1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2000
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Commission file number 1-8966
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SJW Corp.
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(Exact name of registrant as specified in its charter)
California 77-0066628
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
374 West Santa Clara Street, San Jose, CA 95196
(Address of principal executive offices) (Zip Code)
408-279-7800
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(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Common shares outstanding as of May 1, 2000 and as of the date of
this report are 3,045,147.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except per share amounts)
THREE MONTHS ENDED
MARCH 31
2000 1999
-------------------
Operating revenue $23,537 21,067
Operating expense:
Operation:
Purchased water 4,730 3,931
Power 632 561
Pump taxes 2,825 2,353
Other 5,775 4,760
Maintenance 1,743 1,621
Property taxes and other
nonincome taxes 1,016 936
Depreciation and amortization 2,961 2,563
Income taxes 874 1,184
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Total operating expenses 20,556 17,909
-----------------
Operating income 2,981 3,158
Other income 89 131
Dividend income 302 298
Merger-related costs (163) -
Interest on long-term debt and other charges (1,882) (1,806)
-----------------
Net income $1,327 1,781
=================
Other comprehensive loss:
Unrealized loss on investment (8,249) (7,493)
Income taxes related to other
comprehensive loss 3,382 3,072
-----------------
Other comprehensive loss, net (4,867) (4,421)
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Comprehensive loss $(3,540) (2,640)
=================
Basic earnings per share $0.44 0.58
=================
Comprehensive loss per share $(1.16) (0.86)
=================
Dividends per share of common stock $0.615 0.60
=================
Weighted average shares outstanding 3,045 3,084
See accompanying notes to consolidated financial statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
ASSETS MARCH DECEMBER
2000 1999
------------------
Utility plant $438,394 432,262
Less accumulated depreciation and amortization 132,413 129,828
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Net utility plant 305,981 302,434
Nonutility property 10,089 10,133
Current assets:
Cash and equivalents 850 124
Accounts receivable and accrued revenue 11,778 12,580
Prepaid expenses and other 1,022 1,096
-----------------
Total current assets 13,650 13,800
Other assets:
Investment in Calif.Water Service Group 25,093 33,342
Investment in joint venture 1,210 1,210
Debt issuance and reacquisition costs 3,840 3,880
Regulatory assets 5,185 5,177
Goodwill 1,893 1,914
Other 499 537
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Total other assets 37,720 46,060
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$367,440 372,427
==================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,516 9,516
Additional paid-in capital 12,357 12,357
Retained earnings 112,512 113,058
Accumulated other comprehensive income 4,096 8,963
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Shareholders' equity 138,481 143,894
Long-term debt 90,000 90,000
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Total capitalization 228,481 233,894
Current liabilities:
Line of credit 5,100 3,300
Accounts payable 1,568 476
Accrued interest 1,999 2,751
Accrued pump taxes and purchased water 2,520 3,072
Accrued taxes payable 2,990 3,849
Other current liabilities 4,574 3,394
------------------
Total current liabilities 18,751 16,842
Deferred income taxes and tax credits 24,513 28,152
Other noncurrent liabilities 3,028 2,794
Advances for and contributions in aid of
construction 92,667 90,745
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$367,440 372,427
==================
See accompanying notes to consolidated financial statements
SJW CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
THREE MONTHS ENDED
MARCH 31
2000 1999
Operating activities: ------------------
Net income $1,327 1,781
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,961 2,563
Deferred income taxes and credits (3,639) (2,731)
Changes in operating assets and liabilities:
Accounts receivable and accrued revenue 802 962
Prepaid expenses and other 74 268
Accounts payable & other current liabilities 2,272 (1,623)
Accrued pump taxes and purchased water (552) (459)
Accrued taxes payable (859) 1,652
Accrued interest (752) (753)
Other changes, net 3,816 3,364
---------------
Net cash provided by operating activities 5,450 5,024
Investing activities:
Additions to utility plant (6,693) (7,429)
Cost to retire utility plant (176) (128)
---------------
Net cash used in investing activities (6,869) (7,557)
Financing activities:
Borrowings on line of credit 1,800 3,200
Dividends paid (1,873) (1,898)
Advances and contributions
in aid of construction 2,448 1,092
Refunds of advances (230) (223)
Purchase of common stock - (7,111)
---------------
Net cash provided by
(used in) financing activities 2,145 (4,940)
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Net change in cash and equivalents 726 (7,473)
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Cash and equivalents, beginning of period 124 8,066
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Cash and equivalents, end of period $ 850 593
===============
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $2,562 $2,517
Income taxes $2,548 -
See accompanying notes to consolidated financial statements
SJW CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
NOTE I - General
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In the opinion of SJW Corp.,(the Corporation), the accompanying
unaudited condensed consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the results for the
interim periods.
The Notes to Consolidated Financial Statements incorporated by
reference in SJW Corp.'s 1999 Annual Report on Form 10-K should
be read with the accompanying condensed consolidated financial
statements.
Basic earnings per share and comprehensive income per share are
calculated using income available to common shareholders and
comprehensive income, respectively, divided by the weighted
average number of shares outstanding during the year. SJW Corp.
has no dilutive securities, and accordingly, diluted earnings per
share is not shown.
SJW Corp. and its subsidiaries operate predominantly in one
reportable business segment of providing water utility service to
its customers. Nonutility revenue, assets, and net income do not
have a material effect on the corporation's financial condition
and results of operation.
NOTE II - The Merger
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On October 28, 1999, SJW Corp. and American Water Works Company,
Inc. (American Water) entered into an Agreement and Plan of
Merger (the Merger Agreement). Pursuant to the Merger Agreement,
a wholly owned subsidiary of American Water will merge with and
into SJW Corp.
Under the terms of the Merger Agreement, each share of the
corporation's common stock outstanding on the closing date would
be converted into the right to receive $128 per share in cash.
SJW Corp. expects that the transaction will be completed within
twelve months, following all required regulatory approvals,and
the termination of the waiting period under federal antitrust
laws. Shareholders of SJW Corp.approved the Merger Agreement at
the Annual Meeting of the Shareholders held on April 20, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
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SJW Corp. and its subsidiaries have unsecured lines of credit
available allowing aggregate short-term borrowings of up to
$28,000,000 at rates which approximate the bank's prime or
reference rate. At March 31, 2000, SJW Corp. and its
subsidiaries had available unused short-term bank lines of credit
of $22,900,000.
San Jose Water Company's capital expenditures are incurred in
connection with normal upgrading and expansion of existing
facilities and to comply with environmental regulations. Capital
expenditures for the next five years are likely to increase from
historical levels due to the addition of new, or expansion of
existing, water treatment and source of supply facilities in
order to comply with environmental regulations. Company-financed
net capital expenditures for 2000 are estimated at $24,500,000.
For the five-year period from 2000 to 2004, San Jose Water
Company's net capital expenditures are estimated to aggregate
$120,000,000. Net capital expenditures represent gross capital
expenditures less advances and contributions in aid of
construction.
General:
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SJW Corp. is a holding company that was created in 1985 through
an agreement of merger with San Jose Water Company. SJW Corp.
has operational and financial flexibility and can engage in
nonutility activities.
San Jose Water Company is a public utility in the business of
providing water service to approximately 979,000 people in the
metropolitan San Jose area.
SJW Land Company, a wholly owned subsidiary, was formed in 1985
for the purpose of real estate development. It operates parking
facilities located adjacent to the Corporation's headquarters and
the San Jose Arena. SJW Land Company also owns a commercial
building in San Jose and a 70% limited partnership interest in
444 West Santa Clara Street, L.P.
SJW Corp. also owns 1,099,952 shares of California Water Service
Group.
Results of Operations:
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Overview
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SJW Corp.'s consolidated net income for the first quarter of 2000
was $1,327,000, a decrease of 25% from $1,781,000 in the first
quarter of 2000. Dry weather in the first quarter caused
customers to increase water usage, and as a result, revenue was
higher than 1999 first quarter levels. Despite the higher
revenue, consolidated net income decreased. The decrease in
consolidated net income is due primarily to certain expenses
which were incurred in conjunction with SJW Corp.'s merger with
American Water Works Company, Inc., of which regulatory approval
is pending.
Operating Revenue
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The change in consolidated operating revenue from the same period
in 1999 is due to the following factors:
Three months ended
March 31, 2000 vs. 1999
-----------------------
Increase
Utility:
Consumption $ 1,401,000 6.7%
New customers 104,000 0.5
New rates 851,000 4.0
Real estate 114,000 0.5
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$ 2,470,000 11.7%
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Operating Expense
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The change in consolidated operating expense, excluding income
taxes, from the same period in 1999 is due to the following:
Three months ended
March 31, 2000 vs. 1999
------------------------
Increase
Operation and maintenance $ 2,478,000 14.8%
Depreciation 398,000 2.4
General taxes 80,000 0.5
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$ 2,956,000 17.7%
=================================================================
The increase in operation and maintenance expense is due
primarily to increased water production costs, resulting from the
increase in customer water consumption, and the additional merger-
related employee compensation in the first quarter of 2000.
Income tax expense decreased $310,000, or 26%, in comparison to
the first quarter of 1999. The effective rate for each period is
approximately 40%.
Interest expense increased $50,000, or 3%, due to the increase in
borrowing.
Since the water business is highly seasonal in nature, a
comparison of the revenue and expense of the current quarter with
the immediately preceding quarter would not be meaningful. The
first quarter is normally the quarter with the lowest average
usage per metered customer and is not indicative of the results
for the calendar year. The average usage per metered customer in
the first quarter of 2000 increased 10% from the first quarter of
1999.
Water Supply
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On April 26, 2000, Santa Clara Valley Water District's ten
storage reservoirs were 87% full with 147,711 acre feet of water,
which is above average for the past 20 years. The rainfall in
the winter of 2000 maintained a slightly above average surface
water supply for the Corporation. Surface water is a less costly
source of water and its availability significantly impacts the
results of operation.
Regulatory Affairs
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On February 18, 2000, San Jose Water Company filed its
application for a general rate increase effective for the year
2001 through 2003. The Company is requesting a return on equity
of 11.75% for the years 2001 through 2003. Recent rates of
return on common equity authorized by the Commission have been in
the 10% range for water utilities.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2000 Annual Meeting of Shareholders of the Corporation
held on April 20, 2000, nine directors were re-elected to the
Board of Directors, and the appointment of KPMG LLP as
independent auditors for 2000 was ratified by the following
votes:
Name of Director In Favor Against
Mark L. Cali 2,873,153 29,501
J. Philip DiNapoli 2,873,228 29,426
Drew Gibson 2,873,256 29,401
Ronald R. James 2,872,513 30,141
George Moss 2,873,625 29,026
Roscoe Moss, Jr. 2,873,650 29,001
W. Richard Roth 2,873,189 29,465
Charles J. Toeniskoetter 2,873,088 29,566
J.W. Weinhardt 2,853,256 29,401
Ratification of appointment of independent auditors for 2000:
In Favor Against Abstaining
2,842,439 23,428 36,787
The shareholder proposal set forth in the Corporation's Proxy
Statement for the 2000 Annual Meeting of Shareholders held on
April 20,2000 was not approved by the following votes:
In Favor Against Abstaining Non-votes
387,126 2,025,873 101,753 387,902
The proposal to approve and adopt the Agreement and Plan of
Merger, dated as of October 28, 1999, a copy of which was
included with the notice of the meeting and mailed to all
shareholders of record on March 22, 2000, which provides that the
Corporation will be merged into a wholly owned subsidiary of
American Water, was approved by the following votes:
In Favor Against Abstaining Non-votes
2,449,722 37,413 36,272 379,247
ITEM 5. OTHER INFORMATION
On April 20, 2000, the Board of Directors of the Corporation
declared the regular quarterly dividend of $.615 per common
share. The dividend will be paid June 1, 2000, to shareholders
of record as of the close of business on May 1, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits required to be filed by Item 601 of Regulation
S-K.
There were no exhibits required to be filed by Item 601 of
Regulation S-K for the quarter ended March 31, 2000.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
March 31, 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Corporation has no derivative financial instruments,
financial instruments with significant off-balance sheet risks,
or financial instruments with concentrations of credit risk.
There is no material sensitivity to change in market rates and
prices.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SJW Corp.
Date: By /s/
----------------
ANGELA YIP
Chief Financial Officer & Treasurer
`
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