SJW Group (NYSE: SJW) today reported financial results for the
first quarter ended March 31, 2018. SJW Group net income was
$1.3 million for the quarter ended March 31, 2018, compared to
$3.7 million for the same period in 2017. Diluted earnings per
share were $0.06 and $0.18 for the quarters ended March 31,
2018 and 2017, respectively. Diluted earnings per share includes
$0.19 per share from recurring operations offset by $0.13 per share
related to the Company’s proposed merger with Connecticut Water
Company.
Operating revenue was $75.0 million for the quarter ended
March 31, 2018 compared to $69.0 million in 2017. The $6.0
million increase in revenue was primarily attributable to $6.3
million in higher customer usage, $6.1 million in cumulative rate
changes, and $377,000 in revenue from new customers. The increase
was partially offset by a $2.7 million change in the net
recognition of certain other balancing and memorandum accounts
primarily due to $1.2 million related to the outcome of our cost of
capital proceeding and $933,000 related to the implementation of
the Tax Act, $2.5 million in lower revenue recorded in our Water
Conservation Memorandum Account, $1.4 million related to a
redistribution of certain customer accounts between residential and
business customers for the year ended December 31, 2016 recorded in
the first quarter of 2017, and $221,000 in lower revenue from our
real estate operations.
Water production expenses for the quarter ended March 31,
2018 were $30.4 million compared to $26.5 million in 2017, an
increase of $3.9 million. The increase in water production expenses
was attributable to $2.5 million in higher customer water usage,
$2.3 million in higher per unit costs for purchased water,
groundwater extraction and energy charges, and $482,000 related to
cost-recovery balancing and memorandum accounts, partially offset
by $1.4 million due to an increase in the use of available surface
water supplies. Operating expenses, excluding water production
costs, increased $6.4 million to $37.3 million from $30.9 million.
The increase was primarily due to $3.8 million in various costs
related to our proposed merger of equals with Connecticut Water
Service, Inc., $1.5 million of higher depreciation expenses due to
assets placed in service in 2017, $733,000 in higher maintenance
and property taxes and other non-income taxes, and $419,000 of
higher administrative and general expenses, net of cost-recovery
balancing and memorandum accounts.
Other expense and income for the quarter ended March 31,
2018 included a pre-tax unrealized loss of $667,000 related to the
change in investment value of California Water Service group stock
that was previously recognized in other comprehensive income and
now is recognized as part of net income in accordance with
Accounting Standards Update 2016-01, “Financial Instruments -
Overall.”
The effective consolidated income tax rates were approximately
(82%) and 30% for the quarters ended March 31, 2018 and 2017,
respectively. The negative effective tax rate for the quarter was
primarily due to low income before income taxes generating a tax
expense of $159,000, offset by recognition of excess tax benefits
of $747,000 relating to share-based payment awards. The Company
does not reasonably expect that the recognition of excess tax
benefits will have a material impact on the anticipated effective
consolidated income tax rate for the year ended December 31, 2018.
In addition, the effective tax rate decreased due to the change in
the statutory federal income tax rate from 35% to 21% as a result
of the Tax Act.
SJW Group is a publicly traded holding company headquartered in
San Jose, California. SJW Group is the parent company of San Jose
Water Company, SJWTX, Inc., and SJW Land Company. Together, San
Jose Water Company and SJWTX, Inc. provide water service to more
than one million people in San Jose, California and nearby
communities and in Canyon Lake, Texas and nearby communities. SJW
Land Company owns and operates commercial real estate
investments.
Forward Looking Statements
This document contains forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995, as amended.
Some of these forward-looking statements can be identified by the
use of forward-looking words such as “believes,” “expects,” “may,”
“will,” “should,” “seeks,” “approximately,” “intends,” “plans,”
“estimates,” “projects,” “strategy,” or “anticipates,” or the
negative of those words or other comparable terminology.
The accuracy of such statements is subject to a number of risks,
uncertainties and assumptions including, but not limited to, the
following factors relating to the proposed transaction with
Connecticut Water: (1) the risk that the conditions to the closing
of the transaction with Connecticut Water are not satisfied,
including the risk that required approvals from the shareholders of
Connecticut Water or the stockholders of SJW Group for the
transaction are not obtained; (2) the risk that the regulatory
approvals required for the transaction are not obtained, or that in
order to obtain such regulatory approvals, conditions are imposed
that adversely affect the anticipated benefits from the proposed
transaction or cause the parties to abandon the proposed
transaction; (3) the risk that the anticipated tax treatment of the
transaction is not obtained; (4) the effect of water, utility,
environmental and other governmental policies and regulations; (5)
litigation relating to the transaction; (6) uncertainties as to the
timing of the consummation of the transaction and the ability of
each party to consummate the transaction; (7) risks that the
proposed transaction disrupts the current plans and operations of
Connecticut Water or SJW Group; (8) the ability of Connecticut
Water and SJW Group to retain and hire key personnel;
(9) competitive responses to the proposed transaction; (10)
unexpected costs, charges or expenses resulting from the
transaction; (11) potential adverse reactions or changes to
business relationships resulting from the announcement or
completion of the transaction; (12) the combined companies’ ability
to achieve the growth prospects and synergies expected from the
transaction, as well as delays, challenges and expenses associated
with integrating the combined companies’ existing businesses; and
(13) legislative and economic developments. These risks, as well as
other risks associated with the proposed transaction, are more
fully discussed in the joint proxy statement/prospectus that is
included in the Registration Statement on Form S-4 that has been
filed with the Securities and Exchange Commission (“SEC”) in
connection with the proposed transaction.
In addition, actual results are subject to other risks and
uncertainties that relate more broadly to SJW Group’s overall
business, including those more fully described in SJW Group’s
filings with the SEC, including its annual report on Form 10-K for
the fiscal year ended December 31, 2017, and Connecticut Water’s
overall business and financial condition, including those more
fully described in Connecticut Water’s filings with the SEC,
including its annual report on Form 10-K for the fiscal year ended
December 31, 2017. Results for a quarter are not indicative of
results for a full year due to seasonality and other factors.
Forward looking statements are not guarantees of performance, and
speak only as of the date made, and neither SJW Group or its
management nor Connecticut Water or its management undertakes any
obligation to update or revise any forward-looking statements.
Additional Information and Where to Find It
In connection with the proposed transaction between SJW Group
and Connecticut Water, on April 25, 2018, SJW Group filed with the
SEC a Registration Statement on Form S-4 that includes a joint
proxy statement of SJW Group and Connecticut Water that also
constitutes a prospectus of SJW Group. These materials are not yet
final and will be amended. SJW Group and Connecticut Water may also
file other documents with the SEC regarding the proposed
transaction. This document is not a substitute for the joint proxy
statement/prospectus, Form S-4 or any other document which SJW
Group or Connecticut Water may file with the SEC. INVESTORS AND
SECURITY HOLDERS OF SJW GROUP AND CONNECTICUT WATER ARE URGED TO
READ THE REGISTRATION STATEMENT, THE JOINT PROXY
STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS THAT ARE
FILED OR WILL BE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY
BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT
THE PROPOSED TRANSACTION AND RELATED MATTERS. Investors and
security holders may obtain free copies of the Form S-4 and the
joint proxy statement/prospectus and other documents filed with the
SEC by SJW Group and Connecticut Water through the website
maintained by the SEC at www.sec.gov. Copies of documents filed
with the SEC by SJW Group are available free of charge on SJW
Group’s investor relations website at
https://sjwgroup.com/investor_relations. Copies of documents filed
with the SEC by Connecticut Water are available free of charge on
Connecticut Water’s investor relations website at
https://ir.ctwater.com/.
No Offer or Solicitation
This communication is for informational purposes only and is not
intended to and does not constitute an offer to sell, or the
solicitation of an offer to subscribe for or buy, or a solicitation
of any vote or approval in any jurisdiction, nor shall there be any
sale, issuance or transfer of securities in any jurisdiction in
which such offer, sale or solicitation would be unlawful prior to
registration or qualification under the securities laws of any such
jurisdiction. No offer of securities shall be made except by means
of a prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended, and otherwise in accordance
with applicable law.
Participants in the Solicitation
SJW Group, Connecticut Water and certain of their respective
directors and officers, and other members of management and
employees, may be deemed to be participants in the solicitation of
proxies from the holders of SJW Group and Connecticut Water
securities in respect of the proposed transaction. Information
regarding SJW Group’s directors and officers is available in SJW
Group’s annual report on Form 10-K for the fiscal year ended
December 31, 2017 and its proxy statement for its 2018 annual
meeting dated March 6, 2018, which are filed with the SEC.
Information regarding Connecticut Water’s directors and officers is
available in Connecticut Water’s annual report on Form 10-K for the
fiscal year ended December 31, 2017, and its proxy statement for
its 2018 annual meeting dated April 6, 2018, which are filed with
the SEC. Investors may obtain additional information regarding the
interest of such participants by reading the Form S-4 and the joint
proxy statement/prospectus and other documents filed with the SEC
by SJW Group and Connecticut Water. These documents are available
free of charge from the sources indicated above.
SJW Group
Condensed Consolidated Statements of
Comprehensive Income
(Unaudited)
(in thousands, except per share data)
Three months ended March 31, 2018
2017 REVENUE $ 75,042 69,045 OPERATING EXPENSE:
Production Expenses: Purchased water 15,416 13,924 Power 1,268
1,287 Groundwater extraction charges 9,532 7,410 Other production
expenses 4,212 3,859 Total production expenses 30,428
26,480 Administrative and general 11,568 11,149 Maintenance 4,460
3,898 Property taxes and other non-income taxes 3,866 3,695
Depreciation and amortization 13,583 12,119 Merger related cost
3,806 — Total operating expense 67,711 57,341
OPERATING INCOME 7,331 11,704 OTHER (EXPENSE) INCOME:
Interest expense (6,052 ) (6,057 ) Unrealized loss on California
Water Service Group stock (667 ) — Pension non-service cost (583 )
(871 ) Other, net 676 463 Income before income taxes
705 5,239 Provision for income taxes (580 ) 1,568 SJW GROUP
NET INCOME 1,285 3,671 Other comprehensive income, net — 116
SJW GROUP COMPREHENSIVE INCOME $ 1,285 3,787
SJW GROUP EARNINGS PER SHARE: Basic $ 0.06 0.18 Diluted $
0.06 0.18 DIVIDENDS PER SHARE $ 0.28 0.22 WEIGHTED AVERAGE SHARES
OUTSTANDING: Basic 20,561 20,486 Diluted 20,701 20,655
SJW Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
March 31, 2018 December
31, 2017 ASSETS Utility plant: Land $ 17,831 17,831
Depreciable plant and equipment 1,733,449 1,714,228 Construction in
progress 54,933 45,851 Intangible assets 15,567 14,413 Total
utility plant 1,821,780 1,792,323 Less accumulated depreciation and
amortization 566,844 553,059 Net utility plant 1,254,936
1,239,264 Real estate investments 56,213 56,213 Less
accumulated depreciation and amortization 11,431 11,132 Net
real estate investments 44,782 45,081 CURRENT ASSETS: Cash
and cash equivalents 6,954 7,799 Accounts receivable and accrued
unbilled utility revenue 49,584 54,309 Other current assets 4,522
4,750 Total current assets 61,060 66,858 OTHER
ASSETS: Investment in California Water Service Group 3,067 4,535
Regulatory assets, net 97,293 99,554 Other 2,736 2,709
103,096 106,798 $ 1,463,874 1,458,001
SJW Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
March 31, 2018 December
31, 2017 CAPITALIZATION AND LIABILITIES CAPITALIZATION:
Common stock $ 21 21 Additional paid-in capital 83,986 84,866
Retained earnings 373,823 376,119 Accumulated other comprehensive
income — 2,203 Total stockholders’ equity 457,830 463,209
Long-term debt, less current portion 431,175 431,092 Total
capitalization 889,005 894,301 CURRENT LIABILITIES: Line of
credit 39,000 25,000 Accrued groundwater extraction charge,
purchased water and purchased power 11,692 14,382 Accounts payable
22,482 22,960 Accrued interest 7,400 6,869 Accrued payroll 3,620
6,011 Other current liabilities 11,166 9,830 Total current
liabilities 95,360 85,052 DEFERRED INCOME TAXES
84,442 85,795
ADVANCES FOR CONSTRUCTION AND
CONTRIBUTIONS IN AID OF CONSTRUCTION
245,054 244,525 POSTRETIREMENT BENEFIT PLANS 74,735 72,841
REGULATORY LIABILITY 62,205 62,476 OTHER NONCURRENT LIABILITIES
13,073 13,011 $ 1,463,874 1,458,001
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version on businesswire.com: https://www.businesswire.com/news/home/20180425006840/en/
SJW GroupSuzy Papazian, 408-279-7961General Counsel and
Corporate Secretary
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