SJW Corp. 10-Q Summary: Period Ended June 30, 2008
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2008, for SJW Corp., a holding company operating primarily through its regulated water utility subsidiaries (San Jose Water Company and Canyon Lake Water Service Company) and its real estate investment subsidiary (SJW Land Company). The company serves approximately one million people in the San Jose, California area and 36,000 residents in Canyon Lake, Texas. Water sales are seasonal, with higher demand typically occurring in summer months.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2008 | Six Months Ended June 30, 2008 |
|---|---|---|
| Operating Revenue | $60,058,000 | $101,311,000 |
| Net Income | $6,278,000 | $8,996,000 |
| Operating Income | $9,532,000 | $15,302,000 |
| Earnings Per Share (Diluted) | $0.34 | $0.48 |
| Net Cash Provided by Operating Activities | N/A | $22,819,000 |
| Long-Term Debt | $217,033,000 | $217,033,000 |
| Cash and Cash Equivalents | $1,836,000 | $1,836,000 |
| Dividends Per Share | $0.16 | $0.32 |
Note: Financial figures are in thousands unless otherwise noted.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 9% ($4.9 million) for the quarter and 8% ($7.2 million) for the six-month period compared to 2007. This was driven primarily by rate increases (6% impact) and consumption changes.
- Profitability: Net income rose 16% ($872,000) for the quarter and 20% ($1.5 million) for the six-month period year-over-year.
- Expense Increases: Total operating expenses increased 7% for the quarter and 5% for the six-month period. Water production costs rose due to higher per-unit costs for purchased water and groundwater extraction charges, partially offset by a decrease in surface water supply costs.
- Comprehensive Income: Comprehensive income was significantly lower than net income due to an unrealized loss on the investment in California Water Service Group ($3.5 million for the quarter, $2.8 million for six months).
Outlook, Risks, and Management Commentary
- Regulatory Actions: San Jose Water Company implemented rate increases effective January 1, 2008, and July 1, 2008, to offset increased costs of purchased water and pump taxes. A conservation rate proposal is pending CPUC approval, expected in August 2008.
- Water Supply Risks: California is under a state-wide water emergency due to drought conditions. While the company expects full contract deliveries from the Santa Clara Valley Water District (SCVWD) for 2008, future supply remains contingent on weather and regulatory orders regarding Delta Smelt protections.
- Capital Expenditures: Budgeted capital expenditures for 2008 are approximately $49.4 million. Year-to-date spending as of June 30, 2008, was approximately $33.5 million. Over the next five years, the company expects to incur approximately $263.3 million in capital expenditures.
- Liquidity: The company maintains a 50/50 debt-to-equity capital structure. It has $19.5 million in unused short-term bank lines of credit available.
- Real Estate: A proposed sale of utility property to Adobe Systems Incorporated is pending CPUC approval; until approved, the asset remains classified as utility plant.
Investor Verification Checklist
- Verify the status of the CPUC approval for the Adobe Systems property sale and its impact on asset classification.
- Monitor the implementation timeline and customer adoption of the proposed conservation tiered rates.
- Track the impact of the California drought and Delta Smelt regulations on future water supply costs and availability.
- Review the company's ability to recover increased groundwater extraction and purchased water costs through future rate cases.
- Assess the volatility of the investment in California Water Service Group and its effect on comprehensive income.