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, 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 October 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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
------------------ -----------------
Operating revenue $ 32,004 31,888 74,023 77,594
Operating expense:
Operation:
Purchased water 6,427 5,897 15,666 14,637
Power 1,866 2,247 3,397 4,399
Pump taxes 5,584 6,004 10,312 13,316
Other 4,368 5,535 13,763 16,414
Maintenance 1,496 1,877 4,750 4,770
Property and other
nonincome taxes 780 816 2,232 2,235
Depreciation 1,905 1,843 5,722 5,423
Income taxes 3,595 2,774 6,324 5,633
---------------- ----------------
Total Operating Expenses 26,021 26,993 62,166 66,827
---------------- ----------------
Operating income 5,983 4,895 11,857 10,767
Other income 147 136 406 430
Dividend income 280 272 841 817
Interest and other charges (1,284) (1,380) (4,139) (4,129)
---------------- ----------------
Net income $ 5,126 3,923 8,965 7,885
================ ================
Earnings per share of
common stock $ 1.58 1.21 2,176 2.44
================ ================
Dividends per share
of common stock $ 0.54 0.525 1.62 1.575
================ ================
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)
SEPTEMBER 30 DECEMBER 31
1995 1994
ASSETS ----------------------
Utility plant $ 318,023 308,515
Less accumulated depreciation 98,703 95,083
----------------------
Net utility plant 219,320 213,432
Nonutility property 6,408 7,178
Current assets:
Cash and equivalents 3,745 1,277
Accounts receivable and accrued revenue 12,080 8,540
Prepaid expenses and other 1,170 3,689
----------------------
16,995 13,506
Other assets:
Investment in California Water Service Co. 18,080 17,599
Debt issuance and reacquisition costs 4,151 4,262
Regulatory asset 3,566 3,672
Goodwill 2,277 2,341
Other 511 540
----------------------
Total other assets 28,585 28,414
----------------------
$ 271,308 262,530
======================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 10,159 10,159
Additional paid-in capital 22,208 22,208
Retained earnings 75,754 72,056
Unrealized loss on investment (41) (325)
----------------------
Total common shareholders' equity 108,080 104,098
Long-term debt, less current maturities 62,500 62,500
----------------------
Total capitalization 170,580 166,598
Current liabilities:
Current maturities of long-term debt 1,500 1,500
Line of credit 0 4,800
Accounts payable 446 967
Accrued interest 1,465 2,173
Accrued pump taxes and purchased water 5,719 3,203
Income taxes payable 3,377 0
Postretirement benefits 1,257 507
Other current liabilities 3,552 2,092
----------------------
Total current liabilities 17,316 15,242
Deferred income taxes and tax credits 15,383 15,278
Other noncurrent liabilities 2,270 2,605
Advances for and contributions in aid
of construction 65,759 62,807
----------------------
$ 271,308 262,530
======================
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
Operating activities: ----------------
Net income $ 8,965 7,885
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 5,722 5,423
Deferred income taxes and credits (114) (114)
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (3,540) (4,569)
Prepaid expenses and other 2,519 888
Accounts payable and other
current liabilities 939 2,210
Accrued pump taxes and purchased water 2,516 317
Income taxes payable 3,377 4,046
Accrued interest (708) 73
Other changes, net (302) (1,185)
----------------
Net cash provided by operating activities 19,374 14,974
----------------
Investing activities:
Additions to utility plant (11,857) (12,239)
Additions to nonutility property (79) (586)
Cost to retire utility plant (433) (256)
Temporary investments 0 195
Net cash proceeds from sale of machine shop 1,954 0
----------------
Net cash used in investing activities (10,415) (12,886)
----------------
Financing activities:
Dividends paid (5,266) (5,120)
Line of credit (4,800) 0
Advances and contributions in aid of
construction 4,601 4,237
Refunds of advances (1,026) (1,071)
----------------
Net cash used in financing activities (6,491) (1,954)
----------------
Net change in cash and equivalents 2,468 134
----------------
Cash and equivalents, beginning of period 1,277 2,363
----------------
Cash and equivalents, end of period $ 3,745 2,497
================
Supplemental disclosures of cash flow information:
Cash paid (credited) during period for:
Interest $ 4,692 3,845
Income taxes $ 1,756 1,824
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 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 redeemed its 4.825% Series N first
mortgage bonds in the amount of $1,500,000 on November 1,
1995.
A private placement of $15,000,000 of unsecured 30-year
senior notes is scheduled to close in December 1995.
Proceeds from the sale of the unsecured notes will be
used to repay short-term borrowings, 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 September 30, 1995, 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 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 third quarter
of 1995 was $5,126,000, an increase of 31% from
$3,923,000 in the third quarter of 1994. The increase in
consolidated net income is due primarily to decreased
water production expense.
Operating Revenue
The change in consolidated operating revenue from the
same period in 1994 is due to the following factors:
Three months ended
Operating revenue September 30, 1995 vs. 1994
_________________________
Increase/(decrease)
_____________________________________________________
Utility:
Consumption $ 1,531,100 4.8%
New customers 93,000 0.3
Real estate 26,000 0.1
Other Operations (1,534,000) (4.8)
$ 116,000 0.4%
=========== =====
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 September 30,
Operating Expense 1995 vs. 1994
Increase/(decrease)
Operation and maintenance $(1,819,000) (7.5)%
Depreciation 62,000 0.3
General Taxes (36,000) (0.2)
$(1,793,000) (7.4)%
=========== ====
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 (2) reduction of
operation expense due to the sale of the machine shop.
Income tax expense increased $821,000, or 30%, in
comparison to the third 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
third quarter of 1995 increased 6% from the third quarter
of 1994.
Water Supply
On November 1, 1995, Santa Clara Valley Water District's
10 reservoirs were 64% full with 109,200 acre feet of
water in storage -- which is above average for the past
20 years. As of November 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 August 14, 1995, San Jose Water Company submitted its
Application for an order authorizing it to increase rates
charged for water service with the Public Utilities
Commission of California. The company has requested an
8.8% rate increase in 1996 and a step rate increase of
1.7% in 1997 and 0.5% 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. Recent Commission decisions have been granting
water utilities rates of return between 10.50% to 11.00%.
If interest rates remain at current levels, the company
expects to receive a rate of return more in line with
those currently being authorized. 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 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 the insurance
company's 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 the insurance carrier for San
Jose Water Company has appealed the court's decision.
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. 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 has filed suit to challenge this new city
ordinance.
Although the company could have filed an advice letter
requesting authorization to collect the new franchise fee
by surcharge from its customers, San Jose Water Company
decided not to impose such a surcharge at this time.
Instead, with the concurrence of the Division of
Ratepayer Advocates, it has 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. A Commission decision
issued on November 8, 1995 authorizes San Jose Water
Company to establish such an account. San Jose Water
Company will be able to collect the franchise fee from
its customers by surcharge in the event that its efforts
to invalidate the ordinance are unsuccessful. San Jose
Water Company 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 5. OTHER INFORMATION
On October 19, 1995, the Board of Directors declared the
regular quarterly dividend of $.54 per common share. The
dividend will be paid December 1, 1995 to shareholders of
record as of the close of business on November 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 September 30,
1995.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended September 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: November 14, 1995 By /s/
_______________________
W. R. ROTH
Chief Financial Officer