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SJW Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 2, 2011 02:28PM

SJW Corp. (SJW) filed Quarterly Report for the period ended 2011-09-30. Sjw Corp. has a market cap of $420.6 million; its shares were traded at around $22.64 with a P/E ratio of 26.4 and P/S ratio of 1.9. The dividend yield of Sjw Corp. stocks is 3.1%. Sjw Corp. had an annual average earning growth of 7.6% over the past 10 years. GuruFocus rated Sjw Corp. the business predictability rank of 3-star.

Highlight of Business Operations:

Metered revenue of Water Utility Services includes billing to customers based on meter readings plus an estimate of water used between the customers last meter reading and the end of the accounting period. Water Utility Services read the majority of its customers meters on a bi-monthly basis and records its revenue based on its meter reading results. Unbilled revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage patterns, production records and the effective tariff rates. Actual results could differ from those estimates, which may result in an adjustment to the operating revenue in the period which the revision to Water Utility Services estimates is determined. As of September 30, 2011 and December 31, 2010, accrued unbilled revenue was $20,842 and $12,717, respectively.

Revenues also include a surcharge collected from regulated customers that is paid to the CPUC. This surcharge is recorded both in operating revenues and administrative and general expenses. For the nine months ended September 30, 2011 and 2010, the surcharge was $2,373 and $2,229, respectively.

Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as permitted by FASB ASC Topic 980 - “Regulated Operations.” In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the ratemaking process in a period different from when the costs and credits are incurred. Accounting for such costs and credits is based on management s judgment and prior historical ratemaking practices, and it occurs when management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility Services through the ratemaking process. The regulatory assets and liabilities recorded by Water Utility Services, in particular, San Jose Water Company, primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting purposes and the postretirement pension benefits, medical costs, accrued benefits for vacation and asset retirement obligations that have not been passed through in rates. The disallowance of any asset in future ratemaking, including deferred regulatory assets, would require San Jose Water Company to immediately recognize the impact of the costs for financial reporting purposes. No disallowance was recognized as of September 30, 2011 and December 31, 2010. Net regulatory assets recorded by San Jose Water Company as of September 30, 2011 and December 31, 2010 were $87,721 and $87,721, respectively.

On June 2, 2010, San Jose Water Company filed an advice letter with the CPUC requesting authorization to increase revenues by $5,740, or approximately 2.61% of authorized revenue at the time of the filing. This increase is intended to recover the accumulated balance in the MCRAM, which was in effect from August 3, 2009 to May 1, 2010. The CPUC-authorized MCRAM is intended to track the revenue impact of mandatory conservation upon San Jose Water Company s quantity revenue resulting from mandatory conservation instituted by the SCVWD. As directed by the CPUC s Division of Water and Audits, the MCRAM would be recovered via a surcharge on the existing quantity rate for a period of 12 months following final approval by the CPUC. All revenue would be recognized immediately after final approval by the CPUC. On November 29, 2010, the CPUC s Division of Water and Audits rejected the requested revenue increase without prejudice, claiming that the request should be submitted on a Petition for Modification of an earlier decision. On December 7, 2010, San Jose Water Company filed a Request for Review of the Rejection. On April 29, 2011, the CPUC s Division of Water and Audits issued draft Resolution W-4875 that would have had the CPUC affirm the rejection of the requested revenue increase. On June 15, 2011, San Jose Water Company submitted comments to the CPUC addressing the factual and legal issues of the draft Resolution. On August 9, 2011, the Division of Water and Audits issued draft Resolution W-4885 which would allow San Jose Water Company's requested recovery of the accumulated balance in the MCRAM. Draft Resolution W-4885 is currently scheduled to be voted on at the November 10th CPUC business meeting.

During the nine months ended September 30, 2011, SJW Corp. generated cash flow from operations of approximately $49,000, compared to $33,200 for the same period in 2010. Cash flow from operations is primarily generated by net income from its revenue producing activities, adjusted for non-cash expenses for depreciation and amortization, deferred income taxes and changes in working capital items. Cash flow from operations increased by approximately $15,800. This increase was caused by a combination of the following factors: (1) net income adjusted for non-cash items increased $14,900, including the current period impact of bonus depreciation on deferred income taxes, (2) net collection of taxes receivable were $2,200 more than the prior period, and (3) general working capital and postretirement changes caused a $1,300 decrease.

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