UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003
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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 (I.R.S 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
--- ---
Indicate by check mark whether the registrant is an accelerated
filer (as defined by Rule 12b-2 of the Exchange Act). Yes X No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS:
Common shares outstanding 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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002
--------------------------------------
OPERATING REVENUE $49,334 46,153 $115,093 112,567
OPERATING EXPENSE:
Operation:
Purchased water 13,371 12,868 28,291 29,174
Power 2,147 2,308 4,260 5,496
Pump taxes 7,498 6,691 13,767 15,405
Other 7,194 6,603 21,215 18,821
Maintenance 2,069 1,836 5,745 5,811
Property taxes and other
nonincome taxes 1,313 1,015 3,804 3,192
Depreciation and
amortization 3,831 3,504 11,396 10,507
Income taxes 4,024 3,931 8,496 7,672
--------------------------------------
Total operating expense $41,447 38,756 $96,974 96,078
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OPERATING INCOME 7,887 7,397 18,119 16,489
Gain on sale of nonutility
Property, net of taxes - - 3,030 -
Interest on long-term debt (2,178) (1,953) (6,370) (6,113)
Dividends 309 308 928 924
Other, net (51) 24 (32) 216
--------------------------------------
NET INCOME $ 5,967 5,776 $15,675 11,516
======================================
Other comprehensive
income (loss):
Unrealized income (loss)
on investment (2,541) 363 2,376 (242)
Income taxes related to
other comprehensive
income (loss) 1,042 (149) (974) 99
--------------------------------------
Other comprehensive
income (loss), net (1,499) 214 1,402 (143)
--------------------------------------
COMPREHENSIVE INCOME $ 4,468 5,990 $17,077 11,373
======================================
Earnings per share
- Basic $ 1.96 1.90 $ 5.15 3.78
- Diluted $ 1.96 1.90 $ 5.14 3.78
Comprehensive income
per share
- Basic $ 1.47 1.97 $ 5.61 3.73
- Diluted $ 1.46 1.97 $ 5.60 3.73
Dividends per share 0.72 0.69 2.18 2.07
Weighted average shares
outstanding
- Basic 3,045,147 3,045,147 3,045,147 3,045,147
- Diluted 3,050,944 3,045,147 3,047,079 3,045,147
See accompanying Notes to Unaudited Condensed Consolidated
Financial Statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
SEPTEMBER 30 DECEMBER 31
ASSETS 2003 2002
- ---------------------------------------------------------------
UTILITY PLANT $570,822 $541,919
Less accumulated depreciation
and amortization 172,370 161,576
-----------------------
Net utility plant 398,452 380,343
NONUTILITY PROPERTY 27,461 12,083
Less accumulated depreciation 1,945 1,596
----------------------
Net nonutility property 25,516 10,487
CURRENT ASSETS:
Cash and equivalents 13,625 324
Accounts receivable and accrued
utility revenue 24,386 16,721
Prepaid expenses and other 2,080 1,654
----------------------
Total current assets 40,091 18,699
OTHER ASSETS:
Investment in California Water
Service Group 28,390 26,014
Investment in joint venture 1,165 1,144
Unamortized debt issuance and
reacquisition costs 3,487 3,493
Goodwill 1,744 1,744
Regulatory assets 7,002 6,013
Other 6,065 5,286
----------------------
Total other assets 47,853 43,694
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$511,912 $453,223
======================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock $ 9,516 $ 9,516
Additional paid-in capital 13,131 12,357
Retained earnings 137,272 128,242
Accumulated other comprehensive
income 4,786 3,384
----------------------
Shareholders' equity 164,705 153,499
Long-term debt 139,798 110,000
----------------------
Total capitalization 304,503 263,499
CURRENT LIABILITIES:
Line of credit - 11,450
Accrued pump taxes and
purchased water 6,791 3,144
Purchased power 1,567 1,219
Accounts payable 4,491 381
Accrued interest 2,205 3,244
Accrued taxes 3,956 634
Other current liabilities 4,972 3,528
----------------------
Total current liabilities 23,982 23,600
DEFERRED INCOME TAXES AND CREDITS 36,070 29,704
ADVANCES FOR AND CONTRIBUTIONS IN
AID OF CONSTRUCTION 135,985 126,714
OTHER NONCURRENT LIABILITIES 11,372 9,706
----------------------
$511,912 $453,223
======================
See accompanying Notes to Unaudited Condensed Consolidated
Financial Statements.
SJW CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED
SEPTEMBER 30
2003 2002
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OPERATING ACTIVITIES:
Net income $15,675 $11,516
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 11,396 10,507
Deferred income taxes and credits 4,262 320
Gain on sale of nonutility property, net
of taxes (3,030) -
Changes in operating assets and
liabilities:
Accounts receivable and accrued utility
revenue (7,665) (8,935)
Accounts payable, purchased power and
other current liabilities 5,858 6,706
Accrued pump taxes and purchased water 3,647 3,622
Accrued taxes 3,322 3,392
Accrued interest (1,039) (1,012)
Other noncurrent assets and noncurrent
liabilities 468 1,276
Other changes, net (794) (1,515)
-----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,100 25,877
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INVESTING ACTIVITIES:
Additions to utility plant (30,263) (33,299)
Additions to nonutility property (15,615) (335)
Cost to retire utility plant, net of
salvage (496) (672)
Proceeds from sale of nonutility property 5,370 -
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NET CASH USED IN INVESTING ACTIVITIES (41,004) (34,306)
-----------------
FINANCING ACTIVITIES:
Repayments for line of credit,
net of borrowings (11,450) (1,450)
Long-term borrowings, net of repayments 29,842 -
Dividends paid (6,645) (6,303)
Advances for and contributions in aid
of construction 11,733 12,987
Refunds of advances for construction (1,275) (1,188)
-----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,205 4,046
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NET CHANGE IN CASH AND EQUIVALENTS 13,301 $(4,383)
-----------------
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 324 5,021
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CASH AND EQUIVALENTS, END OF PERIOD $13,625 $ 638
-----------------
Cash paid during period for:
Interest $ 6,812 $ 6,754
Income taxes 1,558 4,700
See accompanying Notes to Unaudited Condensed Consolidated
Financial Statements.
SJW CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Note 1. General
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In the opinion of SJW Corp. (the Company), 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 in SJW Corp.'s
2002 Annual Report on Form 10-K should be read with the
accompanying condensed consolidated financial statements.
Water sales are seasonal in nature. The demand for water,
especially by residential customers, is generally influenced by
weather conditions. The timing of precipitation and climatic
conditions can cause seasonal water consumption by residential
customers to vary significantly. Due to the seasonal nature of
water business, the operating results for interim periods are
not indicative of the operating results for a twelve-month
period. Revenue is generally higher in the warm, dry summer
months when water usage and sales are greater and lower in the
winter when cooler temperatures and increased rainfall curtail
water usage and sales.
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 period. Diluted
earnings per share and comprehensive income per share are based
upon the weighted average number of common shares including both
shares outstanding and shares potentially issued in connection
with stock options and restricted common stock units granted
under SJW Corp. Long Term Incentive Plan, and income available
to common shareholders and comprehensive income, respectively,
adjusted for recognized stock compensation expense. For the
three and nine months ended September 30, 2003 and 2002, the
basic weighted average number of common shares was 3,045,147.
For the three and nine months ended September 30, 2003, the
diluted weighted average number of common shares outstanding was
3,050,944 and 3,047,079, respectively. There were no common
stock equivalents during the three and nine-month periods ended
September 30, 2002.
SJW Corp. and its subsidiaries operate predominantly in one
reportable business segment of providing water utility service
to its customers.
Note 2. Long-Term Incentive Plan and Stock-Based Compensation
- --------------------------------------------------------------
On April 29, 2003, SJW Corp. executed a technical amendment to
its Long-Term Incentive Plan (Incentive Plan) which was
originally adopted on April 18, 2002. Under the Incentive Plan,
300,000 common shares have been reserved for issuance. The
amended plan allows SJW Corp. to provide key employees,
including officers, and non-employee directors, the opportunity
to acquire a meaningful equity interest in the Company. 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 common shares. 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.
Awards in the form of stock option agreements under the
Incentive Plan allow executives to purchase common shares at a
specified price. Options are granted at an exercise price that
is not less than the per share market price on the date of
grant. The options vest at a 25% rate on their anniversary date
over their first four years and are exercisable over a ten-year
period. At September 30, 2003, 9,643 options were issued and
outstanding under the Incentive Plan at an exercise price of
$84.00, with a remaining life of 9.33 years, and the average
fair value of $16.00, at the date of grant.
SJW Corp. has adopted Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation", utilizing the Black-Scholes option-pricing model
to compute the fair value of options at the grant date as a
basis for determining stock-based compensation costs for
financial reporting purposes. The assumptions utilized include:
expected dividend yield - 3.4%, expected volatility - 27%, risk-
free interest rate - 2.86%, expected holding period - five
years.
For the three and nine months ended September 30, 2003, the
Company has recognized stock compensation expense, for the 9,643
options granted to its executives, of $10,000 and $16,000,
respectively.
As of September 30, 2003, 13,890 restricted stock units have
been granted to a key employee of the Company, which vest over a
period of three years. Following SFAS No. 123, the restricted
stock was valued at the market price of $84.00 per share at the
date of grant, which is being recognized as compensation
expenses over the vesting period. For the three and nine months
ended September 30, 2003, the Company has recognized stock
compensation expense of $117,000.
SJW Corp. has a Deferred Restricted Stock Program for non-
employee Board members whereby members can elect to receive
their existing and future cash pension benefit, and annual
retainer fees in restricted stock units under the program.
Directors who elect to participate in the program will receive
an annual grant of the right to receive Deferred Restricted
Stock in lieu of receiving a cash pension benefit, an amount
equivalent to the annual retainer fee, upon retirement. The
number of shares of each annual Deferred Restricted Stock award
will equal to the amount of the aggregate annual retainer, as of
the date of grant, divided by the fair market value of one share
of the Company's common share on the date of grant. Directors
can receive a maximum number of ten awards for ten full years of
service. With respect to the conversion of existing pension
benefits that were accrued before the grant date, the converted
shares are fully vested at all times. As of September 30, 2003,
18,508 shares have been granted to the directors under the
program at a market price of $85.20 per share. Of these shares
granted, 6,829 shares were fully vested at the time of grant and
the remaining 11,679 shares vest over a period of three years.
In accordance with SFAS No. 123, the Company has recognized
stock compensation expense of $104,000 for the three and nine
months ended September 30, 2003.
SJW Corp. also has a Dividend Equivalent Rights Agreement which
allows holders of options to receive dividend rights each time a
dividend is paid on common shares after the option grant date,
for a maximum period of four years. Dividend Equivalent Rights
for restricted stock units allow holders of restricted stock to
receive dividend rights, each time a dividend is paid on common
shares after the grant date, until the stock is issued to the
holder. The accumulated dividends of the holders will be used
to purchase stock units on behalf of the holders at the
beginning of the following year using the average fair market
value of common shares on each of the dividend dates in the
immediately preceding year. The dividend equivalent units shall
be vested in the same manner as the options and restricted
stock. For the three and nine months ended September 30, 2003,
the Company has recognized stock compensation expense for
dividend rights of $17,000 and $34,000, respectively.
Note 3. Sale of Nonutility Property
- ------------------------------------
On March 11, 2003, SJW Land Company sold San Tomas station, a
nonutility property, to Santa Clara Valley Water District
(SCVWD) for a contract price of $5,400,000. SJW Corp.
recognized a gain on sale of nonutility property of $3,030,000,
net of tax of $2,105,000 in connection with the sale. In April
2003, subsequent to the end of the first quarter, SJW Land
Company reinvested the property sale proceeds by acquiring two
income properties in the states of Connecticut and Florida, at a
total purchase price of $15,400,000. In connection with the
purchases, SJW Land Company executed mortgages in the amount of
$9,900,000. The mortgage loans are due in ten years with a
fixed interest rate of 5.96%.
Note 4. Impact of Recent Accounting Pronouncements
- ---------------------------------------------------
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of 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. adopted SFAS No. 143 in January 2003.
The adoption of SFAS No. 143 did not have a material impact on
SJW Corp.'s financial condition or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities". This
statement requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, a plant
closing, or other exit or disposal activities. The provisions
of this statement are effective for exit and disposal activities
that are initiated by a company after December 31, 2002. SJW
Corp. adopted SFAS No. 146 in January 2003. The adoption of
SFAS No. 146 did not have an impact on SJW Corp.'s financial
condition or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities".
This statement amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", for certain decisions made
by FASB as part of the Derivatives Implementation Group process.
This statement also amends SFAS No. 133 to incorporate
clarifications of the definition of a derivative. SJW Corp.
adopted SFAS No. 149 on July 1, 2003. The adoption of SFAS No.
149 did not have an impact SJW Corp.'s financial condition or
results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". This statement establishes standards
for how an entity classifies and measures in its statement of
financial position certain financial instruments with
characteristics of both liabilities and equity. SJW Corp.
adopted SFAS No. 150 on July 1, 2003. The adoption of SFAS No.
150 will not impact SJW Corp.'s financial condition or results
of operations.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities". This
interpretation provides guidance for determining when a primary
beneficiary should consolidate a variable interest entity or
equivalent structure, that functions to support the activities
of the primary beneficiary. The interpretation became effective
as of the beginning of the company's third quarter of 2003 for
variable interest entities created before February 1, 2003. The
adoption of this statement did not have a material impact on SJW
Corp.'s financial condition or 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 future results of SJW Corp. and its subsidiaries that are
based on current expectations, estimates, forecasts, and
projections about SJW Corp. and the industries in which SJW
Corp. operates and the beliefs and assumptions of the management
of SJW Corp. Such forward-looking statements are identified by
words including "expect", "estimate", "anticipate" and similar
expressions. These forward-looking statements are only
predictions and are subject to risks, uncertainties, and
assumptions that are difficult to predict. Therefore, actual
results may differ materially and adversely from those expressed
in any forward-looking statements. Important factors that could
cause or contribute to such differences include, but are not
limited to, those discussed in this report under the section
entitled "Factors that May Affect Future Results" and elsewhere,
and in other reports SJW Corp. files with the Securities and
Exchange Commission (SEC), specifically the most recent reports
on Form 10-K, Form 10-Q and Form 8-K, each as it may be amended
from time to time. SJW Corp. undertakes no obligation to update
the information contained in this report, including the forward-
looking statements, to reflect any event or circumstance that
may arise after the date of this report.
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 in San Jose,
California 95196, was originally incorporated under the laws of
the State of California in 1866. San Jose Water 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 one million 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. San
Jose Water Company also provides nonregulated water related
services under agreements with municipalities. These
nonregulated services include full water system operations,
billings and cash remittances.
SJW Land Company, a wholly owned subsidiary, was incorporated in
1985. SJW Land Company owns and operates parking facilities,
which are located adjacent to San Jose Water Company's
headquarters and the HP Pavilion in San Jose, California. SJW
Land Company also owns commercial buildings and other
undeveloped land primarily 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 71% majority-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 at the date of the financial statements, and
revenues and expenses during the reporting period. 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 the Company's business operations is discussed
throughout "Management's Discussion and Analysis of Financial
Condition and Results of Operations" where such policies affect
the Company's reported and expected financial results. The
Company's critical accounting policies are as follows:
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,
San Jose Water Company has not recognized the balancing account
in its financial statements. Had the balancing account under-
collection been recognized in San Jose Water Company's financial
statements, San Jose Water Company's retained earnings would be
increased by the amount of balancing account under-collection,
less applicable taxes. As of September 30, 2003 and December
31, 2002, San Jose Water Company has a balance of $456,000 and
$262,000, respectively, to be collected from its customers.
Accrued Unbilled Revenue
San Jose Water Company reads the majority of its customer's
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 is 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 changes, and
San Jose Water 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 the San Jose Water Company's estimates is
determined. As of September 30, 2003 and December 31, 2002,
accrued utility revenue was $13,700,000 and $6,605,000,
respectively. The higher accrued utility revenue at September
30, 2003 reflects the seasonality of the water utility business
such that customer consumption is at its peak during the summer
months.
Recognition of Regulatory Assets and Liabilities
Generally accepted accounting principles for water utilities
include 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, San Jose
Water Company 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
are recoverable in the future revenue of the San Jose Water
Company through the ratemaking process. The regulatory assets
and liabilities recorded by San Jose Water Company 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 San Jose Water Company to
immediately recognize the impact of the costs for financial
reporting purposes.
Income Taxes
SJW Corp. estimates its federal and state income taxes as part
of the process of preparing the financial statements. The
process involves estimating the actual current tax exposure
together with assessing temporary differences resulting from
different treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities,
which are included within the balance sheet. In the event that
actual results differ from these estimates, the provision for
income taxes could be materially impacted.
Pension Accounting
San Jose Water Company offers a defined benefit plan,
Supplemental Executive Retirement Plan and certain post-
retirement benefits other than pensions to employees retiring
with a minimum level of service. Accounting for pensions and
other post-retirement benefits requires an extensive use of
assumptions about the discount rate, expected return on plan
assets, the rate of future compensation increase received by the
employees, mortality, turnover, and medical costs.
San Jose Water Company, through its Retirement Plan
Administrative Committee managed by the representatives from the
unions and management establishes investment guidelines with
specification that at least 30% of the investments are in bonds
or cash. As of September 30, 2003, the plan assets consist of
approximately 30% bonds, 10% cash and 60% equities.
Furthermore, equities are to be diversified by industry groups
to balance for capital appreciation and income. In addition,
all investments are publicly traded. San Jose Water Company
uses an expected rate of return on plan assets of 8% in its
actuarial computation that is below the company's annualized
actual rate of return of 10.5% measured from 1984 through 2002.
The distributions of assets are conservative and are less
affected by market volatility. Furthermore, foreign assets are
not included in the investment profile and thus a risk related
to foreign exchange fluctuation is minimized.
The market values of the plan assets are marked to market at the
measurement date. The investment trust assets suffered
significant unrealized market losses in the last two years.
Significant unrealized market losses on pension assets are
amortized over 14 years for actuarial expense calculation
purposes.
The Company utilizes Moody's 'A' and 'Aa' rated bonds in
industrial, utility and financial sectors with outstanding
amount of $1 million or more in determining the discount rate
used in calculating the liabilities at the measurement date.
For the year ending December 31, 2002, the composite discount
rate used was 6.75%.
Stock-Based Compensation Plans
SJW Corp. has a stockholder-approved long-term incentive plan
that allows granting of nonqualified stock options, performance
shares and dividend units. Under the plan, a total of 300,000
common shares are authorized for option awards and grants. The
Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation",
utilizing the Black-Scholes option-pricing model to compute the
fair value of options at grant date as basis for the stock-based
compensation for financial reporting purposes. The weighted-
average assumptions utilized include: expected dividend yield -
3.4%, expected volatility - 27%, risk-free interest rate -
2.86%, expected holding period - five years.
The restricted stock units granted to a key employee of the
Company was valued at market price at the date of grant. The
Company is correspondingly recognizing the fair market value of
the restricted stock granted as compensation expense, over the
vesting period of three years.
Additionally, the restricted stock units granted to the non-
employee Board members from the conversion of cash pension
benefits were valued at market price at the date of grant. The
Company is corresponding recognizing the fair market value of
the unvested restricted stock granted as compensation expenses,
over the vesting period of three years.
Liquidity and Capital Resources:
- -------------------------------
San Jose Water Company's budgeted capital expenditures for 2003,
exclusive of capital expenditures financed by customer
contributions and advances, are $28,667,000 with capital
expenditures concentrated in main replacements of approximately
$13,000,000. For the three and nine months ended September 30,
2003, the company-financed additions were $5,636,000 and
$20,372,000, respectively.
A four-phased Infrastructure Study, which was started by San
Jose Water Company in 1997 with the purpose of establishing a
systematic approach to replace its utility facilities, was
completed by July 2002. The Infrastructure Study analyzed the
San Jose Water Company's pipes and mains and examined all other
utility facilities and will be used as a guide for future
capital improvement programs, and serve as the master plan for
the San Jose Water Company's replacement program for the next 20
years.
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 $155,000,000,
exclusive of customer contributions and advances, in capital
expenditures over the next five years. San Jose Water Company's
actual capital expenditures may vary from its projections 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.
A substantial portion of San Jose Water Company's distribution
system was constructed during the period from 1945 to 1980.
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. 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.
As of September 30, 2003, SJW Corp.'s share of capital
investment in Crystal Choice Water Service LLC approximated 71%.
SJW Corp. did not make any additional investment in Crystal
Choice Water Service LLC during the first nine months of 2003.
The water utility business is highly seasonal in nature.
Customer consumption demand during summer months could
significantly exceed that of winter months. Operating revenue,
accounts receivable and unbilled revenue increase as customer
consumption increases. Historically, San Jose Water Company's
write-offs for uncollectible accounts represent less than 1% of
its total revenue. Management believes it can continue to
collect its accounts receivable balances at its historical
collection rate.
Accounts payable and current liabilities increase during the
summer months due to increased water production volume to meet
higher customer demand and the timing of the payment of certain
expenses. Please refer to "Sources of Capital" for further
discussion.
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 $130,000,000 of unsecured
senior notes as of September 30, 2003. 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. As of September 30, 2003,
San Jose Water Company's funded debt was 49% of total
capitalization and the net income for preceding twelve months
was 401% of interest charges.
San Jose Water Company issued $20,000,000 of Senior Notes Series
G (Notes) on September 2, 2003. Proceeds from the sale of the
Notes were used to repay short-term borrowings and will be used
to fund construction expenditures.
In 2002, the Department of Water Resources approved San Jose
Water Company's application for an approximately $2,500,000 Safe
Drinking Water State Revolving Fund twenty-year loan at an
interest rate of approximately 2.39%. Funds in the above amount
will be received for the retrofit of San Jose Water Company's
water treatment plant. San Jose Water Company will request the
funding in 2003 as soon as all the loan documentation and
contract requirements are met.
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.
In March 2003, SJW Land Company sold nonutility property and
recognized a gain of $3,030,000, net of tax. Subsequent to the
end of the first quarter, SJW Land Company reinvested the
proceeds from the sale of nonutility property by acquiring two
properties in the states of Connecticut and Florida. In
connection with the acquisition, SJW Land Company executed
mortgages in the amount of $9,900,000 in April 2003. The
mortgage loans are due in ten years and amortize over twenty-
five years with a fixed interest rate of 5.96%.
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 September 30, 2003, SJW Corp. and its
subsidiaries had available unused short-term bank lines of
credit of $30,000,000. Cost of borrowing averaged 2.57% for the
first nine months of 2003. The line of credit expires on July
1, 2005.
Results of Operations
- ---------------------
Overview
- --------
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.
The average usage per metered customer in the third quarter of
2003 approximated that during the third quarter of 2002.
SJW Corp.'s consolidated net income for the third quarter ended
September 30, 2003 was $5,967,000, an increase of $191,000 or 3%
from $5,776,000 in the third quarter of 2002. Nine months
earnings was $15,675,000, an increase of $4,159,000 or 36% from
$11,516,000 for the same period in 2002. The nine months
earnings included a gain on sale of nonutility property of
$3,030,000, net of tax of $2,105,000, in net income from the
same period in 2002.
Operating Revenue
- -----------------
Consolidated Operating Revenue
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
---------------------------------------
(in thousands)
San Jose Water Company $48,466 $45,660 $112,532 $110,720
SJW Land Company 585 308 1,673 1,328
Crystal Choice Water
Service 283 185 888 519
----------------- ------------------
$49,334 $46,153 $115,093 $112,567
Consolidated operating revenue for the three months ended
September 30, 2003 increased by $3,181,000 or 7% from
$46,153,000 for the same period in 2002. The revenue increase
consists of $2,806,000 or 6% from San Jose Water Company, and
$375,000 or 1% from SJW Land and Crystal Choice Water Service.
The increase in revenue in San Jose Water Company was due to
cumulative rate increases of 8%.
For the nine months ended September 30, 2003, the increase of
$2,526,000 or 2% in consolidated operating revenue from the same
period in 2002, was primarily due to a 4% decrease in customer
consumption offset by rate increases during 2003.
The change in consolidated operating revenue was due to the
following factors:
Three months ended Nine months ended
September 30, September 30,
2003 vs. 2002 2003 vs. 2002
Increase/(decrease) Increase/(decrease)
------------------------------------------
Utility: (in thousands)
Consumption changes $ (181) - $(3,948) (3%)
New customers increase 88 - 258 -
Rate increases 2,899 6% 5,502 5%
Parking and rental 276 1% 344 -
Crystal Choice Water
Service 99 - 370 -
--------------- -----------------
$ 3,181 7% $ 2,526 2%
=============== =================
Operating Expenses, Excluding Income Taxes
- ------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
----------------------------------------
(in thousands)
San Jose Water Company $36,676 34,209 $86,296 86,654
SJW Land Company 229 147 619 501
Crystal Choice Water
Service 381 231 1,066 775
SJW Corp. 137 238 497 476
---------------- -----------------
$37,423 34,825 $88,478 88,406
================ =================
The change in consolidated operating expenses, excluding income
taxes, from the same period in 2002 was due to the following
factors:
Three months ended Nine months ended
September 30, September 30,
2003 vs. 2002 2003 vs. 2002
Increase/(decrease) Increase/(decrease)
-----------------------------------------
(in thousands)
Production costs:
Increased surface
water supply $ (505) (1%) $(3,023) (3%)
Decrease in usage
and new customers (249) (1%) (3,248) (4%)
Pump tax and purchased
water price increase 2,105 6% 2,846 3%
Energy price and usage (202) (1%) (332) -
-------------- --------------
Total production costs 1,149 3% (3,757) (4%)
Other operating expense 591 2% 2,394 3%
Maintenance 233 - (66) -
Property taxes and other
nonincome taxes 298 1% 612 -
Depreciation and
amortization 327 1% 889 1%
-------------- --------------
$ 2,598 7% $ 72 -
============== ==============
Total water production costs increased $1,149,000 for the third
quarter of 2003. The increase in water production costs was
primarily attributable to 10% rate increases or $2,105,000 in
the cost of purchased water and pump tax from Santa Clara Valley
Water District (SCVWD) in July 2003, which were partially offset
by the greater availability of the less costly surface water
supply and a slight decrease in customer consumption.
For the nine months ended September 30, 2003, the decrease of
$3,757,000 in total water production costs from the same period
in 2002 was primarily attributable to the greater availability
of the less costly surface water supply and a decrease in
customer consumption, partially offset by rate increases in the
cost of purchased water and pump tax from SCVWD.
San Jose Water Company's water supply is obtained from wells,
groundwater, watershed run-off and diversion, surface water and
by import water purchases from the SCVWD. Surface water supply
is the least expensive source of water and the availability of a
higher surface water supply reduced water production costs in
the third quarter of 2003 by approximately $505,000 and the
first nine months of 2003 by approximately $3,023,000.
The change in San Jose Water Company's source of supply mix was
as follows:
Three months ended Nine months ended
September 30, September 30,
2003 vs. 2002 2003 vs. 2002
Increase/(decrease) Increase/(decrease)
-----------------------------------------
(in million gallons)
Purchased water (559) (3%) (2,017) (5%)
Ground water 100 1% (2,483) (6%)
Surface water 392 2% 2,345 6%
Reclaimed water (8) - (40) -
--------------- --------------
(75) - (2,195) (5%)
=============== ==============
The changes in the source of supply mix were consistent with the
changes in the water production costs.
Consolidated operating expense in the third quarter of 2003,
excluding income taxes and production costs (such expense
includes non-production operation costs, maintenance, property
taxes and other nonincome taxes, and depreciation and
amortization), increased $1,449,000 or 11% compared to the same
period in 2002. The increases included $283,000 in pension
costs primarily as a result of the decline in the market value
of retirement trust assets, $255,000 in salaries and wages in
accordance with bargaining unit wage escalation and new hires,
$298,000 in property taxes and other nonincome taxes and
$235,000 in business and employee insurance costs. Depreciation
increased $327,000 due to higher investment in utility plants.
Income tax expense for the third quarter of 2003 was $4,024,000
compared to $3,931,000 for the same period in 2002, representing
an increase of $93,000 due to higher earnings in 2003. The
effective income tax rates for the third quarter of 2003 and
2002 approximated 40% and 41%, respectively.
Other income for the nine-month period ended September 30, 2003
includes an after-tax gain of $3,030,000 on the sale of a
nonutility property. In April 2003, SJW Corp. reinvested the
sale proceeds in two income properties in the states of
Connecticut and Florida. Please refer to Note 3. "Sale of
Nonutility Property" under "Notes to Unaudited Condensed
Consolidated Financial Statements" in Item 1. "Financial
Statements".
The decrease in other income and expense of $299,000 for the
third quarter of 2003 from the same period in 2002, was a result
of higher interest expenses due to higher average borrowing and
the issuance of Series G senior notes.
The changes in the comprehensive income and comprehensive loss
for the three and nine months ended September 30, 2003 and 2002
were due to the changes in market value of investment in
California Water Service Group.
Factors That May Affect Future Results
- --------------------------------------
Pension and Insurance
- ---------------------
In 2003, pension accruals increased $1,113,000 on an annual
basis primarily due to the decline in valuation of the
retirement plan portfolio in 2002. Market conditions, not
changes in operating risk or loss experience, were the sole
reason for the Company's average liability and workman's
compensation insurance cost increase of 23% in the third quarter
of 2003 after adjustments in self-insured retentions. Pension
and insurance expenses are expected to continue to negatively
impact the financial condition and results of operations.
Nonregulated Operations
- -----------------------
In January 2002, SJW Land Company entered into an Agreement for
Possession and Use (Agreement) with Valley Transportation Agency
(VTA) whereby SJW Land Company has granted VTA an irrevocable
right to possession and use of 1.23 acres of the company's
parking lot property for the development of a light rail
station. VTA has adopted a resolution authorizing a
condemnation proceeding to acquire the land and has deposited
$3.7 million in an escrow account as fair market compensation.
SJW Land Company waived the right to challenge VTA's possession
and use in any subsequent eminent domain proceeding but reserved
the right to assert, and has disputed the fair market value
placed on the land. According to the terms of the Agreement, if
a settlement is not reached within three months of the execution
of the Agreement, VTA can file an eminent domain complaint to
acquire title to the parking lot property. On April 11, 2003,
VTA filed the eminent domain lawsuit. As a part of the
proceedings, VTA has transferred funds from the escrow account
into court deposit to secure its ongoing right of possession for
construction of the light rail station pending final litigation.
Compensation for the taking of property will be determined by
the court or by way of settlement between SJW Land Company and
VTA. This transaction will be recorded and it is expected to
result in an increase to net income when the compensation issue
is settled or a final court order is rendered.
Water Supply and Energy Resources
- ---------------------------------
San Jose Water Company's water supply is obtained from wells,
groundwater, watershed run-off and diversion, surface water and
by import water purchases from the SCVWD under the terms of a
master contract with SCVWD expiring in 2051. Groundwater level
in 2003 was well above the 30-year normal aquifer storage point.
On October 16, 2003, the SCVWD's ten reservoirs were 40% full
with 68,000 acre-feet of water in storage. The rainfall in the
winter of 2003 was about average.
On September 30, 2003, local surface water in San Jose Water
Company's impoundments was at 40% of capacity. Local surface
water is a less costly source of water and its availability
significantly impacts the results of operations.
Based on information provided by SCVWD in its Water Utility
Enterprise Report, San Jose Water Company believes that its
various sources of water supply are sufficient to meet customer
demand for the remainder of the year.
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 costs will be incurred.
Currently, the CPUC has no established procedure for water
utilities to recover the additional costs incurred due to such
unanticipated changes in water supply mix. There can be no
assurance that such costs will be recovered in full or in part.
Security Issues
- ---------------
San Jose Water Company has taken steps to increase security at
its water utility facilities and continue to implement a
comprehensive security upgrade program for production and
storage facilities, booster pump stations and company buildings.
San Jose Water Company also coordinates security and planning
information with eight other large regional water utilities
within the San Francisco Bay area, as well as various
governmental and law enforcement agencies.
San Jose Water Company conducted a system-wide vulnerability
assessment in compliance with federal regulations Public Law
107-188 imposed on all water utilities. The assessment report
was filed with the government on March 31, 2003. The
vulnerability assessment identified system security enhancements
that impact water quality, health, safety and continuity of
service totaling approximately $2,300,000, exclusive of the
years 2001 to 2002 expenditures. These improvements shall be
incorporated into the capital budgets to be completed by 2005.
For the nine months ended September 30, 2003 and the twelve
months ended December 31, 2002, $335,000 and $479,000,
respectively, were spent on capital projects to improve and
enhance security. Approximately $265,000 will be spent in the
remaining three months in 2003. Once completed, San Jose Water
Company believes it will have substantially reduced its
vulnerability to terrorists' attack. San Jose Water Company
actively participated in the security vulnerability assessment
training offered by the American Water Works Association
Research Foundation and the Environmental Protection Agency.
San Jose Water Company has revised its Emergency Response Plans
(ERP) and met the September 30, 2003 deadline set forth by the
legislation.
Regulatory Affairs
- ------------------
Rates and Regulations
Almost 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. San Jose Water Company's
most recent rate decision, approved in April 2001, authorized a
return on common equity in 2001, 2002 and 2003 of 9.95%. This
is within the range of recent rates of return authorized by the
CPUC for water utilities. San Jose Water Company received step
rate increases in January totaling about 3% to recover projected
operating cost increase for 2003. San Jose Water Company also
received offset rate increases in March and July 2003 totaling
about $6,000,000 or 4% to recover the increased costs associated
with the transfer of the maintenance responsibility for
approximately 12,000 fire hydrants from the City of San Jose to
San Jose Water Company, as well as the increased cost of
purchased water and higher pump tax charged to San Jose Water
Company by the Santa Clara Valley Water District.
On May 23, 2003, San Jose Water Company filed a General Rate
Case application with the CPUC to increase rates by $25,793,000
or 18.2% in 2004, $5,434,000 or 3.2% in 2005, and $5,210,000 or
3.0% in 2006. San Jose Water Company is seeking these proposed
increases to cover higher costs of providing water service,
including higher costs of power, purchased water, pump tax,
labor, security, water quality testing and reporting, and to
allow for necessary improvements to the water system. San Jose
Water Company is also requesting rate recovery of the current
balance of $71,000 in its Water Contamination Memorandum
Account, as well as recovery of an under-collection of $382,000
accrued in its pre-November 29, 2001 Balancing Account.
Finally, San Jose Water Company is requesting a rate of return
on equity of 11.5% for the years 2004 through 2006. A CPUC
decision on the application is expected in early 2004.
On September 30, 2002, Governor Davis signed the interim rate
bill (AB 2838), sponsored by the California water utility
industry, into law. The bill allows for the implementation of
interim water rates in general rate cases when the CPUC fails to
establish new rates in accordance with the established rate case
schedule. The interim rates would be based on a water company's
existing rates increased for the amount of inflation since the
last approved rate adjustment. The bill also allows for revenue
true-up from the time of the implementation of the interim rates
to the time of the CPUC's ultimate decision in the rate case.
In principal, this mechanism is designed to eliminate the
adverse financial impact on water utilities caused by regulatory
delays in general rate cases. The bill went into effect on
January 1, 2003.
Balancing Account Recovery Procedures
On November 29, 2001, the CPUC issued Resolution W-4294
(Resolution) implementing significant changes in the long-
established offset rate increase and balancing account recovery
procedures applicable to water utilities. As required by the
Resolution, in December 2001 the CPUC opened an Order
Instituting Rulemaking (OIR) to evaluate existing balancing
account and offset rate practices and policies. On December 17,
2002, the CPUC issued an interim OIR decision authorizing water
utilities to recover the balancing account balances accrued
prior to November 29, 2001 if the utility is not over-earning as
measured on a pro-forma basis. San Jose Water Company has
accrued an under-collection of $382,000 in its balancing account
prior to November 29, 2001. For the period from November 29,
2001 to September 30, 2003, San Jose Water Company has
accumulated an under-collection of $74,000. Therefore, the
balancing account has a net under-collected balance of $456,000.
On June 19, 2003 the CPUC issued its final OIR decision (D.03-
06-072) in which the CPUC revised the existing procedures for
recovery of under collections and over collections in balancing
accounts existing on or after November 29, 2001 as follows: (1)
If a utility is within its rate case cycle and is not over
earning, the utility shall recover its balancing account subject
to reasonableness review; and (2) If a utility is either within
or outside of its rate case cycle and is over earning, the
utility's recovery of expenses from the balancing accounts will
be reduced by the amount of the over earning, again subject to
reasonableness review. Utilities shall use the recorded rate of
return means test to evaluate earnings for all years. The CPUC
is currently in the process of scheduling workshops to determine
how these new requirements will ultimately be implemented.
As of September 30, 2003 San Jose Water Company has received all
its offset rate requests. Any future impact on San Jose Water
Company's ability to recover balancing account balances and
receive offset rate increases cannot be determined until San
Jose Water Company's next offset rate increase request scheduled
for July, 2004. The CPUC is currently in the process of
scheduling workshops to determine how these new requirements
will ultimately be implemented.
ITEM 3. 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 Company 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.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
(a) Evaluation of disclosure controls and procedures. The
Company's management, with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosures
controls and procedures as of the end of the period covered by
this report have been designed and are functioning effectively
to provide reasonable assurance that the information required to
be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
SEC's rules and forms. The Company believes that a control
system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are
met, and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if
any, within a company have been detected.
(b) Changes in Internal Controls over Financial Reporting.
No change in the Company's internal control over financial
reporting occurred during the Company's most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
In January 2002, SJW Land Company entered into an Agreement for
Possession and Use (Agreement) with Valley Transportation Agency
(VTA) whereby SJW Land Company has granted VTA an irrevocable
right to possession and use of 1.23 acres of the company's
parking lot property for the development of a light rail
station. VTA has adopted a resolution authorizing a
condemnation proceeding to acquire the land and has deposited
$3.7 million in an escrow account as fair market compensation.
SJW Land Company waived the right to challenge VTA's possession
and use in any subsequent eminent domain proceeding but reserved
the right to assert, and has disputed the fair market value
placed on the land. According to the terms of the Agreement, if
a settlement is not reached within three months of the execution
of the Agreement, VTA can file an eminent domain complaint to
acquire title to the parking lot property. On April 11, 2003,
VTA filed the eminent domain lawsuit. As a part of the
proceedings, VTA has transferred funds from the escrow account
into court deposit to secure its ongoing right of possession for
construction of the light rail station pending final litigation.
Compensation for the taking of property will be determined by
the court or by way of settlement between SJW Land Company and
VTA. This transaction will be recorded and it is expected to
result in an increase to net income when the compensation issue
is settled or a final court order is rendered.
SJW Corp. is also subject to ordinary routine litigation
incidental to its business. Other than as disclosed above,
there are no other pending legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of
its properties is the subject that are expected to have a
material effect on the Company's financial position, results of
operations or cashflows.
ITEM 5. OTHER INFORMATION
-----------------
On October 28, 2003, the Board of Directors of SJW Corp.
declared the regular quarterly dividend of $.7275 per common
share. The dividend will be paid December 1, 2003, to
shareholders of record as of the close of business on November
10, 2003.
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 located immediately following the
Certifications 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 September 30, 2003.
(b) Reports on Form 8-K
SJW Corp. filed a current report on Form 8-K with the Securities
and Exchange Commission on August 1, 2003 which announced the
financial results of SJW Corp. for the second quarter of 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SJW Corp.
Date: November 13, 2003 By /s/ ANGELA YIP
------------------------
ANGELA YIP
Chief Financial Officer &
Treasurer
EXHIBIT INDEX
Exhibit No. Description of Document
- ----------------------------------------------------------------
10.25 Form of Directors Deferred Restricted Stock Program as
adopted by SJW Corp. Board of Directors on July 29, 2003.
Filed as an Exhibit to 10-Q for the period ending
September 30, 2003. S.E.C. File No. 1-8966. (1)(2)
10.26 Form of Directors Annual Retainer Fee Deferred Election
Agreement, as adopted by SJW Corp. Board of Directors on
July 29, 2003. Filed as an Exhibit to 10-Q for the period
ending September 30, 2003. S.E.C. File No. 1-8966. (1)(2)
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a) by
President and Chief Executive Officer. (1)
31.2 Certification Pursuant to Rule 13a-14(a)/15d-14(a) by
Chief Financial Officer and Treasurer. (1)
32.1 Certification Pursuant to 18 U.S.C. Section 1350 by
President and Chief Executive Officer, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (1)
32.2 Certification Pursuant to 18 U.S.C. Section 1350 by
Chief Financial Officer and Treasurer, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (1)
(1) Filed currently herewith.
(2) Management contract or compensatory plan or agreement.