per share of
common stock $ 1.63 3.26 3.87 4.93
Dividends per share
of common stock $ 0.57 .555 1.71 1.665
Weighted average out-
standing common shares $3,170,347 3,244,547 3,170,347 3,245,413
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
SEPTEMBER 30 DECEMBER 31
1997 1996
ASSETS
Utility plant $ 358,821 342,368
Less accumulated depreciation 113,588 107,584
Net utility plant 245,233 234,784
Nonutility property 7,330 7,287
Current assets:
Cash and equivalents 15,673 11,904
Accounts receivable and accrued revenue 12,445 7,747
Prepaid expenses and other 1,490 1,219
Total current assets 29,608 20,870
Other assets:
Investment in California Water Service Co. 27,190 23,099
Debt issuance and reacquisition costs 4,027 4,143
Regulatory asset 3,711 3,711
Goodwill 2,106 2,170
Other 531 472
Total other assets 37,565 33,595
$319,736 296,536
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,907 9,907
Additional paid-in capital 19,235 19,235
Retained earnings 94,829 87,966
Unrealized gain (loss) on investment 5,334 2,920
Total common shareholders' equity 129,305 120,028
Long-term debt, less current maturities 75,000 75,000
Total capitalization 204,305 195,028
Current liabilities:
Current maturities of long-term debt - 1,500
Accounts payable 954 315
Accrued interest 1,644 2,665
Accrued pump taxes and purchased water 4,012 1,992
Income and nonincome taxes payable 3,223 196
Other current liabilities 3,664 2,286
Total current liabilities 13,497 8,954
Deferred income taxes and tax credits 20,594 18,417
Other noncurrent liabilities 3,376 2,961
Advances for and contributions in aid
of construction 77,964 71,176
$319,736 296,536
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
Operating activities:
Net income $12,284 15,988
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation 6,584 6,399
Deferred income taxes and credits 2,177 713
Gain on sale of nonutility property - (7,424)
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (4,698) (3,629)
Prepaid expenses and other (271) (163)
Accounts payable and other
current liabilities 2,017 830
Accrued pump taxes and purchased water 2,020 132
Income and nonincome taxes payable 3,027 4,447
Accrued interest (1,021) (473)
Other changes, net (909) (840)
Net cash provided by operating activities 21,210 15,980
Investing activities:
Additions to utility plant (17,643) (14,542)
Additions to nonutility property (26) (1,065)
Cost to retire utility plant (329) (184)
Temporary investments - 475
Net cash proceeds from sale of
non-utility property - 7,767
Net cash used in investing activities (17,998) (7,549)
Financing activities:
Dividends paid (5,421) (5,403)
Retirement of long-term debt (1,500) 0
Advances and contributions in aid of
construction 8,566 6,106
Refunds of advances (1,088) (1,015)
Net cash provided by (used in)
financing activities 557 (312)
Net change in cash and equivalents 3,769 8,119
Cash and equivalents, beginning of period 11,904 7,414
Cash and equivalents, end of period $ 15,673 15,533
Supplemental disclosures of cash flow information:
Cash paid (credited) during period for:
Interest $ 5,521 5,053
Income taxes $ 5,503 5,843
SJW CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
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 Corp.'s 1996 Annual Report on Form 10-K
should be read with the accompanying condensed consolidated
financial statements.
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
On June 1, 1997, San Jose Water Company redeemed at maturity
Series P 6.5% First Mortgage Bonds in the amount of $1,500,000
plus accrued interest.
San Jose Water Company has a commercial bank line of credit
that provides for unsecured borrowings of up to $20,000,000 at
rates which approximate the bank's prime or reference rate.
At September 30, 1997, San Jose Water Company had available an
unused short-term bank line of credit of $20,000,000.
San Jose Water Company'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 1997 are estimated at $18,002,000.
For the five year period from 1997 to 2001, San Jose Water
Company's net capital expenditures are estimated to aggregate
$100,000,000. Net capital expenditures represent gross
capital expenditures less advances and contributions in aid of
construction.
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 944,000 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.
SJW Corp. owns 549,976 shares of California Water Service
Company.
Results of Operations:
Overview
SJW Corp.'s consolidated net income for the third quarter of
1997 was $5,154,000, a decrease of 51% from $10,579,000 in the
third quarter of 1996. Included in third quarter 1996 results
was a nonrecurring gain on sale of land of $5,269,000.
Earnings for the nine months of 1997 were favorably impacted
by an increase in customer consumption over the same period in
1996.
Operating Revenue
The change in consolidated operating revenue from the same
period in 1996 was due to the following factors:
Operating revenue Three months Nine Months
ended September 30, 1997 vs. 1996
Increase/(decrease)
Utility:
Consumption $ 9,000 0.0% 3,616,000 4.5%
New customers 149,000 0.5 369,000 0.5
Step rate increase 316,000 0.9 2,195,000 2.7
Other 176,000 0.5 361,000 0.5
$650,000 1.9% 6,541,000 8.2%
Average usage per metered customer in the third quarter of
1997 was about the same as the third quarter of 1996. Year-
to-date metered customer usage increased 11% over the same
period in 1996.
Operating expense
The change in consolidated operating expense, excluding income
taxes, from the same period in 1996 was due to the following:
Operating expense Three months Nine Months
ended September 30, 1997 vs. 1996
Increase/(decrease)
Operation and
maintenance $871,000 3.7% 3,551,000 6.1%
General Taxes 62,000 0.3 185,000 0.3
Depreciation 10,000 0.0 117,000 0.2
$943,000 4.0% 3,853,000 6.6%
The higher operation and maintenance expense was attributable
to increased water production cost due to higher water
consumption. The increase in production cost was partially
offset by lower purchased power cost and higher availability
of non-contract water at reduced cost from the Santa Clara
Valley Water District.
Other
Income taxes on operations and the effective income tax rate
in the third quarter of 1997 was about the same as the third
quarter of 1996. Year-to-date income taxes on operations
increased $1,206,000, or 16%. The effective income tax rate
on operations increased from 34.3% in 1996 to 35.5% in 1997
due to higher taxable income and graduated tax rate.
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. Results of the first nine months of 1997 may not
be indicative of results for the full year.
San Jose Water Company entered into a 25-year lease agreement
to operate the City of Cupertino's municipal water system
effective October 1, 1997. The City of Cupertino's municipal
water system has 4,200 service connections and is adjacent to
the northern section of the San Jose Water Company's service
area. San Jose Water Company paid a one-time concession fee
of $6.8 million to the City of Cupertino, and will receive all
payments for water service and assume responsibility for all
maintenance, operating and capital costs.
Water Supply
On November 1, 1997, Santa Clara Valley Water District's 10
reservoirs were 47% full with 80,637 acre feet of water in
storage -- which is average for the past 20 years. While at
the same time, the water level in the Santa Clara ground water
basin and the year to date rainfall approximated the 30-year
average.
Regulatory Affairs
The Public Utilities Commission of California rendered a rate
decision on July 17, 1996, approving .95%, 2.1%, 1.45% and
1.45% rate increases for 1996, 1997, 1998, and 1999,
respectively, for San Jose Water Company. These rate
increases are based on rates of return on rate base of 9.28%
and 9.25% for the years 1996 and 1997, respectively,
reflecting a return on common equity of 10.2%. The increases
for 1998 and 1999 are to offset operational and financial
attrition. Included in the rate increase is recovery of the
voluntary conservation memorandum account for the period of
March 1993 to February 1994 when San Jose Water Company
experienced residual voluntary water conservation from an
earlier water use restriction.
On January 9, 1997, San Jose Water Company received a step
rate increase in the amount of $1,212,000 or 1%.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In October 1993, Valley Title Company and its insurer filed a
lawsuit in Santa Clara County Superior Court naming San Jose
Water Company as a defendant. Plaintiffs claimed a fire
service pipeline ruptured in October 1992, causing water to
flood the title company's basement. Stored heating oil was
released.
In April 1995, San Jose Water Company's insurance carrier
settled the building damage claim for $3.5 million. Whether
or not San Jose Water Company will be compelled to contribute
to the settlement is uncertain. However, management has
consistently maintained that the pollution exclusion asserted
by its insurance carrier does not apply to this type of
incident. Therefore, the company will aggressively resist any
demand for contribution.
The jury awarded the title company $3 million for its loss of
title records, and the insurance carrier for San Jose Water
Company appealed that decision. In September 1997, the
Appellate Court rendered an unanimous decision in favor of San
Jose Water Company by reversing the judgment. The title
company is expected to appeal further. San Jose Water Company
believes that any final award to the title company will be
within the stated limits of the company's insurance coverage.
On June 27, 1995, the City of San Jose passed an ordinance
imposing a franchise fee on the gross annual receipts arising
from the use, operation, or possession of a "Potable Water
Franchise." This ordinance became effective on July 28, 1995.
San Jose Water Company maintains that it has a "constitutional
franchise" dating from at least 1891, and that the City of San
Jose cannot legally impose any new franchise or new franchise
fees on San Jose Water Company's operations. San Jose Water
Company filed suit to challenge this new city ordinance. San
Jose Water Company expects to be able to collect the franchise
fee from its customers by surcharge in the event that its
efforts to invalidate the ordinance are unsuccessful.
In March 1997, a judgment in favor of San Jose Water Company
was rendered in the trial court. The City has appealed the
decision. San Jose Water Company does not believe, based upon
all available information, that the passage of the ordinance
will have a material effect on its financial position.
Item 5. OTHER INFORMATION
On October 16, 1997, the Board of Directors declared the
regular quarterly dividend of $.57 per common share. The
dividend will be paid December 1, 1997 to shareholders of
record as of the close of business on November 1, 1997.
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, 1997.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended September 30, 1997.
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 12, 1997 By /s/
Angela Yip
Chief Financial Officer
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