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 June 30, 2002
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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 (IRS Employer
incorporation or organization) Identification No.)
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 August 1, 2002 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 share and per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2002 2001 2002 2001
------- ------ -------- ------
OPERATING REVENUE $38,696 36,364 $66,414 60,609
OPERATING EXPENSES:
Operation:
Purchased water 10,619 9,181 16,306 14,968
Power 1,848 2,057 3,188 2,775
Pump taxes 5,097 6,058 8,714 8,980
Other operating expenses 6,265 4,995 12,218 11,304
Maintenance 1,984 1,821 3,975 3,388
Property taxes and other
nonincome taxes 1,028 1,055 2,178 2,161
Depreciation and
amortization 3,496 3,310 7,002 6,608
Income taxes 2,639 2,172 3,741 2,498
------- ------ ------- ------
Total operating expenses 32,976 30,649 57,322 52,682
------- ------ ------- ------
OPERATING INCOME 5,720 5,715 9,092 7,927
Other income 161 165 421 363
Dividend income 308 307 616 613
Interest expense and other (2,198) (2,017) (4,389) (4,055)
------- ------ -------- ------
NET INCOME $ 3,991 4,170 $ 5,740 4,848
======= ====== ======== ======
Other comprehensive loss:
Unrealized loss on
investment (441) (3,245) (605) (1,485)
Income taxes related to
other comprehensive loss 181 1,330 248 609
------- ------ ------ -----
Other comprehensive loss, net (260) (1,915) (357) (876)
------- ------ ------ -----
COMPREHENSIVE INCOME $ 3,731 2,255 $ 5,383 3,972
======= ====== ======= =====
BASIC EARNINGS PER SHARE $ 1.31 1.37 $ 1.88 1.59
======= ====== ======= =====
COMPREHENSIVE INCOME PER SHARE$ 1.23 0.74 $ 1.77 1.30
======= ====== ======= =====
DIVIDENDS PER SHARE $ 0.69 0.65 $ 1.38 1.27
======= ====== ======= =====
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,045,147 3,045,147 3,045,147 3,045,147
See accompanying Notes to Condensed Consolidated Financial Statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
JUNE 30 DECEMBER 31
2002 2001
-------- --------
ASSETS
UTILITY PLANT $527,303 $507,227
Less accumulated depreciation and amortization 156,828 149,721
-------- --------
Net utility plant 370,475 357,506
NONUTILITY PROPERTY 11,862 11,666
Less accumulated depreciation 1,471 1,357
-------- --------
Net nonutility plant 10,391 10,309
CURRENT ASSETS:
Cash and equivalents 3,485 5,021
Accounts receivable and accrued utility revenue 20,863 14,098
Prepaid expenses and other 1,286 1,308
-------- -------
Total current assets 25,634 20,427
OTHER ASSETS:
Investment in California Water Service Group 27,719 28,324
Investment in joint venture 1,188 1,199
Unamortized debt issuance and reacquisition
costs 3,576 3,658
Goodwill 1,744 1,744
Regulatory assets 5,639 5,567
Other 3,213 2,283
-------- --------
Total other assets 43,079 42,775
-------- --------
$449,579 $431,017
======== ========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock $ 9,516 $ 9,516
Additional paid-in capital 12,357 12,357
Retained earnings 123,952 122,415
Accumulated other comprehensive income 4,709 5,066
-------- --------
Shareholders' equity 150,534 149,354
Long-term debt 110,000 110,000
-------- --------
Total capitalization 260,534 259,354
CURRENT LIABILITIES:
Line of credit 8,650 11,500
Accrued pump taxes and purchased water 7,950 3,091
Accounts payable 4,147 422
Accrued interest 3,240 3,136
Accrued taxes 3,383 1,182
Other current liabilities 4,824 4,828
-------- --------
Total current liabilities 32,194 24,159
DEFERRED INCOME TAXES AND CREDITS 26,623 26,706
ADVANCES FOR AND CONSTRIBUTIONS IN AID OF
CONSTRUCTION 123,223 114,519
OTHER NONCURRENT LIABILITIES 7,005 6,279
-------- --------
$449,579 $431,017
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS ENDED
JUNE 30
2002 2001
------ -------
OPERATING ACTIVITIES:
Net income $5,740 $4,848
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,002 6,608
Deferred income taxes and credits (83) (724)
Changes in operating assets and liabilities:
Accounts receivable and accrued utility revenue (6,765) (7,335)
Accounts payable and other current liabilities 3,721 (764)
Accrued pump taxes and purchased water 4,859 3,531
Accrued taxes 2,201 1,444
Accrued interest 104 -
Other changes, net 336 2,422
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NET CASH PROVIDED BY OPERATING ACTIVITIES 17,115 10,030
------ ------
INVESTING ACTIVITIES:
Additions to utility plant (20,478) (20,686)
Additions to nonutility property (256) (158)
Cost to retire utility plant, net of salvage (268) (195)
Investment in affiliate (11) 101
------ --------
NET CASH USED IN INVESTING ACTIVITIES (21,013) (20,938)
------ --------
FINANCING ACTIVITIES:
Borrowings from line of credit, net of repayments (2,850) 7,500
Dividends paid (4,202) (3,860)
Advances and contributions in aid of construction 10,108 8,036
Refunds of advances (694) (683)
------ --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,362 10,993
------ --------
NET CHANGE IN CASH AND EQUIVALENTS (1,536) 85
------ --------
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 5,021 783
------ --------
CASH AND EQUIVALENTS, END OF PERIOD $3,485 $ 868
====== ========
Cash paid during period for:
Interest $4,190 $ 516
Income taxes 1,300 -
See accompanying Notes to Condensed Consolidated Financial Statements.
SJW CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2002
Note 1. 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 2001 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 customers. Nonutility revenue, assets, and net income do not
have a material effect on the corporation's financial condition
and results of operation.
Note 2. Long-Term Incentive Plan
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At the 2002 Annual Meeting of Shareholders of SJW Corp. held on April
18, 2002, the shareholders approved the adoption of the Long-Term
Incentive Plan (Incentive Plan) under which 300,000 shares of common
stock will initially be reserved for issuance. The Incentive Plan
will allow SJW Corp. to provide key employees, including officers, the
opportunity to acquire a meaningful equity interest in the corporation
as an incentive for them to remain in employment. In no event may any
one participant in the Incentive Plan receive awards under the
Incentive Plan in any calendar year covering an aggregate of more than
100,000 shares of the common stock. Additionally, awards granted
under the Incentive Plan may be conditioned upon the attainment of
specified performance goals. The types of awards included in the
Incentive Plan are stock options, dividend units, performance shares,
rights to acquire restricted stock and stock bonuses. As of June 30,
2002, no award has been granted under the Incentive Plan.
Note 3. Goodwill
- ----------------
SJW Corp. adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets"
regarding goodwill amortization effective January 1, 2002.
Accordingly, the company no longer amortizes goodwill from business
acquisitions. On a pro-forma basis, if the company had applied SFAS
No. 142 during the corresponding six months period a year ago,
amortization of goodwill and other intangible assets would be as
follows:
Six months Six months
ended June 30, ended June 30,
Dollars in thousands 2002 2001
- -------------------- -------------- --------------
Reported net income $5,740 $4,848
Add: Goodwill
amortization, net of tax - 28
------ ------
Adjusted net income $5,740 $4,876
====== ======
Basic earnings per share, as reported $1.88 $1.59
Basic earnings per share, adjusted $1.88 $1.60
Basic earnings per share would be $1.60, adjusted, for the six months
ended June 30, 2001 as compared to $1.59, as reported.
Note 4. Impact of Recent Accounting Pronouncements
- --------------------------------------------------
In August 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 143, "Accounting for Asset Retirement Obligations", which
applies to legal obligations that are associated with the retirement
of long-lived assets and the associated asset retirement costs. The
statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002. SJW Corp. does not anticipate
that the adoption of SFAS No. 143 will have a material effect on SJW
Corp.'s financial condition and results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets". This statement
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and superceded SFAS No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed Of". SJW Corp. adopted SFAS No. 144 beginning January 1,
2002. The adoption of SFAS No. 144 did not have a material impact on
SJW Corp.'s financial condition and results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." Among other provisions, SFAS No. 145 rescinds
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt".
Accordingly, gains or losses from extinguishment of debt shall not be
reported as extraordinary items unless the extinguishment qualifies as
an extraordinary item under the criteria of APB No. 30. Gains or
losses from extinguishment of debt that do not meet the criteria of
APB No. 30 should be reclassified to income from continuing operations
in all prior periods presented. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002. SJW Corp. does not anticipate
that the adoption of SFAS No. 145 will have a material effect on SJW
Corp.'s financial condition and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of
the federal securities laws relating to future events and financial
performance of SJW Corp. and its subsidiaries. Such forward-looking
statements are identified by words including "expect", "estimate",
"anticipate" and similar expressions. SJW Corp.'s actual results
could differ materially from those discussed in such forward-looking
statements.
General:
- -------
SJW Corp. was incorporated in California on February 8, 1985. SJW
Corp. is a holding company with three subsidiaries.
San Jose Water Company, a wholly owned subsidiary, with headquarters
at 374 West Santa Clara Street, San Jose, California 95196, was
originally incorporated under the laws of the State of California in
1866. The company was later reorganized and reincorporated as the San
Jose Water Works. San Jose Water Works was reincorporated in 1985 as
San Jose Water Company, with SJW Corp. as the parent holding company.
San Jose Water Company is a public utility in the business of
providing water service to a population of approximately 1,000,000
people in an area comprising about 138 square miles in the
metropolitan San Jose area. San Jose Water Company's web site can be
accessed via the Internet at http://www.sjwater.com.
The principal business of San Jose Water Company consists of the
production, purchase, storage, purification, distribution and retail
sale of water. San Jose Water Company provides water service to
customers in portions of the cities of Cupertino and San Jose and in
the cities of Campbell, Monte Sereno, Saratoga and the Town of Los
Gatos, and adjacent unincorporated territory, all in the County of
Santa Clara in the State of California. It distributes water to
customers in accordance with accepted water utility methods, which
include pumping from storage and gravity feed from high elevation
reservoirs.
SJW Land Company, a wholly owned subsidiary, was incorporated in 1985.
SJW Land Company owns and operates parking facilities adjacent to the
company's headquarters and the San Jose Compaq Center. SJW Land
Company also owns commercial buildings and other undeveloped land in
the San Jose Metropolitan area, and a 70% limited partnership interest
in 444 West Santa Clara Street, L.P.
Crystal Choice Water Service LLC, a 75% owned limited liability
subsidiary formed in January 2001, engages in the sale and rental of
water conditioning and purification equipment.
SJW Corp. also owns 1,099,952 shares of California Water Service
Group.
Critical Accounting Policies:
- -----------------------------
SJW Corp. has identified accounting policies below as the policies
critical to the business operations and the understanding of the
results of operations. The preparation of financial statements
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and revenues and expenses.
SJW Corp. bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances. The impact and any associated risks related to these
policies on our business operations is discussed throughout
Management's Discussion and Analysis of Financial Condition and
Results of Operations where such policies affect our reported and
expected financial results. Our critical accounting policies are as
follows:
Recognition of balancing account
The California Public Utilities Commission (CPUC) establishes a
balancing account mechanism within its regulatory regime. A separate
balancing account must be maintained for each offset expense item
(e.g. purchased water, purchased power and pump tax). The purpose of
a balancing account is to track the under-collection or over-
collection associated with expense changes and the revenue authorized
by the CPUC to offset those expense changes. Since balances are being
tracked and have to be approved by the CPUC before they can be
incorporated into rates, SJW Corp. has not recognized the balancing
account in its consolidated financial statements. Had the balancing
account under-collection been recognized in San Jose Water Company's
financial statements, San Jose Water Company's earnings would be
increased by the amount of balancing account revenue under-collected.
At June 30, 2002, the Balancing Account had a net under-collected
balance of $452,000.
Accrued unbilled revenue
San Jose Water Company reads its customer meters on a bi-monthly basis
and records its revenue based on its meter reading results. Revenues
from the meter-reading date to the end of the accounting period are
estimated based on historical usage patterns, production records, and
the effective tariff rates. The estimate of the unbilled revenue is a
management estimate utilizing certain sets of assumptions and
conditions which include the number of days between meter reads for
each billing cycle, the customers' consumption due to changes in
weather, and the company's experiences in unaccounted-for water.
Actual results could differ from those estimates, which would result
in operating revenue being adjusted in the period that the revision to
our estimates is determined.
Recognition of regulatory assets and liabilities
Generally accepted accounting principles for water utilities includes
the recognition of regulatory assets and liabilities as permitted by
SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation". In accordance with SFAS No. 71, SJW Corp. records
deferred costs and credits on the balance sheet as regulatory assets
and liabilities when it is probable that these costs and credits will
be recovered in the ratemaking process in a period different from when
the costs and credits were incurred. Accounting for such costs and
credits is based on management's judgments that it is probable that
these costs will be recoverable in the future revenue of the
corporation through the ratemaking process. The regulatory assets and
liabilities recorded by SJW Corp. primarily relate to the recognition
of deferred income taxes for ratemaking versus tax accounting
purposes. The disallowance of any asset in future ratemaking
purposes, including the deferred regulatory assets would require SJW
Corp. to immediately recognize the impact of the costs for financial
reporting purposes.
Liquidity and Capital Resources:
- -------------------------------
The water utility business is highly seasonal in nature. Customer
consumption demand during the summer months could significantly exceed
those of the winter months. Operating revenue, correspondingly
accounts receivable and unbilled revenue, increase as customer
consumption increases during the summer months. The higher Accounts
Receivable balance as of June 30, 2002 in comparison to December 31,
2001 represents a natural business cycle and not a credit risk on the
liquidity of the corporation. Historically, San Jose Water Company's
write-offs for uncollectible accounts represented less than 1% of its
total revenue.
Accounts payable and current liabilities increase during the summer
months due to increased water production volume to meet higher
customer demand and timing of payment of certain expenses. Please
refer to "Sources of Capital" for further discussion.
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. San Jose Water Company
expects to incur approximately $130,000,000 exclusive of customer
contributions and advances, in capital expenditures over the next five
years. The company's actual capital expenditures may vary from its
projection due to changes in the expected demand for services, weather
patterns, and actions by governmental agencies and general economic
conditions. Total additions to utility plant normally exceed company-
financed additions by several million dollars because certain new
facilities are constructed using advances from developers and
contributions in aid of construction.
Most of San Jose Water Company's distribution system has been
constructed over the last 40 years. Expenditure levels for renewal
and modernization of this part of the system will grow at an
increasing rate as these components reach the end of their useful
lives. Additionally, in most cases, replacement cost will
significantly exceed the original installation cost of the retired
assets due to increases in the costs of goods and services.
In 2002, SJW Corp. expects to invest $550,000 in Crystal Choice Water
Service LLC for its 75% share of capital investment. The capital is
invested primarily in rental equipment used by the company in its
rental operation. As of June 30, 2002, $237,000 has been funded.
Sources of Capital
- ------------------
San Jose Water Company's ability to finance future construction
programs and sustain dividend payments depends on its ability to
attract external financing and maintain or increase internally
generated funds. The level of future earnings and the related cash
flow from operations is dependent, in large part, upon the timing and
outcome of regulatory proceedings.
San Jose Water Company has outstanding $110,000,000 of unsecured
senior notes as of June 30, 2002. The senior note agreements of San
Jose Water Company generally have terms and conditions that restrict
the company from issuing additional funded debt if (1) the funded debt
would exceed 66-2/3% of total capitalization, and (2) net income
available for interest charges for the trailing twelve calendar month
period would be less than 175% of interest charges.
San Jose Water Company's financing activity is designed to achieve a
capital structure consistent with regulatory guidelines of
approximately 50% debt and 50% equity. As of June 30, 2002, San Jose
Water Company's funded debt is 46.7% of total capitalization and the
net income for preceding twelve months is 453% of interest charges.
SJW Corp. and its subsidiaries have unsecured lines of credit
available allowing aggregate short-term borrowings of up to
$30,000,000 at rates that approximate the bank's prime or reference
rate. At June 30, 2002, SJW Corp. and its subsidiaries had available
unused short-term bank lines of credit of $21,350,000. Cost of
borrowing averaged 3.5% for the first six months of 2002.
Results of Operations:
- ---------------------
Overview
SJW Corp.'s consolidated net income for the second quarter of 2002 was
$3,991,000, a decrease of $179,000 or 4% from $4,170,000 in the second
quarter of 2001. Six months earnings was $5,740,000, an increase of
$892,000 or 18% from $4,848,000 for the same period in 2001.
Operating Revenue
- -----------------
Consolidated Operating Three months ended Six months ended
Revenue (in thousands) June 30 June 30
2002 2001 2002 2001
- ---------------------- ------------------- --------------------
San Jose Water Company $38,042 $35,930 $65,060 $59,587
SJW Land Company 476 383 1,020 940
Crystal Choice
Water Service 178 51 334 82
-------- -------- ------- -------
$38,696 $36,364 $66,414 $60,609
======== ======== ======= =======
Quarterly operating revenue was $38,696,000, or 6% increase over the
$36,364,000 for the same quarter in 2001 due to two rate increases
during the period from July 2001 through January 2002, partially
offset by a slight decrease in consumption. The change in
consolidated operating revenue from the same period in 2001 was due to
the following factors:
Three months ended Six months ended
Consolidated Operating June 30 2002 vs. 2001 June 30 2002 vs. 2001
Revenue (in thousands) Increase/(decrease) Increase/(decrease)
- ---------------------- --------------------- ---------------------
Utility:
Consumption decreases $ (835) (2%) $(1,034) (2%)
New customers increase 6 - - -
Rate increases 2,941 8% 6,507 11%
Parking and rental 93 - 80 -
Crystal Choice Water Service 127 - 252 -
------------- --------------
$2,332 6% $ 5,805 9%
============= ==============
Operating Expenses
- ------------------
Consolidated Operating Expense
Excluding Income Taxes Three months ended Six months ended
(in thousands) June 30 June 30
2002 2001 2002 2001
- ------------------------------------------------ -----------------
San Jose Water Company $29,787 $27,940 $52,446 $48,192
SJW Land Company 180 127 354 299
Crystal Choice Water Service 262 255 544 387
SJW Corp 108 155 237 1,306
------- ------- ------- -------
$30,337 $28,477 $53,581 $50,184
======= ======= ======= =======
The change in consolidated operating expense, excluding income taxes,
from the same period in 2001 was due to the following:
Consolidated Operating Three months ended Six months ended
Expense Excluding Income June 30 2002 vs. 2001 June 30 2002 vs. 2001
Taxes (in thousands) Increase/(decrease) Increase/(decrease)
- ------------------------ --------------------- ---------------------
Production costs:
Reduced/(increased) surface
water supply $ (128) - $ 167 1%
Decrease in usage and
new customers (718) (3%) (895) (2%)
Pump tax and purchased
water price increase 907 3% 1,492 3%
Energy price increase 207 1% 721 1%
----- ---- ----- ----
Total production costs 268 1% 1,485 3%
Other operating expense 1,270 4% 914 2%
Maintenance 163 1% 587 1%
Property taxes and other
nonincome taxes (27) - 17 -
Depreciation and amortization 186 1% 394 1%
------------ -------------
$1,860 7% $3,397 7%
============ =============
For the three and six months ended June 30, 2002, the increase in
production costs was primarily due to an increase in Santa Clara
Valley Water District (SCVWD) water production rates (pump tax and
purchased water) in July 2001 and energy costs increase in April 2001,
partially offset by lower production demand. San Jose Water Company's
water supply is obtained from wells, surface run-off and diversion and
by purchases from the SCVWD. Surface water supply is the least
expensive source of water and the availability of a slightly higher
surface water supply reduced water production costs in the second
quarter of 2002. In contrast, reduced surface water supply for the
six month period ended June 30, 2002 in comparison to the same period
in 2001 resulted in an increase in water production costs. Additional
energy costs were also incurred due to the scheduled maintenance of a
SCVWD treatment plant that altered the company's distribution mix and
optimal pumping pattern in the first and second quarters of 2002.
The change in San Jose Water Company's source of supply mix was as
follows:
Three months ended Six months ended
2002 vs. 2001 2002 vs. 2001
Increase/(decrease) Increase/(decrease)
-------------------- -------------------
(Million gallons)
Purchased water 442 3% 47 -
Ground water (1,336) (9%) (837) (3%)
Surface water 101 1% (150) (1%)
Reclaimed water (15) - (15) -
---------------- ----------------
(808) (5%) (955) (4%)
================ ================
The changes in the source of supply mix were consistent with the
changes in the water production costs.
The increase in other operating expenses excluding income taxes and
production costs for the second quarter of 2002 in comparison to the
second quarter of 2001, was due to increases in pension cost accruals
as a result of a decline in market value of retirement trust assets,
depreciation expense on added utility plant, higher maintenance costs
for paving and contract services, increase in medical and workers'
compensation insurance costs, and an increase in salaries and wages in
accordance with bargaining unit wage escalation and additional new
hires after the termination of the proposed merger of SJW Corp. with
American Water Works Company, Inc. (American Water) on March 1, 2001.
Increases in operating expense for the six months ended June 30, 2002
in comparison to the same period was partially offset by the lower
administrative costs incurred in the first quarter of 2002. In the
first quarter of 2001, approximately $900,000 of administrative and
compensation costs were incurred in conjunction with the above-
mentioned merger.
Income tax expense increased $467,000, or 22%, in comparison to the
second quarter of 2001 due to higher earnings in 2002 and the tax
benefits associated with certain merger related expenses in 2001. The
effective income tax rates for the second quarter of 2002 and 2001
approximated 40% and 34%, respectively.
Interest expense increased $181,000, or 9%, due to issuance of Series
F senior notes in September 2001.
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. Average usage per metered
customer for the second quarter and six months of 2002 decreased 2%
from the same period in 2001.
Other comprehensive loss of $260,000 and $357,000 for the three and
six months ended June 30, 2002 was due to the unrealized decline in
the market value of the investment in California Water Service Group.
Water Supply & Energy Resources
- -------------------------------
Groundwater in 2002 remained at an average level. On July 16, 2002,
the SCVWD's 10 reservoirs were 44.3% full with 74,992 acre-feet of
water in storage. The rainfall in the winter of 2002 was slightly
below average. SJW Corp. believes that its various sources of water
supply are sufficient to meet customer demand for the remainder of the
year. Surface water is a less costly source of water and its
availability significantly impacts the results of operations.
The pumps and motors at San Jose Water Company's groundwater
production facilities are propelled by electrical power. Over the
last few years, San Jose Water Company has installed standby power
generators at eighteen of its strategic water production sites. In
addition, the commercial office and operations control centers are
equipped with standby generators that allow critical distribution and
customer service operations to continue during a power outage. The
SCVWD informed San Jose Water Company that its filter plants, which
deliver imported water to the San Jose Water Company, are also
equipped with standby generators. In the event of a power outage, San
Jose Water Company believes it will be able to prevent an interruption
of service to customers for a limited period through pumping water
with its standby generators and through the imported water from SCVWD.
San Jose Water Company withdrew from the energy provider's real-time
pricing (RTP) program effective May, 2002. Benefits associated with
pricing electricity on an hourly basis were no longer available in the
energy shortage environment in California. Utilizing its advanced
computer system, San Jose Water Company continues to pump efficiently
during on-peak, partial-peak and off-peak hours. However, with the
loss of the once less expensive RTP pricing schedule and the change in
pumping mix due to the scheduled maintenance of the SCVWD treatment
plant, San Jose Water Company faces substantial price pressures in
containing its power costs.
Security Issues
- ---------------
San Jose Water Company has begun the implementation of a comprehensive
security upgrade program for production and storage facilities, pump
stations and company buildings. San Jose Water Company also
coordinates security and planning information with SCVWD and various
governmental and law enforcement agencies.
San Jose Water Company is in the process of conducting a system-wide
vulnerability assessment in compliance with federal regulations
imposed on all water utilities. This assessment is required to be
completed by March 31, 2003. San Jose Water Company has also actively
participated in the security vulnerability assessment training offered
by the American Water Works Association Research Foundation and the
Environmental Protection Agency.
The federal government provides grants to private and public water
utility systems for conducting the vulnerability assessment. San Jose
Water Company will actively participate in the process to obtain
reimbursement of the associated costs in conducting the study.
Regulatory Affairs
- ------------------
Principally all the operating revenue of San Jose Water Company
results from the sale of water at rates authorized by the CPUC. The
CPUC sets rates that are intended to provide revenue sufficient to
recover operating expenses and produce a reasonable return on common
equity. The company's most recent rate decision, approved in April
2001, authorized it to earn a return on common equity of 9.95% in
2001, 2002 and 2003, which is within the range of recent rates of
return authorized by the CPUC for water utilities. San Jose Water
Company received a 3% step rate increase on January 1, 2002, and a 1%
offset rate increase on July 1, 2002 for the SCVWD's purchased water
and pump tax rate increase effective July 1, 2002.
Pursuant to Section 792.5 of the California Public Utilities Code, a
balancing account is to be kept for all expense items for which
revenue offsets have been authorized. A separate balancing account
must be maintained for each offset expense item (e.g., purchased
water, purchased power and pump tax). The purpose of a balancing
account is to track the under-collection or over-collection associated
with expense changes and the revenue authorized by the CPUC to offset
those expense changes. At June 30, 2002, the balancing account had a
net under-collected balance of $452,000.
On November 29, 2001, the CPUC issued Resolution W-4294 (Resolution)
implementing significant changes in the long established offset rate
increase and balancing account procedures of water utilities, which
could have a significant impact on the risk profile of the industry.
Specifically, the Resolution provides that (1) the CPUC will open an
Order Instituting Rulemaking (OIR) to evaluate existing balancing
account and offset rate practices and policies, (2) all water
companies with existing balancing accounts shall, effective as of the
date of the Resolution, suspend such balancing accounts pending the
outcome of the OIR, and (3) water utilities can request future offset
rate increases provided they pass a pro-forma summary of earnings
test. It is uncertain how the future CPUC regulation will affect San
Jose Water Company's ability to continue to collect the Balancing
Account under-collection and to receive future offset rate relief.
To the extent that San Jose Water Company has to pump water during
peak periods to satisfy customer demand when imported water is not
available, higher energy cost will be incurred. Currently, the CPUC
has no established procedure for water utilities to recover additional
costs incurred due to such unanticipated changes in supply mix.
Moreover, due to the experimental nature of the RTP schedule, energy
price increases resulting from the discontinued participation in the
RTP program are not recoverable through the balancing account under
the existing balancing account procedure.
PART II. OTHER INFORMATION
--------------------------
Item 5. OTHER INFORMATION
-----------------
On July 18, 2002, the Board of Directors declared the regular
quarterly dividend of $.69 per common share. The dividend will be
paid September 1, 2002 to shareholders of record as of the close of
business on August 1, 2002.
The Board of Directors also announced that Mr. J. W. Weinhardt
has resigned as a director from the Board. Mr. Weinhardt resigned as
Chairman of the Board on April 18, 2002 after completing almost forty
years of service with the corporation and its subsidiaries. The seat
vacated by Mr. Weinhardt will not be filled in the immediate future.
On May 15, 2002, the Board of Directors elected Mr. Drew Gibson
to be its new Chairman. Mr. Gibson has served as a director of SJW
Corp. and its subsidiaries San Jose Water Company and SJW Land Company
since 1986 and is currently a member of the Executive, Audit and
Executive Compensation Committees.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a.) Exhibits required to be filed by Item 601 of Regulation
S-K.
See Exhibit Index on Page 19 of this document which is
incorporated herein by reference as required to be filed by
Item 601 of Regulation S-K for the quarter ended June 30,
2002.
(b.) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended June 30, 2002.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
SJW Corp. is subject to market risks in the normal course of business,
including changes in interest rates and equity prices. The exposure
to changes in interest rates is a result of financings through the
issuance of fixed-rate, long-term debt and short-term funds obtained
through the variable rate line of credit. SJW Corp. also owns
1,099,952 shares of California Water Service Group and is exposed to
the risk of changes in equity prices.
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.
By /s/ Angela Yip
-----------------
Angela Yip
Chief Financial Officer
and Treasurer
Date: August 12, 2002 By /s/ W. Richard Roth
----------------------
W. Richard Roth
President
and Chief Executive Officer
EXHIBIT INDEX
-------------
Located in
Exhibit Sequentially
No. Description Numbered Copy
- ------------- ------------ -------------
10.17 SJW Corp. Long-Term Incentive Plan, adopted
by SJW Corp. Board of Directors March 6, 2002. 23-34
10.18 Seventh Amendment to San Jose Water Company's
Executive Supplemental Retirement Plan,
adopted by San Jose Water Company Board of
Director's. 35
99.1 Certification by President and Chief Executive 36
Officer.
99.2 Certification by Chief Financial Officer and 37
Treasurer.
Exhibit 10.17
SJW CORP.
LONG-TERM INCENTIVE PLAN
Adopted by the Board of Directors: March 6, 2002
Approved by the Shareholders: April 18, 2002
Termination Date: April 17, 2012
I. PURPOSE
The objectives of the Long-Term Incentive Plan (the "Plan") are to
promote the success of SJW Corp. (the "Company") and its Affiliates
by:
(a) linking incentive opportunities to the performance of the
Company and its Affiliates in meeting shareholder and customer goals;
(b) supporting the planning and goal setting process; and
(c) offering compensation opportunities that will assist the
Company and its Affiliates in recruiting and retaining top executives
from both within and outside of the water utility industries.
II. DEFINITIONS
(a) "Affiliate" means:
(i) a member of a controlled group of corporations of which
the Company is a member or;
(ii) any corporation, or unincorporated trade or business in
which the Company has an ownership interest of more at least 25% of
the equity value of the entity and which the Board has designated as
an Affiliate for purposes of the Plan.
For purposes hereof, a "controlled group of corporations" shall
mean a controlled group of corporations as defined in Section 1563(a)
of the Code determined without regard to Section 1563(a)(4) and
(e)(3)(C) of the Code.
(b) "Award" means the grant of an Incentive Stock Option,
Nonstatutory Stock Option, Dividend Unit, Performance Share, right to
acquire Restricted Stock, or stock bonus pursuant to the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Chief Executive Officer" means the chief executive officer
of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" means a committee appointed by the Board to
administer the Plan as provided in Section 3(a).
(g) "Common Stock" means the common stock of the Company.
(h) "Company" means SJW Corp., a California corporation, its
successors and assigns.
(i) "Disability" means the permanent and total disability of an
individual as determined pursuant to Section 22(e)(3) of the Code.
(j) "Dividend Unit" means a right to receive, in accordance with
the provisions of the Plan, a payment equal to the dividends that are
paid on a share of Common Stock for a stated period of time.
(k) "Employee" means any individual who is employed by the
Company or an Affiliate which has adopted the Plan for its Employees.
For purposes of this Plan, mere service as a member of the Board (or
as a member of the board of directors of an Affiliate) or payment of a
director's fee by the Company or an Affiliate shall not be sufficient
to constitute "employment" by the Company or an Affiliate.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means the value of the Common Stock on
the American Stock Exchange as of the close of the trading day.
(n) "Fiscal Year" means the calendar year.
(o) "Incentive Stock Option" means any Option granted pursuant to
the provisions of the Plan that is intended to be and is specifically
designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(p) "Nonstatutory Stock Option" means any Option granted pursuant
to the provisions of the Plan that is not intended to qualify as an
"incentive stock option" under Section 422 of the Code.
(q) "Normal Retirement" means termination of employment with the
Company or an Affiliate with an immediate pension benefit being paid
by the Company or an Affiliate.
(r) "Option" means an Incentive Stock Option or Nonstatutory
Stock Option granted pursuant to Section 6(a) of the Plan. "Option
Agreement" means the agreement between the Company and the Optionee
that contains the terms and conditions pertaining to an Option.
(s) "Optionee" means an Employee who has received a grant of an
Option pursuant to the provisions of the Plan.
(t) "Participant" means an Employee of the Company or an
Affiliate, selected by the Committee to participate in the Plan.
(u) "Performance Share" means a share of Common Stock granted to
a Participant, the vesting of which is subject to performance
conditions established by the Committee.
(v) "Plan" means this Long-Term Incentive Plan.
(w) "Plan Year" means the calendar year.
(x) "Restricted Stock" means shares of Common Stock granted
pursuant to Section 6(d) of the Plan. "Restricted Stock Award" means
an Award granted pursuant to the provisions of Section 6(d) of the
Plan. "Restricted Stock Agreement" means the agreement between the
Company and the recipient of Restricted Stock that contains the terms,
conditions and restrictions pertaining to such Restricted Stock.
(y) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor to Rule 16b-3, as in effect from time to time.
(z) "San Jose Water Company" means San Jose Water Company, a
California corporation and a wholly-owned subsidiary of the Company.
(aa) "Ten Percent Shareholder" means a person who owns or is
deemed to own pursuant to Section 424(d) of the Code stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of its Affiliates.
III. ADMINISTRATION
(a) The Plan shall be administered by the Committee, subject to
such requirements for review and approval by the Board, as the Board
may establish. In all areas not specifically reserved by the Board
for its review and approval, decisions of the Committee concerning the
Plan shall be binding on the Company and all Participants. The
Committee shall consist of not less than a sufficient number of "non-
employee directors" so as to qualify the Committee to administer the
Plan as contemplated by Rule 16b-3. The Board may from time to time
remove members from, or add members to, the Committee. Vacancies on
the Committee, however caused, shall be filled by the Board. The
Board shall appoint one of the members of the Committee as Chairman.
The term "non-employee director" shall be interpreted pursuant to Rule
16b-3. The Compensation Committee of the Board shall serve as the
Committee. The Board may at any time replace the Compensation
Committee with another Committee. In the event that the Compensation
Committee shall cease to satisfy the requirements of Rule 16b-3, the
Board shall appoint another Committee that shall satisfy such
requirements. If any member of the Committee does not qualify as an
"outside director" for purposes of Section 162(m) of the Code, Awards
under the Plan for the Chief Executive Officer and the four (4) most
highly compensated officers of the Company (other than the Chief
Executive Officer) shall be administered by a subcommittee of the
Board consisting of each Committee member who qualifies as an "outside
director." If fewer than two (2) Committee members qualify as
"outside directors," the Board shall appoint one (1) or more other
members to such subcommittee who do qualify as "outside directors" so
that it shall at all times consist of at least two (2) members who
qualify as "outside directors" for purposes of Section 162(m) of the
Code.
(b) The Committee shall have the power and authority to adopt,
amend, and rescind administrative guidelines, rules and regulations
pertaining to the Plan, to accept, modify or reject recommendations of
the Chief Executive Officer, to set final Awards and to interpret and
rule on any questions pertaining to any provision of the Plan.
IV. ELIGIBILITY AND LIMITATIONS ON AWARDS TO INDIVIDUALS
(a) Officers of the Company and its Affiliates and other key
Employees who are recommended annually by the Chief Executive Officer
and who are approved by the Committee, will be eligible for Awards
granted under the terms of the Plan. The fact that an individual
receives one Award under the Plan does not confer on such individual
the right to receive additional Awards under the Plan. Neither the
Plan nor any Award granted pursuant to the Plan shall be deemed to
confer upon any Participant any right to continue as an Employee. The
Company and its Affiliates reserve the right to terminate the
employment of any Employee at any time and for any reason or for no
reason.
(b) No member of the Board (or member of the board of directors
of an Affiliate) who is not also an Employee shall be eligible for any
Award pursuant to the Plan.
(c) No Participant shall receive Awards covering an aggregate of
more than one hundred thousand (100,000) shares of Common Stock in any
calendar year.
V. INCENTIVE AWARDS
(a) The Committee shall designate those individuals who shall
become Participants and shall designate the award level for each Plan
Participant.
(b) The Committee shall designate the manner in which each
Participant's Award shall be allocated among Options, Dividend Units,
Performance Shares, rights to acquire Restricted Stock, and stock
bonuses and the specific terms of the Participant's Award not
specified under the Plan.
(c) The Committee may condition the grant of Awards under the Plan
upon the attainment of specified performance goals such as earnings
per share, total shareholder return or return on capital employed.
VI. TYPES OF AWARDS
The following types of Awards may be granted under the terms of
the Plan: Options (including Incentive Stock Options and Nonstatutory
Stock Options), Performance Shares, Dividend Units, rights to acquire
Restricted Stock, and stock bonuses. The Committee, in its sole
discretion, shall determine the types of Awards that shall be granted
to each Participant under the Plan.
Options, Dividend Units, Performance Shares, rights to acquire
Restricted Stock, and stock bonuses granted to a Participant shall be
communicated to the Participant at the time of grant. The actual
number of Performance Shares earned shall be communicated to the
Participant as soon as practicable after the end of a performance
period.
Subject to the provisions of the Plan, the Committee shall
determine the key Employees to whom, and the time or times at which,
Awards shall be granted or awarded; the number of shares subject to
each Option or each right to acquire Restricted Stock or each stock
bonus; the applicable vesting schedule for each Award; Dividend Units
or Performance Shares to be subject to each Award; duration of each
Award; the time or times within which Options may be exercised; the
performance targets required to earn Performance Shares; the duration
of the Dividend Units; and the other terms and conditions of Awards,
pursuant to the terms of the Plan. The provisions and conditions of
Awards need not be the same with respect to each Employee or with
respect to each Award.
(a) Options. The Committee may grant Incentive Stock Options or
Nonstatutory Stock Options to a Participant. The terms of Options
granted pursuant to the Plan shall be set forth in an Option
Agreement. Options granted pursuant to the Plan shall be subject to
the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the express provisions of
the Plan or with applicable law, as the Committee in its sole
discretion shall deem desirable.
(i) The price per share of an Incentive Stock Option or of a
Nonstatutory Stock Option shall not be less than the Fair Market Value
of the Common Stock on the date of the grant. The price per share of
an Incentive Stock Option granted to a Ten Percent Shareholder shall
not be less than one hundred ten percent (110%) of the Fair Market
Value of the Common Stock on the date of grant.
(ii) Options may be exercised with cash, stock, or a
combination of cash and stock, provided that if shares acquired
pursuant to the exercise of an Option are used, such shares shall be
held by the Participant for a period of at least six (6) months before
their tender to exercise additional Option shares. In accordance with
the rules and procedures established by the Committee for this
purpose, the Option may also be exercised through a "cashless
exercise" procedure approved by the Committee involving a broker or
dealer approved by the Committee, that affords Participants the
opportunity to sell immediately some or all of the shares underlying
the exercised portion of the Option in order to generate sufficient
cash to pay the Option exercise price and/or to satisfy withholding
tax obligations related to the Option exercise.
(iii) No Option shall be for a term of more than ten (10)
years from the date of the grant. No Incentive Stock Option granted
to a Ten Percent Shareholder shall be for a term of more than five (5)
years from the date of grant.
(iv) In the case of Normal Retirement, death or Disability, a
Participant or his or her beneficiary shall have a period equal to the
remaining term of the Option or five (5) years, whichever is shorter,
to exercise any outstanding Options. Notwithstanding the foregoing,
in the case of an Incentive Stock Option, the Code requires that at
all times beginning on the date of grant of an Incentive Stock Option
and ending on the date three (3) months before the exercise of such
Incentive Stock Option, the Optionee must be an employee of the
Company or an Affiliate, except in the case of the Optionee's death or
Disability. An Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Nonstatutory Stock
Option three (3) months after the termination of the Optionee's
employment with the Company and its Affiliates due to Normal
Retirement. An Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Nonstatutory Stock
Option one (1) year after termination of the Optionee's employment
with the Company due to Disability.
(v) If employment is terminated for any reason other than
Normal Retirement, death or Disability, any outstanding Options shall
expire thirty (30) days after the Participant's termination date or at
the end of the term of the Option, whichever is shorter.
(vi) During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee and shall not be assignable or
transferable. In the event of the Optionee's death, no Option shall
be transferable otherwise than by will or by the laws of descent and
distribution.
(b) Dividend Units. The Committee may grant Dividend Units to a
Participant in the Plan. Dividend Units may be granted alone or in
tandem with Options, Performance Shares, or rights to acquire
Restricted Stock.
(i) The amount payable to a Participant in respect to a
Dividend Unit shall be equal to the aggregate dividends payable on a
share of Common Stock during the term of the Dividend Unit. A
Participant shall be deemed to have held a Dividend Unit from the date
of the Award.
(ii) The term of a Dividend Unit shall be established by the
Committee at the time of the Award and specified in the related grant
letter to the Participant.
(iii) The amount payable to a Participant in respect of a
Dividend Unit shall be paid by the Company to a Participant at the end
of the term of the Dividend Units.
(iv) If a Participant terminates employment with the Company
or an Affiliate due to Normal Retirement, death or Disability, the
Participant shall receive the current value of the Participant's
Dividend Units.
(v) If a Participant terminates employment with the Company
or an Affiliate for a reason other than Normal Retirement, death or
Disability, the Committee shall, in its sole discretion, determine
whether the Participant shall receive the current value of the
Participant's Dividend Units.
(c) Performance Shares. The Committee may grant Performance
Shares to Participants in the Plan.
(i) At the time of the grant, the Committee shall determine:
(A) the performance period;
(B) the performance goal or goals to be achieved for
Awards to be payable.
(ii) At the end of the performance period, the Committee
shall determine the level of performance versus the goal, and the
portion of the Performance Shares, if any, which shall be payable to
the Participants.
(iii) Shares earned shall be paid as soon as practicable
following the end of the performance period.
(iv) Awards may be paid in cash or Common Stock, or any
combination of cash or Common Stock in the sole discretion of the
Committee.
(d) Rights to Acquire Restricted Stock. Each Restricted Stock
Agreement shall be in the form and shall contain such terms and
conditions as the Committee shall deem appropriate. The terms and
conditions of the Restricted Stock Agreements may change from time to
time, and the terms and conditions of separate Restricted Stock
Agreements need not be identical. Each Restricted Stock Agreement
shall include (through incorporation by reference in the Restricted
Stock Agreement of the provisions of the Plan or otherwise) the
substance of each of the following provisions. Subject to the
provisions of the Plan, the Committee shall have complete authority in
its sole discretion to determine the persons to whom, and the time or
times at which, grants of Restricted Stock shall be made, the number
of shares of Restricted Stock to be awarded, the price (if any) to be
paid by the recipient of the Restricted Stock, the time or times
within which such Awards may be subject to forfeiture, and all other
terms and conditions of the Awards. The Committee may condition the
grant of a Restricted Stock Award upon the performance of specified
performance goals (such as earnings per share, total shareholder
return on capital) or other such factors as the Committee may
determine, in its sole discretion.
(i) The purchase price (if any) of Restricted Stock Awards
shall be not less than the amount required to be received by the
Company in order to assure compliance with applicable state laws.
(ii) The purchase price (if any) of Restricted Stock shall be
paid either in cash at the time of purchase or in any form of legal
consideration that may be acceptable to the Committee.
(iii) Shares of Restricted Stock acquired under a Restricted
Stock Agreement may, but need not, be subject to share repurchase
option in favor of the Company in accordance with a vesting schedule
to be determined by the Committee.
(iv) In the event a Participant's employment with the Company
or an Affiliate terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of Restricted Stock held by the
Participant which have not vested as of the date of termination under
the terms of the Restricted Stock Agreement.
(v) Rights to acquire shares of Restricted Stock shall be
transferable by the Participant only upon such terms and conditions as
set forth in the Restricted Stock Agreement, as the Committee shall
determine in its discretion, so long as Common Stock awarded under the
Restricted Stock Agreement remains subject to the terms of the
Restricted Stock Agreement.
(e) Stock Bonus Awards. Each stock bonus agreement shall be in
such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of stock bonus
agreements may change from time to time, and the terms and conditions
of separate stock bonus agreements need not be identical, but each
stock bonus agreement shall include (through incorporation hereof by
reference in the agreement or otherwise) the substance of each of the
following provisions.
(i) Consideration. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an
Affiliate for its benefit.
(ii) Vesting. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iii) Termination of Employment. In the event a Participant's
employment with the Company or an Affiliate terminates, the Company
may reacquire any or all of the shares of Common Stock granted to the
Participant pursuant to the stock bonus agreement which have not yet
vested as of the date of the termination of employment under the terms
of the stock bonus agreement.
(iv) Transferability. Rights to acquire shares of Common
Stock under the stock bonus agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in
the stock bonus agreement, as the Board shall determine in its
discretion, as long as Common Stock awarded under the stock bonus
agreement remains subject to the terms of the stock bonus agreement.
VII. SHARES RESERVED
(a) The total number of shares of Common Stock that may be issued
or transferred under the Plan pursuant to Awards may not exceed three
hundred thousand (300,000) shares (subject to adjustment as described
in Section 9 below).
(b) If any Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full,
the shares of Common Stock not acquired under such Award shall revert
to and again become available for issuance under the Plan.
(c) Common Stock may be issued from authorized but unissued
shares or out of shares held in the Company's treasury, or both.
VIII. MISCELLANEOUS
(a) Incentive Stock Option $100,000 Limitation. To the extent
that the aggregate Fair Market Value (determined at the time of grant)
of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee in any calendar year
(under all plans of the Company and its Affiliates) exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they were
granted) shall be treated as Nonstatutory Stock Options.
(b) Withholding.
(i) To the extent required by applicable federal, state,
local or foreign law, the recipient of any payment or distribution
under the Plan shall make arrangements satisfactory to the Company for
the satisfaction of any tax withholding obligations that may arise by
reason of such payment or distribution. The Company shall not be
required to make such payment or distribution until such obligations
are satisfied. The Company shall have the right to withhold from any
compensation paid to the Participant.
(ii) The Committee, in its sole discretion, may permit a
Participant to satisfy all or part of the Participant's tax
withholding obligations incident to an Option, Performance Unit or
Restricted Stock by having the Company withhold a portion of the
shares that would be otherwise issued to the Participant. Such shares
shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash. The payment of withholding taxes
by surrendering shares to the Company, if permitted by the Committee,
shall be subject to such restrictions as the Committee may impose,
including any restrictions required by the rules of the Securities and
Exchange Commission.
IX. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) In the event of a stock split, stock dividend, or other
subdivision or combination of the Common Stock, the number of shares
of Common Stock authorized under the Plan and the share limitations on
Awards to individuals shall be adjusted proportionately. Similarly,
in any event aforementioned, there will be a proportionate adjustment
in the number and exercise price (if applicable) of shares of Common
Stock subject to unexercised Options, Performance Shares, Dividend
Units, rights to acquire Restricted Stock, and stock bonuses.
(b) In the event of a Change in Control (as defined below), the
vesting of all Awards under the Plan (and, if applicable, the time at
which such Awards may be exercised by or paid to the Participant)
shall be accelerated in full to a date prior to the consummation of
such Change in Control as the Board shall determine (or if the Board
fails to determine such a date, to a date that is five (5) days prior
to the consummation of the Change in Control) and the Award shall
terminate if not exercised (if applicable) prior to the date of the
Change in Control. For purposes of this Plan, Change in Control shall
be deemed to take place on the occurrence of any of the following
events: (i) a merger or consolidation of the Company or San Jose
Water Company, in which the Company or San Jose Water Company is not
the surviving organization and a majority of the capital stock of the
surviving organization is owned by persons who were not shareholders
of the Company or San Jose Water Company immediately prior to such
merger or consolidation; (ii) a transfer of all or substantially all
of the assets of the Company or San Jose Water Company, (other than a
transfer to the Company and/or its Affiliates); (iii) any other
corporate reorganization in which there is a change in ownership of
the outstanding shares of the Company or San Jose Water Company
wherein thirty percent (30%) or more of the outstanding shares are
transferred to any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act); or (iv) the election to the Board
of candidates who were not recommended for election by members of the
Board in office immediately prior to the election, if such candidates
constitute a majority of those elected in that particular election.
X. AMENDMENT OF THE PLAN
(a) The Board may, at any time, and from time to time, amend the
Plan. However, no amendment shall be effective unless approved by the
shareholders of the Company to the extent shareholder approval is
necessary to satisfy the requirements of Section 422 of the Code.
(b) The Board may, in it sole discretion, submit any other
amendments to the Plan for shareholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and regulations thereunder
regarding the exclusion of performance-based compensation from the
limit on corporate deductibility of compensation paid to certain
executive officers.
(c) Rights under any Award granted before amendment of the Plan
shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the Participant and (ii) the
Participant consents in writing.
XI. TERMINATION OR SUSPENSION OF THE PLAN
The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the date the Plan is adopted by the Board
or approved by the shareholders of the Company, whichever is earlier.
No Awards may be granted under the Plan when the Plan is suspended or
after the Plan is terminated.
XII. EFFECTIVE DATE OF PLAN
The Plan shall become effective as determined by the Board, but
not Stock Award shall be exercised (or, in the case of a stock bonus,)
shall be granted) unless and until the Plan has been approved by the
shareholders of the Company, which approval shall be within twelve
(12) months before or after the date the Plan is adopted by the Board.
XIII. CHOICE OF LAW
The law of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Plan,
without regard to such state's conflict of laws rules.
Exhibit 10.18
SEVENTH AMENDMENT
TO THE
SAN JOSE WATER COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
Dated July 18, 2002
The San Jose Water Company Executive Supplemental Retirement Plan
is hereby amended effective July 18, 2002 to read as follows:
FIRST: Effective July 18, 2002, Section 3.1 is amended to
read as follows:
"3.1(g) In addition to the benefit provided for in Section
3.1(a) and Section 3.1(b), Jay W. Weinhardt shall receive $225,000
upon his retirement. The benefit under this subsection will fully
vest upon his retirement and will be paid pro rata on a monthly basis
over a thirty-six (36) month period. Upon vesting, payment of the
benefit will commence August 1, 2002 and conclude July 31, 2005."
SECOND: Except as provided herein, the San Jose Water
Company Executive Supplemental Retirement Plan shall continue in full
force and effect.
IN WITNESS WHEREOF, San Jose Water Company has caused its
authorized officers to affix the corporate name and seal hereto this
_______ day of _____________, 2002.
SAN JOSE WATER COMPANY
BY:_____________________________________
TITLE:__________________________________
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SJW Corp. (the "Company")
on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"),
I, W. Richard Roth, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge and belief:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report for the quarter
ended June 30, 2002 fairly presents, in all material respects, the
financial condition and results of operations of the Company in
accordance with such requirements.
/s/ W. Richard Roth
W. Richard Roth
President and Chief Executive Officer
August 12, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of SJW, Corp. (the "Company")
on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"),
I, Angela Yip, Chief Financial Officer and Treasurer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge and belief:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report for the quarter
ended June 30, 2002 fairly presents, in all material respects, the
financial condition and results of operations of the Company in
accordance with such requirements.
/s/ Angela Yip
Angela Yip
Chief Financial Officer and Treasurer
August 12, 2002
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