SJW Corp. 10-Q Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2009, for SJW Corp., a holding company operating primarily through its subsidiary, San Jose Water Company. The company provides regulated and nonregulated water utility services in California and Texas, alongside real estate investment activities through SJW Land Company. The filing includes unaudited condensed consolidated financial statements.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 |
|---|---|---|
| Operating Revenue | $69,326 (in thousands) | $167,541 (in thousands) |
| Net Income | $8,017 (in thousands) | $12,551 (in thousands) |
| Earnings Per Share (Diluted) | $0.43 | $0.67 |
| Operating Cash Flow | N/A (Quarterly not provided) | $36,602 (in thousands) |
| Long-Term Debt | $246,013 (in thousands) | $246,013 (in thousands) |
| Cash and Equivalents | $1,860 (in thousands) | $1,860 (in thousands) |
| Dividends Per Share | $0.16 | $0.49 |
Note: All financial figures are in thousands unless otherwise noted.
Material Changes vs. Prior Period
- Revenue: Operating revenue decreased slightly by 0.3% ($181k) for the quarter and 1.9% ($3.3M) for the nine-month period compared to 2008. This was driven by a 5% decrease in water consumption, partially offset by a 5% increase in rates.
- Net Income: Net income declined 3% ($240k) for the quarter and 27% ($4.7M) for the nine-month period. The year-to-date decline was significantly impacted by a reduction in Real Estate Services income due to a tenant bankruptcy in Tennessee.
- Expenses: Water production costs decreased due to lower customer demand and increased availability of cheaper surface water. However, non-water production costs (administrative, property taxes, depreciation) increased, partly due to holding costs for vacant Tennessee properties.
- Debt: Long-term debt increased from $216.6M to $246.0M, reflecting the issuance of $30M in new Senior Notes (Series J and K) to repay short-term borrowings.
Outlook, Risks, and Management Commentary
- Regulatory Affairs: San Jose Water Company filed a general rate case requesting an 18.4% increase for 2010, with a decision expected in late 2009. The company is also managing mandatory 15% water conservation measures in California due to drought conditions.
- Real Estate Risk: A major tenant in Knoxville, Tennessee, filed for Chapter 11 bankruptcy and vacated 494,000 square feet of leased space. The company is incurring holding costs while seeking to re-lease the property. No impairment was recorded as of the filing date.
- Capital Resources: The company maintains a target capital structure of 50% debt and 50% equity. It has $47.7M in unused short-term credit lines. Management expects capital expenditures to continue at high levels for infrastructure replacement.
- Acquisition: In February 2009, the company acquired water service rights and assets in Bulverde, Texas, for approximately $3.7M.
Investor Verification Checklist
- Tennessee Property Re-leasing: Verify the timeline and success of re-leasing the vacant Knoxville properties to assess the duration of holding cost impacts.
- Rate Case Outcome: Monitor the California Public Utilities Commission (CPUC) decision on the 2010 rate increase request, which is critical for future revenue growth.
- Water Supply Constraints: Track the impact of the mandatory 15% conservation order and Delta smelt regulations on water supply availability and potential cost increases.
- Debt Covenants: Confirm continued compliance with debt covenants, specifically the funded debt ratio (66-2/3%) and interest coverage ratio (175%), which currently stand at 51% and 341% respectively.