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 --------------------------------------------- Commission file number 1-8966 ----------------------------------------- SJW Corp. - ---------------------------------------------------------------- (Exact name of registrant as specified in its charter) - ---------------------------------------------------------------- California 77-0066628 - ---------------------------------------------------------------- (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 - ---------------------------------------------------------------- (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 November 1, 2000 and as of the date of this report are 3,045,147. PART 1. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS -------------------- 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 -------------------------------------- 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 -------------------------------------- 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 ----------------------------------- 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 ------------------------- 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 ------------------------- Total other assets 42,035 46,060 ------------------------- $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 ------------------------- Shareholders' equity 144,973 143,894 Long-term debt 90,000 90,000 ------------------------ 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 ------------------------ 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 ------------------------- $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 ------------------------ Net cash provided by operating activities 19,402 19,082 ------------------------ Investing activities: Additions to utility plant (23,511) (22,589) Additions to nonutility property (47) (64) Cost to retire utility plant (418) (295) ------------------------ Net cash used in investing activities (23,976) (22,948) ------------------------ 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) ------------------------- Net cash provided by (used in)financing activities 6,079 (3,126) ------------------------ Net change in cash and equivalents 1,505 (6,992) Cash and equivalents, beginning of period 124 8,066 ------------------------ 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) ----------------------------------------------------------- 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 ----------------------------------------------------------- $1,520 4.0% 6,866 7.7% =========================================================== 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) ----------------------------------------------------------- Operation and Maintenance $1,630 6.0% 6,953 10.6% Depreciation 404 1.5 1,211 1.8 General taxes 28 - 164 .2 ----------------------------------------------------------- $2,062 7.5% 8,328 12.6% =========================================================== 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 ------------------ Angela Yip, Chief Financial Officer and Treasurer