11
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, 1998
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)
408-279-7800
(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, 1998 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
1998 1997
-----------------------
Operating revenue $ 19,336 20,787
Operating expense:
Operation:
Purchased water 3,511 5,512
Power 488 315
Pump taxes 2,087 1,100
Other 4,518 4,355
Maintenance 1,755 1,966
Property taxes and other nonincome taxes 879 814
Depreciation and amortization 2,398 2,194
Income taxes 1,013 1,392
-----------------------
Total Operating Expenses 16,649 17,648
-----------------------
Operating income 2,687 3,139
Other income 120 187
Dividend income 294 290
Interest and other charges (1,575) (1,610)
-----------------------
Net income $ 1,526 2,006
-----------------------
Other Comprehensive Income (loss):
Unrealized loss on investment (2,715) (1,650)
Income taxes related to other
comprehensive loss 1,113 676
-----------------------
Other comprehensive loss, net (1,602) (974)
-----------------------
Comprehensive income (loss) $ (76) 1,032
=======================
Basic earnings per share $0.48 0.63
=======================
Comprehensive income (loss) per share $ (0.02) 0.33
=======================
Dividends per share of common stock $ 0.585 0.57
=======================
Weighted average shares outstanding 3,170,347 3,170,347
=======================
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands)
MARCH 31 DECEMBER 31
1998 1997
ASSETS --------------------
Utility plant $378,028 371,200
Less accumulated depreciation and 117,503 114,851
amortization --------------------
Net utility plant 260,525 256,349
Nonutility property 7,679 7,301
Current assets:
Cash and equivalents 973 3,832
Accounts receivable and accrued revenue 10,096 10,795
Prepaid expenses and other 923 1,231
--------------------
11,992 15,858
Other assets:
Investment in Calif. Water Service Group 29,768 32,483
Debt issuance and reacquisition costs 3,950 3,988
Regulatory assets 4,598 4,598
Goodwill 2,064 2,085
Other 710 561
--------------------
Total other assets 41,090 43,715
--------------------
$321,286 323,223
====================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,907 9,907
Additional paid-in capital 19,235 19,235
Retained earnings 95,625 95,954
Accumulated other comprehensive income 6,855 8,457
--------------------
Shareholders' equity 131,622 133,553
Long-term debt, less current maturities 75,000 75,000
--------------------
Total capitalization 206,622 208,553
Current liabilities:
Accounts payable 1,264 738
Accrued interest 1,644 2,657
Accrued pump taxes and purchased water 1,884 2,072
Income and nonincome taxes payable 1,716 581
Other current liabilities 2,578 2,892
--------------------
Total current liabilities 9,086 8,940
Deferred income taxes and tax credits 23,418 24,208
Other noncurrent liabilities 2,888 2,799
Advances for and contributions in aid
of construction 79,272 78,723
--------------------
$321,286 323,223
====================
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
THREE MONTHS ENDED
MARCH 31
1998 1997
Operating activities: -----------------
Net income $ 1,526 2,006
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,398 2,194
Deferred income taxes and credits (790) (366)
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue 699 (980)
Prepaid expenses and other 308 197
Accounts payable and other
current liabilities 212 200
Accrued pump taxes and purchased water (188) 813
Income and nonincome taxes payable 1,135 1,475
Accrued interest (1,013) (989)
Other changes, net 787 859
-----------------
Net cash provided by operating activities 5,074 5,409
-----------------
Investing activities:
Additions to utility plant (6,908) (4,334)
Cost to retire utility plant 43 (61)
-----------------
Net cash used in investing activities (6,865) (4,395)
-----------------
Financing activities:
Dividends paid (1,855) (1,807)
Advances and contributions in aid of
construction 978 2,208
Refunds of advances (191) (206)
----------------
Net cash provided by (used in) financing
activities (1,068) 195
-----------------
Net change in cash and equivalents (2,859) 1,209
-----------------
Cash and equivalents, beginning of period 3,832 11,904
-----------------
Cash and equivalents, end of period $ 973 13,113
=================
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 2,500 2,500
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1998
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 1997 Annual
Report on Form 10-K should be read with the accompanying
condensed consolidated financial statements.
NOTE II - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosures About Segments of an Enterprise and
Related Information. SFAS No. 131 establishes standards
for reporting information about operating segments in
annual financial statements and requires selected
information about operating segments in interim financial
reports issued to shareholders. SJW Corp. adopted SFAS
No. 131 on January 1, 1998. The adoption of SFAS No. 131
did not have a material effect on the corporation's
financial condition and results of operation.
In February 1998, the Financial Accounting Standards
Board issued SFAS No. 132, Employer's Disclosures about
Pensions and Other Postretirement Benefits. SFAS No. 132
standardizes the disclosure requirements for pensions and
other postretirement benefits. SJW Corp. will adopt SFAS
132 by December 31, 1998. The adoption of SFAS 132 will
not have any material impact on the financial condition
and results of operation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
SJW Corp. and its subsidiaries have available 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, 1998, SJW Corp. had available an unused short-term
bank line of credit of $20,000,000.
San Jose Water Company plans to issue $20 million of
unsecured 30-year senior notes through private placement
in the fourth quarter of 1998. Proceeds from the sale of
the unsecured notes will be used to repay short-term
borrowings, and fund construction expenditures through
the first half of 1999.
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 1998 are estimated at
$20,300,000. For the five-year period from 1998 to 2002,
San Jose Water Company's net capital expenditures are
estimated to aggregate $110,000,000. 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
965,000 people in the metropolitan San Jose area.
For a one-time concession fee of $6,800,000, San Jose
Water Company acquired a 25-year lease to operate the
City of Cupertino's water utility effective October 1,
1997. San Jose Water Company assumed responsibility for
all maintenance, operating and capital costs, while
receiving all payments for water service.
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 1,099,952 shares of California Water
Service Group (formerly California Water Service
Company).
Results of Operations:
Overview
SJW Corp.'s consolidated net income for the first quarter
of 1998 was $1,526,000, a decrease of 24% from $2,006,000
in the first quarter of 1997. The decrease in
consolidated net income is due primarily to decreased
water consumption as a result of mild weather.
Operating Revenue
San Jose Water Company's first quarter 1998 operating
revenue includes revenue from operating the City of
Cupertino Municipal Water System.
The change in consolidated operating revenue from the
same period in 1997 is due to the following factors:
Three months ended
Operating Revenue March 31, 1998 vs. 1997
-------------------------
Increase/(decrease)
-----------------------------------------------------
Utility:
Consumption $(1,817,000) (8.7%)
New customers 37,000 0.2
New rates 68,000 0.3
Cupertino lease 350,000 1.6
Real estate (89,000) (0.4)
---------------------------------------------------
$(1,451,000) (7.0%)
=========== =====
Operating Expense
The change in consolidated operating expense, excluding
income taxes, from the same period in 1997 is due to the
following:
Three months ended
Operating Expense March 31, 1998 vs. 1997
------------------------
Increase/(decrease)
----------------------------------------------------
Operation and maintenance $(889,000) (5.5)%
Depreciation 204,000 1.3
General taxes 65,000 0.4
----------------------------------------------------
$(620,000) (3.8)%
======== =====
San Jose Water Company's first quarter 1998 operation and
maintenance expense includes expense from operating the
City of Cupertino Municipal Water System. The decrease in
operation and maintenance expense is due primarily to
decreased water production costs resulting from the
decrease in customer water consumption.
Income tax expense decreased $379,000, or 27%, in
comparison to the first quarter of 1997.
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 1998 decreased 12% from the first quarter of 1997.
Water Supply
On April 27, 1998, Santa Clara Valley Water District's
ten storage reservoirs were 97% full with 164,849 acre
feet of water, which is above average for the past 20
years. The heavy rainfall in the winter of 1998
maintained an above average surface water supply for 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 9.25% for the years 1997 through
1999 reflecting a return on common equity of 10.2%. The
increases for 1998 and 1999 are to offset operational and
financial attrition.
On January 1, 1998, San Jose Water Company was approved
for a step rate increase in the amount of $1,141,000 or
1%.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 in the lawsuit filed to challenge
the ordinance. The City has appealed 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 1998 Annual Meeting of Shareholders of the company
held on April 16, 1998, nine directors were re-elected to
the Board of Directors and the appointment of KPMG Peat
Marwick LLP as independent auditors for 1998 was ratified
by the following votes:
Name of Director Votes for Votes against
----------------------------------------------------
Mark L. Cali 2,850,758 5,935
J. Philip DiNapoli 2,851,211 5,482
Drew Gibson 2,851,413 5,280
Ronald R. James 2,850,559 6,134
George Moss 2,851,295 5,398
Roscoe Moss, Jr. 2,851,195 5,498
W. Richard Roth 2,852,165 4,528
Charles J. Toeniskoetter 2,851,388 5,305
J.W. Weinhardt 2,851,963 4,730
Ratification of appointment of independent auditors for
1998:
Votes for Votes against Votes
Appointment Appointment Abstaining
____________________________________________________
2,836,000 7,441 13,252
ITEM 5. OTHER INFORMATION
On April 16, 1998, the Board of Directors declared the
regular quarterly dividend of $.585 per common share.
The dividend will be paid June 1, 1998 to shareholders of
record as of the close of business on May 1, 1998.
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, 1998.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter ended March 31, 1998.
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, 1998 By /s/
ANGELA YIP
Chief Financial Officer