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, 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 July 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 SIX MONTHS ENDED JUNE 30 JUNE 30 1996 1995 1996 1995 ------------------ ----------------- Operating revenue $ 28,005 23,780 46,450 42,019 Operating expense: Operation: Purchased water 6,109 5,936 8,767 9,239 Power 1,144 934 1,878 1,531 Pump taxes 4,063 2,666 6,866 4,728 Other 4,374 4,086 8,444 9,395 Maintenance 1,740 1,553 3,378 3,254 Property and other nonincome taxes 780 624 1,558 1,452 Depreciation 2,133 1,894 4,266 3,817 Income taxes 2,648 2,127 3,691 2,729 ---------------- ---------------- 22,991 19,820 38,848 36,145 ---------------- ---------------- Operating income 5,014 3,960 7,602 5,874 Other income 224 223 442 259 Dividend income 286 187 572 561 Interest and other charges (1,595) (1,376) (3,207) (2,855) ---------------- ---------------- Net income $ 3,929 2,994 5,409 3,839 ================ ================ Earnings per share of common stock $ 1.21 0.92 1.67 1.18 ================ ================ Dividends per share of common stock $ 0.555 0.54 1.11 1.08 ================ ================ Weighted average outstanding common shares 3,244,547 3,250,746 3,245,847 3,250,746 =================== =================== SJW CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (In thousands) JUNE 30 DECEMBER 31 1996 1995 ASSETS ---------------------- Utility plant $ 332,561 324,098 Less accumulated depreciation 104,253 100,000 ---------------------- Net utility plant 228,308 224,098 Nonutility property 6,568 6,624 Current assets: Cash and equivalents 10,061 7,414 Temporary investments 3,316 4,300 Accounts receivable and accrued revenue 12,156 8,499 Prepaid expenses and other 1,386 1,238 ---------------------- Total current assets 26,919 21,451 Other assets: Investment in California Water Service Co. 19,249 18,012 Debt issuance and reacquisition costs 4,220 4,283 Regulatory asset 3,614 3,551 Goodwill 2,213 2,256 Other 395 222 ---------------------- Total other assets 29,691 28,324 ---------------------- $ 291,486 280,497 ====================== CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 10,139 10,159 Additional paid-in capital 21,971 22,208 Retained earnings 78,376 76,569 Unrealized gain (loss) on investment 649 (82) ---------------------- Total common shareholders' equity 111,135 108,854 Long-term debt, less current maturities 76,500 76,500 ---------------------- Total capitalization 187,635 185,354 Current liabilities: Current maturities of long-term debt 1,000 1,000 Accounts payable 691 690 Accrued interest 2,715 2,179 Accrued pump taxes and purchased water 5,693 3,742 Income taxes payable 3,517 447 Post retirement benefits 470 132 Other current liabilities 2,721 2,570 ---------------------- Total current liabilities 16,807 10,760 Deferred income taxes and tax credits 16,039 15,743 Other noncurrent liabilities 2,659 2,508 Advances for and contributions in aid of construction 68,346 66,132 ---------------------- $ 291,486 280,497 ====================== SJW CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (In thousands) SIX MONTHS ENDED JUNE 30 1996 1995 Operating activities: ---------------- Net income 5,409 3,839 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 4,266 3,817 Deferred income taxes and credits (212) 184 Changes in operating assets and liabilities: Accounts receivable and accrued revenue (3,657) (1,719) Prepaid expenses and other (148) 2,199 Accounts payable and other current liabilities 152 93 Accrued pump taxes and purchased water 1,951 237 Income taxes payable 3,070 2,251 Accrued interest 536 (10) Other changes, net 218 (577) ---------------- Net cash provided by operating activities 11,585 10,314 ---------------- Investing activities: Additions to utility plant (8,866) (7,088) Additions to nonutility property (4) (80) Cost to retire utility plant (101) (249) Temporary investments 984 0 Net cash proceeds from sale of machine shop 0 1,954 ---------------- Net cash used in investing activities (7,987) (5,463) ---------------- Financing activities: Dividends paid (3,602) (3,511) Line of credit 0 (3,000) Advances and contributions in aid of construction 3,234 2,608 Refunds of advances (583) (599) ---------------- Net cash used in financing activities (951) (4,502) ---------------- Net change in cash and equivalents 2,647 349 ---------------- Cash and equivalents, beginning of period 7,414 1,277 ---------------- Cash and equivalents, end of period $ 10,061 1,626 ================ Supplemental disclosures of cash flow information: Cash paid (credited) during period for: Interest $ 2,517 2,712 Income taxes $ 998 (1,057) SJW CORP. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 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: On November 1, 1996, San Jose Water Company will redeem in maturity Series O 6.5% First Mortgage Bonds in the amount of $1,000,000 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, 1996, San Jose Water Company had an available unused short-term bank line 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 2000, 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 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 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. Results of Operations: Overview SJW Corp.'s consolidated net income for the second quarter of 1996 was $3,929,000, an increase of 31% from $2,994,000 in the second quarter of 1995. The increase in consolidated net income was due primarily to increased customer usage and the availability of additional surface water. Operating Revenue The change in consolidated operating revenue from the same period in 1995 was due to the following factors: Three months ended June 30, Operating revenue 1996 vs. 1995 ________________________ Increase/(decrease) ___________________________________________________ Utility: Consumption $ 4,152,000 17% New customers 133,000 1% Parking (60,000) -- ___________ ___ $ 4,225,000 18% =========== === Operating expense The change in consolidated operating expense, excluding income taxes, from the same period in 1995 was due to the following: Three months ended June 30, Operating Expense 1996 vs. 1995 _______________________ Increase/(decrease) __________________________________________________ Operation and maintenance $ 2,255,000 13% Depreciation 239,000 1% General Taxes 156,000 1% ___________ ____ $ 2,650,000 15% =========== ==== The increase in operation and maintenance expense was primarily due to increased water production costs from higher water consumption. Income tax expense increased $521,000 which is 25% in comparison to the second 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 immediate preceding quarter would not be meaningful. Average usage per metered customer in the second quarter of 1996 increased 23% from the second quarter of 1995. Water Supply On August 1, 1996, Santa Clara Valley Water District's 10 reservoirs were 73% full with 124,562 acre feet of water in storage -- which is above average for the past 20 years. As of August 1, 1996, the water level in the Santa Clara groundwater 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 a .95%, 2.1%, 1.45% and 1.45% rate increase 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 the 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 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. Trial is scheduled to begin in August 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 5. OTHER INFORMATION On July 18, 1996, the Board of Directors declared the regular quarterly dividend of $.555 per common share. The dividend will be paid September 1, 1996 to shareholders of record as of the close of business on August 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 June 30, 1996. (b.) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter ended June 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: August 12, 1996 By /s/ _______________________ W. R. ROTH Chief Financial Officer