13
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, 2000
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Commission file number 1-8966
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SJW Corp.
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Exact name of registrant as specified in its charter)
California 77-0066628
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
374 West Santa Clara Street, San Jose, CA 95196
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(Address of principal executive offices) (Zip Code)
408-279-7800
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Common shares outstanding as of August 1, 2000 and as of the date of
this report are 3,045,147.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except share and per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
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Operating revenue $33,064 30,188 56,601 51,255
Operating expense:
Operation:
Purchased water 8,100 7,138 12,830 11,069
Power 1,074 954 1,707 1,516
Pump taxes 4,852 3,928 7,677 6,280
Other 5,483 4,735 11,257 9,495
Maintenance 1,752 1,662 3,495 3,283
Property and other
nonincome taxes 982 925 1,998 1,861
Depreciation and
amortization 2,962 2,553 5,923 5,116
Income taxes 2,227 2,745 3,101 3,929
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Total operating expenses 27,432 24,640 47,988 42,549
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Operating income 5,632 5,548 8,613 8,706
Other income 22 99 111 230
Dividend income 302 298 605 597
Merger-related costs (1,376) - (1,539) -
Interest and other charges (1,858) (1,870) (3,741) (3,677)
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Net income $ 2,722 4,075 4,049 5,856
========================================================================
Other comprehensive income
(loss):
Unrealized gain (loss)
on investment 1,581 1,787 (6,668) (5,706)
Income taxes related to
other comprehensive
income (loss) (648) (732) 2,734 2,340
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Other comprehensive income
(loss), net 933 1,055 (3,934) (3,366)
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Comprehensive income $ 3,655 5,130 115 2,490
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Basic earnings per share $0.89 1.34 1.33 1.91
Comprehensive income per
share 1.20 1.68 0.04 0.81
Dividends per share of
common stock 0.615 0.60 1.23 1.20
Weighted average shares
outstanding 3,045,147 3,045,147 3,045,147 3,064,814
See accompanying notes to condensed consolidated financial statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
JUNE 30 DECEMBER 31
2000 1999
ASSETS
Utility plant $445,435 432,262
Less accumulated depreciation and amortization 134,984 129,828
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Net utility plant 310,451 302,434
Nonutility property 10,095 10,133
Current assets:
Cash and equivalents 375 124
Accounts receivable and accrued
revenue 17,288 12,580
Prepaid expenses and other 1,296 1,096
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Total current assets 18,959 13,800
Other assets:
Investment in California Water Service Group 26,674 33,342
Investment in joint venture 1,210 1,210
Debt issuance and reacquisition costs 3,799 3,880
Regulatory assets 5,187 5,177
Goodwill 1,872 1,914
Other 766 537
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Total other assets 39,508 46,060
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$379,013 372,427
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CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,516 9,516
Additional paid-in capital 12,357 12,357
Retained earnings 113,362 113,058
Accumulated other comprehensive income 5,029 8,963
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Shareholders' equity 140,264 143,894
Long-term debt 90,000 90,000
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Total capitalization 230,264 233,894
Current liabilities:
Line of credit 7,400 3,300
Accrued interest 2,762 2,751
Accounts payable 292 476
Accrued pump taxes and purchased
water 5,158 3,072
Accrued taxes 3,484 3,849
Other current liabilities 5,328 3,394
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Total current liabilities 24,424 16,842
Deferred income taxes and tax credits 24,854 28,152
Other noncurrent liabilities 3,557 2,794
Advances for and contributions in aid
of construction 95,914 90,745
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$379,013 372,427
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See accompanying notes to condensed consolidated financial statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS ENDED
JUNE 30
2000 1999
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Operating activities:
Net income $4,049 5,856
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,923 5,116
Deferred income taxes and credits (3,298) (1,973)
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (4,708) (4,514)
Prepaid expenses and other (200) 126
Accounts payable and other current
liabilities 1,750 151
Accrued pump taxes and purchased water 2,086 2,053
Accrued taxes (365) 3,080
Other changes, net 3,608 2,991
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Net cash provided by operating activities 8,845 12,886
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Investing activities:
Additions to utility plant (14,329) (14,039)
Additions to nonutility property (47) (53)
Cost to retire utility plant (333) (219)
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Net cash used in investing activities (14,709) (14,311)
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Financing activities:
Dividends paid (3,745) (3,725)
Borrowings on line of credit 4,100 2,900
Advances and contributions in aid of
construction 6,452 4,576
Refunds of advances (692) (679)
Purchase and retirement of common stock - (7,111)
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Net cash provided by(used in) financing activities 6,115 (4,039)
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Net change in cash and equivalents 251 (5,464)
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Cash and equivalents, beginning of period 124 8,066
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Cash and equivalents, end of period $ 375 2,602
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Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 3,651 3,524
Income taxes 4,018 517
See accompanying notes to condensed consolidated financial statements.
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2000
NOTE I - GENERAL
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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 1999 Annual Report on Form 10-K should be
read with the accompanying condensed consolidated financial
statements.
Basic earnings per share and comprehensive income per share are
calculated using income available to common shareholders and
comprehensive income, respectively, divided by the weighted average
number of shares outstanding during the year. SJW Corp. has no
dilutive securities, and accordingly, diluted earnings per share is
not shown.
SJW Corp. and its subsidiaries operate predominantly in one
reportable business segment of providing water utility service to
its customers. Nonutility revenue, assets, and net income do not
have a material effect on the corporation's financial condition and
results of operation.
NOTE II - THE MERGER
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On October 28, 1999, SJW Corp. and American Water Works Company,
Inc. (American Water) entered into an Agreement and Plan of Merger
(the Merger Agreement). Pursuant to the Merger Agreement, a wholly
owned subsidiary of American Water will merge with and into SJW
Corp.
Under the terms of the Merger Agreement, each share of the
corporation's common stock outstanding on the closing date would be
converted into the right to receive $128 per share in cash. SJW
Corp. expects that the transaction will be completed within tweleve
months, following all required regulatory approvals. The
California Public Utilities Commission (CPUC) Staff has requested
from the CPUC an extension of review period by 60 days. If
granted, a decision will not be available until after the end of
the year. Shareholders of SJW Corp. approved the Merger Agreement
at the Annual Meeting of the Shareholders held on April 20, 2000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
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Liquidity and Capital Resources:
SJW Corp. and its subsidiaries have unsecured lines of credit
available allowing aggregate short-term borrowings of up to
$28,000,000 at rates which approximate the bank's prime or
reference rate. On June 30, 2000, SJW Corp. and its subsidiaries
had available unused short-term bank lines of credit of
$20,600,000.
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, transmission and distribution, and
source of supply facilities and to comply with environmental
regulations. Net capital expenditures for 2000 are estimated at
$24,500,000. For the five year period from 2000 to 2004, San Jose
Water Company's net capital expenditures are estimated to aggregate
$120,000,000. 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 1,099,952 shares of California
Water Service Group.
San Jose Water Company is a public utility in the business of
providing water service to approximately 979,000 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 Land Company also owns a commercial building
in San Jose and a 70% limited partnership interest in 444 West
Santa Clara Street, L.P.
Results of Operations:
Overview
SJW Corp.'s consolidated net income for the second quarter of 2000
was $2,722,000, a decrease of 33% from $4,075,000 in the second
quarter of 1999. The decrease in consolidated net income was due
primarily to higher water production costs and certain expenses
which were incurred in conjunction with SJW Corp.'s previously
announced merger with American Water Works Company, Inc., of which
regulatory approval is pending.
Operating Revenue
The change in consolidated operating revenue from the same period
in 1999 was due to the following factors:
Three months ended Six months ended
June 30 2000 vs. 1999 June 30 2000 vs. 1999
Operating Revenue Increase/(decrease) Increase/(decrease)
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Utility:
Consumption $1,221,000 4% $2,622,000 5%
New Rates 1,189,000 4% 2,040,000 4%
New Customers 202,000 1% 306,000 -%
Parking & Rental $264,000 1% $378,000 1%
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$2,876,000 10% $5,346,000 10%
Operating Expense
The change in consolidated operating expense, excluding income
taxes, from the same period in 1999 was due to the following:
Three months ended Six months ended
June 30 2000 vs. 1999 June 30 2000 vs. 1999
Operating Expense Increase/(decrease) Increase/(decrease)
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Operation and Maintenance $2,844,000 13% $5,323,000 14%
Depreciation 409,000 2% 807,000 2%
General Taxes 57,000 -% 137,000 -%
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$3,310,000 15% $6,267,000 16%
The increase in operation and maintenance expense was primarily due
to increased water production costs from higher water consumption
and the additional merger-related employee compensation and pension
benefits.
Income tax expense decreased $518,000 or 19% in comparison to the
second quarter of 1999. Year-to-date income tax expense decreased
$828,000 over the same six-month period of 1999. The effective
income tax rate for the second quarter of 2000 was 45% due to the
non-deductibility of certain merger-related expenses.
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. Average
usage per metered customer for the second quarter of 2000 increased
4% over the same period in 1999 and year-to-date average usage per
metered customer increased 6% from the same six-month period in
1999.
Water Supply
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On July 26, 2000, Santa Clara Valley Water District's ten storage
reservoirs were 73% full with 124,446 acre feet of water, which is
above average for the past 20 years. The rainfall in the winter of
2000 maintained a slightly above average surface water supply for
the Corporation. Surface water is a less costly source of water
and its availability significantly impacts the results of
operation.
Regulatory Affairs
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On February 18, 2000, San Jose Water Company filed its application
for a general rate increase effective for the year 2001 through
2003. The Company is requesting a return on equity of 11.75% for
the years 2001 through 2003. Recent rates of return on common
equity authorized by the Commission have been in the 10% range for
water utilities.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
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On July 20, 2000, the Board of Directors declared the regular
quarterly dividend of $.615 per common share. The dividend will be
paid September 1, 2000 to shareholders of record as of the close of
business on August 1, 2000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
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(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, 2000.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended June 30, 2000.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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The Corporation has no derivative financial instruments,
financial instruments with significant off-balance sheet risks,
or financial instruments with concentrations of credit risk.
There is no material sensitivity to changes in market rates and
prices.
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 4, 2000 By /s/ Angela Yip
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Angela Yip
Chief Financial Officer and Treasurer