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, 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 November 12, 1996 and as of the
date of this report are 3,170,347.
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
1996 1995 1996 1995
------------------ -----------------
Operating revenue $ 33,387 32,004 79,837 74,023
Operating expense:
Operation:
Purchased water 7,081 6,427 15,848 15,666
Power 1,695 1,866 3,573 3,397
Pump taxes 5,470 5,584 12,336 10,312
Other 4,470 4,368 12,914 13,763
Maintenance 1,658 1,496 5,036 4,750
Property and other
nonincome taxes 800 780 2,358 2,232
Depreciation 2,133 1,905 6,399 5,722
Income taxes 3,654 3,595 7,345 6,324
---------------- ----------------
Total operating expenses 26,961 26,021 65,809 62,166
---------------- ----------------
Operating income 6,426 5,983 14,028 11,857
Gain on sale of non-utility
property, net of tax 5,269 0 5,269 0
Other income 212 147 654 406
Dividend income 286 280 858 841
Interest and other charges (1,614) (1,284) (4,821) (4,139)
---------------- ----------------
Net income $ 10,579 5,126 15,988 8,965
================ ================
Earnings per share of
common stock $ 3.26 1.58 4.93 2.76
================ ================
Dividends per share
of common stock $ 0.555 .54 1.665 1.62
================ ================
Weighted average
outstanding common shares 3,244,547 3,250,746 3,245,413 3,250,746
=================== ===================
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
SEPTEMBER 30 DECEMBER 31
1996 1995
ASSETS ----------------------
Utility plant $ 337,813 324,098
Less accumulated depreciation 106,125 100,000
----------------------
Net utility plant 231,688 224,098
Nonutility property 7,313 6,624
Current assets:
Cash and equivalents 15,533 7,414
Temporary investments 3,825 4,300
Accounts receivable and accrued revenue 12,128 8,499
Prepaid expenses and other 1,401 1,238
----------------------
32,887 21,451
Other assets:
Investment in California Water Service Co. 20,968 18,012
Debt issuance and reacquisition costs 4,181 4,283
Regulatory asset 3,614 3,551
Goodwill 2,192 2,256
Other 611 222
----------------------
Total other assets 31,566 28,324
----------------------
$ 303,454 280,497
======================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 10,139 10,159
Additional paid-in capital 21,971 22,208
Retained earnings 87,155 76,569
Unrealized gain ( loss )on investment 1,663 (82)
----------------------
Total common shareholders' equity 120,928 108,854
Long-term debt, less current maturities 76,500 76,500
----------------------
Total capitalization 197,428 185,354
Current liabilities:
Current maturities of long-term debt 1,000 1,000
Accounts payable 571 690
Accrued interest 1,706 2,179
Accrued pump taxes and purchased water 3,874 3,742
Income taxes payable 4,894 447
Postretirement benefits 470 132
Other current liabilities 3,519 2,570
----------------------
Total current liabilities 16,034 10,760
Deferred income taxes and tax credits 16,456 15,743
Other noncurrent liabilities 2,969 2,508
Advances for and contributions in aid
of construction 70,567 66,132
----------------------
$ 303,454 280,497
======================
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
Operating activities: ----------------
Net income $ 15,988 8,965
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,399 5,722
Deferred income taxes and credits 713 (114)
Gain on sale of non-utility property (7,424) 0
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (3,629) (3,540)
Prepaid expenses and other (163) 2,519
Accounts payable and other
current liabilities 830 939
Accrued pump taxes and purchased water 132 2,516
Income taxes payable 4,447 3,377
Accrued interest (473) (708)
Other changes, net (840) (302)
----------------
Net cash provided by operating activities 15,980 19,374
----------------
Investing activities:
Additions to utility plant (14,542) (11,857)
Additions to nonutility property (1,065) (79)
Cost to retire utility plant (184) (433)
Temporary investments 475 0
Net cash proceeds from sale of non-utility
property 7,767 0
Net cash proceeds from sale of machine shop 0 1,954
----------------
Net cash used in investing activities (7,549) (10,415)
----------------
Financing activities:
Dividends paid (5,403) (5,266)
Line of credit 0 (4,800)
Advances and contributions in aid of
construction 6,106 4,601
Refunds of advances (1,015) (1,026)
----------------
Net cash used in financing activities (312) (6,491)
----------------
Net change in cash and equivalents 8,119 2,468
----------------
Cash and equivalents, beginning of period 7,414 1,277
----------------
Cash and equivalents, end of period $ 15,533 3,745
================
Supplemental disclosures of cash flow information:
Cash paid (credited) during period for:
Interest $ 5,053 4,692
Income taxes $ 5,843 1,756
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 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:
San Jose Water Company redeemed its 6.5% Series O first
mortgage bonds in the amount of $1,000,000 on November 1,
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, 1996, 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
$15,204,000. For the five year period from 1996 to 1999,
San Jose Water Company's net capital expenditures are
estimated to aggregate $90,000,000. 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.
Results of Operations:
Overview
SJW Corp.'s consolidated net income for the third quarter
of 1996 was $10,579,000, an increase of 106% from
$5,126,000 in the third quarter of 1995. The increase in
consolidated net income is due primarily to the inclusion
of $5,269,000 of post-tax gain on sale of non-utility
property by SJW Land Company.
Earnings for the nine months of 1996 are favorably
impacted by the increase in customer consumption and the
inclusion of gain on sale of non-utility property
reported in the third quarter.
Operating Revenue
The change in consolidated operating revenue from the
same period in 1995 is due to the following factors:
Three months Nine Months
Operating revenue ended September 30, 1996 vs. 1995
Increase/(decrease)
________________________________________________________
Utility:
Consumption $ 821,000 2.6% 6,154,000 8.3%
New customers 116,000 0.3 281,000 0.3
New rates 411,000 1.3 411,000 0.6
Other 35,000 0.1 (1,032,000) (1.4)
$1,383,000 4.3% 5,814,000
7.8%
========== ==== ========= ====
Average usage per metered customer in the third quarter
of 1996 increased 3% from the third quarter of 1995.
Year-to-date metered customer usage increased 11% over
the same period in 1995. Year-to-date other revenue
decreased mainly 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 Nine months
Operating Expense ended September 30, 1996 vs. 1995
Increase/(decrease)
Operation and
maintenance $ 633,000 2.8% 1,818,000 3.3%
Depreciation 228,000 1.0 677,000 1.2
General Taxes 20,000 0.1 127,000 0.2
$ 881,000 3.9% 2,622,000 4.7%
=========== ==== ========= ====
The higher operation and maintenance expense are
attributable to increased water production cost due to
higher water consumption. The increase in production
cost is partially offset by lower purchased power cost
and higher surface water availability.
Other
In September 1996, SJW Land Company sold non-utility
property receiving as consideration $6,750,000 and a
parcel of non-utility property valued at $1,050,000. The
transaction resulted in a gain of $5,269,000 net of
income tax expenses of $2,214,000, or $1.62 per share.
Income tax expense, including $2,214,000 of income taxes
on the gain on sale of non-utility property, increased
$2,273,000, or 63%, in comparison to the third quarter of
1995. Year-to-date income taxes increased $3,234,000, or
51% for similar reasons.
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 1996
may not be indicative of results for the full year.
Water Supply
On November 4, 1996, Santa Clara Valley Water District's
10 reservoirs were 54% full with 92,618 acre feet of
water in storage -- which is above average for the past
20 years. While at the same time, the water level in the
Santa Clara ground water basin exceeded the 30-year
average. The heavy rainfall in January and March 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
The Public Utilities Commission of California rendered a
rate decision on July 17, 1996, approving .95%, 2.1%,
1.45% and 1.45% rate increases for 1996, 1997, 1998, and
1999, respectively, for San Jose Water Company. These
rate increases are based on rates of return on ratebase
of 9.28% and 9.25% for the years 1996 and 1997,
respectively, reflecting a return on common equity of
10.2%. The increases for 1998 and 1999 are to offset
operational and financial attrition. Included in the
rate increase is recovery of the voluntary conservation
memorandum account for the period of March 1993 to
February 1994 when San Jose Water Company experienced
residual voluntary water conservation from an earlier
water use restriction.
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's 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. Therefore, the
company will aggressively resist any demand for
contribution.
The jury awarded the title company $3 million for its
loss of records, 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
with the California Public Utilities Commission
requesting authorization to collect the new franchise fee
from its customers, San Jose Water Company, with the
concurrence of the Division of Ratepayer Advocates,
decided to ask the Commission for 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.
In September 1996, a judgment in favor of San Jose Water
Company was rendered. It is unknown whether the City will
appeal the decision. San Jose Water Company does not
believe, based upon all available information, that the
outcome of this event will have a material effect on its
financial position.
Item 5. OTHER INFORMATION
On October 17, 1996, the Board of Directors declared the
regular quarterly dividend of $.555 per common share.
The dividend will be paid December 1, 1996 to
shareholders of record as of the close of business on
November 1, 1996.
On October 30, 1996, SJW Corp. repurchased 74,200 shares,
or 2%, of its common stock at prevailing market price
from a stockholder for an aggregate cost of $2,968,000.
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,
1996.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended September 30, 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: November 12, 1996 By /s/
_______________________
Angela Yip
Chief Financial Officer