7.
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 September 30, 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)
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California 77-0066628
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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374 West Santa Clara Street, San Jose, CA 95196
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(Address of principal executive offices) (Zip Code)
408-279-7800
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(Registrant's telephone number, including area code)
Not Applicable
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(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 November 1, 2000 and as of the
date of this report are 3,045,147.
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands, except share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
--------------------------------------
Operating revenue $39,181 37,661 95,782 88,916
Operating expenses:
Operation:
Purchased water 10,321 10,015 23,151 21,085
Power 1,510 1,298 3,217 2,814
Pump taxes 6,261 5,396 13,938 11,676
Other 5,460 5,143 16,717 14,638
Maintenance 1,735 1,805 5,230 5,087
Property and other
nonincome taxes 1,027 999 3,025 2,861
Depreciation and
amortization 2,962 2,558 8,885 7,674
Income taxes 3,457 3,657 6,558 7,586
Total operating --------------------------------------
expenses 32,733 30,871 80,721 73,421
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Operating income 6,448 6,790 15,061 15,495
Dividend 302 298 907 895
Merger-related costs (64) - (1,603) -
Interest and other charges(1,899) (1,855) (5,640) (5,533)
Other income 173 176 284 407
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Net income $ 4,960 5,409 9,009 11,264
======================================
Other comprehensive
income(loss):
Unrealized gain(loss)
on investment 2,750 1,375 (3,919) (4,331)
Income taxes related to
other comprehensive
income (loss) (1,128) (564) 1,607 1,776
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Other comprehensive
income (loss), net 1,622 811 (2,312) (2,555)
-----------------------------------
Comprehensive income $6,582 6,220 6,697 8,709
===================================
Basic earnings per
share $ 1.63 1.78 2.96 3.68
Comprehensive income
per share $ 2.16 2.04 2.20 2.85
Dividends per share $0.615 0.60 1.845 1.80
Weighted average
shares outstanding 3,045,147 3,045,147 3,045,147 3,058,258
See accompanying notes to condensed consolidated financial
statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
SEPTEMBER 30 DECEMBER 31
2000 1999
ASSETS --------------------------
Utility plant and intangible
assets $453,795 432,262
Less accumulated depreciation and
amortization 137,398 129,828
-------------------------
Net utility plant 316,397 302,434
Nonutility property 9,977 10,133
Current assets:
Cash and equivalents 1,629 124
Accounts receivable and accrued revenue 18,315 12,580
Prepaid expenses and other 1,697 1,096
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Total current assets 21,641 13,800
Other assets:
Investment in California Water
Service Group 29,424 33,342
Investment in joint venture 1,255 1,210
Debt issuance and reacquisition costs 3,759 3,880
Regulatory assets 5,192 5,177
Goodwill 1,850 1,914
Other 555 537
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Total other assets 42,035 46,060
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$390,050 372,427
=========================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock $ 9,516 9,516
Additional paid-in capital 12,357 12,357
Retained earnings 116,449 113,058
Accumulated other comprehensive income 6,651 8,963
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Shareholders' equity 144,973 143,894
Long-term debt 90,000 90,000
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Total capitalization 234,973 233,894
Current liabilities:
Line of credit 8,300 3,300
Accrued interest 2,018 2,751
Accounts payable 1,586 476
Accrued pump taxes and purchased water 7,376 3,072
Accrued taxes 3,132 3,849
Other current liabilities 6,122 3,394
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Total current liabilities 28,534 16,842
Deferred income taxes and tax credits 26,149 28,152
Advances for and contributions in aid
of construction 96,555 90,745
Other noncurrent liabilities 3,839 2,794
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$390,050 372,427
=========================
See accompanying notes to condensed consolidated financial
statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
2000 1999
Operating activities: ------------------------
Net income $ 9,009 11,264
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 8,885 7,674
Deferred income taxes and credits (2,003) (1,338)
Changes in operating assets and
liabilities:
Accounts receivable and accrued revenue(5,735) (5,830)
Prepaid expenses and other (601) (160)
Accounts payable and other
Current liabilities 3,838 (53)
Accrued pump taxes and purchased water 4,304 2,368
Accrued taxes (717) 2,965
Accrued interest (733) (731)
Other changes, net 3,155 2,923
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Net cash provided by operating activities 19,402 19,082
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Investing activities:
Additions to utility plant (23,511) (22,589)
Additions to nonutility property (47) (64)
Cost to retire utility plant (418) (295)
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Net cash used in investing activities (23,976) (22,948)
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Financing activities:
Dividends paid (5,618) (5,552)
Net borrowings on line of credit 5,000 2,900
Advances and contributions in aid of
construction 7,913 7,809
Refunds of advances (1,216) (1,172)
Purchase and retirement of common stock - (7,111)
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Net cash provided by (used in)financing
activities 6,079 (3,126)
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Net change in cash and equivalents 1,505 (6,992)
Cash and equivalents, beginning of period 124 8,066
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Cash and equivalents, end of period $1,629 1,074
========================
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $6,298 6,069
Income taxes 8,448 5,027
See accompanying notes to condensed consolidated financial
statements.
SJW CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
NOTE I - General
In the opinion of SJW Corp., 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 are not shown.
SJW Corp., and its subsidiaries operate predominantly in one
reportable business segment of providing water utility
service to its customer. Nonutility revenue, assets, and net
income do not have a material effect on the corporation's
financial condition and results of operations.
NOTE II - Merger
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. Shareholders of SJW Corp. approved the Merger
Agreement at the Annual Meeting of the Shareholders held on
April 20, 2000.
The transaction also requires the approval of the California
Public Utilities Commissioner (CPUC). The CPUC Staff has
established a schedule for consideration of the proposed
merger that would allow for a decision in April 2001. SJW
Corp. has also received a report from the CPUC's Office of
Ratepayers' Advocates indicating that the Office will oppose
the merger application as filed as not providing substantial
and tangible benefits to ratepayers. SJW Corp and American
Water strongly disagree with the report and filed rebuttal
testimony with the CPUC contesting the report. Meanwhile,
SJW Corp. and American Water continue to work to complete
the merger. There is, however, no assurance that CPUC
approval will be obtained on a timely basis, or at all.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (dollars in
thousands):
This report contains forward looking statements relating to
future events and financial performance of the company. Such
forward looking statements are identified by words including
" expect", "estimate", "anticipate", and similar
expressions. The company's actual results could differ
materially from those discussed in such forward looking
statements.
Liquidity and Capital Resources:
SJW Corp. and its subsidiaries have unsecured lines of
credit available allowing aggregate short-term borrowings of
up to $40,000 at rates which approximate the bank's prime or
reference rate. At September 30, 2000, SJW Corp. and its
subsidiaries had available unused short-term bank lines of
credit of $31,700.
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 and to comply with
environmental regulations. Net capital expenditures for 2000
are estimated at $24,500. For the five-year period from 2000
to 2004, San Jose Water Company's net capital expenditures
are estimated to aggregate $120,000. Net capital
expenditures represent gross capital expenditures less
advances and contributions in aid of construction.
General:
SJW Corp. is a holding company created in 1985 through an
agreement of merger with San Jose Water Company. SJW Corp.
has operational and financial flexibility and can engage in
nonregulated activities. SJW Corp. owns 1,099,952 shares of
California Water Service Group.
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 owns
parking facilities located adjacent to the Company's
headquarters and the San Jose Arena. SJW Land Company also
owns an investment property and various real estate in the
San Jose area, and 70% limited partnership interest in 444
West Santa Clara Street, L.P.
Results of Operations
Overview
SJW Corp.'s consolidated net income for the third quarter of
2000 was $4,960, a decrease of 8% from $5,409 in the third
quarter of 1999. The earnings decrease was due primarily to
higher water production costs. Earnings for the nine months
of 2000 decreased 20% from $9,009 to $11,264 in comparison
with the same period in 1999. The decrease in consolidated
net income was due primarily to higher water production
costs and certain expenses which were incurred in
conjunction with SJW Corp.'s previously announced merger
with American Water.
Operating Revenue
The change in consolidated operating revenue from the same
period in 1999 was due to the following factors:
Three months ended Nine months ended
Sept.30 2000 vs 1999 Sept.30 2000 vs 1999
Increase/(decrease) Increase/(decrease)
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Utility:
Consumption $494 1.3% 3,116 3.5%
New customers 307 0.8 613 0.7
Rate increases 633 1.7 2,673 3.0
Real estate 86 0.2 464 0.5
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$1,520 4.0% 6,866 7.7%
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Average usage per metered customer in the third quarter of
2000 was 1.3% higher than the third quarter of 1999. Year-
to-date metered customer usage increased 3.5% in comparison
to the same period in 1999.
Operating Expense
The change in consolidated operating expense, excluding
income taxes, from the same period in 1999 was due to the
following:
Three months ended Nine months ended
Sept.30 2000 vs 1999 Sept.30 2000 vs 1999
Increase/(decrease) Increase/(decrease)
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Operation and
Maintenance $1,630 6.0% 6,953 10.6%
Depreciation 404 1.5 1,211 1.8
General taxes 28 - 164 .2
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$2,062 7.5% 8,328 12.6%
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The higher third quarter operation and maintenance expense
in 2000 was attributable to increased water production cost
as a result of rate increases in Santa Clara Valley Water
District's purchased water and pump tax costs, and merger-
related employee compensation and pension benefits. Year-to-
date operation and maintenance expense for 2000 increased
due to the above-mentioned cost increases and higher
customer water consumption.
Other
The effective income tax rates for the current quarter and
nine months year-to-date of 2000 were slightly above the
rates for the same comparable periods in 1999 due to the non-
deductibility of certain merger-related expenses.
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. Results of the first nine months of 2000 may
not be indicative of results for the full year.
Water Supply
On November 6, 2000, Santa Clara Valley Water District's 10
reservoirs were 55% full with 88,265 acre feet of water in
storage -- which is about average for the past 20 years.
While at the same time, the water level in the Santa Clara
ground water basin and the year to date rainfall
approximated the 30-year average.
Regulatory Affairs
On July 1, 2000, San Jose Water Company received CPUC
approval for an offset rate increase in the amount of $2,100
or 2% to offset the purchased water and pump tax rate
increase instituted by the Santa Clara Valley Water
District. An offset rate increase is a cost reimbursement
and is not designed to increase the earnings of the utility.
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 CPUC have
been in the 10% range for water utilities.
The CPUC is expected to issue a proposed decision before the
end of the year.
Merger
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. Shareholders of SJW Corp. approved the Merger
Agreement at the Annual Meeting of the Shareholders held on
April 20, 2000.
The transaction also requires the approval of the California
Public Utilities Commissioner (CPUC). The CPUC Staff has
established a schedule for consideration of the proposed
merger that would allow for a decision in April 2001. SJW
Corp. has also received a report from the CPUC's Office of
Ratepayers' Advocates indicating that the Office will oppose
the merger as not providing substantial and tangible
benefits to ratepayers. SJW Corp and American Water
strongly disagree with the report and filed rebuttal
testimony with the CPUC contesting the reports and
conclusion. Meanwhile, SJW Corp. and American Water continue
to work to complete the merger. There is, however, no
assurance that CPUC approval will be obtained on a timely
basis, or at all.
Item 3. 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 changes in
market rates and prices.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
On October 26, 2000, the Board of Directors declared the
regular quarterly dividend of $.615 per common share.
The dividend will be paid December 1, 2000 to
shareholders of record as of the close of business on
November 6, 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 SK for the quarter ended September
30,2000.
(b) Reports on Form 8-K
SJW Corp. filed its 8-K report with the Commission an
August 28, 2000. SEC FILE NO 1-8966.
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: November 10, 2000 By /s/Angela Yip
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Angela Yip,
Chief Financial Officer
and Treasurer
