HTO

SJW Corp. 10-K Summary: Fiscal Year Ended December 31, 1999

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 1999, for SJW Corp., a California-based holding company. The company operates primarily through its wholly-owned subsidiary, San Jose Water Company, a regulated public utility serving approximately 979,000 people in the San Jose metropolitan area. A secondary subsidiary, SJW Land Company, manages parking facilities and commercial real estate. The company also holds a significant investment in California Water Service Group.

Key Financial Metrics

Liquidity: As of December 31, 1999, the company held $124,000 in cash and equivalents. It maintained $24.7 million in unused line of credit capacity and over $50 million in borrowing capacity under senior note agreements.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated operating revenue increased by 10% ($11.0 million) compared to 1998. This was driven by a 4% increase in water consumption, rate increases ($6.0 million), and new customers ($0.8 million).
• Expense Increases: Operating expenses (excluding income taxes) rose 14% year-over-year, primarily due to increased water production costs. Purchased water expenses increased significantly.
• Non-Utility Gains: The company recognized a net gain of $3.1 million from the sale of nonutility property in December 1999, compared to $1.6 million in 1998.
• Merger Costs: The company incurred $1.6 million in merger-related expenses in 1999, a new line item not present in 1998.
• Stock Repurchases: SJW Corp. repurchased 122,400 shares of common stock in 1999 at a cost of $7.1 million, compared to only 2,800 shares in 1998.

Outlook, Risks, and Management Commentary

The Merger: On October 28, 1999, SJW Corp. entered into a definitive agreement to be acquired by American Water Works Company, Inc. Shareholders are entitled to receive $128 per share in cash. The transaction is expected to close within 8-12 months, subject to regulatory approvals and shareholder vote scheduled for April 20, 2000.

Capital Requirements: The 2000 capital budget is projected at $24.6 million, focused on main replacements and facility relocations. The company anticipates approximately $120 million in capital expenditures over the next five years.

Risks and Contingencies:

• Regulatory: Rates are subject to California Public Utilities Commission (CPUC) approval. The company deferred a general rate case filing until January 2000, meaning no step rate increases are authorized until January 2001.
• Water Supply: Operations depend on rainfall for surface water (6-8% of supply). Dry years necessitate more expensive purchased water, impacting margins.
• Environmental: Compliance with EPA and state regulations regarding water quality and hazardous materials may increase costs, though a memorandum account provides some protection for federal water quality costs.
• Legal: A lawsuit regarding a 1993 pipeline rupture (Valley Title Company) was successfully dismissed in 1999, concluding the matter.

Investor Verification Checklist

• Merger Approval: Confirm the status of the American Water Works merger, including regulatory approvals and the outcome of the April 20, 2000 shareholder vote.
• Rate Case Outcome: Monitor the results of the general rate case filed in January 2000 to determine future revenue authorization.
• Water Supply Costs: Verify rainfall levels in the Santa Cruz Mountains and the resulting mix of surface vs. purchased water to assess future operating margins.
• Capital Expenditure Execution: Track actual capital spending against the $24.6 million 2000 budget, particularly regarding infrastructure renewal.
• Dividend Sustainability: Review cash flow adequacy to support the 32-year streak of dividend increases, especially given the pending cash-out merger.