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, 2001
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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)
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California 77-0066628
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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 November 1, 2001 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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2000 2001 2000
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Operating revenue $44,182 39,181 $104,791 95,782
Operating expenses:
Operation:
Purchased water 11,625 10,321 26,593 23,151
Power 2,196 1,510 4,971 3,217
Pump taxes 7,165 6,261 16,145 13,938
Other 5,474 5,524 16,777 18,320
Maintenance 1,830 1,735 5,218 5,230
Property and other
nonincome taxes 1,111 1,027 3,272 3,025
Depreciation and
amortization 3,319 2,962 9,928 8,885
Income taxes 3,515 3,457 6,013 6,558
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Total operating expenses 36,235 32,797 88,917 82,324
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Operating income 7,947 6,384 15,874 13,458
Dividend income 307 302 920 907
Interest and other charges (2,025) (1,899) (6,081) (5,640)
Other income 166 173 530 284
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Net income $6,395 4,960 $11,243 9,009
====================================================================
Other comprehensive income
(loss):
Unrealized gain(loss)
on investment 1,485 2,750 - (3,919)
Income taxes related to
other comprehensive
income (loss) (609) (1,128) - 1,607
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Other comprehensive
income (loss), net 876 1,622 - (2,312)
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Comprehensive income $7,271 6,582 $11,243 6,697
====================================================================
Basic earnings per
share $ 2.10 1.63 $3.69 2.96
Comprehensive income
per share $ 2.39 2.16 $3.69 2.20
Dividends per share $ 0.65 0.62 $1.92 1.85
Weighted average
shares outstanding 3,045,147 3,045,147 3,045,147 3,045,147
See accompanying Notes to Condensed Consolidated Financial
Statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
SEPTEMBER 30 DECEMBER 31
2001 2000
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ASSETS
Utility plant and intangible assets $500,785 462,892
Less accumulated depreciation and
amortization 148,339 139,396
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Net utility plant 352,446 323,496
Nonutility property 10,228 9,979
Current assets:
Cash and equivalents 2,098 783
Accounts receivable 9,065 6,425
Accrued revenue 12,642 6,700
Prepaid expenses and other 1,611 1,344
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Total current assets 25,416 15,252
Other assets:
Investment in California Water
Service Group 29,699 29,699
Investment in joint venture 1,208 1,237
Debt issuance and reacquisition costs 3,683 3,719
Regulatory assets 5,273 5,256
Goodwill 1,765 1,829
Other 1,845 1,463
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Total other assets 43,473 43,203
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$431,563 391,930
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CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,516 9,516
Additional paid-in capital 12,357 12,357
Retained earnings 121,628 116,232
Accumulated other comprehensive income 6,220 6,220
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Shareholders' equity 149,721 144,325
Long-term debt 110,000 90,000
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Total capitalization 259,721 234,325
Current liabilities:
Line of credit - 11,200
Accrued interest 2,057 2,789
Accounts payable and purchased power 5,630 1,134
Accrued pump taxes and purchased water 8,392 4,629
Accrued taxes 6,035 266
Refund due to customers 814 1,072
Other current liabilities 3,492 5,652
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Total current liabilities 26,420 26,742
Deferred income taxes and tax credits 26,753 24,713
Advances for and contributions in aid
of construction 112,812 100,222
Other noncurrent liabilities 5,857 5,928
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$431,563 391,930
=====================================================================
See accompanying Notes to Condensed Consolidated Financial
Statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
2001 2000
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Operating activities:
Net income $11,243 9,009
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,928 8,885
Deferred income taxes and credits 2,040 (2,003)
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (8,582) (5,735)
Prepaid expenses and other (267) (601)
Accounts payable and other current
liabilities 2,336 3,838
Accrued pump taxes and purchased water 3,763 4,304
Accrued taxes payable 5,769 (717)
Accrued interest (732) (733)
Other changes, net (470) 3,155
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Net cash provided by operating activities 25,028 19,402
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Investing activities:
Additions to utility plant (39,701) (23,511)
Additions to nonutility property (249) (47)
Cost to retire utility plant (300) (418)
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Net cash used in investing activities (40,250) (23,976)
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Financing activities:
Dividends paid (5,847) (5,618)
Net borrowings on line of credit (11,200) 5,000
Advances and contributions in aid of
construction 14,794 7,913
Refunds of advances (1,210) (1,216)
Proceeds from issuance of long-term debt 20,000 -
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Net cash provided by financing
activities 16,537 6,079
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Net change in cash and equivalents $1,315 1,505
Cash and equivalents, beginning of period 783 124
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Cash and equivalents, end of period $2,098 1,629
=====================================================================
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest 6,686 6,298
Income taxes (973) 8,448
See accompanying Notes to Condensed Consolidated Financial
Statements.
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(dollars in thousands)
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 2000 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 is
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 are
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 operations.
NOTE II - CRYSTAL CHOICE WATER SERVICE LLC
SJW Corp.'s condensed consolidated financial statements for the three
and nine months ended September 30, 2001 include the operating
results of Crystal Choice Water Service LLC (CCWS) from January 18,
2001 (inception). CCWS engages in the sale and rental of water
conditioning equipment. SJW Corp., which has a 75% interest in CCWS
intends to invest $850 in the first year of operation. Intercompany
transactions and balances have been eliminated. The CCWS operation
is not expected to be material to the overall financial position and
operating results of SJW Corp.
NOTE III - THE MERGER
On October 28, 1999, SJW Corp. and American Water Works Company, Inc.
(American Water) entered into an Agreement and Plan of Merger (Merger
Agreement). SJW Corp. and American Water filed a joint application
with the CPUC requesting its approval to complete the transaction.
On February 20, 2001, the California Public Utility Commission (CPUC)
issued a revised schedule for consideration of the proposed merger
that would allow for a decision in September 2001. Following the
ruling setting forth the new schedule, American Water announced that
it would terminate the Merger Agreement on April 28, 2001, the date
after which either party had the right to terminate the Merger
Agreement, because of regulatory uncertainties and delays, and
offered to consent to mutual termination of the agreement. On March
1, 2001, SJW Corp.'s Board of Directors decided that it would be in
the best interest of the company to terminate the Merger Agreement,
and accepted American Water's offer for mutual termination.
NOTE IV - ISSUANCE OF LONG-TERM DEBT
In September 2001, San Jose Water Company issued $20,000 in Series F
7.2% unsecured 30 year Senior Notes. Proceeds from the sale of
unsecured Senior Notes are used to repay short-term borrowings and
fund construction expenditures.
NOTE V - IMPACT OF RECENT ACCOUNTING PRONOUCEMENTS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets".
Statement No. 141 addresses the accounting for and reporting of
business combinations and supercedes APB Opinion No. 16 "Business
Combinations", and FASB Statement No. 38 "Accounting for
preacquisition Contingencies of Purchased Enterprises". Statement
No. 141 requires that all business combinations be accounted for
using the purchase method of accounting for acquisitions and
eliminates the use of the pooling method. This Statement applies to
all business combinations initiated after June 30, 2001. SJW Corp.
does not anticipate that the adoption of Statement No. 141 will have
a material effect on its consolidated financial statements.
Statements No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supercedes APB
Opinion 17, "Intangible Assets". Statement No. 142 changes the
accounting for goodwill from an amortization method to an impairment-
only method. The amortization of goodwill, including goodwill
recorded in past business combinations will cease upon adoption of
the statement, which will begin with the SJW Corp.'s fiscal year
starting January 1, 2002. However, goodwill and intangible assets
acquired after June 30, 2001, will be subject to immediate adoption
of the statement. The company will continue to amortize its goodwill
during the remainder of fiscal 2001, the amount of which will be
approximately $43 for the second half of the year. The resulting
balance for existing goodwill and other intangible assets as of
December 31, 2001 subject to periodic impairment testing will be
$1,743. If in a future period, the company determines that goodwill
or another intangible asset is impaired, the impairment write down
could have a material impact on earnings for that period.
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 143, "Accounting for Asset Retirement Obligations", which applies
to legal obligations that are associated with the retirement of long-
lived assets and the associated asset retirement costs. The
statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002. SJW Corp. does not anticipate
the adoption of SFAS No.143 will have a material effect on SJW Corp's
financial condition and results of operation.
In October 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-lived
Assets". This statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. The statement is
effective for financial statements issued for fiscal years beginning
after December 15, 2001. SJW Corp. does not anticipate the adoption
of SFAS No. 144 will have a material impact on SJW Corp's financial
condition and results of operation.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (dollars in thousands):
This report contains forward looking statements relating to future
events and financial performance of the company. Such forward looking
statements are identified by words including "expect", "estimate",
"anticipate", and similar expressions. The company's actual results
could differ materially from those discussed in such forward looking
statements.
General:
SJW Corp. was incorporated in California on February 8, 1985. SJW is
a holding company with two wholly owned subsidiaries, San Jose Water
Company and SJW Land Company.
San Jose Water Company was originally incorporated under the laws of
the State of California in 1866. The company was later reorganized
and reincorporated as the San Jose Water Works. San Jose Water Works
was reincorporated in 1985 as San Jose Water Company, with SJW Corp.
as the parent holding company. The headquarters of SJW Corp. and its
subsidiaries is at 374 West Santa Clara Street, San Jose, California
95113 and their telephone number is (408) 279-7800.
San Jose Water Company is a public utility in the business of
providing water service to a population of approximately 985,000 in
an area comprising about 138 square miles in the metropolitan San
Jose area.
The principal business of San Jose Water Company consists of the
production, purchase, storage, purification, distribution and retail
sale of water. San Jose Water Company provides water service to
customers in portions of the cities of Cupertino and San Jose and in
the cities of Campbell, Monte Sereno, Saratoga and the Town of Los
Gatos, and adjacent unincorporated territory, all in the County of
Santa Clara in the State of California. It distributes water to
customers in accordance with accepted water utility methods, which
include pumping from storage and gravity feed from high elevation
reservoirs.
SJW Land Company was incorporated in October 1985. SJW Land Company
owns and operates parking facilities adjacent to the San Jose Arena,
commercial buildings in San Jose and a 70% limited partnership
interest in 444 West Santa Clara Street, L. P.
In January 2001, SJW Corp. formed Crystal Choice Water Service LLC
(CCWS), a limited liability company with Kinetico, Incorporated, a
leading water conditioning equipment manufacturer. SJW Corp. owns
75% of the entity. CCWS engages in the sale and rental of water
conditioning equipment. The CCWS operation is not expected to be
material to the overall financial position and operating results of
SJW Corp.
SJW Corp. also owns 1,099,952 shares of California Water Service
Group.
Liquidity and Capital Resources:
SJW Corp. and its subsidiaries have unsecured lines of credit
available allowing aggregate short-term borrowings of up to $30,000
at rates which approximate the bank's prime or reference rate. At
September 30, 2001, SJW Corp. and its subsidiaries had no short-term
borrowings.
In September 2001, San Jose Water Company issued $20,000 in Series F
7.2% unsecured 30 year Senior Notes. Proceeds from the sale of
unsecured Senior Notes are used to repay short-term borrowings and
fund construction expenditures through the remainder of the year.
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 2001 are estimated at
$23,000. For the five-year period from 2001 to 2005, San Jose Water
Company's net capital expenditures are estimated to aggregate
$120,000. Net capital expenditures represent gross capital
expenditures less advances and contributions in aid of construction.
Results of Operations
Overview
SJW Corp.'s consolidated net income for the third quarter of 2001 was
$6,395, an increase of 29% from $4,960 in the third quarter of 2000.
The earnings increase was due primarily to higher revenue as a result
of rate increases. Earnings for the nine months of 2001 increased 25%
from $9,009 to $11,243 in comparison with the same period in 2000.
The increase in consolidated net income was due primarily to higher
revenue partially offset by higher water production costs.
Operating Revenue
The change in consolidated operating revenue from the same period in
2000 was due to the following factors:
Three months ended Nine months ended
Sept.30 2001 vs 2000 Sept.30 2001 vs 2000
Increase/(decrease) Increase/(decrease)
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Utility:
Consumption $ 729 1.9% $ 1,229 1.3%
New customers 168 0.4 613 0.6
Rate increases 4,014 10.3 7,101 7.4
Parking & rental 19 - (87) -
Crystal Choice 71 0.2 153 0.1
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$5,001 12.8% $9,009 9.4%
=====================================================================
Average usage per metered customer for the third quarter and nine
months year-to-date of 2001 were slightly higher than the same
comparable periods of 2000.
Operating Expense
The change in consolidated operating expense, excluding income taxes,
from the same period in 2000 was due to the following:
Three months ended Nine months ended
Sept.30 2001 vs 2000 Sept.30 2001 vs 2000
Operating Expense Increase/(decrease) Increase/(decrease)
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Production Costs:
Reduced surface water supply $ 339 1.2% $ 1,925 2.6%
Usage and new customers 839 2.9 1,391 1.9
Pump tax and purchased
water price increase 1,066 3.6 2,369 3.3
Energy price increase 650 2.2 1,718 2.4
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Total production costs 2,894 9.9 7,403 10.2
Operation and maintenance 45 0.1 (1,555) (2.1)
Depreciation and amortization 357 1.2 1,043 1.4
General taxes 84 0.3 247 0.3
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$3,380 11.5% $ 7,138 9.8%
=====================================================================
The higher third quarter production expense in 2001 was attributable
to increased water production cost as a result of rate increases in
Santa Clara Valley Water District's (SCVWD)purchased water and pump
tax costs, the energy providers' power cost increase in January and
March of 2001, and the reduced availability of surface water.
Surface water supply is the least expensive source of water and the
availability of a higher surface water supply reduced water
production costs.
San Jose Water Company received a corresponding rate increase
associated with the SCVWD's production cost increase effective in
July 2001.
The change in San Jose Water Company's source of supply mix was as
follows:
Three months ended Nine months ended
2001 vs. 2000 2001 vs. 2000
Increase/(decrease) Increase/(decrease)
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(Million gallons)
Purchased water (77) -% 779 2%
Ground water 494 3% 1,157 3%
Surface water (292) (2%) (1,705) (4%)
Reclaimed water 8 -% 31 -%
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133 1% 262 1%
================================================================
The changes in the source of supply mix were consistent with the
changes in the water production costs.
Operation and maintenance expense for the third quarter of 2001 were
comparable to the same period in 2000. However, increases in
Operation and maintenance expenses for the nine months period ended
September 30, 2001 in comparison to the same period in 2000 were more
than offset by non-recurring merger-related costs incurred in
conjunction with the proposed merger of SJW Corp. with American Water
Works Company, Inc. The merger was terminated on March 1, 2001.
Other
The effective income tax rates for the current quarter and nine
months year-to-date of 2001 was 35% which was slightly below the
rates for the comparable periods in 2000 due to the tax benefits
associated with 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. Results of
the first nine months of 2001 may not be indicative of results for
the full year.
Water Supply
On November 6, 2001, Santa Clara Valley Water District's 10
reservoirs were 44% full with 47,884 acre feet of water in storage
which is slightly below 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 is slightly below the 30-year average.
San Jose Water Company has implemented a comprehensive security
upgrade program for all production and storage facilities. Pilot
testing began on new wireless alarm systems at two facilities. These
systems will be installed in all facilities and will be linked to
Supervisory Control and Data Acquisition System (SCADA) for
continuous monitoring. San Jose Water Company also shares security
and planning information with SCVWD, various governmental and law
enforcement agencies. Certain site-specific measures are also
implemented at various strategic locations to protect the safety and
security of water supply.
Regulatory Affairs
On April 19, 2001, San Jose Water Company received a decision from
the California Public Utilities Commission regarding its request for
a general rate increase filed in February 2000. The decision granted
San Jose Water Company a revenue increase of $8,400 or 7.4% for 2001,
$3,600 (2.9%) for 2002 and $3,900 (3.1%) for 2003. The authorized
return on equity in the decision is 9.95% for the years 2001 through
2003. The authorized return on rate base is 9.10% for 2001, and
9.11% for 2002 and 2003.
On June 28, 2001, San Jose Water Company received CPUC approval for
an offset rate increase in the amount of $5,400 or 4.3%. This rate
increase offsets the July 1, 2001 increase in purchased water and
pump tax costs charged by the Santa Clara Valley Water District and
the higher costs of electric power resulting from the Pacific Gas and
Electric Company rate increases on January 4, 2001 and March 27,
2001. An offset rate increase is a cost reimbursement and is not
designed to increase the earnings of the utility.
Pursuant to Section 792.5 of the California Public Utilities Code, a
balancing account is to be kept for all expense items for which
revenue offsets have been authorized. A separate balancing account
must be maintained for each offset expense item (e.g. purchased
water, purchased power and pump tax). The purpose of a balancing
account is to track the under-collection or over-collection
associated with expense changes and the revenue authorized by the
CPUC to offset those expense changes. At September 30, 2001, the
balancing account, excluding capitalized interest refunds due to
customers, had a net under-collected balance of $385.
To the extent that San Jose Water Company has to pump water during
peak periods to satisfy customer demand when imported water is not
available, higher energy cost will be incurred. Currently, the CPUC
has no established procedure for water utilities to recover
additional costs incurred due to such unanticipated changes in supply
mix.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
On October 25, 2001, the Board of Directors declared the regular
quarterly dividend of $.6525 per common share. The dividend will be
paid December 1, 2001 to shareholders of record as of the close of
business on November 5, 2001.
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 SK for the quarter ended September 30, 2001.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended September 30, 2001.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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: November 9, 2001 By /s/Angela Yip
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Angela Yip,
Chief Financial Officer
and Treasurer
14.