SAN JOSE, Calif.--(BUSINESS WIRE)--SJW Group (NYSE: SJW) today reported financial results for the third quarter ended September 30, 2018. SJW Group net income was $15.8 million for the quarter ended September 30, 2018, compared to $19.5 million for the same period in 2017. Diluted earnings per share were $0.76 and $0.94 for the quarters ended September 30, 2018 and 2017, respectively. Diluted earnings per share includes $1.08 per share from recurring operations offset by $0.32 per share related to the company's activities around the proposed combination with Connecticut Water Service, Inc.
Operating revenue was $124.9 million for the quarter ended September 30, 2018 compared to $124.6 million in the same period in 2017. The $300,000 increase in revenue was primarily attributable to a $3.1 million increase in cumulative water rate changes, net of approximately $1.8 million rate decrease from our 2018 cost of capital proceeding and $3.2 million from the federal rate change related to the implementation of the Tax Cuts and Jobs Act (H.R.1) (the "Tax Act"), and $1.0 million increase in revenue from new customers. The increase was partially offset by a $3.1 million decrease in the net recognition of certain balancing and memorandum accounts, which includes $2.5 million in cost-recovery accounts that were recorded in revenue in 2017 which upon adoption of Topic 606, "Revenue from Contracts with Customers" on January 1, 2018 are now recorded as capitalized costs until recovery is approved by the California Public Utilities Commission, and a decrease in customer usage of $752,000.
Water production expenses for the third quarter of 2018 were $55.1 million compared to $53.3 million for the same period in 2017, an increase of $1.8 million. The increase in water production expenses was attributable to $4.9 million in higher per unit costs for purchased water, groundwater extraction and energy charges, partially offset by $2.4 million related to cost-recovery balancing and memorandum accounts and $1.0 million due to an increase in the use of available surface water supplies. Operating expenses, excluding water production costs, increased $11.8 million to $43.9 million from $32.1 million. The increase was primarily due to $8.4 million in merger expenses related to our proposed combination with Connecticut Water Service, Inc., $1.6 million of higher depreciation expenses due to assets placed in service in 2017, $935,000 in higher maintenance and property taxes and other non-income taxes, and $803,000 of higher administrative and general expenses, net of cost-recovery balancing and memorandum accounts.
The effective consolidated income tax rates were approximately 21% and 41% for the quarters ended September 30, 2018 and 2017, respectively. The effective tax rate decreased primarily due to the change in the statutory federal income tax rate from 35% to 21% as a result of the Tax Act.
Year-to-date net income was $29.9 million, compared to $41.9 million in 2017. Diluted earnings per share were $1.45 in the first nine months of 2018, compared to $2.03 per diluted share for the same period in 2017. Diluted earnings per share includes $2.03 per share from recurring operations offset by $0.58 per share related to the company's activities around the proposed combination with Connecticut Water Service, Inc. In addition, the company's diluted earnings per share for 2017 includes $0.15 per share from real estate transactions that did not re-occur in 2018.
Year-to-date operating revenue increased by $3.3 million to $299.0 million from $295.7 million in the first nine months of 2018. The increase was attributable to $14.9 million in cumulative rate increases, net of approximately $2.8 million rate decrease from our 2018 cost of capital proceeding and $3.2 million from the federal rate change related to the implementation of the Tax Act, $7.4 million in higher customer usage, and $1.8 million in revenue from new customers. These increases were partially offset by a $20.6 million decrease in the net recognition of certain balancing and memorandum accounts, which includes $6.7 million related to the implementation of the Tax Act, $6.5 million in lower revenue recorded in our Water Conservation Memorandum Account, $4.2 million related to cost-recovery accounts, an additional $1.4 million related to the outcome of our cost of capital proceeding, and $1.4 million related to a redistribution of certain customer accounts between residential and business customers for the year ended December 31, 2016 that was recorded in the 2017 first quarter.
Year-to-date water production expenses increased to $125.4 million from $118.6 million in 2017. The $6.8 million increase was attributable to $11.0 million in higher per unit costs for purchased water, groundwater extraction and energy charges and $4.6 million in higher customer water usage, offset by $5.7 million in lower expenses due to an increase in the use of available surface water supplies and $3.1 million related to cost-recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $23.2 million to $117.6 million from $94.4 million. The increase was primarily due to $15.0 million in merger expenses related to our proposed combination with Connecticut Water Service, Inc., $4.7 million in higher depreciation expenses, $2.1 million in higher maintenance and property taxes and other non-income taxes, and $1.4 million in higher administrative and general expenses, net of cost-recovery balancing and memorandum accounts.
Other expense and income in the first nine months of 2017 included a pre-tax gain of $6.3 million on the sale of 444 West Santa Clara Street Limited Partnership's interests in the commercial building and land the partnership owned and sale of undeveloped land which SJW Land Company owned for a pre-tax gain of $580,000.
The effective consolidated income tax rates were approximately 20% and 38% for the nine-month periods ended September 30, 2018 and 2017, respectively. The effective tax rate decreased in 2018 primarily due to the change in the statutory federal income tax rate from 35% to 21% as a result of the Tax Act.
The Directors of SJW Group today declared a quarterly dividend on common stock of $0.28 per share. The dividend is payable on December 3, 2018 to shareholders of record on November 5, 2018.
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.
This press release may contain certain forward-looking statements including, but not limited to, statements relating to SJW Group's plans, strategies, objectives, expectations and intentions, which are made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of SJW Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Results for a quarter are not indicative of results for a full year due to seasonality and other factors. Other factors that may cause actual results, performance or achievements to materially differ are described in SJW Group's most recent reports on Form 10-K, Form 10-Q and Form 8-K filed with the Securities and Exchange Commission. SJW Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
|Condensed Consolidated Statements of Comprehensive Income|
|(in thousands, except per share data)|
|Three months ended||Nine months ended|
|September 30,||September 30,|
|Groundwater extraction charges||14,890||15,756||34,341||34,098|
|Other production expenses||4,836||4,216||13,674||12,067|
|Total production expenses||55,153||53,305||125,462||118,594|
|Administrative and general||12,752||11,949||36,278||34,909|
|Property taxes and other non-income taxes||4,016||3,454||11,332||10,260|
|Depreciation and amortization||13,682||12,065||40,921||36,217|
|Merger related expenses||8,442||—||14,994||—|
|Total operating expense||99,025||85,380||243,023||212,971|
|OTHER (EXPENSE) INCOME:|
|Unrealized loss on California Water Service Group stock||—||—||(527||)||—|
|Gain on sale of real estate investment||—||—||—||6,903|
|Pension non-service cost||(589||)||(953||)||(1,767||)||(2,860||)|
|Income before income taxes||19,891||33,063||37,535||70,850|
|Provision for income taxes||4,103||13,523||7,591||27,055|
|NET INCOME BEFORE NONCONTROLLING INTEREST||15,788||19,540||29,944||43,795|
|Less net income attributable to the noncontrolling interest||—||—||—||1,896|
|SJW GROUP NET INCOME||15,788||19,540||29,944||41,899|
|Other comprehensive income, net||—||80||—||252|
|SJW GROUP COMPREHENSIVE INCOME||$||15,788||19,620||$||29,944||42,151|
|SJW GROUP EARNINGS PER SHARE:|
|DIVIDENDS PER SHARE||$||0.28||0.22||$||0.84||0.65|
|WEIGHTED AVERAGE SHARES OUTSTANDING:|
|Condensed Consolidated Balance Sheets|
|September 30,||December 31,|
|Depreciable plant and equipment||1,783,654||1,714,228|
|Construction in progress||79,475||45,851|
|Total utility plant||1,897,177||1,792,323|
|Less accumulated depreciation and amortization||593,916||553,059|
|Net utility plant||1,303,261||1,239,264|
|Real estate investments||56,336||56,213|
|Less accumulated depreciation and amortization||12,029||11,132|
|Net real estate investments||44,307||45,081|
|Cash and cash equivalents||13,327||7,799|
|Accounts receivable and accrued unbilled utility revenue||61,518||54,309|
|Other current assets||5,522||4,750|
Total current assets
|Investment in California Water Service Group||—||4,535|
|Regulatory assets, net||104,670||99,554|
|Condensed Consolidated Balance Sheets|
|September 30,||December 31,|
|CAPITALIZATION AND LIABILITIES|
|Additional paid-in capital||84,045||84,866|
|Accumulated other comprehensive income||—||2,203|
|Total stockholders’ equity||474,957||463,209|
|Long-term debt, less current portion||431,341||431,092|
|Line of credit||76,000||25,000|
Accrued groundwater extraction charge, purchased water and purchased power
|Other current liabilities||13,898||9,830|
|Total current liabilities||151,680||85,052|
|DEFERRED INCOME TAXES||80,901||85,795|
ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION
|POSTRETIREMENT BENEFIT PLANS||75,877||72,841|
|OTHER NONCURRENT LIABILITIES||13,569||13,011|