HTOWU

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How HTOWU rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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The risks described below are not the only ones facing H2O America and its subsidiaries.
Additional risks that H2O America and its subsidiaries does not yet know of or that it currently thinks are immaterial may also impair its business operations.
If any of the following risks actually occur, H2O America and its subsidiaries’ business, operating results or financial condition could be materially affected.
In such case, the trading price of H2O America’s common stock could decline and you may lose part or all of your investment.
Risks Relating To Quadvest Acquisition The following discusses certain risk factors relating to the proposed transactions with Quadvest, and does not include all of the risk factors associated with the proposed transactions and H2O America after the proposed transactions.
Our proposed transactions with Quadvest are subject to the receipt of consents and clearances from regulatory authorities that may impose conditions that could have an adverse effect on H2O America or, if not obtained, could prevent completion of the proposed transactions.
Completion of the proposed transactions is contingent upon, among other things, the receipt of all required regulatory approvals, which consist of compliance with and filings and the applicable waiting period under the Hart Scott-Rodino Antitrust Improvements Act, compliance with and applications for permits with state and municipal agencies and consent required by the PUCT for the transfer of Quadvest’s water and sewer utility business (the “Regulated Business”).
The terms and conditions of the approvals that are granted by such governmental entities and regulatory authorities may impose requirements, limitations, costs, or place restrictions on the conduct of H2O America’s business.
The asset purchase agreements may require H2O America to comply with conditions imposed by regulatory entities and, in certain circumstances, either company may refuse to close the proposed transactions on the basis of regulatory conditions imposed.
There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions or that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the proposed transactions or imposing additional material costs on or materially limiting the revenues of H2O America following the proposed transactions.
Additionally, H2O America cannot provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the proposed transactions, or the consummation of the proposed transactions on terms different than those contemplated by the asset purchase agreements.
The length of the regulatory approval process required by the PUCT, which may be extended beyond its current estimates, may reduce or eliminate the benefits to be achieved under the proposed transactions.
As a condition to the consummation of the proposed transactions, the sale of the Regulated Business must be approved by the PUCT.
While we expect the transaction to receive PUCT approval by mid-2026, the exact timeline for this approval process is unknown and may not occur until later, if at all.
In addition to the required regulatory clearances, the proposed transactions are subject to a number of other conditions beyond H2O America’s control that may prevent, delay or otherwise materially adversely affect its completion.
We cannot predict whether and when these other conditions will be satisfied.
Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the proposed transactions for a significant period of time or prevent them from occurring.
Any delay in completing the proposed transactions could cause H2O America to not realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the proposed transactions are successfully completed within the expected time frame.
Failure to achieve these anticipated benefits within the expected time frame could result in increased costs and/or lower-than-expected revenues or income generated by H2O America after the completion of the proposed transactions.
We may be unable to successfully integrate Quadvest’s business with ours and realize the anticipated benefits of the acquisition, which could negatively impact the future business and financial results of H2O America.
The anticipated benefits expected from the proposed transactions are based on projections and assumptions about the combined Quadvest and H2O America businesses, which may not materialize as expected or which may prove to be inaccurate.
Achieving the benefits of the proposed transactions will depend, in part, on H2O America’s ability to integrate the business and operations of Quadvest successfully and efficiently with our business.
The challenges involved in this integration, which will be complex and time-consuming, include the following: • successfully managing relationships with our combined customer base and retaining Quadvest’s customers; • the ability to successfully integrate Quadvest’s business with ours in a manner that permits H2O America to achieve the synergies and other benefits anticipated to result from the proposed transactions; • integrating complex systems, operating procedures, regulatory compliance programs, technology, networks, and other assets of Quadvest and H2O America in a manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies; • diversion of the attention of the management and other key employees of Quadvest and H2O America; • integrating the workforces of Quadvest and H2O America while maintaining focus on providing clean, high quality water and exceptional service; • disruption of, or the loss of momentum in, the ongoing business of H2O America; • liabilities that are significantly larger than we currently anticipate and unforeseen increased expenses or delays associated with the proposed transactions, including transition costs to integrate the businesses of Quadvest and H2O America, that may exceed the costs that we currently anticipate; and • the increased scale of our operations resulting from the proposed transactions.
If we do not successfully manage these issues and the other challenges inherent in integrating Quadvest, then we may not achieve the anticipated benefits of the proposed transactions and our business, financial condition and results of operations could be materially adversely affected.
Failure to complete the proposed transactions as currently contemplated or at all could negatively impact the stock price, business operations and financial results of H2O America.
Completion of the proposed transactions is not assured and is subject to risks, including the risks that approval of the proposed transactions by governmental entities will not be obtained or that certain other closing conditions will not be satisfied.
If the proposed transactions are not completed, or are completed on different terms than as contemplated by the asset purchase agreements, the ongoing businesses and financial results of H2O America may be adversely affected and H2O America will be subject to several risks, including the following: • having to pay certain significant costs relating to the proposed transactions without receiving the benefits of the proposed transactions, including, in certain circumstances, payment of a termination fee; • reputational harm due to the adverse public perception of any failure to successfully complete the proposed transactions; and • H2O America’s management having focused on the proposed transactions instead of on conducting its day-to-day business and operational matters and pursuing other opportunities that could have been beneficial to the companies.
Any delay in the completion of the proposed transactions, any uncertainty about the completion of the proposed transactions on terms other than those contemplated by the asset purchase agreements and any failure to complete the proposed transactions could adversely affect the business, financial results and stock price of H2O America.
The asset purchase agreements with Quadvest may be terminated in certain circumstances, which would result in the benefits of the proposed transactions not being realized, and under certain circumstances, we may be required to pay a termination fee.
Either H2O America or Quadvest may terminate the asset purchase agreements under certain circumstances, including if the proposed transactions have not been consummated by January 7, 2027 (unless such date is extended to a date mutually agreed to by the parties to obtain regulatory approval under certain circumstances, which could be up to an additional eighteen months).
However, this termination right will not be available to a party if such failure to complete the proposed transactions on or before such date is the result of such party’s failure to perform or comply, in all material respects, with any of the covenants, agreements or conditions of the asset purchase agreements.
If we are not able to complete the proposed transactions by the end date, even if we decide not to terminate the asset purchase agreements, we may not be able to prevent Quadvest from exercising its right to terminate the asset purchase agreements.
In addition, if the asset purchase agreements are terminated under certain circumstances related to regulatory approvals, H2O America may be required to pay to Quadvest a termination fee of $21 million.
Failure to obtain financing for the proposed transactions on favorable terms or at all could negatively impact the operating results and financial condition of H2O America.
H2O America may seek to raise capital to finance the proposed transactions, including through the issuance of debt or equity securities.
There can be no assurance that such financing will be available on favorable terms, or at all.
The incurrence of additional indebtedness could adversely affect H2O America’s financial condition, results of operations, or cash flows.
Additionally, equity financings may result in dilution to our existing stockholders and debt financings may contain covenants that restrict the actions of H2O America and its subsidiaries.
Furthermore, any downgrade in H2O America’s credit ratings by rating agencies may negatively impact the market value and liquidity of H2O America’s debt and equity securities.
In some of our applications for rate approvals, we rely upon estimates and forecasts to propose rates for approval by the Regulators.

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Gone since FY2024

The risks described below are not the only ones facing SJW Group and its subsidiaries.
Additional risks that SJW Group and its subsidiaries does not yet know of or that it currently thinks are immaterial may also impair its business operations.
If any of the following risks actually occur, SJW Group and its subsidiaries’ business, operating results or financial condition could be materially affected.
In such case, the trading price of SJW Group’s common stock could decline and you may lose part or all of your investment.
In our applications for rate approvals, we rely upon estimates and forecasts to propose rates for approval by the Regulators.
To the extent our authorized rates may be too low, revenues may be insufficient to cover Water Utility Services’ operating expenses, capital requirements and SJW Group’s historical dividend rate.
We have various regulatory mechanisms such as balancing and memorandum accounts and rate adjustment mechanisms for infrastructure replacement, to recover certain costs and expenses.
Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities to reflect the actions of regulators as permitted by Financial Accounting Standards Board (“FASB”) ASC Topic 980—“Regulated Operations.” These actions may result in the recognition of revenues and expenses in time periods that are different from non-rate-regulated enterprises.
In October 2023, CWC, a subsidiary of SJW Group in our Water Utility Services segment, was named as a defendant in a class action lawsuit alleging that the water provided by CWC contained contaminants.
Pollution liability coverage is in place for the majority of the SJW Group locations and operations but is subject to exclusions and limitations.
Under the federal Safe Drinking Water Act, Water Utility Services is subject to regulation by the EPA relating to the quality of water it sells and treatment techniques it uses to make the water potable.
The regulations impose maximum contaminant levels and monitoring requirements for the nation’s water system for six PFAS chemicals under the Safe Drinking Water Act.
However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe Drinking Water Act.
There are currently limited regulatory mechanisms and procedures available to us for the recovery of such costs and there can be no assurance that such costs will be fully recovered and failure to do so may adversely affect our operating results.
The concentration of our business in California and Connecticut makes us susceptible to adverse developments affecting these two states.
While SJW Group operates in multiple states, a significant majority of our revenues and earnings are generated by our California and Connecticut operations.
As a result, our financial results are largely subject to political, regulatory, economic, water supply, weather, labor, and energy cost risks affecting California and Connecticut.
In addition, in time of drought, such as in the drought experienced in California in 2021 to early 2023, mandatory water conservation may become a regulatory requirement that impacts the water usage of our customers.
As of December 31, 2024, 241 of our 822 total employees were union members.
The current three-year bargaining agreements will expire on December 31, 2025.
In addition, EPA regulations impose maximum contaminant levels and monitoring requirements for the nation’s water systems for six PFAS chemicals under the Safe Drinking Water Act and will require an increase in capital expenditures.
SJW Group’s subsidiaries fund capital expenditures through a variety of sources, including cash received from operations, funds received from developers as contributions or advances, borrowings through lines of credit and debt financings, as well as equity financings by SJW Group.
Disruptions in the capital and credit markets or deterioration in the strength of financial institutions could adversely affect SJW Group’s ability to draw on its lines of credit, issue long-term debt or sell its equity.
In addition, government policies, the state of the credit markets and other factors could result in increased interest rates, which would increase SJW Group’s cost of capital.
Furthermore, equity financings may result in dilution to our existing stockholders and debt financings may contain covenants that restrict the actions of SJW Group and its subsidiaries.
We have incurred substantial indebtedness resulting in a higher debt-to-equity ratio, which may have the effect, among other things, of: • reducing our flexibility to respond to changing business, industry and economic conditions; • increasing borrowing costs; • limiting growth through capital expenditures and acquisitions; • placing us at a competitive disadvantage relative to other companies in our industry with less debt; • potentially having an adverse effect on our issuer and issue ratings; • requiring additional cash flow to be used to service debt instead of for other purposes; and • potentially impairing our ability to obtain other financing.
SJW Group has committed to certain “ring-fencing” measures which will enhance CTWS’s separateness from SJW Group, which may limit SJW Group’s ability to influence the management and policies of CTWS (beyond the limitations included in other existing governance mechanisms).
Pursuant to the agreements related to the acquisition of CTWS and commitments made by SJW Group as part of the application for PURA and MPUC approval of the acquisition of CTWS, SJW Group has instituted certain “ring-fencing” measures to enhance CTWS’s separateness from SJW Group and to mitigate the risk that CTWS would be negatively impacted in the event of a bankruptcy or other adverse financial developments affecting SJW Group or its non-ring-fenced affiliates.
In order to satisfy the ring-fencing commitments, SJW Group formed SJWNE LLC a wholly owned special purpose entity (“SPE”), to own the capital stock of CTWS.
The SPE, CTWS and its subsidiaries (collectively, the “CTWS Entities”) adopted certain measures designed to enhance their separateness from SJW Group, with the intention of mitigating the effects on the CTWS Entities of any bankruptcy of SJW Group and its affiliates other than the CTWS Entities (collectively, the “Non-CTWS Entities”).
As a result of these ring-fencing measures, in certain situations, SJW Group will be restricted in its ability to access assets of the CTWS Entities as dividends or intercompany loans to satisfy the debt or contractual obligations of any Non-CTWS Entity, including any indebtedness or other contractual obligations of SJW Group.
In addition, the ring-fencing structure may negatively impact SJW Group’s ability to achieve certain benefits, including synergies and economies of scale to reduce operating costs of the combined entity, that it anticipates will result from the merger.
This ring-fencing structure also subjects SJW Group and the CTWS Entities to certain governance, operational and financial restrictions since the closing of the merger.
Accordingly, SJW Group may be restricted in its ability to direct the management, policies and operations of the CTWS Entities, including the deployment or disposition of their respective assets, declarations of dividends, strategic planning and other important corporate issues.
Furthermore, the CTWS Entities’ directors have considerable autonomy and, as described in our commitments, have a duty to act in the best interest of the CTWS Entities consistent with the ring-fencing structure and applicable law, which may be contrary to SJW Group’s best interests or be in opposition to SJW Group’s preferred strategic direction for the CTWS Entities.
To the extent they take actions that are not in SJW Group’s interests, our financial condition, results of operations and prospects may be materially adversely affected.
We expect to incur costs in connection with the execution of this strategy and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on SJW Group’s financial position and operating results, entering markets in which SJW Group has no or limited direct prior experience and the potential loss of key employees of any acquired company.
SJW Group cannot be certain that any transaction will be successful or that it will not materially harm operating results or our financial condition.
As of December 31, 2024, consolidated goodwill totaled $640.3 million, or 14% of our total assets.
SJW Group’s dividend policy is subject to the discretion of our board of directors and may be limited by legal and contractual requirements.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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