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 June 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 July 1, 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
------------------------------------------
Operating revenue $ 31,554 28,005 52,341 46,450
Operating expense:
Operation:
Purchased water 7,663 6,109 13,175 8,767
Power 1,167 1,144 1,482 1,878
Pump taxes 3,996 4,063 5,096 6,866
Other 4,330 4,374 8,685 8,444
Maintenance 1,608 1,740 3,574 3,378
Property and other
nonincome taxes 851 780 1,665 1,558
Depreciation 2,195 2,133 4,389 4,266
Income taxes 3,571 2,648 4,963 3,691
Total Operating Expenses 25,381 22,991 43,029 38,848
Operating income 6,173 5,014 9,312 7,602
Other income 212 224 399 442
Dividend income 290 286 580 572
Interest and other charges (1,551) (1,595) (3,161) (3,207)
Net income $ 5,124 3,929 7,130 5,409
Earnings per share of
common stock $ 1.62 1.21 2.25 1.67
Dividends per share
of common stock $0.57 0.555 1.14 1.11
Weighted average
outstanding common shares 3,170,347 3,244,547 3,170,347 3,245,847
========= ========= ========= =========
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
JUNE 30 DECEMBER 31
1997 1996
ASSETS ---------- -----------
Utility plant $ 351,490 342,368
Less accumulated depreciation 111,537 107,584
Net utility plant 239,953 234,784
Nonutility property 7,305 7,287
Current assets:
Cash and equivalents 13,798 11,904
Accounts receivable and accrued revenue 12,419 7,747
Prepaid expenses and other 1,707 1,219
Total current assets 27,924 20,870
Other assets:
Investment in California Water Service Co. 24,336 23,099
Debt issuance and reacquisition costs 4,065 4,143
Regulatory asset 3,711 3,711
Goodwill 2,128 2,170
Other 532 472
Total other assets 34,772 33,595
309,954 296,536
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,907 9,907
Additional paid-in capital 19,235 19,235
Retained earnings 91,482 87,966
Unrealized gain (loss) on investment 3,650 2,920
Total common shareholders' equity 124,274 120,028
Long-term debt, less current maturities 75,000 75,000
Total capitalization 199,274 195,028
Current liabilities:
Current maturities of long-term debt - 1,500
Accounts payable 814 315
Accrued interest 2,657 2,665
Accrued pump taxes and purchased water 4,107 1,992
Income and nonincome taxes payable 3,478 196
Other current liabilities 3,358 2,286
Total current liabilities 14,414 8,954
Deferred income taxes and tax credits 19,573 18,417
Other noncurrent liabilities 3,186 2,961
Advances for and contributions in aid
of construction 73,507 71,176
$ 309,954 296,536
========= =======
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS ENDED
JUNE 30
1997 1996
------- ------
Operating activities:
Net income $ 7,130 5,409
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation 4,389 4,266
Deferred income taxes and credits 1,156 (212)
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (4,672) (3,657)
Prepaid expenses and other (488) (148)
Accounts payable and other
current liabilities 1,571 152
Accrued pump taxes and purchased water 2,115 1,951
Income and nonincome taxes payable 3,282 3,070
Accrued interest (8) 536
Other changes, net (67) 218
Net cash provided by operating activities 14,408 11,585
Investing activities:
Additions to utility plant (9,917) (8,866)
Additions to nonutility property (78) (4)
Cost to retire utility plant (196) (101)
Temporary investments 0 984
Net cash used in investing activities (10,191) (7,987)
Financing activities:
Dividends paid (3,614) (3,602)
Retirement of long-term debt (1,500) 0
Advances and contributions in aid of
construction 3,390 3,234
Refunds of advances (599) (583)
Net cash used in financing activities (2,323) (951)
Net change in cash and equivalents 1,894 2,647
Cash and equivalents, beginning of period 11,904 7,414
Cash and equivalents, end of period $13,798 10,061
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 3,021 2,517
Income taxes $ 910 998
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 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. On June 30, 1997, San Jose Water
Company had an available 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 nonregulated activities. SJW Corp. also owns
549,976 shares of California Water Service Company.
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.
Results of Operations:
Overview
SJW Corp.'s consolidated net income for the second
quarter of 1997 was $5,124,000, an increase of 30% from
$3,929,000 in the second quarter of 1996. The increase
in consolidated net income was due primarily to increased
customer usage and rate increases.
Operating Revenue
The change in consolidated operating revenue from the
same period in 1996 was due to the following factors:
Three months ended Six months ended
Operating revenue June 30, 1997 vs. 1996 June 30, 1997 vs.1996
Increase/(decrease) Increase/(decrease)
--------------------------------------------------------------------
Utility:
Consumption $2,047,000 7.3% $3,607,000 7.8%
New rates 1,306,000 4.7 1,879,000 4.0
New customers 144,000 .5 220,000 .5
Parking 52,000 .2 185,000 .4
---------- ----- ---------- -----
$3,549,000 12.7% $5,891,000 12.7%
========== ===== ========== =====
Operating expense
The change in consolidated operating expense, excluding
income taxes, from the same period in 1996 was due to the
following:
Three months ended Six months ended
Operating Expense June 30, 1997 vs. 1996 June 30, 1997 vs. 1996
Increase/(decrease) Increase/(decrease)
--------------------------------------------------------------------
Operation and maintenance $1,334,000 6.6% $2,679,000 7.6%
Depreciation 62,000 .3 123,000 .4
General Taxes 71,000 .3 107,000 .3%
---------- ---- ---------- ----
$1,467,000 7.2 $2,909,000 8.3%
========== === ========== ====
The increase in operation and maintenance expense was
primarily due to increased water production costs from
higher water consumption.
Income tax expense increased $923,000 which is 35% in
comparison to the second quarter of 1996. Year-to-date
income tax expense increased $1,272,000 over the same six
month period of 1996.
Since the water business is highly seasonal in nature, a
comparison of the revenue and expense of the current
quarter with the immediate preceding quarter would not be
meaningful. Average usage per metered customer in the
second quarter of 1997 increased 9% from the second
quarter of 1996. Year-to-date average usage per metered
customer increased 11% over 1996.
Water Supply
On August 5, 1997, Santa Clara Valley Water District's 10
reservoirs were 67% full with 113,576 acre feet of water
in storage -- which is above average for the past 20
years. As of August 1, 1997, the water level in the
Santa Clara groundwater basin exceeded the 30-year
average. The heavy rainfall in January of 1997 provided
above average surface water supplies to the Company.
Surface water is a less costly source of water and its
availability significantly impacts the results of
operation.
Regulatory Affairs
The Public Utilities Commission of California rendered a
rate decision on July 17, 1996, approving an average
annual rate increase of 1.25% through 1999 for San Jose
Water Company. These rate increases are based on rates
of return on ratebase 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 was approved
for 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.
In April 1995, San Jose Water Company's insurance carrier
settled with the plaintiff's insurance company 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 the 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 records, and the insurance carrier for San Jose
Water Company has appealed that decision. 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. 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 July 31, 1997, the Board of Directors declared the
regular quarterly dividend of $.57 per common share. The
dividend will be paid September 1, 1997 to shareholders
of record as of the close of business on August 11, 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 June 30, 1997.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended June 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: August 12, 1997 By /s/
Angela Yip
Chief Financial Officer
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