SJW Corp. 10-Q Filing Summary
Business Context and Reporting Period
Company: SJW Corp. (Parent of San Jose Water Company, SJW Land Company, Canyon Lake Water Service Company, and Texas Water Alliance Limited).
Reporting Period: Quarter and six months ended June 30, 2010.
Business Overview: A holding company operating regulated water utilities in California and Texas, non-regulated water services, and real estate investments. Operations are seasonal, with higher revenue typically in summer months.
Key Financial Metrics
| Metric | 3 Months Ended June 30, 2010 | 6 Months Ended June 30, 2010 |
|---|---|---|
| Operating Revenue | $54,128 | $94,539 |
| Operating Income | $8,244 | $12,899 |
| Net Income | $4,516 | $5,501 |
| Diluted EPS | $0.24 | $0.29 |
| Cash Flow from Operations | N/A | $22,157 |
| Capital Expenditures (Company Funded) | N/A | $(38,507) |
| Long-Term Debt | $296,295 | $296,295 |
| Shareholders' Equity | $251,784 | $251,784 |
Note: All figures in thousands except per share data.
Material Changes vs. Prior Period
- Revenue: Operating revenue decreased 7% ($4,066) for the quarter and 4% ($3,676) for the six months compared to 2009. This decline was driven primarily by a 9% decrease in water consumption due to conservation efforts and increased surface water availability.
- Net Income: Net income increased 2% ($98) for the quarter and 21% ($967) for the six months. The increase is attributed to significantly lower production costs (down 9% for the quarter) due to higher availability of cheaper surface water and reduced groundwater extraction.
- Expenses: Total operating expenses decreased 9% for the quarter. Depreciation and amortization increased 13% ($832) due to new assets, but this was offset by lower production costs and property taxes.
- Capital Structure: Long-term debt increased from $246,879 (Dec 31, 2009) to $296,295 (June 30, 2010), reflecting the issuance of $50,000 in revenue bonds.
Outlook, Risks, and Management Commentary
- Capital Expenditures: Budgeted capital expenditures for 2010 are approximately $91,500 (including carryovers). As of June 30, 44% ($40,202) has been spent. Future spending focuses on pipe replacement and system upgrades.
- Regulatory Actions:
- CPUC approved a 9.24% rate increase effective Jan 1, 2010.
- Filed an advice letter on June 2, 2010, requesting a 2.61% revenue increase ($5,740) to recover balances in the Mandatory Conservation Revenue Adjustment Memorandum Account (MCRAM).
- Water Supply & Risks:
- Surface water availability improved in 2010, reducing costs. However, mandatory conservation (15% reduction) was in effect through June 2010, extended to a 10% reduction through September 2010.
- Risks include potential supply reductions from the Central Valley Project and State Water Project due to Delta smelt regulations (BiOp), which could reduce supplies by 17-33% under worst-case scenarios.
- Liquidity: The company maintains a 55% debt / 45% equity capital structure. It has $70,150 in unused short-term credit lines available.
Investor Verification Checklist
- Regulatory Approval: Verify the status of the MCRAM surcharge request ($5,740) filed with the CPUC on June 2, 2010.
- Water Supply Constraints: Monitor updates on the Delta smelt Biological Opinion and its potential impact on imported water supplies from the State Water Project.
- Capital Spending: Confirm the pace of capital expenditures against the $91,500 annual forecast, particularly regarding pipe replacement.
- Debt Covenants: Review compliance with debt covenants (funded debt < 66-2/3% of capitalization; interest coverage > 225%), currently met at 55% and 328% respectively.
- Real Estate Segment: Assess the performance of the Real Estate Services segment, which contributed $822 in revenue for the quarter but showed volatility in net income.