Filing summary
Issuer discrepancy: The metadata identifies H2O America, but the supplied Form 10-Q is for SJW Corp. (Commission file no. 1-8966), for the quarter ended June 30, 2013. The filing describes regulated water utility operations in California and Texas, alongside real estate activities. Confirm the issuer before relying on this summary.
Financial performance
Unless stated otherwise, amounts below are in millions of dollars. The second quarter and six-month periods ended June 30, 2013 are compared with the corresponding 2012 periods.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Operating revenue | $74.230 | $65.575 | $124.369 | $116.724 |
| Operating income | $16.937 | $13.585 | $22.710 | $20.310 |
| Operating margin | 22.8% | 20.7% | 18.3% | 17.4% |
| Net income | $7.440 | $5.201 | $8.757 | $6.310 |
| Diluted EPS | $0.37 | $0.28 | $0.45 | $0.34 |
| Operating cash flow | Not separately provided | Not separately provided | $27.039 | $31.650 |
Q2 revenue rose 13.2% and net income rose 43.0%; six-month revenue rose 6.5% and net income rose 38.8%. Revenue growth reflected higher water usage, new customers, rate increases, and recognition of balancing and memorandum account amounts. Higher groundwater extraction charges, maintenance, and depreciation partly offset the gains. Six-month earnings also benefited from a $1.063 million pretax gain on a Connecticut property sale. The filing states that water sales are seasonal and interim results are not indicative of full-year results.
For the six months, investing activities used $37.676 million, including $35.684 million of company-funded utility plant additions; financing activities provided $12.120 million. Cash increased to $4.005 million from $2.522 million at year-end 2012. At June 30, long-term debt, including the current portion, was approximately $335.840 million; no line-of-credit balance was reported. Unused credit facilities were $87 million, and total shareholders’ equity was $313.271 million. The company reported compliance with applicable debt covenants.
Changes, outlook, and risks
- Production costs increased $5.132 million in Q2 and $3.295 million for the first half, with higher usage, groundwater charges, and energy and purchased-water prices among the drivers. The Santa Clara Valley Water District had increased unit prices effective July 2012.
- Operating cash flow declined $4.611 million year over year for the first half, mainly reflecting working-capital and collection timing, including lower collections of receivables and tax balances.
- The company raised approximately $35.894 million net through a common-stock offering and over-allotment in April 2013. Proceeds were used to repay credit-line borrowings, support construction, and for general corporate purposes.
- Management budgeted $92.5 million of 2013 Water Utility Services capital expenditures, excluding customer-funded work; about 39% had been spent by June 30. Planned five-year capital expenditures were approximately $553.455 million, subject to regulatory approval. A $62 million Montevina treatment-plant upgrade settlement was adopted by the CPUC on July 25, 2013.
- Management believed water supplies would be sufficient through the rest of 2013, but reported below-average rainfall and reservoir conditions. Potential restrictions on State Water Project and Central Valley Project deliveries could reduce supplies to the district; groundwater and purchased-water costs and availability are also important risks.
- The California general rate case remained pending, with a decision expected in the second half of 2013; interim rates were in effect. A Texas rate-base proceeding was expected to receive a TCEQ decision in Q3 2013, and the company said a material financial impact was not anticipated. A requested increase in the low-income assistance surcharge was pending; management said it would not increase earnings.
- The filing reports no pending litigation expected to have a material effect. An IRS examination for 2008–2011 was pending Joint Committee on Taxation approval; management did not expect material adjustments. The board declared a $0.1825-per-share quarterly dividend on July 31, payable September 3, 2013.
Investor verification points
- Verify that the intended filing is SJW Corp.’s 2013 Q2 10-Q, not a filing for H2O America.
- Track the California general rate case outcome, including final rates and treatment of balancing and memorandum accounts.
- Monitor water supply conditions, regulatory delivery restrictions, and changes in groundwater and purchased-water costs.
- Compare actual capital spending and financing needs with the stated construction plans; assess the effect of the equity issuance and share-count increase.
- Review the Texas rate-base decision and any resulting adjustment or refund exposure.