Filing summary
Entity and period: The supplied filing is SJW Corp.’s Form 10-K for the fiscal year ended December 31, 2012, filed February 28, 2013. This does not match the request metadata identifying H2O America; confirm the intended company and filing. The filing reports full-year results, with quarterly data also provided.
Business context and reporting period
SJW Corp. is a holding company whose principal business is regulated water service through San Jose Water Company in California and Canyon Lake Water Service Company in Texas. It also operates real estate services and is developing a Texas water-supply project. Water demand and earnings are seasonal, generally peaking in warm, dry months.
Financial and operating metrics
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Operating revenue | $261.5 million | $239.0 million |
| Operating income | $55.3 million | $54.4 million |
| Net income | $22.3 million | $20.9 million |
| Basic / diluted EPS | $1.20 / $1.18 | $1.12 / $1.11 |
| Operating margin | 21.1% | 22.8% |
| Net margin | 8.5% | 8.7% |
| Cash from operations | $74.4 million | $64.2 million |
| Company-funded utility capital expenditures | $99.6 million | $62.4 million |
| Cash and cash equivalents at year-end | $2.5 million | $26.7 million |
| Long-term debt, including current portion | $341.0 million | $344.7 million |
| Shareholders’ equity | $274.6 million | $264.0 million |
At year-end, SJW had $15.3 million drawn on its $90 million aggregate credit lines and $71.7 million of unused short-term bank capacity. The lines mature September 1, 2014; borrowing rates are variable. Consolidated funded debt was 56% of capitalization, and the company reported compliance with its debt covenants. Dividends paid were $13.2 million, or 59% of net income; the annual dividend was $0.71 per share.
Fourth quarter: 2012 revenue was $62.4 million, operating income $14.1 million, and net income $5.9 million, compared with $62.3 million, $16.5 million, and $6.6 million, respectively, in Q4 2011. Q4 2012 included $3.55 million of recognized balancing- and memorandum-account revenue, including amounts associated with the prior quarter.
Material changes versus prior period
- Revenue increased 9% year over year, driven chiefly by rate increases ($17.6 million), higher consumption ($5.5 million), customer growth ($1.3 million), and recognized balancing and memorandum accounts ($3.6 million). The increase was partly offset by a $5.7 million reduction from the prior-year conservation adjustment.
- Net income rose 7%, while operating income increased less than 2%; operating expenses grew 12%. Production costs rose $15.2 million, reflecting less surface water, higher unit costs for purchased water and groundwater extraction, and increased usage. Administrative and general expense rose $3.7 million, including higher pension and retirement costs.
- Water production increased to 47,655 million gallons from 46,033 million gallons. Purchased water rose to 31,230 million gallons, while surface water fell to 2,409 million gallons from 5,059 million gallons.
- Operating cash flow increased about $10.2 million, but investing cash use rose to $104.2 million, largely due to higher utility capital spending. The company ended the year with substantially less cash and increased line-of-credit borrowing.
Outlook, commentary, and risks
- Management said available supplies were expected to meet 2013 demand in both California and Texas. California reservoir and rainfall measures had improved at the start of 2013, but long-term supply constraints and potential state and federal project restrictions remain risks.
- Management budgeted approximately $104.6 million of 2013 utility capital expenditures and projected about $565.6 million over five years, subject to regulatory approval. A separate five-year Montevina treatment-plant upgrade is planned at approximately $73.5 million.
- San Jose Water Company’s general rate case remained pending. Interim rates effective January 1, 2013 were set at year-end 2012 levels; the requested 2013–2015 increases were not approved as of the filing. A preliminary settlement for the Montevina project was reached, with final submission and a decision expected in 2013.
- CLWSC’s previously implemented 38% rate increase remained subject to possible adjustment or refund pending the TCEQ’s rate-base and rate-case decision, then expected in Q1 2013.
- TWA’s groundwater permit in Gonzales County, Texas, was unanimously approved in January 2013. This was a development milestone; the filing does not quantify expected project returns or timing.
- Key exposures include regulatory delay or disallowance of rate recovery, water availability and source-mix costs, conservation-related demand changes, energy and purchased-water prices, aging infrastructure and capital-funding needs, environmental or water-quality events, extreme weather and natural disasters, pension obligations, and real-estate vacancies or values.
- No material litigation was reported. The company reported effective disclosure controls and internal control over financial reporting, and the independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Confirm whether SJW Corp. or H2O America is the intended issuer; the supplied filing identifies SJW Corp. (NYSE: SJW).
- Check subsequent CPUC and TCEQ decisions, including final authorized rates, any rate-case refunds, and the Montevina project settlement.
- Assess whether projected capital spending can be funded without materially increasing debt, given low year-end cash, high investment outflows, and credit lines expiring in 2014.
- Review the sustainability and recovery of regulatory assets, including $130.5 million of net regulatory assets and the $4.8 million net under-collection disclosed for balancing and memorandum accounts.
- Monitor purchased-water and groundwater costs, California supply conditions and restrictions, and the effect of conservation or weather on customer usage and revenue.
- Evaluate pension funding needs and real-estate changes, including the Connecticut property sale completed after year-end and the effect of property income on reported results.