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, 1995
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 April 1, 1995 and as of the
date of this report are 3,250,746.
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
1995 1994 1995 1994
------------------ -----------------
Operating revenue $ 23,780 26,715 42,019 45,706
Operating expense:
Operation:
Purchased water 5,936 5,251 9,239 8,740
Power 934 1,395 1,531 2,152
Pump taxes 2,666 4,518 4,728 7,312
Other 4,086 5,238 9,395 10,879
Maintenance 1,553 1,539 3,254 2,893
Property and other
nonincome taxes 624 703 1,452 1,419
Depreciation 1,894 1,755 3,817 3,580
Income taxes 2,127 2,230 2,729 2,859
---------------- ----------------
19,820 22,629 36,145 39,834
---------------- ----------------
Operating income 3,960 4,086 5,874 5,872
Other income 223 147 259 294
Dividend income 187 272 561 544
Interest and other charges (1,376) (1,368) (2,855) (2,749)
---------------- ----------------
Net income $ 2,994 3,137 3,839 3,961
================ ================
Earnings per share of
common stock $ 0.92 0.97 1.18 1.22
================ ================
Dividends per share
of common stock $ 0.54 0.525 1.08 1.05
================ ================
Weighted average
outstanding common shares 3,250,746 3,236,992 3,250,746 3,236,992
=================== ===================
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
JUNE 30 DECEMBER 31
1995 1994
ASSETS ----------------------
Utility plant $ 314,751 308,515
Less accumulated depreciation 98,250 95,083
----------------------
Net utility plant 216,501 213,432
Nonutility property 6,442 7,178
Current assets:
Cash and equivalents 1,626 1,277
Accounts receivable and accrued revenue 10,259 8,540
Prepaid expenses and other 1,490 3,689
----------------------
13,375 13,506
Other assets:
Investment in California Water Service Co. 17,324 17,599
Debt issuance and reacquisition costs 4,188 4,262
Regulatory asset 3,645 3,672
Goodwill 2,299 2,341
Other 537 540
----------------------
Total other assets 27,993 28,414
----------------------
$ 264,311 262,530
======================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 10,159 10,159
Additional paid-in capital 22,208 22,208
Retained earnings 72,383 72,056
Unrealized loss on investment (487) (325)
----------------------
Total common shareholders' equity 104,263 104,098
Long-term debt, less current maturities 62,500 62,500
----------------------
Total capitalization 166,763 166,598
Current liabilities:
Current maturities of long-term debt 1,500 1,500
Line of credit 1,800 4,800
Accounts payable 865 967
Accrued interest 2,163 2,173
Accrued pump taxes and purchased water 3,440 3,203
Income taxes payable 2,251 0
Postretirement benefits 1,257 507
Other current liabilities 2,287 2,092
----------------------
Total current liabilities 15,563 15,242
Deferred income taxes and tax credits 15,371 15,278
Other noncurrent liabilities 2,214 2,605
Advances for and contributions in aid
of construction 64,400 62,807
----------------------
$ 264,311 262,530
======================
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS ENDED
JUNE 30
1995 1994
Operating activities: ----------------
Net income 3,839 3,961
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,817 3,723
Deferred income taxes and credits 184 31
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (1,719) (3,489)
Prepaid expenses and other 2,199 852
Accounts payable and other
current liabilities 93 995
Accrued pump taxes and purchased water 237 604
Income taxes payable 2,251 2,908
Accrued interest (10) 738
Other changes, net (577) (1,466)
----------------
Net cash provided by operating activities 10,314 8,857
----------------
Investing activities:
Additions to utility plant (7,088) (8,231)
Additions to nonutility property (80) (488)
Cost to retire utility plant (249) (222)
Temporary investments 0 195
Net cash proceeds from sale of machine shop 1,954 0
----------------
Net cash used in investing activities (5,463) (8,746)
----------------
Financing activities:
Dividends paid (3,511) (3,413)
Line of credit (3,000) 0
Advances and contributions in aid of
construction 2,608 2,858
Refunds of advances (599) (631)
----------------
Net cash used in financing activities (4,502) (1,186)
----------------
Net change in cash and equivalents 349 (1,075)
----------------
Cash and equivalents, beginning of period 1,277 2,363
----------------
Cash and equivalents, end of period $ 1,626 1,288
================
Supplemental disclosures of cash flow information:
Cash paid (credited) during period for:
Interest $ 2,712 1,878
Income taxes $ (1,057) 0
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1995
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 1994 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:
San Jose Water Company plans to issue $15,000,000 of
unsecured 30-year senior notes through private placement
in the third quarter of 1995. Proceeds from the sale of
the unsecured notes will be used to repay short-term
borrowings, redeem at maturity, Series N 4.85% first
mortgage bonds in the amount of $1,500,000 plus accrued
interest and fund construction expenditures through the
remainder of 1995 and first half of 1996.
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 June 30, 1995, San Jose Water
Company had available an unused short-term bank line of
credit of $18,200,000.
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 1995 are estimated at
$15,907,000. For the five year period from 1995 to 1999,
San Jose Water Company's 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.
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
921,000 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, sold its precision mechanical parts
manufacturing facility in March 1995. Western Precision,
Inc. was subsequently renamed W P Shell Corporation. On
June 5, 1995, W P Shell Corporation was liquidated and
merged into SJW Corp. with SJW Corp. succeeding to all
rights, assets and liabilities of W P Shell Corporation
including 549,976 shares of California Water Service
Company.
Results of Operations:
Overview
SJW Corp.'s consolidated net income for the second
quarter of 1995 was $2,994,000, a decrease of 4.6% from
$3,137,000 in the second quarter of 1994. The decrease
in consolidated net income is due primarily to reduced
water usage and the sale, in the first quarter of 1995,
of the machine shop operations.
Operating Revenue
The change in consolidated operating revenue from the
same period in 1994 is due to the following factors:
Three months ended June 30,
Operating revenue 1995 vs. 1994
_________________________
Increase/(decrease)
_____________________________________________________
Utility:
Consumption $(1,562,000) (5.9)%
New customers 82,000 0.3 %
Real estate 43,000 0.2 %
Other Operations (1,498,000) (5.6)%
_____________________________________________________
$(2,935,000) (11.0)%
=========== =====
Other operations revenue decreased primarily due to W P
Shell Corporation's sale of the machine shop operation in
the first quarter of 1995.
Operating expense
The change in consolidated operating expense, excluding
income taxes, from the same period in 1994 is due to the
following:
Three months ended June 30,
Operating Expense 1995 vs. 1994
______________________________
Operation and maintenance $(2,767,000) (13.6)%
Depreciation 140,000 0.7 %
General Taxes (79,000) (0.4)%
$(2,706,000) (13.3)%
=========== =====
The decrease in operation and maintenance expense is
primarily due to two factors: (1) reduced water
production cost resulting from the availability of
greater surface water supplies and lower customer usage,
and (2) reduction of operation expense due to the sale of
the machine shop.
Income tax expense decreased $103,000 which is 4.6% in
comparison to the second quarter of 1994.
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 in the
second quarter of 1995 decreased 7.6% from the second
quarter of 1994.
Water Supply
On August 1, 1995, Santa Clara Valley Water District's 10
reservoirs were 83% full with 141,817 acre feet of water
in storage -- which is above average for the past 20
years. As of August 1, 1995, the water level in the
Santa Clara ground water basin exceeded the 30-year
average. The heavy rainfall in January and March of 1995
increased the 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
Because San Jose Water Company'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.
On July 3, 1995, San Jose Water Company submitted its
Notice of Intent to file a general rate case application
with the Public Utilities Commission of California. The
company requests an 8.7% rate increase in 1996 and a step
rate increase of 1.2% for 1997 and 0.4% for the years
1998 and 1999, respectively. The rate increase is
designed to provide a return on common equity of 12.25%
for the years 1996-1999. If interest rates remain at
current levels, the company expects to receive a rate of
return more in line with those being authorized today.
This rate application is expected to provide rate relief
in the spring of 1996.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Valley Title Company
In October 1993, San Jose Water Company was named as a
defendant by Valley Title Company and its insurer in a
lawsuit filed in Santa Clara County Superior Court in San
Jose, California. Plaintiffs claimed a fire service
pipeline ruptured in October 1992, causing water to flood
the title company's basement. The suit asked
reimbursement for cleanup costs, damages for lost title
records, business related damages and lost rents. San
Jose Water Company denied liability, claiming it did not
own the portion of the water line that failed. The title
company had an unsealed heating oil tank in its basement
which flooded and contributed to much of the loss. San
Jose Water Company took 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 was solely the responsibility of the title
company.
Plaintiff's insurance carrier claimed expenditures in
excess of $5.4 million. During the three month trial
which ended in April 1995, San Jose Water Company's
insurance carrier agreed to settle that claim for $3.5
million. This portion of the claim has been paid.
At trial, the title company reduced its demand for
damages resulting from destroyed title files from $21
million to $14 million. The jury awarded the title
company $3.0 million, and San Jose Water Company has
appealed. Because of the ongoing uncertainties of the
appeal process, San Jose Water Company has no certain
measure on the size of loss, if any, to the company.
San Jose Water Company believes that any final award to
plaintiff will be within the stated limits of the
company's insurance coverage. San Jose Water Company
does not believe, based upon all available information,
that the outcome of the appeal will have a material
adverse effect on its financial position.
No governmental entity is known to have an unresolved
claim against San Jose Water Company arising from the
release of oil in this incident.
City of San Jose
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. SJWC 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 SJWC's operations.
SJWC has filed suit to challenge this new city ordinance.
Although there is a procedure whereby the Public
Utilities Commission may authorize collection of the new
franchise fee by surcharge from its customers, SJWC has
decided not to impose such a surcharge at this time.
Instead, with the concurrence of the Division of
Ratepayer Advocates, SJWC filed an advice letter on July
13, 1995 with the Public Utilities Commission requesting
permission to establish a memorandum account for the
imposed franchise fee starting on the date on which the
city ordinance becomes effective. If the Commission
permits the establishment of such an account, SJWC
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. SJWC does not
believe, based upon all available information, that the
outcome of this event will have a material adverse effect
on its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
At the 1995 annual Meeting of Shareholders of the company
held on April 20, 1995, nine directors were re-elected to
the Board of Directors and the appointment of KPMG Peat
Marwick, LLP as independent auditors for 1995 was
ratified by the following votes:
Name of Director Votes for Votes against
_______________________________________________________
Mark L. Cali 2,967,203 14,690
J. Philip DiNapoli 2,968,758 13,135
Drew Gibson 2,970,224 11,669
Ronald R. James 2,969,724 12,169
George Moss 2,968,805 13,088
Roscoe Moss, Jr. 2,970,023 11,870
W. Richard Roth 2,970,024 11,869
Charles J. Toeniskoetter 2,970,024 11,869
J. W. Weinhardt 2,970,919 10,974
Ratification of appointment of independent auditors for
1995:
Votes for Votes against Votes
Appointment Appointment Abstaining
____________________________________________________
2,953,845 9,910 18,138
Item 5. OTHER INFORMATION
On July 20, 1995, the Board of Directors declared the
regular quarterly dividend of $.54 per common share. The
dividend will be paid September 1, 1995 to shareholders
of record as of the close of business on August 1, 1995.
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, 1995.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended June 30, 1995.
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 14, 1995 By /s/
_______________________
W. R. ROTH
Chief Financial Officer