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, 1997
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, 1997 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
MARCH 31
1997 1996
------------------
Operating revenue $ 20,787 18,445
Operating expense:
Operation:
Purchased water 5,512 2,658
Power 315 735
Pump taxes 1,100 2,803
Other 4,355 4,069
Maintenance 1,966 1,638
Property and other
nonincome taxes 814 778
Depreciation 2,194 2,133
Income taxes 1,392 1,043
------------------
Total Operating Expenses 17,648 15,857
------------------
Operating income 3,139 2,588
Other income 187 218
Dividend income 290 286
Interest and other charges (1,610) (1,612)
----------------
Net income $ 2,006 1,480
=================
Earnings per share of
common stock $ 0.63 0.46
================
Dividends per share
of common stock $ 0.57 0.555
================
Weighted average
outstanding common shares 3,170,347 3,247,146
====================
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
MARCH 31 DECEMBER 31
1997 1996
ASSETS ------------------------
Utility plant $346,431 342,368
Less accumulated depreciation 109,724 107,584
------------------------
Net utility plant 236,707 234,784
Nonutility property 7,257 7,287
Current assets:
Cash and equivalents 13,113 11,904
Accounts receivable and accrued revenue 8,727 7,747
Prepaid expenses and other 1,022 1,219
----------------------
22,862 20,870
Other assets:
Investment in California Water Service Co. 21,449 23,099
Debt issuance and reacquisition costs 4,104 4,143
Regulatory asset 3,707 3,711
Goodwill 2,149 2,170
Other 535 472
-----------------------
Total other assets 31,944 33,595
------------------------
$298,770 296,536
=========================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,907 9,907
Additional paid-in capital 19,235 19,235
Retained earnings 88,165 87,966
Unrealized gain (loss) on investment 1,947 2,920
----------------------
Total common shareholders' equity 119,254 120,028
Long-term debt, less current maturities 75,000 75,000
------------------------
Total capitalization 194,254 195,028
Current liabilities:
Current maturities of long-term debt 1,500 1,500
Accounts payable 520 315
Accrued interest 1,676 2,665
Accrued pump taxes and purchased water 2,805 1,992
Income and nonincome taxes payable 1,671 196
Other current liabilities 2,281 2,286
-----------------------
Total current liabilities 10,453 8,954
Deferred income taxes and tax credits 18,051 18,417
Other noncurrent liabilities 3,064 2,961
Advances for and contributions in aid
of construction 72,948 71,176
-------------------------
$298,770 296,536
=========================
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
THREE MONTHS ENDED
MARCH 31
1997 1996
Operating activities: ----------------
Net income $ 2,006 1,480
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,194 2,133
Deferred income taxes and credits (366) 153
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue (980) 1,191
Prepaid expenses and other 197 267
Accounts payable and other
current liabilities 200 (154)
Accrued pump taxes and purchased water 813 (917)
Income and nonincome taxes payable 1,475 1,146
Accrued interest (989) (437)
Other changes, net 859 (90)
----------------
Net cash provided by operating activities 5,409 4,772
----------------
Investing activities:
Additions to utility plant (4,334) (3,120)
Additions to nonutility property 0 (3)
Cost to retire utility plant (61) (20)
(Purchase) sale of temporary investments 0 (3,099)
----------------
Net cash used in investing activities (4,395) (6,242)
----------------
Financing activities:
Dividends paid (1,807) (1,802)
Advances and contributions in aid of
construction 2,208 1,190
Refunds of advances (206) (211)
----------------
Net cash provided by (used in) financing activities 195 (823)
----------------
Net change in cash and equivalents 1,209 (2,293)
----------------
Cash and equivalents, beginning of period 11,904 7,414
----------------
Cash and equivalents, end of period $13,113 5,121
===================
Supplemental disclosures of cash flow information:
Cash paid (credited) during period for:
Interest $ 2,500 1,963
Income taxes $ 0 166
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1997
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 1996 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 June 1, 1997, San Jose Water Company will redeem at
maturity its 6.5% Series P first mortgage bonds in the
amount of $1,500,000. Upon redemption of series P first
mortgage bonds, San Jose Water Company will have retired
all remaining first mortgage bonds. San Jose Water
Company intends to satisfy all foreseeable future long-
term financing needs with senior notes.
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, 1997, 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
in order to comply with environmental regulations. Net
capital expenditures for 1997 are estimated at
$18,000,000. For the five year period from 1997 to 2001,
San Jose Water Company's net capital expenditures are
estimated to aggregate $100,000,000. 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
944,000 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 1997 was $2,006,000, an increase of 36% from
$1,480,000 in the first quarter of 1996. The increase in
consolidated net income is due primarily to increased
water consumption.
Operating Revenue
The change in consolidated operating revenue from the
same period in 1996 is due to the following factors:
Three months ended
Operating revenue March 31, 1997 vs. 1996
-----------------------
Increase/(decrease)
____________________________________________________
Utility:
Consumption $ 1,636,000 8.9%
New customers 76,000 0.4
New rates 497,000 2.7
Real estate 133,000 0.7
$ 2,342,000 12.7%
=========== =====
Operating expense
The change in consolidated operating expense, excluding
income taxes, from the same period in 1996 is due to the
following:
Three months ended March 31,
Operating Expense 1997 vs. 1996
Increase/(decrease)
Operation and maintenance $ 1,345,000 9.1%
Depreciation 61,000 0.4
General taxes 36,000 0.2
$ 1,442,000 9.7%
=========== ====
The increase in operation and maintenance expense is due
primarily to increased water production costs resulting
from the increase in customer water consumption. The
higher water production costs are, however, partially
offset by the greater surface water supplies available
and the reduced per unit purchased water and purchased
power cost.
Income tax expense increased $349,000, or 34%, in
comparison to the first quarter of 1996.
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 is
not indicative of the results for the calendar year.
Average usage per metered customer in the first quarter
of 1997 increased 11% from the first quarter of 1996.
Water Supply
On May 5, 1997, Santa Clara Valley Water District's 10
storage reservoirs were 84% full with 143,000 acre feet
of water, which is above average for the past 20 years.
The heavy rainfall in the winter of 1997 maintained an
above average surface water supply 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 an average
annual rate increase of 1.25% through 1999 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.
On January 9, 1997, San Jose Water Company was approved
for a step rate increase in the amount of $1,212,000 or
1%.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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.
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 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 March, 1997, 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 passage of the ordiance will have a material effect
on its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
At the 1997 Annual Meeting of Shareholders of the company
held on April 17, 1997, nine directors were re-elected to
the Board of Directors and the appointment of KPMG Peat
Marwick, LLP as independent auditors for 1997 was
ratified by the following votes:
Name of Director Votes for Votes against
_______________________________________________________
Mark L. Cali 2,904,894 10,083
J. Philip DiNapoli 2,825,070 89,907
Drew Gibson 2,905,867 9,110
Ronald R. James 2,904,433 10,544
George Moss 2,905,313 9,664
Roscoe Moss, Jr. 2,905,213 9,764
W. Richard Roth 2,906,299 8,678
Charles J. Toeniskoetter 2,905,767 9,210
J.W. Weinhardt 2,905,999 8,978
Ratification of appointment of independent auditors for
1997:
Votes for Votes against Votes
Appointment Appointment Abstaining
____________________________________________________
2,763,950 137,001 14,026
Item 5. OTHER INFORMATION
On April 17, 1997, the Board of Directors declared the
regular quarterly dividend of $.57 per common share. The
dividend will be paid June 1, 1997 to shareholders of
record as of the close of business on May 1, 1997.
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, 1997.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended March 31, 1997.
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 13, 1997 By /s/
_______________________
ANGELA YIP
Chief Financial Officer