SJW Corp. 10-Q Summary — Quarter Ended March 31, 2013
Issuer note: The filing is for SJW Corp., not H2O America as identified in the request metadata. SJW is a holding company with regulated and nonregulated water utility operations and commercial real estate activities. Amounts below are in thousands, except per-share data.
Financial results and liquidity
- Operating revenue was $50,139, down 2.0% from $51,149 a year earlier. Cooler California weather and reduced consumption drove a $3,323 decline in water revenue, partly offset by new customers, rate increases, and balancing and memorandum account revenue.
- Operating income was $5,773, down 14.2% from $6,725; operating margin was approximately 11.5%, versus 13.2%. Net income rose 18.8% to $1,317 from $1,109, reflecting a $1,063 gain on the sale of a Connecticut property. Diluted EPS was $0.07, compared with $0.06.
- Operating expenses were nearly flat at $44,366. Lower production costs, including greater use of surface water, were largely offset by higher administrative and general expense, depreciation, maintenance, and taxes. Administrative and general costs included nonrecurring settlement payments and a bonus associated with Texas water-project permits.
- Operating cash flow was $14,431, versus $14,767. Investing cash use was $14,406, including $17,380 of company-funded utility plant additions; financing cash use was $402. Cash ended the quarter at $2,145.
- At March 31, 2013, current assets were $34,167 and current liabilities were $59,148. Long-term debt, net of current portion, was $335,436; current debt was $579 and line-of-credit borrowings were $22,100. Unused short-term credit capacity was $64,900. SJW reported compliance with applicable debt covenants.
- Quarterly dividends were $0.18 per share. After quarter-end, the board declared a $0.1825 per-share dividend.
Changes, outlook, and risks
- On February 1, SJW sold its Connecticut warehouse for $9,200, recognizing a $1,063 pretax gain. Sale proceeds were $8,831 in the cash flow statement.
- After quarter-end, SJW completed a common-stock offering and an exercised partial overallotment, raising approximately $36,150 net. Proceeds were intended to repay credit-line borrowings, fund water utility construction, and support general corporate purposes.
- Management budgeted $92,500 of 2013 Water Utility Services capital expenditures, excluding customer-funded projects; approximately $17,400 had been spent by quarter-end. Five-year projected capital expenditures were approximately $553,455, subject to regulatory approval. A proposed Montevina treatment-plant upgrade settlement contemplated a $62,000 ratemaking cap; a decision was expected in Q2 2013.
- Management believed water supplies would meet customer demand through the rest of 2013. However, California supply is exposed to rainfall and potential Delta smelt restrictions; estimated impacts to water delivered to SCVWD could range from approximately 17%–18% under a most-likely scenario to 32%–33% under a worst-case scenario.
- San Jose Water’s general rate case remained pending, with interim rates in effect; requested increases and balancing-account recovery remained subject to regulatory decisions. CLWSC’s Texas rate-base proceeding also awaited a decision, and its existing 38% rate increase was subject to adjustment or refund.
- Water sales are seasonal, and management cautions that interim results are not indicative of full-year results. The company was undergoing an IRS examination for 2008–2011 and did not expect material adjustments. It reported no litigation expected to have a material effect.
Important facts for investors to verify
- Confirm the issuer identity: this filing is SJW Corp., notwithstanding the H2O America metadata.
- Track decisions in the California general rate case, Montevina project settlement, and Texas rate-base proceeding, including any effects on rates and cost recovery.
- Assess water-supply conditions and regulatory restrictions, alongside seasonal consumption and source-mix costs.
- Verify the completed offering proceeds, use of funds, and subsequent share count and dilution.
- Monitor the execution and funding of the planned capital program, credit-line usage, and pension contribution expectations of up to $10,300 for 2013.