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 June 30, 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 July 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 SIX MONTHS ENDED JUNE 30 JUNE 30 1997 1996 1997 1996 ------------------------------------------ Operating revenue $ 31,554 28,005 52,341 46,450 Operating expense: Operation: Purchased water 7,663 6,109 13,175 8,767 Power 1,167 1,144 1,482 1,878 Pump taxes 3,996 4,063 5,096 6,866 Other 4,330 4,374 8,685 8,444 Maintenance 1,608 1,740 3,574 3,378 Property and other nonincome taxes 851 780 1,665 1,558 Depreciation 2,195 2,133 4,389 4,266 Income taxes 3,571 2,648 4,963 3,691 Total Operating Expenses 25,381 22,991 43,029 38,848 Operating income 6,173 5,014 9,312 7,602 Other income 212 224 399 442 Dividend income 290 286 580 572 Interest and other charges (1,551) (1,595) (3,161) (3,207) Net income $ 5,124 3,929 7,130 5,409 Earnings per share of common stock $ 1.62 1.21 2.25 1.67 Dividends per share of common stock $0.57 0.555 1.14 1.11 Weighted average outstanding common shares 3,170,347 3,244,547 3,170,347 3,245,847 ========= ========= ========= ========= SJW CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (In thousands) JUNE 30 DECEMBER 31 1997 1996 ASSETS ---------- ----------- Utility plant $ 351,490 342,368 Less accumulated depreciation 111,537 107,584 Net utility plant 239,953 234,784 Nonutility property 7,305 7,287 Current assets: Cash and equivalents 13,798 11,904 Accounts receivable and accrued revenue 12,419 7,747 Prepaid expenses and other 1,707 1,219 Total current assets 27,924 20,870 Other assets: Investment in California Water Service Co. 24,336 23,099 Debt issuance and reacquisition costs 4,065 4,143 Regulatory asset 3,711 3,711 Goodwill 2,128 2,170 Other 532 472 Total other assets 34,772 33,595 309,954 296,536 ======= ======= CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 9,907 9,907 Additional paid-in capital 19,235 19,235 Retained earnings 91,482 87,966 Unrealized gain (loss) on investment 3,650 2,920 Total common shareholders' equity 124,274 120,028 Long-term debt, less current maturities 75,000 75,000 Total capitalization 199,274 195,028 Current liabilities: Current maturities of long-term debt - 1,500 Accounts payable 814 315 Accrued interest 2,657 2,665 Accrued pump taxes and purchased water 4,107 1,992 Income and nonincome taxes payable 3,478 196 Other current liabilities 3,358 2,286 Total current liabilities 14,414 8,954 Deferred income taxes and tax credits 19,573 18,417 Other noncurrent liabilities 3,186 2,961 Advances for and contributions in aid of construction 73,507 71,176 $ 309,954 296,536 ========= ======= SJW CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands) SIX MONTHS ENDED JUNE 30 1997 1996 ------- ------ Operating activities: Net income $ 7,130 5,409 Adjustments to reconcile net income to net Cash provided by operating activities: Depreciation 4,389 4,266 Deferred income taxes and credits 1,156 (212) Changes in operating assets and liabilities: Accounts receivable and accrued revenue (4,672) (3,657) Prepaid expenses and other (488) (148) Accounts payable and other current liabilities 1,571 152 Accrued pump taxes and purchased water 2,115 1,951 Income and nonincome taxes payable 3,282 3,070 Accrued interest (8) 536 Other changes, net (67) 218 Net cash provided by operating activities 14,408 11,585 Investing activities: Additions to utility plant (9,917) (8,866) Additions to nonutility property (78) (4) Cost to retire utility plant (196) (101) Temporary investments 0 984 Net cash used in investing activities (10,191) (7,987) Financing activities: Dividends paid (3,614) (3,602) Retirement of long-term debt (1,500) 0 Advances and contributions in aid of construction 3,390 3,234 Refunds of advances (599) (583) Net cash used in financing activities (2,323) (951) Net change in cash and equivalents 1,894 2,647 Cash and equivalents, beginning of period 11,904 7,414 Cash and equivalents, end of period $13,798 10,061 Supplemental disclosures of cash flow information: Cash paid during period for: Interest $ 3,021 2,517 Income taxes $ 910 998 SJW CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 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 redeemed at maturity Series P 6.5% First Mortgage Bonds in the amount of $1,500,000 plus accrued interest. 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. On June 30, 1997, San Jose Water Company had an available 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 1997 are estimated at $18,002,000. 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 nonregulated activities. SJW Corp. also owns 549,976 shares of California Water Service Company. 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. Results of Operations: Overview SJW Corp.'s consolidated net income for the second quarter of 1997 was $5,124,000, an increase of 30% from $3,929,000 in the second quarter of 1996. The increase in consolidated net income was due primarily to increased customer usage and rate increases. Operating Revenue The change in consolidated operating revenue from the same period in 1996 was due to the following factors: Three months ended Six months ended Operating revenue June 30, 1997 vs. 1996 June 30, 1997 vs.1996 Increase/(decrease) Increase/(decrease) -------------------------------------------------------------------- Utility: Consumption $2,047,000 7.3% $3,607,000 7.8% New rates 1,306,000 4.7 1,879,000 4.0 New customers 144,000 .5 220,000 .5 Parking 52,000 .2 185,000 .4 ---------- ----- ---------- ----- $3,549,000 12.7% $5,891,000 12.7% ========== ===== ========== ===== Operating expense The change in consolidated operating expense, excluding income taxes, from the same period in 1996 was due to the following: Three months ended Six months ended Operating Expense June 30, 1997 vs. 1996 June 30, 1997 vs. 1996 Increase/(decrease) Increase/(decrease) -------------------------------------------------------------------- Operation and maintenance $1,334,000 6.6% $2,679,000 7.6% Depreciation 62,000 .3 123,000 .4 General Taxes 71,000 .3 107,000 .3% ---------- ---- ---------- ---- $1,467,000 7.2 $2,909,000 8.3% ========== === ========== ==== The increase in operation and maintenance expense was primarily due to increased water production costs from higher water consumption. Income tax expense increased $923,000 which is 35% in comparison to the second quarter of 1996. Year-to-date income tax expense increased $1,272,000 over the same six month period of 1996. Since the water business is highly seasonal in nature, a comparison of the revenue and expense of the current quarter with the immediate preceding quarter would not be meaningful. Average usage per metered customer in the second quarter of 1997 increased 9% from the second quarter of 1996. Year-to-date average usage per metered customer increased 11% over 1996. Water Supply On August 5, 1997, Santa Clara Valley Water District's 10 reservoirs were 67% full with 113,576 acre feet of water in storage -- which is above average for the past 20 years. As of August 1, 1997, the water level in the Santa Clara groundwater basin exceeded the 30-year average. The heavy rainfall in January of 1997 provided above average 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 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. San Jose Water Company expects to 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. The City has appealed the decision. San Jose Water Company does not believe, based upon all available information, that the passage of the ordinance will have a material effect on its financial position. Item 5. OTHER INFORMATION On July 31, 1997, the Board of Directors declared the regular quarterly dividend of $.57 per common share. The dividend will be paid September 1, 1997 to shareholders of record as of the close of business on August 11, 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 June 30, 1997. (b.) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter ended June 30, 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: August 12, 1997 By /s/ Angela Yip Chief Financial Officer