SJW Corp. 10-Q Summary — Quarter Ended March 31, 2014
Registrant identification: The supplied filing is for SJW Corp., not H2O America. The summary below reflects the filing text provided.
Business context and reporting period
SJW Corp. is a holding company with regulated and nonregulated water utility businesses in California and Texas, plus commercial real estate operations. The filing covers the three months ended March 31, 2014; amounts are in thousands except per-share data. Water sales are seasonal, so first-quarter results are not necessarily indicative of full-year results.
Financial results and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Operating revenue | $54,596 | $50,139; up 9% |
| Operating income | $6,054 | $5,773; up 5% |
| Operating margin | 11.1% | 11.5% |
| Income before taxes | $1,467 | $2,247 |
| Net income | $906 | $1,317; down 31% |
| Diluted earnings per share | $0.04 | $0.07 |
| Cash from operating activities | $15,961 | $14,431 |
| Cash used in investing activities | $27,819 | $14,406 |
Revenue increased primarily from higher water consumption, customer growth, rate increases and real estate revenue, partly offset by a reduction in balancing and memorandum account revenue. Operating expenses rose 9% to $48,542; water production costs increased $5,222, while administrative and general expense fell $2,044. The higher production costs reflected less low-cost surface water, greater groundwater use, and increased unit costs for purchased water and groundwater extraction.
Net income declined mainly because groundwater extraction charges rose amid drought conditions and Q1 2013 included a $1,063 gain on a Connecticut real estate sale. The filing reports total comprehensive income of $1,104, including $198 of other comprehensive income. Dividends per share were $0.19, versus $0.18 a year earlier.
At March 31, 2014, cash was $3,118; current assets were $40,752 and current liabilities were $71,926, implying a current ratio of approximately 0.57. Long-term debt, less current portion, was $334,876; the balance sheet also showed $37,000 outstanding on the line of credit and $537 of current long-term debt. Total shareholders’ equity was $319,346. The company reported $50,000 of unused short-term credit capacity at quarter-end; the credit lines were scheduled to expire September 1, 2014.
Company-funded utility-plant additions were $25,158, compared with operating cash flow of $15,961. SJW reported 2014 Water Utility Services capital expenditure plans of $88,600 and approximately $527,000 over five years, subject to regulatory approval. A $50,000, 5.14% senior note sale was agreed to in January, with closing expected August 5, 2014, or later by agreement but no later than October 3, 2014.
Material changes, outlook and risks
- California drought materially changed the water-supply mix: groundwater production rose to 4,661 million gallons from 2,514 million, while surface water fell to 37 million gallons from 1,234 million. Management said available sources were expected to meet customer demand through the remainder of 2014.
- Santa Clara Valley Water District reduced treated-water deliveries to 80% of monthly contract allocations through December 31, 2014, and set a 20% water-use reduction target. California conservation measures and related tracking accounts took effect March 31, 2014.
- San Jose Water Company’s general rate case remained undecided, with interim rates in effect; a decision was expected in Q2 2014. A separate treatment-plant rate-base filing sought an approximately $123 revenue increase, also with a decision expected in Q2 2014.
- Texas subsidiary CLWSC had implemented a requested average 23.1% rate increase, subject to possible adjustment or refund pending regulatory approval. Management said a refund was not considered probable at the filing date.
- California balancing and memorandum accounts showed a net under-collection of $7,725 at March 31, 2014. Recovery depends on the regulatory process. The filing also identifies rate-case timing, water costs and supply, weather, interest rates, pension assumptions and capital needs as relevant uncertainties.
- Management reported no pending legal proceedings expected to have a material effect and no material changes to previously disclosed risk factors. No formal earnings guidance was provided.
- The El Paso retail property was classified as held for sale at a carrying value of $4,028; the company reported no impairment. The dividend reinvestment and stock purchase plan was terminated effective April 14, 2014. The board declared a $0.1875 quarterly dividend on April 30, payable June 2, 2014.
Important facts for investors to verify
- Confirm the issuer: the provided 10-Q is for SJW Corp., despite the request metadata naming H2O America.
- Track the outcome of the California general rate case and treatment-plant filing, and any resulting recovery or refund of tracked balances.
- Monitor drought conditions, conservation impacts on usage and revenue, and the cost and availability of groundwater and purchased water.
- Review liquidity and refinancing plans, including the September 2014 credit-line expiry and the proposed $50,000 senior note issuance.
- Compare capital spending with operating cash generation and assess funding needs for the disclosed utility infrastructure program.