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 March 31, 1996
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 May 1, 1996 and as of the
date of this report are 3,244,547.
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
MARCH 31
1996 1995
------------------
Operating revenue $ 18,445 18,239
Operating expense:
Operation:
Purchased water 2,658 3,304
Power 735 596
Pump taxes 2,803 2,062
Other 4,069 5,309
Maintenance 1,638 1,702
Property and other
nonincome taxes 778 827
Depreciation 2,133 1,923
Income taxes 1,043 603
----------------
Total Operating Expenses 15,857 16,326
----------------
Operating income 2,588 1,913
Other income 218 129
Dividend income 286 280
Interest and other charges (1,612) (1,478)
----------------
Net income $ 1,480 844
================
Earnings per share of
common stock $ 0.46 0.26
================
Dividends per share
of common stock $ 0.555 0.54
================
Weighted average
outstanding common shares 3,247,146 3,250,746
===================
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
MARCH 31 DECEMBER 31
1996 1995
ASSETS ----------------------
Utility plant $ 327,051 324,098
Less accumulated depreciation 102,192 100,000
----------------------
Net utility plant 224,859 224,098
Nonutility property 6,597 6,624
Current assets:
Cash and equivalents 5,121 7,414
Temporary investments 7,399 4,300
Accounts receivable and accrued revenue 7,308 8,499
Prepaid expenses and other 971 1,238
----------------------
20,799 21,451
Other assets:
Investment in California Water Service Co. 19,249 18,012
Debt issuance and reacquisition costs 4,259 4,283
Regulatory asset 3,628 3,551
Goodwill 2,234 2,256
Other 281 222
----------------------
Total other assets 29,651 28,324
----------------------
$ 281,906 280,497
======================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 10,139 10,159
Additional paid-in capital 21,971 22,208
Retained earnings 76,247 76,569
Unrealized gain (loss) on investment 649 (82)
----------------------
Total common shareholders' equity 109,006 108,854
Long-term debt, less current maturities 76,500 76,500
----------------------
Total capitalization 185,506 185,354
Current liabilities:
Current maturities of long-term debt 1,000 1,000
Accounts payable 733 690
Accrued interest 1,742 2,179
Accrued pump taxes and purchased water 2,825 3,742
Income taxes payable 1,286 447
Postretirement benefits 132 132
Other current liabilities 2,680 2,570
----------------------
Total current liabilities 10,398 10,760
Deferred income taxes and tax credits 16,404 15,743
Other noncurrent liabilities 2,706 2,508
Advances for and contributions in aid
of construction 66,892 66,132
----------------------
$ 281,906 280,497
======================
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
THREE MONTHS ENDED
MARCH 31
1996 1995
Operating activities: ----------------
Net income $ 1,480 844
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,133 1,923
Deferred income taxes and credits 153 252
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue 1,191 1,742
Prepaid expenses and other 267 2,772
Accounts payable and other
current liabilities 153 (314)
Accrued pump taxes and purchased water (917) (1,257)
Income taxes payable 839 237
Accrued interest (437) (686)
Other changes, net (90) (845)
----------------
Net cash provided by operating activities 4,772 4,668
----------------
Investing activities:
Additions to utility plant (3,120) (2,937)
Additions to nonutility property (3) (79)
Cost to retire utility plant (20) (129)
(Purchase) sale of temporary investments (3,099) 0
Net cash proceeds from sale of machine shop 0 1,954
----------------
Net cash used in investing activities (6,242) (1,191)
----------------
Financing activities:
Dividends paid (1,802) (1,755)
Line of credit 0 (1,000)
Advances and contributions in aid of
construction 1,190 507
Refunds of advances (211) (219)
----------------
Net cash used in financing activities (823) (2,467)
----------------
Net change in cash and equivalents (2,293) 1,010
----------------
Cash and equivalents, beginning of period 7,414 1,277
----------------
Cash and equivalents, end of period $ 5,121 2,287
================
Supplemental disclosures of cash flow information:
Cash paid (credited) during period for:
Interest $ 1,963 2,069
Income taxes $ 166 (1,294)
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1996
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 1995 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 November 1, 1996, San Jose Water Company will redeem
at maturity its 6.5% Series O first mortgage bonds in the
amount of $1,000,000.
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 March 31, 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 1996 are estimated at
$15,203,700. For the five year period from 1996 to 2000,
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
928,000 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 Corp. also owns 549,976 shares of California Water
Service Company acquired through the liquidation of W P
Shell Corporation, formerly a 100% owned subsidiary of
SJW Corp.
Results of Operations:
Overview
SJW Corp.'s consolidated net income for the first quarter
of 1996 was $1,480,000, an increase of 75% from $844,000
in the first quarter of 1995. The increase in
consolidated net income is due primarily to decreased
water production expense and increased water consumption.
Operating Revenue
The change in consolidated operating revenue from the
same period in 1995 is due to the following factors:
Three months ended
Operating revenue March 31, 1996 vs. 1995
-----------------------
Increase/(decrease)
_____________________________________________________
Utility:
Consumption $ 1,181,000 6.5%
New customers 32,000 0.2
Real estate 44,000 0.2
Other Operations (1,051,000) (5.8)
$ 206,000 1.1%
=========== =====
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 1995 is due to the
following:
Three months ended March 31,
Operating Expense 1996 vs. 1995
Increase/(decrease)
Operation and maintenance $(1,070,000) (6.8)%
Depreciation 210,000 1.3
General Taxes (49,000) (0.3)
$ (909,000) (5.8)%
=========== ====
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 $440,000, or 73%, in
comparison to the third quarter of 1995.
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. The first quarter is normally the quarter
with the lowest average usage per metered customer and
not indicative of the results for the calendar year.
Average usage per metered customer in the first quarter
of 1996 increased 9% from the first quarter of 1995.
Water Supply
On May 1, 1996, Santa Clara Valley Water District's 10
reservoirs were 90% full with 153,000 acre feet of water
in storage -- which is above average for the past 20
years. The heavy rainfall in the winter of 1996 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
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%.
In March 1996, the Administrative Law Judge has rendered
a proposed decision on the rate increase application of
San Jose Water Company. The proposed decision granted
San Jose Water Company a 10% return on common equity,
which is significantly below the industry's average. San
Jose Water Company have met with the Commissioners and
persuaded them to render San Jose Water Company a more
favorable return on common equity. If successful, San
Jose Water Company expects to have rate relief in the
early summer of 1996.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Valley Title Company
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 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, and therefore
the company will aggressively resist any demand for
contribution.
The jury awarded the title company $3 million for its
loss of files, 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.
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 authorized 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.
Trial is scheduled to begin in June 1996. 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 4. Submission of Matters to a Vote of Security Holders
At the 1996 Annual Meeting of Shareholders of the company
held on April 18, 1996, nine directors were re-elected to
the Board of Directors and the appointment of KPMG Peat
Marwick, LLP as independent auditors for 1996 was
ratified by the following votes:
Name of Director Votes for Votes against
_______________________________________________________
Mark L. Cali 2,899,625 11,635
J. Philip DiNapoli 2,901,779 9,481
Drew Gibson 2,899,847 11,413
Ronald R. James 2,896,868 14,392
George Moss 2,898,408 12,852
Roscoe Moss, Jr. 2,898,408 12,852
W. Richard Roth 2,903,452 7,808
Charles J. Toeniskoetter 2,898,201 13,059
J. W. Weinhardt 2,902,851 8,409
Ratification of appointment of independent auditors for
1996:
Votes for Votes against Votes
Appointment Appointment Abstaining
____________________________________________________
2,888,558 10,878 11,824
Item 5. OTHER INFORMATION
On April 18, 1996, the Board of Directors declared the
regular quarterly dividend of $.555 per common share.
The dividend will be paid June 1, 1996 to shareholders of
record as of the close of business on May 1, 1996.
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 March 31, 1996.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended March 31, 1996.
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: May 14, 1996 By /s/
_______________________
W. R. ROTH
Chief Financial Officer